Principles ofBusiness

Management2nd Edition

Edited by

JOHAN STRYDOMContributors

Marolee Beaumont SmithAndreas de Beer

Maggie HoltzhausenJerome Kiley

Danie NelCecile Nieuwenhuizen

Theuns OosthuizenSharon Rudansky-Kloppers

Rigard Steenkamp

OXFORDUNIVERSITY PRESS

SOUTHERN AFRICA

Table of contentsPreface xxv

PART i INTRODUCTION TO BUSINESSMANAGEMENT i

I Business and its challenges 3Johan Strydom

Purpose of this chapter 3Learning outcomes 31.1 Introduction 7.. 41.2 What is a business? 41.2.1 Business and profits 51.3 The economic principle 61.4 The factors of production 71.4.1 Natural resources 71.4.2 Human resources 81.4.3 Capital 91.4.4 Entrepreneurship 101.5 The economic systems in which businesses operate 111.6 South African businesses and the changing social contract 121.6.1 The expectations of business-related stakeholders 141.6.2 The expectations of opinion-related stakeholders 151.6.3 The expectations of public-related stakeholders 151.6.4 Corporate social responsibility 161.6.5 The current social contract of a South African business . 171.7 The parts of this book 19Case study: Shoprite 2010 annual report — how the

Shoprite group is interacting with its stakeholders 21Summary 23Glossary 24Multiple-choice questions 26References and end-notes 27Answers to multiple-choice questions 28

PRINCIPLES OF BUSINESS MANAGEMENT

2 The business environment 29Jerome Kiley

Purpose of this chapter 29Learning outcomes 292.1 Introduction 292.2 The systems approach 302.3 The organisational environment 312.3.1 The micro-environment 332.3.2 The market environment 342.3.3 The macro-environment 362.3.3.1 The natural environment 372.3.3.2 The technological environment 382.3.3.3 The social environment 392.3.3.4 The political environment 402.3.3.5 The economic environment 402.3.3.6 The international environment 422.4 Conducting a SWOT analysis (study of the parts) of a

business's environment 43Case study: Pick n Pay 45Summary 47Glossary 48Multiple-choice questions : 50References and end-notes 51Answers to multiple-choice questions 52

PART 2 MANAGEMENT TASKS 53

3 The task of management 55Theuns FJ OosthuizenPurpose of this chapter 55Learning outcomes 553.1 Introduction 553.2 What is management? 563.3 What is a manager? 563.4 Organisations in which managers work 573.5 Levels of management 583.5.1 Top management 593.5.2 Middle management 593.5.3 First-level management 59

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3.6 Management tasks ; 603.6.1 Planning 603.6.2 Organising 613.6.3 Leading 613.6.4 Motivating 623.6.5 Controlling 623.7 Areas of managements 633.7.1 Production and operations managers 633.7.2 Logistics managers 633.7.3 Information-technology managers 633.7.4 Financial managers 643.7.5 Human-resources managers 643.7.6 Marketing managers 643.7.7 Public-relations managers 643.7.8 Administrative managers 643.8 Management skills 653.8.1 Conceptual skills 653.8.2 Human skills 653.8.3 Technical skills 663.9 Management competencies 663.10 Management roles 673.10.1 Decisional roles 673.10.2 Interpersonal roles 683.10.3 Informational roles 69Case study: Toys for Africa 70Summary 71Glossary 71Multiple-choice questions 74References and end-notes 74Answers to multiple-choice questions 75

Planning 76Sharon Rudansky-Kloppers

Purpose of this chapter 76Learning outcomes 764.1 Introduction 764.2 Why planning is necessary 774.3 The planning process 774.3.1 Setting goals 79

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4.3. i. i The mission statement of the organisation 794.3.1.2 The environment of the organisation 824.3.1.3 The values of management 824.3.1.4 The experience of management 824.3.2 A hierarchy of goals 824.3.2..1 The mission statement 824.3.2.2 The strategic goals 834.3.2.3 The tactical goals 844.3.2.4 The operational goals 844.3.3 Criteria for setting effective goals 844.3.4 Developing action plans 864.3.4.1 Strategic plans 874.3.4.2 Tactical plans 874.3.4.3 Operational plans 874.4 Implementing the selected plans 874.5 The full circle 88Case study: Medical scheme takes action 88Summary 89Glossary 90Multiple-choice questions 91References and end-notes 92Answers to multiple-choice questions 92

