MNB1501_70514402 Study Guide MNB1501

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University of South Africa

Muckleneuk, Pretoria

MNB1501/1/2018–2020

170514402

MNB_style

IMPORTANT INFORMATION:

Please activate your myUnisa and myLife e-mail address and ensure that you have regular access to

the myUnisa module site MNB1501/18/S1 OR MNB1501/18/S2, depending on which semester you are

registered in, as well as your e-tutor group site.

3Note: This is an online module, therefore your module is available on myUnisa. However, in

order to support you with your studies, you will also receive certain study material in

printed format, including this study guide which you can consult when you are work-

ing o ine.

MNB1501/1/2018–2020

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CONTENTS

page

PREFACE

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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MNB1501/1/2018–2020

PREFACE

1 INTRODUCTION

1.1 WELCOME

Welcome to the module Business Management 1A (MNB1501). To make your studies

easier and to help you share in our enthusiasm for this  eld, we urge you to read this

study guide (available on the module website for this module). You should also read

through your Tutorial Letter 101. Refer back to these study materials as often as you need

to throughout your studies.

The  eld of management is extremely dynamic and challenging, so we have inserted

additional reading material and case studies, over and above the learning content in this

study guide. This will provide you with opportunities to explore the latest developments

in the  eld of business management and will help you to discover management as it is

practised today.

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.

9IMPORTANT:

Visit myUnisa regularly, as important information will be communicated to you via announce-

ments throughout the semester. Certain sections or text in this study guide appear in light

grey scales as they are presented in colour on myUnisa. Visit myUnisa for a comprehensive

experience of the material.

1.2 PURPOSE OF THE MODULE

The purpose of this module is to establish a foundation for the study of business manage-

ment and to develop the learner’s understanding of the concept of strategic management

and of the speci c management tasks (planning, organising, leading and control). This will

enable qualifying learners to develop basic business plans that re ect an entrepreneurial

approach to maximising the use of resources. These business plans are of the type that

could be used to seek funding from  nancing institutions.

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1.3 LINK TO OTHER MODULES

12This module does not stand alone; it is an integral part of the BCom degree in business

management. Therefore, the purpose and the learning objectives of this module are

aimed at developing your expertise and abilities in the  eld of business management.

This module in Business Management (MNB1501) will provide the foundation for the next

module in management which is prescribed for the second semester, namely MNB1601

(Business Management 1B). You would normally continue your studies with the two

strategic management modules in the third year (MNG3601 and MNG3602) if you want

to specialise in management.

1.4 OBJECTIVES AND COMPETENCIES

1.4.1 Module objectives

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

- explain how business performance relates to strategic management

analyse a business case study and identify issues related to the managerial tasks

and skills

di erentiate between entrepreneurial and non-entrepreneurial approaches to busi-

ness management

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

1.4.2 Our assumptions

15The credit calculation is based on the assumption that students are already competent

in terms of the following outcomes or areas of learning at NQF level 5 when starting to

learn towards this unit standard:

- Learn from predominantly written material in the language of instruction.

- Read, analyse and respond to a variety of texts.

- With minimum guided support, take responsibility for their own progress and be

willing to take part in learning of a personal nature.

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

18The framework of this module is as follows:

TOPIC LEARNING UNIT

1 INTRODUCTION TO BUSINESS

MANAGEMENT

1 The business world and business management

2 Entrepreneurship

3 Establishing a business

4 The business environment

5 Corporate social responsibility

2 THE MANAGEMENT PROCESS 6 Introduction to general management

7 Planning

8 Organising

9 Leading

10 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 success-

fully without it. Please refer to the 101 letter for the prescribed and recommended books.

1.5 COMPLETING ACTIVITIES, ASSESSMENT QUESTIONS AND

ASSIGNMENTS

20The best way to work through the prescribed book is to study one topic at a time. That

is why the assignment questions have been based on the di erent topics of the tutorial

matter.

1.5.1 Assessment questions

21At the end of each learning unit, you will  nd a list of assessment questions based on the

work covered in the learning unit. You will  nd most of the answers to these questions

in the study material covered in the study material and prescribed book. We advise you

to complete these questions diligently in a workbook since they present opportunities

to prepare you for possible examination questions.

1.5.2 Assignments

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:

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24Which one of the following statements is correct?

251 Capitalism ensures a more even distribution of wealth.

262 Socialism discourages private initiative.

273 Communism ensures a better utilisation of resources.

284 South Africa’s economic system tends towards socialism.

You cannot select more than one option. In other words, your answer will always be

either option 1 or 2 or 3 or 4.

31Sometimes the question asks you to select the wrong statement. You should be extra

careful when answering such questions and not get confused and mark a statement that

is correct (and therefore not the answer that you are supposed to identify). Please look at

the assignments in Tutorial Letter 101. You will  nd the occasional question asking you

to indicate which of the options is wrong.

32In some questions, however, there will be several statements that could be correct. In

such cases the statements will always be indicated by letters (a, b, c and d) and the an-

swer will still be either option 1, 2, 3 or 4, but these answers may refer to more than one

statement. For example:

33Which of the following statements are correct?

34a A business owned and managed by one person may be a private company.

35b A partnership is usually limited to 20 partners.

36c The owner of a sole proprietorship does not pay tax on his or her business’s pro ts.

37d A public company may not o er its shares for sale on an open market.

391 a b c d

402 a b d

413 b c

424 c d

44This question asks you to indicate which of the statements are correct. If you therefore

think that statements b and c are correct, you will mark only option 3 as the correct answer.

45In all of the above examples the stem of the question asks you to identify the correct

statement(s). Sometimes the options are a continuation of the stem. For example:

46The economic principle ...

471 is an endeavour to achieve the maximum with the minimum.

482 does not apply to government organisations because they do not strive for a pro t.

493 is mainly an indication of how low the operating costs were.

504 is always measured in terms of the business’s pro tability.

52In a question such as the above, you have to read the stem plus option 1, then you have

to read the stem again plus option 2, the stem plus option 3, and so on.

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MNB1501/1/2018–2020

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

example:

Match the management level in the  rst column with the corresponding organisational objec-

tive in the second column:

55a top management i the mission of the organisation

56b middle management ii functional objectives

57c lower management iii operational objectives

591 a (i) b (ii) c (iii)

602 a (i) b (iii) c (ii)

613 a (ii) b (i) c (iii)

624 a (iii) b (ii) c (i)

64In this question you have to match the items in one column with the items in a second

column. Let’s say that you think that top management (a) is involved in the formulation

of the mission of the organisation (i), then you already know that your answer could be

either option 1 or 2. By comparing the other options in the  rst column with those in the

second column, you should be able to choose between options 1 and 2.

65Answering a multiple-choice question

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

You will  nd the multiple-choice questions in the assignment extremely useful when you

prepare for the examination. However, if you mark your answers (or the correct answers)

on the actual page in Tutorial Letter 101, you will not be able to use these questions for

revision. We strongly recommend that you either make a photocopy of the assignments

and use that for revision, or else write down your answers on a separate sheet of paper to

avoid making any marks on Tutorial Letter 101 itself. You will then be able to work through

these questions again in preparation for the examination, without seeing the marks that

indicate the correct answers. A workbook per module is a good method of preserving

your thoughts and activities in a way that can be useful when you prepare for the exams.

69Decide on each option independently.

70When answering a multiple-choice question, a good deal of time is often wasted (espe-

cially in the examination) by reading all four options before deciding which is the correct

one. The secret is to read and decide on each option separately. For example, look at the

 rst question above. The stem asks you to identify which statement is correct. Take a ruler

and cover the other three statements so that you see only statement 1. Read it and then,

without reading any other statement, decide whether the statement is correct, wrong or

that you do not know. Put a tick next to it if you think it is correct; put a cross next to it if

you think it is wrong; and put a “?” if you are not sure. Then move the ruler down so that

you can read statement 2. Again decide and mark the category in which it falls.

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71When you have done that with every one of the four statements, you may  nd that you

have marked one statement correct and three statements wrong. That is then your an-

swer. If you  nd that you have marked two correct, then compare the two statements

and choose the one that seems to be the most correct, or the most comprehensive.

73Write 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 speci c reference to the prescribed book to back up your reasoning.

75This step is probably the most important learning step that you can take. We want our

students to understand the tutorial matter and to be able to explain the concepts and

apply the principles. We are not interested in whether a student has memorised module

content and can repeat it in an examination. That is why it is so important for you to be

able to give a reason for your answer.

76It takes a few weeks from the time that you answer an assignment to the time that you

get back the correct answers and explanations. By that time you will have forgotten why

you chose a certain option in a particular question, unless you wrote down your reasons.

The real learning takes place when you compare your reasoning with that of the lectur-

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

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

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1.5.3 Assessment of the module

79We will assess your progress during the semester (in your assignments) and in the ex-

amination at the end of the semester against transparent assessment criteria that link

directly to the objectives of the module. In Tutorial Letter 101 we provide further details

of the assessment and examination requirements of this module.

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1.6 HOW YOU WILL BENEFIT FROM THIS MODULE

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

Study the prescribed tutorial matter conscientiously according to the guidelines

provided.

- Discuss the subject matter with colleagues, specialists and fellow students.

- Attempt and complete the activities and assignments.

- Apply your knowledge in practice.

- Properly prepare for the examination.

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

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

this step already.

842 Get an overview of the chapters of the textbook. Draw a mind map of the chapters.

853 Read the  rst chapter and draw a mind map of the topics in the chapter.

864 Study the  rst section of the chapter. Write a summary in your own words.

875 Read the corresponding learning unit. Amend your own summary, if necessary.

886 Read the next section of the chapter. Repeat steps 4 to 6 until you have completed

the chapter.

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

chapters.

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

1.7 WHAT YOU CAN EXPECT FROM UNISA

92You can expect us to do the following:

- We will provide you with up-to-date and relevant study material, which we regu-

larly compare and benchmark against similar local and international programmes.

- We will keep the study material in line with the needs of industry and commerce by

regularly consulting with the profession and with industry leaders and government

o cials.

- We will assist you by giving you the opportunity to develop competencies and skills

at a certain level. The objectives correspond to the National Quali cations Framework

(NQF) level 5. We will assess you by taking the level descriptors of the NQF into account.

- We will support you whenever you require academic assistance. You may contact

your lecturers by making a personal appointment or by phone or via e-mail. We

understand that studying through distance education is more challenging than at-

tending a residential university.

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

your assessment.

- We will give you feedback on assignments.

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MNB1501/1/2018–2020

94This is an online module and therefore your module is available on myUnisa. However,

in order to support you in your learning process, you will also receive some study mate-

rial in printed format. myUnisa is an online platform for you to reach other suggested

sources, participate in online activities and communicate with other students, the lecturer

and administrative departments at Unisa. You can also download your study materials,

other resources and previous examination papers online. The printed materials that are

provided to you are adequate to support your studies should you be unable to access

the internet regularly.

95We urge all of you to access myUnisa. You can access the myUnisa web page with a com-

puter or a smartphone that is linked to the internet. You can also make use of Unisa’s

regional o ces and access myUnisa from the computer labs there as well as from the

telecentres which are listed in the Study @ Unisa brochure.

1.8 HOW TO APPROACH MNB1501

96If you are not sure where to begin or how to approach your studies in Business Manage-

ment (MNB1501), this section was inserted especially for you.

97When you have listed the main topics as set out in the outcomes and layout, you should

read the entire chapter just to get a feel of what it is all about. Do not worry too much

at this stage if you do not understand every detail. The important thing here is to make

a few notes of the key issues as you read. Then draw a diagram or simple mind map to

visualise the key issues.

98You are now ready to start studying. Tackle one learning unit at a time. If there is some-

thing that you do not understand, read it again and try to  gure out what the author

is saying. DO NOT SKIP ANY TUTORIAL MATTER THAT YOU DO NOT UNDERSTAND. Ask

someone else to help you understand a sentence or paragraph, and if you really cannot

 gure it out, ask your fellow students on myUnisa or your e-tutor, or contact one of your

lecturers at Unisa.

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.

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

101

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  nd that certain terms are repeatedly used to structure

learning units and your thinking:

A topic represents an important component of the module and tutorial matter. Each

topic has one or more learning outcomes. These outcomes indicate the general

standard or level of competence you should achieve in respect of each topic.

- A learning unit is an identi able part of a topic. Each topic therefore consists of one

or more learning units.

102

103

Very important for the purposes of your studies are the learning outcomes. For each topic,

speci c outcomes are set, WHICH YOU AS A STUDENT MUST ACHIEVE. These learning

outcomes are linked to the assignments as well as the examination and are therefore the

means by which you and your lecturers can evaluate the extent to which you have in fact

mastered a speci c topic (i.e. your knowledge and understanding of it).

104Certain icons are used throughout learning units:

105Icon 106Description

107

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.

109

110

Study. This icon indicates the relevant sections of the prescribed book

or the study guide that you need to study and internalise.

111

112

Key concepts. The key concepts indicate which terms or keywords are

important for a particular learning unit.

113

114

Read. This icon will direct you to read certain sections of the prescribed

book for background information.

115

116

Activity. This icon refers to activities that you must do to develop a

deeper understanding of the learning material.

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117

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.

119

120

Feedback. This icon indicates that you will receive feedback on your

answers to the self-assessment activities.

121

122

Website link. This icon indicates a website link that you can access for

more information on the topic currently being discussed.

123

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.

125

126Did you know.

127...

128

129IMPORTANT

130You should always consult your module learning units  rst and then study the relevant

sections in the prescribed book, as indicated in the learning units. The learning units:

- provide you with material that you have to study

- indicate which parts of the prescribed tutorial matter you have to study

- contain certain activities that will help you master the  eld of study

1.9 CONCLUDING REMARKS

131

You need to access myUnisa for any additional information and study material (for example

online activities, self-assessments, material and – most importantly – announcements).

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

in this endeavour.

133Best wishes

134Your lecturers for MNB1501

135Department of Business Management

136Unisa

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137

TOPIC 1

INTRODUCTION TO BUSINESS

MANAGEMENT

INTRODUCTION AND AIM OF THE TOPIC

138

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.

1Learning objectives

After completing this topic, you should be able to

demonstrate an understanding of the role of business in society and the position of busi-

ness management in the business world

identify an entrepreneur and explain his or her role in society

recognise how an organisation functions and how it is established



explain the term “business environment”, examine its composition and investigate aspects

of environmental scanning

explain what corporate social responsibility is and what it entails

139

CONTENT

140Topic 1 comprises  ve learning units:

TOPIC 1:

INTRODUCTION TO BUSINESS

MANAGEMENT

LEARNING UNIT 1:

The business world and business management

LEARNING UNIT 2:

Entrepreneurship

LEARNING UNIT 3:

The establishment of a business

LEARNING UNIT 4:

The business environment

LEARNING UNIT 5:

Corporate social responsibility

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Learning Unit 1

The business world and business management

INTRODUCTION AND AIM OF THE UNIT

142This learning unit discusses the role of business in society and explains how a business

organisation in a market economy employs the limited resources of a nation, its natural

resources, human resources,  nancial resources and entrepreneurship to satisfy the need

for products and services. The learning unit gives an overview of the main prevailing

economic systems in the world and explains how the business organisation functions

in a market economy. Against this background, the purpose and nature of business

management is examined: speci cally the task of business management, namely studying

the factors, methods and principles that enable a business to function as e ciently as

possible. A classi cation of the study material on business management is also presented.

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

MANAGEMENT (ITBM)

Contents of the learning unit:

The role of business in society

Needs and need satisfaction

The main economic systems

The need-satisfying institutions of the market economy



The nature of business management and the classi cation of the study material on busi-

ness management

3Learning 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 di erences between need-satisfying institutions and non-pro t institutions

explain the inherent nature of business management

understand how the study material on business management is classi ed

KEY TERMS

community

needs

economic systems

society

development

classi cation

free market

market economy

143Refer to the end of chapter 1 in the prescribed book to familiarise yourself with the key

terms for this learning unit before continuing.

1.1 THE ROLE OF BUSINESS IN SOCIETY

Study section 1.2 in ITBM.

144The business activity generally involves the transformation of resources into goods and

services to meet society’s needs. Business, however, cannot operate without society at

large. It is important to understand how closely any business organisation is linked to the

society in which it operates. The needs and values of a society have a strong in uence

on what a business does. For example, if the people in the society are very aware of the

need for protecting the environment, they will soon bring pressure to bear (often through

the news media) on any business that pollutes the environment with its waste materials.

145

Not only should businesses be aware of their in uence on the physical environment,

but also of the e ect their business activities have on consumers, the economy at large

and competitors.

146Through the spheres of social responsibility, consumerism and the prevention of envi-

ronmental damage, for example, a society can persuade an organisation not to pollute

or damage the environment or  x prices. Just as a society can in uence its business

organisations, so these organisations can have a signi cant in uence on the society. By

developing new products, businesses can in uence the behaviour patterns of people in

a particular society. Just think of the impact that the electronics industry (with its pro-

duction of cell phones and DVD recorders, for example) has had on the social life of our

society. The success of businesses also has a major impact on the prosperity of a society.

In a town such as Secunda, for example, Sasol employs many of the inhabitants. If Sasol

were to go bankrupt, thousands of people would be left jobless and the entire town

would be a ected.

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Did you know?

South Africa’s steel industry was on the verge of collapse. Read the case study above section 1.2

in ITBM to begin forming an understanding of the e ect of business sustainability on society.

Activity 1.1

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

headlines:

•“Miners and their families without food in Stilfontein”

•

“New questions raised about the fiduciary responsibilities of directors of Saambou Bank”

•

“Jonathan Oppenheimer of De Beers announces a black economic empowerment

partner”

•“Small landholders lodge claims against Mittal Steel for environmental damage”

•“Consumer organization complaints about the high telecommunication prices”

148

From the  ve headlines above, identify what type of in uence is being exerted by South

African organisations on society.

6Feedback:

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

1.2 NEEDS AND NEED SATISFACTION

Study section 1.3 in ITBM.

149Human beings have many varied and seemingly unlimited needs. Society, however, has

limited resources to satisfy those needs and so a choice has to be made how best to uti-

lise those resources. Most of us would like to live in a mansion, drive a luxury car, own a

seaside cottage, go on an overseas trip every year, wear the latest fashion clothes and so

on, but very few people have enough money to a ord all these products and services.

Most of us have limited resources (money), so we have to decide how to utilise the little

we do have to obtain the greatest satisfaction possible. The decision to obtain the great-

est possible bene t (or satisfaction) with the limited resources we have is known as the

economic principle.

150

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

the satisfaction of physiological needs such as hunger and thirst. However, according to

Maslow, once these needs are satis ed, people will strive to satisfy the next level of needs

(i.e. security needs) and so on.

151In the business world, there are four types of resources available to manufacture goods

or provide services. These resources are known as production factors and refer to all the

resources used for producing goods or services. Whether a certain item is a production

factor or an end product will depend on the use it is put to. For a truck manufactur-

ing company, a truck is not a production factor – it is the end product. However, for a

transport company, a truck is a production factor, since without it the company would

not be able to provide the basic service of transporting goods. The  gure below depicts

the four production factors.

