CONTENTS · TOPIC2: THE MANAGEMENT PROCESS ... LEARNING UNIT 8: Organising ... 17The section below...

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MNB1501/1/2018–2020

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IMPORTANT INFORMATION:

Please activate your myUnisa and myLife e-mail address and ensure that you have regular access to the myUnisa module site MNB1501/18/S1 OR MNB1501/18/S2, depending on which semester you are registered in, as well as your e-tutor group site.

3Note: This is an online module, therefore your module is available on myUnisa. However, in order to support you with your studies, you will also receive certain study material in printed format, including this study guide which you can consult when you are work-ing offl ine.

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CONTENTS page

PREFACE

1 INTRODUCTION........................................................................................................(v)

1.1 WELCOME .................................................................................................................................. (v)

1.2 PURPOSE OF THIS MODULE................................................................................................. (v)

1.3 LINK TO OTHER MODULES .................................................................................................. (vi)

1.4 OBJECTIVES AND COMPETENCIES.....................................................................................(vi)

1.4.1 Module objectives .....................................................................................................(vi)

1.4.2 Our assumptions .......................................................................................................(vi)

1.4.3 Framework of the module ................................................................................... (vii)

1.4.4 Composition of the study/learning package for the module .................. (vii)

1.5 COMPLETING ACTIVITIES, ASSESSMENT QUESTIONS AND ASSIGNMENTS ...... (vii)

1.5.1 Assessment questions ........................................................................................... (vii)

1.5.2 Assignments ............................................................................................................. (vii)

1.5.3 Assessment of the module ....................................................................................(xi)

1.6 HOW YOU WILL BENEFIT FROM THIS MODULE .......................................................... (xii)

1.7 WHAT YOU CAN EXPECT FROM UNISA .......................................................................... (xii)

1.8 HOW TO APPROACH MNB1501 ........................................................................................ (xiii)

1.9 CONCLUDING REMARKS ..................................................................................................... (xv)

TOPIC1: INTRODUCTION TO BUSINESS MANAGEMENT .................................................1

LEARNING UNIT 1: The business world and business management ................................................. 3

LEARNING UNIT 2: Entrepreneurship .........................................................................................................14

LEARNING UNIT 3: Establishing a business ..............................................................................................24

LEARNING UNIT 4: The business environment .......................................................................................33

LEARNING UNIT 5: Corporate and social responsibility .......................................................................45

TOPIC2: THE MANAGEMENT PROCESS .............................................................................63

LEARNING UNIT 6: Introduction to general management .................................................................65

LEARNING UNIT 7: Planning ..........................................................................................................................76

LEARNING UNIT 8: Organising ......................................................................................................................86

LEARNING UNIT 9: Leading ............................................................................................................................98

LEARNING UNIT 10: Controlling the management process .............................................................110

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MNB1501/1/2018–2020

PREFACE

1 INTRODUCTION

1.1 WELCOME

5Welcome to the module Business Management 1A (MNB1501). To make your studies easier and to help you share in our enthusiasm for this fi eld, we urge you to read this study guide (available on the module website for this module). You should also read through your Tutorial Letter 101. Refer back to these study materials as often as you need to throughout your studies.

6The fi eld of management is extremely dynamic and challenging, so we have inserted additional reading material and case studies, over and above the learning content in this study guide. This will provide you with opportunities to explore the latest developments in the fi eld of business management and will help you to discover management as it is practised today.

7Although you are studying on your own, please contact your e-tutor and/or your lecturer if you have any problems with this module. Our contact details are in Tutorial Letter 101 and you will receive information concerning your e-tutor later in the semester. We urge you to make use of the myUnisa student portal and participate in the discussion forums and online activities. We hope that you will enjoy this module.8

9IMPORTANT: 10Visit myUnisa regularly, as important information will be communicated to you via announce-ments throughout the semester. Certain sections or text in this study guide appear in light grey scales as they are presented in colour on myUnisa. Visit myUnisa for a comprehensive experience of the material.

1.2 PURPOSE OF THE MODULE

11The purpose of this module is to establish a foundation for the study of business manage-ment and to develop the learner’s understanding of the concept of strategic management and of the specifi c management tasks (planning, organising, leading and control). This will enable qualifying learners to develop basic business plans that refl ect an entrepreneurial approach to maximising the use of resources. These business plans are of the type that could be used to seek funding from fi nancing institutions.

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1.3 LINK TO OTHER MODULES

12This module does not stand alone; it is an integral part of the BCom degree in business management. Therefore, the purpose and the learning objectives of this module are aimed at developing your expertise and abilities in the fi eld of business management. This module in Business Management (MNB1501) will provide the foundation for the next module in management which is prescribed for the second semester, namely MNB1601 (Business Management 1B). You would normally continue your studies with the two strategic management modules in the third year (MNG3601 and MNG3602) if you want to specialise in management.

1.4 OBJECTIVES AND COMPETENCIES

1.4.1 Module objectives

13When you have worked through this module, you will be able to

- explain how business performance relates to strategic management - analyse a business case study and identify issues related to the managerial tasks

and skills - diff erentiate between entrepreneurial and non-entrepreneurial approaches to busi-

ness management - develop a basic business plan for a small to medium-sized enterprise

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1.4.2 Our assumptions

15The credit calculation is based on the assumption that students are already competent in terms of the following outcomes or areas of learning at NQF level 5 when starting to learn towards this unit standard:

- Learn from predominantly written material in the language of instruction. - Read, analyse and respond to a variety of texts. - With minimum guided support, take responsibility for their own progress and be

willing to take part in learning of a personal nature.16

17The section below provides a framework of this module and the topics that we will cover in MNB1501.

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1.4.3 Framework of the module

18The framework of this module is as follows:

TOPIC LEARNING UNIT

1 INTRODUCTION TO BUSINESS MANAGEMENT

1 The business world and business management2 Entrepreneurship3 Establishing a business4 The business environment5 Corporate social responsibility

2 THE MANAGEMENT PROCESS 6 Introduction to general management7 Planning8 Organising9 Leading 10 Controlling the management process

1.4.4 Composition of the study/learning package for the module

19The printed study package for this module consists of this study guide, and Tutorial Letter 301 and Tutorial Letter 101. You must purchase the prescribed book as soon as possible. The prescribed book is vital because you will not be able to complete this module success-fully without it. Please refer to the 101 letter for the prescribed and recommended books.

1.5 COMPLETING ACTIVITIES, ASSESSMENT QUESTIONS AND

ASSIGNMENTS

20The best way to work through the prescribed book is to study one topic at a time. That is why the assignment questions have been based on the diff erent topics of the tutorial matter.

1.5.1 Assessment questions

21At the end of each learning unit, you will fi nd a list of assessment questions based on the work covered in the learning unit. You will fi nd most of the answers to these questions in the study material covered in the study material and prescribed book. We advise you to complete these questions diligently in a workbook since they present opportunities to prepare you for possible examination questions.

1.5.2 Assignments

22By completing the assignments that appear in Tutorial Letter 101, you will develop a “feel” for the types of questions you can expect in the examination. The assignments as well as the examination comprise only multiple-choice questions. For every question there are four options numbered from 1 to 4, of which you must select only one. For example:

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24Which one of the following statements is correct?

251 Capitalism ensures a more even distribution of wealth.262 Socialism discourages private initiative.273 Communism ensures a better utilisation of resources.284 South Africa’s economic system tends towards socialism.29

30You cannot select more than one option. In other words, your answer will always be either option 1 or 2 or 3 or 4.

31Sometimes the question asks you to select the wrong statement. You should be extra careful when answering such questions and not get confused and mark a statement that is correct (and therefore not the answer that you are supposed to identify). Please look at the assignments in Tutorial Letter 101. You will fi nd the occasional question asking you to indicate which of the options is wrong.

32In some questions, however, there will be several statements that could be correct. In such cases the statements will always be indicated by letters (a, b, c and d) and the an-swer will still be either option 1, 2, 3 or 4, but these answers may refer to more than one statement. For example:

33Which of the following statements are correct?

34a A business owned and managed by one person may be a private company. 35b A partnership is usually limited to 20 partners.36c The owner of a sole proprietorship does not pay tax on his or her business’s profi ts.37d A public company may not off er its shares for sale on an open market.38

391 a b c d 402 a b d413 b c424 c d

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44This question asks you to indicate which of the statements are correct. If you therefore think that statements b and c are correct, you will mark only option 3 as the correct answer.

45In all of the above examples the stem of the question asks you to identify the correct statement(s). Sometimes the options are a continuation of the stem. For example:

46The economic principle ...

471 is an endeavour to achieve the maximum with the minimum.482 does not apply to government organisations because they do not strive for a profi t.493 is mainly an indication of how low the operating costs were.504 is always measured in terms of the business’s profi tability.51

52In a question such as the above, you have to read the stem plus option 1, then you have to read the stem again plus option 2, the stem plus option 3, and so on.

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53There is one other type of question that some of you may fi nd somewhat confusing. For example:

54Match the management level in the fi rst column with the corresponding organisational objec-tive in the second column:

55a top management i the mission of the organisation 56b middle management ii functional objectives57c lower management iii operational objectives58

591 a (i) b (ii) c (iii)602 a (i) b (iii) c (ii)613 a (ii) b (i) c (iii)624 a (iii) b (ii) c (i)63

64In this question you have to match the items in one column with the items in a second column. Let’s say that you think that top management (a) is involved in the formulation of the mission of the organisation (i), then you already know that your answer could be either option 1 or 2. By comparing the other options in the fi rst column with those in the second column, you should be able to choose between options 1 and 2.

65Answering a multiple-choice question

66Make a photocopy or record your answers on a separate page.

67You will fi nd the multiple-choice questions in the assignment extremely useful when you prepare for the examination. However, if you mark your answers (or the correct answers) on the actual page in Tutorial Letter 101, you will not be able to use these questions for revision. We strongly recommend that you either make a photocopy of the assignments and use that for revision, or else write down your answers on a separate sheet of paper to avoid making any marks on Tutorial Letter 101 itself. You will then be able to work through these questions again in preparation for the examination, without seeing the marks that indicate the correct answers. A workbook per module is a good method of preserving your thoughts and activities in a way that can be useful when you prepare for the exams.

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69Decide on each option independently.

70When answering a multiple-choice question, a good deal of time is often wasted (espe-cially in the examination) by reading all four options before deciding which is the correct one. The secret is to read and decide on each option separately. For example, look at the fi rst question above. The stem asks you to identify which statement is correct. Take a ruler and cover the other three statements so that you see only statement 1. Read it and then, without reading any other statement, decide whether the statement is correct, wrong or that you do not know. Put a tick next to it if you think it is correct; put a cross next to it if you think it is wrong; and put a “?” if you are not sure. Then move the ruler down so that you can read statement 2. Again decide and mark the category in which it falls.

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71When you have done that with every one of the four statements, you may fi nd that you have marked one statement correct and three statements wrong. That is then your an-swer. If you fi nd that you have marked two correct, then compare the two statements and choose the one that seems to be the most correct, or the most comprehensive.

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73Write down your reasoning.

74When you have selected your answer to a particular question, it is essential that you write down your reasons for doing so. For example, if you chose option 2 as the correct answer to the second question above, implying that statements a, b and d are correct, you should write on a separate sheet of paper why you think statements a, b and d are correct. Write down the actual reference in the prescribed book on which you base your reasoning. However, you must even go a step further. You must also write down why option c is wrong. Again make specifi c reference to the prescribed book to back up your reasoning.

75This step is probably the most important learning step that you can take. We want our students to understand the tutorial matter and to be able to explain the concepts and apply the principles. We are not interested in whether a student has memorised module content and can repeat it in an examination. That is why it is so important for you to be able to give a reason for your answer.

76It takes a few weeks from the time that you answer an assignment to the time that you get back the correct answers and explanations. By that time you will have forgotten why you chose a certain option in a particular question, unless you wrote down your reasons. The real learning takes place when you compare your reasoning with that of the lectur-ers. So do not take the easy way out by just answering the multiple-choice questions.

77The fl ow diagram below will help you to picture the process.

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1.5.3 Assessment of the module

79We will assess your progress during the semester (in your assignments) and in the ex-amination at the end of the semester against transparent assessment criteria that link directly to the objectives of the module. In Tutorial Letter 101 we provide further details of the assessment and examination requirements of this module.

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1.6 HOW YOU WILL BENEFIT FROM THIS MODULE

80To increase your likelihood of success, you should consider the following:

- Study the prescribed tutorial matter conscientiously according to the guidelines provided.

- Discuss the subject matter with colleagues, specialists and fellow students. - Attempt and complete the activities and assignments. - Apply your knowledge in practice. - Properly prepare for the examination.

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82The following steps should be followed in the study process:

831 Get an overview of the prescribed textbook as a whole. You should have completed this step already.

842 Get an overview of the chapters of the textbook. Draw a mind map of the chapters.853 Read the fi rst chapter and draw a mind map of the topics in the chapter.864 Study the fi rst section of the chapter. Write a summary in your own words.875 Read the corresponding learning unit. Amend your own summary, if necessary.886 Read the next section of the chapter. Repeat steps 4 to 6 until you have completed

the chapter.897 Tackle the next chapter and repeat steps 3 to 7 until you have completed all the

chapters.90

91If you have an academic problem, you are welcome to contact us.

1.7 WHAT YOU CAN EXPECT FROM UNISA

92You can expect us to do the following:

- We will provide you with up-to-date and relevant study material, which we regu-larly compare and benchmark against similar local and international programmes.

- We will keep the study material in line with the needs of industry and commerce by regularly consulting with the profession and with industry leaders and government offi cials.

- We will assist you by giving you the opportunity to develop competencies and skills at a certain level. The objectives correspond to the National Qualifi cations Framework (NQF) level 5. We will assess you by taking the level descriptors of the NQF into account.

- We will support you whenever you require academic assistance. You may contact your lecturers by making a personal appointment or by phone or via e-mail. We understand that studying through distance education is more challenging than at-tending a residential university.

- We will provide you with clear indications of what we expect from you in terms of your assessment.

- We will give you feedback on assignments.93

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94This is an online module and therefore your module is available on myUnisa. However, in order to support you in your learning process, you will also receive some study mate-rial in printed format. myUnisa is an online platform for you to reach other suggested sources, participate in online activities and communicate with other students, the lecturer and administrative departments at Unisa. You can also download your study materials, other resources and previous examination papers online. The printed materials that are provided to you are adequate to support your studies should you be unable to access the internet regularly.

95We urge all of you to access myUnisa. You can access the myUnisa web page with a com-puter or a smartphone that is linked to the internet. You can also make use of Unisa’s regional offi ces and access myUnisa from the computer labs there as well as from the telecentres which are listed in the Study @ Unisa brochure.

1.8 HOW TO APPROACH MNB1501

96If you are not sure where to begin or how to approach your studies in Business Manage-ment (MNB1501), this section was inserted especially for you.

97When you have listed the main topics as set out in the outcomes and layout, you should read the entire chapter just to get a feel of what it is all about. Do not worry too much at this stage if you do not understand every detail. The important thing here is to make a few notes of the key issues as you read. Then draw a diagram or simple mind map to visualise the key issues.

98You are now ready to start studying. Tackle one learning unit at a time. If there is some-thing that you do not understand, read it again and try to fi gure out what the author is saying. DO NOT SKIP ANY TUTORIAL MATTER THAT YOU DO NOT UNDERSTAND. Ask someone else to help you understand a sentence or paragraph, and if you really cannot fi gure it out, ask your fellow students on myUnisa or your e-tutor, or contact one of your lecturers at Unisa.

99One of the best ways to make sure that you understand the material is to make a summary in your own words – one learning unit at a time. A good summary length is about 5% of the original text, so that section 1.1 in the prescribed book should be summarised in approximately two written pages. The reason for summarising your tutorial matter stems from an adage (or saying): “A thought expressed is a thought impressed.” This means that the more you write down (in your own words) what the message of a particular learning unit is, the more it will be impressed or imprinted on your own mind.

100NB: The purpose of studying is to understand the concepts, not to memorise them.

101The primary purpose of the material on your module website and particularly in the learning units for this module is to provide you with guidelines to help you to understand some of the most important theoretical perspectives, general principles and contextual factors that underlie the nature and dynamics of business management. All of this is, however, done from a management perspective. You must therefore use learning units as a source of additional information and to help you work through the material contained

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in the prescribed book. You will fi nd that certain terms are repeatedly used to structure learning units and your thinking:

- A topic represents an important component of the module and tutorial matter. Each topic has one or more learning outcomes. These outcomes indicate the general standard or level of competence you should achieve in respect of each topic.

- A learning unit is an identifi able part of a topic. Each topic therefore consists of one or more learning units.

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103Very important for the purposes of your studies are the learning outcomes. For each topic, specifi c outcomes are set, WHICH YOU AS A STUDENT MUST ACHIEVE. These learning outcomes are linked to the assignments as well as the examination and are therefore the means by which you and your lecturers can evaluate the extent to which you have in fact mastered a specifi c topic (i.e. your knowledge and understanding of it).

104Certain icons are used throughout learning units:

105Icon 106Description

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Learning outcomes. The learning outcomes indicate what aspects of the particular topic or learning unit you have to understand. You should be able to demonstrate your understanding.

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Study. This icon indicates the relevant sections of the prescribed book or the study guide that you need to study and internalise.

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Key concepts. The key concepts indicate which terms or keywords are important for a particular learning unit.

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Read. This icon will direct you to read certain sections of the prescribed book for background information.

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Activity. This icon refers to activities that you must do to develop a deeper understanding of the learning material.

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Assessment. When you see this icon, you will be required to test your knowledge, understanding and application of the material you have just studied.

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Feedback. This icon indicates that you will receive feedback on your answers to the self-assessment activities.

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Website link. This icon indicates a website link that you can access for more information on the topic currently being discussed.

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YouTube video link. This icon indicates a link to a YouTube video that you can access for more information on the topic currently being discussed.

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126Did you know.

127...

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129IMPORTANT

130You should always consult your module learning units fi rst and then study the relevant sections in the prescribed book, as indicated in the learning units. The learning units:

- provide you with material that you have to study - indicate which parts of the prescribed tutorial matter you have to study - contain certain activities that will help you master the fi eld of study

1.9 CONCLUDING REMARKS

131You need to access myUnisa for any additional information and study material (for example online activities, self-assessments, material and – most importantly – announcements).

132We hope that you will enjoy your studies! We are looking forward to being your partners in this endeavour.

133Best wishes

134Your lecturers for MNB1501135Department of Business Management136Unisa

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137

TOPIC 1

INTRODUCTION TO BUSINESS

MANAGEMENT

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INTRODUCTION AND AIM OF THE TOPIC

138The aim is to provide an overview of the business world and business management, the role of entrepreneurship and its nature and role in society, how a business can be established and the business environment in which a business functions. Lastly we look at corporate social responsibility.

1Learning objectives

After completing this topic, you should be able to

demonstrate an understanding of the role of business in society and the position of busi-ness management in the business world

identify an entrepreneur and explain his or her role in society recognise how an organisation functions and how it is established explain the term “business environment”, examine its composition and investigate aspects

of environmental scanning explain what corporate social responsibility is and what it entails

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CONTENT

140Topic 1 comprises fi ve learning units:

TOPIC 1:

INTRODUCTION TO BUSINESS MANAGEMENT

LEARNING UNIT 1:

The business world and business management

LEARNING UNIT 2:

Entrepreneurship

LEARNING UNIT 3:

The establishment of a business

LEARNING UNIT 4:

The business environment

LEARNING UNIT 5:

Corporate social responsibility

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Learning Unit 1

The business world and business management

INTRODUCTION AND AIM OF THE UNIT

142This learning unit discusses the role of business in society and explains how a business organisation in a market economy employs the limited resources of a nation, its natural resources, human resources, fi nancial resources and entrepreneurship to satisfy the need for products and services. The learning unit gives an overview of the main prevailing economic systems in the world and explains how the business organisation functions in a market economy. Against this background, the purpose and nature of business management is examined: specifi cally the task of business management, namely studying the factors, methods and principles that enable a business to function as effi ciently as possible. A classifi cation of the study material on business management is also presented.

2STUDY CHAPTER 1 (sections 1.2–1.9) IN INTRODUCTION TO BUSINESS MANAGEMENT (ITBM)

Contents of the learning unit:

The role of business in society Needs and need satisfaction The main economic systems The need-satisfying institutions of the market economy The nature of business management and the classifi cation of the study material on busi-

ness management


When you have worked through learning unit 1, you should be able to

demonstrate an understanding of the role of business in society explain the needs of society and how need satisfaction occurs discuss the three main economic systems in the world explain the diff erences between need-satisfying institutions and non-profi t institutions explain the inherent nature of business management understand how the study material on business management is classifi ed

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KEY TERMS

communityneedseconomic systemssociety

developmentclassifi cationfree market

market economy

143Refer to the end of chapter 1 in the prescribed book to familiarise yourself with the key terms for this learning unit before continuing.

1.1 THE ROLE OF BUSINESS IN SOCIETY

Study section 1.2 in ITBM.

144The business activity generally involves the transformation of resources into goods and services to meet society’s needs. Business, however, cannot operate without society at large. It is important to understand how closely any business organisation is linked to the society in which it operates. The needs and values of a society have a strong infl uence on what a business does. For example, if the people in the society are very aware of the need for protecting the environment, they will soon bring pressure to bear (often through the news media) on any business that pollutes the environment with its waste materials.

145Not only should businesses be aware of their infl uence on the physical environment, but also of the eff ect their business activities have on consumers, the economy at large and competitors.

146Through the spheres of social responsibility, consumerism and the prevention of envi-ronmental damage, for example, a society can persuade an organisation not to pollute or damage the environment or fi x prices. Just as a society can infl uence its business organisations, so these organisations can have a signifi cant infl uence on the society. By developing new products, businesses can infl uence the behaviour patterns of people in a particular society. Just think of the impact that the electronics industry (with its pro-duction of cell phones and DVD recorders, for example) has had on the social life of our society. The success of businesses also has a major impact on the prosperity of a society. In a town such as Secunda, for example, Sasol employs many of the inhabitants. If Sasol were to go bankrupt, thousands of people would be left jobless and the entire town would be aff ected.

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Did you know?

South Africa’s steel industry was on the verge of collapse. Read the case study above section 1.2 in ITBM to begin forming an understanding of the eff ect of business sustainability on society.

Activity 1.1

In the past few years we have seen a number of newspaper articles with the following headlines:

• “Miners and their families without food in Stilfontein”• “New questions raised about the fiduciary responsibilities of directors of Saambou Bank”• “Jonathan Oppenheimer of De Beers announces a black economic empowerment

partner”• “Small landholders lodge claims against Mittal Steel for environmental damage”• “Consumer organization complaints about the high telecommunication prices”

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From the fi ve headlines above, identify what type of infl uence is being exerted by South African organisations on society.

6Feedback:

Contact your e-tutor via myUnisa for the answer to this activity.

1.2 NEEDS AND NEED SATISFACTION


149Human beings have many varied and seemingly unlimited needs. Society, however, has limited resources to satisfy those needs and so a choice has to be made how best to uti-lise those resources. Most of us would like to live in a mansion, drive a luxury car, own a seaside cottage, go on an overseas trip every year, wear the latest fashion clothes and so on, but very few people have enough money to aff ord all these products and services. Most of us have limited resources (money), so we have to decide how to utilise the little we do have to obtain the greatest satisfaction possible. The decision to obtain the great-est possible benefi t (or satisfaction) with the limited resources we have is known as the economic principle.