5 Organising 93Andreas de Beer

Purpose of this chapter 93Learning outcomes 935.1 Introduction 935.2 The organising process 945.2.1 Gathering information 945.2.2 Identifying and analysing activities 945.2.3 Classifying activities 945.2.4 Allocating staff 945.2.5 Assigning authority and responsibility 955.2.6 Facilitating (encouraging) work 955.3 Principles (basic rules) of organising 955.3.1 Co-ordination 955.3.1.1 The chain of command 955.3.1.2 Unity of command 95

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5.3.1.3 Span of control 965.3.2 Authority 975.3.2.1 Line authority 975.3.2.2 Staff authority .77 975.3.2.3 Line-and-staff authority 975.3.2.4 Functional authority 975.3.2.5 Project authority 975.3.3 Responsibility 995.3.4 Accountability 995.3.5 Delegation .- , 995.3.5.1 Centralisation and decentralisation 1005.3.6 Specialisation 1005.3.7 Divisionalisation 1015.3.7.1 A divisional structure based on business functions 1015.3.7.2 A divisional structure based on products 1025.3.7.3 A divisional structure based on geographic location

(place on the earth) 1035.3.7.4 A divisional structure based on projects 1035.3.7.5 A divisional structure based on consumer or

client needs 1035.4 Organisational structures 1065.4.1 The line organisational structure 1065.4.2 The line-and-staff organisational structure 1065.4.3 The functional organisational structure 1075.4.4 The divisional organisational structure 1085.4.5 The matrix organisational structure 1085.4.6 The teams organisational structure 1085.4.7 The network organisational structure no5.5 The changing organisation noCase study:Jonny Happy Feet Limited i nSummary 113Glossary 113Multiple-choice questions 114References and end-notes 115Answers to multiple-choice questions 115

6 Leading 116Maggie Holtzhausen

Purpose of this chapter 116

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Learning outcomes 1166.1 Introduction 1166.2 The three components of leadership 1186.2.1 An interactive framework of leadership 1186.3 Leadership versus management 1196.4 A brief history of leadership theories 1216.4.1 Earlier leadership theories 1216.4.1.1 Trait theories 1226.4.1.2 Behaviour theories 1226.4.1.3 Situational approaches 1226.4.2 Newer leadership approaches 1226.4.2.1 A re-birth of earlier trait theories 1236.4.2.2 A move towards leadership-follower approaches 1246.4.2.3 Other leadership perspectives (theories) 1256.5 Leadership tools 1266.6 Leadership and diversity 1276.6.1 Leadership and gender 1276.6.2 Leadership and culture 1276.6.3 Integrating diverse leadership styles 1296.7 Worldwide leadership trends 129Case study: Me, myself as manager and leader 130Summary 131Glossary '. 131Multiple-choice questions 132References and end-notes 133Answers to multiple-choice questions 135

7 Motivating 136Jerome KileyPurpose of this chapter 136Learning outcomes 1367.1 Introduction 1377.2 What is motivation? 1387.3 The needs and expectations of employees 1387.3.1 Individual differences 1387.3.2 The needs of individuals 1397.3.2.1 Maslow's hierarchy of needs 1397.3.2.2 Alderfer's ERG Theory 1407.3.2.3 McClelland's Needs Theory 141

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7.3.3 The expectations of employees 1427.3.3.1 Expectancy Theory 1427.3.3.2 Equity Theory 1437.4 Managing employee's motivation 1437.4.1 Directly influencing employee behaviour 1437.4.1.1 Goal-setting Theory 1437.4.1.2 Behavioural modification (change) 1447.4.2 Facilitating (helping to bring about) employees'

good performance 1467.4.2.1 The quality-of-work-life approach 1467.4.2.2 Herzberg's Two-Factor Theory 1477.4.2.3 The job characteristics model 1477.2.4.2 McGregor's Theory X and Theory Y, and the self-

fulfilling prophecy 1487.5 Monitoring employee morale 1497.6 Practical motivational strategies 149Case study: SA's top employers as voted for by students 150Summary 152Glossary 153Multiple-choice questions 156References and end-notes : 157Answers to multiple-choice questions 158

