MNB1501_70514402 Study Guide MNB1501

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Printed and published by the
University of South Africa
Muckleneuk, Pretoria
MNB1501/1/2018–2020
70514402

MNB_style
2

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.

Note: 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 working offline.

MNB1501/1/2018–2020

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

Welcome to the module Business Management 1A (MNB1501). To make your studies
easier and to help you share in our enthusiasm for this field, 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.
5

The field 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 field of business management and will help you to discover management as it is
practised today.
6

Although 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.

IMPORTANT:
Visit myUnisa regularly, as important information will be communicated to you via announcements 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.
9

1.2

PURPOSE OF THE MODULE

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

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1.3

LINK TO OTHER MODULES

This 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 field 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.
12

1.4

OBJECTIVES AND COMPETENCIES

1.4.1 Module objectives
13

When 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
differentiate between entrepreneurial and non-entrepreneurial approaches to business management
develop a basic business plan for a small to medium-sized enterprise

1.4.2 Our assumptions
The 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:
15

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.

The 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
The framework of this module is as follows:

TOPIC

LEARNING UNIT

1 INTRODUCTION TO BUSINESS
MANAGEMENT

1
2
3
4
5

The business world and business management
Entrepreneurship
Establishing a business
The business environment
Corporate social responsibility

2 THE MANAGEMENT PROCESS

6
7
8
9
10

Introduction to general management
Planning
Organising
Leading
Controlling the management process

1.4.4 Composition of the study/learning package for the module
The 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 successfully without it. Please refer to the 101 letter for the prescribed and recommended books.
19

1.5

COMPLETING ACTIVITIES, ASSESSMENT QUESTIONS AND
ASSIGNMENTS

The 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 different topics of the tutorial
matter.
20

1.5.1 Assessment questions
At the end of each learning unit, you will find a list of assessment questions based on the
work covered in the learning unit. You will find 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.
21

1.5.2 Assignments
By 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:
22

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Which one of the following statements is correct?
1
2
3
4

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

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

Sometimes 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 find the occasional question asking you
to indicate which of the options is wrong.
31

In 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 answer will still be either option 1, 2, 3 or 4, but these answers may refer to more than one
statement. For example:

Which of the following statements are correct?

a
b
c
d

A business owned and managed by one person may be a private company.
A partnership is usually limited to 20 partners.
The owner of a sole proprietorship does not pay tax on his or her business’s profits.
A public company may not offer its shares for sale on an open market.

1
2
3
4

abcd
abd
bc
cd

This 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.
44

In 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:

The economic principle ...

1
2
3
4

is an endeavour to achieve the maximum with the minimum.
does not apply to government organisations because they do not strive for a profit.
is mainly an indication of how low the operating costs were.
is always measured in terms of the business’s profitability.

In 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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MNB1501/1/2018–2020

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

Match the management level in the first column with the corresponding organisational objective in the second column:
54

a
b
c

top management
middle management
lower management

i
ii
iii

the mission of the organisation
functional objectives
operational objectives

1
2
3
4

a
a
a
a

(i)
(i)
(ii)
(iii)

b
b
b
b

(ii)
(iii)
(i)
(ii)

c
c
c
c

(iii)
(ii)
(iii)
(i)

In 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 first column with those in the
second column, you should be able to choose between options 1 and 2.
64

Answering a multiple-choice question

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

You will find 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.
67

Decide on each option independently.

When answering a multiple-choice question, a good deal of time is often wasted (especially 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
first 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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When you have done that with every one of the four statements, you may find that you
have marked one statement correct and three statements wrong. That is then your answer. If you find 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.
71

Write down your reasoning.

When 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 specific reference to the prescribed book to back up your reasoning.
74

This 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.
75

It 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 lecturers. So do not take the easy way out by just answering the multiple-choice questions.

The flow diagram below will help you to picture the process.

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MNB1501/1/2018–2020

1.5.3 Assessment of the module
We will assess your progress during the semester (in your assignments) and in the examination 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.
79

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1.6
80

HOW YOU WILL BENEFIT FROM THIS MODULE

To 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.

The following steps should be followed in the study process:

2
3
4
5
6

Get an overview of the prescribed textbook as a whole. You should have completed
this step already.
Get an overview of the chapters of the textbook. Draw a mind map of the chapters.
Read the first chapter and draw a mind map of the topics in the chapter.
Study the first section of the chapter. Write a summary in your own words.
Read the corresponding learning unit. Amend your own summary, if necessary.
Read the next section of the chapter. Repeat steps 4 to 6 until you have completed
the chapter.
Tackle the next chapter and repeat steps 3 to 7 until you have completed all the
chapters.

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

1.7
92

WHAT YOU CAN EXPECT FROM UNISA

You can expect us to do the following:

We will provide you with up-to-date and relevant study material, which we regularly 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
officials.
We will assist you by giving you the opportunity to develop competencies and skills
at a certain level. The objectives correspond to the National Qualifications 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 attending 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.

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MNB1501/1/2018–2020

This 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 material 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.
94

We urge all of you to access myUnisa. You can access the myUnisa web page with a computer or a smartphone that is linked to the internet. You can also make use of Unisa’s
regional offices 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

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

When 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.
97

You are now ready to start studying. Tackle one learning unit at a time. If there is something that you do not understand, read it again and try to figure 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
figure it out, ask your fellow students on myUnisa or your e-tutor, or contact one of your
lecturers at Unisa.
98

One 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.
99

100

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

The 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 find 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 identifiable part of a topic. Each topic therefore consists of one
or more learning units.

102

Very important for the purposes of your studies are the learning outcomes. For each topic,
specific 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 specific topic (i.e. your knowledge and understanding of it).
103

104

Certain icons are used throughout learning units:
Icon

105

Description

106

108

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.
107

110

Study. This icon indicates the relevant sections of the prescribed book
or the study guide that you need to study and internalise.
109

112

Key concepts. The key concepts indicate which terms or keywords are
important for a particular learning unit.
111

114

Read. This icon will direct you to read certain sections of the prescribed
book for background information.
113

116

Activity. This icon refers to activities that you must do to develop a
deeper understanding of the learning material.
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118

Assessment. When you see this icon, you will be required to test your
knowledge, understanding and application of the material you have
just studied.
117

120

Feedback. This icon indicates that you will receive feedback on your
answers to the self-assessment activities.
119

122

Website link. This icon indicates a website link that you can access for
more information on the topic currently being discussed.
121

124

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.
123

Did you know.
...

126

127

125

128

129

IMPORTANT

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

130

1.9

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 field of study

CONCLUDING REMARKS

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

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

133

Best wishes
Your lecturers for MNB1501
Department of Business Management
Unisa

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135

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TOPIC 1
INTRODUCTION TO BUSINESS
MANAGEMENT

INTRODUCTION AND AIM OF THE TOPIC
The 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.
138

Learning objectives

After completing this topic, you should be able to







demonstrate an understanding of the role of business in society and the position of business 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

139

CONTENT
140

Topic 1 comprises five learning units:
LEARNING UNIT 1:
The business world and business management
LEARNING UNIT 2:
Entrepreneurship
TOPIC 1:
INTRODUCTION TO BUSINESS
MANAGEMENT

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
This 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, financial 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: specifically the task of business management, namely studying
the factors, methods and principles that enable a business to function as efficiently as
possible. A classification of the study material on business management is also presented.
142

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

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 classification of the study material on business management

Learning objectives

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 differences between need-satisfying institutions and non-profit institutions
explain the inherent nature of business management
understand how the study material on business management is classified

KEY TERMS
community
needs
economic systems
society

development
classification
free market

market economy

Refer to the end of chapter 1 in the prescribed book to familiarise yourself with the key
terms for this learning unit before continuing.
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1.1

THE ROLE OF BUSINESS IN SOCIETY
Study section 1.2 in ITBM.

The 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 influence
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.
144

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

Through the spheres of social responsibility, consumerism and the prevention of environmental damage, for example, a society can persuade an organisation not to pollute
or damage the environment or fix prices. Just as a society can influence its business
organisations, so these organisations can have a significant influence on the society. By
developing new products, businesses can influence the behaviour patterns of people in
a particular society. Just think of the impact that the electronics industry (with its production 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 affected.
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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 effect 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”

148

From the five headlines above, identify what type of influence is being exerted by South
African organisations on society.

Feedback:

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

1.2

NEEDS AND NEED SATISFACTION
Study section 1.3 in ITBM.

Human 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 utilise 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 afford 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 greatest possible benefit (or satisfaction) with the limited resources we have is known as the
economic principle.

149

Since 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
150

the satisfaction of physiological needs such as hunger and thirst. However, according to
Maslow, once these needs are satisfied, people will strive to satisfy the next level of needs
(i.e. security needs) and so on.
In 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 manufacturing 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 figure below depicts
the four production factors.
151

Society 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 figure 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.
153

154

After 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 indicated 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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7

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

1.3

THE MAIN ECONOMIC SYSTEMS
Study section 1.4 in ITBM.

155

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

158

Free-market economy

159

Socialism

Command economy

160

157

At 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 society 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.
161

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

In-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.
163

Table 1.2 in the prescribed book provides a useful summary of the key differences between the three economic systems. You do not have to memorise these differences, but
to understand the different 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.
164

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

165

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 definition 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 efficiency, 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

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

166

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 organisation is inefficient, it will go bankrupt. If government intervenes to keep such organisations afloat, it will keep inefficient 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?

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

Feedback:

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

1.4

THE NEED-SATISFYING INSTITUTIONS OF THE MARKET
ECONOMY
Study section 1.5 in ITBM.

The functioning of the South African economy is affected by need-satisfying institutions
such as business organisations, government institutions and non-profit-seeking institutions.
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Business organisations are also referred to as profit-seeking businesses since their aim is
to conduct their business in such a way that it will lead to a profit 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.
170

There are also government organisations that do not operate on a profit-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 profit-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.
171

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

173

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

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

Feedback:

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

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.

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

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 difference between the
income and cost being the profit. Note that the economic principle applies as much to
non-profit-seeking businesses as it does to profit-seeking businesses. The difference is
that any form of profit is ploughed back into the community for which the non-profitseeking organisation is working.
The business organisation performs a number of activities, such as researching markets
to find out whether there is a need for the product of the business; acquiring and processing 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. Furthermore, 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 figure:
175

176

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

177

As we can see, general management is at the centre and deals with the planning, implementation 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.
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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 use
credit 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.

MNB1501/1/2018–2020

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?

Feedback:

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

SUMMARY
You 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.
179

BUSINESS IN CONTEXT
One 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.

180

SELF-ASSESSMENT QUESTIONS

181

QUESTION 1

182

Which of the following statements are correct?

183

An entrepreneur is someone who ...

184

a
b
c
d

185

186

187

188

pursues profit.
accepts risk.
makes the most of opportunities in the environment.
combines expertise and resources to produce products and services.