150Since the business world is geared towards satisfying needs in the society, it is important for management to know what those needs are. According to Maslow, all people have the same basic needs, but not everybody strives to satisfy the same needs. In countries with severe famine, for example, people will direct a great deal of their energy towards

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the satisfaction of physiological needs such as hunger and thirst. However, according to Maslow, once these needs are satisfi ed, people will strive to satisfy the next level of needs (i.e. security needs) and so on.

151In the business world, there are four types of resources available to manufacture goods or provide services. These resources are known as production factors and refer to all the resources used for producing goods or services. Whether a certain item is a production factor or an end product will depend on the use it is put to. For a truck manufactur-ing company, a truck is not a production factor – it is the end product. However, for a transport company, a truck is a production factor, since without it the company would not be able to provide the basic service of transporting goods. The fi gure below depicts the four production factors.

153Society is confronted with the fundamental economic problem of how to ensure the highest possible satisfaction of needs with the limited, scarce resources available. Within a community, needs satisfaction occurs within a cycle, as can be seen in fi gure 1.5 in your prescribed book. One of the elements within this cycle is the economic system determined by the community. We will have a look at the main economic systems in the next section.

154After reading this section and the discussion above, complete the activity that follows.

Activity 1.2

As the consumer, you are confronted with the following situations:

• Not having eaten lunch, you are quite hungry and thirsty.• You are scared to sleep at night after a neighbour was murdered.• You are worried about your continuing relationship with your partner, as he has indi-

cated that he wanted to move out of the flat that you share.• Your boss has screamed at you at work in the presence of fellow workers.• You want to enrol for further studies in the field of management in order to further

yourself in life.

Use Maslow’s hierarchy of needs to classify the above situations.

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Feedback:

Contact your e-tutor via myUnisa for the answers to this activity.

1.3 THE MAIN ECONOMIC SYSTEMS


155

156The world is divided into three basic economic systems: the free-market economy, social-ism and the command economy. Socialism is in the middle, between the two extremes. The following fi gure puts this position into perspective:

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158Free-market economy 159Socialism 160Command economy

161At the one end of the spectrum we have the free-market economy, also referred to as capitalism. This economic system is based on the principle that each individual in soci-ety is free to choose his or her own economic activity. Private individuals mostly own the society’s resources and they are free to utilise those resources in whatever way they wish. Everyone is free to work where they like, providing whatever service they like or manufacturing whatever they want to, and so on.

162At the other end of the spectrum we have the command economy, also known as com-munism. This system is based on the principle that the state (the government) owns al-most all of the country’s resources and that the state (in the form of government offi cials) decides what products and services should be manufactured/ provided, who should be employed where, what each person should earn, and so on.

163In-between these two systems is the system known as socialism. According to this system, individuals may certainly own private property and choose their own form of economic activity. The state, however, also owns many of the country’s resources and plays a far greater economic role than in a free-market system. Many of the large corporations, for example, are owned by the state and therefore managed by government employees.

164Table 1.2 in the prescribed book provides a useful summary of the key diff erences be-tween the three economic systems. You do not have to memorise these diff erences, but to understand the diff erent economic systems you must read through this table. It is also important to note that no country in the world has an economy that is a pure capitalist economy, or a communist economy, or a socialist economy. The economic system of a country may range along a scale from pure communism to pure capitalism, or vice versa.

165Some countries therefore have a mixed economy. See the description below of a mixed economy.

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A mixed economy is an economic system that includes a variety of public and government control, or a mixture of capitalism and communism.

There is not one single defi nition for a mixed economy, but relevant aspects include a degree of private economic freedom (including privately owned industry) intermingled with centralised economic planning and government regulation (which may include regulation of the market for environmental concerns, social welfare or effi ciency, or state ownership and management of some of the means of production for national or social objectives).

Adapted from source: http://en.wikipedia.org/wiki/Mixed_economy


Activity 1.3

When a giant private organisation such as Masterbond or Saambou in South Africa or Enron in the USA goes bankrupt, critics of capitalism have a handy stick to beat this economic system. In South Africa we hear regular voices saying that the solution to South Africa’s problems lie in socialism, that is, an economic system where the rich are heavily taxed and where government intervention, ownership and control is at the order of the day.

What is important to remember, however, is that the downfall of organisations such as Saambou and Enron actually shows that capitalism is functioning very well. If an organ-isation is ineffi cient, it will go bankrupt. If government intervenes to keep such organisa-tions afl oat, it will keep ineffi cient companies going on for a longer period of time. On the other hand, state organisations cannot fail, even if they perform badly, because they are supported by taxpayers’ money!

(1) How would you classify the South African economic system?(2) Would socialism be the answer to South Africa’s economic problems?

167

168Write down your considered responses to these questions in your workbook.

8Feedback:


1.4 THE NEED-SATISFYING INSTITUTIONS OF THE MARKET

ECONOMY


169The functioning of the South African economy is aff ected by need-satisfying institutions such as business organisations, government institutions and non-profi t-seeking institutions.

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170Business organisations are also referred to as profi t-seeking businesses since their aim is to conduct their business in such a way that it will lead to a profi t for the owners. Most of these business organisations are privately owned, but remember that the state also owns business organisations. These are called public corporations (e.g. Transnet) and they function just like any other kind of business organisation.

171There are also government organisations that do not operate on a profi t-seeking basis. They are usually referred to as government departments. The Department of Public Works and the South African Police Service are examples of government departments that do not operate on a profi t-seeking basis. They provide a service to society and they obtain their funds from Treasury. In other words, the people in the society pay for these services by means of taxes.

172Not all non-profi t-seeking businesses are state owned. There are also privately owned organisations that do not strive to make a profi t. Most of them seek to obtain just suffi cient income to cover their costs. Sports clubs, welfare organisations and religious organisa-tions usually fall into this category.


Activity 1.4

How would you classify the following organisations in the South African economy?

• Telkom• The Treatment Action Campaign organisation (TAC)• Pirates soccer club

9Feedback:


1.5 THE NATURE OF BUSINESS MANAGEMENT AND THE

CLASSIFICATION OF THE STUDY MATERIAL ON BUSINESS

MANAGEMENT

Study sections 1.6 and 1.7 in ITBM.

174In the study of business management it must fi rst be stressed that there is a diff erence between economics and business economics or, as it is called nowadays, business manage-ment. The key diff erence between Economics as a subject and Business Management as a subject is that the former studies the “management of the national economy” and the

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latter studies the “management of a need-satisfying institution”. Economics is a study of the broader area of economic problems in the community, whereas Business Management focuses on the problems of individual organisations in the same community. Business Management as a subject entails the study of how to manage a business as productively as possible. This ties in with the economic principle, which states that the business must strive to attain the highest income with the lowest cost, with the diff erence between the income and cost being the profi t. Note that the economic principle applies as much to non-profi t-seeking businesses as it does to profi t-seeking businesses. The diff erence is that any form of profi t is ploughed back into the community for which the non-profi t-seeking organisation is working.

175The business organisation performs a number of activities, such as researching markets to fi nd out whether there is a need for the product of the business; acquiring and pro-cessing raw materials in the manufacturing process; and appointing people to operate the machinery in the manufacturing process. Capital must be obtained and the income generated must be managed while creditors must be paid and workers remunerated. These are just a few of the activities being performed in a business organisation. Further-more, these activities must be coordinated and managed. This is the reason why activities are grouped into functional areas to ensure proper coordination and management. The functional areas are depicted in the following fi gure:

176

177After reading these sections and the discussion above, complete activity 1.5.

178As we can see, general management is at the centre and deals with the planning, imple-mentation and control of activities (management functions) that are needed to run the business. These management functions will be dealt with in considerably greater detail in the rest of the prescribed book, but section 1.7 provides a useful summary of what these functions entail.

Activity 1.5

The following information was given by the Governor of the South African Reserve Bank:

• The unemployment rate in South Africa is too high. Consumers are warned to usecredit with caution, because there is a strong case for increasing the interest rate by 2%.

• The labour laws of the country are very restrictive and are hampering economic growth.

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Which of these statements have to do with the broad South African economy and society in general? What are the implications of these statements for South African businesses?

10Feedback:


SUMMARY

179You now have a basic insight into the business world, economic systems, institutions of the free market and the nature of business management. In the next learning unit you will study entrepreneurship in business.

BUSINESS IN CONTEXT

180One of the recommended books for the MNB1501 module is entitled Business Cases. This book provides students with actual business scenarios and case studies which cover relevant theoretical business aspects. It is not compulsory that you read these case studies, but it will provide you with real local and international implementation of theory in practice. For this learning unit, you can read the various case studies covered in this book for a better understanding of business management within the business world.

SELF-ASSESSMENT QUESTIONS

181

182QUESTION 1

183Which of the following statements are correct?

184An entrepreneur is someone who ...

185a pursues profi t.186b accepts risk.187c makes the most of opportunities in the environment.188d combines expertise and resources to produce products and services.189

190 1 a b191 2 c d192 3 b c d 193 4 a b c d 194

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195QUESTION 2

196Which of the following attributes are characteristics of a free-market economy as an economic system?

197a private ownership of production factors 198b free competition199c profi t motive recognised200d limited right to strike in state enterprises201

202 1 a b203 2 a c204 3 a b c 205 4 a b c d 206

207QUESTION 3

208Which of the following statements about the state and economic systems are correct?

209a State intervention to solve an economic problem in a market economy indicates a move towards a command or centrally controlled economy.

210b Government intervention in the economic system aims at encouraging economic growth and stability.

211c Control of strategic organisations cannot be left to profi t-seeking entrepreneurs.212d An expanding entrepreneurial role by the state eventually leads to a democracy.213

214 1 a c215 2 a b d 216 3 b c217 4 a b c d 218

THE ANSWERS TO THE SELF-ASSESSMENT QUESTIONS

219

220Question 1

221All four of the statements are correct regarding the characteristics of an entrepreneur. Such a person normally pursues profi t in starting and running a business, and in the process also accepts risk. An entrepreneur also makes the most of opportunities in the environ-ment; in fact, one of the traits of entrepreneurs is that they can foresee opportunities in a dynamic business environment much quicker than other people. Lastly, entrepreneurs also combine expertise and resources to provide products and services. The correct an-swer is therefore option 4 (a b c d).

222

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223Question 2

224In a free-market economy the economy is characterised by private ownership and free competition, and the profi t motive is recognised. There is also freedom of association and the right to strike. So statements a, b and c are correct and d is incorrect. The right answer is therefore option 3 (a b c).

225Question 3

226The fi rst statement referring to state intervention to solve an economic problem in a market economy does not necessarily mean a move towards a command or centrally controlled economy. The elected government of the day is duty-bound by the Constitu-tion to improve the life of all its citizens, which could entail state intervention from time to time. The second statement about government intervention in the economic system that aims at encouraging economic growth and stability is obviously correct, as explained earlier. Control of strategic organisations cannot be left to profi t-seeking entrepreneurs only, because these strategic organisations must be managed to the benefi t of all the citizens. This statement is therefore correct. The last statement is obviously wrong. Ex-panding the government’s entrepreneurial role does not have a corresponding positive infl uence on the development of a democracy. The right answer is therefore option 3 (b c).

227

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Learning Unit 2

Entrepreneurship


228Entrepreneurship has been a term batted around in business and media environments alike in recent years. In this learning unit we will have a closer look at, and discuss entre-preneurship as the fourth factor of production. We will look at the role of entrepreneurs and businesses in society and the entrepreneurial process.

229There are various sources which can defi ne what an entrepreneur is. All the defi nitions come down to the following: It is a person or personality type which takes up a new venture and is willing to accept full responsibility for the outcome. Entrepreneurs are those individu-als in society who take the initiative and risk by harnessing the factors of production to generate products and services. The entrepreneur’s reward for taking the initiative and risk is profi t. And a loss is the result of making the wrong decision. Entrepreneurship is also a scarce human trait, since not everyone in a country has the skills or is prepared to take risks in generating products and services. We also refer to the diff erent ways of entering the business world and present recommendations on the choice of a business opportunity.

230Entrepreneurship is described as the process of identifying, creating or sensing an oppor-tunity where others do not see it and of fi nding and combining resources (often owned by someone else) to pursue the opportunity until it becomes a successful, established business.

11STUDY CHAPTER 2 (sections 2.2 & 2.4–2.8) IN ITBM


The role of entrepreneurs and entrepreneurship in society The role of entrepreneurs and small-business owners in society The entrepreneurial process



explain the concept of entrepreneurship and the entrepreneurial process defi ne an entrepreneur describe the roles of entrepreneurs and small businesses in the South African economy describe how to become an entrepreneur discuss the skills and resources required to become an entrepreneur

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distinguish and describe the diff erent ways in which an entrepreneur may start a business

discuss the implications of choosing a specifi c business opportunity231

KEY TERMS

entrepreneur role of the entrepreneur small businessskills required of an entrepreneur resources needed to start a business

entrepreneurshipmotivation of entrepreneurs entrepreneurial processstarting a new businessbuying an existing business

Refer to the end of chapter 2 in the prescribed book to familiarise yourself with the key terms for this learning unit before continuing.

2.1 THE ROLE OF ENTREPRENEURS IN SOCIETY

Read section 2.5 in ITBM.

232Entrepreneurship is a vital ingredient in the development of any country and even more so for a country such as South Africa that has been plagued by growing joblessness in recent years. Diff erent sources are available regarding the total number of unemployed people in South Africa. Depending on whose fi gures you use and the defi nition of un-employment, it may range from as much as 30% plus to less than 10%! Without getting involved in arguments, we can say that the rate of unemployment is too high and is damaging to social stability. There is a lively debate about the reasons for the low rate of entrepreneurial activity in South Africa. In the following discussion we will refer to these reasons and look at the practical problems encountered by entrepreneurs. The Global Entrepreneurship Monitor (GEM) report states, for instance, that men and people between the ages of 25 and 34 are the most likely entrepreneurs in South Africa.

2.1.1 Descriptions of an entrepreneur


233It is important that you understand the diff erent descriptions of an entrepreneur. Bill Gates is an entrepreneur who had the innovative ideas that started the Microsoft com-puter company in the United States. Henry Ford was an entrepreneur who identifi ed the opportunity for the mass manufacturing and selling of cars to the broad American population. This opened up new opportunities for other businesses such as motels,

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petrol fi lling stations and fast-food businesses. Ernest Oppenheimer came to South Af-rica in 1902 and was instrumental in the development of the diamond mining business in South Africa. He used a natural resource (diamonds) to start a mighty empire called Anglo American Corporation of South Africa. His son Harry Oppenheimer followed in his footsteps and this dynasty continues today, with the third and fourth generations actively involved in the South African mining industry. Look also at the route that Patrice Motsepe followed. It would seem that having an entrepreneurial father helped him on his way to success. Of course not all people have an entrepreneurial heritage. Dr Annique Theron developed her business from very small beginnings, but with sheer determina-tion and drive to provide people with numerous ailments who crossed her path with help in the form of rooibos tea.

2.1.2 Entrepreneurship in South Africa


234Entrepreneurship is a relatively new phenomenon in South Africa, mostly owing to legisla-tion and a high unemployment level. The number of entrepreneurs in business, however, is still very limited. Study section 2.4 in the prescribed book to see why.

2.2 THE ROLE OF ENTREPRENEURS AND SMALL-BUSINESS

OWNERS IN SOCIETY

Study sections 2.5 and 2.6 in ITBM.

235Not all small-business owners are entrepreneurs. Some small-business owners are satisfi ed with some autonomy and earning a reasonable income. They do not have the intention of growing the business entrepreneurially.

236We will now have a closer look at why entrepreneurs do what they do.

237Entrepreneurial activity plays an essential and valuable role in society. Three broad categories of determinants or reasons why individuals initiate business ventures are the following:

The traits and characteristics that entrepreneurs hold. These traits and characteristicsinclude

- achievement motivation- an internal locus of control- innovation and creativity- risk taking

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Entrepreneurs’ skills and industry experience Opportunities arising owing to outsourcing

238

239Of course the three categories mentioned above are not the only reasons for people to embark on an entrepreneurial journey. The infl uence of environmental variables, such as low interest rates, will also make it attractive for a person to be an entrepreneur. We will now look at the small business and see how it is linked with the role of the entrepreneur as well as the economy at large.

2.2.1 The small business


240We can say that a business is a small business if it has at least two of the following characteristics (which are also called qualitative measures):

The management of the small business is independent, which means that the owner is usually also the manager of the business.

Capital is provided by the entrepreneur or a few people who start the business together.

The activities of the enterprise are mainly local (in South Africa). The enterprise is small in comparison with the largest competitors in the particular

industry, for example the small supermarket down the road in comparison with the Shoprite Checkers group of retailers which is the largest retailing group in Africa.

241

242Quantitative criteria measure something that can be measured or counted. To be able to give a more specifi c defi nition of a small business, we also need to look at certain criteria for measuring the size of a business. Look at the comprehensive defi nition of an SME in the prescribed book for a better understanding.

The defi nition of a small business

243A good general defi nition of a small business is that it is owned and managed indepen-dently and in no way predominates in the industry in question. Small businesses provide ample opportunities for personal initiative, innovation and the development of new products.

244Refer to section 2.8.1 in your prescribed textbook that gives you a better idea of the diff erence between a micro-business, a small business, a medium business and SMMEs.

The role of small businesses in the economy

245Entrepreneurs and the small businesses they own have a strategic role in a country’s economy. This strategic role of small businesses revolves around the following:

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the production of goods and services innovation the aiding of big business job creation246

Activity 2.1

Have you ever thought about your prospects of becoming an entrepreneur? Read

the three scenarios below and then answer the question that follow:

(1) Freddie Marais grew up on a farm in the Cape. His father had his own business sell-ing fruit and vegetables from the farm. At the age of 12, Freddie started deliveringpotatoes to the housewives in Goodwood. Today, at the age of 30, he has his owndelivery/transport business in Cape Town and makes a fortune.

(2) Beauty Davids, a 35-year-old housewife with a baby, was cleaning her house whenshe suddenly thought how many other working people need someone to clean their houses. She started a business, The Cleaning Lady, with four workers. They chargeR60 an hour and spend (on average) two hours cleaning a house and ironing wherenecessary. Beauty’s mother was also a housewife.

(3) Roderick Delaney graduated with a BCom and started working as an articled clerk in a large auditing fi rm. He soon got bored, because his personality is such that he needs to be in control and be creative. He started to approach people for accounting jobsto do in his spare time. At fi rst, he only helped others to complete their tax returns.Then he bought a computer and started doing the books for small fi rms. Today hehas his own business, giving fi nancial and tax advice and doing small audits.

247

Now answer the following question:

What makes the people in the above scenarios entrepreneurs?

Write down your thoughts about this question in your workbook.

13Feedback:


2.3 THE ENTREPRENEURIAL PROCESS


248The framework as explained in fi gure 2.1 of the prescribed book shows a visual framework that prospective entrepreneurs may use to help them in the process of starting a busi-ness. You will see that the framework provides questions that need to be answered by the prospective entrepreneur. If the person proceeds through these phases, he or she will be in a better position to succeed in the business venture. The phases are the following:

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Abilities and skills. The main question here is: Do I, the prospective entrepreneur,have the background/knowledge to be able to succeed in the business?

Access to resources. For instance, do I have enough fi nance to start the business? Opportunity/idea. Is there a chance that my idea will work? Feasibility. Is my idea feasible in terms of rands and cents? Business plan. Compile a business plan to obtain the necessary fi nance. Managing the business. Launch the business and manage it.

Skills

249A skill is simply knowledge, which is demonstrated by action. Potential entrepreneurs therefore need the following management skills:

Strategy skills – to position the business in the competitive environment Planning skills – to plan for the future of the business Marketing skills – to identify the target market and meet the wants and needs of

this market Financial skills – to manage the fi nances of the business Project management skills – to organise the business activities Human relations skills – to deal with the workers employed by the business

Resources

250Without resources no entrepreneur would be successful. So you need fi nancial resources, human resources and operating/physical resources. For instance, a spaza shop selling groceries must at least have a proper room (part of the physical resources) where grocer-ies can be displayed (and with secure storage against the weather and theft).

Starting a new business or buying an existing business?

251The advantages and disadvantages of purchasing an existing business versus starting a new business have been debated for a long time. When it comes to starting a new business, you have to consider all the factors about establishing a business (the size, the structure, the location, the form of enterprise, etc). Buying an existing business means you are buying a going concern with its opportunities, as well as latent problems that you sometimes do not know about!

252The concept of franchising lies somewhere between starting a new business from scratch and purchasing an existing one. If you are thinking of opening a fast-food business, for example, you could apply to a franchised operation such as Wimpy to open a Wimpy restaurant in a particular area. If your application is approved, it means you can run a Wimpy restaurant as your own business, but have the advantage of getting raw materi-als at a lower cost (because the Wimpy company purchases basic ingredients in bulk for all its outlets) and you would be off ering a standard product and service that is already well known. However, you would have to manage the restaurant the way this franchiser wishes its restaurants to be managed. Wimpy will also conduct regular inspections to ensure that you adhere to its standards. You will also have to pay Wimpy a regular fee for the right to use its name and to make use of its facilities.

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Activity 2.2

Consult the website http://www.wimpy.co.za/fr-overview.htm

where you will fi nd a full discussion on the requirements and the problems of a franchise operation such as Wimpy. Summarise the main points that are made in the discussion. If there are any issues regarding the discussion that you want clarity on, approach your e-tutor.

14Feedback:

Contact your e-tutor or fellow students via myUnisa to exchange ideas about this activity.

Activity 2.3

FROM STREET HAWKER TO THE OWNER OF A PROSPEROUS BUSINESS

The responsibility of providing for a wife and three children was the driving motivation for Mr Witness Ndamane to be a successful entrepreneur. After 23 years working as a driver for a packaging company he was retrenched in 2000. He frantically looked around for nearly a year to fi nd a new job in the formal sector and fi nally, in desperation, started hawking SAE40 cans of oil at stop streets to passing taxi drivers. After a while he approached the Engen oil company and asked to be appointed as a distributor to sell SAE40 oil in the Nelson Mandela Metropole. Engen was interested in his proposal but redirected his eff ort towards selling paraffi n in the townships, as there is a great demand for this product for cooking and heating purposes. He installed a 1 000-litre tank of paraffi n on his old delivery vehicle and started selling to spaza shops and housewives who found it hard to get to the shops. His sales immediately reached 3 000 litres a week. He decided to expand his business by installing a 2 200-litre storage tank at his house that was regularly fi lled up by Engen tankers. Today he has an additional 9 000-litre storage tank in the industrial area and is selling not less than 16 000 litres per week. Mr Ndamane currently employs four people who work in his two paraffi n shops in the townships. Further growth was ensured when he was awarded a R900 000 contract spread over three years by the Nelson Mandela Metropole to supply them with this basic commodity. Current turnover varies between R1 million and R2,5 million per year.

Now answer the following questions in your workbook:

(1) What management skills did Mr Ndamane use in his quest to be a successfulentrepreneur?

(2) What resources did Mr Ndamane use to start his business?(3) How did Mr Ndamane identify the new business opportunity?

15Feedback:

Contact your e-tutor via myUnisa for the answers to this activity if necessary.

