BUSINESS

MANAGEMENT
NOTES (MNB1501):
2020

SEMSTER 1: UNIT 1 TO 10

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CONTENTS

Topic 1: Introduction to Business Management ................................................................................ 5

Unit 1: The Business World and Business Management ................................................................. 5
1.1 Key Concept ............................................................................................................................ 5
1.2 Roles of Business in Society ..................................................................................................... 5
1.3 Needs and Need Satisfaction ................................................................................................ 6
1.4 Economic Systems ................................................................................................................... 7
1.5 The Need-Satisfying Institutions of the Market Economy .................................................... 9
1.6 The Nature of Business Management and the Classification of the Study Material on
Business Management .................................................................................................................. 9
Unit 2: Entrepreneurship .................................................................................................................. 12
2.1 Key Concepts ........................................................................................................................ 12
2.2 Entrepreneurs & Entrepreneurship ....................................................................................... 12
2.3 The Role of Entrepreneurs in Society ................................................................................... 12
2.4 Role of Entrepreneurs & Small-business Owners in Society ............................................... 12
2.5 The Entreneurial Proces ......................................................................................................... 14
Unit 3: Establishing a Business ......................................................................................................... 17
3.1 Key Concepts ........................................................................................................................ 17
3.2 The Importance of Geographical Location for the Success of a Business .................... 17
3.3 The Legal Forms of Ownership in South Africa ................................................................... 17
3.4 Developing the Business Plan for the New Venture .......................................................... 21
Unit 4: The Business Environment .................................................................................................... 24
4.1 Key Concepts ........................................................................................................................ 24
4.2 The Business and Environmental Change .......................................................................... 24
4.3 The Composition of the Business Environment ................................................................... 25
4.4 Micro-environment ................................................................................................................ 25
4.5 Market or Task Environment ................................................................................................. 26
4.6 Macro-environment .............................................................................................................. 27
4.7 Environmental Scanning ....................................................................................................... 29
UNit 5: Cororate Social Responsibility ........................................................................................... 30
5.1 Key Concepts ........................................................................................................................ 30
5.2 Introducing Corporate Social Responsibility (CSR) ............................................................ 30
5.3 Terms and Trends ................................................................................................................... 30
5.4 The Citizenship Imperative.................................................................................................... 31
5.5 The Business Case For corporate Social Responsibility ...................................................... 32
5.6 Corporate Governance ....................................................................................................... 34

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 5.7 Stakeholders and Stakeholder Engagement ..................................................................... 34
5.8 Sustainable Development .................................................................................................... 36
5.9 The Link: Does CSR Relate to the Various Business Function ............................................ 36
Topic 2: The Management Process .................................................................................................. 38
Unit 6: Introduction to General Management............................................................................. 38
6.1 Key Concepts ...................................................................................................................... 38
6.2 The Role of Management .................................................................................................. 38
6.3 A Definition of Management ............................................................................................ 38
6.4 Skills at Different Managerial levels and the Roles of Manager .................................... 39
6.5 Development of Mangement Theory ................................................................................. 40
Unit 7: Planning ................................................................................................................................ 42
7.1 Key Concepts ........................................................................................................................ 42
7.2 Why is Planning Needed? .................................................................................................... 42
7.3 Managerial Goals and Plans................................................................................................ 42
7.4 The Planning Process ............................................................................................................. 43
7.5 Setting Organisational Goals and Developing Plans ........................................................ 44
Unit 8: Organising ............................................................................................................................ 47
8.1 Key Concepts ........................................................................................................................ 47
8.2 Introduction to Organising ................................................................................................... 47
8.3 The Importance of Organising ............................................................................................. 47
8.4 The Fundementals of Organising ......................................................................................... 47
8.5 Factors that Influence Organising and How Organisations are Designed ..................... 51
Unit 9: Leading ................................................................................................................................. 53
9.1 Key Concepts ........................................................................................................................ 53
9.2 The NAture of Leadership ..................................................................................................... 53
9.3 THe Components of the Leading Function ........................................................................ 53
9.4 Leadership Theories ............................................................................................................... 54
9.5 Motivation .............................................................................................................................. 55
9.6 Groups and Teams in Organisation ..................................................................................... 57
9.7 Communication..................................................................................................................... 59
Unit 10: Controlling the Management Process ............................................................................ 60
10.1 Key Concepts ...................................................................................................................... 60
10.2 Introduction .......................................................................................................................... 60
10.3 The Purpose of Control........................................................................................................ 60
10.4 The control Purpose ............................................................................................................. 60
10.5 Types of Control ................................................................................................................... 61

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10.6 Characteristics of an Effective Control System ................................................................ 62

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TOPIC 1: INTRODUCTION TO BUSINESS MANAGEMENT

UNIT 1: THE BUSINESS WORLD AND BUSINESS M ANAGEMENT

1.1 KEY CONCEPT

Business world, community, society, institutions, classification, needs, economic systems,
development, free market, market system, market economy.

1.2 ROLES OF BUSINESS IN S OCIETY

• Transformation of resources into goods and services society needs
• Business cannot operate without society
• Needs and values of society influence, what business does? i.e. protecting the
environment
• Organizations influence behaviour patterns of people in a particular society by developing
new products .i.e. Impact of cell phones, tablets etc. on social life.
• Success of business has an impact on the prosperity of a society. i.e. mining towns

• Elements of business
o Human activities – managed & operated by people
o Production – transform resources into products & services
o Exchange – products & services for money or other goods/services
o Profit – reward for meeting people’s needs

• Countries have different economies

o Market economy – business can decide what to produce, how to produce & selling
price. Business’ primary purpose:
▪ Make profit while satisfying needs of the people.
• Industry – group of businesses performing similar activities, e.g. mining, financial services,
construction etc.
• Business creates wealth & is catalyst for economic growth
• Business serves community indirectly
o Technological innovation, research & development, improvements to
infrastructure.
o Support education
o Develop human resources, arts, conservation & sport
• Interdependency between business and society
o Business: influence on physical environment, consumers, economy and
competitors
o Society: regulations, legislation, exercise choice to support business (or not),
pressure on business:
▪ Social responsibility
▪ Responsible & safe workplace
▪ Housing
▪ Health
▪ Involvement – community issues
▪ Environmental awareness
▪ Empowerment of previously disadvantaged individuals

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 o Business ethics
▪ Ethical behaviour of managers & executives
o Consumerism
▪ Social force protecting consumers against unsafe products & malpractice
– exert moral & economic pressure on business
▪ Consumer Protection Act

1.3 NEEDS AND NEED S ATISFACTION

• Humans have many varied and seemingly unlimited needs
• Society has limited resources to satisfy those needs, which requires a choice to be made
about how best to utilize the limited resources.
• Most people have limited resources (money) to afford our unlimited wants, so we have to
decide how best to utilize the little we have to obtain the greatest satisfaction.
• Decision to obtain the maximum benefit (satisfaction) with the limited resources =
Economic Principal.
• Consumerism = The social force that protects consumers from unsafe products and
malpractices by exerting moral and economic pressure on business.
• According to Maslow, all humans have same basic needs, but not everybody strives to
satisfy the same ones.
• According to Maslow, once basic needs (hunger) are satisfied, we strive to satisfy the next
level i.e. security etc.

• People have unlimited needs

o Maslow
▪ All people have same basic needs (hierarchy of needs)
• Physiological needs (hunger, thirst, air, shelter, sleep, clothing,
reproduction)
• Security needs (personal security, employment, resources, health,
property)
• Social needs (friendship, intimacy, family, sense of connection)
• Esteem needs (respect, self-esteem, status, recognition, strength,
freedom)
• Self-realisation needs (desire to become the most one can be)
▪ Everybody not strive to satisfy same needs
• Basic Physical and Psychological needs may overlap
• Society has limited resources (production factors):
o Natural resources
▪ Production factor of land, e.g. agricultural land, minerals, water etc.
▪ Supply cannot be increased – scarce
o Human resources
▪ Production factor of labour e.g. physical & mental talents and skills of
people employed
▪ Size of labour force: size of population, level of education & training,
retirement age.
o Capital
▪ Buildings, machinery etc. used to produce products, e.g. factories,
equipment, roads and other infrastructure.
▪ Generally long working life & high price.

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 o Entrepreneurship
▪ Collective capacity of entrepreneurs – risk taking to develop goods &
services
▪ Scarce – not everyone prepared to take risks and to identify opportunities

• Choice to decide best use of resources – Economic problem

• Economic principle – Ensure highest possible satisfaction of needs with limited resources
available.
o Which goods/services to produce/render?
o Who should produce? (State or private sector, individual business or industry)
o How to produce? Use of resources. (Labour or machine intensive)
o For whom are products produced/ services rendered? (Rich or poor, business
clients or individuals/families)
o Maximise income after applying economic principle

The Community
- Unlimited needs
- Limited resources
- Driving force: Economic motive

Choose its need-satisfying system

(Market/Socialism/ Communism)

Entrepreneur
- Need satisfying institution in market Economic system
economy -System chosen to achieve highest
- Driving force: Profit possible need satisfaction with limited
resources.

Needs of community are satisfied or

are not met. Indicates the role of need-satisfying
organisations
(If community is not satisfied in way
needs are met, can change or
choose another need-satisfying
system)

1.4 ECONOMIC SYSTEMS

Market Economy Socialism Command

(Communism)
(Capitalism)
• Basic industries • State owns &
Main characteristics • Private
owned by State controls all
ownership of
factors of • Freedom of industries and
production choice agriculture

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 • Freedom of • Communal
choice ownership
• Minimum state • Centrally direct
interference economic
system
Markets Free competition Limited competition No competition
as a result of State
industries
Driving force Profit & reward • Recognise profit • Profit is not
achieved according motive allowed
• Workers urged to
to individual ability • Employee play in
work for the glory
State owned
of the state
businesses based
on workers’
needs
Management • Private • Management • State creates
businesses environment: management
private & State environment
create
• Decisions • No freedom of
management
restricted to decision
environment
Government • Managers are
• Managers free to
take decisions policy in state- party members
• People free to owned
organisations
choose careers
(SOO)
• Workers are • Limited choice of
Labour • Workers are
independent independent jobs
• Can choose jobs • Unions controlled
• Can choose jobs
and employers by State
and employers
• Freedom to strike
• Freedom to strike
Consumers • Freedom of Freedom of choice, • Rationing of
choice in free except in respect of products
markets SOO products, price • Very limited
• Spending limited & quality choice
to income • Price of products
and income
levels set by State
• Possibility of full
Advantages • Private initiative State can
employment
occurs concentrate
• Economic • State stabilises resources towards
freedom • economic particular ends
fluctuations
• Little incentive in • Low productivity
Disadvantages • Environment is
SOOs • Low standard of
unstable
• Cyclical • SOOs can be living
fluctuations unproductive • Planning is
difficult or
• High social costs
impossible
• No country has pure economy, mostly mixed
o Economic system that includes a mix
▪ Of both public and government control, or
▪ Between capitalism and socialism
o Relevant aspects:

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 ▪ Degree of private economic freedom
▪ Centralised economic planning
▪ Government regulation

• State & economic systems

o State intervention to solve economic problem in market economy does not
indicate a move towards command or centrally controlled economy.
o A conservative perspective argues that the role of the state should be extremely
limited
o Government intervention aimed at encouraging economic growth and stability
o Control of strategic organisations cannot be left to profit seeking entrepreneurs
o An expanding entrepreneurial role by the state does not lead to a democracy
o Liberal view points out these important limitations of the market system, and claims
that government can do a great deal to overcome these limitations i.e. regulating
private economic activity and providing goods and services the private sector
produces too little.