8 Controlling 159Theuns FJ OosthuizenPurpose of this chapter 159Learning outcomes 1598.1 Introduction 1598.2 Types of control 1608.2.1 Pre-control 1608.2.2 Concurrent control 1618.2.3 Post-control 1628.3 Sources of control 1638.3.1 Individual self-control 1638.3.2 Group control 1648.3.3 Organisational control 1648.3.4 Stakeholder control 1648.4 The control process 1648.4.1 Developing performance standards 165

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8.4.2 Measuring actual performance 1668.4.3 Comparing actual performance with performance

standards 1668.4.4 Reinforcing good performance, and correcting if

necessary 1678.5 When to use a control measure 1678.6 Financial controls 1698.7 Quality controls ; 1698.7.1 Total quality management 1698.7.2 Quality circles 1708.7.3 Six Sigma 1708.7.4 Benchmarking 1708.7.5 Continuous improvement 1708.7.6 Reduced cycle time 1708.8 The balanced scorecard 1718.9 The benefits of controlling 171Case study: Environmental management controls at African

giant hotel and entertainment group -African Skies 172Summary 174Glossary 174Multiple-choice questions 176References and end-notes 177Answers to multiple-choice questions 178

PART 3 THE FUNCTIONAL AREAS OFMANAGEMENT 179

9 Operations management 181Rigard SteenkampPurpose of this chapter 181Learning outcomes 1819.1 Introduction 1829.2 A brief history of operations management 1829.3 Operations management is the core function of any

organisation 1839.4 Effectiveness, efficiency, and productivity 1839.5 Operations strategies 1859.6 Product design and operations design 1869.7 Operations planning and control 189

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9.7.1 Reconciling (dealing with opposites) supply anddemand (give and take) 189

9.7.1.1 Loading 1899.7.1.2 Sequencing 1909.7.1.3 Scheduling 1909.7.1.4 Monitoring 1929.7.1.5 Addressing bottlenecks 1929.7.2 Demand management 1939.7.3 Fixed-capacity planning 1939.7.4 Adapting capacity to a change in demand...; 1939.7.5 Inventory management 1949.7.6 Material-requirements planning 1979.7.7 Make-or-buy decisions 1989.7.8 Operation improvement 1989.7.8.1 Quality and quality management 1989.7.8.2 Statistical process control 1999.7.8.3 Maintenance and replacement 2009.7.8.4 Safety, health and environmental management 2009.8 Project planning and control 2019.8.1 Project planning and Gantt charts 2019.8.2 Network analysis 202Case study:The lean paradigm at L'Oreal 203Summary 204Glossary 205Multiple-choice questions 208References and end-notes 210Answers to multiple-choice questions 210

10 Logistics management 211Danie NelPurpose of this chapter 211Learning outcomes 21110.1 Introduction 21210.2 Defining logistics management 21210.3 The objectives of logistics management 21310.3.1 Minimising total logistics costs 21310.3.2 Increasing customer service 21410.3.3 Trade-offs between minimising costs and

optimising service 214

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10.4'Activities of logistics 21510.4.1 Purchasing management 21610.4.2 Order processing 21710.4.3 Inventory management 21810.4.4 Transportation 22110.4.5 Warehousing 22410.4.6 Materials-handling and packaging 22410.5 Integrated logistics 22510.6 Reverse logistics 22710.7 Global logistics .• 228Case study: Using distribution centres to improve

customer service 229Summary 229Glossary 230Multiple-choice questions 232References and end-notes 233Answers to multiple-choice questions 235

11 Financial management 236Marolee Beaumont SmithPurpose of this chapter 236Learning outcomes 23611.1 Introduction... 23611.2 The functions of financial management 23711.2.1 Analysing the financial position of a business 23711.2.2 Managing the assets of a business 23711.2.3 Managing the liabilities (what is to be paid) of a

business 23711.3 The core principles of financial management 23811.3.1 The cost-benefit principle 23811.3.2 The risk-return principle 23811.3.3 The time-value-of-money principle 23911.4 Analysing financial statements 23911.4.1 The balance sheet 23911.4.2 The income statement 24111.5 Ratio analysis 24211.5.1 Liquidity ratios 24311.5.1.1 The current ratio 24311.5.1.2 The quick ratio 244

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11.5.2 Asset-management ratios 244