189

190

191

192

193

1
2
3
4

ab
cd
bcd
abcd

194

195

QUESTION 2

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

197

a
b
c
d

198

199

200

private ownership of production factors
free competition
profit motive recognised
limited right to strike in state enterprises

201

202

203

204

205

1
2
3
4

ab
ac
abc
abcd

206

207

QUESTION 3

208

209

210

211

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

c
d

212

State intervention to solve an economic problem in a market economy indicates a
move towards a command or centrally controlled economy.
Government intervention in the economic system aims at encouraging economic
growth and stability.
Control of strategic organisations cannot be left to profit-seeking entrepreneurs.
An expanding entrepreneurial role by the state eventually leads to a democracy.

213

1
2
3
4

214

215

216

217

ac
abd
bc
abcd

218

THE ANSWERS TO THE SELF-ASSESSMENT QUESTIONS

219

Question 1

220

All four of the statements are correct regarding the characteristics of an entrepreneur. Such
a person normally pursues profit in starting and running a business, and in the process
also accepts risk. An entrepreneur also makes the most of opportunities in the environment; 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 answer is therefore option 4 (a b c d).
221

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Question 2

In a free-market economy the economy is characterised by private ownership and
free competition, and the profit 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).
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225

Question 3

The first 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 Constitution 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 profit-seeking entrepreneurs
only, because these strategic organisations must be managed to the benefit of all the
citizens. This statement is therefore correct. The last statement is obviously wrong. Expanding the government’s entrepreneurial role does not have a corresponding positive
influence on the development of a democracy. The right answer is therefore option 3 (b c).
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Learning Unit 2
Entrepreneurship
INTRODUCTION AND AIM OF THE UNIT
Entrepreneurship 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 entrepreneurship as the fourth factor of production. We will look at the role of entrepreneurs
and businesses in society and the entrepreneurial process.
228

There are various sources which can define what an entrepreneur is. All the definitions 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 individuals 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 profit. 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 different ways of
entering the business world and present recommendations on the choice of a business
opportunity.
229

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

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

Contents of the learning unit:





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

Learning objectives

When you have worked through learning unit 2, you should be able to







explain the concept of entrepreneurship and the entrepreneurial process
define 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 different ways in which an entrepreneur may start a business
discuss the implications of choosing a specific business opportunity

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KEY TERMS
entrepreneur
role of the entrepreneur
small business
skills required of an entrepreneur
resources needed to start a business

entrepreneurship
motivation of entrepreneurs
entrepreneurial process
starting a new business
buying 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.

Entrepreneurship 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. Different sources are available regarding the total number of unemployed
people in South Africa. Depending on whose figures you use and the definition of unemployment, 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.
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2.1.1

Descriptions of an entrepreneur
Study section 2.2 in ITBM.

It is important that you understand the different descriptions of an entrepreneur. Bill
Gates is an entrepreneur who had the innovative ideas that started the Microsoft computer company in the United States. Henry Ford was an entrepreneur who identified
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,
233

petrol filling stations and fast-food businesses. Ernest Oppenheimer came to South Africa 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 determination 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
Study section 2.4 in ITBM.

Entrepreneurship is a relatively new phenomenon in South Africa, mostly owing to legislation 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.
234

2.2 THE ROLE OF ENTREPRENEURS AND SMALL-BUSINESS
OWNERS IN SOCIETY
Study sections 2.5 and 2.6 in ITBM.

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

236

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

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



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

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

Of course the three categories mentioned above are not the only reasons for people to
embark on an entrepreneurial journey. The influence 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.
239

2.2.1

The small business
Study section 2.8 in ITBM.

We 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):
240






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

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

242

The definition of a small business
A good general definition of a small business is that it is owned and managed independently 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.
243

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

The role of small businesses in the economy
Entrepreneurs 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:
245






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

246

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 selling fruit and vegetables from the farm. At the age of 12, Freddie started delivering
potatoes to the housewives in Goodwood. Today, at the age of 30, he has his own
delivery/transport business in Cape Town and makes a fortune.
(2) Beauty Davids, a 35-year-old housewife with a baby, was cleaning her house when
she suddenly thought how many other working people need someone to clean their
houses. She started a business, The Cleaning Lady, with four workers. They charge
R60 an hour and spend (on average) two hours cleaning a house and ironing where
necessary. 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 firm. 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 jobs
to do in his spare time. At first, he only helped others to complete their tax returns.
Then he bought a computer and started doing the books for small firms. Today he
has his own business, giving financial 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.

Feedback:

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

2.3 THE ENTREPRENEURIAL PROCESS
Study section 2.7 in ITBM.

The framework as explained in figure 2.1 of the prescribed book shows a visual framework
that prospective entrepreneurs may use to help them in the process of starting a business. 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:
248

MNB1501/1/2018–2020








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 finance 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 finance.
Managing the business. Launch the business and manage it.

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

249








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 finances of the business
Project management skills – to organise the business activities
Human relations skills – to deal with the workers employed by the business

Resources
Without resources no entrepreneur would be successful. So you need financial 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 groceries can be displayed (and with secure storage against the weather and theft).
250

Starting a new business or buying an existing business?
The 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!
251

The 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 materials at a lower cost (because the Wimpy company purchases basic ingredients in bulk for
all its outlets) and you would be offering 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 find 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.

Feedback:

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 find a new job in the formal sector and finally, 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
effort towards selling paraffin 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 paraffin 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 filled
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 paraffin 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 successful
entrepreneur?
(2) What resources did Mr Ndamane use to start his business?
(3) How did Mr Ndamane identify the new business opportunity?

Feedback:

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

MNB1501/1/2018–2020

SUMMARY
You 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.
253

254

BUSINESS IN CONTEXT

Refer 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 businessin-context addition to your learning of business management.
255

SELF-ASSESSMENT QUESTIONS

Four 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:
256

Thabo: “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 finished 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 five people.”
257

Musomi: “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 financial risk, because if money is unaccounted for, I will be in
serious trouble and I will lose my job.”
258

Sam: 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! Government must give us all work and we must earn the same salary.”

259

Robert: “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.”
260

261

QUESTION 1

262

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

263

a
b
c
d
e

264

265

266

267

268

0
1
2
3
4

269

270

271

QUESTION 2

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

272

a
b
c
d
e

273

274

275

276

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0
4
5
2
6

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QUESTION 3

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Below is a summary of the psychological traits of entrepreneurship that we have identified in Thabo, Musomi, Sam and Robert. Which of these descriptions are correct?
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b
c
d

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Thabo: achievement motivation; locus of control; innovation and creativity; risk
taking; commitment
Musomi: achievement motivation; locus of control; risk taking; commitment
Sam: locus of control; high level of energy
Robert: achievement motivation; locus of control; innovation and creativity; risk
taking; commitment

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QUESTION 4

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

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a
b
d
e

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0
1
3
4

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THE ANSWERS TO THE SELF-ASSESSMENT QUESTIONS

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Question 1

By 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 innovative; neither is he identifying new opportunities; he is definitely risk aversive, because
he is working with government money, etc. Looking at the remaining two friends we
see that both fit the bill as being entrepreneurs. Let us take Thabo, for example, who
identified 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 find resources;
furthermore, he took the financial risk of opening the store and he is managing a small
business employing five people. Robert also has some entrepreneurial characteristics:
having innovative ideas, identifying a unique opportunity, financing himself, etc. To summarise, the correct answer is that two of the friends are entrepreneurs; so the correct
answer is option c.
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Question 2

Leading on from question 1 we can say that if Thabo and Robert are the only entrepreneurs, then they are employing five workers between them. The correct answer is option c.
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Question 3

The psychological variables that distinguish individuals as entrepreneurs are the following for Thabo and Robert:

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Thabo 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 innovative in that he identified 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.
303

Robert 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.
304

305

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Question 4

Only Thabo and Robert are running small businesses. The arguments used above confirm 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
INTRODUCTION AND AIM OF THE UNIT
Learning unit 2 elaborated on the importance of entrepreneurial activity within society.
The entrepreneur needs to consider a number of things when establishing a new business. This learning unit will focus on the factors that influence the choice of location for
a new business as well as different legal forms of ownership that are available to the entrepreneur. Once you know what the available options are, you can then put everything
together by drawing up the business plan for your new business.
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STUDY CHAPTER 3 (sections 3.2–3.4) IN ITBM

Contents of the learning unit:



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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

Learning objectives

When you have worked through learning unit 3, you should be able to

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


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identify the factors that influence the location of a business
distinguish the different 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

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KEY TERMS
legal personality
partnership
control
authority
ownership of a business
tax liability of a business

sole proprietorship
business location
close corporation
company
legal requirements
business plan

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Refer to the end of chapter 3 in the prescribed book to familiarise yourself with the key
terms for this learning unit before continuing.

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3.1

THE IMPORTANCE OF GEOGRAPHICAL LOCATION FOR
THE SUCCESS OF A BUSINESS
Study section 3.4 in ITBM.

Geographical location
The choice of geographical location for a specific 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 offered,
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 personal preference. Woolworths, for example, selects the premises of its stores according
to the following criteria:
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The premises should be located in close proximity to other national retailers, banking and other facilities.
The site should provide adequate security.
There should be convenient parking facilities.
The building must comply with Woolworths’ specifications regarding size, quality
of finish, etc.

313

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

Location factors
Location 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:
315

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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 tariffs 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
Study section 3.2 in ITBM.

When establishing a new business in South Africa, it is important to be able to distinguish
between the different 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:
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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)

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The types of ownership covered in this section include

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

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

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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 profits
transfer of ownership
continuity of the organisation

321

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

Note 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 benefit of its owners and normally
produces and distributes goods and services. Some benefits for the owners of a cooperative society are the following:
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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 effect of positive spin-offs for small towns.

Legal personality
One of the concepts that some students find difficult is the question of legal personality.
When a business has a legal personality of its own (i.e. a company or a close corporation), 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 company’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.
324

South 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.

325

After 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
Study section 3.3 in ITBM.

In 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.
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3.3.1

The objectives and importance of the business plan

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

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It identifies the nature and context of the business opportunity. (Why does the opportunity exist?) An opportunity may exist because the South African government
is investigating new sources of energy for domestic consumption. This is because
oil prices are very high and traditional sources of energy have health and social risks
for the poorer segment of the population.
It explains how the entrepreneur will develop this opportunity. The entrepreneur
can exploit the above business opportunity and start a business that sells gel as an
alternative source of energy in the townships. The business plan will, by means of
its components (general company description, products and services plan, marketing plan, management plan, operating plan and financial plan), explain how the
entrepreneur 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 or
other institution or person who provides financial resources to lend the entrepreneur the money needed to establish the new business. In the case of the alternative
sources of energy, the business plan will illustrate the viability of the business idea
to potential investors.