153

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  gure 1.5 in your

prescribed book. One of the elements within this cycle is the economic system determined

by the community. We will have a look at the main economic systems in the next section.

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

Activity 1.2

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

•Not having eaten lunch, you are quite hungry and thirsty.

•You are scared to sleep at night after a neighbour was murdered.

•You are worried about your continuing relationship with your partner, as he has indi-

cated that he wanted to move out of the flat that you share.

•Your boss has screamed at you at work in the presence of fellow workers.

•You want to enrol for further studies in the field of management in order to further

yourself in life.

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

MNB1501/1/2018–2020

Feedback:

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1.3 THE MAIN ECONOMIC SYSTEMS

Study section 1.4 in ITBM.

155

156

The world is divided into three basic economic systems: the free-market economy, social-

ism and the command economy. Socialism is in the middle, between the two extremes.

The following  gure puts this position into perspective:

157

158Free-market economy 159Socialism 160Command economy

161At the one end of the spectrum we have the free-market economy, also referred to as

capitalism. This economic system is based on the principle that each individual in soci-

ety is free to choose his or her own economic activity. Private individuals mostly own

the society’s resources and they are free to utilise those resources in whatever way they

wish. Everyone is free to work where they like, providing whatever service they like or

manufacturing whatever they want to, and so on.

162At the other end of the spectrum we have the command economy, also known as com-

munism. This system is based on the principle that the state (the government) owns al-

most all of the country’s resources and that the state (in the form of government o cials)

decides what products and services should be manufactured/ provided, who should be

employed where, what each person should earn, and so on.

163

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.

164Table 1.2 in the prescribed book provides a useful summary of the key di erences be-

tween the three economic systems. You do not have to memorise these di erences, but

to understand the di erent economic systems you must read through this table. It is also

important to note that no country in the world has an economy that is a pure capitalist

economy, or a communist economy, or a socialist economy. The economic system of a

country may range along a scale from pure communism to pure capitalism, or vice versa.

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

economy.

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 de nition for a mixed economy, but relevant aspects include a degree of

private economic freedom (including privately owned industry) intermingled with centralised

economic planning and government regulation (which may include regulation of the market

for environmental concerns, social welfare or e ciency, or state ownership and management

of some of the means of production for national or social objectives).

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

166After reading this section and the discussion above, complete the activity that follows.

Activity 1.3

When a giant private organisation such as Masterbond or Saambou in South Africa or Enron

in the USA goes bankrupt, critics of capitalism have a handy stick to beat this economic

system. In South Africa we hear regular voices saying that the solution to South Africa’s

problems lie in socialism, that is, an economic system where the rich are heavily taxed

and where government intervention, ownership and control is at the order of the day.

What is important to remember, however, is that the downfall of organisations such as

Saambou and Enron actually shows that capitalism is functioning very well. If an organ-

isation is ine cient, it will go bankrupt. If government intervenes to keep such organisa-

tions a oat, it will keep ine cient companies going on for a longer period of time. On

the other hand, state organisations cannot fail, even if they perform badly, because they

are supported by taxpayers’ money!

(1) How would you classify the South African economic system?

(2) Would socialism be the answer to South Africa’s economic problems?

167

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

8Feedback:

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1.4 THE NEEDSATISFYING INSTITUTIONS OF THE MARKET

ECONOMY

Study section 1.5 in ITBM.

169The functioning of the South African economy is a ected by need-satisfying institutions

such as business organisations, government institutions and non-pro t-seeking institutions.

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170Business organisations are also referred to as pro t-seeking businesses since their aim is

to conduct their business in such a way that it will lead to a pro t for the owners. Most

of these business organisations are privately owned, but remember that the state also

owns business organisations. These are called public corporations (e.g. Transnet) and

they function just like any other kind of business organisation.

171There are also government organisations that do not operate on a pro t-seeking basis.

They are usually referred to as government departments. The Department of Public

Works and the South African Police Service are examples of government departments

that do not operate on a pro t-seeking basis. They provide a service to society and they

obtain their funds from Treasury. In other words, the people in the society pay for these

services by means of taxes.

172Not all non-pro t-seeking businesses are state owned. There are also privately owned

organisations that do not strive to make a pro t. Most of them seek to obtain just su cient

income to cover their costs. Sports clubs, welfare organisations and religious organisa-

tions usually fall into this category.

173After 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

9Feedback:

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1.5 THE NATURE OF BUSINESS MANAGEMENT AND THE

CLASSIFICATION OF THE STUDY MATERIAL ON BUSINESS

MANAGEMENT

Study sections 1.6 and 1.7 in ITBM.

174In the study of business management it must  rst be stressed that there is a di erence

between economics and business economics or, as it is called nowadays, business manage-

ment. The key di erence between Economics as a subject and Business Management as

a subject is that the former studies the “management of the national economy” and the

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 di erence between the

income and cost being the pro t. Note that the economic principle applies as much to

non-pro t-seeking businesses as it does to pro t-seeking businesses. The di erence is

that any form of pro t is ploughed back into the community for which the non-pro t-

seeking organisation is working.

175The business organisation performs a number of activities, such as researching markets

to  nd out whether there is a need for the product of the business; acquiring and pro-

cessing raw materials in the manufacturing process; and appointing people to operate

the machinery in the manufacturing process. Capital must be obtained and the income

generated must be managed while creditors must be paid and workers remunerated.

These are just a few of the activities being performed in a business organisation. Further-

more, these activities must be coordinated and managed. This is the reason why activities

are grouped into functional areas to ensure proper coordination and management. The

functional areas are depicted in the following  gure:

176

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

178As we can see, general management is at the centre and deals with the planning, imple-

mentation and control of activities (management functions) that are needed to run the

business. These management functions will be dealt with in considerably greater detail

in the rest of the prescribed book, but section 1.7 provides a useful summary of what

these functions entail.

Activity 1.5

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

•

The unemployment rate in South Africa is too high. Consumers are warned to 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.

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Which of these statements have to do with the broad South African economy and society

in general? What are the implications of these statements for South African businesses?

10Feedback:

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SUMMARY

179You now have a basic insight into the business world, economic systems, institutions of

the free market and the nature of business management. In the next learning unit you

will study entrepreneurship in business.

BUSINESS IN CONTEXT

180One of the recommended books for the MNB1501 module is entitled Business Cases.

This book provides students with actual business scenarios and case studies which cover

relevant theoretical business aspects. It is not compulsory that you read these case

studies, but it will provide you with real local and international implementation of theory

in practice. For this learning unit, you can read the various case studies covered in this

book for a better understanding of business management within the business world.

SELF-ASSESSMENT QUESTIONS

181

182QUESTION 1

183Which of the following statements are correct?

184An entrepreneur is someone who ...

185a pursues pro t.

186b accepts risk.

187c makes the most of opportunities in the environment.

188d combines expertise and resources to produce products and services.

189

190 1 a b

191 2 c d

192 3 b c d

193 4 a b c d

194

195QUESTION 2

196

Which of the following attributes are characteristics of a free-market economy as an

economic system?

197a private ownership of production factors

198b free competition

199c pro t motive recognised

200d limited right to strike in state enterprises

201

202 1 a b

203 2 a c

204 3 a b c

205 4 a b c d

206

207QUESTION 3

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

209a State intervention to solve an economic problem in a market economy indicates a

move towards a command or centrally controlled economy.

210b Government intervention in the economic system aims at encouraging economic

growth and stability.

211c Control of strategic organisations cannot be left to pro t-seeking entrepreneurs.

212d An expanding entrepreneurial role by the state eventually leads to a democracy.

213

214 1 a c

215 2 a b d

216 3 b c

217 4 a b c d

218

THE ANSWERS TO THE SELF-ASSESSMENT QUESTIONS

219

220Question 1

221

All four of the statements are correct regarding the characteristics of an entrepreneur. Such

a person normally pursues pro t in starting and running a business, and in the process

also accepts risk. An entrepreneur also makes the most of opportunities in the environ-

ment; in fact, one of the traits of entrepreneurs is that they can foresee opportunities in

a dynamic business environment much quicker than other people. Lastly, entrepreneurs

also combine expertise and resources to provide products and services. The correct an-

swer is therefore option 4 (a b c d).

222

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223Question 2

224

In a free-market economy the economy is characterised by private ownership and

free competition, and the pro t motive is recognised. There is also freedom of association

and the right to strike. So statements a, b and c are correct and d is incorrect. The right

answer is therefore option 3 (a b c).

225Question 3

226

The  rst statement referring to state intervention to solve an economic problem in a

market economy does not necessarily mean a move towards a command or centrally

controlled economy. The elected government of the day is duty-bound by the Constitu-

tion to improve the life of all its citizens, which could entail state intervention from time

to time. The second statement about government intervention in the economic system

that aims at encouraging economic growth and stability is obviously correct, as explained

earlier. Control of strategic organisations cannot be left to pro t-seeking entrepreneurs

only, because these strategic organisations must be managed to the bene t of all the

citizens. This statement is therefore correct. The last statement is obviously wrong. Ex-

panding the government’s entrepreneurial role does not have a corresponding positive

in uence on the development of a democracy. The right answer is therefore option 3 (b c).

227

Learning Unit 2

Entrepreneurship

INTRODUCTION AND AIM OF THE UNIT

228Entrepreneurship has been a term batted around in business and media environments

alike in recent years. In this learning unit we will have a closer look at, and discuss entre-

preneurship as the fourth factor of production. We will look at the role of entrepreneurs

and businesses in society and the entrepreneurial process.

229

There are various sources which can de ne what an entrepreneur is. All the de nitions come

down to the following: It is a person or personality type which takes up a new venture and

is willing to accept full responsibility for the outcome. Entrepreneurs are those individu-

als in society who take the initiative and risk by harnessing the factors of production to

generate products and services. The entrepreneur’s reward for taking the initiative and

risk is pro t. And a loss is the result of making the wrong decision. Entrepreneurship is

also a scarce human trait, since not everyone in a country has the skills or is prepared

to take risks in generating products and services. We also refer to the di erent ways of

entering the business world and present recommendations on the choice of a business

opportunity.

230

Entrepreneurship is described as the process of identifying, creating or sensing an oppor-

tunity where others do not see it and of  nding and combining resources (often owned

by someone else) to pursue the opportunity until it becomes a successful, established

business.

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

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

12Learning objectives

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

explain the concept of entrepreneurship and the entrepreneurial process

de ne an entrepreneur

describe the roles of entrepreneurs and small businesses in the South African economy

describe how to become an entrepreneur

discuss the skills and resources required to become an entrepreneur

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

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

discuss the implications of choosing a speci c business opportunity

231

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.

232Entrepreneurship is a vital ingredient in the development of any country and even more

so for a country such as South Africa that has been plagued by growing joblessness in

recent years. Di erent sources are available regarding the total number of unemployed

people in South Africa. Depending on whose  gures you use and the de nition of un-

employment, it may range from as much as 30% plus to less than 10%! Without getting

involved in arguments, we can say that the rate of unemployment is too high and is

damaging to social stability. There is a lively debate about the reasons for the low rate of

entrepreneurial activity in South Africa. In the following discussion we will refer to these

reasons and look at the practical problems encountered by entrepreneurs. The Global

Entrepreneurship Monitor (GEM) report states, for instance, that men and people between

the ages of 25 and 34 are the most likely entrepreneurs in South Africa.

2.1.1 Descriptions of an entrepreneur

Study section 2.2 in ITBM.

233It is important that you understand the di erent descriptions of an entrepreneur. Bill

Gates is an entrepreneur who had the innovative ideas that started the Microsoft com-

puter company in the United States. Henry Ford was an entrepreneur who identi ed

the opportunity for the mass manufacturing and selling of cars to the broad American

population. This opened up new opportunities for other businesses such as motels,

petrol  lling stations and fast-food businesses. Ernest Oppenheimer came to South Af-

rica in 1902 and was instrumental in the development of the diamond mining business

in South Africa. He used a natural resource (diamonds) to start a mighty empire called

Anglo American Corporation of South Africa. His son Harry Oppenheimer followed in

his footsteps and this dynasty continues today, with the third and fourth generations

actively involved in the South African mining industry. Look also at the route that Patrice

Motsepe followed. It would seem that having an entrepreneurial father helped him on

his way to success. Of course not all people have an entrepreneurial heritage. Dr Annique

Theron developed her business from very small beginnings, but with sheer determina-

tion and drive to provide people with numerous ailments who crossed her path with

help in the form of rooibos tea.

2.1.2 Entrepreneurship in South Africa

Study section 2.4 in ITBM.

234

Entrepreneurship is a relatively new phenomenon in South Africa, mostly owing to legisla-

tion and a high unemployment level. The number of entrepreneurs in business, however,

is still very limited. Study section 2.4 in the prescribed book to see why.

2.2 THE ROLE OF ENTREPRENEURS AND SMALLBUSINESS

OWNERS IN SOCIETY

Study sections 2.5 and 2.6 in ITBM.

235

Not all small-business owners are entrepreneurs. Some small-business owners are satis ed

with some autonomy and earning a reasonable income. They do not have the intention

of growing the business entrepreneurially.

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

237

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:



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

239Of course the three categories mentioned above are not the only reasons for people to

embark on an entrepreneurial journey. The in uence of environmental variables, such as

low interest rates, will also make it attractive for a person to be an entrepreneur. We will

now look at the small business and see how it is linked with the role of the entrepreneur

as well as the economy at large.

2.2.1 The small business

Study section 2.8 in ITBM.

240

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):



The management of the small business is independent, which means that the owner

is usually also the manager of the business.



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

together.

The activities of the enterprise are mainly local (in South Africa).

The enterprise is small in comparison with the largest competitors in the particular

industry, for example the small supermarket down the road in comparison with the

Shoprite Checkers group of retailers which is the largest retailing group in Africa.

241

242Quantitative criteria measure something that can be measured or counted. To be able to

give a more speci c de nition of a small business, we also need to look at certain criteria

for measuring the size of a business. Look at the comprehensive de nition of an SME in

the prescribed book for a better understanding.

The de nition of a small business

243A good general de nition of a small business is that it is owned and managed indepen-

dently and in no way predominates in the industry in question. Small businesses provide

ample opportunities for personal initiative, innovation and the development of new

products.

244

Refer to section 2.8.1 in your prescribed textbook that gives you a better idea of the

di erence between a micro-business, a small business, a medium business and SMMEs.

The role of small businesses in the economy

245

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:

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 sell-

ing 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  rm. He soon got bored, because his personality is such that he needs

to be in control and be creative. He started to approach people for accounting jobs

to do in his spare time. At  rst, he only helped others to complete their tax returns.

Then he bought a computer and started doing the books for small  rms. Today he

has his own business, giving  nancial and tax advice and doing small audits.

247

Now answer the following question:

What makes the people in the above scenarios entrepreneurs?

Write down your thoughts about this question in your workbook.

13Feedback:

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

2.3 THE ENTREPRENEURIAL PROCESS

Study section 2.7 in ITBM.

248

The framework as explained in  gure 2.1 of the prescribed book shows a visual framework

that prospective entrepreneurs may use to help them in the process of starting a busi-

ness. You will see that the framework provides questions that need to be answered by

the prospective entrepreneur. If the person proceeds through these phases, he or she will

be in a better position to succeed in the business venture. The phases are the following:

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  nance to start the business?

Opportunity/idea. Is there a chance that my idea will work?

Feasibility. Is my idea feasible in terms of rands and cents?

Business plan. Compile a business plan to obtain the necessary  nance.

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

Skills

249A skill is simply knowledge, which is demonstrated by action. Potential entrepreneurs

therefore need the following management skills:

Strategy skills – to position the business in the competitive environment

Planning skills – to plan for the future of the business

Marketing skills – to identify the target market and meet the wants and needs of

this market

Financial skills – to manage the  nances of the business

Project management skills – to organise the business activities

Human relations skills – to deal with the workers employed by the business

Resources

250

Without resources no entrepreneur would be successful. So you need  nancial resources,

human resources and operating/physical resources. For instance, a spaza shop selling

groceries must at least have a proper room (part of the physical resources) where grocer-

ies can be displayed (and with secure storage against the weather and theft).

Starting a new business or buying an existing business?

251The advantages and disadvantages of purchasing an existing business versus starting

a new business have been debated for a long time. When it comes to starting a new

business, you have to consider all the factors about establishing a business (the size, the

structure, the location, the form of enterprise, etc). Buying an existing business means

you are buying a going concern with its opportunities, as well as latent problems that

you sometimes do not know about!

252

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 materi-

als at a lower cost (because the Wimpy company purchases basic ingredients in bulk for

all its outlets) and you would be o ering a standard product and service that is already

well known. However, you would have to manage the restaurant the way this franchiser

wishes its restaurants to be managed. Wimpy will also conduct regular inspections to

ensure that you adhere to its standards. You will also have to pay Wimpy a regular fee for

the right to use its name and to make use of its facilities.

Activity 2.2

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

where you will  nd a full discussion on the requirements and the problems of a franchise

operation such as Wimpy. Summarise the main points that are made in the discussion.

If there are any issues regarding the discussion that you want clarity on, approach your

e-tutor.

14Feedback:

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

Activity 2.3

FROM STREET HAWKER TO THE OWNER OF A PROSPEROUS BUSINESS

The responsibility of providing for a wife and three children was the driving motivation for

Mr Witness Ndamane to be a successful entrepreneur. After 23 years working as a driver for

a packaging company he was retrenched in 2000. He frantically looked around for nearly

a year to  nd a new job in the formal sector and  nally, in desperation, started hawking

SAE40 cans of oil at stop streets to passing taxi drivers. After a while he approached the

Engen oil company and asked to be appointed as a distributor to sell SAE40 oil in the

Nelson Mandela Metropole. Engen was interested in his proposal but redirected his

e ort towards selling para n in the townships, as there is a great demand for this product

for cooking and heating purposes. He installed a 1 000-litre tank of para n on his old

delivery vehicle and started selling to spaza shops and housewives who found it hard to

get to the shops. His sales immediately reached 3 000 litres a week. He decided to expand

his business by installing a 2 200-litre storage tank at his house that was regularly  lled

up by Engen tankers. Today he has an additional 9 000-litre storage tank in the industrial

area and is selling not less than 16 000 litres per week. Mr Ndamane currently employs

four people who work in his two para n shops in the townships. Further growth was

ensured when he was awarded a R900 000 contract spread over three years by the Nelson

Mandela Metropole to supply them with this basic commodity. Current turnover varies

between R1 million and R2,5 million per year.

Now answer the following questions in your workbook:

(1)

What management skills did Mr Ndamane use in his quest to be a successful

entrepreneur?

(2) What resources did Mr Ndamane use to start his business?

(3) How did Mr Ndamane identify the new business opportunity?

15Feedback:

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

MNB1501/1/2018–2020

SUMMARY

253

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.