11.5.2.2 Inventory turnover 244

11.5.2.3 Average collection period 245

11.5.2.4 Total asset turnover 245

11.5.3 Debt -management ratios 246

11.5.3.1 T h e debt ratio 246

11.5.3.2 T h e gearing ratio 247

11.5.3.3 T h e interest-coverage ratio 247

11.5.4 Profitability ratios 247

11.5.4.1 T h e gross profit margin ., 248

11.5.4.2 T h e profit margin 248

11.5.4.3 T h e return on total assets 248

11.5.4.4 T h e return on equity 249

11.5.5 Applying ratio analysis 249

11.6 Break-even analysis 249

11.6.1 Fixed and variable costs 250

11.6.2 T h e break-even point 251

11.6.3 Some limitations of break-even analysis 253

11.7 Financing capital requirements 254

11.7.1 Shor t - te rm financing 254

n.7.1.1 Trade credit 254

11.7.1.2 Bank credit 255

11.7.1.3 Factoring of trade receivables 256

11.7.2 Long- te rm financing 256

11.7.2.1 Equity funding '. 257

11.7.2.2 Long- te rm bank loans 257

11.7.2.3 Financial leases 257

n . 8 T h e cash budget 258

11.8.1 Preparing a cash budget 260

11.9 Managing trade receivables and inventories 260

11.9.1 Managing trade receivables 260

n.9.1.1 Credit policy 261

11.9.1.2 Credit terms 261

11.9.1.3 Collection policy 261

11.9.2 Managing inventories 263

11.9.2.1 T h e op t imum level of inventory holdings 263

Case study: Financial ratio analysis of Polokwane Print ing

Company 264

Summary 266

PRINCIPLES OF BUSINESS MANAGEMENT JrGlossary 266Multiple-choice questions 269References and end-notes 270Answers to multiple-choice questions 270

12 Human-resources management 271Maggie HoltzhausenPurpose of this chapter 271Learning outcomes 27112.1 Introduction 27112.2 The role of human-resources management 27312.3 The human-resources management process 27412.3.1 Strategic human-resources planning 27512.3.1.1 Job analysis 27612.3.1.2 Human-resources forecasting 27712.3.2 Staffing the organisation 27812.3.2.1 Recruitment 27812.3.2.2 Selection 28112.3.2.3 Induction 28412.3.3 Developing and assessing the organisation's human

resources 28412.3.3.1 Training and development 28512.3.3.2 Performance management 28712.4 Maintaining the organisation's human resources 28812.5 Important trends in human-resource management 290Case study: Oyster Bay Lodge 291Summary 294Glossary 294Multiple-choice questions 296References and end-notes 297Answers to multiple-choice questions 299

13 Marketing management 300Sharon Rudansky-Kloppers, Johan StrydomLearning outcomes 30013.1 Introduction 30113.2 The nature of marketing 30113.3 Marketing thinking through the years 30413.3.1 The production era 304

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13.3.2 The sales era 30413.3.3 The marketing era 30413.3.3.1 Profit orientation 30513.3.3.2 Consumer orientation 305J3-3-3-3 Social responsibility 30513.3.3.4 Organisational integration 30713.4 Consumer behaviour 30813.4.1 Determinants of consumer behaviour 30813.4.1.1 Individual factors 30813.4.1.2 Group factors 30913.4.2 The consumer's decision-making process 31113.4.2.1 Awareness of an unsatisfied need or problem 31113.4.2.2 Gathering information on how best to solve the

problem 31113.4.2.3 Evaluating all possible solutions 31113.4.2.4 Deciding on a course of action 31213.4.2.5 Post-purchase (after purchase) evaluation 31213.5 Marketing research 31213.5.1 The marketing-research process 31313.5.1.1 Step 1: Defining the problem 31313.5.1.2 Step 2: Developing hypotheses 31313.5.1.3 Step 3: Collecting data 31413.5.1.4 Step 4: Processing, analysing and interpreting

information 31513.5.1.5 Step 5: Compiling a research'report and making

recommendations 31513.6 Market segmentation, target marketing and product

positioning 31513.6.1 Market segmentation 31613.6.1.1 The market-aggregation approach 31613.6.1.2 The single-segment approach 31613.6.1.3 The multi-segment approach 31713.6.1.4 Using variables to describe the market structure 31713.6.2 Target marketing 31813.6.3 Product positioning 31913.7 The product decision 31913.7.1 Definition of a product 31913.7.2 The product concept 31913.7.3 Classification of consumer products 320