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SUMMARY

253You now have a basic insight into the concept of entrepreneurship and the entrepreneur as the driving force behind the business. We have examined the role of entrepreneurs in the economy and the reasons why people become entrepreneurs. The business plan and the professional management of the new venture will be discussed in the next learning unit.

254BUSINESS IN CONTEXT

255Refer to the recommended book entitled Business Cases, in particular case study number 1 “Entrepreneurship: MXit”. This is not compulsory for you to do, but merely a business-in-context addition to your learning of business management.


256Four friends, Thabo, Musomi, Sam and Robert, are having lunch at a restaurant in Hillbrow. Each one has an opportunity to tell his life story. Here are their stories:

257Thabo: “I was born in a settlement near Grahamstown. My schooldays were spent looking for empty bottles to return to the cafe and the bottle store. I earned nearly R5 per week picking up discarded bottles. After I fi nished school, I started working as a hawker selling sweets, cigarettes and cold drinks. I struggled for a long time and went bankrupt twice. But I persevered and moved on to open a retail store in Mamelodi selling groceries, cold drinks and cleaning materials. I am a self-made man and I used my own savings to open my retail store. Today I am providing work for fi ve people.”

258Musomi: “My mother told me that I must study hard at school and that I must look for a good job in the Civil Service here in Gauteng. I started working for the Gauteng Education Department and today I am in charge of the accounting section. I am responsible for all the expenditure by the Gauteng Education Department. There are 20 people working under me. I take a great fi nancial risk, because if money is unaccounted for, I will be in serious trouble and I will lose my job.”

259Sam: I am unemployed, I am a Rastaman and I hero-worship Che Guevara, Fidel Castro and Joseph Stalin. You, Thabo and Musomi, are exploiters of the working class! Govern-ment must give us all work and we must earn the same salary.”

260Robert: “I started a business buying up second-hand cell phones. I borrowed money from my uncle who helped me to set up the business. I work for myself and currently don’t employ anyone. I buy cell phones at an average price of R50 and I resell the renovated phones at R150. I am innovative and I am in charge of my own destiny. Some day I will be as rich as Patrice Motsepe.”

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261QUESTION 1

262How many of the four friends would you identify as an entrepreneur?263

264a 0 265b 1 266c 2 267d 3 268e 4269

270QUESTION 2

271How many people are employed by this/these entrepreneur(s)?272

273a 0 274b 4 275c 5 276d 2277e 6278

279QUESTION 3

280Below is a summary of the psychological traits of entrepreneurship that we have identi-fi ed in Thabo, Musomi, Sam and Robert. Which of these descriptions are correct?

281a Thabo: achievement motivation; locus of control; innovation and creativity; risk taking; commitment

282b Musomi: achievement motivation; locus of control; risk taking; commitment 283c Sam: locus of control; high level of energy284d Robert: achievement motivation; locus of control; innovation and creativity; risk

taking; commitment285

286QUESTION 4

287How many of the four friends are running a small business?288

289a 0 290b 1291d 3292e 4293

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294

295Question 1

296By way of elimination we see that Sam cannot be an entrepreneur, because he is not working. Musomi is also not an entrepreneur, because he is not involved in being inno-vative; neither is he identifying new opportunities; he is defi nitely risk aversive, because he is working with government money, etc. Looking at the remaining two friends we see that both fi t the bill as being entrepreneurs. Let us take Thabo, for example, who identifi ed early in his life an opportunity to make money by collecting cool drink bottles. He saved money to open the retail store in Mamelodi, so he was able to fi nd resources; furthermore, he took the fi nancial risk of opening the store and he is managing a small business employing fi ve people. Robert also has some entrepreneurial characteristics: having innovative ideas, identifying a unique opportunity, fi nancing himself, etc. To sum-marise, the correct answer is that two of the friends are entrepreneurs; so the correct answer is option c.

297

298Question 2

299Leading on from question 1 we can say that if Thabo and Robert are the only entrepre-neurs, then they are employing fi ve workers between them. The correct answer is option c.

300

301Question 3

302The psychological variables that distinguish individuals as entrepreneurs are the follow-ing for Thabo and Robert:

303Thabo has achievement motivation. He wanted to succeed even after two business failures. He has a strong locus of control because he thinks he is in control of his life. Thabo is in-novative in that he identifi ed a need in the market by opening a retail store in Mamelodi. Opening and running your own business certainly involves risk taking. Finally, Thabo also shows he has commitment to succeed.

304Robert has the same motivations: achievement motivation, locus of control, innovation and creativity, risk taking and commitment, so the same as for Thabo. Options a and d are correct.

305

306Question 4

307Only Thabo and Robert are running small businesses. The arguments used above con-fi rm that they are entrepreneurs and running small businesses. We see that these two entrepreneurs employ a few employees, have a relatively low turnover and there is direct involvement by the owner manager, so option c is correct.

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Learning Unit 3

Establishing a business


308Learning unit 2 elaborated on the importance of entrepreneurial activity within society. The entrepreneur needs to consider a number of things when establishing a new busi-ness. This learning unit will focus on the factors that infl uence the choice of location for a new business as well as diff erent legal forms of ownership that are available to the en-trepreneur. Once you know what the available options are, you can then put everything together by drawing up the business plan for your new business.

16STUDY CHAPTER 3 (sections 3.2–3.4) IN ITBM


The importance of geographical location for the success of a business The legal forms of ownership in South Africa Developing the business plan for the new venture



identify the factors that infl uence the location of a business distinguish the diff erent forms of ownership that are found in South Africa discuss the key considerations that are applicable when a form of business has to be chosen describe the objectives, importance and need for a business plan describe the various components that constitute the business plan write up a business plan

309

KEY TERMS

legal personality partnership control authorityownership of a businesstax liability of a business

sole proprietorship business locationclose corporation companylegal requirementsbusiness plan

310

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3.1 THE IMPORTANCE OF GEOGRAPHICAL LOCATION FOR

THE SUCCESS OF A BUSINESS

18Study section 3.4 in ITBM.

Geographical location

312The choice of geographical location for a specifi c premises is extremely important to all kinds of businesses, although it may be even more important for some than for others. For example, the success of most retail organisations depends on the location of the business. Depending on the nature of the proposed product or service to be off ered, the entrepreneur should, for example, decide whether the business needs to be located either near its market or near its sources of raw materials, near other competitors, in the city centre, in the suburbs, in a rural area, in existing industrial areas, or according to per-sonal preference. Woolworths, for example, selects the premises of its stores according to the following criteria:

The premises should be located in close proximity to other national retailers, bank-ing and other facilities.

The site should provide adequate security. There should be convenient parking facilities. The building must comply with Woolworths’ specifi cations regarding size, quality

of fi nish, etc.

313

314It is important to know that no two businesses are alike and that diff erent factors might therefore infl uence the choice of location, depending on the nature of the business.

Location factors

315Location factors can be described as those factors you need to consider when selecting the geographical location of a new business. These factors include the following:

sources of raw material availability of labour proximity of and access to the market availability and cost of transport facilities availability and costs of power and water availability and costs of a site and buildings availability of capital attitude, regulations and tariff s of local authorities

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the existing business environment the social environment climate central government policy personal preferences

3.2 THE LEGAL FORMS OF OWNERSHIP IN SOUTH AFRICA


316When establishing a new business in South Africa, it is important to be able to distinguish between the diff erent forms of ownership. Note that the terms “form of ownership” and “form of business” are used interchangeably. It is also important to be aware of the key considerations that are applicable when a form of ownership has to be chosen. Some of the considerations to be aware of when choosing a form of enterprise are the following:

the entity’s legal or juristic personality the limited liability of owners or members when legal action is taken against the

business the degree of control that the management or entrepreneur will be able to exercise the potential for capital acquisition compliance with legal formalities and regulation taxation the ease with which the business or entrepreneur’s interest can be transferred (entails

legal formalities that are beyond the scope of this learning unit)317

318The types of ownership covered in this section include

sole proprietorship partnership close corporation company business trust cooperative society joint ventures319

320When you study this section, it is important to understand the key diff erences between these forms of ownership. You should write down these diff erences and make sure that you understand them. The diff erences between the forms of ownership can be studied in terms of

number of owners/directors/members (shareholders) legal personality

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capital acquisition potential subscription to shares regulations regarding the name of the organisation legal regulations/prescriptions liability of members/shareholders tax liability distribution of the organisation’s profi ts transfer of ownership continuity of the organisation321

322It is very important that you are aware of the eff ect that the Companies Act (71 of 2008) has on all the forms of business ownership. This Act was promulgated in April 2009.

323Note that a close corporation should not be confused with a cooperative society, which is a form of business found mainly in the agricultural sector. A cooperative society is a jointly owned business enterprise normally structured by farmers or consumers. The cooperative society is formed and operated for the benefi t of its owners and normally produces and distributes goods and services. Some benefi ts for the owners of a coopera-tive society are the following:

They are able to make use of economies of scale. Equity is generated (cooperative societies also play an important role in land reform

schemes). There are increased incentives for workers. The public good is encouraged at a higher level because the cooperative creates

employment opportunities with a ripple eff ect of positive spin-off s for small towns.

Legal personality

324One of the concepts that some students fi nd diffi cult is the question of legal personality. When a business has a legal personality of its own (i.e. a company or a close corpora-tion), it means that the business is just like a person in his or her own right. For example, if a partnership purchases property, the property is registered in the partners’ personal names because a partnership does not have its own legal personality. In other words, the property belongs to the partners personally and not to the partnership as a form of business. If a company, however, purchases property, the property is registered in the com-pany’s name, not in the owners’ (shareholders’) names. The property therefore belongs to the company. Another example is that if creditors sue a sole proprietorship, the claim will be against the owner of the sole proprietorship in his or her personal capacity. This is because a sole proprietorship does not have a legal personality. However, if creditors sue a company, the claim is against the company and not against the shareholders or the directors personally. This is because the company is a legal personality on its own.

325South Africa has seen some legislative changes being made to the Companies Act. Refer to the individual sections in your prescribed textbook which cover these changes.

326After choosing the geographical location as well as deciding on the most relevant form of ownership, it is very important to develop a business plan for the new business venture.

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3.3 DEVELOPING THE BUSINESS PLAN FOR THE NEW

VENTURE


327In this section we discuss the objectives, importance and necessity of the business plan. We also examine the components and the development of the business plan for the new organisation.

3.3.1 The objectives and importance of the business plan

328The business plan has three main and fi ve additional objectives. The main objectives of the business plan can be described as follows:

It identifi es the nature and context of the business opportunity. (Why does the op-portunity exist?) An opportunity may exist because the South African governmentis investigating new sources of energy for domestic consumption. This is becauseoil prices are very high and traditional sources of energy have health and social risksfor the poorer segment of the population.

It explains how the entrepreneur will develop this opportunity. The entrepreneurcan exploit the above business opportunity and start a business that sells gel as analternative source of energy in the townships. The business plan will, by means ofits components (general company description, products and services plan, market-ing plan, management plan, operating plan and fi nancial plan), explain how theentrepreneur will develop the above opportunity to its fullest potential.

A third objective of the business plan is to attract investors or to convince a bank orother institution or person who provides fi nancial resources to lend the entrepre-neur the money needed to establish the new business. In the case of the alternativesources of energy, the business plan will illustrate the viability of the business ideato potential investors.

329

330Additional objectives that fl ow directly from the main objectives are achieved:

The new venture’s chances of success in the market is evaluated systematically andrealistically. The planning that goes into developing a business plan might reveal thatgel is much more expensive than paraffi n, for example, and that the target market(people in rural townships) are very price-sensitive.

The key variables that will determine the success of the new venture, as well as theprimary risks that may lead to failure, are identifi ed. A key variable might be thatgovernment will subsidise the production and distribution of the gel and that theymight enforce its use above other sources of energy.

It describes how to manage the business successfully. The business plan includes amanagement and operating plan.

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It is a management instrument for comparing actual results against targeted perfor-mance. The business plan can act as a framework against which the performance ofthe business, once it is established, can be evaluated.

331

3.3.2 The components of the business plan

332The prescribed book sets out the content of the business plan in detail. Make sure that you understand it all.

Cover page and executive summary

333Remember, it is very important to make a good impression on the cover page of your business plan. Study tables 3.2 and 3.3 in the prescribed book, which give an overview of a business plan.

334Another very important part of the business plan is the executive summary, because it holds together and unifi es all the other components of the plan. Investors or other stakeholders often read only the executive summary. So it should provide an accurate overview of the rest of the plan and should be written last.

Content of the business plan

335The entrepreneur must fi rst give a brief but accurate description of the new venture. After that follows the body of the business plan. The prescribed book has 15 very useful questions to be answered in this section of the plan. Take note of them.

336It is very important for entrepreneurs not to become infatuated with their product or service and simply believe or hope that there is a market for it! Therefore the analysis of the new venture’s market and the development of a marketing strategy are a must.

Financial analysis

337The fi nancial analysis is another crucial component of the business plan. The entrepreneur’s projections of a new venture’s profi ts, its required assets and its fi nancial requirements over the next one to fi ve years should be supported by substantiated assumptions and explanations of how the costs, profi ts and fi nancial requirements are determined. In or-der to make the necessary fi nancial projections, the entrepreneur must fi rst have a good understanding of fi nancial statements and how to interpret them.

338So the key matters to understand in this section are

how fi nancial statements work how profi tability is assessed how a venture’s fi nancial requirements are determined339

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340Chapter 14 of the prescribed book deal in depth and detail with these matters and they will be discussed in Module 2 (MNB1601).

SUMMARY

341In this learning unit the most important location factors were discussed as well as cer-tain factors regarding the diff erent legal forms of business. Chapter 3 further discussed the characteristics, advantages and disadvantages of the sole proprietorship, the close corporation, the partnership and the company. The learning unit also examined the de-velopment of a business plan for the new venture.

342No business functions in a vacuum. Businesses infl uence and are infl uenced by the en-vironment in which they function. In the next learning unit we will have a closer look at the business environment.

BUSINESS IN CONTEXT

343Refer to the recommended book entitled Business Cases, in particular case study number 2 “Establishing a business: Kiph”. This is not compulsory for you to do, but merely a business-in-context addition to your learning of business management.


344Study the case study below and then answer the questions that follow.

345Establishing a small information technology business in South Africa

346Steve has a small business of his own that was launched in October 2015. When he started working on it in about June or July 2015, he was very excited about it. After a fair-sized payment to his web developer, he got it off the ground and soon had his fi rst subscribers. In the beginning he had grand ideas about how the business should be run. His prices were half that of his closest competitor and the website design was simple. Five months after launching his website, he realised that his target market did not want what he of-fered. This really came as a surprise to him.

347He also realised that his web developer did not share his vision for the site and they parted ways. When he met with new developers, he came to see that, for his venture to work, he needed to look at the business from another perspective. Steve decided that the website needed a complete redevelopment and that he needed money to do this properly. He needed to fi nd a lot of it too (since the site was not producing much money and he was funding it himself).

348Clearly he had to do more homework and had to fi nd some start-up capital to redo the website. There was no point putting up a mediocre site or even a site that was just like the rest. One thing he had learnt thus far from his extensive blogging career was that his

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site had to be distinguishable from the rest and had to be dynamic if he hoped to attract people to it and keep them coming back. A blog (also called a web log) is a “frequent, chronological publication of personal thoughts and Web links” (marketingterms.com). A blog is in the form of a journal and is a mixture between what is happening in a person’s life and what is happening on the Web.

349One of Steve’s questions was how a small-business owner trying to establish a new busi-ness goes about securing venture capital. Money tends to make things happen far faster and more eff ectively. To Steve it had become the oil that lubricates the many ideas that could become brilliant realities and that could help him make his business really successful.

3501 Explain to Steve how a business plan would have helped him before he launched his business.

3512 What are the most important components that Steve should have included in his business plan? Give reasons for your answer by referring to the case study.

3523 Identify the internal and external stakeholders in a business plan.353

354You may fi nd it very interesting to put yourself in the shoes of an entrepreneur and do the skills assessment on yourself. See table 3.1 in the prescribed book. This assessment will show you whether you have the skills to prepare a business plan.


355Question 1

356Drawing up a business plan is the fi rst thing Steve should have done before starting his business and investing a lot of money in it. A business plan gives you a framework against which to launch, run and grow a new business venture. Without a business plan, few investors will consider funding a business.

357You should have discussed all the objectives and benefi ts of the business plan. We all know that having objectives are very important, especially if you want to make a success of something. By doing this activity you should have realised the importance of the busi-ness plan. You now also see that the business plan may have more than one use, because entrepreneurs can use their plans for diff erent purposes.

358The following are some of the things that a business plan can do for you as an entrepreneur:

It helps you to organise your thoughts on paper and gives structure to your ideasand thoughts, thus giving you insight into yourself.

It can help you to identify your objectives to show where you are heading and whatvision you have for the future.

It can help you to develop strategies to meet your objectives. It helps to identify problems and suggests ways to solve or avoid problems. It also points out “gaps” which you as an entrepreneur may not have thought of

when planning your business. By defi ning activities and responsibilities it creates a structure for your business.

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Very important is that it helps you to obtain the necessary fi nancing to start yourbusiness.

It helps you to communicate your ideas to others and gives credibility to your ideas.359

360Question 2

361Discuss the following components of the business plan and give examples of what Steve should include under each heading:

Executive summary General description of the venture Products and services plan Marketing plan Management plan Operating plan Financial plan Supporting materials362

363Question 3

364The stakeholders are as follows:

365Internal stakeholders are 366a new venture management 367b employees368

369External stakeholders are370a customers371b investors 372c banks373

374

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Learning Unit 4

The business environment


375The South African business environment is dynamic and changes from day to day. A com-pany exporting or importing products from the European Union (EU) or the United States experiences constant fl uctuations in the economic environment. An example is the daily change in the offi cial exchange rate of the rand against the euro and the US dollar. Another variable that impacts on organisations and customers alike is the dramatic changes in the price of petrol. Petrol, a basic commodity, currently costs more than R10 a litre, thus having a negative eff ect on the infl ation rate and ultimately economic activity. Climate changes in South Africa may also have a negative eff ect on businesses and the private customer alike. Prices of basic foodstuff s such as vegetables are infl uenced by periods of drought, cold spells and wet spells. This learning unit introduces you to the environ-ment in which the business organisation functions and explains how the environment impacts on business.

19STUDY CHAPTER 4 (sections 4.1, 4.3–4.8) IN ITBM


The business and environmental change The composition of the business environment The micro-environment The market or task environment The macro-environment Environmental scanning



explain the meaning of environmental change explain the nature and composition of the business environment discuss each of the components of the environmental model explain how each of the environmental variables can impact on an industry or an indi-

vidual business describe some ways in which management should respond to the infl uences of the

environment376

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KEY TERMS

business environment market environmentenvironmental changeenvironmental scanning

micro-environmentmacro-environment composition of the business environmental SWOT analysis


4.1 THE BUSINESS AND ENVIRONMENTAL CHANGE

Study section 4.1 and read section 4.2 in ITBM.

The eff ect of change

378Change can be described as an alteration in the status quo – in a business sense imply-ing that there are alterations in the business environment, which the business must take note of. Some years ago, in his book Future Shock, Alvin Toffl er predicted that the rate of change in society would increase dramatically and that most people would have great diffi culty just keeping up. Practical examples of the increase in the rate of change are to be found in the convergence of diff erent elements of telecommunications. Today’s cell phone is a minicomputer, giving you, for example, access to your e-mail – a function that was previously only possible on your computer. More and more we see that changes in technology are occurring at a faster rate. The long-playing vinyl records of the 1960s were replaced by compact disks, which were then replaced by DVDs and MP3 equipment. Older people are usually more aff ected by these rapid changes than younger people. In the business world we also see older businesspeople struggling to keep track of changes in technology and its impact on the business.

379Section 4.2 of the prescribed book describes some of these changes and the eff ect they may have on a business. You do not need to memorise the details of these changes, but you do need to understand how important it is for management to continuously monitor changes in the environment that will aff ect the business.

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4.2 THE COMPOSITION OF THE BUSINESS ENVIRONMENT


Defi ning the business environment

380It has been stated that the business environment is dynamic and that the business must adapt to changes in the environment. The business environment in which the business operates can be defi ned as the sum of all those variables which may infl uence the successful existence of the organisation.

The three subenvironments of the business environment

381The functioning of the business environment is explained by subdividing the business environment into three subenvironments: the micro-environment, the market environ-ment and the macro-environment.

382The micro-environment refers to the business itself – the workers and managers, and the functional areas in which a business are divided, such as the fi nancial section and the marketing section. The main characteristic of the micro-environment is that management have almost complete control over things that happen in this environment. Management can, for instance, decide on the price that they will charge for the product that they sell, or how they are going to market the product to the customer.

383The market environment refers to the immediate external subenvironment that has a di-rect infl uence on the business. For most businesses, this environment comprises consumers (also called customers), competitors and suppliers. It may also include intermediaries (or distributors). For example, Ford Motor Corporation manufactures and markets vehicles in South Africa. The actual selling of the vehicles, however, is done through a network of independent dealers (i.e. the intermediaries). Management can exert some control over this environment, but certainly not as much as they can over the micro-environment.

384The macro-environment refers to the greater external environment that will infl uence the business to a lesser or greater extent. Take the impact of an economic recession, for example. A recession may have a tremendous impact on future expansion plans, on production volumes, purchases and labour employment for the business. Management probably have the least control over what happens in the macro-environment. The eff ect of an increase in the interest rate by the Reserve Bank must be accepted by the business and they must live with the consequences of this increase.

Characteristics of the business environment

385Section 4.3.2 of the prescribed book sets out some important characteristics of the busi-ness environment:

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The variables are mutually related, that is, changes in one variable will often bring about changes in another. To illustrate the point, a shortage of crude oil and the resultantincrease in the international oil price will negatively aff ect (increase) the infl ationrate of South Africa. The oil supply forms part of the international environment andthe infl ation rate forms part of the economic environment. For some businesses theoil supply can also be seen as part of the market environment, that is, the suppliers!

There is evidence of increasing instability in the sense that nothing stays the samefor very long. Look, for instance, at the daily fl uctuations in the rand–US dollarexchange rate.

There is growing uncertainty about the future – even the immediate future is diffi cultto predict because of the lack of information or the unreliability of information. Whoknows what the rand–US dollar exchange rate will be next year?

It is a complex environment because of the many variables that may cause andinfl uence change. Various components in the three subenvironments may changeat the same time. There could be a strike at the business, which aff ects the outputand profi tability of the business; at the same time the retailers that are stocking theproduct may be demanding increased supplies, while the Chinese exporters areexporting more competitive products to South Africa. We see here that variables inthe micro-environment, the market environment and the macro-environment aresimultaneously at play and infl uencing this business.

386

Activity 4.1

Identify the three subenvironments of the business environment for an organisation such as Shoprite and briefl y describe the infl uence of each of these subenvironments on this business.

21Feedback:


4.3 THE MICRO-ENVIRONMENT


Components of the micro-environment

387This subenvironment has the following three components.

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4.3.1 The mission and objectives of the business

388The Pick n Pay retailing group has the following group mission statement which says a lot about the organisation: “We serve – with our hearts we create a great place to be – with our minds we create an excellent place to shop.” In its mission statement Pick nPay indicates its intention to serve its customers while striving to make its organisationthe preferred place where customers do their shopping. The objectives of this retailinggroup are usually measured in terms of market share, profi ts to be realised and evenempowerment of their workers. These objectives are usually sensitive and not divulgedto the public, because they could land up in the hands of the competition.