254BUSINESS IN CONTEXT

255

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 business-

in-context addition to your learning of business management.

SELF-ASSESSMENT QUESTIONS

256

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:

257

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  nished school, I started working as a hawker selling

sweets, cigarettes and cold drinks. I struggled for a long time and went bankrupt twice.

But I persevered and moved on to open a retail store in Mamelodi selling groceries, cold

drinks and cleaning materials. I am a self-made man and I used my own savings to open

my retail store. Today I am providing work for  ve people.”

258Musomi: “My mother told me that I must study hard at school and that I must look for a

good job in the Civil Service here in Gauteng. I started working for the Gauteng Education

Department and today I am in charge of the accounting section. I am responsible for all

the expenditure by the Gauteng Education Department. There are 20 people working

under me. I take a great  nancial risk, because if money is unaccounted for, I will be in

serious trouble and I will lose my job.”

259Sam: I am unemployed, I am a Rastaman and I hero-worship Che Guevara, Fidel Castro

and Joseph Stalin. You, Thabo and Musomi, are exploiters of the working class! Govern-

ment must give us all work and we must earn the same salary.”

260

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.”

261QUESTION 1

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

263

264a 0

265b 1

266c 2

267d 3

268e 4

269

270QUESTION 2

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

272

273a 0

274b 4

275c 5

276d 2

277e 6

278

279QUESTION 3

280Below is a summary of the psychological traits of entrepreneurship that we have identi-

 ed in Thabo, Musomi, Sam and Robert. Which of these descriptions are correct?

281

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

taking; commitment

282b Musomi: achievement motivation; locus of control; risk taking; commitment

283c Sam: locus of control; high level of energy

284

d Robert: achievement motivation; locus of control; innovation and creativity; risk

taking; commitment

285

286QUESTION 4

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

288

289a 0

290b 1

291d 3

292e 4

293

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THE ANSWERS TO THE SELF-ASSESSMENT QUESTIONS

294

295Question 1

296

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 inno-

vative; neither is he identifying new opportunities; he is de nitely risk aversive, because

he is working with government money, etc. Looking at the remaining two friends we

see that both  t the bill as being entrepreneurs. Let us take Thabo, for example, who

identi ed early in his life an opportunity to make money by collecting cool drink bottles.

He saved money to open the retail store in Mamelodi, so he was able to  nd resources;

furthermore, he took the  nancial risk of opening the store and he is managing a small

business employing  ve people. Robert also has some entrepreneurial characteristics:

having innovative ideas, identifying a unique opportunity,  nancing himself, etc. To sum-

marise, the correct answer is that two of the friends are entrepreneurs; so the correct

answer is option c.

297

298Question 2

299Leading on from question 1 we can say that if Thabo and Robert are the only entrepre-

neurs, then they are employing  ve workers between them. The correct answer is option c.

300

301Question 3

302The psychological variables that distinguish individuals as entrepreneurs are the follow-

ing for Thabo and Robert:

303

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 in-

novative in that he identi ed a need in the market by opening a retail store in Mamelodi.

Opening and running your own business certainly involves risk taking. Finally, Thabo also

shows he has commitment to succeed.

304Robert has the same motivations: achievement motivation, locus of control, innovation

and creativity, risk taking and commitment, so the same as for Thabo. Options a and d

are correct.

305

306Question 4

307Only Thabo and Robert are running small businesses. The arguments used above con-

 rm that they are entrepreneurs and running small businesses. We see that these two

entrepreneurs employ a few employees, have a relatively low turnover and there is direct

involvement by the owner manager, so option c is correct.

Learning Unit 3

Establishing a business

INTRODUCTION AND AIM OF THE UNIT

308Learning unit 2 elaborated on the importance of entrepreneurial activity within society.

The entrepreneur needs to consider a number of things when establishing a new busi-

ness. This learning unit will focus on the factors that in uence the choice of location for

a new business as well as di erent legal forms of ownership that are available to the en-

trepreneur. Once you know what the available options are, you can then put everything

together by drawing up the business plan for your new business.

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

Contents of the learning unit:

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

17Learning objectives

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

identify the factors that in uence the location of a business

distinguish the di erent forms of ownership that are found in South Africa



discuss the key considerations that are applicable when a form of business has to be chosen

describe the objectives, importance and need for a business plan

describe the various components that constitute the business plan

write up a business plan

309

KEY TERMS

legal personality

partnership

control

authority

ownership of a business

tax liability of a business

sole proprietorship

business location

close corporation

company

legal requirements

business plan

310

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311Refer to the end of chapter 3 in the prescribed book to familiarise yourself with the key

terms for this learning unit before continuing.

3.1 THE IMPORTANCE OF GEOGRAPHICAL LOCATION FOR

THE SUCCESS OF A BUSINESS

18Study section 3.4 in ITBM.

Geographical location

312The choice of geographical location for a speci c premises is extremely important to all

kinds of businesses, although it may be even more important for some than for others.

For example, the success of most retail organisations depends on the location of the

business. Depending on the nature of the proposed product or service to be o ered,

the entrepreneur should, for example, decide whether the business needs to be located

either near its market or near its sources of raw materials, near other competitors, in the

city centre, in the suburbs, in a rural area, in existing industrial areas, or according to per-

sonal preference. Woolworths, for example, selects the premises of its stores according

to the following criteria:

The premises should be located in close proximity to other national retailers, bank-

ing and other facilities.

The site should provide adequate security.

There should be convenient parking facilities.

The building must comply with Woolworths’ speci cations regarding size, quality

of  nish, etc.

313

314It is important to know that no two businesses are alike and that di erent factors might

therefore in uence the choice of location, depending on the nature of the business.

Location factors

315Location factors can be described as those factors you need to consider when selecting

the geographical location of a new business. These factors include the following:

sources of raw material

availability of labour

proximity of and access to the market

availability and cost of transport facilities

availability and costs of power and water

availability and costs of a site and buildings

availability of capital

attitude, regulations and tari s of local authorities

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.

316

When establishing a new business in South Africa, it is important to be able to distinguish

between the di erent forms of ownership. Note that the terms “form of ownership” and

“form of business” are used interchangeably. It is also important to be aware of the key

considerations that are applicable when a form of ownership has to be chosen. Some of

the considerations to be aware of when choosing a form of enterprise are the following:

the entity’s legal or juristic personality



the limited liability of owners or members when legal action is taken against the

business

the degree of control that the management or entrepreneur will be able to exercise

the potential for capital acquisition

compliance with legal formalities and regulation

taxation



the ease with which the business or entrepreneur’s interest can be transferred (entails

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

317

318The types of ownership covered in this section include

sole proprietorship

partnership

close corporation

company

business trust

cooperative society

joint ventures

319

320When you study this section, it is important to understand the key di erences between

these forms of ownership. You should write down these di erences and make sure that

you understand them. The di erences between the forms of ownership can be studied

in terms of

number of owners/directors/members (shareholders)

legal personality

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capital acquisition potential

subscription to shares

regulations regarding the name of the organisation

legal regulations/prescriptions

liability of members/shareholders

tax liability

distribution of the organisation’s pro ts

transfer of ownership

continuity of the organisation

321

322It is very important that you are aware of the e ect that the Companies Act (71 of 2008)

has on all the forms of business ownership. This Act was promulgated in April 2009.

323Note that a close corporation should not be confused with a cooperative society, which

is a form of business found mainly in the agricultural sector. A cooperative society is a

jointly owned business enterprise normally structured by farmers or consumers. The

cooperative society is formed and operated for the bene t of its owners and normally

produces and distributes goods and services. Some bene ts for the owners of a coopera-

tive society are the following:

They are able to make use of economies of scale.

Equity is generated (cooperative societies also play an important role in land reform

schemes).

There are increased incentives for workers.



The public good is encouraged at a higher level because the cooperative creates

employment opportunities with a ripple e ect of positive spin-o s for small towns.

Legal personality

324One of the concepts that some students  nd di cult is the question of legal personality.

When a business has a legal personality of its own (i.e. a company or a close corpora-

tion), it means that the business is just like a person in his or her own right. For example,

if a partnership purchases property, the property is registered in the partners’ personal

names because a partnership does not have its own legal personality. In other words,

the property belongs to the partners personally and not to the partnership as a form of

business. If a company, however, purchases property, the property is registered in the com-

pany’s name, not in the owners’ (shareholders’) names. The property therefore belongs

to the company. Another example is that if creditors sue a sole proprietorship, the claim

will be against the owner of the sole proprietorship in his or her personal capacity. This

is because a sole proprietorship does not have a legal personality. However, if creditors

sue a company, the claim is against the company and not against the shareholders or

the directors personally. This is because the company is a legal personality on its own.

325South Africa has seen some legislative changes being made to the Companies Act. Refer

to the individual sections in your prescribed textbook which cover these changes.

326

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.

3.3 DEVELOPING THE BUSINESS PLAN FOR THE NEW

VENTURE

Study section 3.3 in ITBM.

327In this section we discuss the objectives, importance and necessity of the business plan.

We also examine the components and the development of the business plan for the new

organisation.

3.3.1 The objectives and importance of the business plan

328The business plan has three main and  ve additional objectives. The main objectives of

the business plan can be described as follows:

It identi es the nature and context of the business opportunity. (Why does the op-

portunity 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, market-

ing plan, management plan, operating plan and  nancial 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  nancial resources to lend the entrepre-

neur 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.

329

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

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 para n, for example, and that the target market

(people in rural townships) are very price-sensitive.

The key variables that will determine the success of the new venture, as well as the

primary risks that may lead to failure, are identi ed. 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 perfor-

mance. The business plan can act as a framework against which the performance of

the business, once it is established, can be evaluated.

331

3.3.2 The components of the business plan

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

you understand it all.

Cover page and executive summary

333Remember, it is very important to make a good impression on the cover page of your

business plan. Study tables 3.2 and 3.3 in the prescribed book, which give an overview

of a business plan.

334

Another very important part of the business plan is the executive summary, because

it holds together and uni es all the other components of the plan. Investors or other

stakeholders often read only the executive summary. So it should provide an accurate

overview of the rest of the plan and should be written last.

Content of the business plan

335

The entrepreneur must  rst give a brief but accurate description of the new venture.

After that follows the body of the business plan. The prescribed book has 15 very useful

questions to be answered in this section of the plan. Take note of them.

336It is very important for entrepreneurs not to become infatuated with their product or

service and simply believe or hope that there is a market for it! Therefore the analysis

of the new venture’s market and the development of a marketing strategy are a must.

Financial analysis

337

The  nancial analysis is another crucial component of the business plan. The entrepreneur’s

projections of a new venture’s pro ts, its required assets and its  nancial requirements

over the next one to  ve years should be supported by substantiated assumptions and

explanations of how the costs, pro ts and  nancial requirements are determined. In or-

der to make the necessary  nancial projections, the entrepreneur must  rst have a good

understanding of  nancial statements and how to interpret them.

338So the key matters to understand in this section are

how  nancial statements work

how pro tability is assessed

how a venture’s  nancial requirements are determined

339

340Chapter 14 of the prescribed book deal in depth and detail with these matters and they

will be discussed in Module 2 (MNB1601).

SUMMARY

341In this learning unit the most important location factors were discussed as well as cer-

tain factors regarding the di erent legal forms of business. Chapter 3 further discussed

the characteristics, advantages and disadvantages of the sole proprietorship, the close

corporation, the partnership and the company. The learning unit also examined the de-

velopment of a business plan for the new venture.

342No business functions in a vacuum. Businesses in uence and are in uenced by the en-

vironment in which they function. In the next learning unit we will have a closer look at

the business environment.

BUSINESS IN CONTEXT

343

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.

SELF-ASSESSMENT QUESTIONS

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

345Establishing a small information technology business in South Africa

346

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 o the ground and soon had his  rst subscribers.

In the beginning he had grand ideas about how the business should be run. His prices

were half that of his closest competitor and the website design was simple. Five months

after launching his website, he realised that his target market did not want what he of-

fered. This really came as a surprise to him.

347

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  nd a lot of it too (since the site was not producing much money

and he was funding it himself).

348Clearly he had to do more homework and had to  nd some start-up capital to redo the

website. There was no point putting up a mediocre site or even a site that was just like

the rest. One thing he had learnt thus far from his extensive blogging career was that his

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site had to be distinguishable from the rest and had to be dynamic if he hoped to attract

people to it and keep them coming back. A blog (also called a web log) is a “frequent,

chronological publication of personal thoughts and Web links” (marketingterms.com). A

blog is in the form of a journal and is a mixture between what is happening in a person’s

life and what is happening on the Web.

349One of Steve’s questions was how a small-business owner trying to establish a new busi-

ness goes about securing venture capital. Money tends to make things happen far faster

and more e ectively. To Steve it had become the oil that lubricates the many ideas that

could become brilliant realities and that could help him make his business really successful.

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

his business.

3512 What are the most important components that Steve should have included in his

business plan? Give reasons for your answer by referring to the case study.

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

353

354You may  nd it very interesting to put yourself in the shoes of an entrepreneur and do

the skills assessment on yourself. See table 3.1 in the prescribed book. This assessment

will show you whether you have the skills to prepare a business plan.

THE ANSWERS TO THE SELF-ASSESSMENT QUESTIONS

355Question 1

356

Drawing up a business plan is the  rst thing Steve should have done before starting

his business and investing a lot of money in it. A business plan gives you a framework

against which to launch, run and grow a new business venture. Without a business plan,

few investors will consider funding a business.

357You should have discussed all the objectives and bene ts of the business plan. We all

know that having objectives are very important, especially if you want to make a success

of something. By doing this activity you should have realised the importance of the busi-

ness plan. You now also see that the business plan may have more than one use, because

entrepreneurs can use their plans for di erent purposes.

358

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

It helps you to organise your thoughts on paper and gives structure to your 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 de ning activities and responsibilities it creates a structure for your business.

Very important is that it helps you to obtain the necessary  nancing to start your

business.

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

359

360Question 2

361

Discuss the following components of the business plan and give examples of what Steve

should include under each heading:

Executive summary

General description of the venture

Products and services plan

Marketing plan

Management plan

Operating plan

Financial plan

Supporting materials

362

363Question 3

364The stakeholders are as follows:

365Internal stakeholders are

366a new venture management

367b employees

368

369External stakeholders are

370a customers

371b investors

372c banks

373

374

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Learning Unit 4

The business environment

INTRODUCTION AND AIM OF THE UNIT

375

The South African business environment is dynamic and changes from day to day. A com-

pany exporting or importing products from the European Union (EU) or the United States

experiences constant  uctuations in the economic environment. An example is the daily

change in the o cial exchange rate of the rand against the euro and the US dollar. Another

variable that impacts on organisations and customers alike is the dramatic changes in

the price of petrol. Petrol, a basic commodity, currently costs more than R10 a litre, thus

having a negative e ect on the in ation rate and ultimately economic activity. Climate

changes in South Africa may also have a negative e ect on businesses and the private

customer alike. Prices of basic foodstu s such as vegetables are in uenced by periods

of drought, cold spells and wet spells. This learning unit introduces you to the environ-

ment in which the business organisation functions and explains how the environment

impacts on business.

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

Contents of the learning unit:

The business and environmental change

The composition of the business environment

The micro-environment

The market or task environment

The macro-environment

Environmental scanning

20Learning objectives

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

explain the meaning of environmental change

explain the nature and composition of the business environment

discuss each of the components of the environmental model

explain how each of the environmental variables can impact on an industry or an indi-

vidual business



describe some ways in which management should respond to the in uences of the

environment

376

KEY TERMS

business environment

market environment

environmental change

environmental scanning

micro-environment

macro-environment

composition of the business

environmental SWOT analysis

377Refer to the end of chapter 4 in the prescribed book to familiarise yourself with the key

terms for this learning unit before continuing.

4.1 THE BUSINESS AND ENVIRONMENTAL CHANGE

Study section 4.1 and read section 4.2 in ITBM.

The e ect of change

378Change can be described as an alteration in the status quo – in a business sense imply-

ing that there are alterations in the business environment, which the business must take

note of. Some years ago, in his book Future Shock, Alvin To er predicted that the rate of

change in society would increase dramatically and that most people would have great

di culty just keeping up. Practical examples of the increase in the rate of change are to

be found in the convergence of di erent elements of telecommunications. Today’s cell

phone is a minicomputer, giving you, for example, access to your e-mail – a function that

was previously only possible on your computer. More and more we see that changes in

technology are occurring at a faster rate. The long-playing vinyl records of the 1960s were

replaced by compact disks, which were then replaced by DVDs and MP3 equipment.

Older people are usually more a ected by these rapid changes than younger people. In

the business world we also see older businesspeople struggling to keep track of changes

in technology and its impact on the business.

379Section 4.2 of the prescribed book describes some of these changes and the e ect they

may have on a business. You do not need to memorise the details of these changes, but

you do need to understand how important it is for management to continuously monitor

changes in the environment that will a ect the business.

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4.2 THE COMPOSITION OF THE BUSINESS ENVIRONMENT

Study section 4.3 in ITBM.

De ning the business environment

380It has been stated that the business environment is dynamic and that the business must

adapt to changes in the environment. The business environment in which the business

operates can be de ned as the sum of all those variables which may in uence the successful

existence of the organisation.

The three subenvironments of the business environment

381The functioning of the business environment is explained by subdividing the business

environment into three subenvironments: the micro-environment, the market environ-

ment and the macro-environment.

382The micro-environment refers to the business itself – the workers and managers, and

the functional areas in which a business are divided, such as the  nancial section and the

marketing section. The main characteristic of the micro-environment is that management

have almost complete control over things that happen in this environment. Management

can, for instance, decide on the price that they will charge for the product that they sell,

or how they are going to market the product to the customer.

383

The market environment refers to the immediate external subenvironment that has a di-

rect in uence on the business. For most businesses, this environment comprises consumers

(also called customers), competitors and suppliers. It may also include intermediaries (or

distributors). For example, Ford Motor Corporation manufactures and markets vehicles

in South Africa. The actual selling of the vehicles, however, is done through a network of

independent dealers (i.e. the intermediaries). Management can exert some control over

this environment, but certainly not as much as they can over the micro-environment.

384The macro-environment refers to the greater external environment that will in uence

the business to a lesser or greater extent. Take the impact of an economic recession,

for example. A recession may have a tremendous impact on future expansion plans, on

production volumes, purchases and labour employment for the business. Management

probably have the least control over what happens in the macro-environment. The e ect

of an increase in the interest rate by the Reserve Bank must be accepted by the business

and they must live with the consequences of this increase.

Characteristics of the business environment

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

ness environment:



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 a ect (increase) the in ation

rate of South Africa. The oil supply forms part of the international environment and

the in ation 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  uctuations in the rand–US dollar

exchange rate.



There is growing uncertainty about the future – even the immediate future is di cult

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

in uence change. Various components in the three subenvironments may change

at the same time. There could be a strike at the business, which a ects the output

and pro tability 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 in uencing this business.