• South Africa
o Moving towards market-oriented economy
o High degree of government participation in & control of economy

1.5 THE NEED-SATISFYING INSTITUTIONS OF THE MARKET E CONOMY

• Profit-seeking businesses (Business organisations)
o Privately owned or state-owned (public corporations – Telkom, Transnet, SABC)
o Most are privately owned (Private Enterprises), but state can also own
businesses.
o State owned business = Public corporations (Transnet etc.)
• Government organisations
o Generally government departments, e.g. SAPS and Department of Public Works
o Provide a service to the community.
o Funded from Treasury by means of taxes
• Non-profit
o Privately or State owned – not strive to make profit
o Seek sufficient income to cover costs
o E.g. sports clubs, welfare organisations & religious organisations

1.6 THE NATURE OF BUSINESS MANAGEMENT AND THE CLASSIFICATION OF THE STUDY
MATERIAL ON BUSINESS M ANAGEMENT
• Purpose and task of Business Management = Achieving the maximum output with the
lowest possible input of production factors.
• Purpose of Business Management = Produce the most units of products or services at
the lowest possible cost
• Task of Business Management = Study of the principals that have to be applied to make
a business as profitable as possible. Could include a study of the environmental factors
that could have an effect on the success of an organization, its survival or its
profitability.
• Economics = Study area of economic problems in the community

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• Business Management = Focus on the problems of the individual organisations in the
same community.

• Business management
o Primary task
▪ Determine how an enterprise can achieve the highest possible output
with the least possible input.
o Management of a need-satisfying institution
o Focus on individual organisations in the same community
o How to manage a business as productively as possible
▪ Produce the most units at the lowest possible cost
▪ Achieve highest possible income
o Activities include:
▪ Research markets to determine whether there is a need for the product
▪ Acquire & process raw material
▪ Appointing people
▪ Obtaining capital
▪ Co-ordinating/managing activities

Human
Resources

Production
Marketing /
Operations

General
manage
ment

Public
Purchasing
Relations

Financial

• General management
o Overall function through which top management develops strategies for the
whole business
• Production/Operations
o Activities to mobilise resources to create finished products/services that can be
distributed to meet the needs of customers into finished goods

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 o Establishment and layout of the production unit and the conversion of raw
material
• Human resources
o Driving employees to achieve their maximum potential for organisation and self
o Guides employees to accomplish objectives & vision set by management
• Marketing
o Marketing the products or services of the business
o Assess market, needs of consumers & develop strategy to meet the needs
• Financial
o Acquisition, utilisation and control of money business needs to finance its
activities
o Ensure maximum profitability of the business, without the danger or insolvency
or liquidation
• Public relations
o Creates favourable image of the business
o Promote goodwill between business & external groups that are
directly/indirectly involved in the business
• Purchasing
o Acquisition of all products and materials required by the business to function
profitably

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UNIT 2: ENTREPRENEURSHIP

2.1 KEY CONCEPTS

Entrepreneur, entrepreneurship, role of entrepreneur, motivation of entrepreneurs, small
business, entrepreneurial process, skills required of an entrepreneur, resources needed to start
a new business, starting a new business, buying an existing business.

2.2 ENTREPRENEURS & ENTREPRENEURSHIP

• Explain the concept of entrepreneurship.
o Process of identifying, creating or sensing opportunity where others do not see it
o Finding & combining resources to pursue the opportunity until it becomes a
successful established business
• Define an entrepreneur.
o Person or personality type that takes up a new venture and is willing to accept full
responsibility for the outcome
o Take initiative and risk by harnessing production factors to produce goods/services
o Have innovative ideas
o Identify opportunities
o Find resources to pursue opportunities for personal gain
o Take financial risks
o Bring about change, growth and wealth in economy
o Re-energise economy and create jobs
o Start, manage and grow small business
o Motivated by achievement

2.3 THE ROLE OF ENTREPRENEURS IN SOCIETY

• Entrepreneurial activity is the essential source of economic growth and social
development. Entrepreneurship is the spark that brings together other factors of
production into motion.
• Entrepreneurship in South Africa:
o Relatively new concept in South Africa due to legislation and high
unemployment.
o One reason for high unemployment rate is labour law.
o The more flexible the labour market is, the lower unemployment is.
o Other reason for high unemployment is lack of business people to create
employment.
o More entrepreneurs = More employment (that’s the theory).

2.4 ROLE OF ENTREPRENEURS & SMALL -BUSINESS OWNERS IN SOCIETY

• What constitutes a small business?
o Management is independent, i.e. owner also manages business
o Capital is provided by entrepreneur or few people starting business together
o Activities of enterprise are mainly local
o Enterprise is small in comparison to largest competitors in relevant industry, i.e.
does not dominate the industry
o National Small Business Act

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 ▪ Less than 200 employees
▪ Annual turnover < R64m
▪ Direct managerial involvement
▪ Capital assets < R10m

Small Business
• Quantitative criteria to define a small business include:
o Number of employees
o Sales volume
o Value of assets
o Market share
• A small business has at least 2 of the following characteristics:
o Management of the business is independent (Owner = manager)
o Capital is provided by the entrepreneur or a few people starting the business
together
o Activities of the business are mainly local
o Enterprise is small compared with the largest competitors in the specific industry
(i.e. corner café vs. Shoprite Checkers)

General Classification
• Survivalist
o Informal sector
o Mainly undertaken by unemployed
o Income generated below the poverty line, provide minimum means to keep owner
and family alive
o Little capital invested, not many assets
o Not much training
o Growth opportunities very limited
o 1-5 employees, usually owner & family
o Example: street vendor
• Micro
o Turnover below R200K
o Basic business skills & training
o Potential to make transition to viable formal small business
o Part of formal economy & make use of technology
• Very small
o < 10 paid employees
o Include self-employed artisans (electricians) and professionals
• Small
o Owner-managed, but more complex management structure
o Up to 200 employees (generally 50 or less, depending on industry)
o More established, formal and registered, fixed business premises
• Medium
o Mainly owner-managed, but decentralised management structure with division of
labour
o Operates from fixed premises with all formal requirements
o Less than 200 employees
o Annual turnover < R64mil
o Direct managerial involvement
o Capital assets < R10mil

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Entrepreneurs differ from small-business owners
• Small-business owners
o Satisfied with some autonomy & earning reasonable income for themselves
o No intention of growing & developing business entrepreneurially
o Merely alternative to working as employee
o Satisfy owner’s need for independence or lifestyle needs
• Role of small business
o Production of goods & services
o Innovation
o Aiding/supporting big business
o Job creation

2.5 THE ENTRENEURIAL PROCES

Realistic & Launch &

Personal
objective
characteristi Access to Feasibility manage
assessment Business plan
cs, abilities & resources study new
of
skills business
opportunity

The Entrepreneurial Process

• The decision to become and entrepreneur goes through the following phases:
• Abilities and Skills: Do I have the background knowledge to be able to succeed in
business?
• Access to resources: Do I have finance to start a business
• Opportunity/Idea: Is there a chance that the idea will work?
• Feasibility: Is my idea feasible in terms of Rands and cents?
• Business Plan: Compile a Business Plan to obtain necessary finance.
• Managing the business: Launch the business and manage it.

Resources needed:

• Financial resources
o Cash, bank overdraft, loans or investment capital
o In considering application for finance, banks generally the 4Cs which include
collateral, capital, character & conditions (4Cs does not include capacity and
cash flow).

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• Human resources
o Management team, accountant, lawyer, consultants etc.
o Obtaining a BCOM degree as it will equip a person with a certain level of skill and
ability to be able to produce the products and services required.
• Physical/operating resources
o Assets e.g. offices, vehicles, equipment, raw materials, machinery etc.

Reasons why an entrepreneur starts a business:

• Traits & characteristics:

o Achievement motivation
▪ Higher need to achieve
▪ Characterised by actions of intense, prolonged and repeated effort to
accomplish something that is difficult
▪ Ambition & competitiveness
▪ Attracted to activities that challenge skills and problem-solving abilities
o Internal locus of control
▪ Feeling that person is in control of his own destiny
▪ Believe outcome of an event is determined by own actions
▪ Control over own behaviour, persuade & motivate others, actively seek
relevant information and feedback
o Innovation & creativity
▪ Creativity – new ideas
▪ Innovation – application of new ideas
o Risk-taking
▪ Calculated risk – research and gather information before making decision
o Other traits
▪ High levels of energy, confidence, future orientation, optimism, desire for
feedback, high tolerance for ambiguity, flexibility/adaptability and
commitment

• Skills & industry experience

o Experience, training and education in a specific field
o Necessity entrepreneurs (e.g. job termination) v opportunity entrepreneurs
o Skills (knowledge demonstrated by action)
▪ Strategy – position business in competitive environment
▪ Planning – plan for future of business
▪ Marketing – identify target markets, identify wants/needs of market
▪ Financial – manage business’ finances
▪ Project management – organise business activities
▪ Human relations – deal with employees
• Outsourcing opportunities
o Work done for a company by people who are not employed by the company
o Example: food services (catering), security, cleaning services

• Reseller: a person who buys a product with the intention of reselling the product and usually
making a profit from this effort
• Distributor: an organisation that sells the product to different resellers who then sell it to the
customer

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• New business
o New venture ideas
o New venture opportunities
▪ Fundamental requirements for good investment opportunity
• Clearly defined market need for product/service
• Able to achieve sustainable competitive advantage
• Potential to grow
• Rewarding to entrepreneur and/or investor
• Timing right
• Acquire existing business

Advantages Disadvantages
Business location Customers familiar with Location may be
business location undesirable
Customers Established customer base Image of business may be
difficult to change
Employees Obtain experienced Employees inherited rather
employees than chosen
Business Planning based on known Potential liabilities for past
historical data business contracts
Inventory & equipment In place Potentially obsolete
Financing May be available from Could drain cash flow &
owner threaten survival of business

• Franchise
o Opportunity to start a business that has been proven in the marketplace
o Have to adhere strictly to plans/directions of franchisor
o Franchisor = entrepreneur, franchisee = intrapreneur
• Corporate entrepreneurship (intrapreneurship)
o When a person or team develops a new corporate business within a business
through identifying a new opportunity or business idea.
o Method by which a corporation introduces new and diversified products or services
to an existing business
o Introduce new and diverse products/services to existing business
o Internal processes
o Use corporation’s resources

• Feasibility study
o Collection of data that helps forecast whether an idea/opportunity/venture will
survive
o Assist in decision-making process whether entrepreneur should risk the venture
o Precedes business plan

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UNIT 3: ESTABLISHING A BUSINESS

3.1 KEY CONCEPTS

Legal personality, partnership, control, authority, ownership of a business, tax liability, sole
proprietorship, business location, close corporation, company, legal requirements, business
plan.