4.3.2 Organisational functions

389Among other things, organisational functions refer to purchasing the necessary supplies and the logistics of getting the supplies at the right place, the marketing eff orts needed to meet the wants and needs of the organisation and the fi nancial expertise needed to ensure that profi ts are made and that taxes paid to the South African Revenue Service are correctly calculated and paid over on time.

4.3.3 Human resources

390The human resources of the business are an important asset that must be carefully nurtured and developed to make a business successful. Without the necessary skilled and enthusiastic personnel many a business has been forced to close its doors. One of the major problems faced by South African businesses is the impact of HIV/Aids on the workplace and on employees. Although the HIV/Aids problem can be seen as part of the macro-environment and, more specifi cally, as part of the social environment, managers must take notice of its implications for the specifi c business that they are managing. It is a fact that South African businesses cannot aff ord to lose highly skilled workers to this debilitating sickness. Businesses vary in their approach to managing HIV/Aids in the workplace. Business practices that contribute to mitigating the eff ects of the illness and preventing its spread include the following:

Gathering information from partnerships and collaborations. Partnerships or collabo-rations with external experts, local and international NGOs, academic institutions,government bodies, multilateral institutions, labour unions or employee associationsare critical to the development and implementation of an HIV/Aids programme.

Creating an HIV/Aids policy. A written statement by the organisation describes theirpolicy on HIV/Aids; if possible people living with HIV/Aids should be involved in draw-ing up this statement. Businesses where employees are at risk of workplace exposureto HIV should spell out training requirements, safety procedures and equipment, andhave a plan for responding to workplace exposure to the virus.

Involving multiple stakeholders in policy and programme development. The organi-sation should seek feedback from local and international NGOs, academics, healthexperts, unions and employees to make sure that a policy is thorough, fair and just,and answers concerns of workers. During programme development, the Ford Motor

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Company of Southern Africa held a series of round-table discussions with stakeholdersto gain the support of the community and feedback on its HIV/Aids policy.

Approaching HIV/Aids as any other debilitating disease. From a policy perspective,approaching HIV/Aids as any other progressive disease will help remove its stigmaand make employees living with HIV/Aids less likely to suff er discrimination and,therefore, willing to come forward for treatment.

Designing workplace HIV/Aids programmes to fi t local cultures. The organisationshould develop policies and programmes to deal with the circumstances of HIV/Aidsprevalence, primary mode of transmission, level of work force education and culturalnorms, by taking into account local cultures and conditions.

Ensuring that the HIV/Aids policy is a living document. The organisation should makesure that the policy is driven by all levels and units within the organisation, so thatit is not viewed as only a human resource policy.

Using a comprehensive approach. It is important to follow an approach that focuseson prevention, education and treatment. A programme that focuses only on providingaccess to drugs while ignoring behaviour will ultimately not have a signifi cant impacton workers’ behaviour.

Intervening early. Early intervention is one of the most important strategies of anyHIV/Aids programme. Organisations such as Eskom, with education programmesdating back to the late 1980s, claim to have lower prevalence rates in their work forcethan other businesses in their community because they made HIV/Aids a businesspriority early on.

Getting support from the organisation’s leadership. Clear support from leader-ship is critical, particularly with respect to obtaining resources for comprehensiveprogrammes.

Providing ongoing education and training. The organisation should reinforce andexpand the organisation’s HIV/Aids policy by providing education and training for allemployees, starting with the orientation of new employees. Include information onthe illness, how to prevent HIV infection, appropriate workplace conduct and legalissues that may arise; and provide guidance for managers and supervisors on com-plying with laws and regulations, managing benefi ts, accommodating employeeswith HIV/Aids and helping employees who ask for counselling.

Ensuring legal compliance. The organisation should gain a full understanding of thelaws and regulations governing workplace practices with respect to HIV/Aids and becertain to learn about new legal developments as they occur.

Supporting employees with HIV/Aids. Employees with HIV/Aids should be helped tobalance their job demands and stresses associated with illness-related issues by of-fering support groups, fl exible work scheduling, telecommuting and extra time off .Nutrition and exercise programmes have proven particularly eff ective in improvinglifestyle and maintaining productivity.

Giving employees opportunities to support the fi ght against HIV/Aids. Where cul-turally appropriate, employees should get regular opportunities to make a positivecontribution by creating fund-raising ventures and volunteer opportunities with localHIV/Aids-support groups – and be given time off to participate in these activities.

Helping build local capacity. The organisation should work with local governments,NGOs and health-care providers to strengthen local infrastructure and capacity with

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a view to creating sustainable health-care access for employees and the broader community.

391

392It is clear from the above that management can, to a large extent, determine the success of the business. When things do go wrong for the business, one of the most common reasons can be traced back to poor management practices.

Activity 4.2

Why is it necessary for South African businesses to actively get involved in tackling HIV/Aids in the workplace?

22Feedback:


4.4 THE MARKET OR TASK ENVIRONMENT


Description of the market environment

393The more common term used in management terminology to describe this environment is the “market environment” because it refers to the immediate consumer market, the supplier market and the intermediary market in which competitors also operate. However, because the profi table development of this market is often seen as management’s most important task, it is sometimes referred to as the task environment.

Components of the market environment

394As stated above, the market environment consists of the following components:

The consumer (also called the customer) is the main reason why the business is inoperation. Without a consumer to buy the product or service of the business thatbusiness will eventually fail. So the business must understand the wants and needsof the customer. Information about the customer is therefore needed and the or-ganisation must ensure that they keep track of changes in this market.

Suppliers are categorised as supplying material, capital and labour to businessesin South Africa. Material is a broad term referring to the raw material required,the manufacturers of products and the supplier of energy, which is used by mostbusinesses. Capital is supplied to businesses through various alternative sources of

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which banks (e.g. Absa, Nedbank, Standard Bank and First National Bank) are the most important. Labour is supplied to businesses through organised labour which, especially in South Africa, has an important say in what the workers are paid and what the conditions of service will be.

Intermediaries are those institutions used to bridge the gaps between the manufac-turer and the customer. Some of the most important intermediaries are the whole-salers that sell grocery products to small businesses such as the spaza shops in thetownships. Agents who sell real estate are another form of intermediary that bridgethe gap between the buyer and seller of a property.

Competitors are rival businesses competing for the custom of the consumer. The most direct competitor of a Checkers supermarket situated in Edenvale, Gauteng, is usuallythe nearest Pick n Pay supermarket or Spar supermarket. More indirect competitionmay be the Woolworths store or the convenience stores at the nearest petrol stations.

395

Opportunities and threats in the market environment

396The market environment has a direct infl uence on the business, because this is where com-petitors compete, where the customer is found and where the suppliers and intermediaries operate. So crucial business transactions take place in this environment. Therefore, most of a business’s opportunities or threats are found here. For example, a strong competitor could be a very serious threat to the existing businesses operating in the same market. At the same time, if a business fi nds it diffi cult to compete with a strong competitor, it may identify other needs that it can satisfy in the community – and in so doing exploit (or utilise) an opportunity in that market. Cell C was a late entrant in the cellular phone marketplace and from the start was under threat because it was competing against two established competitors (Vodacom and MTN). Cell C identifi ed a need for a diff erent and more cheaply structured usage for cell phone users, providing substantial savings to prepaid as well as contract customers. Today Cell C is a niche player in the market and has carved out a viable target market against tough competition.

4.5 THE MACRO-ENVIRONMENT


The variables of the macro-environment

397The wider macro-environment consists of variables that infl uence the business in a direct and indirect manner. The changes in the macro-environment are called megatrends be-cause they infl uence all businesses in all the countries of the world. There are six variables in the macro-environment:

Technological environment. Technology is one of the main drivers of change in theworld. Old technology is replaced by new, which creates opportunities and threats

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for businesses. One example is the old telegraph service delivered by the post offi ce. This service was replaced by new technologies such as faxes and e-mails, creating new opportunities for businesses as well as making what was a viable service of the post offi ce obsolete.

Economic environment. This environment has a direct infl uence on other variablesin the micro-environment, the market environment and the macro-environment.For example, a dramatic increase in bank interest rates may negatively impact thedisposable income of consumers who are borrowing money from banks. This maythen negatively impact the social structure of the country when fewer people areable to buy necessities such as food, which may result in social unrest.

Social environment. This environment is infl uenced to a great extent by the tech-nological and economic environment. For example, we are all aware of growingurbanisation with more people moving to cities because of growing unemploymentin the rural areas and the belief that better-paying jobs are available in the majorcities of South Africa. This has resulted in the rapid growth of informal settlementswith resultant demands on the infrastructure of the cities and the development ofnew retailing outlets in the form of spaza shops and shebeens. HIV/Aids is anothersocial problem and one that has massive social and economic implications for SouthAfrican businesses.

Physical environment. This environment focuses on the physical resources thatbusinesses and we as consumers use. Important aspects of the physical environ-ment are the scarce resources that we must manage in South Africa. South Africa isa semi-arid country and there is speculation that we will not be able to supply theminimum needs of the population by the middle of this century. Businesses musttake this into consideration, as the primary manufacturing businesses are some ofthe major users of water.

Institutional/Political-governmental environment. The South African governmenthas a major infl uence on the landscape of business, for instance labour legislationon employment and minimum wages.

International environment. This environment also has a major infl uence on theother variables in the macro-environment, the market environment and the micro-environment. One example of the infl uence of the international environment onSouth African businesses is the changing crude oil price and its impact on the priceof fuel and the infl ation rate. We have seen dramatic increases in the fuel price andthe knock-on eff ect on the prices of food and other commodities.

398

Activity 4.3

How would you classify the following developments as part of the six subenvironments of the macro-environment?

• The government announces the date of the general election.• Inflation is on the rise.• Unemployment figures are on the rise.• More women are going out to work.• A wonder cure for influenza has been found.• There is an increase in oil spills on the South African coastline.

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23

Feedback:


399

4.6 ENVIRONMENTAL SCANNING


Description of environmental scanning

400Environmental scanning is described as the process of the measurement, projection and evaluation of change in the diff erent subenvironments. It can therefore be used to keep abreast of external social, economic, technological and political developments which may be diffi cult to observe or predict, but which management dare not ignore. It entails the identifi cation and monitoring of every opportunity or threat, and may range from a simple information system to a formal environmental scanning division or unit whose sole task is to monitor external environmental factors.

401Because of dynamic changes in the business environment, the organisation must scan its environment on a continuous basis. As stated previously, the scanning process may diff er from one business to another.

Activity 4.3

Is environmental scanning the same for all types of businesses?

24Feedback:


SUMMARY

402You now have a basic insight into the business organisation and the business environment. In topic 2 we will study the general management principles needed to manage a business.

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BUSINESS IN CONTEXT

403Refer to the recommended book entitled Business Cases, in particular case study number 3 “The business environment: The airline industry”. This is not compulsory for you to do, but merely a business-in-context addition to your learning of business management.


404You are the CEO of the Chicken Spice fast-food franchise with 20 company-owned stores in South Africa and 50 franchisees operating Chicken Spice stores under licence. You are preparing for a meeting with the board of directors of the business and have drawn up a SWOT analysis of the business environment in which the company is operating. Write down the key points that you will cover at the board meeting regarding the SWOT analysis. Use the current business environment in South Africa as your point of departure.


405The South African fast-food business is a vibrant sector with numerous success stories, such as Nandos, Kentucky Fried Chicken and Chicken Licken to name but a few. Against this background, let us take a look at the Strengths, Weaknesses, Opportunities and Threats of this company (do a SWOT analysis).

406Strengths of the company may be407• a good product408• good relationships with customers409• good management team410

411Weaknesses may be412• small operation with limited reach – there are other fast-food franchises with more

than 100 outlets, making it diffi cult to compete413• because of small operations, no economies of scale regarding aspects such as bulk

buying and reaping the benefi ts of cheaper prices414• regular cash fl ow problems415

416Opportunities may be417• rapidly growing new middle class with the money to buy chicken products at fast-

food stores418• changing tastes of consumers and recognition in the market that chicken is a healthier

alternative than red-meat products such a hamburgers419• diversifying into a number of product lines, such as low-fat French fries, salads and

low-fat ice cream420

44

421Threats may be422• growing competition from rivals in this sector423• slowdown in the economy, reducing demand from consumers424• negative publicity from the Minister of Health on the consumption of fast-food

products containing chicken425• increase in Aids-related deaths in the middle-income market, reducing the number

of households able to buy chicken fast-food products426

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Learning Unit 5

Corporate social responsibility


427Welcome to the challenges of corporate social responsibility, also known as corporate citizenship! This is a fi eld characterised by many tensions and uncertainties, but it is im-mensely important. Businesses operate in a wider social environment causing both good and bad impacts on the communities and environment around them. They therefore have a responsibility towards these communities and the environment, and as a result need to become involved in solving problems faced by society, such as poverty, unemployment and pollution. Please note that for the purposes of the learning unit and prescribed book we will refer to the term “corporate social responsibility”. However, the terms “corporate social responsibility” and “corporate citizenship” can be used interchangeably.



Introducing corporate social responsibility The citizenship imperative The business case for corporate social responsibility Corporate governance Stakeholders and stakeholder engagement The link: How does CSR relate to the various business functions? Sustainable development

428



distinguish between the diff erent terms and concepts in the fi eld of corporate socialresponsibility

discuss the imperatives for good corporate social responsibility in South Africa draw up a stakeholder map for an organisation, indicating the diff erent categories of

stakeholders explain the business case for corporate social responsibility as it relates to the various

business functions429

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KEY TERMS

corporate social responsibilitycorporate citizenshiptriple bottom line citizenship imperative

sustainable development corporate governancestakeholder engagementstakeholder mappingthe business case for implementing corporate social responsibility


5.1 INTRODUCING CORPORATE SOCIAL RESPONSIBILITY

(CSR)


431What is corporate social responsibility and how do diff erent companies implement its principles? Generally speaking, corporate social responsibility is about proactive eff orts by companies to make a positive contribution to society. There is a combination of reasons why companies implement corporate social responsibility programmes and these are infl uenced by certain social, governmental, market and ethical drivers. Refer to section 5.2 of your prescribed book for a detailed explanation of these drivers.

5.1.1 Citizens and citizenship – what is the link?

432We are all citizens of some or other country, in this case mostly of South Africa. And be-ing a citizen brings with it certain rights and responsibilities. For instance, we have the right to vote, to associate with whomever we please; we enjoy freedom of religion and political orientation; and so forth.

433At the same time, we must observe a few basic rules – our responsibilities. We must obey law and order, we must respect other people’s privacy and possessions, we must not interfere with the rights of other citizens, and so forth.

434In the corporate sector, the same basic principles apply. Corporates – just like ordinary citizens – have particular rights and responsibilities.

435Abiding by the laws of a country is an important component of corporate social respon-sibility. But corporate social responsibility goes beyond legal compliance. Being a citizen means being part of a community. As a good citizen, you want to contribute to the

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welfare of people in your community, because you realise that your life will be better if people around you are having better lives. Within the business context, corporate social responsibility is a concept that recognises that (i) companies have a responsibility for their impact on society and the natural environment; (ii) companies have a responsibility for the behaviour of others with whom they do business; and (iii) business needs to manage its relationship with the wider society.

436Nowadays businesses consider corporate social responsibility as a fundamental piece of a company’s business plan, aff ecting its bottom line, share price and long-term viability; and companies that do not have a strong corporate responsibility strategy fi nd themselves at a competitive disadvantage.

5.2 TERMS AND TRENDS

437A number of terms are applied to corporate social responsibility, and the diff erences and overlaps can become quite confusing! Let’s have a look at some of the more common terms and what they refer to:

While a company’s bottom line traditionally refers to its fi nancial profi t or loss, thetriple bottom line refers to the need to consider the social and environmental impactsas well. What eff ect do the operations of the company have on the people it comesinto contact with (the social side) and on the physical environment in which it oper-ates? This approach is known as the triple bottom line: it measures the fi nancial, socialand environmental impacts of business. All are equal and all are interconnected.

The overarching aspiration and framework for corporate citizenship is sustainabledevelopment. Sustainable development refers to development that meets the needsof the present without compromising the ability of future generations to meet theirown needs.

The term “corporate social responsibility” can be considered as synonymous withcorporate citizenship. However, the emphasis on “social” may be misleading, sinceit emphasises one element of the triple bottom line above the others.

Do not confuse corporate social responsibility with corporate social investment (CSI).CSI is primarily a South African term that refers to companies’ philanthropic initiatives,such as sponsorships for students or support to health clinics in areas surroundinga company’s factory. CSI is only one component of corporate citizenship; corporatecitizenship is much more than that. One way to describe this is that CSI is aboutspending a small part of your profi ts (such as 1% of pre-tax profi t) on good causes,while corporate citizenship is about how you make your profi ts in the fi rst place.

Sustainability reporting refers to the increasing expectations for companies to pub-licly report not just on fi nancial matters, but also on social and environmental issues.

Corporate governance refers to how a company’s objectives, and strategy and deci-sion-making structures are developed, implemented and monitored. It also relatesto the extent and way a company is accountable to its shareholders, as well as itsother stakeholders. Good corporate governance is an important aspect of corporatesocial responsibility.

438

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Activity 5.1

Write a paragraph in which you explain what you understand by the concept of corporate social responsibility and what the key elements of this concept are.

27Feedback:


5.3 THE CITIZENSHIP IMPERATIVE

439In this section we look at what the South African and global drivers for corporate social responsibility are and the reasons why organisations need to embrace corporate social responsibility.

5.3.1 Global drivers

440Over the past 10 years, the pressure on companies to demonstrate good social corpo-rate responsibility practices has increased dramatically. Initiatives such as the AA1000 Framework (www.accountability.org.uk), the Dow Jones Sustainability Index (www.sustainability-indexes.com), the United Nations Global Compact (www.unglobalcompact.org) and the Kyoto Protocol (http://unfccc.int/2860.php) constitute a global shift towards greater accountability of business to a wider range of stakeholders on issues relating to the environment, social justice, human rights, labour rights and climate change.

441Let’s look at a number of initiatives that play a role at an international level.

442The United Nations Global Compact

443The United Nations Global Compact was fi rst proposed by the then UN Secretary-General Kofi Annan in early 1999 in an address to the World Economic Forum, which is a meeting of some of the world’s most important economic leaders.

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444

445

446Source: https://www.unglobalcompact.org/what-is-gc/mission/principles

447

448Today, hundreds of companies from all regions of the world, international labour and civil society organisations are engaged in the Global Compact. As far as South African compa-nies are concerned, the following are included (note that this is not a comprehensive list):

Bell Products Eskom Health Management Institute PG Group Sasol Tru-Lite Waymark Infotech449

450The Global Reporting Initiative (GRI)

451The Global Reporting Initiative (GRI) was launched in 1997 and has pioneered the de-velopment of the world’s most widely used sustainability reporting framework. Its aim is to provide a set of reporting guidelines and indicators that cover all the key issues of concern regarding corporate citizenship. By developing these guidelines, the GRI wants to encourage companies worldwide to be more systematic and comprehensive in their approach to sustainability reporting (see www.globalreporting.org). It currently consists of 507 organisational stakeholders from 55 diff erent countries (GRI, 2008).

452

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453AA1000 Framework

454The AA1000 Framework was launched in 1999 by AccountAbility, a UK-based membership organisation advising and advocating on corporate social responsibility issues. The pur-pose of the framework is to help “users to establish a systematic stakeholder engagement process that generates the indicators, targets, and reporting systems needed to ensure its eff ectiveness in overall organisational performance” (see www.accountability.org.uk). It does not describe what should be reported on, so its guidance is considered comple-mentary to that of the GRI Reporting Guidelines.

455A number of other relevant initiatives

ISO 14000 series. This is a series of standards issued by the International Organizationfor Standardization; it focuses on corporate environmental management systems.

Organisation for Economic Co-operation and Development (OECD) Guidelines onMultinational Enterprises. The work of this organisation concerns the disclosure ofinformation, employment relations, environmental management, bribery, competi-tion, consumer interests, and science and technology diff usion.

SA 8000. This standard focuses on labour conditions and was developed by SocialAccountability International.

South African initiatives and imperatives, which we discuss next.456

5.3.2 South African initiatives and imperatives

457Legislation

458The foundation of corporate social responsibility is compliance with all relevant national legislation. The following list includes some of the laws that are relevant in South Africa for corporate social responsibility. Note that this is only a small selection; the total number of relevant laws is much higher.

459

460King Code on Corporate Governance in South Africa

461The third King Report on Corporate Governance for South Africa, better known as the “King III Report”, was launched by the Institute of Directors on 1 September 2009. The King III

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Report is very important for corporate social responsibility for South African companies and is internationally recognised as being a progressive document. The report provides organisations with guidance on good corporate governance practices and explicitly defi nes and substantiates concepts such as “corporate citizenship”, “social responsibility”, “triple bottom line” performance, “stakeholder engagement” and “sustainability reporting”. The King III Report diff ers from the previous two reports (King I and King II) as it applies to all entities regardless of the manner and form of incorporation or establishment (www.pwc.com/za/en/king3/index.jhtml#).

462JSE Socially Responsible Investment Index

463A further recent development in South Africa, which also impacts on other African coun-tries, relates to the role of investors in corporate social responsibility and the emerging requirements of investors and civil society for companies to demonstrate more socially responsible behaviour. The JSE Socially Responsible Investment Index was launched in 2004. This index comprises criteria to measure the triple-bottom-line performance of those companies in the FTSE/JSE All Share Index that choose to participate. The criteria are provided in terms of the triple-bottom-line categories of environmental, economic and social impacts, as well as a separate category for corporate governance.

464Industry charters

465Over the past few years, a number of sector-specifi c charters were adopted to promote socio-economic transformation and establish an equitable economic playing fi eld. For example:

Charter of Empowerment and Transformation in the Tourism Industry Financial Sector Charter BEE Charter for the South African Mining Industry

466

467Ensuring operational legitimacy or a “licence to operate” requires more than simply a busi-ness licence. Non-compliance with these codes and guidelines will have a serious impact on the future position of businesses in local and global markets, and every organisation has to take note of the specifi c relevance of these imperatives to their business.

Activity 5.2

List three international and three local imperatives that promote the implementation of corporate social responsibility in organisations. Briefl y explain the signifi cance of each factor.

28Feedback:


468

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5.4 THE BUSINESS CASE FOR CORPORATE SOCIAL

RESPONSIBILITY

469Corporate social responsibility is not about being nice. The potential to limit expendi-ture, maintain or improve employee and community relations, control risk and promote reputation means that applying corporate social responsibility strategies is simply good business sense (www.lse.ac.uk/Depts/global/Yearbook).

470The business case for corporate social responsibility refers to the argument that being a good corporate citizen can contribute to a company’s profi tability.

471The business case, therefore, argues that incorporating good corporate social responsibilitypractices will, at the end of the day, have positive implications for the fi nancial bottom line. These benefi ts can come in a variety of forms:

For example, a company that uses energy-saving technology will save money on itsmonthly electricity bill. This benefi t is often referred to as cost savings.

Being a good corporate citizen can also have positive implications for a company’sreputation. This reputational gain can also have positive fi nancial benefi ts throughcustomer loyalty, attracting higher-quality employees or improving relationshipswith investors.

Eco-effi ciency can save a company costs by, for example, using recycled materials inbuilding design, employing solar panel technology to generate energy and the useof fuel-effi cient technologies in vehicles.