386

Activity 4.1

Identify the three subenvironments of the business environment for an organisation

such as Shoprite and brie y describe the in uence of each of these subenvironments

on this business.

21Feedback:

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

387This subenvironment has the following three components.

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4.3.1 The mission and objectives of the business

388

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, pro ts 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.

4.3.2 Organisational functions

389

Among other things, organisational functions refer to purchasing the necessary supplies

and the logistics of getting the supplies at the right place, the marketing e orts needed

to meet the wants and needs of the organisation and the  nancial expertise needed to

ensure that pro ts are made and that taxes paid to the South African Revenue Service

are correctly calculated and paid over on time.

4.3.3 Human resources

390

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 speci cally, as part of the social environment, managers

must take notice of its implications for the speci c business that they are managing. It

is a fact that South African businesses cannot a ord to lose highly skilled workers to

this debilitating sickness. Businesses vary in their approach to managing HIV/Aids in the

workplace. Business practices that contribute to mitigating the e ects of the illness and

preventing its spread include the following:



Gathering information from partnerships and collaborations. Partnerships or collabo-

rations with external experts, local and international NGOs, academic institutions,

government bodies, multilateral institutions, labour unions or employee 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 draw-

ing 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 organi-

sation 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

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 su er discrimination and,

therefore, willing to come forward for treatment.



Designing workplace HIV/Aids programmes to  t 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 signi cant 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 leader-

ship 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 com-

plying with laws and regulations, managing bene ts, 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 of-

fering support groups,  exible work scheduling, telecommuting and extra time o .

Nutrition and exercise programmes have proven particularly e ective in improving

lifestyle and maintaining productivity.

Giving employees opportunities to support the  ght against HIV/Aids. Where cul-

turally 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 o to participate in these activities.

Helping build local capacity. The organisation should work with local governments,

NGOs and health-care providers to strengthen local infrastructure and capacity with

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

community.

391

392It is clear from the above that management can, to a large extent, determine the success

of the business. When things do go wrong for the business, one of the most common

reasons can be traced back to poor management practices.

Activity 4.2

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

Aids in the workplace?

22Feedback:

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

393

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 pro table development of this market is often seen as management’s most

important task, it is sometimes referred to as the task environment.

Components of the market environment

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

The consumer (also called the customer) is the main reason why the business is 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 or-

ganisation 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

which banks (e.g. Absa, Nedbank, Standard Bank and First National Bank) are the

most important. Labour is supplied to businesses through organised labour which,

especially in South Africa, has an important say in what the workers are paid and

what the conditions of service will be.

Intermediaries are those institutions used to bridge the gaps between the manufac-

turer and the customer. Some of the most important intermediaries are the whole-

salers that sell grocery products to small businesses such as the spaza shops in 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

396

The market environment has a direct in uence on the business, because this is where com-

petitors compete, where the customer is found and where the suppliers and intermediaries

operate. So crucial business transactions take place in this environment. Therefore, most

of a business’s opportunities or threats are found here. For example, a strong competitor

could be a very serious threat to the existing businesses operating in the same market.

At the same time, if a business  nds it di cult to compete with a strong competitor, it

may identify other needs that it can satisfy in the community – and in so doing exploit

(or utilise) an opportunity in that market. Cell C was a late entrant in the cellular phone

marketplace and from the start was under threat because it was competing against two

established competitors (Vodacom and MTN). Cell C identi ed a need for a di erent and

more cheaply structured usage for cell phone users, providing substantial savings to

prepaid as well as contract customers. Today Cell C is a niche player in the market and

has carved out a viable target market against tough competition.

4.5 THE MACROENVIRONMENT

Study section 4.6 in ITBM.

The variables of the macro-environment

397

The wider macro-environment consists of variables that in uence the business in a direct

and indirect manner. The changes in the macro-environment are called megatrends be-

cause they in uence all businesses in all the countries of the world. There are six variables

in the macro-environment:

Technological environment. Technology is one of the main drivers of change in 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 o ce.

This service was replaced by new technologies such as faxes and e-mails, creating

new opportunities for businesses as well as making what was a viable service of the

post o ce obsolete.

Economic environment. This environment has a direct in uence 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 in uenced to a great extent by the tech-

nological 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 environ-

ment 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 in uence on the landscape of business, for instance labour legislation

on employment and minimum wages.



International environment. This environment also has a major in uence on the

other variables in the macro-environment, the market environment and the micro-

environment. One example of the in uence of the international environment on

South African businesses is the changing crude oil price and its impact on the price

of fuel and the in ation rate. We have seen dramatic increases in the fuel price and

the knock-on e ect on the prices of food and other commodities.

398

Activity 4.3

How would you classify the following developments as part of the six subenvironments

of the macro-environment?

•The government announces the date of the general election.

•Inflation is on the rise.

•Unemployment figures are on the rise.

•More women are going out to work.

•A wonder cure for influenza has been found.

•There is an increase in oil spills on the South African coastline.

Feedback:

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

399

4.6 ENVIRONMENTAL SCANNING

Study section 4.8 in ITBM.

Description of environmental scanning

400Environmental scanning is described as the process of the measurement, projection and

evaluation of change in the di erent subenvironments. It can therefore be used to keep

abreast of external social, economic, technological and political developments which

may be di cult to observe or predict, but which management dare not ignore. It entails

the identi cation and monitoring of every opportunity or threat, and may range from a

simple information system to a formal environmental scanning division or unit whose

sole task is to monitor external environmental factors.

401Because of dynamic changes in the business environment, the organisation must scan

its environment on a continuous basis. As stated previously, the scanning process may

di er from one business to another.

Activity 4.3

Is environmental scanning the same for all types of businesses?

24Feedback:

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

SUMMARY

402

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

403

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.

SELF-ASSESSMENT QUESTIONS

404You are the CEO of the Chicken Spice fast-food franchise with 20 company-owned stores

in South Africa and 50 franchisees operating Chicken Spice stores under licence. You are

preparing for a meeting with the board of directors of the business and have drawn up

a SWOT analysis of the business environment in which the company is operating. Write

down the key points that you will cover at the board meeting regarding the SWOT analysis.

Use the current business environment in South Africa as your point of departure.

THE ANSWERS TO THE SELF-ASSESSMENT QUESTIONS

405The South African fast-food business is a vibrant sector with numerous success stories,

such as Nandos, Kentucky Fried Chicken and Chicken Licken to name but a few. Against

this background, let us take a look at the Strengths, Weaknesses, Opportunities and

Threats of this company (do a SWOT analysis).

406Strengths of the company may be

407• a good product

408• good relationships with customers

409• good management team

410

411Weaknesses may be

412• small operation with limited reach – there are other fast-food franchises with more

than 100 outlets, making it di cult to compete

413• because of small operations, no economies of scale regarding aspects such as bulk

buying and reaping the bene ts of cheaper prices

414• regular cash  ow problems

415

416Opportunities may be

417• rapidly growing new middle class with the money to buy chicken products at fast-

food stores

418

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

alternative than red-meat products such a hamburgers

419• diversifying into a number of product lines, such as low-fat French fries, salads and

low-fat ice cream

420

421Threats may be

422• growing competition from rivals in this sector

423• slowdown in the economy, reducing demand from consumers

424

• negative publicity from the Minister of Health on the consumption of fast-food

products containing chicken

425• increase in Aids-related deaths in the middle-income market, reducing the number

of households able to buy chicken fast-food products

426

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Learning Unit 5

Corporate social responsibility

INTRODUCTION AND AIM OF THE UNIT

427Welcome to the challenges of corporate social responsibility, also known as corporate

citizenship! This is a  eld characterised by many tensions and uncertainties, but it is im-

mensely important. Businesses operate in a wider social environment causing both good

and bad impacts on the communities and environment around them. They therefore have

a responsibility towards these communities and the environment, and as a result need to

become involved in solving problems faced by society, such as poverty, unemployment

and pollution. Please note that for the purposes of the learning unit and prescribed book

we will refer to the term “corporate social responsibility”. However, the terms “corporate

social responsibility” and “corporate citizenship” can be used interchangeably.

25STUDY 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

26Learning objectives

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



distinguish between the di erent terms and concepts in the  eld 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 di erent 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

430Refer to the end of chapter 5 in the prescribed book to familiarise yourself with the key

terms for this learning unit before continuing.

5.1 INTRODUCING CORPORATE SOCIAL RESPONSIBILITY

CSR

Study section 5.2 in ITBM.

431What is corporate social responsibility and how do di erent companies implement its

principles? Generally speaking, corporate social responsibility is about proactive e orts

by companies to make a positive contribution to society. There is a combination of reasons

why companies implement corporate social responsibility programmes and these are

in uenced by certain social, governmental, market and ethical drivers. Refer to section

5.2 of your prescribed book for a detailed explanation of these drivers.

5.1.1 Citizens and citizenship – what is the link?

432We are all citizens of some or other country, in this case mostly of South Africa. And be-

ing a citizen brings with it certain rights and responsibilities. For instance, we have the

right to vote, to associate with whomever we please; we enjoy freedom of religion and

political orientation; and so forth.

433

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.

434In the corporate sector, the same basic principles apply. Corporates – just like ordinary

citizens – have particular rights and responsibilities.

435Abiding by the laws of a country is an important component of corporate social respon-

sibility. But corporate social responsibility goes beyond legal compliance. Being a citizen

means being part of a community. As a good citizen, you want to contribute to the

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welfare of people in your community, because you realise that your life will be better if

people around you are having better lives. Within the business context, corporate social

responsibility is a concept that recognises that (i) companies have a responsibility for their

impact on society and the natural environment; (ii) companies have a responsibility for

the behaviour of others with whom they do business; and (iii) business needs to manage

its relationship with the wider society.

436Nowadays businesses consider corporate social responsibility as a fundamental piece of

a company’s business plan, a ecting its bottom line, share price and long-term viability;

and companies that do not have a strong corporate responsibility strategy  nd themselves

at a competitive disadvantage.

5.2 TERMS AND TRENDS

437A number of terms are applied to corporate social responsibility, and the di erences and

overlaps can become quite confusing! Let’s have a look at some of the more common

terms and what they refer to:

While a company’s bottom line traditionally refers to its  nancial pro t or loss, the

triple bottom line refers to the need to consider the social and environmental impacts

as well. What e ect 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 oper-

ates? This approach is known as the triple bottom line: it measures the  nancial, 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 pro ts (such as 1% of pre-tax pro t) on good causes,

while corporate citizenship is about how you make your pro ts in the  rst place.

Sustainability reporting refers to the increasing expectations for companies to pub-

licly report not just on  nancial matters, but also on social and environmental issues.

Corporate governance refers to how a company’s objectives, and strategy and deci-

sion-making structures are developed, implemented and monitored. It also 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.

27Feedback:

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

5.3 THE CITIZENSHIP IMPERATIVE

439In this section we look at what the South African and global drivers for corporate social

responsibility are and the reasons why organisations need to embrace corporate social

responsibility.

5.3.1 Global drivers

440Over the past 10 years, the pressure on companies to demonstrate good social corpo-

rate responsibility practices has increased dramatically. Initiatives such as the AA1000

Framework (www.accountability.org.uk), the Dow Jones Sustainability Index (www.

sustainability-indexes.com), the United Nations Global Compact (www.unglobalcompact.

org) and the Kyoto Protocol (http://unfccc.int/2860.php) constitute a global shift towards

greater accountability of business to a wider range of stakeholders on issues relating to

the environment, social justice, human rights, labour rights and climate change.

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

442The United Nations Global Compact

443

The United Nations Global Compact was  rst proposed by the then UN Secretary-General

Ko Annan in early 1999 in an address to the World Economic Forum, which is a meeting

of some of the world’s most important economic leaders.

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444

445

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

447

448

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 compa-

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

Bell Products

Eskom

Health Management Institute

PG Group

Sasol

Tru-Lite

Waymark Infotech

449

450The Global Reporting Initiative (GRI)

451The Global Reporting Initiative (GRI) was launched in 1997 and has pioneered the de-

velopment of the world’s most widely used sustainability reporting framework. Its aim

is to provide a set of reporting guidelines and indicators that cover all the key issues of

concern regarding corporate citizenship. By developing these guidelines, the GRI wants

to encourage companies worldwide to be more systematic and comprehensive in their

approach to sustainability reporting (see www.globalreporting.org). It currently consists

of 507 organisational stakeholders from 55 di erent countries (GRI, 2008).

452

453AA1000 Framework

454

The AA1000 Framework was launched in 1999 by AccountAbility, a UK-based membership

organisation advising and advocating on corporate social responsibility issues. The pur-

pose of the framework is to help “users to establish a systematic stakeholder engagement

process that generates the indicators, targets, and reporting systems needed to ensure

its e ectiveness in overall organisational performance” (see www.accountability.org.uk).

It does not describe what should be reported on, so its guidance is considered comple-

mentary to that of the GRI Reporting Guidelines.

455A number of other relevant initiatives



ISO 14000 series. This is a series of standards issued by the International 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, competi-

tion, consumer interests, and science and technology di usion.

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

457Legislation

458The foundation of corporate social responsibility is compliance with all relevant national

legislation. The following list includes some of the laws that are relevant in South Africa

for corporate social responsibility. Note that this is only a small selection; the total number

of relevant laws is much higher.

459

460King Code on Corporate Governance in South Africa

461

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 de nes

and substantiates concepts such as “corporate citizenship”, “social responsibility”, “triple

bottom line” performance, “stakeholder engagement” and “sustainability reporting”. The

King III Report di ers from the previous two reports (King I and King II) as it applies to

all entities regardless of the manner and form of incorporation or establishment (www.

pwc.com/za/en/king3/index.jhtml#).

462JSE Socially Responsible Investment Index

463

A further recent development in South Africa, which also impacts on other African coun-

tries, relates to the role of investors in corporate social responsibility and the emerging

requirements of investors and civil society for companies to demonstrate more socially

responsible behaviour. The JSE Socially Responsible Investment Index was launched in

2004. This index comprises criteria to measure the triple-bottom-line performance of

those companies in the FTSE/JSE All Share Index that choose to participate. The criteria

are provided in terms of the triple-bottom-line categories of environmental, economic

and social impacts, as well as a separate category for corporate governance.

464Industry charters

465Over the past few years, a number of sector-speci c charters were adopted to promote

socio-economic transformation and establish an equitable economic playing  eld. For

example:

Charter of Empowerment and Transformation in the Tourism Industry

Financial Sector Charter

BEE Charter for the South African Mining Industry

466

467

Ensuring operational legitimacy or a “licence to operate” requires more than simply a busi-

ness licence. Non-compliance with these codes and guidelines will have a serious impact

on the future position of businesses in local and global markets, and every organisation

has to take note of the speci c relevance of these imperatives to their business.

Activity 5.2

List three international and three local imperatives that promote the implementation of

corporate social responsibility in organisations. Brie y explain the signi cance of each

factor.

28Feedback:

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

468

5.4 THE BUSINESS CASE FOR CORPORATE SOCIAL

RESPONSIBILITY

469Corporate social responsibility is not about being nice. The potential to limit expendi-

ture, maintain or improve employee and community relations, control risk and promote

reputation means that applying corporate social responsibility strategies is simply good

business sense (www.lse.ac.uk/Depts/global/Yearbook).

470The business case for corporate social responsibility refers to the argument that being a

good corporate citizen can contribute to a company’s pro tability.

471

The business case, therefore, argues that incorporating good corporate social responsibility

practices will, at the end of the day, have positive implications for the  nancial bottom

line. These bene ts can come in a variety of forms:

For example, a company that uses energy-saving technology will save money on its

monthly electricity bill. This bene t 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  nancial bene ts through

customer loyalty, attracting higher-quality employees or improving relationships

with investors.

Eco-e ciency 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-e cient technologies in vehicles.



Competitive advantage and value creation. A company that ignores ethical, environ-

mental or social issues may actively destroy value through the inadequate manage-

ment of risks, but may also limit value through missing opportunities. While 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

473By performing a simple SWOT analysis of the strengths, weaknesses, opportunities and

threats facing an organisation, management can identify areas where risks should be

managed (threats) and areas where there is the potential to create value (opportunities).

474

Table 5.1 below identi es the key strategic opportunities and threats in the environmental

and social  eld.

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

Threat Opportunity

Labour shortages Access to new pools of labour from education

and training programmes and community

involvement

Low productivity and quality because of poor

labour practices and skill levels

Higher productivity levels because of better

trained sta 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 con dence

Lower cost of capital because of greater investor

con dence in company’s ability to manage

change

Higher cost levels from increased regulation of

old technology

Lower compliance costs by being ahead of

regulations

Recruitment, customer retention problems

through poor reputation

Enhanced reputation leading to greater sta ,

sustomer and investor loyalty

476

Some aspects of corporate social responsibility may not have any economic bene t

for companies. This is why the business case for corporate social responsibility cannot be

the only reason why companies should be good corporate citizens – national laws and

ethics also play an important role. In the South African environment in particular, compa-

nies have a huge role to play in making socio-economic progress, and compliance with

these rules, regulations and codes will go a long way to ensuring that companies retain

their license to operate.

5.5 CORPORATE GOVERNANCE

Study section 5.3 in ITBM.

477Corporate governance refers to the way in which an organisation makes decisions and

decides on how to manage its a airs. The King III Report on Corporate Governance was

published on 25 February 2009 and includes the following important principles:

Good governance is about e ective leadership.

Sustainability is the primary moral and economic imperative for the 21st century.

Innovation, fairness and collaboration are important regarding sustainability.



Integrated sustainability and social transformation will give rise to greater opportuni-

ties for the company and society.

Sustainability reporting is a key facet of good corporate governance.

478

5.6 STAKEHOLDERS AND STAKEHOLDER ENGAGEMENT

Study section 5.4 in ITBM.

479Stakeholders are those groups or people who are a ected by or who can have an e ect

on a company.

480

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 sharehold-

ers, the consumer public, customers/clients, suppliers and the wider community in the

area where the business operates, etc). Primary stakeholders are those whose ongoing

support of the company is vital to the company’s survival. These stakeholders commonly

have some contractual or  nancial relationship with the company, that is, shareholders

and employees. A company cannot survive if shareholders or employees withdraw their

support of the company.

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

mary stakeholder, especially if they own the land that a company needs. For instance,

local community opposition or sabotage may make it impossible for a mine to operate.

482Secondary stakeholders have less direct impact on the company and include environ-

mental NGOs or the media. A secondary stakeholder can become a primary stakeholder

if the conditions change. For instance, a local group that is small and powerless probably

has little impact on a company, but if it gets more local support or if it has a convincing

legal argument, it may quickly become a primary stakeholder.

483

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:

4841. Prepare

4852. Plan

4863. Design

4874. Engage

4885. Evaluate

4896. Apply

490

491A company wishing to embark on a stakeholder engagement process should start by

mapping all external and internal stakeholders, de ning their role in and impact on

the organisation and determining the most appropriate methods to engage with each

stakeholder group. The methods can include the use of questionnaires, focus group

meetings, surveys, market research, personal visits, joining existing networks, and so on.