3.2 THE IMPORTANCE OF GEOGRAPHICAL LOCATION FOR THE SUCCESS OF A

BUSINESS
• Sources of raw materials
• Availability of labour
• Proximity & access to the market
• Availability & cost of
o Transport facilities
o Power & water
o Site & buildings
• Availability of capital
• Attitudes, regulations and tariffs of local authorities
• Existing business environment
• Social environment
• Climate
• Central government policy
• Personal preference

3.3 THE LEGAL FORMS OF OWNERSHIP IN SOUTH AFRICA

• Forms of Ownership = Forms of Business
• Companies and Close Corporations are Juristic Persons, while Sole Proprietorships and
Partnerships are not.

• Considerations in choosing a form of enterprise:

o Entity’s Legal (Juristic) Personality
▪ Exists independently from members,
▪ Recognized as a legal subject next to individuals
▪ It has its own rights, assets and obligations
▪ Members are not liable to debt
o Limited liability of owners or members when legal action is taken
▪ Claims are made against the company and the assets for payment of the
company debts, and against the personal estates of the company’s
members or directors.
▪ Trusts are generally not considered to be a juristic person as assets are held
in trustee’s personal estate.
▪ Trusts enjoy limited liability
o Degree of Control that the management or entrepreneur can exercise
▪ Sole proprietor enjoys total management autonomy
▪ Companies – formal division between ownership and control
▪ Partnerships and CC’s - participative management structures

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 Trusts – Managed by trustee, trust deed can apportion control between
▪
trustee, establisher of the business trust and the trust beneficiaries.
o Potential for capital acquisition
▪ Public company is ideally suited to raising large sums of capital
▪ Other enterprise forms, capital is provided by a limited number of persons
in their own positions.
o Compliance with Legal formalities and regulations
▪ Can impose a significant financial and administrative burden on the
business
▪ Different forms of business attract different legal and regulatory
requirements
o Taxation
▪ Rates for income tax, capital gains tax and transfer duty vary depending
on the kind of taxpayer.
▪ VAT is levied irrespective of the enterprise form.
o Ease with which business or entrepreneur’s interest can be transferred
▪ Shares in publicly listed companies are easy to transfer.
▪ In private companies, CC’s and partnerships, the transfer of interest is
dependent on the approval of the remaining members or partners.
▪ Beneficiaries of a trust may transfer their rights in accordance with the trust
deed.

Different forms of Business Ownership in South Africa

• Sole proprietorship
• Partnership
• Close corporation
• Company
• Business trust
• Co-operative society
• Joint ventures

Sole proprietor
• Owned & managed by one person
• No separate legal personality
• Capital acquisition potential depends on owner’s financial strength & creditability
• Business name must comply with Business Names Act
• Very few formalities & legal requirements for establishment – least expensive business form
• Owner personally liable for business debts & claims against enterprise
• Personal income tax
• Enterprise income forms part of owner’s personal income
• Transfer of ownership – reasonably simple
• Continuity – linked to lifespan and legal capacity of owner
• Advantages
o Simple to create
o Least expensive way to start a business
o Owner has total decision-making authority
o No special legal restrictions
o Easy to discontinue

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• Disadvantages
o Owner is personally liable without limitation
o Limited diversity in skill and capabilities
o Owner has limited access to capital
o Lack of continuity

Partnership
• 2 or more partners (limitation of 20 removed by new Companies Act)
• No formal requirements for setting up partnership (generally partnership agreement –
orally, written or tacit)
• Joint control & authority over business – ‘mutual mandate’
• No separate legal personality
• Capital acquisition potential – better than sole proprietor (each partner makes initial
contribution)
• Partners jointly & severally liable for partnership debts
• Tax liability – each partner individually
• Distribution of organisation’s profits – per partnership agreement or in accordance with
initial contribution
• Transfer of ownership – more difficult – partnership agreement conditions
• Continuity – limited to continued involvement of partners (death, insolvency, insanity etc.)
• Advantages
o Ease of formation
o Diversification of skills & abilities of partners
o Increased opportunity for acquiring capital
o o Minimal legal formalities & regulations
• Disadvantages
o Personal liability of partners
o Relative difficulty of disposing partnership interest
o Potential conflict between partners
o Lack of continuity (can be overcome by agreement)

Close corporation
• 1 – 10 members (only natural persons)
• Members own & control CC
• Legal personality
• Capital acquisition potential higher than partnership
• Name end in “CC”
• Close Corporations Act and Companies Act
• Limited liability of members
• Tax liability – separate taxpayer – corporate tax rate
• Distribution of organisation’s profits – in accordance with association agreement
• Transfer of ownership – easier than partnership
• Continued existence
• No new registrations (previously submitted a founding statement to register)
• Advantages
o Advantages attached to separate legal (juristic) personality
o Reasonably cheap and inexpensive to form (no longer possible to form new CCs)

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 o Members have limited liability
o Increased capital acquisition potential
o Management is relatively simple
o Continuity
• Disadvantages
o Membership limited to 10
o Juristic persons may not be members

Company
• Separation of ownership and control (Shareholders and Board of directors)
• Legal personality
• Potentially unlimited capital acquisition potential
• Subscription to shares
• Profit companies (State-owned ‘SOC’, private, personal-liability and public companies)
and non-profit companies.
o Private company
▪ 1 – 50 shareholders
▪ Restriction on transfer of shares
▪ (Pty) Ltd
▪ At least 1 director
o Public company
▪ At least 7 shareholders
▪ At least 2 directors
▪ Shares freely transferable
▪ Ltd
• Complex requirements
• Limited liability, increased burden on directors
• Tax liability – corporate tax rate
• Distribution of organisation’s profits – in accordance with dividend policy
• Transfer of ownership – easy – sell shares
• Continuity
• Advantages
o Limited liability
o Ability to raise large amounts of capital
o Continuity
o Transferability of shares
• Disadvantages
o High degree of legal regulation
o High operational cost

Business trust
• Unlimited beneficiaries
• Managed by trustees
• Legal personality – yes in terms of new Companies Act
• Limited capital acquisition potential
• Very little regulation
• Limited liability
• Separate tax payer – higher tax rate

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• Distribution of organisation’s profits – in accordance with trust deed
• Transfer of ownership – amend trust deed
• Continuity
• Advantages
o Ease of formation
o Limited liability
o Extreme flexibility
o Absence of legal regulation
o Continuity
• Disadvantages
o Limited access to capital
o Potential for conflict between parties

Co-operative society
• Mainly in agricultural sector
• Similar to private company
• Co-operatives Act
• Benefits
o Economies of scale
o Equity is generated
o Increased incentives for workers
o Encourage public good – creates employment opportunities

Joint venture
• Co-operation between persons or businesses
• Legal consequences depends on specific agreement between parties

3.4 DEVELOPING THE BUSINESS PLAN FOR THE NEW VENTURE

Main objectives
• Identification and description of the nature & content of the business opportunity (Why
does opportunity exist?)
• Explain how entrepreneur will develop the opportunity
o Systematic and realistic evaluation of new venture’s chances of success in the
market
o Identification of key success factors and primary risks
o Description of how business will be managed – management & operating plan
• Attract investors or other institutions to provide financial resources by illustrating viability of
the business idea.

Additional objectives
• Management instrument & framework against which actual performance can be
measured

Importance
• Overall importance = planning activities

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• Reasons for drafting a business plan
o Sell the business to self
o Obtain bank financing
o Obtain investment funds
o Arrange strategic alliances
o Obtain large contracts
o Attract key employees
o Mergers & acquisitions
o Motivate & focus management team

Stakeholders
• Internal
o New venture management
▪ Vision, mission, key objectives & overall strategy
o Employees
• External
o Customers
o Investors
o Banks – 4Cs (Capital, collateral, character & conditions)

The Various Components of a Business Plan.

• Cover page & executive summary
o Executive summary holds together and unifies other components of the plan
o Overview of total business plan
o Write after other sections completed – highlights significant points
• General description of the venture
o Extension of feasibility analysis
o Explain type of business & give history if it already exists
o Type of industry and legal form
o Current status: start-up, buy-out or expansion
o Mission statement
• Product-and-services plan
o Describe product and/or service & point out unique features
o Explain why people will acquire product/service
• Marketing plan
o Identify potential customers and competition
o Outline marketing strategy & specify competitive edge
• Management plan
o Identify ‘key players’: active investors, management team and directors
o Cite their experience and competence
o Plans for recruiting & training employees
• Operating plan
o Explain type of manufacturing/operating systems business will use
o Describe facilities, labour, raw materials and processing requirements
o Sources of supply and purchasing procedures
• Financial plan
o Specify financial needs & contemplated sources of financing
o Projections of revenue, costs and profit. (1-5 years)

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 o Assumptions & explanations
• Supporting materials

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UNIT 4: THE BUSINESS ENVIRONMENT

Macro-
enviroment

Market
enviroment

Micro-
enviroment

Business
organisation

4.1 KEY CONCEPTS

Business environment, micro-environment, market environment, environmental change,
macro-environment, composition of the business, environmental scanning, environmental
SWOT analysis

4.2 THE BUSINESS AND ENVIRONMENTAL CHANGE

Society depends on business organisations for most of the products and services it needs,
including employment opportunities. Business obtains resources from society and the
environment.

The organizational and environmental change:

• Change has become the only constant reality and only definite phenomenon in
management.

The 3 composition of the business environment:

• Business environment – defined as all the factors or variables both inside as well as outside
• Business organization, which may influence the continued and successful existence of the
organization.
• Business environment refers to both the internal as well as external factors that impact on
the business organization, largely determining its success.
• Change refers to any alteration in the status quo
• Environmental variables
o Technological innovations
o Economic fluctuations
o New laws
o Social factors

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4.3 THE COMPOSITION OF THE BUSINESS ENVIRONMENT

The nature and composition of the business environment.

• Business environment
o Sum of all variables which may influence the successful existence of the
organisation
o System approach to management: organisation is integral part of its
environment and should adopt to it
o Characteristics
▪ Interrelatedness of the environmental factors/variables
▪ Increasing instability & change
▪ Environmental uncertainty – depends on amount of relevant
information available
▪ Complexity of environment – result of number of external variables

Discuss each of the components of the environmental model.