Competitive advantage and value creation. A company that ignores ethical, environ-mental or social issues may actively destroy value through the inadequate manage-ment of risks, but may also limit value through missing opportunities. While focusingon the risks will protect existing business interests, and thus conserve value, such apurely defensive approach will not open up new opportunities to create value.

472

473By performing a simple SWOT analysis of the strengths, weaknesses, opportunities and threats facing an organisation, management can identify areas where risks should be managed (threats) and areas where there is the potential to create value (opportunities).

474Table 5.1 below identifi es the key strategic opportunities and threats in the environmental and social fi eld.

Table 5.1: Opportunities and threats in the environmental and social fi eld

Threat Opportunity

Labour shortages Access to new pools of labour from education and training programmes and community involvement

Low productivity and quality because of poor labour practices and skill levels

Higher productivity levels because of better trained staff and higher standards

Missing new market opportunities and the erosion of traditional markets

New markets through an improved understanding of consumer needs

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Product obsolescence through low levels of innovation and inappropriate technology

New products and markets through the application of new technologies

Failure to anticipate new social and regulatory requirements

First-mover advantage by anticipating the impacts of social pressures

Vulnerability because of low investor confi dence Lower cost of capital because of greater investor confi dence in company’s ability to manage change

Higher cost levels from increased regulation of old technology

Lower compliance costs by being ahead of regulations

Recruitment, customer retention problems through poor reputation

Enhanced reputation leading to greater staff , sustomer and investor loyalty

476Some aspects of corporate social responsibility may not have any economic benefi t for companies. This is why the business case for corporate social responsibility cannot be the only reason why companies should be good corporate citizens – national laws and ethics also play an important role. In the South African environment in particular, compa-nies have a huge role to play in making socio-economic progress, and compliance with these rules, regulations and codes will go a long way to ensuring that companies retain their license to operate.

5.5 CORPORATE GOVERNANCE


477Corporate governance refers to the way in which an organisation makes decisions and decides on how to manage its aff airs. The King III Report on Corporate Governance was published on 25 February 2009 and includes the following important principles:

Good governance is about eff ective leadership. Sustainability is the primary moral and economic imperative for the 21st century. Innovation, fairness and collaboration are important regarding sustainability. Integrated sustainability and social transformation will give rise to greater opportuni-

ties for the company and society. Sustainability reporting is a key facet of good corporate governance.478

5.6 STAKEHOLDERS AND STAKEHOLDER ENGAGEMENT


479Stakeholders are those groups or people who are aff ected by or who can have an eff ect on a company.

54

480Business is about people. Stakeholders can be found either inside the organisation (called internal stakeholders, such as executive board members, management, other employees) or outside the organisation (external stakeholders – here we are thinking about sharehold-ers, the consumer public, customers/clients, suppliers and the wider community in the area where the business operates, etc). Primary stakeholders are those whose ongoing support of the company is vital to the company’s survival. These stakeholders commonly have some contractual or fi nancial relationship with the company, that is, shareholders and employees. A company cannot survive if shareholders or employees withdraw their support of the company.

481Often government is also a primary stakeholder. Local communities can also be a pri-mary stakeholder, especially if they own the land that a company needs. For instance, local community opposition or sabotage may make it impossible for a mine to operate.

482Secondary stakeholders have less direct impact on the company and include environ-mental NGOs or the media. A secondary stakeholder can become a primary stakeholder if the conditions change. For instance, a local group that is small and powerless probably has little impact on a company, but if it gets more local support or if it has a convincing legal argument, it may quickly become a primary stakeholder.

483Stakeholder engagement is at the heart of good corporate social responsibility. The stakeholder engagement process allows stakeholders to determine what they want from the company and what they consider to be the issues and culture of the company. The stakeholder engagement process consists of six basic steps:

4841. Prepare4852. Plan4863. Design4874. Engage4885. Evaluate4896. Apply490

491A company wishing to embark on a stakeholder engagement process should start by mapping all external and internal stakeholders, defi ning their role in and impact on the organisation and determining the most appropriate methods to engage with each stakeholder group. The methods can include the use of questionnaires, focus group meetings, surveys, market research, personal visits, joining existing networks, and so on. Refer to section 5.4 of the prescribed book for a detailed explanation of the six steps of the engagement process. It is also important that you learn the principles that guide and govern the entire stakeholder engagement process.

5.7 SUSTAINABLE DEVELOPMENT


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492In 1987 the Brundtland Report emphasised the importance of sustainable development and defi ned it as “development that meets the needs of the present without compro-mising the ability of future generations to meet their own needs”. Some of the most important meetings and agreements that have brought sustainable development to the mainstream include the

Rio Earth Summit 1992 United Nations Global Compact Millennium Development Goals (MDGs) 2000–2030 World Summit on Sustainable Development (WSSD) 1992–2015493

494It is important to understand how CSR can contribute to sustainable development as is explained in section 5.3.

5.8 THE LINK: DOES CSR RELATE TO THE VARIOUS BUSINESS

FUNCTIONS?

495If we look at the various business functions in more detail, it becomes clear that corporate social responsibility touches on every single business terrain and management function. In this section, we will briefl y refer to some of the areas of the impact of social corporate responsibility on the diff erent business functions.

5.8.1 CEO/top management

496The CEO and the top management team are responsible for managing issues that pertain to the entire organisation, such as strategy, fi nancial performance, mergers and acquisi-tions, and governance. In addition, they oversee all the functional areas. Accordingly, the CEO and the top management team will be concerned both with the issues presented above and with specifi c ways that more corporate social responsibility practices can be helpful, for instance by improving stock price, fi nancial performance, corporate reputation and risk management. These elements will be discussed in more detail below.

5.8.2 Operations

497Operating managers are responsible for ensuring that their organisations can produce products and services in a timely, cost-eff ective way and can beat their competitors on price, innovation and quality.

498Good corporate social responsibility practices can create market opportunities and increase the competitiveness of companies that use innovation to develop products or services based on sustainability criteria. Recognising and responding to emerging niche markets allow companies to translate good corporate social responsibility into corporate social opportunity. Organic coff ee, ecotourism, sweatshop-free clothing (e.g. Nike) and fuel cell technologies are but a few examples of product innovations that have success-fully penetrated new markets. These products have successfully responded to changing consumer preferences.

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499Total quality management (TQM) forms an integral part of the operations function and focuses on the development and delivery of quality products by involving the entire com-pany. Total quality should be defi ned not only with reference to fi nancial considerations, but should also include products’ social and environmental characteristics. Similarly, pri-orities for continuous improvement should be determined with reference not only to the preferences of clients/customers and the activities of competitors, but also to constant monitoring of the product’s impact on society and the environment.

5.8.3 Finance

Companies must ensure that their traditional focus on corporate profi ts and shareholder value is accompanied by equal concern for the needs of society and the environment (www.bmw.co.za).

501Generally speaking, the fi nancial director is a very powerful individual and has signifi cant infl uence in an organisation. This implies that he or she will also indirectly exercise a strong moral infl uence on behaviour or employees in the workplace. Strategic priorities (profi t maximisation, expanding market share, cutting costs, etc) can also be very strong infl uences on morality. Traditionally, the fi nance manager is the most diffi cult to convince of the advantages of implementing good corporate social responsibility practices in an organisation, since not all benefi ts can be converted into rands and cents.

502When it comes to the role of the fi nance function with regard to the investment deci-sion, one must acknowledge that access to capital is critical for any company wanting to invest and grow. Good corporate social responsibility practices – particularly corporate governance structures and risk management systems – provide important opportuni-ties to unlock capital. Investors, fi nancial institutions and multilateral lenders will invest in and lend to companies that have a good reputation. This reputation is built up not only through sound fi nancial performance but also through demonstrated transparency, disclosure, integrity with regard to shareholder rights, strong stakeholder relations and sound risk management practices.

503For example, the International Finance Corporation (IFC), which is the private sector arm of the World Bank Group, has stringent lending criteria in place. Prior to lending money to companies for large projects, the IFC insists that an adequate impact assessment be undertaken. Projects must be environmentally and socially sound, satisfying IFC environ-mental and social standards as well as those of the host country.

5.8.4 Procurement

504A group of external stakeholders that has a very close relationship with the business is that of suppliers. Unfortunately the attitude of organisations when dealing with suppliers is all too often: “We tell them what we need, we pay them, and that’s about it.”

505How can a company maximise its positive impact through its suppliers?

506Consider, for instance: How does the organisation fi rst of all choose its suppliers? Do the selection criteria provide for more than just the best price. What is the right or ethical thing to do, and how can the organisation maximise its impact through its suppliers?

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507Here we are talking about something as simple as complying with legislation:

The Preferential Procurement Act 5 of 2000 stipulates that a preferential point systemmust be followed to promote sustainable black economic empowerment.

Black economic empowerment through the supply chain has seen many individualsand communities become fi nancially independent for the fi rst time in their lives. BEEcharters, such as those for the fi nance sector, mining sector and the tourism sector,impose specifi c requirements on the respective industries.

508

509But it is also about more than just adhering to the letter of the law. Does the business know how its suppliers are running their businesses: Where and how do they obtain the products that they provide to the enterprise, and are the values of the organisation aligned with those of its suppliers?

510After all, by buying from them, the organisation is keeping its suppliers in business and adding its vote of confi dence to its suppliers’ business practices!

511Some relevant legislation:

Preferential Procurement Policy Framework Act 5 of 2000 National Black Economic Empowerment Act 53 of 2003 Companies Act 61 of 1973 and Closed Corporations Act 69 of 1984 Constitution of the Republic of South Africa, 1996512

Table 5.2: JSE impact classifi cation table

High impact Medium impact Low impact

Aerospace and defence General retailers Banks

Automobiles and parts Health Insurance

Chemicals Household goods and textiles Investment companies

Construction and building materials

Information technology and hardware

Investment entities

Electricity Leisure, entertainment and hotels

Life assurance

Food and drug retailers Media and photography Speciality and other fi nance

Forestry and paper Real estate

Mining Software and computer services

Oil and gas Telecommunications services

Tobacco

Water

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5.8.5 Human resources

514The real value of a company lies in its people – without sound HR practices, any organisation, however big or small, will sooner or later fi nd itself in big trouble. CSR can help to increase employee satisfaction and loyalty, improve recruitment and retention, and build the long-term pipeline of employees.

515Employees form the internal stakeholder group of an organisation. How does the business treat this stakeholder group? Does it have proper policies and procedures in place that meet the real needs of its employees? This goes beyond service contracts and normal benefi ts such as leave, maximum working hours and overtime: it includes factors such as training opportunities, disciplinary practices and non-discrimination. Does manage-ment promote sound health and safety measures in the workplace? Does the employer encourage its staff to take part in organised employee actions, such as unions? And how does it deal with the unions: is there regular, honest consultation, and do these unions have an input in decision making?

516On the other hand: How do employees treat their employers? Do they adhere to a code of conduct? Is there a corporate culture of anti-corruption and anti-bribery, and are employees participating in initiatives beyond their call of duty, for instance volunteer programmes within the community in which they operate?

517Staff involvement in corporate social responsibility should not be a separate or optional aspect of an entity, but the assessment of the social and environmental impact of em-ployees’ activities should form an integral part of their key performance areas (KPAs) and performance evaluation.


Labour Relations Act 66 of 1995 Employment Equity Act 55 of 1998 Basic Conditions of Employment Act 75 of 1997 Occupational Health and Safety Act 85 of 1993 National Black Economic Empowerment Act 53 of 2003519

5.8.6 Risk management

520The management of organisational risk has become more diffi cult for several reasons:

Globalisation of risks. Companies are competing in a global environment, withrisks coming at them from multiple sources and multiple geographies. It is morediffi cult to keep abreast of potential risks and to know how to respond if they occur.

Heightened surveillance. Companies are being watched by more groups, with morediverse agendas, than ever before. These groups are linked across the globe by theinternet, allowing instant transmission of fact (and falsehood) to millions of consumers.

Increased demands for transparency. Consumers, labour and communities havemoved from a “trust me” to a “show me” stance, demanding to know more aboutwhat a company is doing and how it aff ects them.

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521Social and environmental factors pose an increasing risk to the environment in which organisations operate. Here we are talking about factors such as unemployment, crime, the use of non-renewable resources, poverty and ill health. Of course, HIV/Aids is currently the most signifi cant health challenge facing South Africa.

522HIV/Aids is but one social risk factor that can have an enormous impact on the fi nancial bottom line of companies: Shouldn’t companies seriously rethink their risk management focus?

5.8.7 Marketing and public relations

523Marketing deals mainly with the eff ective development and delivery of a satisfactory product off ering to the market in such a way that it meets the needs of the organisation, the consumer and the community. How should organisations then use their marketing function in a responsible and ethical manner to ensure maximum benefi t to everyone involved: the business, customers/clients, employees and the wider community?

524We all know that marketing is about much more than advertising; but advertising is a good example of a visible marketing initiative that is directed at consumers. How respon-sible are the advertising practices of companies? An example that most of you might be familiar with is the TV ad of a certain cell phone manufacturer, where the boyfriend uses cell phone technology to deceive his girlfriend’s father. It might make you smile, but what message does it send out about the values associated with that product? Is that responsible advertising?

525An example of an advertisement where a product is associated with a good cause is the Isuzu ad where the KB280D small truck is used to rescue a beached whale. However, we do not know what business practices actually underlie this claim to corporate social responsibility – and that is where the real impact will be found.

526Responsible marketing is also about how the organisation positions its brand. For instance:

Is the product properly labelled? Does the brand – through its marketing – actively promote social and environmental

well-being?527

528An interesting new development, which is gaining huge popularity worldwide, is that of brand citizenship and cause-related marketing. Broadly speaking, this is where business and charities form a partnership to market an image, product or brand for mutual benefi t using the power of the brand to make a diff erence in society.

529Consider the following examples:

Woolworths – think of the My School card: Woolworths benefi ts and many schoolsin less fortunate environments benefi t.

Avon beauty products donate a part of their profi ts to the fi ght against breast cancer,especially through the proceeds on their pens that are sold specifi cally for this purpose.

Coca Cola sponsors the Coke Football Stars Tournament.

60

Tiger Brands and the Unite Against Hunger campaign is a classic example of business,government and charities working together for mutual benefi t.

530

531Of course, corporate social responsibility is much more than public relations (PR). If a company chooses to put a marketing spin on fl aunting the company’s good corporate social responsibility practices, it should always be underpinned by demonstrated triple-bottom-line benefi ts. CSR can very easily be misused and turned into a pure PR initiative without any substance.


Promotion of Access to Information Act 2 of 2000 Competition Act 96 of 1979533

SUMMARY

534You now have a basic understanding of the concepts underlying corporate social responsibility. We have examined the imperatives for implementing corporate social responsibility in organisations and discussed why and how stakeholder engagement is key to the process. Finally, the concepts of “corporate governance” and “sustainable development” were defi ned and we have highlighted the link between corporate social responsibility and the various business functions. When you revisit the learning units in this study guide, always be aware of how corporate social responsibility relates to the other key business management concepts. The next learning unit gives you an introduc-tion to general management.

BUSINESS IN CONTEXT

535Refer to the recommended book entitled Business Cases, in particular case study number 4 “Corporate social responsibility: South African Breweries”. This is not compulsory for you to do, but merely a business-in-context addition to your learning of business management.


536Consider the following case study. A PR exercise or true CSR benefi t? But does it need to be “either/or”?

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537

538Many companies (notably listed companies for whom sustainability reporting is becoming an increasingly important requirement) are publishing not only an annual report, but also a sustainability report which focuses specifi cally on the social and environmental aspects of their business. Although the information in such a report should always be honest and truthful, refl ecting the real impact of the company’s business dealings on the triple bottom line, the very fact of issuing such a report is good PR in itself in that it positions the company as a “good corporate citizen” in the eyes of its stakeholders.

539You can fi nd some very good examples of sustainability reports on www.nedbankgroup.co.za, www.sab.co.za, www.angloplatinum.com and www.mtn.co.za.

TOPIC 2

THE MANAGEMENT PROCESS

64

INTRODUCTION AND AIM OF THE TOPIC

540The aim of this topic is to describe the role of management in the business organisation and examine the four fundamental tasks of the management process, namely planning, organising, leading and control. We also explain the diff erent levels and kinds of manage-ment in the business and give an overview of the development of management theory.


After completing this topic, you should be able to

provide an overview of the role of management in a business by defi ning managementand supplying reasons why management is essential to any organisation

analyse planning as a management task relevant to all management levels describe organising as a management task, including modern structuring and design analyse leading as a management task by focusing on culture, motivation

and communication541

CONTENT

542Topic 2 comprises fi ve learning units:

TOPIC 2:

THE MANAGEMENT PROCESS

LEARNING UNIT 6:

Introduction to general management

LEARNING UNIT 7:

Planning

LEARNING UNIT 8:

Organising

LEARNING UNIT 9:

Leading

LEARNING UNIT 10:

Control

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Learning Unit 6

Introduction to general management


543The society we live in consists of all types of organisations. All sorts of small and large organisations such as businesses, schools, hospitals, sports clubs, churches and political parties contribute to the functioning of a community. All these organisations need to be managed. In this learning unit we are going to discuss the general principles involved in the management of any of the above organisations. More specifi cally we will look at the general management principles involved in running a business.



The role of management A defi nition of management The diff erent levels and functional areas of management in businesses Skills at diff erent managerial levels and the roles of managers Development of management theory Summary



discuss the role of management in running a business evaluate the defi nitions of management and discuss the task of a manager describe the management process followed by managers by referring to the levels and

type of management, the skills needed to manage an organisation and the diff erent rolesperformed by managers in the organisation

discuss the various schools of thought in management and look at the innovations that have occurred in management thinking over the years

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KEY TERMS

conceptual skillscontemporary approachcontingency approachdecision-making roleinformation roleinterpersonal rolelevels of management

lower managementmanagementmanagement principlesmanagement theorymiddle managementtop managementquantitative school


6.1 THE ROLE OF MANAGEMENT

546As you will remember from topic 1, management operates in a dynamic environment. In this learning unit we are going to take a look at how management manage the organisa-tion in this changing environment.


547The reason for the establishment of a business is to achieve objectives that would be too diffi cult for individuals to achieve on their own. If you could manufacture a product on your own, you would have no need to establish an organisation. For example, think of all those dressmakers who manufacture their product (dresses) without ever needing to form an organisation. However, if you wanted to make dresses on a large scale and market them throughout South Africa, you would not be able to do so on your own – you would have to employ other dressmakers. In other words, you would have to form an organisation.

548In this learning unit the word “organisation” is used quite extensively. Throughout our discussion, the word “organisation” and the word “business” are used interchangeably.

549It is important to remember that the success of any organisation depends almost entirely on how the organisation is managed. Management in any enterprise is essential to

direct the organisation towards its objectives set and keep the operations of the organisation on a balanced course keep the organisation in equilibrium with its environment attain its goals synergistically and productively550

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551One of the most common causes of business failure is poor management (see table 6.1 in the prescribed book). We now provide a more comprehensive overview of the task of management by looking at a defi nition of what management entails.

6.2 A DEFINITION OF MANAGEMENT

552Here are some of the various defi nitions of management:

“the process or technique of managing (organising and operating) a business” (Web-ster’s new world encyclopaedia 1992:704)

“the process of planning, organising, leading and controlling the resources of theorganisation to achieve the stated goals as effi ciently as possible”

553

Study section 6.3 in ITBM and look at the defi nition provided.

554After reading this and the other defi nitions, complete the following activity:

Activity 6.1

You will agree that the above defi nitions and what was behind Bill Ford’s success with the Ford Motor Company have something in common. Answer the questions below to identify these common factors. You may have to refer back to the sections above before answering the questions.

(1) What are the four basic management tasks? Look at the various defi nitions suppliedand see if they all include the basic management tasks that a manager must perform.

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6.3 THE DIFFERENT LEVELS AND FUNCTIONAL AREAS OF

MANAGEMENT IN BUSINESSES


555

556As far as the levels of management are concerned, it is essential to diff erentiate between the

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three levels of management, which are top management such as the CEO of the com-pany, middle management (e.g. responsible for the human resource function of theorganisation) and lower management (e.g. managers at supervisory level in a factory)

responsibilities of managers at those diff erent levels557

Levels

558Note that some organisations will have only one or two levels of management (e.g. in a sole proprietorship), whereas very large organisations may have as many as eight or more levels of management. But even with so many levels of management, they can still be classifi ed into three broad categories of top, middle and lower management.

Types

559As far as the types of management are concerned, it is necessary to distinguish between the diff erent functions. They are general management, marketing management, fi nancial management, production and operations management, purchasing management, human resource management and public relations management. Since most of the fi rst-year course in Business Management is presented in terms of these functions, it is important for you to know what the functions of a business are and how they work together to attain the set objectives of the organisation.

560Special reference must be made to the function of the general manager. General manage-ment diff ers from other functions because every manager, regardless of the specialised function in which he or she operates, exercises it.

561We now consider in more detail the skills required of managers to carry out the manage-ment process and the roles they play in business.

6.4 SKILLS AT DIFFERENT MANAGERIAL LEVELS AND THE

ROLES OF MANAGERS

Study sections 6.5 and 6.6 in ITBM and observe a manager of any business in action.

Skills required

562Note the diff erent management skills required at diff erent levels, particularly as illustrated in fi gure 6.4 of the prescribed book. You must understand the management activities at the various levels.

563Figure 6.4 should be interpreted in terms of the size of the various “blocks” of skills next to each level of management. This fi gure, for example, illustrates that top management

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require a few technical skills and interpersonal skills (compared with lower management), but many conceptual skills and diagnostic/analytical skills. For lower management, the skills requirement is the other way round, while middle management requires a relatively equal proportion of all the listed skills. Some of the most famous managers moved through the ranks: that is, they started out working at a technical level (lower management) and worked themselves up into middle management and eventually top management posi-tions. Jack Welch of General Electric was such a manager; he joined the company as a management trainee.

Supporting roles

564In addition to the four fundamental management activities, managers also have to play a number of supporting roles: the interpersonal role, the decision-making role and the information role. Within these major roles the manager also fulfi ls subroles, such as in the case of the interpersonal role. Using Raymond Ackerman of Pick n Pay as an example, we see that he is still the representative fi gure of the Pick n Pay group. He is often mentioned in the newspapers and some customers still see Pick n Pay as Ackerman. He has a very high profi le in the South African public eye. He is defi nitely seen as the leader of the group, even though Nic Badminton took over the position of CEO of the company a while ago.

Managerial problems

565Since government has made it a priority to promote economic empowerment among disadvantaged entrepreneurs, it is crucial to focus on assisting black-owned businesses. Although these businesses are potentially a strong vehicle for increasing employment and contributing to economic growth, many are in trouble because of a lack of business training.

566According to a Business Day report, businesses in the South African construction industry were particularly vulnerable: 86% of construction businesses had exhausted their overdraft facilities in the last six months of 2004. Formal businesses registered as sole proprietors or partnerships were also found to fare poorly: 74% of these businesses had exhausted their overdrafts in the same period as opposed to 45% of close corporations and 23% of proprietary companies.

567Business Day’s fi ndings strongly suggest that, in order to eff ectively contribute to the promotion of economic empowerment, a priority should be to improve the basic administrative and managerial capabilities of black-owned businesses.