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Additional objectives that flow directly from the main objectives are achieved:

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The new venture’s chances of success in the market is evaluated systematically and
realistically. The planning that goes into developing a business plan might reveal that
gel is much more expensive than paraffin, 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 the
primary risks that may lead to failure, are identified. A key variable might be that
government will subsidise the production and distribution of the gel and that they
might enforce its use above other sources of energy.
It describes how to manage the business successfully. The business plan includes a
management and operating plan.

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

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

332

Cover page and executive summary
Remember, 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.

333

Another very important part of the business plan is the executive summary, because
it holds together and unifies 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.
334

Content of the business plan
The entrepreneur must first 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.
335

It 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.

336

Financial analysis
The financial analysis is another crucial component of the business plan. The entrepreneur’s
projections of a new venture’s profits, its required assets and its financial requirements
over the next one to five years should be supported by substantiated assumptions and
explanations of how the costs, profits and financial requirements are determined. In order to make the necessary financial projections, the entrepreneur must first have a good
understanding of financial statements and how to interpret them.
337

338

So the key matters to understand in this section are



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how financial statements work
how profitability is assessed
how a venture’s financial requirements are determined

339

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

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SUMMARY
In this learning unit the most important location factors were discussed as well as certain factors regarding the different 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 development of a business plan for the new venture.
341

No business functions in a vacuum. Businesses influence and are influenced by the environment in which they function. In the next learning unit we will have a closer look at
the business environment.
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BUSINESS IN CONTEXT
Refer 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.
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SELF-ASSESSMENT QUESTIONS

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

Establishing a small information technology business in South Africa

Steve 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 first 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 offered. This really came as a surprise to him.
346

He 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 find a lot of it too (since the site was not producing much money
and he was funding it himself).
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Clearly he had to do more homework and had to find 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.
One of Steve’s questions was how a small-business owner trying to establish a new business goes about securing venture capital. Money tends to make things happen far faster
and more effectively. 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.
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350

351

2
3

352

Explain to Steve how a business plan would have helped him before he launched
his business.
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.
Identify the internal and external stakeholders in a business plan.

353

You may find 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.

354

THE ANSWERS TO THE SELF-ASSESSMENT QUESTIONS

355

Question 1

Drawing up a business plan is the first 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.
356

You should have discussed all the objectives and benefits 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 business plan. You now also see that the business plan may have more than one use, because
entrepreneurs can use their plans for different purposes.
357

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

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
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


It helps you to organise your thoughts on paper and gives structure to your ideas
and thoughts, thus giving you insight into yourself.
It can help you to identify your objectives to show where you are heading and what
vision 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 defining 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 financing to start your
business.
It helps you to communicate your ideas to others and gives credibility to your ideas.

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Question 2

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

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

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Question 3

364

The stakeholders are as follows:

Internal stakeholders are
a new venture management
b employees

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368

External stakeholders are
a customers
b investors
c banks

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Learning Unit 4
The business environment
INTRODUCTION AND AIM OF THE UNIT
The South African business environment is dynamic and changes from day to day. A company exporting or importing products from the European Union (EU) or the United States
experiences constant fluctuations in the economic environment. An example is the daily
change in the official 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 effect on the inflation rate and ultimately economic activity. Climate
changes in South Africa may also have a negative effect on businesses and the private
customer alike. Prices of basic foodstuffs such as vegetables are influenced by periods
of drought, cold spells and wet spells. This learning unit introduces you to the environment in which the business organisation functions and explains how the environment
impacts on business.
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STUDY CHAPTER 4 (sections 4.1, 4.3–4.8) IN ITBM

Contents of the learning unit:

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

Learning objectives

When you have worked through learning unit 4, you should be able to

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




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 individual business
describe some ways in which management should respond to the influences of the
environment

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KEY TERMS
business environment
market environment
environmental change
environmental scanning

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

Refer to the end of chapter 4 in the prescribed book to familiarise yourself with the key
terms for this learning unit before continuing.
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4.1

THE BUSINESS AND ENVIRONMENTAL CHANGE
Study section 4.1 and read section 4.2 in ITBM.

The effect of change
Change can be described as an alteration in the status quo – in a business sense implying that there are alterations in the business environment, which the business must take
note of. Some years ago, in his book Future Shock, Alvin Toffler predicted that the rate of
change in society would increase dramatically and that most people would have great
difficulty just keeping up. Practical examples of the increase in the rate of change are to
be found in the convergence of different 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 affected 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.
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Section 4.2 of the prescribed book describes some of these changes and the effect 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 affect the business.
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4.2 THE COMPOSITION OF THE BUSINESS ENVIRONMENT
Study section 4.3 in ITBM.

Defining the business environment
It 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 defined as the sum of all those variables which may influence the successful
existence of the organisation.
380

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

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The micro-environment refers to the business itself – the workers and managers, and
the functional areas in which a business are divided, such as the financial 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.
382

The market environment refers to the immediate external subenvironment that has a direct influence 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.
383

The macro-environment refers to the greater external environment that will influence
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 effect
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.
384

Characteristics of the business environment
Section 4.3.2 of the prescribed book sets out some important characteristics of the business 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 resultant
increase in the international oil price will negatively affect (increase) the inflation
rate of South Africa. The oil supply forms part of the international environment and
the inflation rate forms part of the economic environment. For some businesses the
oil 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 same
for very long. Look, for instance, at the daily fluctuations in the rand–US dollar
exchange rate.
There is growing uncertainty about the future – even the immediate future is difficult
to predict because of the lack of information or the unreliability of information. Who
knows what the rand–US dollar exchange rate will be next year?
It is a complex environment because of the many variables that may cause and
influence change. Various components in the three subenvironments may change
at the same time. There could be a strike at the business, which affects the output
and profitability of the business; at the same time the retailers that are stocking the
product may be demanding increased supplies, while the Chinese exporters are
exporting more competitive products to South Africa. We see here that variables in
the micro-environment, the market environment and the macro-environment are
simultaneously at play and influencing this business.

386

Activity 4.1
Identify the three subenvironments of the business environment for an organisation
such as Shoprite and briefly describe the influence of each of these subenvironments
on this business.

Feedback:

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

4.3 THE MICRO-ENVIRONMENT
Study section 4.4 in ITBM.

Components of the micro-environment
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This subenvironment has the following three components.

MNB1501/1/2018–2020

4.3.1

The mission and objectives of the business

The 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 n
Pay indicates its intention to serve its customers while striving to make its organisation
the preferred place where customers do their shopping. The objectives of this retailing
group are usually measured in terms of market share, profits to be realised and even
empowerment of their workers. These objectives are usually sensitive and not divulged
to the public, because they could land up in the hands of the competition.
388

4.3.2 Organisational functions
Among other things, organisational functions refer to purchasing the necessary supplies
and the logistics of getting the supplies at the right place, the marketing efforts needed
to meet the wants and needs of the organisation and the financial expertise needed to
ensure that profits are made and that taxes paid to the South African Revenue Service
are correctly calculated and paid over on time.
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4.3.3 Human resources
The 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 specifically, as part of the social environment, managers
must take notice of its implications for the specific business that they are managing. It
is a fact that South African businesses cannot afford 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 effects of the illness and
preventing its spread include the following:
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Gathering information from partnerships and collaborations. Partnerships or collaborations with external experts, local and international NGOs, academic institutions,
government bodies, multilateral institutions, labour unions or employee associations
are critical to the development and implementation of an HIV/Aids programme.
Creating an HIV/Aids policy. A written statement by the organisation describes their
policy on HIV/Aids; if possible people living with HIV/Aids should be involved in drawing up this statement. Businesses where employees are at risk of workplace exposure
to HIV should spell out training requirements, safety procedures and equipment, and
have a plan for responding to workplace exposure to the virus.
Involving multiple stakeholders in policy and programme development. The organisation should seek feedback from local and international NGOs, academics, health
experts, 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 stakeholders
to 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 stigma
and make employees living with HIV/Aids less likely to suffer discrimination and,
therefore, willing to come forward for treatment.
Designing workplace HIV/Aids programmes to fit local cultures. The organisation
should develop policies and programmes to deal with the circumstances of HIV/Aids
prevalence, primary mode of transmission, level of work force education and cultural
norms, by taking into account local cultures and conditions.
Ensuring that the HIV/Aids policy is a living document. The organisation should make
sure that the policy is driven by all levels and units within the organisation, so that
it is not viewed as only a human resource policy.
Using a comprehensive approach. It is important to follow an approach that focuses
on prevention, education and treatment. A programme that focuses only on providing
access to drugs while ignoring behaviour will ultimately not have a significant impact
on workers’ behaviour.
Intervening early. Early intervention is one of the most important strategies of any
HIV/Aids programme. Organisations such as Eskom, with education programmes
dating back to the late 1980s, claim to have lower prevalence rates in their work force
than other businesses in their community because they made HIV/Aids a business
priority early on.
Getting support from the organisation’s leadership. Clear support from leadership is critical, particularly with respect to obtaining resources for comprehensive
programmes.
Providing ongoing education and training. The organisation should reinforce and
expand the organisation’s HIV/Aids policy by providing education and training for all
employees, starting with the orientation of new employees. Include information on
the illness, how to prevent HIV infection, appropriate workplace conduct and legal
issues that may arise; and provide guidance for managers and supervisors on complying with laws and regulations, managing benefits, accommodating employees
with HIV/Aids and helping employees who ask for counselling.
Ensuring legal compliance. The organisation should gain a full understanding of the
laws and regulations governing workplace practices with respect to HIV/Aids and be
certain to learn about new legal developments as they occur.
Supporting employees with HIV/Aids. Employees with HIV/Aids should be helped to
balance their job demands and stresses associated with illness-related issues by offering support groups, flexible work scheduling, telecommuting and extra time off.
Nutrition and exercise programmes have proven particularly effective in improving
lifestyle and maintaining productivity.
Giving employees opportunities to support the fight against HIV/Aids. Where culturally appropriate, employees should get regular opportunities to make a positive
contribution by creating fund-raising ventures and volunteer opportunities with local
HIV/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.
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It 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.

392

Activity 4.2
Why is it necessary for South African businesses to actively get involved in tackling HIV/
Aids in the workplace?

Feedback:

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

4.4

THE MARKET OR TASK ENVIRONMENT
Study section 4.5 in ITBM.

Description of the market environment
The 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 profitable development of this market is often seen as management’s most
important task, it is sometimes referred to as the task environment.
393

Components of the market environment
394

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



The consumer (also called the customer) is the main reason why the business is in
operation. Without a consumer to buy the product or service of the business that
business will eventually fail. So the business must understand the wants and needs
of the customer. Information about the customer is therefore needed and the organisation must ensure that they keep track of changes in this market.
Suppliers are categorised as supplying material, capital and labour to businesses
in 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 most
businesses. Capital is supplied to businesses through various alternative sources of
39



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 manufacturer and the customer. Some of the most important intermediaries are the wholesalers that sell grocery products to small businesses such as the spaza shops in the
townships. Agents who sell real estate are another form of intermediary that bridge
the 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 usually
the nearest Pick n Pay supermarket or Spar supermarket. More indirect competition
may be the Woolworths store or the convenience stores at the nearest petrol stations.