Micro-environment
• Business itself – workers, managers & functional areas
• Management has almost complete control
o Vision, mission, objectives, business functions and resources
o E.g. pricing & recruitment decisions
• Analysis allows management to identify strengths, weaknesses to utilise opportunities
and counter threats
• Will influence market environment through strategy employed

Market environment (aka Task environment)

• Immediate external sub-environment that has direct influence on the business
• Management can exert some control – influence variables through strategy applied
• Key variables:
o Consumers, competitors, suppliers & distributors/intermediaries
• Give rise to opportunities & threats

Macro-environment
• Greater external environment that influence business
• Management has least control
• Variables
o Technological environment
o Economic environment (e.g. inflation, exchange rates, interest & fiscal policy)
o Social environment (e.g. consumer life style, habits, values & culture)
o Physical environment (Natural resources incl. minerals and manufactured
improvements e.g. roads)
o Institutional environment (government and its political & legislative
involvement)
o International environment (local & foreign political trends)

4.4 MICRO-ENVIRONMENT
Components

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 • Vision, mission and objectives of the business
o Vision – What does organisation want to become?
o Mission – What is the business?
▪ Enduring statement of purpose that distinguishes one business from
other similar firms
▪ Foundation for development of long-term objectives
o Objectives – e.g. market share, profitability, worker empowerment
• Organisational functions (management)
o Purchasing, logistics, marketing, financial etc.
• Resources
o Include human resources (salaries, recruitment policies & staff retention)
o Tangible resources
▪ Production facilities, raw materials, financial resources, property,
computers and other machinery/equipment.
o Intangible resources
▪ Brand names, patents, trademarks, reputation, technical knowledge,
organisational morale & accumulated experience
o Organisational capabilities
▪ Ability to combine resources, people and processes in a particular way
o Fight against HIV – Why?
▪ Not only macro-environment (social) concern – internal policies
▪ Better opportunities for growth in the market
▪ Increased productivity
▪ Decreased cost of healthcare
▪ Reduced employer liability
▪ Continued workforce diversity
▪ Lower rates of employee turnover
▪ Improved employee morale

4.5 MARKET OR TASK ENVIRONMENT

Description
• Also known as task environment
• Immediate consumer, supplier and the intermediate market in which competitors also
operate
• Consists of variables that revolve around competition
• Source of opportunities & threats
o Threat - unfavourable condition or trend within the market environment

Components
• Consumer market
o People who have needs to satisfy and financial means to do so
o Understand
▪ Wants and needs of consumers
• Macro-economic influences – demographics, # consumers
• Industrial market – goods/services supplied for further
manufacturing
• Government market – goods/services acquired by government
departments and institutions
• Durable & semi-durable products and services

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 ▪ Purchasing power
• Consumer’s personal disposable income
▪ Buying behaviour
o Keep track of changes
• Supplier market
o Material – raw material, manufactured goods, equipment and energy
(electricity etc.)
o Capital - financial resources (banks & shareholders)
o Labour – incl. organised labour (trade unions & labour brokers)
• Intermediaries
o Institutions bridging the gap between manufacturer and consumer
o E.g. wholesalers, estate agents and brokers
• Competitors
o Rival businesses competing for consumer spending
o Factors influencing nature and intensity of competition
▪ Possibility of new entrants (or departures)
▪ Bargaining power of clients and customers
▪ Bargaining power of suppliers
▪ Availability of substitute products/services
▪ Number or existing competitors

Keeping an eye on the trends

• Environmental scanning, market research and information management

4.6 MACRO-ENVIRONMENT
Description
• Uncontrollable forces in external environment – mega-trends

Components
• Technological environment
o Technological innovation, research &development, incl. medical cures
o Continued assessment
▪ Identify important technological trends
▪ Analyse potential changes in important current & future technology
▪ Analyse impact of important technologies on competition
▪ Analyse organisation’s technological strengths and weaknesses
▪ List priorities that should be included in technology strategy
o Priority trends
▪ Water, minerals, marine, agricultural, medical, transport & power
• Economic environment
o Measure of country’s economic well-being/growth – gross domestic product
(GDP) – preferably 7-8%
▪ GDP influences consumer buying power
o Business cycle – upswing/downswing – impacts of stock levels
o Inflation
o Government’s monetary policy
▪ Money supply, interest rates and strength of currency
o Government’s fiscal policy

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 ▪ Tax and tax reforms
o Economies of surrounding countries
• Social environment
o Demographic change
▪ Change in the growth and composition of populations
▪ Impact on needs, income, behaviour of consumers & employment
patterns
o Urbanisation
▪ Movement of people from rural areas to cities
▪ Impacts on housing, sanitation, slum control & health services
o Level of education
▪ Increased skill level
▪ Increased demand for books etc.
▪ More sophisticated consumers – quality of products, advertising &
working conditions
o Changing role of women
▪ Increased economically active women
o Consumerism
▪ Social force protecting consumers by exerting legal, moral, economic
and political pressure on management
▪ Consumer rights
• Right to safety (protection against goods that are dangerous)
• Right to be informed (objective information to make decisions)
• Right to freedom of choice (substitute/competitive products &
protection against monopolies)
• Right to be heard
o Consumer Protection Act of 2008
o Social responsibility & business ethics
▪ Management should consider consequences of decisions & actions on
society
▪ Corporate Social Responsibility (CSR)
• Businesses are more than profit-seeking entities and should
therefore have an obligation to benefit society (good corporate
citizenship)
▪ Business ethics
• Ethical behaviour of management & executives
▪ Ethics
• Guide to moral behaviour based on culturally embedded
definitions of right & wrong
▪ Employees
• Employment equity, safe working conditions, respect
▪ Consumers & customers
• Safe products, objective information, no misleading advertising
▪ Investors & financial community
• Accurate financial reporting, no insider trading and bribes
▪ General public
• Conservation, philanthropic donations, avoiding unlawful
competition, public health (incl. AIDS)
o HIV/Aids

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 o Culture
• Physical environment
o Physical resources people need to support life and development
o Issues of most concern
▪ Population & health patterns
▪ Food
▪ Water
▪ Energy & climate
▪ Biodiversity
o Opportunities/threats
▪ Cost of energy & pollution
▪ Environmentalism (conservation & eco-tourism)
▪ Scarce resources (substitutes)
• Institutional-political environment
o Regulatory
▪ Legislation, annual budget, tax, import/export control & tariffs, price
control, health regulations
o Government expenditure
• International environment
o Globalisation – borderless world

4.7 ENVIRONMENTAL SCANNING

• Process of systematic measurement, projection and evaluation of change in
environments
• Identification of every opportunity and threat
• Importance
o Keep abreast of continually changing environment
o Determine which factors & patterns
▪ Pose threats to existing goals and
▪ Represent opportunities to promote current goals
• Extent of environmental scanning depends on:
o Basic relationship between business and its environment
o Nature of environment & demands made by business
o Source & extent of change
• Forms of scanning
o Basic: collection & updating of secondary information (public knowledge –
articles etc.)
o More advanced: collection of primary information or special investigations
o Advanced: establish a formal environmental scanning division/unit and use
industrial analysts to make market forecasts
• Continuous process

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UNIT 5: CORORATE SOCIAL RESPONSIBILITY

5.1 KEY CONCEPTS

Corporate social responsibility, corporate citizenship, triple bottom line, citizenship imperative,
stakeholder mapping, stakeholder engagement, corporate governance, business case for
implementing CSR, sustainable development

5.2 INTRODUCING CORPORATE SOCIAL RESPONSIBILITY (CSR)

Corporate social responsibility or corporate citizenship: Businesses operate in a wider social

environment, and have both positive and negative impacts on the communities and the
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 society
faces, such as poverty, unemployment and pollution. Corporate social responsibility is about
proactive efforts on the part of companies to make a positive contribution to society
Five universal reasons why companies need to make an effort to become better corporate
citizens:
• Global investors value good corporate citizens
• Financial markets are waking up to the liabilities of irresponsible behaviour
• Different countries have their own dynamic and volatile market conditions and their
own ways of understanding business responsibility. These companies that do not
engage with the communities on which they operate will struggle to thrive
• Intense global competition increasingly means co-operation with other businesses.
Since you will be judged by the company you keep, finding a partner with a good
corporate citizenship and being a good corporate citizen is essential
• How you approach public policy issues matter

Within the business context, corporate social responsibility is a concept that recognises that (i)
companies are responsible for their impact on society and the natural environment (ii)
companies are responsible for the behaviour of others with whom they do business, and (iii)
companies need to manage their relationships with the wider society.

5.3 TERMS AND TRENDS

• A company’s bottom line: its financial profit or loss
• Triple bottom line: measures the financial, social and environmental impacts of
business. All are equal and all are interconnected
• Corporate social investment: spending a small part of your profits on good causes.
Corporate social responsibility is about how you make your profits in the first place. Not
to be confused!
• Sustainability reporting: increasing expectations for companies to publicly report on
financial, social and environmental issues
• Corporate governance: how a company’s objectives and strategies and decision
making structures are developed, implemented and monitored. It also relates to the
extent to which, and way in which, a company is accountable to its shareholders and
other stakeholders
• Sustainable development: development that meets the needs of the present without
compromising the ability of future generations to meet their own needs

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5.4 THE CITIZENSHIP IMPERATIVE

Global drivers
• Pressure on companies to demonstrate good social corporate responsibility practices
o United Nations Global Compact
o Global Reporting Initiative (GRI)
o AA1000 Framework
o ISO14000 – International standards
o Organisation for Economic Co-operation and Development (OECD)
o SA8000
o Dow Jones Sustainability index
o Kyoto Protocol

The Global Reporting Initiative (GRI) (1997): aims to provide a set of reporting guidelines that
cover all the key issues of concern regarding corporate citizenship. By developing guidelines
the GRI wants to encourage companies to be more systematic and comprehensive in their
approach to sustainability reporting

AA1000 Framework (1999): purpose is to help users to establish a systematic stakeholder

engagement process that generates the indicators, targets and reporting systems needed to
ensure its effectiveness in overall organisational performance. It does not describe what should
be reported on, so its guidance is considered complementary to that of the GRI Reporting
Guidelines

Other relevant initiatives:

1. ISO 14000 series: a series of standards that focuses on corporate environmental
management systems
2. Organisation for Economic Co-operation and Development (OECD) Guidelines for
Multinational Enterprises: concerns the disclosure of information, employment relations,
environmental management, bribery, competition, consumer interests and science
and technology diffusion
3. SA 8000: focuses on labour conditions, was developed by Social Accountability
International

10 principles of the UN Global Compact:

• Human Rights
o (i) Businesses should support and respect the protection of internationally
proclaimed human rights and
o (ii) Make sure that they are not complicit in human rights abuses
• Labour standards
o (iii) Businesses should uphold the freedom of association and the effective
recognition of the right to collective bargaining
o (iv) The elimination of all forms of forced and compulsory behaviour
o (v) The effective abolition of child labour and
o (vi) The elimination of discrimination in respect of employment and occupation
• Environment
o (vii) Businesses should support a precautionary approach to environmental
challenges
o (viii) Undertake initiatives to promote greater environmental responsibility and