Refer to section 5.4 of the prescribed book for a detailed explanation of the six steps of

the engagement process. It is also important that you learn the principles that guide and

govern the entire stakeholder engagement process.

5.7 SUSTAINABLE DEVELOPMENT

Study section 5.5 in ITBM.

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492In 1987 the Brundtland Report emphasised the importance of sustainable development

and de ned it as “development that meets the needs of the present without compro-

mising the ability of future generations to meet their own needs”. Some of the most

important meetings and agreements that have brought sustainable development to the

mainstream include the

Rio Earth Summit 1992

United Nations Global Compact

Millennium Development Goals (MDGs) 2000–2030

World Summit on Sustainable Development (WSSD) 1992–2015

493

494It is important to understand how CSR can contribute to sustainable development as is

explained in section 5.3.

5.8 THE LINK: DOES CSR RELATE TO THE VARIOUS BUSINESS

FUNCTIONS?

495

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 brie y refer to some of the areas of the impact of social corporate

responsibility on the di erent business functions.

5.8.1 CEO/top management

496

The CEO and the top management team are responsible for managing issues that pertain

to the entire organisation, such as strategy,  nancial performance, mergers and acquisi-

tions, and governance. In addition, they oversee all the functional areas. Accordingly, the

CEO and the top management team will be concerned both with the issues presented

above and with speci c ways that more corporate social responsibility practices can be

helpful, for instance by improving stock price,  nancial performance, corporate reputation

and risk management. These elements will be discussed in more detail below.

5.8.2 Operations

497Operating managers are responsible for ensuring that their organisations can produce

products and services in a timely, cost-e ective way and can beat their competitors on

price, innovation and quality.

498

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 co ee, ecotourism, sweatshop-free clothing (e.g. Nike) and

fuel cell technologies are but a few examples of product innovations that have success-

fully penetrated new markets. These products have successfully responded to changing

consumer preferences.

499Total quality management (TQM) forms an integral part of the operations function and

focuses on the development and delivery of quality products by involving the entire com-

pany. Total quality should be de ned not only with reference to  nancial considerations,

but should also include products’ social and environmental characteristics. Similarly, pri-

orities for continuous improvement should be determined with reference not only to the

preferences of clients/customers and the activities of competitors, but also to constant

monitoring of the product’s impact on society and the environment.

5.8.3 Finance

Companies must ensure that their traditional focus on corporate pro ts and shareholder value is

accompanied by equal concern for the needs of society and the environment (www.bmw.co.za).

501

Generally speaking, the  nancial director is a very powerful individual and has signi cant

in uence in an organisation. This implies that he or she will also indirectly exercise a

strong moral in uence on behaviour or employees in the workplace. Strategic priorities

(pro t maximisation, expanding market share, cutting costs, etc) can also be very strong

in uences on morality. Traditionally, the  nance manager is the most di cult to convince

of the advantages of implementing good corporate social responsibility practices in an

organisation, since not all bene ts can be converted into rands and cents.

502When it comes to the role of the  nance function with regard to the investment deci-

sion, one must acknowledge that access to capital is critical for any company wanting to

invest and grow. Good corporate social responsibility practices – particularly corporate

governance structures and risk management systems – provide important opportuni-

ties to unlock capital. Investors,  nancial institutions and multilateral lenders will invest

in and lend to companies that have a good reputation. This reputation is built up not

only through sound  nancial performance but also through demonstrated transparency,

disclosure, integrity with regard to shareholder rights, strong stakeholder relations and

sound risk management practices.

503For example, the International Finance Corporation (IFC), which is the private sector arm

of the World Bank Group, has stringent lending criteria in place. Prior to lending money

to companies for large projects, the IFC insists that an adequate impact assessment be

undertaken. Projects must be environmentally and socially sound, satisfying IFC environ-

mental and social standards as well as those of the host country.

5.8.4 Procurement

504A group of external stakeholders that has a very close relationship with the business is

that of suppliers. Unfortunately the attitude of organisations when dealing with suppliers

is all too often: “We tell them what we need, we pay them, and that’s about it.”

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

506Consider, for instance: How does the organisation  rst of all choose its suppliers? Do the

selection criteria provide for more than just the best price. What is the right or ethical

thing to do, and how can the organisation maximise its impact through its suppliers?

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



The Preferential Procurement Act 5 of 2000 stipulates that a preferential point system

must be followed to promote sustainable black economic empowerment.



Black economic empowerment through the supply chain has seen many individuals

and communities become  nancially independent for the  rst time in their lives. BEE

charters, such as those for the  nance sector, mining sector and the tourism sector,

impose speci c requirements on the respective industries.

508

509But it is also about more than just adhering to the letter of the law. Does the business

know how its suppliers are running their businesses: Where and how do they obtain

the products that they provide to the enterprise, and are the values of the organisation

aligned with those of its suppliers?

510After all, by buying from them, the organisation is keeping its suppliers in business and

adding its vote of con dence to its suppliers’ business practices!

511Some relevant legislation:

Preferential Procurement Policy Framework Act 5 of 2000

National Black Economic Empowerment Act 53 of 2003

Companies Act 61 of 1973 and Closed Corporations Act 69 of 1984

Constitution of the Republic of South Africa, 1996

512

Table 5.2: JSE impact classi cation table

High impact Medium impact Low impact

Aerospace and defence General retailers Banks

Automobiles and parts Health Insurance

Chemicals Household goods and textiles Investment companies

Construction and building

materials

Information technology and

hardware

Investment entities

Electricity Leisure, entertainment and

hotels

Life assurance

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

Forestry and paper Real estate

Mining Software and computer

services

Oil and gas Telecommunications services

Tobacco

Water

5.8.5 Human resources

514

The real value of a company lies in its people – without sound HR practices, any

organisation, however big or small, will sooner or later  nd itself in big trouble. CSR can

help to increase employee satisfaction and loyalty, improve recruitment and retention,

and build the long-term pipeline of employees.

515

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

bene ts such as leave, maximum working hours and overtime: it includes factors such

as training opportunities, disciplinary practices and non-discrimination. Does manage-

ment promote sound health and safety measures in the workplace? Does the employer

encourage its sta to take part in organised employee actions, such as unions? And how

does it deal with the unions: is there regular, honest consultation, and do these unions

have an input in decision making?

516On the other hand: How do employees treat their employers? Do they adhere to a code

of conduct? Is there a corporate culture of anti-corruption and anti-bribery, and are

employees participating in initiatives beyond their call of duty, for instance volunteer

programmes within the community in which they operate?

517Sta involvement in corporate social responsibility should not be a separate or optional

aspect of an entity, but the assessment of the social and environmental impact of em-

ployees’ activities should form an integral part of their key performance areas (KPAs) and

performance evaluation.

518Some 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

520The management of organisational risk has become more di cult 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

di cult to keep abreast of potential risks and to know how to respond if they occur.



Heightened surveillance. Companies are being watched by more groups, with 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 a ects them.

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521Social and environmental factors pose an increasing risk to the environment in which

organisations operate. Here we are talking about factors such as unemployment, crime,

the use of non-renewable resources, poverty and ill health. Of course, HIV/Aids is currently

the most signi cant health challenge facing South Africa.

522HIV/Aids is but one social risk factor that can have an enormous impact on the  nancial

bottom line of companies: Shouldn’t companies seriously rethink their risk management

focus?

5.8.7 Marketing and public relations

523

Marketing deals mainly with the e ective development and delivery of a satisfactory

product o ering to the market in such a way that it meets the needs of the organisation,

the consumer and the community. How should organisations then use their marketing

function in a responsible and ethical manner to ensure maximum bene t to everyone

involved: the business, customers/clients, employees and the wider community?

524We all know that marketing is about much more than advertising; but advertising is a

good example of a visible marketing initiative that is directed at consumers. How respon-

sible are the advertising practices of companies? An example that most of you might be

familiar with is the TV ad of a certain cell phone manufacturer, where the boyfriend uses

cell phone technology to deceive his girlfriend’s father. It might make you smile, but

what message does it send out about the values associated with that product? Is that

responsible advertising?

525

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.

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

528An interesting new development, which is gaining huge popularity worldwide, is that of

brand citizenship and cause-related marketing. Broadly speaking, this is where business

and charities form a partnership to market an image, product or brand for mutual bene t

using the power of the brand to make a di erence in society.

529Consider the following examples:

Woolworths – think of the My School card: Woolworths bene ts and many schools

in less fortunate environments bene t.



Avon beauty products donate a part of their pro ts to the  ght against breast cancer,

especially through the proceeds on their pens that are sold speci cally 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 bene t.

530

531

Of course, corporate social responsibility is much more than public relations (PR). If

a company chooses to put a marketing spin on  aunting the company’s good corporate

social responsibility practices, it should always be underpinned by demonstrated triple-

bottom-line bene ts. CSR can very easily be misused and turned into a pure PR initiative

without any substance.

532Some relevant legislation:

Promotion of Access to Information Act 2 of 2000

Competition Act 96 of 1979

533

SUMMARY

534

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 de ned and we have highlighted the link between corporate social

responsibility and the various business functions. When you revisit the learning units in

this study guide, always be aware of how corporate social responsibility relates to the

other key business management concepts. The next learning unit gives you an introduc-

tion to general management.

BUSINESS IN CONTEXT

535

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.

SELF-ASSESSMENT QUESTIONS

536Consider the following case study. A PR exercise or true CSR bene t? But does it need to

be “either/or”?

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537

538

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 speci cally on the social and environmental aspects

of their business. Although the information in such a report should always be honest

and truthful, re ecting the real impact of the company’s business dealings on the triple

bottom line, the very fact of issuing such a report is good PR in itself in that it positions

the company as a “good corporate citizen” in the eyes of its stakeholders.

539

You can  nd some very good examples of sustainability reports on www.nedbankgroup.

co.za, www.sab.co.za, www.angloplatinum.com and www.mtn.co.za.

TOPIC 2

THE MANAGEMENT PROCESS

INTRODUCTION AND AIM OF THE TOPIC

540The aim of this topic is to describe the role of management in the business organisation

and examine the four fundamental tasks of the management process, namely planning,

organising, leading and control. We also explain the di erent levels and kinds of manage-

ment in the business and give an overview of the development of management theory.

29Learning objectives

After completing this topic, you should be able to

provide an overview of the role of management in a business by de ning 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

542Topic 2 comprises  ve learning units:

TOPIC 2:

THE MANAGEMENT PROCESS

LEARNING UNIT 6:

Introduction to general management

LEARNING UNIT 7:

Planning

LEARNING UNIT 8:

Organising

LEARNING UNIT 9:

Leading

LEARNING UNIT 10:

Control

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Learning Unit 6

Introduction to general management

INTRODUCTION AND AIM OF THE UNIT

543The society we live in consists of all types of organisations. All sorts of small and large

organisations such as businesses, schools, hospitals, sports clubs, churches and political

parties contribute to the functioning of a community. All these organisations need to be

managed. In this learning unit we are going to discuss the general principles involved in

the management of any of the above organisations. More speci cally we will look at the

general management principles involved in running a business.

30STUDY CHAPTER 6 (sections 6.2–6.7) IN ITBM

Contents of the learning unit:

The role of management

A de nition of management

The di erent levels and functional areas of management in businesses

Skills at di erent managerial levels and the roles of managers

Development of management theory

Summary

31Learning 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 de nitions of management and discuss the task of a manager

describe the management process followed by managers by referring to the levels and

type of management, the skills needed to manage an organisation and the di erent 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

545Refer to the end of chapter 6 in the prescribed book to familiarise yourself with the key

terms for this learning unit before continuing.

6.1 THE ROLE OF MANAGEMENT

546As you will remember from topic 1, management operates in a dynamic environment. In

this learning unit we are going to take a look at how management manage the organisa-

tion in this changing environment.

Study section 6.2 in ITBM.

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

di cult for individuals to achieve on their own. If you could manufacture a product on your

own, you would have no need to establish an organisation. For example, think of all those

dressmakers who manufacture their product (dresses) without ever needing to form an

organisation. However, if you wanted to make dresses on a large scale and market them

throughout South Africa, you would not be able to do so on your own – you would have

to employ other dressmakers. In other words, you would have to form an organisation.

548In this learning unit the word “organisation” is used quite extensively. Throughout our

discussion, the word “organisation” and the word “business” are used interchangeably.

549

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

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

550

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551One of the most common causes of business failure is poor management (see table 6.1

in the prescribed book). We now provide a more comprehensive overview of the task of

management by looking at a de nition of what management entails.

6.2 A DEFINITION OF MANAGEMENT

552Here are some of the various de nitions of management:



“the process or technique of managing (organising and operating) a business” (Web-

ster’s new world encyclopaedia 1992:704)

“the process of planning, organising, leading and controlling the resources of the

organisation to achieve the stated goals as e ciently as possible”

553

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

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

Activity 6.1

You will agree that the above de nitions and what was behind Bill Ford’s success with

the Ford Motor Company have something in common. Answer the questions below to

identify these common factors. You may have to refer back to the sections above before

answering the questions.

(1) What are the four basic management tasks? Look at the various de nitions supplied

and see if they all include the basic management tasks that a manager must perform.

32Feedback:

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

6.3 THE DIFFERENT LEVELS AND FUNCTIONAL AREAS OF

MANAGEMENT IN BUSINESSES

33Study section 6.4 in ITBM.

555

556

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



three levels of management, which are top management such as the CEO of the com-

pany, middle management (e.g. responsible for the human resource function of the

organisation) and lower management (e.g. managers at supervisory level in a factory)

responsibilities of managers at those di erent levels

557

Levels

558Note that some organisations will have only one or two levels of management (e.g. in a

sole proprietorship), whereas very large organisations may have as many as eight or more

levels of management. But even with so many levels of management, they can still be

classi ed into three broad categories of top, middle and lower management.

Types

559As far as the types of management are concerned, it is necessary to distinguish between

the di erent functions. They are general management, marketing management,  nancial

management, production and operations management, purchasing management, human

resource management and public relations management. Since most of the  rst-year

course in Business Management is presented in terms of these functions, it is important

for you to know what the functions of a business are and how they work together to attain

the set objectives of the organisation.

560

Special reference must be made to the function of the general manager. General manage-

ment di ers from other functions because every manager, regardless of the specialised

function in which he or she operates, exercises it.

561We now consider in more detail the skills required of managers to carry out the manage-

ment process and the roles they play in business.

6.4 SKILLS AT DIFFERENT MANAGERIAL LEVELS AND THE

ROLES OF MANAGERS

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

action.

Skills required

562

Note the di erent management skills required at di erent levels, particularly as illustrated

in  gure 6.4 of the prescribed book. You must understand the management activities at

the various levels.

563Figure 6.4 should be interpreted in terms of the size of the various “blocks” of skills next

to each level of management. This  gure, for example, illustrates that top management

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require a few technical skills and interpersonal skills (compared with lower management),

but many conceptual skills and diagnostic/analytical skills. For lower management, the

skills requirement is the other way round, while middle management requires a relatively

equal proportion of all the listed skills. Some of the most famous managers moved through

the ranks: that is, they started out working at a technical level (lower management) and

worked themselves up into middle management and eventually top management posi-

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

management trainee.

Supporting roles

564In addition to the four fundamental management activities, managers also have to play

a number of supporting roles: the interpersonal role, the decision-making role and the

information role. Within these major roles the manager also ful ls subroles, such as in the

case of the interpersonal role. Using Raymond Ackerman of Pick n Pay as an example, we

see that he is still the representative  gure of the Pick n Pay group. He is often mentioned

in the newspapers and some customers still see Pick n Pay as Ackerman. He has a very

high pro le in the South African public eye. He is de nitely seen as the leader of the group,

even though Nic Badminton took over the position of CEO of the company a while ago.

Managerial problems

565Since government has made it a priority to promote economic empowerment among

disadvantaged entrepreneurs, it is crucial to focus on assisting black-owned businesses.

Although these businesses are potentially a strong vehicle for increasing employment

and contributing to economic growth, many are in trouble because of a lack of business

training.

566

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.

567

Business Day’s  ndings strongly suggest that, in order to e ectively contribute to the

promotion of economic empowerment, a priority should be to improve the basic

administrative and managerial capabilities of black-owned businesses.

568While e orts such as promoting growth, increasing access to  nance, increasing market

share, or promoting the internationalisation of black-owned small and medium enterprises

are all important, if the  rms’ underlying managerial weaknesses are not dealt with, much

of this e ort and cost could be wasted.

6.5 DEVELOPMENT OF MANAGEMENT THEORY

Study section 6.7 in ITBM.

569Finally, we are going to examine the evolution of management thought in the past de-

cades, which will also help to explain the present status of management and the approach

followed in the prescribed book.

Theories

570This section deals with the di erent approaches to management. It is essential for you

to understand the theories of the various schools of thought, because this will help you

understand the contemporary approaches to management. (See  gure 6.7 on the evolu-

tion of management theory.) The process approach, which distinguishes four elements of

management and seven functions of a business, forms the basis of the prescribed book.

Schools

571

It is important to understand that these theories are not all in contrast to one another since

they deal with di erent aspects of management. The quantitative school, for example,

focuses on the ways managers make decisions, while the classical school focuses on the

various tasks (or processes) of management.

Scienti c school

572

The scienti c school tends to view workers rather like machines, who would all respond in

the same way if they were “tuned” correctly. For example, Taylor believed that an “expert”

should work out the best way to perform a task and workers should then be taught and

supervised to ensure that they work in the prescribed manner. There are many enterprises

in South Africa where employees are still managed along these lines.

Management process school

573This school identi es the most important functional areas in the organisation, such as

the production/operations function, the marketing function and the  nancial function.

Behaviourist school

574

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.

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Quantitative school

575This school sees the main function of management as using a system of mathematical

models and processes. One such example is in the  eld of marketing where marketers

would like to know the di erences between di erent groups of people (target markets).

This information can be gained by doing discriminant analysis, which uses some aspects

of mathematics and statistics. Management, however, is much more than that and, at

most, quantitative techniques are no more than an aid to management.

Systems approach

576This management school sees the organisation as a system of many parts that must be

managed in an integrated manner. All the functional areas in the organisation (e.g.  nan-

cial department and marketing department) must work together to attain the objectives

of the organisation.

Contingency approach

577The contingency approach suggests that it depends on the nature of the worker. Some

employees will be productive if their work procedures are clearly laid out for them; others

will give their best if they are treated like human beings; and others again will perform

well when they are given the opportunity to prove how good they are. According to this

approach, managers have to adapt their management style to the particular characteristics

of individual employees.

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

TQM (Total Quality Management)

the learning organisation and re-engineering of businesses

diversity management

579

580

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 manage-

ment and approaches to management from which managers can draw.

Activity 6.2

Look at the company where you work or ask a family member who is working and try

to answer the following question: How many nationalities, races and age groups are

represented in the organisation? Do you think it is easy to manage such a diverse group

of workers?