395

Opportunities and threats in the market environment
The market environment has a direct influence on the business, because this is where competitors 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 finds it difficult 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 identified a need for a different 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.
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4.5 THE MACRO-ENVIRONMENT
Study section 4.6 in ITBM.

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



Technological environment. Technology is one of the main drivers of change in the
world. 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 office.
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 office obsolete.
Economic environment. This environment has a direct influence on other variables
in the micro-environment, the market environment and the macro-environment.
For example, a dramatic increase in bank interest rates may negatively impact the
disposable income of consumers who are borrowing money from banks. This may
then negatively impact the social structure of the country when fewer people are
able to buy necessities such as food, which may result in social unrest.
Social environment. This environment is influenced to a great extent by the technological and economic environment. For example, we are all aware of growing
urbanisation with more people moving to cities because of growing unemployment
in the rural areas and the belief that better-paying jobs are available in the major
cities of South Africa. This has resulted in the rapid growth of informal settlements
with resultant demands on the infrastructure of the cities and the development of
new retailing outlets in the form of spaza shops and shebeens. HIV/Aids is another
social problem and one that has massive social and economic implications for South
African businesses.
Physical environment. This environment focuses on the physical resources that
businesses and we as consumers use. Important aspects of the physical environment are the scarce resources that we must manage in South Africa. South Africa is
a semi-arid country and there is speculation that we will not be able to supply the
minimum needs of the population by the middle of this century. Businesses must
take this into consideration, as the primary manufacturing businesses are some of
the major users of water.
Institutional/Political-governmental environment. The South African government
has a major influence on the landscape of business, for instance labour legislation
on employment and minimum wages.
International environment. This environment also has a major influence on the
other variables in the macro-environment, the market environment and the microenvironment. One example of the influence of the international environment on
South African businesses is the changing crude oil price and its impact on the price
of fuel and the inflation rate. We have seen dramatic increases in the fuel price and
the knock-on effect 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.

Feedback:
Contact your e-tutor via myUnisa for the answer to this activity.
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4.6

ENVIRONMENTAL SCANNING
Study section 4.8 in ITBM.

Description of environmental scanning
Environmental scanning is described as the process of the measurement, projection and
evaluation of change in the different subenvironments. It can therefore be used to keep
abreast of external social, economic, technological and political developments which
may be difficult to observe or predict, but which management dare not ignore. It entails
the identification 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.
400

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

Activity 4.3
Is environmental scanning the same for all types of businesses?

Feedback:

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

SUMMARY
You 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
Refer 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.

403

SELF-ASSESSMENT QUESTIONS

You 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.
404

THE ANSWERS TO THE SELF-ASSESSMENT QUESTIONS

The 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).
405

Strengths of the company may be
•
a good product
•
good relationships with customers
•
good management team

406

407

408

409

410

Weaknesses may be
•
small operation with limited reach – there are other fast-food franchises with more
than 100 outlets, making it difficult to compete
•
because of small operations, no economies of scale regarding aspects such as bulk
buying and reaping the benefits of cheaper prices
•
regular cash flow problems

411

412

413

414

415

Opportunities may be
•
rapidly growing new middle class with the money to buy chicken products at fastfood stores
•
changing tastes of consumers and recognition in the market that chicken is a healthier
alternative than red-meat products such a hamburgers
•
diversifying into a number of product lines, such as low-fat French fries, salads and
low-fat ice cream

416

417

418

419

420

421

Threats may be
•
growing competition from rivals in this sector
•
slowdown in the economy, reducing demand from consumers
•
negative publicity from the Minister of Health on the consumption of fast-food
products containing chicken
•
increase in Aids-related deaths in the middle-income market, reducing the number
of households able to buy chicken fast-food products

422

423

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425

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Learning Unit 5
Corporate social responsibility
INTRODUCTION AND AIM OF THE UNIT
Welcome to the challenges of corporate social responsibility, also known as corporate
citizenship! This is a field characterised by many tensions and uncertainties, but it is immensely 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.
427

STUDY CHAPTER 5 (sections 5.2–5.5) IN ITBM

Contents of the learning unit:









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

Learning objectives

When you have worked through learning unit 5, you should be able to






distinguish between the different terms and concepts in the field of corporate social
responsibility
discuss the imperatives for good corporate social responsibility in South Africa
draw up a stakeholder map for an organisation, indicating the different categories of
stakeholders
explain the business case for corporate social responsibility as it relates to the various
business functions

429

KEY TERMS
corporate social responsibility
corporate citizenship
triple bottom line
citizenship imperative

sustainable development
corporate governance
stakeholder engagement
stakeholder mapping
the business case for implementing corporate social
responsibility

Refer to the end of chapter 5 in the prescribed book to familiarise yourself with the key
terms for this learning unit before continuing.
430

5.1

INTRODUCING CORPORATE SOCIAL RESPONSIBILITY
(CSR)
Study section 5.2 in ITBM.

What is corporate social responsibility and how do different companies implement its
principles? Generally speaking, corporate social responsibility is about proactive efforts
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
influenced by certain social, governmental, market and ethical drivers. Refer to section
5.2 of your prescribed book for a detailed explanation of these drivers.
431

5.1.1

Citizens and citizenship – what is the link?

We are all citizens of some or other country, in this case mostly of South Africa. And being 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.

432

At 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.
433

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

Abiding by the laws of a country is an important component of corporate social responsibility. 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.
Nowadays businesses consider corporate social responsibility as a fundamental piece of
a company’s business plan, affecting its bottom line, share price and long-term viability;
and companies that do not have a strong corporate responsibility strategy find themselves
at a competitive disadvantage.
436

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

437










While a company’s bottom line traditionally refers to its financial profit or loss, the
triple bottom line refers to the need to consider the social and environmental impacts
as well. What effect do the operations of the company have on the people it comes
into contact with (the social side) and on the physical environment in which it operates? This approach is known as the triple bottom line: it measures the financial, social
and environmental impacts of business. All are equal and all are interconnected.
The overarching aspiration and framework for corporate citizenship is sustainable
development. Sustainable development refers to development that meets the needs
of the present without compromising the ability of future generations to meet their
own needs.
The term “corporate social responsibility” can be considered as synonymous with
corporate citizenship. However, the emphasis on “social” may be misleading, since
it 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 surrounding
a company’s factory. CSI is only one component of corporate citizenship; corporate
citizenship is much more than that. One way to describe this is that CSI is about
spending a small part of your profits (such as 1% of pre-tax profit) on good causes,
while corporate citizenship is about how you make your profits in the first place.
Sustainability reporting refers to the increasing expectations for companies to publicly report not just on financial matters, but also on social and environmental issues.
Corporate governance refers to how a company’s objectives, and strategy and decision-making structures are developed, implemented and monitored. It also relates
to the extent and way a company is accountable to its shareholders, as well as its
other stakeholders. Good corporate governance is an important aspect of corporate
social responsibility.

438

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.

Feedback:

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

5.3 THE CITIZENSHIP IMPERATIVE
In 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.
439

5.3.1

Global drivers

Over the past 10 years, the pressure on companies to demonstrate good social corporate 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.
440

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

441

442

The United Nations Global Compact

The United Nations Global Compact was first 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

446

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

447

Today, 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 companies are concerned, the following are included (note that this is not a comprehensive list):
448









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

449

The Global Reporting Initiative (GRI)

450

The Global Reporting Initiative (GRI) was launched in 1997 and has pioneered the development 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 different countries (GRI, 2008).

451

452

453

AA1000 Framework

The AA1000 Framework was launched in 1999 by AccountAbility, a UK-based membership
organisation advising and advocating on corporate social responsibility issues. The purpose 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 effectiveness in overall organisational performance” (see www.accountability.org.uk).
It does not describe what should be reported on, so its guidance is considered complementary to that of the GRI Reporting Guidelines.
454

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A number of other relevant initiatives






ISO 14000 series. This is a series of standards issued by the International Organization
for Standardization; it focuses on corporate environmental management systems.
Organisation for Economic Co-operation and Development (OECD) Guidelines on
Multinational Enterprises. The work of this organisation concerns the disclosure of
information, employment relations, environmental management, bribery, competition, consumer interests, and science and technology diffusion.
SA 8000. This standard focuses on labour conditions and was developed by Social
Accountability International.
South African initiatives and imperatives, which we discuss next.

456

5.3.2 South African initiatives and imperatives
457

Legislation

The 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.
458

459

460

King Code on Corporate Governance in South Africa

The 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 defines
and substantiates concepts such as “corporate citizenship”, “social responsibility”, “triple
bottom line” performance, “stakeholder engagement” and “sustainability reporting”. The
King III Report differs 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#).
462

JSE Socially Responsible Investment Index

A further recent development in South Africa, which also impacts on other African countries, 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.
463

464

Industry charters

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





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

466

Ensuring operational legitimacy or a “licence to operate” requires more than simply a business 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 specific relevance of these imperatives to their business.
467

Activity 5.2
List three international and three local imperatives that promote the implementation of
corporate social responsibility in organisations. Briefly explain the significance of each
factor.

Feedback:

Contact your e-tutor via myUnisa for the answer to this activity.
468

5.4

THE BUSINESS CASE FOR CORPORATE SOCIAL
RESPONSIBILITY

Corporate social responsibility is not about being nice. The potential to limit expenditure, 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).
469

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

470

The business case, therefore, argues that incorporating good corporate social responsibility
practices will, at the end of the day, have positive implications for the financial bottom
line. These benefits can come in a variety of forms:
471






For example, a company that uses energy-saving technology will save money on its
monthly electricity bill. This benefit is often referred to as cost savings.
Being a good corporate citizen can also have positive implications for a company’s
reputation. This reputational gain can also have positive financial benefits through
customer loyalty, attracting higher-quality employees or improving relationships
with investors.
Eco-efficiency can save a company costs by, for example, using recycled materials in
building design, employing solar panel technology to generate energy and the use
of fuel-efficient technologies in vehicles.
Competitive advantage and value creation. A company that ignores ethical, environmental or social issues may actively destroy value through the inadequate management of risks, but may also limit value through missing opportunities. While focusing
on the risks will protect existing business interests, and thus conserve value, such a
purely defensive approach will not open up new opportunities to create value.

472

By 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).
473

Table 5.1 below identifies the key strategic opportunities and threats in the environmental
and social field.
474

Table 5.1: Opportunities and threats in the environmental and social field
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 confidence

Lower cost of capital because of greater investor
confidence 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

Some aspects of corporate social responsibility may not have any economic benefit
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, companies 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.
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5.5 CORPORATE GOVERNANCE
Study section 5.3 in ITBM.

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

477







Good governance is about effective 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 opportunities for the company and society.
Sustainability reporting is a key facet of good corporate governance.

478

5.6

STAKEHOLDERS AND STAKEHOLDER ENGAGEMENT
Study section 5.4 in ITBM.