568While eff orts such as promoting growth, increasing access to fi nance, increasing market share, or promoting the internationalisation of black-owned small and medium enterprises are all important, if the fi rms’ underlying managerial weaknesses are not dealt with, much of this eff ort and cost could be wasted.

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6.5 DEVELOPMENT OF MANAGEMENT THEORY


569Finally, we are going to examine the evolution of management thought in the past de-cades, which will also help to explain the present status of management and the approach followed in the prescribed book.

Theories

570This section deals with the diff erent approaches to management. It is essential for you to understand the theories of the various schools of thought, because this will help you understand the contemporary approaches to management. (See fi gure 6.7 on the evolu-tion of management theory.) The process approach, which distinguishes four elements of management and seven functions of a business, forms the basis of the prescribed book.

Schools

571It is important to understand that these theories are not all in contrast to one another since they deal with diff erent aspects of management. The quantitative school, for example, focuses on the ways managers make decisions, while the classical school focuses on the various tasks (or processes) of management.

Scientifi c school

572The scientifi c school tends to view workers rather like machines, who would all respond in the same way if they were “tuned” correctly. For example, Taylor believed that an “expert” should work out the best way to perform a task and workers should then be taught and supervised to ensure that they work in the prescribed manner. There are many enterprises in South Africa where employees are still managed along these lines.

Management process school

573This school identifi es the most important functional areas in the organisation, such as the production/operations function, the marketing function and the fi nancial function.

Behaviourist school

574The human relations or behaviourist school sees workers as people who need to be “treated” properly, that is, with respect and consideration. The assumption made by this school of thought is that when workers are treated well and made to feel happy, they will give their best.

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Quantitative school

575This school sees the main function of management as using a system of mathematical models and processes. One such example is in the fi eld of marketing where marketers would like to know the diff erences between diff erent groups of people (target markets). This information can be gained by doing discriminant analysis, which uses some aspects of mathematics and statistics. Management, however, is much more than that and, at most, quantitative techniques are no more than an aid to management.

Systems approach

576This management school sees the organisation as a system of many parts that must be managed in an integrated manner. All the functional areas in the organisation (e.g. fi nan-cial department and marketing department) must work together to attain the objectives of the organisation.

Contingency approach

577The contingency approach suggests that it depends on the nature of the worker. Some employees will be productive if their work procedures are clearly laid out for them; others will give their best if they are treated like human beings; and others again will perform well when they are given the opportunity to prove how good they are. According to this approach, managers have to adapt their management style to the particular characteristics of individual employees.

578Take note of some contemporary approaches to management (section 6.7.2):

TQM (Total Quality Management) the learning organisation and re-engineering of businesses diversity management579

580Management approaches and theories are important instruments to broaden knowledge. Understanding the evolution of the management process gives us a broad perspective of the vastness of the body of knowledge on research, principles and problems of manage-ment and approaches to management from which managers can draw.

Activity 6.2

Look at the company where you work or ask a family member who is working and try to answer the following question: How many nationalities, races and age groups are represented in the organisation? Do you think it is easy to manage such a diverse group of workers?

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581

SUMMARY

582You now have a basic insight into the role, defi nition, levels and types of management in the organisation. In the next learning unit you will study the fi rst management func-tion: planning.

BUSINESS IN CONTEXT

583Refer to the recommended book entitled Business Cases, in particular case study number 5 “General management: Edcon”. This is not compulsory for you to do, but merely a business-in-context addition to your learning of business management.


584Read this case study and then answer the questions that follow.

585General Electric – the American company renowned for delivering managers of

distinction

586The General Electric Company (GE) in the United States is renowned as a multination-al company with world-famous strategic business units (SBUs). An SBU is an individual branch or unit of the business of which the manager has some measure of autonomy and independence as far as purchases, the appointment of personnel and marketing are concerned. The manager of a branch is also responsible for the success of this branch. The manager of a unit, such as the renowned jet engine unit, or the unit that manufactures appliances such as refrigerators and washing machines, or the consumer fi nance company, is a well-rounded manager who can manage any SBU in the group. GE became famous under its previous chief executive offi cer (CEO) Jack Welch and its current CEO Jeff Immelt as the company where managers are formed in the United States. Some of the successes of GE can be ascribed to the following management tenets employed in this company:

taking time to understand the company and the management team that you areworking with and then respect the corporate culture of the company

using the Six Sigma programme, a complex quality control management tool creating autonomous units and rotating managers among these units increasing revenues while cutting costs at the same time cutting the bureaucracy in the organisation and letting more people report directly

to the CEO

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getting a road map (i.e. set objectives) that everyone can understand and stickingto these objectives

believing that great people build great companies587

588QUESTION 1

589Which of the following statements regarding GE is/are correct?590

591a It is clear that GE follows a scientifi c approach to management.592b GE adheres to the fundamentals of the human relations school in the way it manages

the organisation.593c GE uses the contingency approach to management.594d There is evidence that managers in GE make use of the quantitative school of thought.595

596 1 d597 2 c d598 3 a b d599 4 a b c d 600

601QUESTION 2

602The case study mentions that one of the tenets of GE is to reduce the amount of bureau-cracy. From what has been said in the case study, how many of the following statements would help to reduce the amount of bureaucracy in GE?

603a Reduce the levels of management in the organisation.604b Let more managers report directly to the CEO. 605c Increase revenues and cut costs simultaneously.606d Create autonomous SBUs and rotate managers among them.607

608 1 None of them609 2 All of them610 3 a b611 4 a612

613QUESTION 3

614It is said that a manager has three overlapping roles: an interpersonal role, an information role and a decision-making role. Looking at the management tenets used by GE, under which role would you classify the seven tenets in the case study? (Write the seven tenets down in table format and identify the relevant management role that each refers to.)

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615

616

617Question 1

618Three of the statements are correct. GE uses the scientifi c school of management because its managers use scientifi c tools (e.g. Six Sigma) to improve their businesses. GE also uses the behavioural school of thought in the way it utilises its human resources, for example by rotating the managers and exposing them to new problems and opportunities. The quantitative approach is also used if we look at the Six Sigma tool that has made GE famous. GE does not use the contingency approach; it uses the universal principles of management, such as planning and control.

619

620Question 2

621Bureaucracy can be described as the way an organisation is managed and is usually applied in a negative manner, such as being infl exible or insensitive. Against this background we can see that statements a and b are correct. If you reduce the number of levels or layers of management in the organisation you get a fl atter structure, which makes the time span shorter for communication to fl ow from the lowest levels to the highest levels and vice versa. Statements c and d are not directly linked to the reduction of bureaucracy. In eff ect we may fi nd that too many managers reporting to the CEO may result in informa-tion overload, thus limiting the capabilities of the CEO.

622

623Question 3

Tenets of GE Roles of the manager

1 Understand the business and the management team and respect the corporate culture

Information role. In order to understand the business you must gather information about the business

2 Use Six Sigma approach (Six Sigma is a quality control approach that emphasises the pursuit of higher-quality products at lower costs)

Decision-making role. Six Sigma can be seen as a measurement technique on which management base their decisions for the future

3 Create autonomous units and rotate managers among them

Decision-making role. Creating autonomous units such as the GE jet engine unit and rotating managers are examples of allocating resources

4 Increase revenues and reduce costs Decision-making role. This is a management decision to improve the profi tability of the organisation

5 Cut the bureaucracy Information role. Cutting the layers of management and getting more people to report to the CEO help everyone get management information more quickly

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6 Identify objectives and adhere to them Decision-making role. Managers decide on objectives in consultation with the relevant participants and ensure that these objectives are attained

7 Believe that great people build great companies

Interpersonal role. Especially the leading part of management helps to appoint the right people, train them and motivate them to ensure that they operate for the greater benefi t of the organisation

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626

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Learning Unit 7

Planning


628Planning is the starting point of the management process and entails a systematic and intelligent description of the direction a business organisation must take to accomplish the goals determined. Successful managers anticipate change in the environment and plan accordingly. In this learning unit we will fi rst look at the reasons why planning is needed and defi ne what the term “planning” means. Thereafter we will discuss the plan-ning process. Finally, we will discuss the process of setting goals and the development of plans to attain these set goals.



Why planning is needed Managerial goals and plans The planning process Setting organisational goals and developing plans Summary

629



explain why planning is needed in the organisation explain what a goal is discuss the steps in the planning process compare the diff erent organisational goals as used by top, middle and lower management discuss the requirements that must be met when setting goals compare the diff erent plans that can be used by the organisation diff erentiate between strategic, functional and operational planning

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KEY TERMS

goaltop management, middle management and lower managementgoal-setting by managementplanning processstrategic goals

functional (tactical) goalsoperational goalshierarchical approachdevelopment of plansmanagement by objectives (MBO)


7.1 WHY PLANNING IS IMPORTANT


632“If you are failing to plan, you are planning to fail” (Tariq Siddique)

633The above quotation says a lot about why planning is needed. Planning is the starting point in any management process and has two components: the activities involved in determining the organisation’s goals and showing the way forward (the plan), and how to achieve these goals. It is only for the purpose of studying the work of a manager that we distinguish between the diff erent tasks of the manager (planning, organising, leadership and control). The tasks of a manager can be depicted graphically as follows:

634

635PLANNING 636ORGANISING 637LEADERSHIP 638CONTROL

639

640In practice, the CEO of a company may set some goals for the organisation to attain, for instance to manufacture 1 000 000 units of a product, or to reduce the costs incurred by the organisation by 10% in the next fi nancial year. These are goals that the CEO and the organisation set for themselves. Goals can therefore be seen as the desired future state that the organisation sets for itself over a fi xed period of time – usually a fi nancial year or sometimes a longer period such as three or fi ve years.

641Getting to the second part of the planning activity we see that a plan must be devel-oped to show how we are going to achieve the set goals. The plan can therefore be described as the design indicating how much money (capital) must be borrowed to manufacture 1 000 000 units of the product, how many workers must be appointed,

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what training they will need and how much raw material must be bought to manufac-ture these products.

642Today’s environment is characterised by constant change and the more turbulent the environment, the greater the need for planning. Even though managers are not able to predict the future, they need to be able to anticipate change in the environment and adjust their goals and plans accordingly. Below are some of the main reasons why we need to do planning as part of the management process.

Planning gives direction to the organisation in the form of goals and plans. It providesthe road map telling the organisation where to go and how to get there.

Planning helps to get the diff erent functional areas to work together. It providesinformation to the production people on how many units to manufacture, it informsthe marketing section about their job (i.e. to create a demand for the product andto facilitate the process of selling the product) and it gives the fi nancial section abetter idea about capital needs and cash fl ow required to run the business properly.So we can say that planning helps with the coordination, cohesion and stability ofthe organisation.

Planning forces the organisation to take a hard look at what the future holds for theorganisation. Many managers get so involved in the day-to-day running of the busi-ness that they tend to forget about the future. There is an old saying that nothingin the future will be the same as it is today! This holds true for any business. One ofthe most dramatic changes that we see in the business world is of course the risein technology. Technological changes are taking place rapidly and the organisationmust look to the future, anticipate changes and refl ect on how they will infl uencethe business.

643

Activity 7.1

Read through the following excerpt from the case study:

After 25 years of mining with an open-cast zinc mine, a deep-level mine was built to further exploit the ore body. This resulted in huge challenges due to the diff erent min-ing practices required to mine a deep-level mine and projected production targets were never met. Management realised that a signifi cant intervention was required to unlock the potential of the mine in terms of production, costs and skills.

Management decided that they needed to reduce direct costs by 15%, increase production by 20% to achieve projected output and improve asset utilisation by 10%. A management operating system was developed and implemented to focus on corrective, preventative decisions and activities. Management also decided to redesign the engineering function to ensure eff ective preventative and breakdown maintenance. Management further trained and coached 75 managers and supervisors in accountability for key performance areas centred on the three core elements of production, safety and cost management. By the end of the 35 weeks of implementing the new system and activities, management was able to reduce annualised direct costs by 18%, increase production by 22% and improve asset utilisation by 15%.

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Evaluate what is said in this excerpt and test whether management is fulfi lling the

basic tenets of planning as we have discussed in this section.

38Feedback:


7.2 MANAGERIAL GOALS AND PLANS


644Every business needs to set goals to determine in which direction it is headed. To accom-plish or reach these goals, businesses need a plan which will direct them towards these goals. Managers therefore need to ask two questions: Firstly, where do we want this or-ganisation to be at a specifi c future date (setting specifi c goals)? Secondly, how will the organisation achieve these goals (formulating a plan)?

645Diff erent goals are set by the diff erent managerial levels and range from strategic goals formulated by top-level managers, to operational goals formulated by lower-level manag-ers. It is important that managers formulate goals that are specifi c, measurable, attainable, relevant and time-bound.

646When setting goals, management must consider the following general guidelines: First, it is important to recognise that goals provide guidance to the organisation; they must be the road map used by every worker in the organisation. Second, goals must be measur-able; if they are not quantifi able, then they cannot be controlled. Third, the responsibility for attaining goals must be assigned to specifi c people in the organisation. Fourth, goals must be set consistently so that the diff erent functional areas work together. Finally, there must be buy-in of the goals set, meaning that every worker must be informed and moti-vated to attain the set goals. This further means that the remuneration system must be set in such a manner that there is an incentive for workers to reach these goals.

647Management by objectives (MBO) is a goal-setting technique whereby managers and employees jointly defi ne goals for the business. The most obvious advantage of this approach is that employees have a say in setting goals, which also improves worker mo-tivation, as they have been part of the process. Below is an excerpt from a conference paper by Dr Ed Lawler III, a very well-respected management guru from the University of Southern California. He remarked that organisations in which people were linked to strategy, structure, processes and rewards had a strong competitive advantage.

648“In the high-performing organizations, employees know what to do, why they do it, and they are motivated to do it. A business requires [a] signifi cant amount of power, business information, knowledge, performance-based rewards at all levels of the organization.”

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649Through his research, Dr Lawler has found goal-setting in the high-performance organ-isation to be directly connected to the overall business strategy of the organisation. The research shows that performance goals, jointly set and driven by business strategy, are the most eff ective.

650Source: http://www.nceo.org1main1column.php1id1299

651While goals are seen as the road map telling the organisation where to go and how to get there, a plan is the “blueprint” for achieving the goals and will indicate how the business should use its resources and time to reach these goals. The planning process will now be discussed in more detail.

7.3 THE PLANNING PROCESS

Study fi gure 7.1 and the components of the planning process in section 7.4.2 in ITBM.

652It is important to understand that planning does not take place in isolation and as a one-off activity. It is an ongoing process. Below are the main steps of the planning process:

653

654Goal-setting

655Developing plans

656Implementation

657Reactive planning

658As can be seen from the fi gure above, the planning process consists of various activities: goal-setting which takes into consideration the mission of the organisation, the develop-ment of plans based on the information obtained from the environmental scan and the implementation of the plans by means of the other management functions (organising, allocation of resources, leading and exercising control). There is obviously the feedback loop, which starts the whole process again and which is described as the reactive plan-ning stage. Managers also refer to it as “learning from your mistakes”!

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661It is important to remember that planning is

not a static process, but a dynamic one. This means that it is a process that neverstands still; nor can it remain the same. Plans should be reviewed at regular intervalsand then adjusted (if necessary) to adapt to changing needs and circumstances (thefeedback loop)

the foundation on which the other management tasks rest. It is important for you tounderstand how planning is interlinked with the other management tasks. If plan-ning is not done properly, it will have a detrimental eff ect on how the organising,leading and control tasks are performed

662

Activity 7.2

Let us take the planning process to a more personal level to clarify the diff erences

between goal-setting, developing plans and implementing the plans.

Unisa lecturers live very sedentary lives with long hours sitting in front of a computer and at a desk marking assignments and conducting research. The medical scheme they belong to has conducted research and identifi ed that they must become more active to live more productive lives. After all, both government and Unisa have invested thousands of rands in training them.

The medical scheme develops a mission statement in which it states that its members should be healthy and feeling well in themselves. The goal that the medical scheme set to realise this mission statement was that obese lecturers must lose weight, which will also be good for their blood pressure. To this end the medical scheme took the following action:

• evaluated research that was published and information obtained from its own database• sent out a questionnaire to all lecturers about their current weight and physical exercise

regime• compared the information obtained from the questionnaire with their own records

regarding the medical history of these lecturers• identified the high-risk cases and invited these lecturers to join the High Performance

Training Centre in Pretoria to undergo further tests so that a personal trainer couldbe assigned to them

The medical scheme decided to measure the success of this programme after one year with a requirement that at least 30% of the obese lecturers would have a normal body–fat ratio and that 40% of these lecturers would have a normal blood pressure reading.

You are asked to classify the above actions into the three activities of the planning

process (i.e. goal-setting, developing plans and implementation) completed by the

medical scheme.

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7.4 SETTING ORGANISATIONAL GOALS AND DEVELOPING

PLANS

Study sections 7.4.1 and 7.4.3 in ITBM.

664An organisational goal is defi ned as a specifi c achievement to be attained at a specifi c future date. It is important to understand that goals are not set in isolation. Goals are infl uenced by the mission of the organisation, the business environment in which the organisation operates, the values held by management and the experience gained by management.

The mission of the organisation refers to the purpose as set out by the manage-ment of the organisation. For example, remember the mission statement of Pick nPay: “We serve – with our hearts we create a great place to be – with our minds wecreate an excellent place to shop.” The fi rst part, “we serve”, refers to the customerorientation of the organisation. The second part of the statement refers to the dreamof the organisation that it will create a wonderful place for their employees to workand the last part refers to the fact that they want to create a wonderful place fortheir customers to shop.

The business environment has been discussed previously and we will not go intodetail about the dynamic environment in which organisations operate. Obviouslymanagement must consider the environment in which the organisation operateswhen determining the goals of the organisation. It is very diffi cult for managementto keep track of all the changes in the dynamic business environment. Peter Drucker,the world-renowned management thinker, said the following about predicting thefuture: “Trying to predict the future is like trying to drive down a country road atnight with no lights while looking out the back window.”

Management’s values also infl uence the goals. Taking Pick n Pay as an example again,we see that they articulated the following values in their fi nancial year report: “Weare passionate about our customers and will fi ght for their rights; we care for andrespect each other; we foster personal growth and opportunity; we nurture leader-ship and vision and reward innovation; we live by honesty and integrity; we supportand participate in our communities; we take individual responsibility and we are allaccountable.”

The experience of management also plays a role in the determination of organisa-tional goals. Sean Summers, the previous CEO of Pick n Pay, was involved in openingthe fi rst Pick n Pay Hypermarket outside South Africa, in Brisbane, Australia, in 1986(later sold off on account of South Africa’s political pariah status at the time). He ac-knowledged the fact that this was a tough time and that he had learnt from it. Thefollowing excerpt summarises the value of experience in a business environment:

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The value of experience

“Recently, I was asked if I was going to fi re an employee who made a mistake that cost the com-pany $600,000. No, I replied, I just spent $600,000 training him. Why would I want somebody to hire his experience?” (TJ Watson)

666Diff erent organisational goals must be set by diff erent levels of management. Basically we see that the organisation has its goals while the people working for the organisation have their separate goals which are subservient to the goals of the organisation. As stated previously, the mission provides the guiding light for the organisation in setting its goals. We distinguish between three types of goals:

The strategic or long-term goals. These goals and plans to achieve them are set bytop management and are future-oriented with a time frame of three to ten years.The plans to achieve these goals focus on the organisation as a whole. Various long-term plans can be developed by top management, among other things marketdevelopment such as done by Telkom, which has set the goal of giving thousandsof individuals access to telephones in rural communities across South Africa.

The tactical or functional goals. These goals are determined by middle managementand cover a period ranging from one to three years. Using the Telkom example again,we see that it is promoting ASDL internet connections by means of an intensivemarketing campaign over a period of more than a year.

The operational or short-term goals. These are set by lower-level management andcover a maximum period of one year. Using the Telkom analogy again, we see theuse of promotional pamphlets included in the monthly telephone bill for the ASDLservice as an example of a short-term plan to increase the uptake of this service.

667

Activity 7.3

In discussions by the top three retailers’ CEOs in South African trade journals, the

following general planning activities were mentioned:

• All three CEOs stated that they wanted to grow their organisations internationally sothat they could earn at least 30% of their total revenue outside South Africa.

• They also wanted to increase the number of consumers buying on the internet by20%. They furthermore wanted to cap costs to grow at a rate lower than inflation.

• They wanted to raise their brand awareness inside South Africa in the next six monthsby at least 10%.

668

Which of these are strategic goals, functional goals and operational goals?

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669

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SUMMARY

670By now you should have a clear understanding of the process of planning and how it in-terlinks with the various management activities (namely organising, leading and control). We saw that planning is the fi rst step in the management process that is done once top management determines the mission and goals of the organisation.

671Remember that planning is an ongoing process and that goals and plans need to be adjusted and reviewed continuously within a changing environment; and should there be a deviation from the plan, reactive planning needs to take place.

672The next step is to look at organising, which involves setting up a structure through which activities can be performed to attain the set objectives. Also needed in this process are the necessary resources which must be assigned to certain individuals. These matters will be discussed in the next learning unit.

BUSINESS IN CONTEXT

673Refer to the recommended book entitled Business Cases, in particular case study number 6 “Planning: Tsogo Sun”. This is not compulsory for you to do, but merely a business-in-context addition to your learning of business management.


674Let us test your understanding of the business terminology that you have been exposed to in this learning unit. Match the sentence in group A with the most likely explanation in group B.

Group A Group B

1. The process of goal-setting, developing plans andimplementation

a. Top management

2. The broad plan of how the organisation is going to compete in its industry

b. Operational plan

3. The managers who have middle managers as subordinates c. The planning process

4. The process whereby management and employees jointlyset goals and whereby the progress towards the attainmentof these goals is periodically assessed

d. Strategic planning

5. A specifi c achievement to be attained at a future date e. Planning

6. The process of formulating shorter-term plans for implemen-tation in an organisation’s strategic plan

f. Lower management

7. The process of setting goals and deciding how to achievethem

g. Goal

8. The managers who do not have managers for subordinates h. Management by objectives

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676

677Question 1

678The process of goal-setting, developing plans and implementation is called the planning process. (1 ::: c)

679

680Question 2

681The broad plan of how the organisation is going to compete in its industry is named strategic planning. (2 ::: d)

682

683Question 3

684The managers who have middle managers as subordinates are called top management. (3 ::: a)

685

686Question 4

687The process whereby management and employees jointly set goals and whereby the progress towards the attainment of these goals is periodically assessed is called manage-ment by objectives. (4 ::: h)

688

689Question 5

690A specifi c achievement to be attained at a future date is called a goal. (5 ::: g)

691

692Question 6

693The process of formulating shorter-term plans for implementation in an organisation’s strategic plan is called an operational plan. (6 ::: b)

694

695Question 7

696The process of setting goals and deciding how to achieve them is called planning. (7 ::: e)

697

698Question 8

699The managers who do not have managers for subordinates are lower management. (8 ::: f)

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Learning Unit 8

Organising


700In learning unit 7, we discussed planning as the fi rst important element of the manage-ment process. The structured grouping and combining of people and other resources, and coordinating them in order to achieve organisational goals constitute the second important element of management, namely organising, which we will now discuss.