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 o (ix) Encourage the development and diffusion of environmentally friendly
technology
• Anti-corruption
o (x) Businesses should work against all forms of corruption, including extortion and
bribery

South African initiatives and imperatives:

1. Legislation: the basis of corporate citizenship is compliance with all relevant national
legislation:
a. Companies Act 61 of 1973 and Close Corporations Act 69 of 1984
b. The Constitution of the Republic of South Africa (1996)
c. Labour Relations Act 66 of 1995 and Basic Conditions of Employment Act 75 of 1997
d. Employment Equity Act 55 of 1998
e. Preferential Procurement Policy Framework Act 5 of 2000
f. Mineral and Petroleum Resources Development Act 8 of 2002
g. National Environmental Management Act 107 of 1998
h. Promotion of Access to Information Act 2 of 2000
i. Basic Conditions of Employment Act 75 of 1997
j. Occupational Health and Safety Act 85 of 1993
k. Broad-based Black Economic Empowerment Act 53 of 2003
2. King Code on Corporate Governance in SA: King III Report is very important for CSR in
SA companies, and is internationally recognised as being a progressive document. The
report provides organisations with guidance on good corporate governance practices
and explicitly defines concepts such as “corporate citizenship”, “social responsibility”,
“triple bottom line performance”, “stakeholder engagement” and “sustainability
reporting”. It applies to all entities regardless of the manner and form of incorporation
and establishment
3. JSE Socially Responsible Investment Index: relates to the role of investors in corporate
citizenship and the emerging requirements of investors and civil society for companies
to demonstrate more socially responsible behaviour. This index comprises criteria to
measure the triple bottom line categories of environmental, economic and social
impacts, as well as a separate category for corporate governance
4. Industry charters: sector-specific charters that promote socio-economic transformation
and establish an equitable economic playing field
a. Chartered Empowerment and Transformation in the Tourism Industry
b. Financial Sector Charter
c. BEE Charter for the South African Mining Industry

5.5 THE BUSINESS CASE FOR CORPORATE SOCIAL RESPONSIBILITY

The business case for CSR: refers to the argument that being a good corporate citizen can
contribute to a company’s profitability
• Being a good corporate citizen can have positive implications for a company’s reputation.
This can have positive financial benefits through customer loyalty, attracting higher-quality
employees or improving relationships with investors
• Eco-efficiency can save a company cost; using recycled materials in building design,
employing solar panel technology to generate energy and using fuel-efficient
technologies in vehicles
• Competitive advantage and value creation. A company that ignores ethical,
environmental or social issues may actively destroy value through inadequate

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 management of risks, but may also limit value through missing opportunities. While focusing
on the risks will protect existing business interests, and thus conserve value, such a purely
defensive approach will not open up new opportunities to create value

Key Strategic opportunities and threats in the environmental and social field:
Threats Opportunities
Labour shortages Access to new pools of labour from
education and training programmes and
community involvement
Low productivity and quality because of Higher productivity because of better
poor labour practices and skill levels trained staff and higher standards
Missing new market opportunities, and the New markets through an improved
erosion of traditional markets understanding of consumer needs
Product obsolescence through low levels of New products and markets through the
innovation and inappropriate technology application of new technologies
Failure to anticipate new social and First mover advantage by anticipating the
regulatory requirements impacts of social pressures
Vulnerability because of low investor Lower cost of capital because of greater
confidence investor confidence in a company’s ability to
manage change
Higher cost levels from increased regulation Lower compliance costs by being ahead of
from old technology regulations
Recruitment and customers retention Enhanced reputation leading to greater
problems through poor reputation staff, customer and investor loyalty

Perceived threats and opportunities for South African businesses with regards to pertinent
social economic and environmental factors:

Threats Opportunities
BEE Legislation • Lower competitiveness • Empowerment of
through lower skilled disadvantaged
appointments individuals
• Less investor confidence • Increased
competitiveness in terms
of government business
• Investor confidence in
company’s ability to
manage change and
retain profits
HIV/ Aids • Lower productivity Positive contribution to staff
• Increased medical costs wellness and education on
• Lack of continuity health matters, which slows
• Higher training costs down infection rates and
leads to higher productivity
Developing partnerships with
government and NGO’s
Minimum wages Higher operating costs Improvements in employee’s
because of salary/ wage bill standards of living, which
leads to higher employee
morale, productivity and
retention
Regulatory requirements • More formalities, Attracting foreign
paperwork etc. investment
• Costs of compliance

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5.6 CORPORATE GOVERNANCE
Corporate governance refers to the way in which an organisation makes decisions and
decides how to manage its affairs. The King III Report on Corporate Governance was published
on 25 Feb 2009 and it includes the following principles:
• Good governance is about effective leadership
• Sustainability is the primary moral and economic imperative for the 21st century
• Innovation, fairness and collaboration are important factors regarding sustainability

Way in which organisation make decisions & decides to manage its affairs
• Cadbury – balance between
o Economic & social goals
o Individual & communal goals

To align as nearly as possible the interests of individuals, corporations & society

• King Reports
o Transparent leadership - answerable & accountable to organisation’s
stakeholders
• Roles & responsibility
o Board of directors
▪ Fiduciary relationship (trust)
▪ Define strategy
▪ Executive & non-executive directors
▪ Independent director – non-executive with no existing or prior business,
employment, consultancy or other relationship with company
▪ Chairman
o Management
▪ Implement strategy defined by Board
▪ Chief Executive Officer (CEO)
• Embed CSR at Board level (CSR committee) – establish policy
o Values-based system : Align CSR policy to organisation’s vision, mission &
guiding principles
o Stakeholders-engagement process : reactive approach
• Policy document should include:
o Company’s vision, commitment, goals & targets for CSR Sustainability reporting
is a key facet of good corporate governance

5.7 STAKEHOLDERS AND STAKEHOLDER ENGAGEMENT

Stakeholders: the people or groups who are affected by or who can have an effect on a
company:
• Internal stakeholders: executive board members, management and other employees
• External stakeholders: shareholders, the consumer, the public, suppliers and the wider
community in the area where the business operates
• Primary stakeholders: those whose ongoing support of the company is vital to the
company’s survival
• Secondary stakeholders: less direct impact on the company, and include
environmental NGO’s or the media

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Key approaches of the stakeholder engagement process:
• Involvement: Encourage brand involvement by welcoming interested parties and
respecting their roles. Build existing relationships and find new participants to enrich
dialogue.
• Candour: Be comprehensive. Make sure that you consider every issue. Build trust by
creating an environment where different opinions are welcome. Be candid. Disclose
your agenda, assumptions, goals and boundaries.
• Relevance: Make the process relevant by focusing on the issues of greatest
importance. Share knowledge so that all participants have access to pertinent
information. Ensure that the process is timely and that the process takes place when
new information can influence decisions.
• Learning: Uncover new perspectives. Seek mutual understanding and identify mutually
beneficial solutions to problems. Focus on the future. Emphasize what can be done to
resolve issues.
• Action: Act on results by applying what has been learnt to improve business planning
and decision-making. Provide stakeholders with evidence of how the results of the
process will be used.

Engagement process
• Start by mapping all internal & external stakeholders, define their role & impact on
organisation to determine the most appropriate manner to engage with them.
• Prepare: identify and understand the territory to be explored through the engagement
process with stakeholders. Determine the most important issues where stakeholder
engagement might be helpful and what kinds of stakeholders might be considered for
engagement.
• Plan: Set objectives and parameters for the engagement process, and identify and
priorities stakeholders with whom to engage. Decide how an adequate objective for
the engagement process can be set and how the process can be kept within bounds.
Consider who should be accountable for engaging and how to determine exactly
which stakeholders should be involved. Decide on the best mode of discussion to have
and how to measure the success of the process.
• Design: Co-develop the management plan, including the agenda and logistics, to
meet the engagement objectives. Determine how and when to extend an invitation
to explore whether engagement is possible and what objectives might be mutually
agreed to for the engagement. Consider the best way to conduct the sessions,
whether an independent third-party facilitator will be required, and what logistics and
rules must be in place. Decide whether it is necessary to verify or audit the
engagement.
• Engage: Successfully meet the objectives through execution of the engagement plan
with stakeholders. Before doing this, establish whether the correct background
information, materials and training to begin the engagement are available. Decide on
the steps or actions that will follow the engagement.
• Evaluate: Assess the outcomes of engagement for both the company and
stakeholders against specific objectives. Decide if further engagement sessions are
necessary and use the predetermined criteria to assess whether the engagement was
successful. Consider the outcomes and establish whether the process was helpful
• Apply: Share information and integrate the outcomes of the engagement process
appropriately into business practices. Decide how to ensure that the results of the

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 engagement reach the right internal decision-makers and how to inform stakeholders
about follow-up from the engagement session.

Engagement methods
• Focus groups – questionnaires
• Market research
• Personal visits
• Meetings
• Road
• Shows
• Interviews

5.8 SUSTAINABLE DEVELOPMENT

Development that meet the needs of the present without compromising the ability of future
generations to meet their own needs.

Important sustainable development meetings:

• The Rio Earth Summit 1992
• The United Nations Global Compact
• The Millennium Development Goals (MDGs) 2000
• The World Summit on Sustainable Development (WSSD) 2002

5.9 THE LINK: DOES CSR RELATE TO THE VARIOUS BUSINESS FUNCTION
• CEO/top management
o Responsible for managing whole organisation, including strategy, financial
performance.
o Oversee all functional areas
o Specific ways in which CSR can be useful -> policies, corporate reputation & risk
management
• Operations
o Ensure that products/services produced in timely, cost effective way
o Beat competitors on price, innovation & quality
o CSR create new market opportunities & increase competitiveness
o Total Quality Management (TQM) – development & delivery of quality products
• Finance
o Controls budget
o Access to capital
o CSR provides opportunities to unlock capital – reputation
• Procurement
o Choice of suppliers - support
o Preferential Procurement Act – promote sustainable BEE
• Human resources
o Increase employee satisfaction & loyalty, improve recruitment & retention
o Policies & procedures
o Treatment of employees
o Key performance areas (KRA’s)
o Legislation
▪ Labour Relations Act, Employment Equity Act, Basic Conditions of
Employment Act

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• Risk management
o Increased difficulty : globalisation of risk, heightened surveillance, increased
demands for transparency
o Increased social & environmental risk: Unemployment, HIV/AIDS, poverty.
• Marketing & public relations
o Effective development & delivery of satisfactory product offering to the market –
meets needs of organisation, consumer & community
o Responsible advertising
o Cause-related marketing

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TOPIC 2: THE MANAGEMENT PROCESS

UNIT 6: INTRODUCTION TO GENERAL MANAGEMENT

6.1 KEY CONCEPTS
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.

6.2 THE ROLE OF MANAGEMENT

The reason for the establishment of a business is to achieve objectives that would be too
difficult for individuals to achieve on their own. If you could manufacture a product on your
own, you would have no need to establish an organisation

Management tasks
• 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
Main causes of business failure:

• Bad management/ managerial incompetence

• Lack of managerial experience
• Lack of clear objectives
• Poor business planning
• Poor cash flow management
• Over expansion
• Poor marketing
• Poor business location
• Economic conditions
• Failure to adapt to a changing environment
• Inadequate pricing
• Poor human resource relations

6.3 A DEFINITION OF MANAGEMENT

• Management: the process followed by managers to accomplish a business’s goals and
objectives. It is a process of activities that are carried out in order to enable a business to
accomplish its goals by employing human, financial and physical resources for that
purpose.