Stakeholders are those groups or people who are affected by or who can have an effect
on a company.

479

Business 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 shareholders, 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 financial relationship with the company, that is, shareholders
and employees. A company cannot survive if shareholders or employees withdraw their
support of the company.
480

Often government is also a primary stakeholder. Local communities can also be a primary 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.
481

Secondary stakeholders have less direct impact on the company and include environmental 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.
482

Stakeholder 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:
483

1.
2.
3.
4.
5.
6.

484

485

486

487

488

489

Prepare
Plan
Design
Engage
Evaluate
Apply

490

A company wishing to embark on a stakeholder engagement process should start by
mapping all external and internal stakeholders, defining 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.
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5.7

SUSTAINABLE DEVELOPMENT
Study section 5.5 in ITBM.

MNB1501/1/2018–2020

In 1987 the Brundtland Report emphasised the importance of sustainable development
and defined it as “development that meets the needs of the present without compromising 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
492






Rio Earth Summit 1992
United Nations Global Compact
Millennium Development Goals (MDGs) 2000–2030
World Summit on Sustainable Development (WSSD) 1992–2015

493

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

5.8

THE LINK: DOES CSR RELATE TO THE VARIOUS BUSINESS
FUNCTIONS?

If 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 briefly refer to some of the areas of the impact of social corporate
responsibility on the different business functions.
495

5.8.1

CEO/top management

The CEO and the top management team are responsible for managing issues that pertain
to the entire organisation, such as strategy, financial performance, mergers and acquisitions, 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 specific ways that more corporate social responsibility practices can be
helpful, for instance by improving stock price, financial performance, corporate reputation
and risk management. These elements will be discussed in more detail below.
496

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

497

Good 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 coffee, ecotourism, sweatshop-free clothing (e.g. Nike) and
fuel cell technologies are but a few examples of product innovations that have successfully penetrated new markets. These products have successfully responded to changing
consumer preferences.
498

Total 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 company. Total quality should be defined not only with reference to financial considerations,
but should also include products’ social and environmental characteristics. Similarly, priorities 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.
499

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

Generally speaking, the financial director is a very powerful individual and has significant
influence in an organisation. This implies that he or she will also indirectly exercise a
strong moral influence on behaviour or employees in the workplace. Strategic priorities
(profit maximisation, expanding market share, cutting costs, etc) can also be very strong
influences on morality. Traditionally, the finance manager is the most difficult to convince
of the advantages of implementing good corporate social responsibility practices in an
organisation, since not all benefits can be converted into rands and cents.
501

When it comes to the role of the finance function with regard to the investment decision, 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 opportunities to unlock capital. Investors, financial 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 financial performance but also through demonstrated transparency,
disclosure, integrity with regard to shareholder rights, strong stakeholder relations and
sound risk management practices.
502

For 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 environmental and social standards as well as those of the host country.
503

5.8.4 Procurement
A 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.”
504

505

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

Consider, for instance: How does the organisation first 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?
506

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507

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




The Preferential Procurement Act 5 of 2000 stipulates that a preferential point system
must be followed to promote sustainable black economic empowerment.
Black economic empowerment through the supply chain has seen many individuals
and communities become financially independent for the first time in their lives. BEE
charters, such as those for the finance sector, mining sector and the tourism sector,
impose specific requirements on the respective industries.

508

But 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?
509

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

511

Some 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, 1996

512

Table 5.2:

JSE impact classification 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 finance

Forestry and paper

Real estate

Mining

Software and computer
services

Oil and gas

Telecommunications services

Tobacco
Water

5.8.5 Human resources
The real value of a company lies in its people – without sound HR practices, any
organisation, however big or small, will sooner or later find 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.
514

Employees 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
benefits such as leave, maximum working hours and overtime: it includes factors such
as training opportunities, disciplinary practices and non-discrimination. Does management 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?
515

On 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?
516

Staff 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 employees’ activities should form an integral part of their key performance areas (KPAs) and
performance evaluation.
517

518

Some relevant legislation:







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 2003

519

5.8.6 Risk management
520

The management of organisational risk has become more difficult for several reasons:





Globalisation of risks. Companies are competing in a global environment, with
risks coming at them from multiple sources and multiple geographies. It is more
difficult 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 more
diverse agendas, than ever before. These groups are linked across the globe by the
internet, allowing instant transmission of fact (and falsehood) to millions of consumers.
Increased demands for transparency. Consumers, labour and communities have
moved from a “trust me” to a “show me” stance, demanding to know more about
what a company is doing and how it affects them.

MNB1501/1/2018–2020

Social 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 significant health challenge facing South Africa.
521

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

5.8.7 Marketing and public relations
Marketing deals mainly with the effective development and delivery of a satisfactory
product offering 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 benefit to everyone
involved: the business, customers/clients, employees and the wider community?
523

We 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 responsible 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?
524

An 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.
525

526

Responsible 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

An 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 benefit
using the power of the brand to make a difference in society.
528

529

Consider the following examples:





Woolworths – think of the My School card: Woolworths benefits and many schools
in less fortunate environments benefit.
Avon beauty products donate a part of their profits to the fight against breast cancer,
especially through the proceeds on their pens that are sold specifically for this purpose.
Coca Cola sponsors the Coke Football Stars Tournament.



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

530

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

532

Some relevant legislation:




Promotion of Access to Information Act 2 of 2000
Competition Act 96 of 1979

533

SUMMARY
You 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 defined 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 introduction to general management.
534

BUSINESS IN CONTEXT
Refer 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.
535

SELF-ASSESSMENT QUESTIONS

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

MNB1501/1/2018–2020

537

Many 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 specifically on the social and environmental aspects
of their business. Although the information in such a report should always be honest
and truthful, reflecting 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.
538

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

TOPIC 2
THE MANAGEMENT PROCESS

INTRODUCTION AND AIM OF THE TOPIC
The 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 different levels and kinds of management in the business and give an overview of the development of management theory.
540

Learning objectives

After completing this topic, you should be able to






provide an overview of the role of management in a business by defining management
and 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 communication

541

CONTENT
542

Topic 2 comprises five learning units:
LEARNING UNIT 6:
Introduction to general management
LEARNING UNIT 7:
Planning
TOPIC 2:

LEARNING UNIT 8:

THE MANAGEMENT PROCESS

Organising
LEARNING UNIT 9:
Leading
LEARNING UNIT 10:
Control

MNB1501/1/2018–2020

Learning Unit 6
Introduction to general management
INTRODUCTION AND AIM OF THE UNIT
The 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 specifically we will look at the
general management principles involved in running a business.

543

STUDY CHAPTER 6 (sections 6.2–6.7) IN ITBM

Contents of the learning unit:








The role of management
A definition of management
The different levels and functional areas of management in businesses
Skills at different managerial levels and the roles of managers
Development of management theory
Summary

Learning objectives

When you have worked through learning unit 6, you should be able to






discuss the role of management in running a business
evaluate the definitions 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 different roles
performed 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

544

KEY TERMS
conceptual skills
contemporary approach
contingency approach
decision-making role
information role
interpersonal role
levels of management

lower management
management
management principles
management theory
middle management
top management
quantitative school

Refer to the end of chapter 6 in the prescribed book to familiarise yourself with the key
terms for this learning unit before continuing.
545

6.1

THE ROLE OF MANAGEMENT

As 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 organisation in this changing environment.
546

Study section 6.2 in ITBM.

The reason for the establishment of a business is to achieve objectives that would be too
difficult 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.
547

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

It 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
549






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 productively

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MNB1501/1/2018–2020

One 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 definition of what management entails.

551

6.2 A DEFINITION OF MANAGEMENT
552

Here are some of the various definitions of management:




“the process or technique of managing (organising and operating) a business” (Webster’s new world encyclopaedia 1992:704)
“the process of planning, organising, leading and controlling the resources of the
organisation to achieve the stated goals as efficiently as possible”

553

Study section 6.3 in ITBM and look at the definition provided.

After reading this and the other definitions, complete the following activity:

554

Activity 6.1
You will agree that the above definitions 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 definitions supplied
and see if they all include the basic management tasks that a manager must perform.

Feedback:

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

6.3 THE DIFFERENT LEVELS AND FUNCTIONAL AREAS OF
MANAGEMENT IN BUSINESSES

Study section 6.4 in ITBM.

555

As far as the levels of management are concerned, it is essential to differentiate between the

556




three levels of management, which are top management such as the CEO of the company, middle management (e.g. responsible for the human resource function of the
organisation) and lower management (e.g. managers at supervisory level in a factory)
responsibilities of managers at those different levels

557

Levels
Note 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
classified into three broad categories of top, middle and lower management.
558

Types
As far as the types of management are concerned, it is necessary to distinguish between
the different functions. They are general management, marketing management, financial
management, production and operations management, purchasing management, human
resource management and public relations management. Since most of the first-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.
559

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

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

561

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
Note the different management skills required at different levels, particularly as illustrated
in figure 6.4 of the prescribed book. You must understand the management activities at
the various levels.
562

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

563

MNB1501/1/2018–2020

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 positions. Jack Welch of General Electric was such a manager; he joined the company as a
management trainee.

Supporting roles
In 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 fulfils 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 figure 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 profile in the South African public eye. He is definitely seen as the leader of the group,
even though Nic Badminton took over the position of CEO of the company a while ago.
564

Managerial problems
Since 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.

565

According 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.
566

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

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

6.5 DEVELOPMENT OF MANAGEMENT THEORY
Study section 6.7 in ITBM.

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

Theories
This section deals with the different 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 figure 6.7 on the evolution 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.
570

Schools
It is important to understand that these theories are not all in contrast to one another since
they deal with different 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.
571

Scientific school
The scientific 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.
572

Management process school
This school identifies the most important functional areas in the organisation, such as
the production/operations function, the marketing function and the financial function.

573

Behaviourist school
The 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.
574

MNB1501/1/2018–2020

Quantitative school
This school sees the main function of management as using a system of mathematical
models and processes. One such example is in the field of marketing where marketers
would like to know the differences between different 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.

575

Systems approach
This 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. financial department and marketing department) must work together to attain the objectives
of the organisation.
576

Contingency approach
The 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.
577

578

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





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

579

Management 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 management and approaches to management from which managers can draw.
580

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?

Feedback:
Contact your e-tutor via myUnisa for the answer to this activity.
581

SUMMARY
You now have a basic insight into the role, definition, levels and types of management
in the organisation. In the next learning unit you will study the first management function: planning.

582

BUSINESS IN CONTEXT
Refer 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.
583

SELF-ASSESSMENT QUESTIONS

584

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

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

The General Electric Company (GE) in the United States is renowned as a multinational 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 finance company,
is a well-rounded manager who can manage any SBU in the group. GE became famous
under its previous chief executive officer (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:
586







taking time to understand the company and the management team that you are
working 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
72

MNB1501/1/2018–2020




getting a road map (i.e. set objectives) that everyone can understand and sticking
to these objectives
believing that great people build great companies

587

588

QUESTION 1

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

589

590

591

a
b

592

593

c
d

594

It is clear that GE follows a scientific approach to management.
GE adheres to the fundamentals of the human relations school in the way it manages
the organisation.
GE uses the contingency approach to management.
There is evidence that managers in GE make use of the quantitative school of thought.