Contents of this learning unit:

Introduction to organising The importance of organising The fundamentals of organising Factors that infl uence organising and how organisations are designed Summary

701



analyse organising as a management task, including contemporary structures and de-sign, demonstrating how this serves as a framework for the activities of the organisation

explain the concepts of organising and organisational structure describe the importance of organising discuss the fundamentals of organising explain how an organisation evolves from a single-entrepreneur organisation into a

large organisation identify and explain the factors that infl uence organisational design

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KEY TERMS

702importance of organising703structure704specialisation705responsibility and authority706authority relations707informal organisation

708mechanisms709fundamentals of organising710departmentalisation711centralised and decentralised712span of control


8.1 INTRODUCTION TO ORGANISING


Structure

715Organising refers to the establishment of a structure within which the organisation’s activities can be carried out. It includes the subdivision of the organisation into specifi c divisions and departments. It also involves the allocation of tasks to various positions in each department.

716How the resources and activities of a business are organised will diff er from one organ-isation to another, depending on a number of factors such as the size, strategies and culture of the business. Take a simple example: Compare the organisational structure of an entrepreneurial business such as a small catering company with that of a multinational such as Sasol.

717The catering company might consist of an entrepreneur, a chef and some casual staff (waiters/waitresses). The entrepreneur (owner) will probably assume the role of general manager, responsible for marketing, costing and pricing, planning, scheduling and su-pervising daily activities. The chef will be responsible for purchasing fresh produce and preparing party platters and other meals, while the casual staff will be responsible for preparing venues, serving guests and cleaning up after functions.

718Although done very simply, we have applied the management task of organising to the catering company by dividing and allocating the total workload for the company to diff erent individuals. Each person knows what is expected of him or her and what tasks to complete.

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719In a very large organisation such as Sasol or Edcon the organising task is much more com-plex, with the total workload of the organisation distributed over various departments, functional and product areas and even geographical regions.

8.2 THE IMPORTANCE OF ORGANISING


Importance

720It is imperative that you understand what is meant by organising and why it is important to an organisation. For an illustration of the importance of organising, read through the case study below and then complete activity 8.1.

721

722Case study: Kalk Bay Fisheries

723Kleinjan Jantjies works as a fi rst-line manager at the I&J fi sh factory in Kalk Bay. He has been a recreational fi sherman all his life. Each December vacation he and his two best friends, Thabo and Lukas, fi sh up the West Coast from Kalk Bay to Saldanha, catching mostly snoek and kabeljou and if they are really lucky, the occasional yellowtail. They usu-ally spend the last few days of their vacation preparing their fi sh as pickled fi sh, smoked snoek, snoek pâté and whole frozen line fi sh for the occasional braai.

724For the three friends, fi shing has always been just a social activity; however, following a particularly successful fi shing season this December, Kleinjan suggests to his two friends that they start a business from their hobby. Kleinjan would own 50% of the shares as they would use his boat, and Thabo and Lukas would own 25% each. After a couple of days of careful planning, the three friends agreed on what they wanted to achieve and established their small business. Before establishing the business, Thabo worked as an accountant and Lukas was in marketing.

725A month after starting Kalk Bay Fisheries, things are not going too well. In terms of the actual fi shing, things are going great. The three friends are catching a lot of fi sh and are having a good time and their freezers are fi lling up fast. However, in terms of making a profi t and a success of the business, they are way behind in their plans. Their overeager-ness to fi sh and enjoy the “good” side of the business means several things have not happened, such as processing, packaging and distributing their catch, marketing their products, and managing expenses and income (though there is of course no income yet).

726Another problem is that the friends have started bickering among themselves about who should do what and who is actually in charge. A case of too many chiefs and too few Indians, as the proverb goes ...

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727Clearly the business lacks structure and organisation, which is having a negative impact on the fl edgling enterprise. If things are not sorted out soon, Kalk Bay Fisheries might fi nd itself stranded out at sea with no life raft back to profi tability.

Activity 8.1

As a management consultant to Kleinjan and his friends, explain the importance of or-ganising their business activities.

43Feedback:


8.3 THE FUNDAMENTALS OF ORGANISING


728With an understanding of why organising is important, our attention now shifts to the fundamentals of organising. This is a very important section for you to study. How an organisation is structured has an extremely powerful infl uence on the success of the business. (The study of how organisations are structured and designed is covered in great detail in the Unisa honours course on organisational change and renewal.) Building an organisational structure revolves around fi ve building blocks or the fundamentals of organising, namely:

designing jobs for employees (section 8.3.1) grouping employees into teams or departments based on what they have in com-

mon (section 8.3.2) establishing reporting lines (section 8.3.3) establishing authority relationships (section 8.3.4) establishing coordinating mechanisms (section 8.3.5)

729

730First you need to know the benefi ts and limitations of specialisation (see table 8.1 in the prescribed book). Then you need to know the various forms of departmentalisation. Finally you need to understand the diff erent authority relationships that exist within an organisation.

731

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8.3.1 Specialisation

732The need for specialisation always stems from growth in the business. Specialisation can lead to greater effi ciency on the part of the worker. Specialisation, or the division of la-bour, can be seen in the example of the small catering business. The business might have been started by a housewife who made small party platters for friends and functions at her husband’s place of work. As the popularity of her party platters increased, the total workload became too much for her to handle on her own and she acquired the services of a chef, so that she could focus on the marketing and management aspects of the busi-ness. In so doing, the total workload was broken down into smaller, more specialised tasks.

733While specialisation may result in a number of benefi ts for the organisation, research has shown that when an individual does a specialised task and can no longer see the whole picture, it may lead to boredom and demotivation. This is particularly true of assembly-line workers who do the same repetitive task over and over again. To mitigate these negative eff ects, managers can apply the principles of job enrichment, job enlargement and job rotation.

Activity 8.2

Refer back to the Kalk Bay Fisheries case study. Given the three friends’ diff erent skills and experience that they bring with them from their previous jobs, divide the total workload among them using the principle of specialisation. Record this division of labour in the three columns below. As you refl ect on your work, keep in mind the following question: Have I linked tasks/activities to specialised skills or knowledge?

Kleinjan Thabo Lukas

44Feedback:


8.3.2 Departmentalisation

Study section 8.3.2 in ITBM.

735There is often a great deal of confusion about departmentalisation. When we talk about how a business is departmentalised, we always refer to the fi rst management level just below the chief executive. Note in fi gure 8.2 of your prescribed book the example of a business departmentalised according to product, because the fi rst two primary divisions are product divisions (i.e. consumer goods and industrial goods). However, the next level of management has been departmentalised according to function (i.e. marketing,

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human resources, fi nances, etc). So clearly an organisation with more than two levels of management will usually be departmentalised in more than one way. Our main concern, however, is primary departmentalisation.

736An organisation can be designed according to the following:

business function (fi gure 8.1) product (fi gure 8.2 as discussed above) location (fi gure 8.3) customer (fi gure 8.4)737

738Sometimes none of these confi gurations may meet all the needs of a particular business. To overcome this, the matrix organisational structure has been created to incorporate the advantages of both the structures discussed earlier. Pay attention to this (fi gure 8.5).

Activity 8.3

Refer back to the Kalk Bay Fisheries case study and the feedback from activity 8.2. Given the manner in which the total workload has been divided in activity 8.2, what would be the most appropriate way to departmentalise the business?

45Feedback:


Activity 8.4

The purpose of this activity is to illustrate how an organisation can be departmentalised diff erently at diff erent levels in the organisation.

Shoprite Holdings Ltd is one of the largest supermarket retailers in Africa with over 1 181 outlets in more than 17 African and other countries and employing almost 69 000 em-ployees. Given that Shoprite is such a large, geographically dispersed organisation, how do you think Shoprite is departmentalised at the fi rst level of management, just below the CEO? Try depicting this confi guration graphically.

46Feedback:


739

740

741

92

8.3.3 Span of management


742Another concept that you must understand in this section is span of management. Span of management refers to the number of subordinates who report directly to a manager. See fi gure 8.6 in your prescribed book on how diff erent spans of management can result in very tall or very fl at organisational structures. For example, an organisation such as Unisa has quite a tall organisational structure with over nine levels of management. You should also take time to familiarise yourself with some of the management implications of having either a too narrow or a too fl at span of management.

8.3.4 Responsibility and authority


743When you study authority relations, it is important fi rst to understand the diff erence between responsibility and authority. These two concepts should always go hand in hand. Unfortunately, in many South Africa organisations, people are given responsibility (obligation to carry out a task) without the corresponding authority (right to give instruc-tions and deploy resources) to carry out that responsibility and this can lead to a great deal of frustration on the part of the subordinate who has been tasked with carrying out certain activities.

Authority relations

744In the discussion of authority, the terms “line authority” and “staff authority” require some clarifi cation (see explanations given under section 8.3.4 and fi gure 8.7 in the prescribed book).

745Although the prescribed book describes only two authority relations, namely line authority and staff authority, some managers also have functional authority. This has to do with direct authority relating to one’s own function in another department. The human resource manager, for example, can instruct the production manager to abide by certain human resource policies in the factory. In so doing, he or she would be exercising functional authority. Think of line authority as the right to issue instructions down the line, that is to immediate subordinates. You might ask yourself where line authority is indicated on an organisational chart. Quite simply line authority is indicated by the vertical lines con-necting the various levels of an organisational chart. Line authority nearly always fl ows in a top-down manner from the most senior positions in the organisation to the lower levels of management. Staff authority has to do with giving advice, without having the authority to compel people to follow it. Staff authority does not necessarily fl ow only down the organisational structure, but can fl ow upwards and horizontally as well. This

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type of authority is generally derived from what is known as expert power. The diff erent types of power are discussed in learning unit 9.

Centralised and decentralised authority

746Note also the diff erence between centralised authority and decentralised authority. This has to do with the level at which decisions are made. The more people at the lower lev-els are allowed to make decisions, the more decentralised decision-making is within an organisation, and vice versa.

8.3.5 Coordination

747In simple terms, coordination is the “glue” that keeps the various departments within an organisation together and deals with the interrelatedness of tasks and activities. With-out coordination, people lose sight of the organisation’s overall goals and their part in its eff orts. An organisation with a high level of coordination will ensure that the goals and objectives of the various departments are congruent with one another and are not contradictory.

748For example, what would happen if research conducted by the marketing department at BMW showed a greater market demand for the BMW 3 series and very little demand for the BMW 5 series, while at the same time the production ratio at the BMW plant in Pretoria was 80% for 5 series vehicles and 20% for 3 series vehicles? This would lead to a shortage of the BMW 3 series and a surplus of the BMW 5 series. Similarly, in the case of Kalk Bay Fisheries a lack of coordination between Lukas and Kleinjan could result in customers being promised fresh kabeljou by Lukas (marketing) when all Kleinjan is catching is snoek.

Activity 8.5

It is important to realise that each of the management tasks of planning, organising, leading and control have a direct impact on the success or failure of the business. Can you think of some of the negative implications that the lack of coordination in the BMW example might have on the business? When answering this question, remember that the diff erent functions within a business are inextricably linked to one another.

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8.4 FACTORS THAT INFLUENCE ORGANISING AND HOW

ORGANISATIONS ARE DESIGNED


749How organisations are structured is a function of a number of diff erent factors. The main factors include the following:

The stability of the business environment (section 8.5.1). Both the level of stability and the rate of environmental change will infl uence how organisations are structured and what form of departmentalisation the organisation adopts. One good example of environmental instability in South Africa has been in the higher education envi-ronment over the past fi ve years, where the entire public higher education system has been reconfi gured through a series of mergers and rationalisation initiatives. The merger between the old Unisa and former Technikon South Africa has had a signifi cant impact on how the new Unisa is structured in terms of its functional, product and customer departmentalisation. This need to restructure the University was brought about by external environmental change and instability.

The strategy of a business (section 8.5.2). As the old adage or saying goes, “structure follows strategy”. This is indeed true, since an organisation’s strategy has a direct impact on how the business is structured. A renewed focus on technology might result in a signifi cantly greater allocation of resources to a business’s IT department. Similarly, a business such as General Electric (GE) with a focus on product develop-ment and innovation will allocate signifi cant resources to its research and develop-ment department.

The size of the business (section 8.5.3). If you read the Kalk Bay Fisheries case study at the beginning of this learning unit and completed activity 8.4, it should be clear to you that the size of an organisation has a defi nite impact on how it is structured. Small businesses are not organised in the same way as large, complex organisations such as the Shoprite group. Historically, large businesses are often characterised by many levels of management, a high degree of specialisation and extensive depart-mentalisation; however, in recent years there has been a shift towards fl atter and leaner organisational structures. In this regard, see the Jack Welch extract at the end of this learning unit.

The competence of employees (section 8.5.4). How organisations are structured is not only a function of the competence of staff , but also of the attitudes and beliefs of top management.

The organisational culture (section 8.5.5). The beliefs and values shared by the people in a business infl uence how the organisation is structured. In this regard it will not make sense for a business to be structured in a very tall bureaucratic manner when the culture is characterised by innovativeness, teamwork and few rules and regulations.

750

751Make sure that you understand how each of these factors will infl uence the organisation structure.

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SUMMARY

752By discussing the development of a structure or framework within which the tasks to be performed for the accomplishment of goals, and the resources necessary for this, are allocated to particular individuals and departments, we were explaining the con-cept of organising. In this learning unit we have also looked at the importance and the fundamentals of organising. Finally, the factors which infl uence how organisations are structured were discussed.

753From here a manager has to take the lead to set the activities involved in planning, or-ganising and control in motion and see that plans are translated into action. We deal with the third fundamental element of management, namely leadership, in learning unit 9.

BUSINESS IN CONTEXT

754Refer to the recommended book entitled Business Cases, in particular case study num-ber 7 “Organising: The Nike Matrix”. This is not compulsory for you to do, but merely a business-in-context addition to your learning of business management.


755Read through the extract below from Jack Welch’s second book Winning and then

answer the questions that follow.

756In 2004, Clayton, Dublier & Rice purchased Culligan International, the water treatment and supply business with about 700 million in annual sales and about 5 000 employees spread across 13 countries. One of CD&R’s partners, George Tamke, the former co-CEO of Emerson Electric, was named chairman. George was well aware that Culligan had been through 10 owners in the previous 15 years, but he could not believe the organisational disarray that hit him when he walked in through the door. George found that many em-ployees simply did not know where they fi t in and whom they report to, who reported to them and what results each person was responsible for.

757Similarly, I just recently spoke with Dara Khosrowshahi, the new CEO at the online travel company Expedia. Dara also walked into an organisational chart quagmire when he arrived on the job at the end of 2004. Expedia, less than ten years old and highly entrepreneurial, had been growing so fast, and no one had taken the time to clarify reporting roles and responsibilities. As his fi rst priority Dara set out to fi x that.

758If you want to manage people eff ectively, help them by making sure that the organisa-tional chart leaves as little as possible to the imagination. It should paint a crystal-clear picture of reporting relationships and make it patently obvious who is responsible for what results. More importantly, it should be fl at!

7591 In both the CD&R and Expedia examples, what key principles of organising have the organisations failed to apply successfully?

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7602 Do you agree with Jack Welch’s statement that organisational structures should be as fl at as possible? Why do you agree, or why do you not agree?

761

7623 Which one of the following statements is wrong?763

764 a Responsibility and accountability are closely connected. 765 b Authority is granted to a manager by the enterprise.766 c When a task is delegated, accountability is delegated simultaneously.767 d According to the acceptance theory of authority, authority originates from the

lower levels.768

7694 The human resource manager of an enterprise instructs one of his personnel offi cers to perform a particular task. In the process he is exercising ... authority.

770

771 a functional772 b organisational 773 c staff 774 d line775


776

777Question 1

778It seems both organisations have completely forgotten about authority relations in the organisation and establishing responsibility and authority to each post in the organisa-tional structure. Staff members are unclear about which activities they are responsible for and whom they should take orders from and give orders to. This can lead to great confusion and result in work not being carried out. It is also clear that organisational charts, indicating line and staff authority, have not been developed for the two organisations.

779The organisational structure “quagmire” described by Jack Welch could also be as a result of a lack of coordination between individuals and departments in the organisation.

780

781Question 2

782Although not covered in a great amount of detail in this module, Jack Welch’s comment that organisational structures should be fl at alludes to the many contemporary approaches to structuring organisations. Flatter organisational structures are indeed becoming more prominent, as are matrix, team-based and virtual organisational structures. Flat organ-isational structures are often a business’s response to the frustrations inherent in highly bureaucratic structures, which include slow, centralised decision-making, an obsessive concern with rules and a lack of innovativeness.

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783

784Question 3

785Contemporary organisational structures are covered in more detail in the second-year module General Management (MNG201). Option c is incorrect because a manager, in the act of delegation, can transfer both his or her authority and responsibility to a subordi-nate but never his or her accountability. This is the golden rule of delegation: whoever delegates a task remains accountable for that task. See page 1 in your prescribed book for a further explanation of authority and responsibility.

786

787Question 4

788Option d is correct. Line authority is the authority delegated down through the line of command, in this case from the human resource manager down to a personnel offi cer.

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Learning Unit 9

Leading


789In learning unit 8, we discussed the second important element of management, namely organising. The third complex element of management is called leadership. Leadership is that element of management which sets activities and people in motion with a view to ensuring that goals are accomplished. In other words, leadership refers to the ability to inspire others to achieve an organisation’s goals. This learning unit deals with the re-lationship between leaders and followers as well as the diff erence between managers and leaders. This learning unit then discusses the diff erent components of the leading function and highlights the importance of communication within a business.



Introduction The nature of leadership Leadership theories Motivation Groups and teams Communication Summary

790



analyse leadership as a management task by (1) explaining the meaning of concepts suchas leadership, authority, power, infl uence, delegation, responsibility and motivation and (2) diff erentiating between leadership and management

discuss basic leadership models by referring to the factors infl uencing eff ective leadership demonstrate an understanding of motivation as a key role of a leader by describing the

fundamental model of motivation describe a simple communication model discuss groups in the organisation by referring to (1) the reasons why groups are formed,

(2) the kinds of groups and (3) the characteristics of groups diff erentiate between groups and teams in the organisation

791

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KEY TERMS

nature of leadershipleader characteristicsleadershipauthorityleadership modelsMaslow’s theory

components of the leadership taskfactors infl uencing powermotivationkinds of groupscommunication


9.1 INTRODUCTION


Read through the entire chapter 9 as well as section 1.3.1 in chapter 1 and section 12.7.2.2 in chapter 12 in your prescribed book.

9.2 THE NATURE OF LEADERSHIP


Leadership

794It is important that you familiarise yourself with the defi nition of leadership and show that you understand this defi nition very clearly:

795Leadership is defi ned as the infl uencing and directing of the behaviour of subordinates in such a way that they willingly strive to accomplish the goals or objectives of the business.

796There are a few important terms in this defi nition, but two particularly important ones are the words “infl uence” and “willingly”. The word “infl uence” is used in a very wide context here. For example, giving instructions to a subordinate would fall under the defi nition of infl uencing, but so too would threatening a subordinate with dismissal if his or her performance does not improve (although not the best example of good leadership).

797Leadership is clearly a process of social infl uence directed at stimulating action towards achieving the goals of the business.

100

798The second important term in the defi nition of leadership is the word “willingly”. This attribute of leadership is evident in the following two very famous statements by former American President Dwight D Eisenhower: “You don’t lead people by hitting them over the head, that’s assault not leadership” and “Leadership is the art of getting someone else to do what you want done, because he wants to do it”. Richard Branson (the founder of the Virgin Group) remarks that there are many ways to get your point across and make your business successful without being aggressive: “Always remember that you love what you do and your role is to persuade others to love your business too, therefore to want to work with you.” All of these statements refer to infl uencing the behaviour of employees to pursue the goals of the business willingly and not under coercion or through the use of power and formal authority.

Leader

799The word “leader” can be used in two ways. Sometimes the word is used to refer to someone who takes the lead. We speak of someone being a leader in a specifi c industry. A person such as Sol Kerzner (of Sun International and founder of Sun City), for example, would be considered a leader in the hotel industry. Similarly, Raymond Ackerman (of Pick n Pay) is a leader in the retail industry. However, a more accurate way to describe these people would be to say that they are entrepreneurs.

800The second use of the word “leader” refers to the management of subordinates. This is the meaning of the word that applies to the management task of leadership. It is very important that you note this distinction. It is not uncommon for someone to be a very successful entrepreneur (i.e. a leader in business or a pioneer in a specifi c industry) and yet be a poor leader of people in the sense that he or she fi nds it diffi cult to motivate staff , delegate responsibility, inspire them to greater achievement, develop their skills, and so on.

Characteristics

801Your prescribed book states under section 9.2.1 that a good manager is not necessarily a good leader and vice versa. Much has been written in management literature about the diff erences between managers and leaders. In this context, your prescribed book, in section 9.2.1, broadly defi nes a manager as being a good administrator. This is particularly true in a bureaucratic organisation where a manager may be extremely good at carrying out procedures, having everything in place, always meeting deadlines, and so on, and yet not be very good at inspiring and motivating his or her subordinates. It is also possible to be an outstanding leader but a poor manager because you do not plan very eff ectively, or exercise sound control – yet you may get tremendous support and commitment from subordinates for your ideas and vision.

Activity 9.2

Having read the above sections on the nature of leadership and what we understand a leader to be, would you consider yourself to be more of a leader or a manager? Give

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reasons for your answer. Consider reading section 8.2.1 again before answering this introspective question.

Do you think that you can be both a leader and a manager?

51Feedback:


9.2.1 The components of the leading function

802Now that we have clearly defi ned leadership and leaders in the business context, we can shift our focus to identifying a few of the main components of leadership, namely

authority power responsibility delegation accountability

9.2.1.1 Authority

803From the discussion above it should be clear to you that regardless of which level of management they belong to, leaders are also managers, responsible for ensuring that subordinates work together to achieve the organisation’s goals. With a position of management comes formal authority. If you refer back to the previous learning unit, you will see that we defi ned authority as the formal right to give instructions, allocate resources and demand action from subordinates. Formal authority is closely related to leadership and is granted to a leader by the organisation through delegation.

804However, it is important to remember that we defi ned leadership as the ability to infl u-ence subordinates to pursue goals willingly. A leader who merely exercises his or her formal authority to bring about a result will be acting more as a manager than as a true leader, because subordinates are obliged to carry out a manager’s instructions. In order to infl uence the behaviour of others a leader must also gain the respect of his or her subordinates.

9.2.1.2 Power

805Power (section 9.2.2.2 in your prescribed book) is one of the key elements associated with leadership and comes in fi ve main forms. These diff erent forms of power often determine whether a leader is eff ective or ineff ective in infl uencing subordinates and securing their commitment to organisational goals and the leader’s vision. It is very im-portant that you understand the diff erent kinds of power that a leader can use and how these aff ect subordinates’ performance.

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806Line authority is always linked to a particular position in the organisation. For example, the marketing manager has the authority to decide on a sales strategy, as well as give instructions to the sales, advertising and marketing research teams. He or she also has the authority to allocate the marketing budget accordingly. Because this authority is position-specifi c, the marketing manager cannot give instructions to staff in the fi nance or production departments or decide on a purchasing strategy for the business.

807Power, on the other hand, is linked to both the person and (sometimes) the position and refers to the infl uence that leaders exert over their subordinates. Table 8.1 in your prescribed book is a useful perspective on how diff erent forms of power may result in diff ering levels of commitment and compliance by subordinates. The fi ve types of power identifi ed in your prescribed book are

legitimate power power of reward coercive power referent power expert power808

809Looking at the defi nitions of the fi ve types of power we very quickly see that power can be either positional or personal. The fi rst three types of power are clearly related to a manager’s position in the organisation and can be likened to formal authority. The last two types of power are both forms of personal power and are not derived from a manager’s position within the organisation. Make sure that you understand these diff erent forms of power and how using diff erent forms of power can result in diff ering levels of commitment from followers. This is a very important section of the learning unit for you to master.