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r ;13.7.3.i Convenience products 32013.7.3.2 Shopping products 32113.7.3.3 Specialty products 32113.7.3.4 Unsought products 32113.7.4 Brand decisions 32113.7.4.1 Brand loyalty 32213.7.4.2 Packaging decisions 32413-7-5 Product strategies 32413.7.5.1 Product differentiation 32413.7.5.2 Product obsolescence 32513-7-5-3 The product portfolio 32513.7.5.4 The development of new products 32513.7.6 The product life cycle 32613.8 Distribution decisions 32713.8.1 Selecting the distribution channel 32813.8.2 Factors that play a role in the determination of a

distribution channel 32913.8.2.1 The type of product.. 32913.8.2.2 The type of market 32913.8.2.3 The existing distribution channels 33013.8.3 Channel leadership 33013.8.4 Market coverage 33113.8.5 Logistics (also called physical distribution) 33213.9 Price decisions 33313.9.1 Price defined 33313.9.2 The price-determination process 33413.9.3 Adaptations of the final price 33513.10 Marketing-communication decisions 33613.10.1 Marketing communication defined 33613.10.2 Advertising 33713.10.2.1 The advertising message 33713.10.3 Personal selling 34013.10.4 Sales promotions 34013.11 Public-relations management 340Case study: Pick n Pay moving forward 342Summary 344

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Glossary 344Multiple-choice questions 350References and end-notes 351Answers to multiple-choice questions 351

PART 4 ENTREPRENEURSHIP AND THEBUSINESS PLAN 353

14 Entrepreneurship 355Cedle NieuwenhuizenPurpose of this chapter 355Learning outcomes... 35514.1 Introduction 355Case study: Dimension 5 Business Services Group (Pty) Ltd 35714.2 The economic impetus of entrepreneurial business 35814.3 Who is an entrepreneur? 35914.3.1 Ingenuity 35914.3.2 Leadership 36014.3.3 Calculated risk-taking 36114.4 The entrepreneurial process 36114.5 Temporary entrepreneurs versus growth-orientated

entrepreneurs 36214.6 Entrepreneurship, management and leadership in

entrepreneurial businesses 36214.7 Types of entrepreneurial business 36314.7.1 The informal business sector 36414.7.2 The micro- and small business sector 36414.7.3 The medium and large business sectors 36614.7.4 Franchisors and franchisees 36714.7.5 Corporate entrepreneurship 368Case study: Craig Lyons 369Summary 370Glossary 370Multiple-choice questions 371References and end-notes 372Answers to multiple-choice questions 373

PRINCIPLES OF BUSINESS MANAGEMENT

15 The business plan 374Cedle NieuwenhuizenPurpose of this chapter 374Learning outcomes 37415.1 Introduction 3 7415.2 Identifying an opportunity 37515.3 Performing a feasibility study 37515.4 Performing a viability study 37615.4.1 Establishing who the consumers would be and

what their needs are „ 37615.4.2 Developing the mission or purpose statement of

the business 37815.4.3 Defining the business goals and business objectives... 37815.4.4 Determining the business's share of the total market. 37915.4.5 Calculating the income of the business 38015.4.6 Calculating the expected net profit of the business

to determine if the business idea is viable 38115.4.7 Calculating the break-even point 38215.5 Developing the business plan 38415.5.1 The contents and framework of a business plan 38415.5.2 Key elements of a business plan 38515.5.2.1 The cover sheet 38515.5.2.2 The table of contents 38515.5.2.3 The executive summary 38515.5.2.4 The business team : 38615.5.2.5 The analysis of the macro- and market

environment and the positioning of the business in themarket 386

15.5.2.6 The history and profile of the business 38715.5.2.7 The products and/or services plan 38715.5.2.9 The marketing plan 38815.5.2.9 The production or operational plan 38815.5.2.10 The financial plan 38815.5.2.11 The implementation timetable 39015.5.2.12 The summary and concluding remarks 39115.5.2.13 The appendices and references 39115.6 Determining the resources and starting the business.... 391Case study: Afrique Cosmetics executive summary 392Summary 392

Table of contents

Glossary 393Multiple-choice questions 394References and end-notes 395Answers to multiple-choice questions 395

Index 396