595

1
2
3
4

596

597

598

599

d
cd
abd
abcd

600

601

QUESTION 2

The case study mentions that one of the tenets of GE is to reduce the amount of bureaucracy. 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?

602

603

a
b
c
d

604

605

606

Reduce the levels of management in the organisation.
Let more managers report directly to the CEO.
Increase revenues and cut costs simultaneously.
Create autonomous SBUs and rotate managers among them.

607

608

609

610

611

1
2
3
4

None of them
All of them
ab
a

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QUESTION 3

It 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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THE ANSWERS TO THE SELF-ASSESSMENT QUESTIONS
615

616

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Question 1

Three of the statements are correct. GE uses the scientific school of management because
its managers use scientific 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.
618

619

620

Question 2

Bureaucracy can be described as the way an organisation is managed and is usually applied
in a negative manner, such as being inflexible 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 flatter structure, which makes the time
span shorter for communication to flow 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
effect we may find that too many managers reporting to the CEO may result in information overload, thus limiting the capabilities of the CEO.
621

622

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Question 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 profitability 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

MNB1501/1/2018–2020

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 benefit of the organisation

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626

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Learning Unit 7
Planning
INTRODUCTION AND AIM OF THE UNIT
Planning 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 first look at the reasons why planning is
needed and define what the term “planning” means. Thereafter we will discuss the planning process. Finally, we will discuss the process of setting goals and the development
of plans to attain these set goals.
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STUDY CHAPTER 7 (sections 7.2–7.4) IN ITBM

Contents of the learning unit:







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

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Learning objectives

When you have worked through learning unit 7, you should be able to









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

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KEY TERMS
functional (tactical) goals
operational goals
hierarchical approach
development of plans
management by objectives (MBO)

goal
top management, middle management
and lower management
goal-setting by management
planning process
strategic goals

Refer to the end of chapter 7 in the prescribed book to familiarise yourself with the key
terms for this learning unit before continuing.

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7.1

WHY PLANNING IS IMPORTANT
Study section 7.2 in ITBM.

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

The 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 different tasks of the manager (planning, organising, leadership
and control). The tasks of a manager can be depicted graphically as follows:
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635

PLANNING

ORGANISING

637

636

LEADERSHIP

638

CONTROL

634

639

In 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 financial 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 fixed period of time – usually a financial year
or sometimes a longer period such as three or five years.
640

Getting to the second part of the planning activity we see that a plan must be developed 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 manufacture these products.
Today’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.
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




Planning gives direction to the organisation in the form of goals and plans. It provides
the road map telling the organisation where to go and how to get there.
Planning helps to get the different functional areas to work together. It provides
information to the production people on how many units to manufacture, it informs
the marketing section about their job (i.e. to create a demand for the product and
to facilitate the process of selling the product) and it gives the financial section a
better idea about capital needs and cash flow required to run the business properly.
So we can say that planning helps with the coordination, cohesion and stability of
the organisation.
Planning forces the organisation to take a hard look at what the future holds for the
organisation. Many managers get so involved in the day-to-day running of the business that they tend to forget about the future. There is an old saying that nothing
in the future will be the same as it is today! This holds true for any business. One of
the most dramatic changes that we see in the business world is of course the rise
in technology. Technological changes are taking place rapidly and the organisation
must look to the future, anticipate changes and reflect on how they will influence
the business.

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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 different mining practices required to mine a deep-level mine and projected production targets were
never met. Management realised that a significant 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 effective 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%.

MNB1501/1/2018–2020

Evaluate what is said in this excerpt and test whether management is fulfilling the
basic tenets of planning as we have discussed in this section.

Feedback:

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

7.2

MANAGERIAL GOALS AND PLANS
Study section 7.3 in ITBM.

Every business needs to set goals to determine in which direction it is headed. To accomplish 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 organisation to be at a specific future date (setting specific goals)? Secondly, how will the
organisation achieve these goals (formulating a plan)?
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Different goals are set by the different managerial levels and range from strategic goals
formulated by top-level managers, to operational goals formulated by lower-level managers. It is important that managers formulate goals that are specific, measurable, attainable,
relevant and time-bound.
645

When 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 measurable; if they are not quantifiable, then they cannot be controlled. Third, the responsibility
for attaining goals must be assigned to specific people in the organisation. Fourth, goals
must be set consistently so that the different functional areas work together. Finally, there
must be buy-in of the goals set, meaning that every worker must be informed and motivated 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.
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Management by objectives (MBO) is a goal-setting technique whereby managers and
employees jointly define goals for the business. The most obvious advantage of this
approach is that employees have a say in setting goals, which also improves worker motivation, 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.
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“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] significant amount of power, business
information, knowledge, performance-based rewards at all levels of the organization.”
648

Through his research, Dr Lawler has found goal-setting in the high-performance organisation 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 effective.
649

650

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

While 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.
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7.3

THE PLANNING PROCESS
Study figure 7.1 and the components of the planning process in section 7.4.2
in ITBM.

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

Goal-setting

654

657

Reactive planning

655

Developing plans

Implementation

656

653

As can be seen from the figure above, the planning process consists of various activities:
goal-setting which takes into consideration the mission of the organisation, the development 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 planning stage. Managers also refer to it as “learning from your mistakes”!
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659

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MNB1501/1/2018–2020
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It is important to remember that planning is




not a static process, but a dynamic one. This means that it is a process that never
stands still; nor can it remain the same. Plans should be reviewed at regular intervals
and then adjusted (if necessary) to adapt to changing needs and circumstances (the
feedback loop)
the foundation on which the other management tasks rest. It is important for you to
understand how planning is interlinked with the other management tasks. If planning is not done properly, it will have a detrimental effect on how the organising,
leading and control tasks are performed

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Activity 7.2
Let us take the planning process to a more personal level to clarify the differences
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 identified 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 could
be 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.

Feedback:

Contact your e-tutor via myUnisa for the answer to this activity.
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7.4

SETTING ORGANISATIONAL GOALS AND DEVELOPING
PLANS
Study sections 7.4.1 and 7.4.3 in ITBM.

An organisational goal is defined as a specific achievement to be attained at a specific
future date. It is important to understand that goals are not set in isolation. Goals are
influenced 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.
664



The mission of the organisation refers to the purpose as set out by the management of the organisation. For example, remember the mission statement of Pick n
Pay: “We serve – with our hearts we create a great place to be – with our minds we
create an excellent place to shop.” The first part, “we serve”, refers to the customer
orientation of the organisation. The second part of the statement refers to the dream
of the organisation that it will create a wonderful place for their employees to work
and the last part refers to the fact that they want to create a wonderful place for
their customers to shop.
The business environment has been discussed previously and we will not go into
detail about the dynamic environment in which organisations operate. Obviously
management must consider the environment in which the organisation operates
when determining the goals of the organisation. It is very difficult for management
to keep track of all the changes in the dynamic business environment. Peter Drucker,
the world-renowned management thinker, said the following about predicting the
future: “Trying to predict the future is like trying to drive down a country road at
night with no lights while looking out the back window.”
Management’s values also influence the goals. Taking Pick n Pay as an example again,
we see that they articulated the following values in their financial year report: “We
are passionate about our customers and will fight for their rights; we care for and
respect each other; we foster personal growth and opportunity; we nurture leadership and vision and reward innovation; we live by honesty and integrity; we support
and participate in our communities; we take individual responsibility and we are all
accountable.”
The experience of management also plays a role in the determination of organisational goals. Sean Summers, the previous CEO of Pick n Pay, was involved in opening
the first 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 acknowledged the fact that this was a tough time and that he had learnt from it. The
following excerpt summarises the value of experience in a business environment:

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MNB1501/1/2018–2020

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

Different organisational goals must be set by different 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:
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




The strategic or long-term goals. These goals and plans to achieve them are set by
top 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 longterm plans can be developed by top management, among other things market
development such as done by Telkom, which has set the goal of giving thousands
of individuals access to telephones in rural communities across South Africa.
The tactical or functional goals. These goals are determined by middle management
and 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 intensive
marketing campaign over a period of more than a year.
The operational or short-term goals. These are set by lower-level management and
cover a maximum period of one year. Using the Telkom analogy again, we see the
use of promotional pamphlets included in the monthly telephone bill for the ASDL
service 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 so
that 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 by
20%. 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 months
by at least 10%.

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

Feedback:

Contact your e-tutor via myUnisa for the answer to this activity.
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SUMMARY
By now you should have a clear understanding of the process of planning and how it interlinks with the various management activities (namely organising, leading and control).
We saw that planning is the first step in the management process that is done once top
management determines the mission and goals of the organisation.
670

Remember 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.
671

The 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.
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BUSINESS IN CONTEXT
Refer 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-incontext addition to your learning of business management.
673

SELF-ASSESSMENT QUESTIONS

Let 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.
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Group A

Group B

1. The process of goal-setting, developing plans and
implementation

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 jointly
set goals and whereby the progress towards the attainment
of these goals is periodically assessed

d. Strategic planning

5. A specific achievement to be attained at a future date

e. Planning

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

f. Lower management

7. The process of setting goals and deciding how to achieve
them

g. Goal

8. The managers who do not have managers for subordinates

h. Management by objectives

MNB1501/1/2018–2020

THE ANSWERS TO THE SELF-ASSESSMENT QUESTIONS

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677

Question 1

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

679

680

Question 2

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

682

683

Question 3

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

685

686

Question 4

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

688

689

690

Question 5

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

691

692

Question 6

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

693

694

Question 7

695

696

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

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698

Question 8

699

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

Learning Unit 8
Organising
INTRODUCTION AND AIM OF THE UNIT
In learning unit 7, we discussed planning as the first important element of the management 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.

700

STUDY CHAPTER 8 (sections 8.1–8.5) IN ITBM

Contents of this learning unit:







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

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Learning objectives

When you have worked through learning unit 8, you should be able to








analyse organising as a management task, including contemporary structures and design, 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 influence organisational design

MNB1501/1/2018–2020

KEY TERMS

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importance of organising
structure
specialisation
responsibility and authority
authority relations
informal organisation

mechanisms
fundamentals of organising
departmentalisation
centralised and decentralised
span of control

708

703

709

704

710

705

711

706

712

707

Refer to the end of chapter 8 in the prescribed book to familiarise yourself with the key
terms for this learning unit before continuing.
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8.1

INTRODUCTION TO ORGANISING
Study section 8.1 in ITBM.