9.2.1.3 Follower commitment

810Successful leadership depends on follower commitment and compliance. Here managers depend on their subordinates, giving them a certain level of indirect authority. Eff ective managers must use their command of power in such a way that there is a healthy balance between their own power and that of subordinates (see fi gure 9.2 in your prescribed book for a further explanation).

Activity 9.3

Start by asking yourself the following question:

In fulfi lling the leadership task of management, should a manager make use of formal line authority associated with the specifi c position or rather the personal power he or she possesses?

Having thought about the above question, now consider the well-known business and political leaders listed below. Can you identify the type of power they possess, be it personal or positional, as well as the source of their personal power? Use the template below to complete the activity. You might not be familiar with some of the leaders listed below. If this is the case, it would be a good idea to read up about their achievements, either on the internet or in the library resources available to you.

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Tip: Remember that leaders very seldom possess only one form of power and more often than not they infl uence their subordinates through the use of a combination of power sources.

Leader Type of power Source

Your own boss or line managerPresident Jacob ZumaNelson Mandela (former South African president)Bill Gates (founder and CEO of MicrosoftOprah Winfrey (owner of HARPO Productions)Jack Welch (former CEO of General Electric

52Feedback:


9.3 LEADERSHIP THEORIES

811The above table in activity 9.3 identifi ed a number of prominent leaders. Apart from the types of power they possess, you might have asked yourself the question: “But what makes them great?” If you did you are not alone. Researchers have been asking similar questions for many years now and in so doing have tested a number of models. In this learning unit we discuss three important theories of leadership, namely the

trait (characteristics) theory of leadership behavioural theory of leadership contingency (situational) theory of leadership812

Activity 9.4

Before reading section 9.3 in your prescribed book, try describing the characteristics of your ideal leader. Sketch the person in your mind and write down all of the characteristics or traits that the person exhibits.

9.4 MOTIVATION

Study section 9.4 as well as sections 12.7.2.1 and 12.7.2.2 in ITBM.

813Every person, whether employed in an organisation, a full-time student, a housewife or an entrepreneur, has personal goals that he or she strives for and to some extent will be driven intrinsically (internally) to achieve these goals. At the same time it is important that

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employees are also motivated to achieve the goals of the organisation. Other than the decisions that employees make on their own about liking their work, the manager in his or her role as a leader is the most infl uential factor in ensuring employee motivation and morale, and ultimately the pursuit of organisational goals. Read through the case study about Siemens to see how they motivated their employees within a creative environment.

814Siemens: Motivation within a creative environment

815Siemens is the engineering group that is behind many of the products and services people take for granted in their daily lives. The list of products designed and manufactured by Siemens is almost endless, from traffi c lights to gas turbines to domestic appliances such as kettles and fridges.

816Engineers use scientifi c principles to develop products or systems to solve real-life prob-lems. Much of engineering is about innovation rather than invention. This means that engineers transform creative ideas into improved products, services, technologies or processes. A career within the fi eld of engineering is exciting and varied, as the work is constantly changing. Becoming an engineer at Siemens is about using energy, ideas and passion. It requires a range of skills and abilities that are needed across the whole business.

817Siemens provides opportunities for young people at all levels to enter the world of engi-neering. Siemens also recruits undergraduates and graduates into professional engineer-ing jobs. It goes beyond the standard approaches to attracting good people because its employees enable it to be competitive. This approach has led to Siemens becoming an open culture with opportunities for employees at all levels. However, regardless of entry level, Siemens employees enjoy wide-ranging opportunities for further education and training. By following an engineering career, Siemens people have the opportunity to move into other disciplines. For instance, they may go into areas such as research, manufacturing, sales and marketing, fi nance, or project management.

818Motivation stimulates people and encourages them to willingly put more eff ort into do-ing something. Well-motivated employees will feel fulfi lled and happy in the workplace. Additionally, they are likely to be more productive and produce work of a higher quality. Motivated individuals are infl uenced by a number of diff erent factors. Initially, everybody has basic needs, such as food or accommodation, in which pay can provide. However, there are many other diff erent factors that motivate individuals. A creative environment, such as that provided by engineering, can be very stimulating.

819The structure of Siemens motivates individuals by empowering them to improve processes. Siemens provides the sort of environment where workers can learn new things and are given the opportunity to progress within the business. Some staff at Siemens thrive on the problem-solving aspect of their roles and respond to challenges. Other employees fi nd the varied nature of the work motivating – having the opportunity to try diff erent roles. Siemens employees also value the fact that they are allowed to be imaginative and can infl uence their own work. This culture demonstrates that Siemens values its employees and helps to recruit the next generation of engineers.

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820If you want to be a successful manager in this task, you must understand how individu-als are motivated and what motivates them (motives). Then you will be in a position to infl uence the behaviour of subordinates.

821Many theories have been developed that deal with the motivation of employees. In this learning unit we introduce you to the basic model of motivation as well as to Maslow’s hierarchy of needs as addressed in section 12.7.2.2 of the prescribed book. It is very im-portant that you understand this hierarchy and its application.

822Maslow’s theory suggests that although all motives are present in every adult (babies/toddlers acquire them over time), not all motives infl uence an individual. We may spend a great deal of eff ort satisfying our needs for esteem, but when there is a sudden earth-quake, the only motive that will infl uence our behaviour is the need to survive. In the same way we may eat a meal regularly, but we would not be motivated to change jobs and join a company that gives its employees free meals. In other words, we still take steps to satisfy certain needs, but we are driven by those needs that are basically unfulfi lled. According to Maslow, diff erent people experience diff erent levels of need fulfi lment. Put diff erently, some people may be striving to satisfy their social needs, while others are mostly driven by their esteem needs. Some may even be at a level where their main concern in life is to satisfy their physiological needs.

823The basic model of motivation is depicted in the fi gure below and described briefl y under section 9.4 of the prescribed book. Make sure that you understand this model and how it can be applied in the organisational context. An example of the application of this model is given in the activity that follows.

824

825

Activity 9.5

Read through the case study below and then complete the activities that follow.

Kalk Bay Fisheries on the move

Refer back to the Kalk Bay Fisheries case study in learning unit 8. Since we last caught up with Kleinjan and his friends (now more like business partners), they have managed to sort out their structural issues and lines of authority. With these issues out of the way, the friends were able to get down to business. As a result, Kalk Bay Fisheries has grown into a medium-sized business with a total of 20 employees. Kleinjan and his friends are no longer doing the fi shing and processing themselves; now they are more involved in the management of the business and the leadership and motivation of their 17 employees.

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Lukas now heads up the marketing department and also oversees the activities and performance of the sales team, consisting of the following four people:

• Phindiwe – 30-year-old mother of two toddlers, with a BCom degree in marketing,who wants a job that pays the bills and puts food on the table but also allows herflexibility to be with her children. Lukas rates her as an average salesperson, but witha lot of potential.

• Gavin – 26-year-old “high-flyer” and big-spending graduate. He lives the good life and is not too worried about his long-term career path as long as he is able to finance hisextravagant lifestyle. Lukas rates him as an excellent salesperson, but is worried about his level of commitment to the company.

• Clair – 32-year-old single woman, very career-focused and highly ambitious, withan MBL degree from Unisa. She enjoys the excitement of the sales environment buthas set her sights on moving up the corporate ladder. Lukas rates her as an averagesalesperson but worries about how he might be able to accommodate her higher upin the company.

• Bongani – 40-year-old father of three school-going children. He enjoys the sales en-vironment but is not sure whether he will be able to make ends meet every month,let alone put aside some of his income for his children’s tertiary education. Bonganivalues his job at Kalk Bay Fisheries very much and dreads losing it. Lukas rates him asa good salesperson and the most reliable member of the sales team.

Although Kleinjan and his friends are very pleased with the growth of their business in recent times, they believe they could grow their business even further. Fishing has been very good recently and excess production capacity is available in their factory. Most of Kalk Bay Fisheries’ sales are on a business-to-business level and as such the sales team is viewed as the key driver of growth for the company. The friends have agreed on a target to increase overall sales by 25% in the coming quarter.

Lukas is confi dent that his team can reach this target, especially considering that members of the sales team are employed on a commission basis and as such have the power to infl uence their own income levels. All members of the sales team also have company-subsidised vehicles. He is also aware that as a leader it is his job to motivate the members of his sales team towards the attainment of this target. He is, however, perplexed about what would motivate the individual members of the sales team and therefore how he could go about motivating them.

(1) The four members of the sales team have diff erent personal needs, motives anddrives. Can you list the diff erent needs of each team member?

(2) Now that you have completed the fi rst step of the motivation model, make sugges-tions about how Lukas might go about motivating the diff erent members of his team towards the goal of 25% growth in sales.

53Feedback:


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9.5 OVERCOMING BARRIERS TO EFFECTIVE PLANNING

826Employees of the modern organisation do not work merely as individuals hidden away somewhere in a small cubicle working in isolation from their co-workers. As the world of work becomes more and more complex, so the need grows for organisations to ap-proach work and problems in a multidisciplinary and cross-functional manner. This has given rise to the use of groups and teams in organisational structures with the associated need for team leadership; this is the reason why groups and teams are discussed as part of this particular learning unit.

827In section 9.5 of your prescribed book a clear distinction is made between groups and teams and it is important that you are able to identify and understand the diff erence between the two. It is also important that you familiarise yourself with the diff erent types of groups and teams.

9.6 COMMUNICATION

Importance and elements

828By now you should have realised that leaders are human beings involved with other hu-man beings. For leaders to infl uence their subordinates they must be able to communicate eff ectively. This section briefl y touches on the importance of communication and the elements involved. If you have not understood the explanations in the prescribed book and/or this study guide, then the communication between lecturer and learner has not been successful! This could be as a result of faulty sending, or faulty receiving, or both. It could even be a case of the channel of communication being ineff ective, because you would have benefi ted more from attending a discussion class than reading the study guide on your own.

829Students sometimes phone their lecturers for information that has been clearly set out in a tutorial letter – but they simply did not bother to read it. That would mean poor com-munication on account of poor receiving. It could also be that the explanation is so vague that the student still does not understand it even after reading it. This would simply be poor communication because of poor sending in terms of the message being poorly constructed.

830Similarly, in the business environment we often see the eff ects of poor communication and just as often hear excuses such as “Oh, so that is what you meant!” or “If you had said so in the fi rst place, things would have been far clearer!”

Activity 9.6

Read through the brief case study below and answer the question that follows.

Communication at Kalk Bay Fisheries

Kleinjan Jantjies calls Mr Mahlangu, his operations manager, to come to his offi ce. When Mr Mahlangu walks in a minute or two later, Kleinjan is busy with what appears to be an

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unexpected but very important telephone conversation with one of his fi shermen. After a few minutes he completes the phone call, but his mind is clearly still very much on the conversation he has just had.

“Hello, Mr Mahlangu. Take a seat. This is why I called you: at present in the factory, we have offi cial minutes, and bring the afternoon going-home time forward by 20 minutes. I am sure the factory staff will appreciate the opportunity to get home earlier. Will you please inform everyone concerned? Thanks for your time.”

Kleinjan then begins to examine some papers on his desk and indicates with a casual wave of his hand that he has nothing further to tell his operations manager.

Mr Mahlangu, in turn, opens his mouth as if starting to say something, but thinks better of it and just says “OK, Mr Jantjies”. Mr Mahlangu then exits, looking rather despondent.

Do you think Kleinjan has been eff ective as a leader in terms of communicating with his operations manager? Can you suggest how he could improve on this communication?

SUMMARY

831Leading is the third task of management and is the one that sets up and keeps the busi-ness going. As you have realised from our discussion, it is a diffi cult concept to defi ne, because it is concerned with infl uencing the behaviour of subordinates and directing their activities so that the aims of the business are attained as profi tably as possible. Its com-ponents – leadership, motivation, group and team behaviour and communication – are interrelated instruments used to exert that infl uence. Managers should have suffi cient knowledge of these factors to be good leaders as well as good managers. We deal with the fourth and fi nal important element of management, namely control, in learning unit 10.

BUSINESS IN CONTEXT

832Refer to the recommended book entitled Business Cases, in particular case study num-ber 8 “Leading and controlling: South African business leadership in action”. This is not compulsory for you to do, but merely a business-in-context addition to your learning of business management.


833

834QUESTION 1

835Which one of the following statements on authority is wrong? 836

837a Final authority fl ows from delegation.

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838b Management delegates authority to subordinates to enable them to execute tasks.839c The right to expect action from others is also conferred by members of a group.840d Power is not granted to a manager.841

842QUESTION 2

843Which one of the following types of power is granted to all managers?844

845a legitimate846b personal847c referent848d expert 849

850QUESTION 3

851A trade union is formed to satisfy the … needs of the employees.852

853a basic854b security855c social856d esteem857e self-actualisation858

54THE ANSWERS TO THE SELF-ASSESSMENT QUESTIONS

Question Answer Reference (section)

1 d 9.2.2.12 a 9.2.2.23 b 12.7.2.1

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Learning Unit 10

Controlling the management process

859INTRODUCTION AND AIM OF THE UNIT

860In learning unit 9, we discussed the third important element of management, namely leadership. Control is the fi nal step in the management task on the one hand, and the starting point for further strategy development on the other. It is the process by which management narrows the gap between objectives and actual performance. The manage-ment process takes place between planning and control, and successful management often depends on sound planning and eff ective control. We will now look at control in detail.



Introduction The purpose of control The control process Types of control Characteristics of an eff ective control system Summary

861



analyse control as a management task by (1) explaining the task of control and its purpose and (2) describing how a control process should function

illustrate how the task of control forms an integral part of the planning process explain the various types of control discuss the characteristics of an eff ective control system describe how the control process provides feedback for the revision of planning

862

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KEY TERMS

task of controlcontrol processstandardscontrol of physical resourcesquantity controlmaterial requirements planningjust-in-time system (JIT)budgets accuracyunnecessaryfl exibilitytimelinessdeviation

corrective actiondeviationsfocus of controleconomic orderfi nancial resourcesinformation resourcescontrol of human resourcesquality controlintegration standardscharacteristics of a control systemcomplexityactual performanceinventory


10.1 INTRODUCTION


Nature of control

864Control is used to ensure that the organisation’s goals and objectives are reached and that resources are being used as productively and eff ectively as possible. It is therefore used to give feedback on the other three tasks, namely planning, organising and lead-ing, and to start a new cycle of the management task. Note that the word “control” as it is used to describe the task of management does not refer to “being in charge of” or “dominating”. Sometimes people speak of a chief executive controlling an organisation in the same way as they speak of the police controlling a crowd, or say that a situation is under control. This is not the meaning of control used in this learning unit.

Task of control

865Control is concerned with narrowing the gap between what was planned and the actual achievements of management, and ensures that all activities are carried out as they should be. More accurately, control is the process whereby management obtains information to determine whether the objectives that were set for the organisation during the planning stage have been reached and, if not, to take corrective action. The management process

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thus takes place between planning and control. So it should be clear that the task of control has its roots in planning.

10.2 THE PURPOSE OF CONTROL

866An organisation needs a control process because even the best-laid plans can go wrong owing to unforeseen circumstances or unexpected changes within the environment. Many companies did not foresee the recession during 2009 and therefore experienced great losses despite proper planning. Read through the case study below to see how some small businesses survived the recession as a result of eff ective fi nancial and quality control.

Small companies survive by using control

During an SME survey, only 5% of small businesses indicated losses during the 2009 recession, with 95% of SMEs keeping their businesses afl oat. The majority of these businesses stem from the agricultural enterprises and 40% of these showed profi ts. 60% of these enterprises also expressed confi dence in their ability to survive the recession.

How did these companies manage to survive the devastating recession? By returning to the basic principles of business with a strong emphasis on fi nancial control where costs were optimised. 93% of the respondents also regarded a positive cash fl ow as the most important element for sustainability. More than two-thirds of the enterprises had a positive cash fl ow even with the credit crisis, deterring the borrowing of funds.

Quality control was another important aspect, with service delivery a key element in retaining customers.

Source: Thys (2009)


868It is necessary for companies to do environmental scanning in order to keep abreast of change, to determine which factors pose threats to existing goals and to determine which factors represent opportunities to promote current goals. It is also very important to note the reasons why a control process is necessary in an organisation. These reasons are briefl y highlighted below:

Without control, eff ective planning cannot take place. It enables companies to adapt to environmental change and allows them to cope

with changes and uncertainties. Control helps to limit the accumulation of errors due to poor decision-making. As the size of a business increases, it becomes increasingly diffi cult to identify areas

of weak performance. Control helps to minimise costs and increase output. An eff ective control system allows management to identify problems before they

become critical for the organisation. Control allows management to determine whether delegated tasks have been car-

ried out satisfactorily.

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Increasing competition necessitates more eff ective cost and quality control. A lackof control can result in resources being wasted or misapplied.

Control usually results in better quality.869

Activity 10.1

Your prescribed book has highlighted fi ve reasons why the task of control is so important; however, these might be quite diffi cult for you to understand without practical examples and illustrations. In this activity you should complete the table below by giving your own practical examples of reasons why control is so important.

Reason for importance of control Practical examples

1 Avoids poor planning

2 Helps to adapt to environmental change

3 Limits the accumulation of error

4 Caters for increasing organisational size and complexity

5 Minimises cost

57Feedback:


10.3 THE CONTROL PROCESS


870The control process as illustrated in fi gure 10.1 represents the heart of the task of control. It is important that you understand the sequence of these steps and how the process is linked with the task of planning.

871The control process comprises the following four steps:

setting standards that are derived from goals measuring actual performance evaluating deviations (the performance gap) taking corrective action and rectifying deviations872

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Activity 10.1

During a recent planning session, Lizzy decided that the sales of her cupcake store, Cup ’n Cakes, need to increase by 33% if she wants to open a new store by the end of the year. She instructed her sales team to also increase their sales by 33% with the promise of additional incentives if they were to achieve their goals.

By the end of the year, her overall sales increased by 26%. Even though Lizzy did not reach her goal of a 33% increase, the 26% increase was enough for her to open a smaller store. Remembering her promise of an incentive, she reviewed the sales team’s fi gures:

• Phindiwe: Sales increased by 13%.• Gavin: Sales increased by 30%.• Clair: Sales increased by 8%.• Bongani: Sales increased by 25%.

Put yourself in Lizzy’s shoes and apply the control process to the above situation, high-lighting each step in the process and suggesting what actions should be taken in step 4 of the control process.

58Feedback:


10.4 TYPES OF CONTROL


873Although we state that you should study this section of the prescribed book, do not get too involved in the volume of detail in this section. It is more important to realise that, although the control process is a generic process, it needs to be applied to a variety of areas and resources throughout the organisation.

874Organisations should, as a rule, identify the diff erent areas that need to be controlled, as these areas are generally responsible for the eff ectiveness of the entire organisation. In section 10.4.1 we highlight the four key areas of control:

physical resources fi nancial resources information resources human resources875

876The section then elaborates on each of these areas and identifi es various systems for controlling them.

877Note the four focal points or key areas of control as illustrated in fi gure 10.2.

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Inventory

878The control systems for the diff erent kinds of inventories, such as raw materials and fi nished products, are inventory control and quality control. Inventory control aims to keep costs as low as possible, without causing shortages or delays. Three control systems are relevant here: the economic order quantity (EOQ), material requirements planning (MRP) and the just-in-time (JIT) system.

Quality

879Quality and productivity have become very important issues all over the world. Quality control refers to the activities that are performed by management to ensure a level of quality that will satisfy their customers and also have certain benefi ts for the business. The control system used for the management of quality is known as total quality management (TQM).

Financial resources

880Aspects of control are mainly expressed in fi nancial magnitudes. Financial resources are vital to the success of any business and are at the heart of the control process (see fi gure 10.2). There are two important instruments used to control the fi nancial resources of an organisation:

the budget (refer to table 10.1 for an outline of the types of budgets) fi nancial analysis, also known as ratio analysis (will be discussed in your second module)

Information resources

881Management can implement plans only if they receive accurate and timely information. The faster feedback is received on how things are going in the course of the management process, the more eff ectively the control systems will function.

Human resources

882The main instrument used to control human resources in a business is performance mea-surement. Other instruments are specifi c ratios that can be applied in respect of labour turnover, absenteeism and the composition of the labour force.

883

884

Activity 10.3

Section 10.4.1 contains a wealth of information on the areas of control and the diff erent control systems for each area. We have highlighted these in the section above. However, one way in which you can summarise the various systems of control is by means of a mind

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map. We have started the mind map for you. In this activity, complete the mind map by listing the various control systems under the areas of control. You can even take this one step further by adding a brief description of each system.

885

59Feedback:


10.5 CHARACTERISTICS OF AN EFFECTIVE CONTROL SYSTEM


886This is a very important section and you should note the fi ve characteristics of an eff ective control system as well as the integration of planning and control (fi gure 10.3).

Activity 10.4

List and describe the fi ve criteria according to which the eff ectiveness of organisational control is evaluated.

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SUMMARY

887We have discussed control as the fourth and fi nal step of the management process, so the discussion of the management process is complete and with it topic 2 of this study guide. You now have a basic insight into all the general management functions.

BUSINESS IN CONTEXT

888Refer to the recommended book entitled Business Cases, in particular case study num-ber 8 “Leading and controlling: South African business leadership in action”. This is not compulsory for you to do, but merely a business-in-context addition to your learning of business management.


889QUESTION 1

890Chloe is in charge of managing the volunteer organisation, Barking Mad, that provides abandoned animals with shelter and food and places them up for adoption. What is the correct process she would follow when busy with the management task of control?

891a The shelter needs to maintain an adoption rate of 25% in order to be able to provide all its animals with shelter and food.

892b Chloe realises that their organisation is relatively unknown to the public and organises a fun walk to raise awareness of Barking Mad.

893c Chloe compiles a detailed report of all the adoptions they have had over the last six months.

894d The data Chloe has collected shows that their adoption rate is only 19%.895 1 a b c d 896 2 b c d a897 3 d c b a898 4 a c d e 899 5 a c d b900

901QUESTION 2

902Which of the following is a purpose of control?903

9041 Planning is the fi rst step in control and without control, planning is pointless.9052 Control makes it diffi cult to adapt to change owing to the diff erent variables in the

environment.9063 Managers are capable of making good decisions on their own and do not need

control to limit errors.9074 Control processes add to the costs of an organisation.908

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909QUESTION 3

910Match the area of control in column A with the correct type of control in column B.

Column A Column B

a inventory i TQM systems

b quality ii Budgets

c fi nancial resources iii Just-in-time

d human resources iv ITT systems

v Performance measurements

9121 a (i) b (ii) c (iii) d (iv)9132 a (i) b (v) c (iv) d (iii)9143 a (ii) b (iv) c (i) d (v)9154 a (iii) b (i) c (ii) d (v)916


Question Answer Reference (section)

1 4 (a c d e) 10.4

2 1 10.3

3 4 (a (iii) b (i) c (ii) d (v)) 10.2

CONTENTS · TOPIC2: THE MANAGEMENT PROCESS ... LEARNING UNIT 8: Organising ... 17The section below...

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