Three levels of management:

• Top management: The highest ranking executives responsible for the entire enterprise. Top
management translate policy into goals, objectives, and strategies, and projects a shared
vision of the future. It makes decisions that affect everyone and they are held entirely
responsible for the success or failure of the enterprise. (i.e. Chairman/Chairwoman, CEO,
MD, president, vice presidents)
• Middle management: refers to managers who are below the top level of management,
and who are responsible for controlling and running an organization rather than
making decisions about how it operates. (e.g. responsible for the human resource function
of the organisation)

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• Lower management/supervisory management: The organizational tier for supervisors
positioned directly above non-managerial employees. Lower management in a business
generally oversees the performance of employees working on line tasks in managerial
positions.(e.g. managers at supervisory level in a factory)

Types of management:

• General management: general management differs from other functions because every
manager, regardless of the specialised function in which he or she operates, exercises it.
• Marketing management: The application, tracking and review of a company's marketing
resources and activities.
• Financial management: means planning, organizing, directing and controlling the
financial activities such as procurement and utilization of funds of the enterprise. It means
applying general management principles to financial resources of the enterprise.
• Production and operations management: is primarily concerned with planning, organizing
and supervising in the contexts of production, manufacturing or the provision of services. It
involves the responsibility of ensuring that business operations are efficient in terms of using
as few resources as needed and effective in terms of meeting customer requirements.
• Purchasing management: where goods and services are acquired from a different
organization or firm.
• Human resource management: the effective management of people in a company or
organization such that they help their business gain a competitive advantage. It is
designed to maximize employee performance in service of an employer's strategic
objectives.
• Public relations management: the management function that establishes and maintains
mutually beneficial relationships between an organization and the publics on whom its
success or failure depends.

Managerial problems: Since government has made it a priority to promote economic

empowerment among disadvantaged entrepreneurs, it is crucial to focus on assisting black-
owned businesses. Although these businesses are potentially a strong vehicle for increasing
employment and contributing to economic growth, many are in trouble because of a lack of
business training. In order to effectively contribute to the promotion of economic
empowerment, a priority should be to

6.4 SKILLS AT DIFFERENT MANAGERIAL LEVELS AND THE ROLES OF MANAGER

Task of management
• Planning: Management decides what should be done
• Organising: Management decides how it should be done
• Leading: Management says how and when it should be done
• Control: Management ascertains whether the tasks have been carried out

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 Planning Organising Leading Control

Skills needed by management:

• Conceptual skills (mental capacity to view the business and its parts in a holistic
manner)
• Interpersonal skills (ability to work with other people)
• Technical skills (knowledge and techniques)
Role of managers: The concept of a manager’s role creates awareness of what a manager
does, and hence which skills are required.
• Interpersonal role
o Acting as representative figure
o Leading people
o Maintaining good relations
• Information role
o Monitoring
o Gathering information
o Analyse
o Spokesperson
• Decision-making role
o Gathering and analyse information
o Entrepreneur
o Problem solving
o Negotiators

6.5 DEVELOPMENT OF MANGEMENT THEORY

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

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

Behavioural/ Human relations school: workers are people who needed 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 of their best.

Quantitative school: sees the main function of management as using a system of

mathematical models and processes. One such example is in the field of marketing where
marketers would like to know the differences between different groups of people (target
markets). This information can be gained by doing discriminant analysis, which uses some
aspects of mathematics and statistics. Management is however much more than that and at
most quantitative techniques are no more than an aid to management.

Systems approach: sees the organisation as a system of many parts that must be managed in
an integrated manner. All the functional areas in the organisation must work together to attain
the objectives of the organisation.

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 of 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.

Strategic management: management focus on the threats and opportunities in the business
environment and evaluates the organisation’s strengths and weaknesses in order to overcome
the threats and exploit the opportunities.

Top quality management (TQM): quality products and services can be manufactured only if
the entire business contributes to the achievement of such an objective

The learning organisation and the re-engineering:

• Learning organisation: a management approach that requires learning individuals. The
inability to learn can cripple an organisation.
• Re-engineering: a management approach that forces the organisation to focus on its
core business and to outsource those activities that do not relate to the core business.

Diversity management: a management approach that focuses on the needs and cultural
diversity of an organisation.

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UNIT 7: PLANNING
7.1 KEY CONCEPTS
Goal, management (top, middle and lower), goal-setting by management, planning process,
strategic goals, functional (tactical) goals, operational goals, hierarchical approach,
development of plans, management by objectives (MBO)

7.2 WHY IS PLANNING NEEDED?

Planning is process of setting goals and deciding how to achieve it.

Benefits of planning:
• Gives direction (road map)
o Goals – desired future state over fixed period of time
o Plan – how goals are to be achieved
• Helps with coordination, cohesion and stability of organisation
• Force organisation to look at future & anticipate change
• Reduces impact of change : future-orientated thus minimise threats
• Facilitates control
• Resource planning
• Motivate employees
Costs of planning
• May create rigidity
• Consumes management’s time
• Replace intuition & creativity
• Cause delays in decision-making

7.3 MANAGERIAL GOALS AND PLANS

Goal is desired future state that the organisation sets for itself over a fixed period of time.

Nature of goals:
• Time period: long-term, medium-term or short-term
• Publicly stated or not
Goals need to be SMART:
• Specific (provide road map – everyone needs to know what is expected of them)
o What the goal relates to, the period & specific desired results
• Measurable (objective & quantifiable)
• Attainable (Assign responsibility to attain goals to specific people)
o Realistic & challenging
• Relevant
o Relate to organisation’s mission & strategic goals
o Horizontal consistency – departmental objectives are consistent
o Vertical consistency – departmental & subsection goals are consistent
• Time-bound (specific time limit)

Management by objectives (MBO)

• Managers & employees jointly set goals
o Improves employee motivation

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 • Progress towards attainment of these goals is periodically assessed.
• Process:
o Manager & employee has initial discussions – clear job description & KPA’s
o Employee establishes potential key performance targets.
o Manager & employee meet to develop set of goals and agree on checkpoints
to evaluate employee’s progress
o Manager evaluate degree of goal-attainment

7.4 THE PLANNING PROCESS

Dynamic process. Forms foundation of other management tasks.

Planning parameters:
• Organisation’s mission (purpose)
• Environment
• Manager values
• Manager experience

Planning steps:
• Goal-setting
o Consider organisation’s mission
• Developing plans
o Based on information obtained from environmental scan
o Develop alternative plans
o Evaluate alternative plans
o Select a plan
• Implementation
o Through other management functions (organising, allocation, leading &
control)
o Develop framework for execution of plans
• Reactive planning
o Feedback loop – ‘learn from mistakes’
o Also when changes occur in environment
o Deviation from plans

Goal setting

Reactive Developing
planning plans

Implementa
tion

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7.5 SETTING ORGANISATIONAL GOALS AND DEVELOPING PLANS
• Strategic goals
o Top management
o Organisation as a whole
o Future orientated, e.g. the broad plan of how organisation is going to compete
in its industry
o Vision (picture of the future)
o Mission (over-arching goal of organisation – sets apart from other organisations
in same industry)
▪ What is our business? (products & services)
▪ Who are our customers? (markets)
▪ How do we provide our products or services? (technology)
o 3-10 years
• Functional goals
o AKA tactical goals
o Determined by middle management
o 1 – 3 years
• Operational goals
o Short term goals
o Set by lower-level managers
o Cover maximum period of 1 year
• Strategic plans
o Focus on organisation as a whole – synergy
o Access to necessary information about organisation & business environment
o Interpret opportunities & threats
o Think conceptually, integrating consequences of alternative strategic plans &
resource needs
o > 5 years
o Filters down to form basis of functional & operational plans
o Corporate strategy – scope of organisation & how managers deploy resources.
Include:
▪ Market-development strategy
• Develop existing markets for present products more intensively
• Develop new markets for existing products
▪ Product-development strategy
• Develops new products for existing markets
• Modifies existing products to win greater approval among
consumers
▪ Concentration-growth strategy
• Directs all resources & skills to profitable growth of single product
in single market
▪ Innovation strategy
• Constantly improve products to take advantage of initial high
profitability of a better product
▪ Horizontal-integration strategy
• Take over similar organisations
▪ Vertical-integration strategy
• Take over businesses above or below in supply chain
▪ Joint-venture strategy

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 • 2 or more firms embark on a project that is too big for one firm
to undertake on its own
▪ Diversification strategy
• Takes over other businesses to enter new activities
• Sets up completely new entity
• Spreads risk, synergy & quicker growth
▪ Turnaround strategy
• Difficult times
• Cut costs: terminate unprofitable products/assets/management
▪ Divestiture strategy
• Selling business or part thereof in line with organisation’s mission
▪ Liquidation strategy
• Keep shareholders’ losses to minimum after organisation failed.

• Functional plans
o Middle management (heads of departments) sets functional plans based on
strategic plans
o More specific focus
o Deal with people & actions
o Take into account
▪ Resource allocation
▪ Time issue
▪ Human resource commitments
• Operational plans
o Middle & lower level managers develop operational plans
o Period < 1 year
o Single-use plans
▪ To achieve goals which are not likely to be repeated
▪ Program
▪ Project (smaller in scope than program)
▪ Budget – numerical plan for allocating financial, human, physical &
informational resources to specific activities
o Standing plans
▪ Ongoing plans that provide direction for tasks that are performed
repeatedly
▪ Policies (define boundaries for decision making)
▪ Rule (Prescribe what an employee may or may not do in a specific
situation)
▪ Standard procedures (define precise series of steps to attain certain
goals)

Lower level managers

• Focus planning narrowly with short time horizons
• Perform the management functions of planning & control
• Use information that is specific and quantitative when planning
• Use standing plans

Middle-level managers
• Develop plans focused in functional areas

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 • Perform the management functions of planning & control
• Set tactical goals
• Implement strategic plans

Top-level managers
• Focus on creating & maintaining a competitive advantage for the organisation
• Perform the management functions of planning & control
• Create vision of the future for the organisation
• Focus on entire organisation

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UNIT 8: ORGANISING
8.1 KEY CONCEPTS
Importance of organising, mechanisms, structure, fundamentals of organising, specialisation,
departmentalisation, responsibility & authority, centralised & decentralised, authority relations,
span of control, informal organisation

8.2 INTRODUCTION TO ORGANISING

Organising: Mechanisms developed by management to implement the strategy or plan.