Structure
Organising 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 specific
divisions and departments. It also involves the allocation of tasks to various positions in
each department.
715

How the resources and activities of a business are organised will differ from one organisation 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.
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The 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 supervising 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.
717

Although 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
different individuals. Each person knows what is expected of him or her and what tasks
to complete.
718

In a very large organisation such as Sasol or Edcon the organising task is much more complex, with the total workload of the organisation distributed over various departments,
functional and product areas and even geographical regions.
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8.2 THE IMPORTANCE OF ORGANISING
Study section 8.2 in ITBM.

Importance
It 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.

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Case study: Kalk Bay Fisheries

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

For the three friends, fishing has always been just a social activity; however, following a
particularly successful fishing 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.
724

A month after starting Kalk Bay Fisheries, things are not going too well. In terms of the
actual fishing, things are going great. The three friends are catching a lot of fish and are
having a good time and their freezers are filling up fast. However, in terms of making a
profit and a success of the business, they are way behind in their plans. Their overeagerness to fish 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).
725

Another 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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Clearly the business lacks structure and organisation, which is having a negative impact
on the fledgling enterprise. If things are not sorted out soon, Kalk Bay Fisheries might
find itself stranded out at sea with no life raft back to profitability.

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Activity 8.1
As a management consultant to Kleinjan and his friends, explain the importance of organising their business activities.

Feedback:

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

8.3 THE FUNDAMENTALS OF ORGANISING
Study section 8.3 in ITBM.

With 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 influence 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 five building blocks or the fundamentals of
organising, namely:
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





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

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First you need to know the benefits 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 different authority relationships that exist within an
organisation.
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8.3.1

Specialisation

The need for specialisation always stems from growth in the business. Specialisation can
lead to greater efficiency on the part of the worker. Specialisation, or the division of labour, 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 business. In so doing, the total workload was broken down into smaller, more specialised tasks.
732

While specialisation may result in a number of benefits 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 assemblyline workers who do the same repetitive task over and over again. To mitigate these
negative effects, managers can apply the principles of job enrichment, job enlargement
and job rotation.
733

Activity 8.2
Refer back to the Kalk Bay Fisheries case study. Given the three friends’ different 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 reflect on your work, keep in mind the following question:
Have I linked tasks/activities to specialised skills or knowledge?
Kleinjan

Thabo

Lukas

Feedback:

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

8.3.2 Departmentalisation
Study section 8.3.2 in ITBM.

There is often a great deal of confusion about departmentalisation. When we talk about
how a business is departmentalised, we always refer to the first management level just
below the chief executive. Note in figure 8.2 of your prescribed book the example of a
business departmentalised according to product, because the first 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, finances, 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.
736

An organisation can be designed according to the following:






business function (figure 8.1)
product (figure 8.2 as discussed above)
location (figure 8.3)
customer (figure 8.4)

737

Sometimes none of these configurations 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 (figure 8.5).
738

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?

Feedback:

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

Activity 8.4
The purpose of this activity is to illustrate how an organisation can be departmentalised
differently at different 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 employees. Given that Shoprite is such a large, geographically dispersed organisation, how
do you think Shoprite is departmentalised at the first level of management, just below
the CEO? Try depicting this configuration graphically.

Feedback:

Contact your e-tutor via myUnisa for the answer to this activity.
739

740

741

8.3.3 Span of management
Study section 8.3.3 in ITBM.

Another 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 figure 8.6 in your prescribed book on how different spans of management can result
in very tall or very flat 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 flat span of management.
742

8.3.4 Responsibility and authority
Study section 8.3.4 in ITBM.

When you study authority relations, it is important first to understand the difference
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 instructions 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.
743

Authority relations
In the discussion of authority, the terms “line authority” and “staff authority” require some
clarification (see explanations given under section 8.3.4 and figure 8.7 in the prescribed
book).
744

Although 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 connecting the various levels of an organisational chart. Line authority nearly always flows
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 flow only
down the organisational structure, but can flow upwards and horizontally as well. This
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type of authority is generally derived from what is known as expert power. The different
types of power are discussed in learning unit 9.

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

746

8.3.5 Coordination
In simple terms, coordination is the “glue” that keeps the various departments within an
organisation together and deals with the interrelatedness of tasks and activities. Without coordination, people lose sight of the organisation’s overall goals and their part in
its efforts. 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.
747

For 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.
748

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
different functions within a business are inextricably linked to one another.

Feedback:

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

8.4 FACTORS THAT INFLUENCE ORGANISING AND HOW
ORGANISATIONS ARE DESIGNED
Study section 8.5 in ITBM.

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






The stability of the business environment (section 8.5.1). Both the level of stability
and the rate of environmental change will influence 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 environment over the past five years, where the entire public higher education system
has been reconfigured through a series of mergers and rationalisation initiatives.
The merger between the old Unisa and former Technikon South Africa has had a
significant 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 significantly greater allocation of resources to a business’s IT department.
Similarly, a business such as General Electric (GE) with a focus on product development and innovation will allocate significant resources to its research and development 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 definite 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 departmentalisation; however, in recent years there has been a shift towards flatter 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 influence 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.

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Make sure that you understand how each of these factors will influence the organisation
structure.
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SUMMARY
By 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 concept of organising. In this learning unit we have also looked at the importance and the
fundamentals of organising. Finally, the factors which influence how organisations are
structured were discussed.
752

From here a manager has to take the lead to set the activities involved in planning, organising 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.
753

BUSINESS IN CONTEXT
Refer to the recommended book entitled Business Cases, in particular case study number 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.
754

SELF-ASSESSMENT QUESTIONS

Read through the extract below from Jack Welch’s second book Winning and then
answer the questions that follow.
755

In 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 employees simply did not know where they fit in and whom they report to, who reported
to them and what results each person was responsible for.
756

Similarly, 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 first priority Dara set out to fix that.
757

If you want to manage people effectively, help them by making sure that the organisational 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 flat!

758

759

In both the CD&R and Expedia examples, what key principles of organising have the
organisations failed to apply successfully?
95

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

Which one of the following statements is wrong?

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761

762

763

a
b
c
d

764

765

766

767

Responsibility and accountability are closely connected.
Authority is granted to a manager by the enterprise.
When a task is delegated, accountability is delegated simultaneously.
According to the acceptance theory of authority, authority originates from the
lower levels.

768

769

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

770

a
b
c
d

771

772

773

774

functional
organisational
staff
line

775

THE ANSWERS TO THE SELF-ASSESSMENT QUESTIONS

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777

Question 1

It seems both organisations have completely forgotten about authority relations in the
organisation and establishing responsibility and authority to each post in the organisational 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.
778

The 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.
779

780

781

Question 2

Although not covered in a great amount of detail in this module, Jack Welch’s comment
that organisational structures should be flat 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 organisational 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

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Question 3

Contemporary 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 subordinate 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.
785

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Question 4

787

Option 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 officer.
788

Learning Unit 9
Leading
INTRODUCTION AND AIM OF THE UNIT
In 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 relationship between leaders and followers as well as the difference between managers
and leaders. This learning unit then discusses the different components of the leading
function and highlights the importance of communication within a business.

789

STUDY CHAPTER 9 (sections 9.1–9.6) IN ITBM

Contents of the learning unit:









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

790

Learning objectives

When you have worked through learning unit 9, you should be able to








analyse leadership as a management task by (1) explaining the meaning of concepts such
as leadership, authority, power, influence, delegation, responsibility and motivation and
(2) differentiating between leadership and management
discuss basic leadership models by referring to the factors influencing effective 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
differentiate between groups and teams in the organisation

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KEY TERMS

nature of leadership
leader characteristics
leadership
authority
leadership models
Maslow’s theory

components of the leadership task
factors influencing power
motivation
kinds of groups
communication

Refer to the end of chapter 9 in the prescribed book to familiarise yourself with the key
terms for this learning unit before continuing.

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9.1

INTRODUCTION
Study section 9.1 in ITBM.

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
Study section 9.2 in ITBM.

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

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

There are a few important terms in this definition, but two particularly important ones are
the words “influence” and “willingly”. The word “influence” is used in a very wide context
here. For example, giving instructions to a subordinate would fall under the definition
of influencing, 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).
796

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

797

The second important term in the definition 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 influencing 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.
798

Leader
The 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 specific 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.
799

The 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 specific industry) and
yet be a poor leader of people in the sense that he or she finds it difficult to motivate
staff, delegate responsibility, inspire them to greater achievement, develop their skills,
and so on.
800

Characteristics
Your 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 differences between managers and leaders. In this context, your prescribed book, in
section 9.2.1, broadly defines 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 effectively,
or exercise sound control – yet you may get tremendous support and commitment from
subordinates for your ideas and vision.
801

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?

Feedback:

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

9.2.1

The components of the leading function

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

802







authority
power
responsibility
delegation
accountability

9.2.1.1 Authority
From 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 defined 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.
803

However, it is important to remember that we defined leadership as the ability to influence 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 influence the behaviour of others a leader must also gain the respect of his or her
subordinates.
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9.2.1.2 Power
Power (section 9.2.2.2 in your prescribed book) is one of the key elements associated
with leadership and comes in five main forms. These different forms of power often
determine whether a leader is effective or ineffective in influencing subordinates and
securing their commitment to organisational goals and the leader’s vision. It is very important that you understand the different kinds of power that a leader can use and how
these affect subordinates’ performance.
805

101

Line 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-specific, the marketing manager cannot give instructions to staff in the finance
or production departments or decide on a purchasing strategy for the business.
806

Power, on the other hand, is linked to both the person and (sometimes) the position
and refers to the influence that leaders exert over their subordinates. Table 8.1 in your
prescribed book is a useful perspective on how different forms of power may result in
differing levels of commitment and compliance by subordinates. The five types of power
identified in your prescribed book are
807







legitimate power
power of reward
coercive power
referent power
expert power

808

Looking at the definitions of the five types of power we very quickly see that power can
be either positional or personal. The first 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 different forms of
power and how using different forms of power can result in differing levels of commitment
from followers. This is a very important section of the learning unit for you to master.
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9.2.1.3 Follower commitment
Successful leadership depends on follower commitment and compliance. Here managers
depend on their subordinates, giving them a certain level of indirect authority. Effective
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 figure 9.2 in your prescribed
book for a further explanation).
810

Activity 9.3
Start by asking yourself the following question:
In fulfilling the leadership task of management, should a manager make use of formal
line authority associated with the specific 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 influence their subordinates through the use of a combination of
power sources.
Leader
Type of power
Your own boss or line manager
President Jacob Zuma
Nelson Mandela (former South African president)
Bill Gates (founder and CEO of Microsoft
Oprah Winfrey (owner of HARPO Productions)
Jack Welch (former CEO of General Electric

Source

Feedback:

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

9.3

LEADERSHIP THEORIES

The above table in activity 9.3 identified 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
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



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

812

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.