Feedback:

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

581

SUMMARY

582You now have a basic insight into the role, de nition, levels and types of management

in the organisation. In the next learning unit you will study the  rst management func-

tion: planning.

BUSINESS IN CONTEXT

583

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.

SELF-ASSESSMENT QUESTIONS

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

585

General Electric – the American company renowned for delivering managers of

distinction

586The General Electric Company (GE) in the United States is renowned as a multination-

al company with world-famous strategic business units (SBUs). An SBU is an individual

branch or unit of the business of which the manager has some measure of autonomy

and independence as far as purchases, the appointment of personnel and marketing are

concerned. The manager of a branch is also responsible for the success of this branch. The

manager of a unit, such as the renowned jet engine unit, or the unit that manufactures

appliances such as refrigerators and washing machines, or the consumer  nance company,

is a well-rounded manager who can manage any SBU in the group. GE became famous

under its previous chief executive o cer (CEO) Jack Welch and its current CEO Je Immelt

as the company where managers are formed in the United States. Some of the successes

of GE can be ascribed to the following management tenets employed in this company:

taking time to understand the company and the management team that you 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

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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

588QUESTION 1

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

590

591a It is clear that GE follows a scienti c approach to management.

592

b GE adheres to the fundamentals of the human relations school in the way it manages

the organisation.

593c GE uses the contingency approach to management.

594

d There is evidence that managers in GE make use of the quantitative school of thought.

595

596 1 d

597 2 c d

598 3 a b d

599 4 a b c d

600

601QUESTION 2

602The case study mentions that one of the tenets of GE is to reduce the amount of bureau-

cracy. From what has been said in the case study, how many of the following statements

would help to reduce the amount of bureaucracy in GE?

603a Reduce the levels of management in the organisation.

604b Let more managers report directly to the CEO.

605c Increase revenues and cut costs simultaneously.

606d Create autonomous SBUs and rotate managers among them.

607

608 1 None of them

609 2 All of them

610 3 a b

611 4 a

612

613QUESTION 3

614

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.)

THE ANSWERS TO THE SELF-ASSESSMENT QUESTIONS

615

616

617Question 1

618

Three of the statements are correct. GE uses the scienti c school of management because

its managers use scienti c tools (e.g. Six Sigma) to improve their businesses. GE also uses

the behavioural school of thought in the way it utilises its human resources, for example

by rotating the managers and exposing them to new problems and opportunities. The

quantitative approach is also used if we look at the Six Sigma tool that has made GE

famous. GE does not use the contingency approach; it uses the universal principles of

management, such as planning and control.

619

620Question 2

621

Bureaucracy can be described as the way an organisation is managed and is usually applied

in a negative manner, such as being in exible or insensitive. Against this background we

can see that statements a and b are correct. If you reduce the number of levels or layers

of management in the organisation you get a  atter structure, which makes the time

span shorter for communication to  ow from the lowest levels to the highest levels and

vice versa. Statements c and d are not directly linked to the reduction of bureaucracy. In

e ect we may  nd that too many managers reporting to the CEO may result in informa-

tion overload, thus limiting the capabilities of the CEO.

622

623Question 3

Tenets of GE Roles of the manager

1 Understand the business and the

management team and respect the

corporate culture

Information role. In order to understand the business

you must gather information about the business

2 Use Six Sigma approach (Six Sigma

is a quality control approach that

emphasises the pursuit of higher-quality

products at lower costs)

Decision-making role. Six Sigma can be seen as a

measurement technique on which management

base their decisions for the future

3 Create autonomous units and rotate

managers among them

Decision-making role. Creating autonomous units

such as the GE jet engine unit and rotating managers

are examples of allocating resources

4 Increase revenues and reduce costs

Decision-making role. This is a management decision

to improve the pro tability of the organisation

5 Cut the bureaucracy

Information role. Cutting the layers of management

and getting more people to report to the CEO help

everyone get management information more

quickly

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6 Identify objectives and adhere to them

Decision-making role. Managers decide on

objectives in consultation with the relevant

participants and ensure that these objectives are

attained

7 Believe that great people build

great companies

Interpersonal role. Especially the leading part of

management helps to appoint the right people,

train them and motivate them to ensure that they

operate for the greater bene t of the organisation

625

626

627

Learning Unit 7

Planning

INTRODUCTION AND AIM OF THE UNIT

628Planning is the starting point of the management process and entails a systematic and

intelligent description of the direction a business organisation must take to accomplish

the goals determined. Successful managers anticipate change in the environment and

plan accordingly. In this learning unit we will  rst look at the reasons why planning is

needed and de ne what the term “planning” means. Thereafter we will discuss the plan-

ning process. Finally, we will discuss the process of setting goals and the development

of plans to attain these set goals.

36STUDY CHAPTER 7 (sec t ions 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

629

37Learning 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 di erent organisational goals as used by top, middle and lower management

discuss the requirements that must be met when setting goals

compare the di erent plans that can be used by the organisation

di erentiate between strategic, functional and operational planning

630

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KEY TERMS

goal

top management, middle management

and lower management

goal-setting by management

planning process

strategic goals

functional (tactical) goals

operational goals

hierarchical approach

development of plans

management by objectives (MBO)

631Refer to the end of chapter 7 in the prescribed book to familiarise yourself with the key

terms for this learning unit before continuing.

7.1 WHY PLANNING IS IMPORTANT

Study section 7.2 in ITBM.

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

633The above quotation says a lot about why planning is needed. Planning is the starting

point in any management process and has two components: the activities involved in

determining the organisation’s goals and showing the way forward (the plan), and how to

achieve these goals. It is only for the purpose of studying the work of a manager that we

distinguish between the di erent tasks of the manager (planning, organising, leadership

and control). The tasks of a manager can be depicted graphically as follows:

634

635PLANNING 636ORGANISING 637LEADERSHIP 638CONTROL

639

640In practice, the CEO of a company may set some goals for the organisation to attain, for

instance to manufacture 1 000 000 units of a product, or to reduce the costs incurred by

the organisation by 10% in the next  nancial year. These are goals that the CEO and the

organisation set for themselves. Goals can therefore be seen as the desired future state

that the organisation sets for itself over a  xed period of time – usually a  nancial year

or sometimes a longer period such as three or  ve years.

641Getting to the second part of the planning activity we see that a plan must be devel-

oped to show how we are going to achieve the set goals. The plan can therefore be

described as the design indicating how much money (capital) must be borrowed to

manufacture 1 000 000 units of the product, how many workers must be appointed,

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

ture these products.

642Today’s environment is characterised by constant change and the more turbulent the

environment, the greater the need for planning. Even though managers are not able to

predict the future, they need to be able to anticipate change in the environment and

adjust their goals and plans accordingly. Below are some of the main reasons why we

need to do planning as part of the management process.



Planning gives direction to the organisation in the form of goals and plans. It provides

the road map telling the organisation where to go and how to get there.



Planning helps to get the di erent 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  nancial section a

better idea about capital needs and cash  ow 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 busi-

ness 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 re ect on how they will in uence

the business.

643

Activity 7.1

Read through the following excerpt from the case study:

After 25 years of mining with an open-cast zinc mine, a deep-level mine was built to

further exploit the ore body. This resulted in huge challenges due to the di erent min-

ing practices required to mine a deep-level mine and projected production targets were

never met. Management realised that a signi cant intervention was required to unlock

the potential of the mine in terms of production, costs and skills.

Management decided that they needed to reduce direct costs by 15%, increase production

by 20% to achieve projected output and improve asset utilisation by 10%. A management

operating system was developed and implemented to focus on corrective, preventative

decisions and activities. Management also decided to redesign the engineering function to

ensure e ective preventative and breakdown maintenance. Management further trained

and coached 75 managers and supervisors in accountability for key performance areas

centred on the three core elements of production, safety and cost management. By the

end of the 35 weeks of implementing the new system and activities, management was

able to reduce annualised direct costs by 18%, increase production by 22% and improve

asset utilisation by 15%.

MNB1501/1/2018–2020

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

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

38Feedback:

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

7.2 MANAGERIAL GOALS AND PLANS

Study section 7.3 in ITBM.

644

Every business needs to set goals to determine in which direction it is headed. To accom-

plish or reach these goals, businesses need a plan which will direct them towards these

goals. Managers therefore need to ask two questions: Firstly, where do we want this or-

ganisation to be at a speci c future date (setting speci c goals)? Secondly, how will the

organisation achieve these goals (formulating a plan)?

645Di erent goals are set by the di erent managerial levels and range from strategic goals

formulated by top-level managers, to operational goals formulated by lower-level manag-

ers. It is important that managers formulate goals that are speci c, measurable, attainable,

relevant and time-bound.

646

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 measur-

able; if they are not quanti able, then they cannot be controlled. Third, the responsibility

for attaining goals must be assigned to speci c people in the organisation. Fourth, goals

must be set consistently so that the di erent functional areas work together. Finally, there

must be buy-in of the goals set, meaning that every worker must be informed and moti-

vated to attain the set goals. This further means that the remuneration system must be

set in such a manner that there is an incentive for workers to reach these goals.

647Management by objectives (MBO) is a goal-setting technique whereby managers and

employees jointly de ne goals for the business. The most obvious advantage of this

approach is that employees have a say in setting goals, which also improves worker mo-

tivation, as they have been part of the process. Below is an excerpt from a conference

paper by Dr Ed Lawler III, a very well-respected management guru from the University

of Southern California. He remarked that organisations in which people were linked to

strategy, structure, processes and rewards had a strong competitive advantage.

648“In the high-performing organizations, employees know what to do, why they do it, and

they are motivated to do it. A business requires [a] signi cant amount of power, business

information, knowledge, performance-based rewards at all levels of the organization.”

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

isation to be directly connected to the overall business strategy of the organisation. The

research shows that performance goals, jointly set and driven by business strategy, are

the most e ective.

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

651

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.

7.3 THE PLANNING PROCESS

Study  gure 7.1 and the components of the planning process in section 7.4.2

in ITBM.

652It is important to understand that planning does not take place in isolation and as a one-

o activity. It is an ongoing process. Below are the main steps of the planning process:

653

654Goal-setting

655Developing plans

656Implementation

657Reactive planning

658As can be seen from the  gure above, the planning process consists of various activities:

goal-setting which takes into consideration the mission of the organisation, the develop-

ment of plans based on the information obtained from the environmental scan and the

implementation of the plans by means of the other management functions (organising,

allocation of resources, leading and exercising control). There is obviously the feedback

loop, which starts the whole process again and which is described as the reactive plan-

ning stage. Managers also refer to it as “learning from your mistakes”!

659

660

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661It is important to remember that planning is

not a static process, but a dynamic one. This means that it is a process that 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 plan-

ning is not done properly, it will have a detrimental e ect on how the organising,

leading and control tasks are performed

662

Activity 7.2

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

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

Unisa lecturers live very sedentary lives with long hours sitting in front of a computer

and at a desk marking assignments and conducting research. The medical scheme they

belong to has conducted research and identi ed that they must become more active to

live more productive lives. After all, both government and Unisa have invested thousands

of rands in training them.

The medical scheme develops a mission statement in which it states that its members

should be healthy and feeling well in themselves. The goal that the medical scheme set to

realise this mission statement was that obese lecturers must lose weight, which will also be

good for their blood pressure. To this end the medical scheme took the following action:

•

evaluated research that was published and information obtained from its own database

•

sent out a questionnaire to all lecturers about their current weight and physical exercise

regime

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

regarding the medical history of these lecturers

•

identified the high-risk cases and invited these lecturers to join the High Performance

Training Centre in Pretoria to undergo further tests so that a personal trainer 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.

39Feedback:

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

663

7.4 SETTING ORGANISATIONAL GOALS AND DEVELOPING

PLANS

Study sections 7.4.1 and 7.4.3 in ITBM.

664An organisational goal is de ned as a speci c achievement to be attained at a speci c

future date. It is important to understand that goals are not set in isolation. Goals are

in uenced by the mission of the organisation, the business environment in which the

organisation operates, the values held by management and the experience gained by

management.



The mission of the organisation refers to the purpose as set out by the manage-

ment of the organisation. For example, remember the mission statement of Pick 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  rst 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 di cult 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 in uence the goals. Taking Pick n Pay as an example again,

we see that they articulated the following values in their  nancial year report: “We

are passionate about our customers and will  ght for their rights; we care for and

respect each other; we foster personal growth and opportunity; we nurture leader-

ship 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 organisa-

tional goals. Sean Summers, the previous CEO of Pick n Pay, was involved in opening

the  rst Pick n Pay Hypermarket outside South Africa, in Brisbane, Australia, in 1986

(later sold o on account of South Africa’s political pariah status at the time). He ac-

knowledged the fact that this was a tough time and that he had learnt from it. The

following excerpt summarises the value of experience in a business environment:

665

MNB1501/1/2018–2020

The value of experience

“Recently, I was asked if I was going to  re an employee who made a mistake that cost the com-

pany $600,000. No, I replied, I just spent $600,000 training him. Why would I want somebody to

hire his experience?” (TJ Watson)

666Di erent organisational goals must be set by di erent levels of management. Basically

we see that the organisation has its goals while the people working for the organisation

have their separate goals which are subservient to the goals of the organisation. As stated

previously, the mission provides the guiding light for the organisation in setting its goals.

We distinguish between three types of goals:

The strategic or long-term goals. These goals and plans to achieve them are set 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 long-

term 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%.

668

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

40Feedback:

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

669

SUMMARY

670By now you should have a clear understanding of the process of planning and how it in-

terlinks with the various management activities (namely organising, leading and control).

We saw that planning is the  rst step in the management process that is done once top

management determines the mission and goals of the organisation.

671

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.

672

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.

BUSINESS IN CONTEXT

673

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-in-

context addition to your learning of business management.

SELF-ASSESSMENT QUESTIONS

674Let us test your understanding of the business terminology that you have been exposed

to in this learning unit. Match the sentence in group A with the most likely explanation

in group B.

Group A Group B

1. The process of goal-setting, developing plans 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 speci c achievement to be attained at a future date e. Planning

6. The process of formulating shorter-term plans for implemen-

tation in an organisation’s strategic plan

f. Lower management

7. The process of setting goals and deciding how to 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

676

677Question 1

678

The process of goal-setting, developing plans and implementation is called the planning

process. (1 ::: c)

679

680Question 2

681

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

strategic planning. (2 ::: d)

682

683Question 3

684The managers who have middle managers as subordinates are called top management.

(3 ::: a)

685

686Question 4

687

The process whereby management and employees jointly set goals and whereby the

progress towards the attainment of these goals is periodically assessed is called manage-

ment by objectives. (4 ::: h)

688

689Question 5

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

691

692Question 6

693The process of formulating shorter-term plans for implementation in an organisation’s

strategic plan is called an operational plan. (6 ::: b)

694

695Question 7

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

697

698Question 8

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

700In learning unit 7, we discussed planning as the  rst important element of the manage-

ment process. The structured grouping and combining of people and other resources,

and coordinating them in order to achieve organisational goals constitute the second

important element of management, namely organising, which we will now discuss.

41STUDY 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 in uence organising and how organisations are designed

Summary

701

42Learning objectives

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

analyse organising as a management task, including contemporary structures and de-

sign, demonstrating how this serves as a framework for the activities of the organisation

explain the concepts of organising and organisational structure

describe the importance of organising

discuss the fundamentals of organising



explain how an organisation evolves from a single-entrepreneur organisation into a

large organisation

identify and explain the factors that in uence organisational design

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KEY TERMS

702importance of organising

703structure

704specialisation

705responsibility and authority

706authority relations

707informal organisation

708mechanisms

709fundamentals of organising

710departmentalisation

711centralised and decentralised

712span of control

714Refer to the end of chapter 8 in the prescribed book to familiarise yourself with the key

terms for this learning unit before continuing.

8.1 INTRODUCTION TO ORGANISING

Study section 8.1 in ITBM.

Structure

715

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 speci c

divisions and departments. It also involves the allocation of tasks to various positions in

each department.

716How the resources and activities of a business are organised will di er from one organ-

isation to another, depending on a number of factors such as the size, strategies and

culture of the business. Take a simple example: Compare the organisational structure of

an entrepreneurial business such as a small catering company with that of a multinational

such as Sasol.

717The catering company might consist of an entrepreneur, a chef and some casual sta

(waiters/waitresses). The entrepreneur (owner) will probably assume the role of general

manager, responsible for marketing, costing and pricing, planning, scheduling and su-

pervising daily activities. The chef will be responsible for purchasing fresh produce and

preparing party platters and other meals, while the casual sta will be responsible for

preparing venues, serving guests and cleaning up after functions.

718

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

di erent individuals. Each person knows what is expected of him or her and what tasks

to complete.

719

In a very large organisation such as Sasol or Edcon the organising task is much more com-

plex, with the total workload of the organisation distributed over various departments,

functional and product areas and even geographical regions.

8.2 THE IMPORTANCE OF ORGANISING

Study section 8.2 in ITBM.

Importance

720It is imperative that you understand what is meant by organising and why it is important

to an organisation. For an illustration of the importance of organising, read through the

case study below and then complete activity 8.1.

721

722Case study: Kalk Bay Fisheries

723Kleinjan Jantjies works as a  rst-line manager at the I&J  sh factory in Kalk Bay. He has

been a recreational  sherman all his life. Each December vacation he and his two best

friends, Thabo and Lukas,  sh up the West Coast from Kalk Bay to Saldanha, catching

mostly snoek and kabeljou and if they are really lucky, the occasional yellowtail. They usu-

ally spend the last few days of their vacation preparing their  sh as pickled  sh, smoked

snoek, snoek pâté and whole frozen line  sh for the occasional braai.

724For the three friends,  shing has always been just a social activity; however, following a

particularly successful  shing season this December, Kleinjan suggests to his two friends

that they start a business from their hobby. Kleinjan would own 50% of the shares as

they would use his boat, and Thabo and Lukas would own 25% each. After a couple of

days of careful planning, the three friends agreed on what they wanted to achieve and

established their small business. Before establishing the business, Thabo worked as an

accountant and Lukas was in marketing.

725A month after starting Kalk Bay Fisheries, things are not going too well. In terms of the

actual  shing, things are going great. The three friends are catching a lot of  sh and are

having a good time and their freezers are  lling up fast. However, in terms of making a

pro t and a success of the business, they are way behind in their plans. Their overeager-

ness to  sh and enjoy the “good” side of the business means several things have not

happened, such as processing, packaging and distributing their catch, marketing their

products, and managing expenses and income (though there is of course no income yet).

726

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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727Clearly the business lacks structure and organisation, which is having a negative impact

on the  edgling enterprise. If things are not sorted out soon, Kalk Bay Fisheries might

 nd itself stranded out at sea with no life raft back to pro tability.

Activity 8.1

As a management consultant to Kleinjan and his friends, explain the importance of or-

ganising their business activities.