Organisational structure:
• Set of formal tasks assigned to individuals & departments
• Formal reporting relationships (lines of authority, responsibility, hierarchical levels & span
of management control)
• Design of system to ensure effective co-ordination of employees across departments

8.3 THE IMPORTANCE OF ORGANISING

• Organising entails the detailed analysis of work to be done & resources to be used
o Systemise tasks, resources, methods, procedures.
o Joint co-ordinated efforts of management
• Divide total workload into activities that can comfortably be performed by
individual/group.
o Allocate tasks according to individual’s abilities/qualifications
• Promote productive deployment & utilisation of resources
• Related activities are grouped together in specialised departments
• Develop mechanism to co-ordinate activities of whole business in terms of complete,
uniform, harmonious units.

8.4 THE FUNDEMENTALS OF ORGANISING

Specialisation
• Designing jobs for employees
o Determine employee’s work-related responsibilities
• Determine degree/level of specialisation
o Tasks broken up into smaller units to take advantage of specialised
knowledge/skills to improve productivity
o Job specialisation generally extension of organisational growth
o Benefits
▪ Workers can become very proficient at each task
▪ Transfer time between tasks decrease
▪ Easier to develop specialised equipment to assist with specialised task
▪ Can train new person at relatively low cost
o Limitations
▪ Employees may become bored & dissatisfies – absenteeism & lower
quality of work
▪ Timing
• Job rotation
o Systematically moving employees from one job to another

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 o Training device to improve worker skill & flexibility.
• Job enlargement
o Increase total number of tasks that worker performs – variety of tasks
o Disadvantages: higher training costs, pay increases, work remain boring
• Job enrichment
o Increase number of tasks & control employee has over job
o Delegate more authority
o Continually assign new & challenging tasks : increase growth opportunities
• Work teams
o Entire group design work system – interrelated set of tasks

Departmentalisation
• Grouping employees into teams/departments based on what they have in common
• Organisation can be designed according to the following
o Business (Functional departmentalisation)
▪ Activities belonging to each management function grouped together
▪ E.g. marketing, finance, production, human resources
▪ Advantages
• It provides a logical reflection of functions that maintains the
power and prestige of major functions.
• Follows principle of occupational specialization.
• Simplifies training and supervisor of the subordinates.
• Furnishes means of tight control at the top.
• Each department can be staffed by experts in that functional
area.
• Coordination of activates within the departments is easy.
▪ Disadvantages
• Decision making becomes slower and more bureaucratic.
• De-emphasis of overall company objectives.
• Accountability and performance become increasingly difficult
to monitor.
• Overspecializes and narrows view-points of key personnel.
• Reduces co-ordination between functions or departments.
• Responsibility for profits is at the top only.
• Slow adaptation to changes in the environment.
• Limits development of general managers.
o Product
▪ Activities concerned with the manufacturing of product/ group of
products grouped together in product sections
▪ Increased administrative costs – duplicate functions
▪ Decisions quick within section
▪ Advantage
• It ensures better quality of the product.
• Because of specialization it ensures optimum utilisation of human
and non-human resources.
• Large manufacturing firms can be benefited from product
departmentalisation.
• Is flexible in nature. It is easy to add new product line if needed.
• Helps to improve skill and talent of managers.

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 ▪ Disadvantage
• There is high chance of conflict between different departments.
• Due to low demand, resources may not be fully utilized.
• Top level management has to face difficulty to control
production division.
• Departmental managers and supervisors may ignore overall
organizational objectives because they focus only on their
department.
• It is very costly and not suitable for small and medium sized firms
o Location
▪ Geographic areas
▪ Decentralise decision making & adjust to local business environment
▪ Suitable for multi-national businesses
▪ Advantages
• Helps to expand business operation into different geographical
location.
• The regional staffs get opportunity to improve their skills and
experience.
• Helps to fulfil local demand.
• There is lower cost of production
▪ Disadvantages
• Administrative expenses and other expenses are very high.
• It needs more people with managerial skills
• There is a problem of effective control
• Complex form of departmentalisation.
o Customer
▪ Group based on market segments
▪ Advantages
• Emphasis on customer satisfaction by providing better products
and services.
• Creates goodwill and good image in front of the clients.
• Identifies key customers, their needs and tastes and try to satisfy
them.
• Ensures expertness and specialization to benefit customers.
▪ Disadvantages
• It is very difficult for top management to maintain proper
coordination between different departments and functional
areas.
• Due to over focus on customers satisfaction, there is possibility of
wastage of other resources of organization.
o Matrix
▪ Ad hoc & complex projects
▪ Horizontal (staff) & vertical (line) authority lines
▪ Advantages
• Is oriented toward end results Professional identification is
maintained.
• Pinpoints product-profit responsibility.
▪ Disadvantages

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 • Conflict in organization authority exists, causing uncertainty in
reporting relationships
• The possibility of disunity of command exists.
• Requires the manager to be the most effective and efficient.8

Reporting relationships
• Establish reporting lines
o Who reports to whom?
• Chain of command
o Clear & distinct line of authority among positions in organisation
o Unity of command
▪ Each person must have clear reporting relationship to 1 supervisor
o Scalar principle
▪ Clear & unbroken line of authority that extends from lowest to highest
position in organisation
• Span of management
o Reporting lines = Chain of command
o Span of Management = How many people will report to one manager
o Narrow span of Management
▪ Will result in horizontal organizational structure
▪ Managers are under-utilised
▪ Excessive control over subordinates
o Wide span of Management
▪ Will result in flat organizational structure
▪ Difficult to co-ordinate and control tasks of a large number of
subordinates.
o # subordinates who report directly to a manager
o Narrow span: tall organisational structure – managers under utilised
o Factors influencing span of control:
▪ Skills, competence & maturity of supervisor & subordinate
▪ Physical dispersion of subordinates
▪ Complexity of business
▪ Extent of non-supervisory work
▪ Degree of required interaction
▪ Extent of standardised procedures
▪ Similarity of tasks
▪ Frequency of new problems
▪ Preference of supervisor and subordinates

Responsibility & authority

• Establish authority relationships
• Responsibility
o Obligation to carry out a task
• Authority
o Right to give instructions & deploy resources
o Formal authority
▪ Vested in organisational positions
▪ Accepted by subordinates
▪ Flows down vertical hierarchy of organisation

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 o Type of relations
▪ Line authority
• Right to issue instructions to immediate subordinates
▪ Staff authority
• Giving advice without the authority to compel people to follow
it
▪ Functional authority
• Direct authority in own function in another department

Delegation
• Process of systematically delegating power & authority throughout the organisation to
middle and lower level managers.
o Centralised v Decentralised
▪ Level at which decisions are made

Co-ordination
• Establish co-ordinating mechanisms
• Synthesis of separate parts into a unity – binding factor in managerial process
• Integrate goals & tasks at all levels
• Mechanisms
o Organisational chart
o Budget
o Policy & procedures

8.5 FACTORS THAT INFLUENCE ORGANISING AND HOW ORGANISATIONS ARE

DESIGNED
• Environment in which business operates
o Stable environment
▪ Generally functional structure
• Little or no innovation
• No great need for co-ordination
▪ Decision making at top level
o Turbulent environment
▪ Change is the norm
▪ Departmentalisation based on product
• Speeds up decision making
o Technologically dominated environment
▪ Technologically complex firms – more managers & levels of
management because of specialised technicians
▪ Adaptable organisational structure with departmentalisation
• Relationship between strategy & structure
o Structure should follow strategy
• Size of business
o Increase in size – greater specialisation & departmentalisation
• Staff employed by the business
o Competence & role
o Personal preference
• Organisational culture

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o Beliefs & values shared by people in the business
o Corporate culture: basic values
▪ Not limited to behaviour
▪ Architecture, décor, dress regulations & general way things are done

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UNIT 9: LEADING
9.1 KEY CONCEPTS
Nature of leadership, leadership characteristics, leadership, authority, leadership models,
Maslow’s theory, components of leadership task, factors influencing power, motivation, kinds
of groups, communication.

9.2 THE NATURE OF LE ADERSHIP

Leadership
• Influencing & directing behaviour of subordinates in such a way that
o Influencing: communicate ideas, gain acceptance & inspire followers to
support & implement idea (relationship)
• They willingly strive to accomplish goals/objectives of organisation

Leaders vs Manager
Leaders Managers
Lead & direct Plan, organise & control
Create & articulate vision & change Implement vision, change & policy
Innovate Administer
Develop Maintain
Inspire Control
Do the right things Do things right

9.3 THE COMPONENTS OF THE LEADING FUNCTION

Authority
• Right to give commands & demand actions from employees
• Formal authority – linked to position
• Informal authority – acceptance by subordinates

Power
• Manager’s ability to influence employee behaviour
• Position power (chain of command)
o Coersive power
▪ Enforce compliance through fear
▪ Psychological, emotional or physical
▪ Fear of retrenchment or exclusion
o Reward power
▪ Manager’s ability to influence employees with something of value to
them
▪ Power to give or withhold rewards
▪ Salary, bonus, praise, recognition, allocation of interesting assignments.
o Legitimate power
▪ Power organisation grant to particular position
• Personal power (followers bestow on person)
o Referent power

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 ▪ Manager’s personal power/ charisma
▪ Employees obey: like , respect & identify with manager
▪ Leader’s personal characteristics makes him/her attractive
o Expert power
▪ Power given by manager’s expertise, knowledge & professional ability
over those who need knowledge or information

Responsibility
• Obligation to achieve organisational goals by performing required activities

Delegation
• Process of assigning responsibility & authority for achieving organisational goals

Accountability
• Evaluation of how well individuals meet their responsibilities.

9.4 LEADERSHIP THEORIES

Trait theory
• Suggests certain leadership characteristics are common to all successful leaders
• In practice, traits differ significantly

Behavioural theory
• Assume that successful leaders behave differently from unsuccessful leaders
o Results varied to much
• Researchers looked at:
o How they delegate to , communicate with & motivate employees
• Leadership styles
o University of Iowa
▪ Autocratic
▪ Democratic: involves employees in decision making & delegation
▪ Laissez-faire : leave all decisions to employees & no follow-up
o Ohio State University
▪ Initiating structure: leader defines and structure roles
▪ Consideration: Extent relationships characterised by mutual trust,
respect & regard for feelings
o University of Michigan
▪ Production-orientated leaders: emphasise technical or task aspects of
job
▪ Employee-orientated leaders: emphasise interpersonal relationships
o Blake & Mouton : Managerial Grid
▪ Identifies various leadership styles on 2 dimensional grid (1-9)
▪ Concern for people
▪ Concern for production
▪ Ideally ‘team management style’

Contingency (situational) theory

• Attempt to determine the best leadership style for given situation
• Researchers consider the following variables:
o How structured is the task?