Every 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 influential 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.
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Siemens: Motivation within a creative environment

Siemens 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 traffic lights to gas turbines to domestic appliances such
as kettles and fridges.
815

Engineers use scientific principles to develop products or systems to solve real-life problems. 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 field 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.
816

Siemens provides opportunities for young people at all levels to enter the world of engineering. Siemens also recruits undergraduates and graduates into professional engineering 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, finance, or project management.
817

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

The 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 find
the varied nature of the work motivating – having the opportunity to try different roles.
Siemens employees also value the fact that they are allowed to be imaginative and can
influence their own work. This culture demonstrates that Siemens values its employees
and helps to recruit the next generation of engineers.
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If you want to be a successful manager in this task, you must understand how individuals are motivated and what motivates them (motives). Then you will be in a position to
influence the behaviour of subordinates.

820

Many 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 important that you understand this hierarchy and its application.

821

Maslow’s theory suggests that although all motives are present in every adult (babies/
toddlers acquire them over time), not all motives influence an individual. We may spend
a great deal of effort satisfying our needs for esteem, but when there is a sudden earthquake, the only motive that will influence 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 unfulfilled.
According to Maslow, different people experience different levels of need fulfilment.
Put differently, 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.
822

The basic model of motivation is depicted in the figure below and described briefly 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.
823

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 fishing and processing themselves; now they are more involved in the
management of the business and the leadership and motivation of their 17 employees.

105

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 her
flexibility to be with her children. Lukas rates her as an average salesperson, but with
a 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 his
extravagant 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, with
an MBL degree from Unisa. She enjoys the excitement of the sales environment but
has set her sights on moving up the corporate ladder. Lukas rates her as an average
salesperson but worries about how he might be able to accommodate her higher up
in the company.
Bongani – 40-year-old father of three school-going children. He enjoys the sales environment 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. Bongani
values his job at Kalk Bay Fisheries very much and dreads losing it. Lukas rates him as
a 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 confident 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
influence their own income levels. All members of the sales team also have companysubsidised 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 different personal needs, motives and
drives. Can you list the different needs of each team member?
(2) Now that you have completed the first step of the motivation model, make suggestions about how Lukas might go about motivating the different members of his team
towards the goal of 25% growth in sales.

Feedback:

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

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9.5

OVERCOMING BARRIERS TO EFFECTIVE PLANNING

Employees 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 approach 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.
826

In 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 difference
between the two. It is also important that you familiarise yourself with the different types
of groups and teams.
827

9.6

COMMUNICATION

Importance and elements
By now you should have realised that leaders are human beings involved with other human beings. For leaders to influence their subordinates they must be able to communicate
effectively. This section briefly 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 ineffective, because you
would have benefited more from attending a discussion class than reading the study
guide on your own.
828

Students 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 communication 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.
829

Similarly, in the business environment we often see the effects 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 first place, things would have been far clearer!”
830

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 office. When
Mr Mahlangu walks in a minute or two later, Kleinjan is busy with what appears to be an

107

unexpected but very important telephone conversation with one of his fishermen. 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 official 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 effective as a leader in terms of communicating with his
operations manager? Can you suggest how he could improve on this communication?

SUMMARY
Leading is the third task of management and is the one that sets up and keeps the business going. As you have realised from our discussion, it is a difficult concept to define,
because it is concerned with influencing the behaviour of subordinates and directing their
activities so that the aims of the business are attained as profitably as possible. Its components – leadership, motivation, group and team behaviour and communication – are
interrelated instruments used to exert that influence. Managers should have sufficient
knowledge of these factors to be good leaders as well as good managers. We deal with the
fourth and final important element of management, namely control, in learning unit 10.
831

BUSINESS IN CONTEXT
Refer to the recommended book entitled Business Cases, in particular case study number 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.
832

SELF-ASSESSMENT QUESTIONS

833

834

835

QUESTION 1

Which one of the following statements on authority is wrong?

836

837

Final authority flows from delegation.

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MNB1501/1/2018–2020

b
c
d

838

839

840

Management delegates authority to subordinates to enable them to execute tasks.
The right to expect action from others is also conferred by members of a group.
Power is not granted to a manager.

841

842

QUESTION 2
Which one of the following types of power is granted to all managers?

843

844

a
b
c
d

845

846

847

848

legitimate
personal
referent
expert

849

QUESTION 3

850

851

A trade union is formed to satisfy the … needs of the employees.

852

a
b
c
d
e

853

854

855

856

857

basic
security
social
esteem
self-actualisation

858

THE ANSWERS TO THE SELF-ASSESSMENT QUESTIONS
Question
1
2
3

Answer
d
a
b

Reference (section)
9.2.2.1
9.2.2.2
12.7.2.1

109

Learning Unit 10
Controlling the management process
859

INTRODUCTION AND AIM OF THE UNIT

In learning unit 9, we discussed the third important element of management, namely
leadership. Control is the final 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 management process takes place between planning and control, and successful management often
depends on sound planning and effective control. We will now look at control in detail.
860

STUDY CHAPTER 10 (sections 10.1–10.5) IN ITBM

Contents of the learning unit:








Introduction
The purpose of control
The control process
Types of control
Characteristics of an effective control system
Summary

861

Learning objectives

When you have worked through learning unit 10, you should be able to







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 effective control system
describe how the control process provides feedback for the revision of planning

862

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MNB1501/1/2018–2020

KEY TERMS
task of control
control process
standards
control of physical resources
quantity control
material requirements planning
just-in-time system (JIT)
budgets
accuracy
unnecessary
flexibility
timeliness
deviation

corrective action
deviations
focus of control
economic order
financial resources
information resources
control of human resources
quality control
integration standards
characteristics of a control system
complexity
actual performance
inventory

Refer to the end of chapter 10 in the prescribed book to familiarise yourself with the key
terms for this learning unit before continuing.
863

10.1 INTRODUCTION
Study section 10.1 in ITBM.

Nature of control
Control is used to ensure that the organisation’s goals and objectives are reached and
that resources are being used as productively and effectively as possible. It is therefore
used to give feedback on the other three tasks, namely planning, organising and leading, 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.
864

Task of control
Control 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
865

111

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
An 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 effective financial and quality control.
866

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 afloat. The majority of these businesses stem from the
agricultural enterprises and 40% of these showed profits. 60% of these enterprises also expressed
confidence 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 financial control where costs were optimised.
93% of the respondents also regarded a positive cash flow as the most important element for
sustainability. More than two-thirds of the enterprises had a positive cash flow 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)

Study section 10.2 in ITBM.

It 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 briefly highlighted below:
868









Without control, effective 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 difficult to identify areas
of weak performance.
Control helps to minimise costs and increase output.
An effective control system allows management to identify problems before they
become critical for the organisation.
Control allows management to determine whether delegated tasks have been carried out satisfactorily.

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MNB1501/1/2018–2020




Increasing competition necessitates more effective cost and quality control. A lack
of control can result in resources being wasted or misapplied.
Control usually results in better quality.

869

Activity 10.1
Your prescribed book has highlighted five reasons why the task of control is so important;
however, these might be quite difficult 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
1

Avoids poor planning

Helps to adapt to environmental change

Limits the accumulation of error

Caters for increasing organisational size
and complexity

Minimises cost

Practical examples

Feedback:

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

10.3 THE CONTROL PROCESS
Study section 10.3 in ITBM.

The control process as illustrated in figure 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.
870

The control process comprises the following four steps:

871






setting standards that are derived from goals
measuring actual performance
evaluating deviations (the performance gap)
taking corrective action and rectifying deviations

872

113

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 figures:

•
•
•
•

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, highlighting each step in the process and suggesting what actions should be taken in step
4 of the control process.

Feedback:

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

10.4 TYPES OF CONTROL
Study section 10.4 in ITBM.

Although 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.

873

Organisations should, as a rule, identify the different areas that need to be controlled, as
these areas are generally responsible for the effectiveness of the entire organisation. In
section 10.4.1 we highlight the four key areas of control:
874






physical resources
financial resources
information resources
human resources

875

The section then elaborates on each of these areas and identifies various systems for
controlling them.
876

877

Note the four focal points or key areas of control as illustrated in figure 10.2.
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MNB1501/1/2018–2020

Inventory
The control systems for the different kinds of inventories, such as raw materials and
finished 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.
878

Quality
Quality 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 benefits for the business. The
control system used for the management of quality is known as total quality management
(TQM).
879

Financial resources
Aspects of control are mainly expressed in financial magnitudes. Financial resources are
vital to the success of any business and are at the heart of the control process (see figure
10.2). There are two important instruments used to control the financial resources of an
organisation:

880




the budget (refer to table 10.1 for an outline of the types of budgets)
financial analysis, also known as ratio analysis (will be discussed in your second module)

Information resources
Management 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 effectively the control systems will function.
881

Human resources
The main instrument used to control human resources in a business is performance measurement. Other instruments are specific ratios that can be applied in respect of labour
turnover, absenteeism and the composition of the labour force.
882

883

884

Activity 10.3
Section 10.4.1 contains a wealth of information on the areas of control and the different
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

115

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

Feedback:

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

10.5 CHARACTERISTICS OF AN EFFECTIVE CONTROL SYSTEM
Study section 10.5 in ITBM.

This is a very important section and you should note the five characteristics of an effective
control system as well as the integration of planning and control (figure 10.3).
886

Activity 10.4
List and describe the five criteria according to which the effectiveness of organisational
control is evaluated.

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MNB1501/1/2018–2020

SUMMARY
We have discussed control as the fourth and final 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.
887

SELF-ASSESSMENT QUESTIONS

889

QUESTION 1

Chloe 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?
890

891

a
b

892

893

c
d

894

895

896

897

898

899

The shelter needs to maintain an adoption rate of 25% in order to be able to provide
all its animals with shelter and food.
Chloe realises that their organisation is relatively unknown to the public and organises
a fun walk to raise awareness of Barking Mad.
Chloe compiles a detailed report of all the adoptions they have had over the last six
months.
The data Chloe has collected shows that their adoption rate is only 19%.
1 abcd
2 bcda
3 dcba
4 acde
5 acdb

900

901

QUESTION 2
Which of the following is a purpose of control?

902

903

1
2

904

905

906

907

Planning is the first step in control and without control, planning is pointless.
Control makes it difficult to adapt to change owing to the different variables in the
environment.
Managers are capable of making good decisions on their own and do not need
control to limit errors.
Control processes add to the costs of an organisation.

908

117

909

QUESTION 3

Match the area of control in column A with the correct type of control in column B.

910

Column A

Column B

a inventory

b quality

ii Budgets

c financial resources

iii Just-in-time

d human resources

iv ITT systems

TQM systems

v Performance measurements

1
2
3
4

912

913

914

915

a (i) b (ii) c (iii) d (iv)
a (i) b (v) c (iv) d (iii)
a (ii) b (iv) c (i) d (v)
a (iii) b (i) c (ii) d (v)

916

THE ANSWERS TO THE SELF-ASSESSMENT QUESTIONS

Question

Answer

Reference (section)

4 (a c d e)

10.4

10.3

4 (a (iii) b (i) c (ii) d (v))

10.2

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