43Feedback:

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

8.3 THE FUNDAMENTALS OF ORGANISING

Study section 8.3 in ITBM.

728With an understanding of why organising is important, our attention now shifts to the

fundamentals of organising. This is a very important section for you to study. How an

organisation is structured has an extremely powerful in uence on the success of the

business. (The study of how organisations are structured and designed is covered in

great detail in the Unisa honours course on organisational change and renewal.) Building

an organisational structure revolves around  ve building blocks or the fundamentals of

organising, namely:

designing jobs for employees (section 8.3.1)

grouping employees into teams or departments based on what they have in com-

mon (section 8.3.2)

establishing reporting lines (section 8.3.3)

establishing authority relationships (section 8.3.4)

establishing coordinating mechanisms (section 8.3.5)

729

730First you need to know the bene ts and limitations of specialisation (see table 8.1 in the

prescribed book). Then you need to know the various forms of departmentalisation.

Finally you need to understand the di erent authority relationships that exist within an

organisation.

731

8.3.1 Specialisation

732The need for specialisation always stems from growth in the business. Specialisation can

lead to greater e ciency on the part of the worker. Specialisation, or the division of la-

bour, can be seen in the example of the small catering business. The business might have

been started by a housewife who made small party platters for friends and functions at

her husband’s place of work. As the popularity of her party platters increased, the total

workload became too much for her to handle on her own and she acquired the services

of a chef, so that she could focus on the marketing and management aspects of the busi-

ness. In so doing, the total workload was broken down into smaller, more specialised tasks.

733

While specialisation may result in a number of bene ts for the organisation, research has

shown that when an individual does a specialised task and can no longer see the whole

picture, it may lead to boredom and demotivation. This is particularly true of assembly-

line workers who do the same repetitive task over and over again. To mitigate these

negative e ects, managers can apply the principles of job enrichment, job enlargement

and job rotation.

Activity 8.2

Refer back to the Kalk Bay Fisheries case study. Given the three friends’ di erent skills and

experience that they bring with them from their previous jobs, divide the total workload

among them using the principle of specialisation. Record this division of labour in the

three columns below. As you re ect on your work, keep in mind the following question:

Have I linked tasks/activities to specialised skills or knowledge?

Kleinjan Thabo Lukas

44Feedback:

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

8.3.2 Departmentalisation

Study section 8.3.2 in ITBM.

735There is often a great deal of confusion about departmentalisation. When we talk about

how a business is departmentalised, we always refer to the  rst management level just

below the chief executive. Note in  gure 8.2 of your prescribed book the example of a

business departmentalised according to product, because the  rst two primary divisions

are product divisions (i.e. consumer goods and industrial goods). However, the next

level of management has been departmentalised according to function (i.e. marketing,

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human resources,  nances, etc). So clearly an organisation with more than two levels of

management will usually be departmentalised in more than one way. Our main concern,

however, is primary departmentalisation.

736An organisation can be designed according to the following:

business function ( gure 8.1)

product ( gure 8.2 as discussed above)

location ( gure 8.3)

customer ( gure 8.4)

737

738

Sometimes none of these con gurations may meet all the needs of a particular business.

To overcome this, the matrix organisational structure has been created to incorporate

the advantages of both the structures discussed earlier. Pay attention to this ( gure 8.5).

Activity 8.3

Refer back to the Kalk Bay Fisheries case study and the feedback from activity 8.2. Given

the manner in which the total workload has been divided in activity 8.2, what would be

the most appropriate way to departmentalise the business?

45Feedback:

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

di erently at di erent levels in the organisation.

Shoprite Holdings Ltd is one of the largest supermarket retailers in Africa with over 1 181

outlets in more than 17 African and other countries and employing almost 69 000 em-

ployees. Given that Shoprite is such a large, geographically dispersed organisation, how

do you think Shoprite is departmentalised at the  rst level of management, just below

the CEO? Try depicting this con guration graphically.

46Feedback:

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.

742Another concept that you must understand in this section is span of management. Span

of management refers to the number of subordinates who report directly to a manager.

See  gure 8.6 in your prescribed book on how di erent spans of management can result

in very tall or very  at organisational structures. For example, an organisation such as

Unisa has quite a tall organisational structure with over nine levels of management. You

should also take time to familiarise yourself with some of the management implications

of having either a too narrow or a too  at span of management.

8.3.4 Responsibility and authority

Study section 8.3.4 in ITBM.

743

When you study authority relations, it is important  rst to understand the di erence

between responsibility and authority. These two concepts should always go hand in

hand. Unfortunately, in many South Africa organisations, people are given responsibility

(obligation to carry out a task) without the corresponding authority (right to give instruc-

tions and deploy resources) to carry out that responsibility and this can lead to a great

deal of frustration on the part of the subordinate who has been tasked with carrying out

certain activities.

Authority relations

744

In the discussion of authority, the terms “line authority” and “sta authority” require some

clari cation (see explanations given under section 8.3.4 and  gure 8.7 in the prescribed

book).

745

Although the prescribed book describes only two authority relations, namely line authority

and sta authority, some managers also have functional authority. This has to do with

direct authority relating to one’s own function in another department. The human resource

manager, for example, can instruct the production manager to abide by certain human

resource policies in the factory. In so doing, he or she would be exercising functional

authority. Think of line authority as the right to issue instructions down the line, that is

to immediate subordinates. You might ask yourself where line authority is indicated on

an organisational chart. Quite simply line authority is indicated by the vertical lines con-

necting the various levels of an organisational chart. Line authority nearly always  ows

in a top-down manner from the most senior positions in the organisation to the lower

levels of management. Sta authority has to do with giving advice, without having the

authority to compel people to follow it. Sta authority does not necessarily  ow only

down the organisational structure, but can  ow upwards and horizontally as well. This

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type of authority is generally derived from what is known as expert power. The di erent

types of power are discussed in learning unit 9.

Centralised and decentralised authority

746Note also the di erence between centralised authority and decentralised authority. This

has to do with the level at which decisions are made. The more people at the lower lev-

els are allowed to make decisions, the more decentralised decision-making is within an

organisation, and vice versa.

8.3.5 Coordination

747In simple terms, coordination is the “glue” that keeps the various departments within an

organisation together and deals with the interrelatedness of tasks and activities. With-

out coordination, people lose sight of the organisation’s overall goals and their part in

its e orts. An organisation with a high level of coordination will ensure that the goals

and objectives of the various departments are congruent with one another and are not

contradictory.

748

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.

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

di erent functions within a business are inextricably linked to one another.

47Feedback:

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.

749How organisations are structured is a function of a number of di erent factors. The main

factors include the following:

The stability of the business environment (section 8.5.1). Both the level of stability

and the rate of environmental change will in uence how organisations are structured

and what form of departmentalisation the organisation adopts. One good example

of environmental instability in South Africa has been in the higher education envi-

ronment over the past  ve years, where the entire public higher education system

has been recon gured through a series of mergers and rationalisation initiatives.

The merger between the old Unisa and former Technikon South Africa has had a

signi cant impact on how the new Unisa is structured in terms of its functional,

product and customer departmentalisation. This need to restructure the University

was brought about by external environmental change and instability.

The strategy of a business (section 8.5.2). As the old adage or saying goes, “structure

follows strategy”. This is indeed true, since an organisation’s strategy has a direct

impact on how the business is structured. A renewed focus on technology might

result in a signi cantly greater allocation of resources to a business’s IT department.

Similarly, a business such as General Electric (GE) with a focus on product develop-

ment and innovation will allocate signi cant resources to its research and develop-

ment department.

The size of the business (section 8.5.3). If you read the Kalk Bay Fisheries case study

at the beginning of this learning unit and completed activity 8.4, it should be clear

to you that the size of an organisation has a de nite impact on how it is structured.

Small businesses are not organised in the same way as large, complex organisations

such as the Shoprite group. Historically, large businesses are often characterised by

many levels of management, a high degree of specialisation and extensive depart-

mentalisation; however, in recent years there has been a shift towards  atter and

leaner organisational structures. In this regard, see the Jack Welch extract at the end

of this learning unit.

The competence of employees (section 8.5.4). How organisations are structured is

not only a function of the competence of sta , 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 in uence how the organisation is structured. In this regard it will not

make sense for a business to be structured in a very tall bureaucratic manner when the

culture is characterised by innovativeness, teamwork and few rules and regulations.

750

751Make sure that you understand how each of these factors will in uence the organisation

structure.

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SUMMARY

752

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 con-

cept of organising. In this learning unit we have also looked at the importance and the

fundamentals of organising. Finally, the factors which in uence how organisations are

structured were discussed.

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

ganising and control in motion and see that plans are translated into action. We deal with

the third fundamental element of management, namely leadership, in learning unit 9.

BUSINESS IN CONTEXT

754Refer to the recommended book entitled Business Cases, in particular case study num-

ber 7 “Organising: The Nike Matrix”. This is not compulsory for you to do, but merely

a business-in-context addition to your learning of business management.

SELF-ASSESSMENT QUESTIONS

755

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

answer the questions that follow.

756In 2004, Clayton, Dublier & Rice purchased Culligan International, the water treatment

and supply business with about 700 million in annual sales and about 5 000 employees

spread across 13 countries. One of CD&R’s partners, George Tamke, the former co-CEO of

Emerson Electric, was named chairman. George was well aware that Culligan had been

through 10 owners in the previous 15 years, but he could not believe the organisational

disarray that hit him when he walked in through the door. George found that many em-

ployees simply did not know where they  t in and whom they report to, who reported

to them and what results each person was responsible for.

757Similarly, I just recently spoke with Dara Khosrowshahi, the new CEO at the online travel

company Expedia. Dara also walked into an organisational chart quagmire when he arrived

on the job at the end of 2004. Expedia, less than ten years old and highly entrepreneurial,

had been growing so fast, and no one had taken the time to clarify reporting roles and

responsibilities. As his  rst priority Dara set out to  x that.

758If you want to manage people e ectively, help them by making sure that the organisa-

tional chart leaves as little as possible to the imagination. It should paint a crystal-clear

picture of reporting relationships and make it patently obvious who is responsible for

what results. More importantly, it should be  at!

7591 In both the CD&R and Expedia examples, what key principles of organising have the

organisations failed to apply successfully?

7602 Do you agree with Jack Welch’s statement that organisational structures should be

as  at as possible? Why do you agree, or why do you not agree?

761

7623 Which one of the following statements is wrong?

763

764 a Responsibility and accountability are closely connected.

765 b Authority is granted to a manager by the enterprise.

766 c When a task is delegated, accountability is delegated simultaneously.

767

d According to the acceptance theory of authority, authority originates from the

lower levels.

768

769

4 The human resource manager of an enterprise instructs one of his personnel o cers

to perform a particular task. In the process he is exercising ... authority.

770

771 a functional

772 b organisational

773 c sta

774 d line

775

THE ANSWERS TO THE SELF-ASSESSMENT QUESTIONS

776

777Question 1

778It seems both organisations have completely forgotten about authority relations in the

organisation and establishing responsibility and authority to each post in the organisa-

tional structure. Sta 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 sta authority, have not been developed for the two organisations.

779

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.

780

781Question 2

782Although not covered in a great amount of detail in this module, Jack Welch’s comment

that organisational structures should be  at alludes to the many contemporary approaches

to structuring organisations. Flatter organisational structures are indeed becoming more

prominent, as are matrix, team-based and virtual organisational structures. Flat organ-

isational structures are often a business’s response to the frustrations inherent in highly

bureaucratic structures, which include slow, centralised decision-making, an obsessive

concern with rules and a lack of innovativeness.

MNB1501/1/2018–2020

783

784Question 3

785Contemporary organisational structures are covered in more detail in the second-year

module General Management (MNG201). Option c is incorrect because a manager, in the

act of delegation, can transfer both his or her authority and responsibility to a subordi-

nate but never his or her accountability. This is the golden rule of delegation: whoever

delegates a task remains accountable for that task. See page 1 in your prescribed book

for a further explanation of authority and responsibility.

786

787Question 4

788

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 o cer.

Learning Unit 9

Leading

INTRODUCTION AND AIM OF THE UNIT

789In learning unit 8, we discussed the second important element of management, namely

organising. The third complex element of management is called leadership. Leadership

is that element of management which sets activities and people in motion with a view

to ensuring that goals are accomplished. In other words, leadership refers to the ability

to inspire others to achieve an organisation’s goals. This learning unit deals with the re-

lationship between leaders and followers as well as the di erence between managers

and leaders. This learning unit then discusses the di erent components of the leading

function and highlights the importance of communication within a business.

48STUDY 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

49Learning 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, in uence, delegation, responsibility and motivation and

(2) di erentiating between leadership and management



discuss basic leadership models by referring to the factors in uencing e ective leadership

demonstrate an understanding of motivation as a key role of a leader by describing the

fundamental model of motivation

describe a simple communication model

discuss groups in the organisation by referring to (1) the reasons why groups are formed,

(2) the kinds of groups and (3) the characteristics of groups

di erentiate between groups and teams in the organisation

791

MNB1501/1/2018–2020

KEY TERMS

nature of leadership

leader characteristics

leadership

authority

leadership models

Maslow’s theory

components of the leadership task

factors in uencing power

motivation

kinds of groups

communication

793Refer to the end of chapter 9 in the prescribed book to familiarise yourself with the key

terms for this learning unit before continuing.

9.1 INTRODUCTION

50Study 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

794It is important that you familiarise yourself with the de nition of leadership and show

that you understand this de nition very clearly:

795

Leadership is de ned as the in uencing and directing of the behaviour of subordinates in such

a way that they willingly strive to accomplish the goals or objectives of the business.

796

There are a few important terms in this de nition, but two particularly important ones are

the words “in uence” and “willingly”. The word “in uence” is used in a very wide context

here. For example, giving instructions to a subordinate would fall under the de nition

of in uencing, but so too would threatening a subordinate with dismissal if his or her

performance does not improve (although not the best example of good leadership).

797Leadership is clearly a process of social in uence directed at stimulating action towards

achieving the goals of the business.

100

798The second important term in the de nition of leadership is the word “willingly”. This

attribute of leadership is evident in the following two very famous statements by former

American President Dwight D Eisenhower: “You don’t lead people by hitting them over

the head, that’s assault not leadership” and “Leadership is the art of getting someone else

to do what you want done, because he wants to do it”. Richard Branson (the founder of

the Virgin Group) remarks that there are many ways to get your point across and make

your business successful without being aggressive: “Always remember that you love what

you do and your role is to persuade others to love your business too, therefore to want to

work with you.” All of these statements refer to in uencing the behaviour of employees

to pursue the goals of the business willingly and not under coercion or through the use

of power and formal authority.

Leader

799

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 speci c industry.

A person such as Sol Kerzner (of Sun International and founder of Sun City), for example,

would be considered a leader in the hotel industry. Similarly, Raymond Ackerman (of Pick

n Pay) is a leader in the retail industry. However, a more accurate way to describe these

people would be to say that they are entrepreneurs.

800The second use of the word “leader” refers to the management of subordinates. This is

the meaning of the word that applies to the management task of leadership. It is very

important that you note this distinction. It is not uncommon for someone to be a very

successful entrepreneur (i.e. a leader in business or a pioneer in a speci c industry) and

yet be a poor leader of people in the sense that he or she  nds it di cult to motivate

sta , delegate responsibility, inspire them to greater achievement, develop their skills,

and so on.

Characteristics

801Your prescribed book states under section 9.2.1 that a good manager is not necessarily

a good leader and vice versa. Much has been written in management literature about

the di erences between managers and leaders. In this context, your prescribed book, in

section 9.2.1, broadly de nes a manager as being a good administrator. This is particularly

true in a bureaucratic organisation where a manager may be extremely good at carrying

out procedures, having everything in place, always meeting deadlines, and so on, and yet

not be very good at inspiring and motivating his or her subordinates. It is also possible to

be an outstanding leader but a poor manager because you do not plan very e ectively,

or exercise sound control – yet you may get tremendous support and commitment from

subordinates for your ideas and vision.

Activity 9.2

Having read the above sections on the nature of leadership and what we understand

a leader to be, would you consider yourself to be more of a leader or a manager? Give

101

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

introspective question.

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

51Feedback:

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

9.2.1 The components of the leading function

802Now that we have clearly de ned leadership and leaders in the business context, we can

shift our focus to identifying a few of the main components of leadership, namely

authority

power

responsibility

delegation

accountability

9.2.1.1 Authority

803

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 de ned authority as the formal right to give instructions, allocate

resources and demand action from subordinates. Formal authority is closely related to

leadership and is granted to a leader by the organisation through delegation.

804However, it is important to remember that we de ned leadership as the ability to in u-

ence subordinates to pursue goals willingly. A leader who merely exercises his or her

formal authority to bring about a result will be acting more as a manager than as a true

leader, because subordinates are obliged to carry out a manager’s instructions. In order

to in uence the behaviour of others a leader must also gain the respect of his or her

subordinates.

9.2.1.2 Power

805

Power (section 9.2.2.2 in your prescribed book) is one of the key elements associated

with leadership and comes in  ve main forms. These di erent forms of power often

determine whether a leader is e ective or ine ective in in uencing subordinates and

securing their commitment to organisational goals and the leader’s vision. It is very im-

portant that you understand the di erent kinds of power that a leader can use and how

these a ect subordinates’ performance.

102

806Line authority is always linked to a particular position in the organisation. For example,

the marketing manager has the authority to decide on a sales strategy, as well as give

instructions to the sales, advertising and marketing research teams. He or she also has

the authority to allocate the marketing budget accordingly. Because this authority is

position-speci c, the marketing manager cannot give instructions to sta in the  nance

or production departments or decide on a purchasing strategy for the business.

807

Power, on the other hand, is linked to both the person and (sometimes) the position

and refers to the in uence that leaders exert over their subordinates. Table 8.1 in your

prescribed book is a useful perspective on how di erent forms of power may result in

di ering levels of commitment and compliance by subordinates. The  ve types of power

identi ed in your prescribed book are

legitimate power

power of reward

coercive power

referent power

expert power

808

809Looking at the de nitions of the  ve types of power we very quickly see that power can

be either positional or personal. The  rst three types of power are clearly related to a

manager’s position in the organisation and can be likened to formal authority. The last two

types of power are both forms of personal power and are not derived from a manager’s

position within the organisation. Make sure that you understand these di erent forms of

power and how using di erent forms of power can result in di ering levels of commitment

from followers. This is a very important section of the learning unit for you to master.

9.2.1.3 Follower commitment

810

Successful leadership depends on follower commitment and compliance. Here managers

depend on their subordinates, giving them a certain level of indirect authority. E ective

managers must use their command of power in such a way that there is a healthy balance

between their own power and that of subordinates (see  gure 9.2 in your prescribed

book for a further explanation).

Activity 9.3

Start by asking yourself the following question:

In ful lling the leadership task of management, should a manager make use of formal

line authority associated with the speci c position or rather the personal power he or

she possesses?