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 o Quality of relationship between leader & employees
o Leader’s power position
o Employee’s role clarity
o Employee’s acceptance of leader’s decisions
• Fred Friedler: Contingency theory of leadership
o Effective group performance: proper match between
▪ leader’s style & interaction with employees and
▪ degree to which situation gives control & influence to leader
o Leadership style fixed: change leader or situation
• Robert House
o Path-Goal model
o Leader is responsible to help employees achieve their goals
o Provide direction & support
o Leadership behaviours
▪ Directive
▪ Supportive
▪ Participative
▪ Achievement-orientated
• Paul Hersey & Ken Blanchard: Situational Leadership Model
o Employee work maturity determines best leadership style for particular
situation
o Employee work maturity determined by:
▪ Need for achievement
▪ Willingness to accept responsibility
▪ Task-related ability
▪ Experience
o Leadership styles
▪ Telling
▪ Selling
▪ Participating
▪ Delegating
5 dimensions of trust:
• integrity – honesty and truthfulness
• competence – technical and interpersonal knowledge and skills
• consistency – managers reliability ,predictability
• loyalty – willingness to protect another person
• Openness – one can rely on a manager to tell the whole truth.

• Charismatic leadership – have traits such as ability , self-confidence , strong

convictions
• Visionary leadership – ability to create and articulate a realistic, credible, attractive
vision for the future of the business
• Transactional leadership – leaders exchange rewards for employee compliance
• transformational leadership – leaders effect on followers in that followers feel trust ,
admiration , loyalty

9.5 MOTIVATION
Basic model of motivation

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Motivation = inner desire to satisfy and unsatisfied need.

Performance = ability x motivation x resources

Basic model of motivation

(1) Internal needs,

motives or drives

(5) Reinforcement
(2) Behaviour or
(determines future
Action
needs)

(3) Purpose or
(4) Satisfaction
goals

Maslow’s hierarchy of needs

Assume person attempts to satisfy basic needs before progressing to higher needs and
people strive to move up the hierarchy. Specific need no longer motivates once satisfied.
Unsatisfied needs cause stress, frustration & conflict

Oversimplifies matters.

Hierarchy:
• Physiological needs
o Basic ingredients for survival & biological functioning
o Air, food, water, sex.
o Satisfy need: salary, rest rooms, heating etc.
• Security (safety) needs
o Protection from physical & emotional harm
o Clothing, job security, employee-assistance programmes
• Social needs
o Affiliation needs
o Friendship, love.
• Esteem needs
o Need for positive self-image & self-respect
o Recognition from others
o Satisfy: compliments, access to information, job title, challenging job
assignments
• Self-actualisation needs
o Realising potential through growth & development

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 o Development opportunities, challenging assignments, decision making
opportunities

Alderfer’s ERG theory

• 3 core needs (not rigid hierarchy)
o Existence
▪ Person’s basic material existence needs
▪ Correspond with Maslow’s physiological & security needs
o Relatedness
▪ Person’s desire for interpersonal relationships & interaction
▪ Correspond with Maslow’s social needs
o Growth
▪ Person’s desire to make a creative or productive contribution
▪ Correspond to Maslow’s esteem & self-actualisation needs.

Hertzberg’s 2 factor theory & job enrichment

• Maintenance (hygiene) factors
o No motivational
o Absence have negative effect on employee moral
o Aspects considered to be essential to do job, e.g.
▪ Organisational policy, equipment, salary & work security
• Motivational factors
o Growth factors
o Focused on content of job
o Benefits over and above normal job to be done
o Recognition, achievement, progress, growth.
o Internal
▪ Intrinsic – satisfaction of job well done
o External
▪ Action taken by 3rd party – reward, e.g. bonus or increase

McClelland’s theory of needs

• Needs are learnt & reinforced
• 3 Main needs, i.e.
o Need for achievement (nAch)
o Need for power (nPow)
▪ Need to be influential & control others
o Need for affiliation (nAff)
▪ Need for warm and close interpersonal relationships
▪ To be liked and accepted by others

9.6 GROUPS AND TEAMS IN ORGANISATION

• The reasons why groups are formed,
• The kinds of groups, and
• The characteristics of groups.

Group= 2 or more individuals who regularly interact with each other & work for common
purpose

• People join groups for various reason, including social needs, self-worth, power

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 • Share information & make decisions
• Neutral or negative synergy
• Individuals are accountable for own performance & rewarded for it.
• Informal groups
o Interest groups – share common interest
o Friendship group – satisfy social needs
• Formal groups
o Command groups
▪ Organisation chart – line of authority
o Task groups
▪ Created to complete specific task or project
• Characteristics of group
o Group size – social loafing
o Group composition
o Group norms – standards shared by group
o Group cohesiveness – unity
o Status: formal or informal

Teams
• Small number of employees with complimentary competencies
• Work together on project & committed to common purpose
• Accountable for performing tasks achieving organisational goals
o Individually & mutually
• Team perform collectively & members are dependent on each other
• Positive synergy
• Types
o Problem-solving
▪ Same department discuss improving quality, efficiency & work
environment
o Self-managed
▪ Take on responsibilities of former managers
o Cross-functional
▪ Same hierarchical level, different work areas
• High performance characteristics
o Clear understanding of team’s goals, technical skills & abilities needed
o Members capable of adjusting their skills
o Mutual trust & unified commitment
o Good communication & adequate negotiating skills
o Team leaders encourage team members by clarifying goals & help members
to realise their potential
• Appropriate when:
o Clear, engaging reason or purpose
o People must work together to get work done
o Organisation rewards teamwork & team performance
o Ample resources available
o Teams have clear authority to manage & change work they are doing
• Not appropriate if:
o People working independently can do the work
o Organisation rewards individual efforts & performance

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 o Management continue to monitor & influence work

9.7 COMMUNICATION
Transfer of information from one person to another

• Sender
o Source of message
o Know exactly what message is – choice of words
• Message
o Ideas, opinions, plans, orders or explanations
o Simple & clear
• Channel
o Manner in which message reaches receiver
o Spoken language, written word, gestures
• Receiver
o Absorb message & show that message was received & understood
o Listening skills
• Encourage feedback

Prerequisites for effective communication

• Sender must determine whether message was correctly interpreted

• Employees (receivers) must be able to grasp the concept the sender wishes to
convey
• Communication channel must suit employees
• Message must be interpreted correctly by employees

To
Who? What? How?
whom?
sender Message Channel
Reciever

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UNIT 10: CONTROLLING THE MANAGEMENT PROCESS
10.1 KEY CONCEPTS
Task of control, Control process, Standards, Control of physical resources, Quantity control,
Material requirements planning, Just-in-time system (JIT), Budgets quality control, Accuracy,
Unnecessary, Flexibility, Timeliness, Deviation, Corrective action, Focus of control, Economic
order, Financial resources, Information resources, Characteristics of a control system,
Complexity, Actual performance, Inventory

10.2 INTRODUCTION
• Narrow gap between planned and actual achievement
• Was organisational goals met?
• If not, which corrective action needs to be taken?
• Used to ensure that organisation’s goals & objectives are met and resources are used
as productively & effectively as possible.

10.3 THE PURPOSE OF CONTROL

• Explaining the task of control and its purpose,
o Without control, effective planning cannot take place
o Enable companies to adapt to environmental change & cope with uncertainty
o Limit accumulation of errors due to poor decision making
o Minimise cost & increases output
o Identify areas of weak performance
o Identify problems before becoming critical
o Determine whether delegated tasks were carried out satisfactory
o Results in better quality
o Identify resources being wasted or misapplied
• Describing how a control process should function.

10.4 THE CONTROL PURPOSE

The control process consists of the following 4 steps:

• Setting standards that are derived from goals

o Close link to planning stage where goals & objectives are determined
o Performance/control standard = planned target against which actual
performance will be compared
▪ Relevant, realistic, attainable and measurable
▪ Profit, market-share, productivity & staff-development standards
o Function of goals set in planning stage
o Enable management to distinguish between acceptable & unacceptable
performance
• Measuring actual performance
o Collect information & reporting on actual performance – continuous
o Quantifiable
o Reliable
o Important considerations in measurement & reporting
▪ What information?
▪ How much information?
▪ To whom?

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 o Control by exception
o Timing
• Evaluating deviations
o Identify deviations as well as reasons for deviations
o Determine performance gap between planned & actual performance
o Identify cause for gaps
▪ Ensure disparities are genuine (planned & actual performance
measured objectively)
▪ Are deviations large enough to justify further investigation?
▪ Identify all reasons & activities responsible for deviation
• Taking corrective action & rectifying deviations
o Determine if corrective action is required
o Possible actions
▪ Improve actual performance to meet the standards
▪ Revise strategy to meet standards
▪ Lower/raise performance standards to make it more realistic in
prevailing conditions

10.5 TYPES OF CONTROL

Physical resouces

Human Information
Resources resources

Finacial resources

Physical resources
• Inventory
o Raw materials, Work-in-progress (WIP), Components, Finished goods
o Economic order quality (EOQ)
▪ Replenish inventory levels by ordering most economic quantity
▪ Does not take demand into account
▪ Increased holding costs, e.g. storage
o Materials requirement planning (MRP)
▪ Estimate demand for raw material and order accordingly
o Just in time (JIT)
▪ Order raw material & components based on actual orders received

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 ▪ Order more often in smaller quantities
• Quality
o Total quality management (TQM)
▪ Everyone in organisation is responsible for quality
▪ Continuously improve work systems, products & services
▪ Strategic commitment, ultimate test in market

Financial resources
• Budget – allocation of financial resources
o Resources flowing into organisation (income, return on investment)
o Resources held by organisation (working capital, cash)
o Resources flowing out of organisation (capital expenditure & expenses)
o Contribution of budget
▪ Support co-ordination of resources, departments & projects
▪ Provide guidelines on application of organisation’s resources
▪ Defines standards for control & makes evaluation of resource allocation
possible.
o Types
▪ Financial
• Focus on cash flow and capital expenditure
• E.g. cash-flow budget & capital budget
▪ Operational
• Revenue and operational aspects of organisation
• E.g. sales budget & contract budgets
▪ Non-financial
• Focus on diverse aspects of organisation that are not expressed
in financial terms
• Production budget in units
• Sales volumes in units
• Time projections of projects
▪ Financial analysis (ratio analysis)

Information resources
• Need accurate & timely information
• Fast feedback

Human resources
• Ratios, e.g. absenteeism, labour turnover, composition of work force
• Performance appraisal
• Informal controls- group norms

10.6 CHARACTERISTICS OF AN EFFECTIVE CONTROL SYSTEM

• Integration
o Integrate with planning – formulate goals in manner it can be converted to
control standards (quantifiable)
• Flexibility
o Accommodate change – timeous adjustments
• Accuracy
o Objective and accurate picture of situation

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 o Not conceal errors & deviations
• Timeliness
o Regular as needed
o Not hasty makeshift measurement
• Simplicity
o Cost-benefit analysis
o Not over-simplified

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