Having thought about the above question, now consider the well-known business and

political leaders listed below. Can you identify the type of power they possess, be it

personal or positional, as well as the source of their personal power? Use the template

below to complete the activity. You might not be familiar with some of the leaders listed

below. If this is the case, it would be a good idea to read up about their achievements,

either on the internet or in the library resources available to you.

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Tip: Remember that leaders very seldom possess only one form of power and more

often than not they in uence their subordinates through the use of a combination of

power sources.

Leader Type of power Source

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

52Feedback:

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

9.3 LEADERSHIP THEORIES

811

The above table in activity 9.3 identi ed a number of prominent leaders. Apart from

the types of power they possess, you might have asked yourself the question: “But what

makes them great?” If you did you are not alone. Researchers have been asking similar

questions for many years now and in so doing have tested a number of models. In this

learning unit we discuss three important theories of leadership, namely the

trait (characteristics) theory of leadership

behavioural theory of leadership

contingency (situational) theory of 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.

813Every person, whether employed in an organisation, a full-time student, a housewife or

an entrepreneur, has personal goals that he or she strives for and to some extent will be

driven intrinsically (internally) to achieve these goals. At the same time it is important that

104

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 in uential factor in ensuring employee motivation and

morale, and ultimately the pursuit of organisational goals. Read through the case study

about Siemens to see how they motivated their employees within a creative environment.

814Siemens: Motivation within a creative environment

815

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 tra c lights to gas turbines to domestic appliances such

as kettles and fridges.

816Engineers use scienti c principles to develop products or systems to solve real-life prob-

lems. Much of engineering is about innovation rather than invention. This means that

engineers transform creative ideas into improved products, services, technologies or

processes. A career within the  eld of engineering is exciting and varied, as the work is

constantly changing. Becoming an engineer at Siemens is about using energy, ideas and

passion. It requires a range of skills and abilities that are needed across the whole business.

817Siemens provides opportunities for young people at all levels to enter the world of engi-

neering. Siemens also recruits undergraduates and graduates into professional engineer-

ing jobs. It goes beyond the standard approaches to attracting good people because

its employees enable it to be competitive. This approach has led to Siemens becoming

an open culture with opportunities for employees at all levels. However, regardless of

entry level, Siemens employees enjoy wide-ranging opportunities for further education

and training. By following an engineering career, Siemens people have the opportunity

to move into other disciplines. For instance, they may go into areas such as research,

manufacturing, sales and marketing,  nance, or project management.

818Motivation stimulates people and encourages them to willingly put more e ort into do-

ing something. Well-motivated employees will feel ful lled and happy in the workplace.

Additionally, they are likely to be more productive and produce work of a higher quality.

Motivated individuals are in uenced by a number of di erent factors. Initially, everybody

has basic needs, such as food or accommodation, in which pay can provide. However,

there are many other di erent factors that motivate individuals. A creative environment,

such as that provided by engineering, can be very stimulating.

819

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 sta at Siemens thrive on the

problem-solving aspect of their roles and respond to challenges. Other employees  nd

the varied nature of the work motivating – having the opportunity to try di erent roles.

Siemens employees also value the fact that they are allowed to be imaginative and can

in uence their own work. This culture demonstrates that Siemens values its employees

and helps to recruit the next generation of engineers.

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820If you want to be a successful manager in this task, you must understand how individu-

als are motivated and what motivates them (motives). Then you will be in a position to

in uence the behaviour of subordinates.

821Many theories have been developed that deal with the motivation of employees. In this

learning unit we introduce you to the basic model of motivation as well as to Maslow’s

hierarchy of needs as addressed in section 12.7.2.2 of the prescribed book. It is very im-

portant that you understand this hierarchy and its application.

822Maslow’s theory suggests that although all motives are present in every adult (babies/

toddlers acquire them over time), not all motives in uence an individual. We may spend

a great deal of e ort satisfying our needs for esteem, but when there is a sudden earth-

quake, the only motive that will in uence our behaviour is the need to survive. In the

same way we may eat a meal regularly, but we would not be motivated to change jobs

and join a company that gives its employees free meals. In other words, we still take steps

to satisfy certain needs, but we are driven by those needs that are basically unful lled.

According to Maslow, di erent people experience di erent levels of need ful lment.

Put di erently, some people may be striving to satisfy their social needs, while others

are mostly driven by their esteem needs. Some may even be at a level where their main

concern in life is to satisfy their physiological needs.

823

The basic model of motivation is depicted in the  gure below and described brie y under

section 9.4 of the prescribed book. Make sure that you understand this model and how it

can be applied in the organisational context. An example of the application of this model

is given in the activity that follows.

824

825

Activity 9.5

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

Kalk Bay Fisheries on the move

Refer back to the Kalk Bay Fisheries case study in learning unit 8. Since we last caught up

with Kleinjan and his friends (now more like business partners), they have managed to

sort out their structural issues and lines of authority. With these issues out of the way, the

friends were able to get down to business. As a result, Kalk Bay Fisheries has grown into

a medium-sized business with a total of 20 employees. Kleinjan and his friends are no

longer doing the  shing and processing themselves; now they are more involved in the

management of the business and the leadership and motivation of their 17 employees.

106

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 en-

vironment but is not sure whether he will be able to make ends meet every month,

let alone put aside some of his income for his children’s tertiary education. 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 con dent that his team can reach this target, especially considering that members

of the sales team are employed on a commission basis and as such have the power to

in uence their own income levels. All members of the sales team also have company-

subsidised vehicles. He is also aware that as a leader it is his job to motivate the members

of his sales team towards the attainment of this target. He is, however, perplexed about

what would motivate the individual members of the sales team and therefore how he

could go about motivating them.

(1)

The four members of the sales team have di erent personal needs, motives and

drives. Can you list the di erent needs of each team member?

(2) Now that you have completed the  rst step of the motivation model, make sugges-

tions about how Lukas might go about motivating the di erent members of his team

towards the goal of 25% growth in sales.

53Feedback:

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

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9.5 OVERCOMING BARRIERS TO EFFECTIVE PLANNING

826Employees of the modern organisation do not work merely as individuals hidden away

somewhere in a small cubicle working in isolation from their co-workers. As the world

of work becomes more and more complex, so the need grows for organisations to ap-

proach work and problems in a multidisciplinary and cross-functional manner. This has

given rise to the use of groups and teams in organisational structures with the associated

need for team leadership; this is the reason why groups and teams are discussed as part

of this particular learning unit.

827In section 9.5 of your prescribed book a clear distinction is made between groups and

teams and it is important that you are able to identify and understand the di erence

between the two. It is also important that you familiarise yourself with the di erent types

of groups and teams.

9.6 COMMUNICATION

Importance and elements

828By now you should have realised that leaders are human beings involved with other hu-

man beings. For leaders to in uence their subordinates they must be able to communicate

e ectively. This section brie y touches on the importance of communication and the

elements involved. If you have not understood the explanations in the prescribed book

and/or this study guide, then the communication between lecturer and learner has not

been successful! This could be as a result of faulty sending, or faulty receiving, or both.

It could even be a case of the channel of communication being ine ective, because you

would have bene ted more from attending a discussion class than reading the study

guide on your own.

829

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 com-

munication on account of poor receiving. It could also be that the explanation is so vague

that the student still does not understand it even after reading it. This would simply be

poor communication because of poor sending in terms of the message being poorly

constructed.

830Similarly, in the business environment we often see the e ects of poor communication

and just as often hear excuses such as “Oh, so that is what you meant!” or “If you had said

so in the  rst place, things would have been far clearer!”

Activity 9.6

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

Communication at Kalk Bay Fisheries

Kleinjan Jantjies calls Mr Mahlangu, his operations manager, to come to his o ce. When

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

108

unexpected but very important telephone conversation with one of his  shermen. After

a few minutes he completes the phone call, but his mind is clearly still very much on the

conversation he has just had.

“Hello, Mr Mahlangu. Take a seat. This is why I called you: at present in the factory, we

have o cial minutes, and bring the afternoon going-home time forward by 20 minutes.

I am sure the factory sta 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 e ective as a leader in terms of communicating with his

operations manager? Can you suggest how he could improve on this communication?

SUMMARY

831Leading is the third task of management and is the one that sets up and keeps the busi-

ness going. As you have realised from our discussion, it is a di cult concept to de ne,

because it is concerned with in uencing the behaviour of subordinates and directing their

activities so that the aims of the business are attained as pro tably as possible. Its com-

ponents – leadership, motivation, group and team behaviour and communication – are

interrelated instruments used to exert that in uence. Managers should have su cient

knowledge of these factors to be good leaders as well as good managers. We deal with the

fourth and  nal important element of management, namely control, in learning unit 10.

BUSINESS IN CONTEXT

832Refer to the recommended book entitled Business Cases, in particular case study num-

ber 8 “Leading and controlling: South African business leadership in action”. This is

not compulsory for you to do, but merely a business-in-context addition to your learning

of business management.

SELF-ASSESSMENT QUESTIONS

833

834QUESTION 1

835Which one of the following statements on authority is wrong?

836

837a Final authority  ows from delegation.

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838b Management delegates authority to subordinates to enable them to execute tasks.

839c The right to expect action from others is also conferred by members of a group.

840d Power is not granted to a manager.

841

842QUESTION 2

843Which one of the following types of power is granted to all managers?

844

845a legitimate

846b personal

847c referent

848d expert

849

850QUESTION 3

851A trade union is formed to satisfy the … needs of the employees.

852

853a basic

854b security

855c social

856d esteem

857e self-actualisation

858

54THE ANSWERS TO THE SELF-ASSESSMENT QUESTIONS

Question Answer Reference (section)

1 d 9.2.2.1

2 a 9.2.2.2

3b12.7.2.1

110

Learning Unit 10

Controlling the management process

859INTRODUCTION AND AIM OF THE UNIT

860In learning unit 9, we discussed the third important element of management, namely

leadership. Control is the  nal step in the management task on the one hand, and the

starting point for further strategy development on the other. It is the process by which

management narrows the gap between objectives and actual performance. The manage-

ment process takes place between planning and control, and successful management often

depends on sound planning and e ective control. We will now look at control in detail.

55STUDY 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 e ective control system

Summary

861

56Learning 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 e ective control system

describe how the control process provides feedback for the revision of planning

862

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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

 exibility

timeliness

deviation

corrective action

deviations

focus of control

economic order

 nancial resources

information resources

control of human resources

quality control

integration standards

characteristics of a control system

complexity

actual performance

inventory

863Refer to the end of chapter 10 in the prescribed book to familiarise yourself with the key

terms for this learning unit before continuing.

10.1 INTRODUCTION

Study section 10.1 in ITBM.

Nature of control

864Control is used to ensure that the organisation’s goals and objectives are reached and

that resources are being used as productively and e ectively as possible. It is therefore

used to give feedback on the other three tasks, namely planning, organising and lead-

ing, and to start a new cycle of the management task. Note that the word “control” as

it is used to describe the task of management does not refer to “being in charge of” or

“dominating”. Sometimes people speak of a chief executive controlling an organisation

in the same way as they speak of the police controlling a crowd, or say that a situation is

under control. This is not the meaning of control used in this learning unit.

Task of control

865Control is concerned with narrowing the gap between what was planned and the actual

achievements of management, and ensures that all activities are carried out as they should

be. More accurately, control is the process whereby management obtains information to

determine whether the objectives that were set for the organisation during the planning

stage have been reached and, if not, to take corrective action. The management process

112

thus takes place between planning and control. So it should be clear that the task of

control has its roots in planning.

10.2 THE PURPOSE OF CONTROL

866An organisation needs a control process because even the best-laid plans can go wrong

owing to unforeseen circumstances or unexpected changes within the environment.

Many companies did not foresee the recession during 2009 and therefore experienced

great losses despite proper planning. Read through the case study below to see how some

small businesses survived the recession as a result of e ective  nancial and quality control.

Small companies survive by using control

During an SME survey, only 5% of small businesses indicated losses during the 2009 recession,

with 95% of SMEs keeping their businesses a oat. The majority of these businesses stem from the

agricultural enterprises and 40% of these showed pro ts. 60% of these enterprises also expressed

con dence in their ability to survive the recession.

How did these companies manage to survive the devastating recession? By returning to the basic

principles of business with a strong emphasis on  nancial control where costs were optimised.

93% of the respondents also regarded a positive cash  ow as the most important element for

sustainability. More than two-thirds of the enterprises had a positive cash  ow even with the credit

crisis, deterring the borrowing of funds.

Quality control was another important aspect, with service delivery a key element in retaining

customers.

Source: Thys (2009)

Study section 10.2 in ITBM.

868

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 brie y highlighted below:

Without control, e ective planning cannot take place.

It enables companies to adapt to environmental change and allows them to cope

with changes and uncertainties.

Control helps to limit the accumulation of errors due to poor decision-making.

As the size of a business increases, it becomes increasingly di cult to identify areas

of weak performance.

Control helps to minimise costs and increase output.

An e ective control system allows management to identify problems before they

become critical for the organisation.

Control allows management to determine whether delegated tasks have been car-

ried out satisfactorily.

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Increasing competition necessitates more e ective 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  ve reasons why the task of control is so important;

however, these might be quite di cult for you to understand without practical examples

and illustrations. In this activity you should complete the table below by giving your own

practical examples of reasons why control is so important.

Reason for importance of control Practical examples

1 Avoids poor planning

2 Helps to adapt to environmental change

3 Limits the accumulation of error

Caters for increasing organisational size

and complexity

5 Minimises cost

57Feedback:

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

10.3 THE CONTROL PROCESS

Study section 10.3 in ITBM.

870

The control process as illustrated in  gure 10.1 represents the heart of the task of control.

It is important that you understand the sequence of these steps and how the process is

linked with the task of planning.

871The control process comprises the following four steps:

setting standards that are derived from goals

measuring actual performance

evaluating deviations (the performance gap)

taking corrective action and rectifying deviations

872

114

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  gures:

•Phindiwe: Sales increased by 13%.

•Gavin: Sales increased by 30%.

•Clair: Sales increased by 8%.

•Bongani: Sales increased by 25%.

Put yourself in Lizzy’s shoes and apply the control process to the above situation, high-

lighting each step in the process and suggesting what actions should be taken in step

4 of the control process.

58Feedback:

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

10.4 TYPES OF CONTROL

Study section 10.4 in ITBM.

873Although we state that you should study this section of the prescribed book, do not get

too involved in the volume of detail in this section. It is more important to realise that,

although the control process is a generic process, it needs to be applied to a variety of

areas and resources throughout the organisation.

874Organisations should, as a rule, identify the di erent areas that need to be controlled, as

these areas are generally responsible for the e ectiveness of the entire organisation. In

section 10.4.1 we highlight the four key areas of control:

physical resources

 nancial resources

information resources

human resources

875

876

The section then elaborates on each of these areas and identi es various systems for

controlling them.

877Note the four focal points or key areas of control as illustrated in  gure 10.2.

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Inventory

878

The control systems for the di erent kinds of inventories, such as raw materials and

 nished products, are inventory control and quality control. Inventory control aims to

keep costs as low as possible, without causing shortages or delays. Three control systems

are relevant here: the economic order quantity (EOQ), material requirements planning

(MRP) and the just-in-time (JIT) system.

Quality

879Quality and productivity have become very important issues all over the world. Quality

control refers to the activities that are performed by management to ensure a level of

quality that will satisfy their customers and also have certain bene ts for the business. The

control system used for the management of quality is known as total quality management

(TQM).

Financial resources

880Aspects of control are mainly expressed in  nancial magnitudes. Financial resources are

vital to the success of any business and are at the heart of the control process (see  gure

10.2). There are two important instruments used to control the  nancial resources of an

organisation:

the budget (refer to table 10.1 for an outline of the types of budgets)



 nancial analysis, also known as ratio analysis (will be discussed in your second module)

Information resources

881Management can implement plans only if they receive accurate and timely information.

The faster feedback is received on how things are going in the course of the management

process, the more e ectively the control systems will function.

Human resources

882

The main instrument used to control human resources in a business is performance mea-

surement. Other instruments are speci c ratios that can be applied in respect of labour

turnover, absenteeism and the composition of the labour force.

883

884

Activity 10.3

Section 10.4.1 contains a wealth of information on the areas of control and the di erent

control systems for each area. We have highlighted these in the section above. However,

one way in which you can summarise the various systems of control is by means of a mind

116

map. We have started the mind map for you. In this activity, complete the mind map by

listing the various control systems under the areas of control. You can even take this one

step further by adding a brief description of each system.

885

59Feedback:

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.

886

This is a very important section and you should note the  ve characteristics of an e ective

control system as well as the integration of planning and control ( gure 10.3).

Activity 10.4

List and describe the  ve criteria according to which the e ectiveness of organisational

control is evaluated.

117

MNB1501/1/2018–2020

SUMMARY

887We have discussed control as the fourth and  nal step of the management process, so

the discussion of the management process is complete and with it topic 2 of this study

guide. You now have a basic insight into all the general management functions.

BUSINESS IN CONTEXT

888Refer to the recommended book entitled Business Cases, in particular case study num-

ber 8 “Leading and controlling: South African business leadership in action”. This is

not compulsory for you to do, but merely a business-in-context addition to your learning

of business management.

SELF-ASSESSMENT QUESTIONS

889QUESTION 1

890Chloe is in charge of managing the volunteer organisation, Barking Mad, that provides

abandoned animals with shelter and food and places them up for adoption. What is the

correct process she would follow when busy with the management task of control?

891

a The shelter needs to maintain an adoption rate of 25% in order to be able to provide

all its animals with shelter and food.

892

b Chloe realises that their organisation is relatively unknown to the public and organises

a fun walk to raise awareness of Barking Mad.

893c Chloe compiles a detailed report of all the adoptions they have had over the last six

months.

894d The data Chloe has collected shows that their adoption rate is only 19%.

895 1 a b c d

896 2 b c d a

897 3 d c b a

898 4 a c d e

899 5 a c d b

900

901QUESTION 2

902Which of the following is a purpose of control?

903

9041 Planning is the  rst step in control and without control, planning is pointless.

9052 Control makes it di cult to adapt to change owing to the di erent variables in the

environment.

906

3 Managers are capable of making good decisions on their own and do not need

control to limit errors.

9074 Control processes add to the costs of an organisation.

908

118

909QUESTION 3

910Match the area of control in column A with the correct type of control in column B.

Column A Column B

a inventory i TQM systems

b quality ii Budgets

c  nancial resources iii Just-in-time

d human resources iv ITT systems

v Performance measurements

9121 a (i) b (ii) c (iii) d (iv)

9132 a (i) b (v) c (iv) d (iii)

9143 a (ii) b (iv) c (i) d (v)

9154 a (iii) b (i) c (ii) d (v)

916

THE ANSWERS TO THE SELF-ASSESSMENT QUESTIONS

Question Answer Reference (section)

1 4 (a c d e) 10.4

2110.3

3 4 (a (iii) b (i) c (ii) d (v)) 10.2

MNB1501_70514402 Study Guide MNB1501

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