BCOMSCM Business Management 1 PDF

BUSINESS MANAGEMENT 1
BACHELOR OF COMMERCE IN
SUPPLY CHAIN MANAGEMENT
MODULE GUIDE
Copyright © 2021
REGENT BUSINESS SCHOOL
All rights reserved; no part of this book may be reproduced in any form or by any means, including
photocopying machines, without the written permission of the publisher.
BACHELOR OF COMMERCE IN SUPPLY CHAIN MANAGEMENT 1

Table of Contents
INTRODUCTION TO BUSINESS MANAGEMENT 1 .....................................................3
CHAPTER 1:
Introduction to Business Management ......................................................................... 10
CHAPTER 2:
Development of Management Theory .......................................................................... 23
CHAPTER 3:
Environmental Analysis ................................................................................................ 41
CHAPTER 4:
General Management ................................................................................................... 65
CHAPTER 5:
Production/Operations, Purchasing and Logistics Management .................................. 93
CHAPTER 6:
Marketing Management .............................................................................................. 108
CHAPTER 7:
Human Resources Management ................................................................................ 118
CHAPTER 8:
Financial Management ............................................................................................... 136
CHAPTER 9:
Public Relations Management .................................................................................... 145
BIBLIOGRAPHY AND RECOMMENDED READINGS ............................................... 154

INTRODUCTION TO BUSINESS MANAGEMENT 1
1. Introduction
Welcome to the Bachelor of Commerce Degree programme and the Business

Management 1 module. This study guide has been devised in line with your syllabus and
the latest developments in the field of management. The structure of the guide is simple
and user-friendly.
2. Module Overview
This module introduces the students to the fundamental concepts and functions of
management. It describes the functional areas of management and their related activities.
The guide assists students with a concise understanding of the general management
functions and the business environment.
3. Aim of the Module
This module aims to successfully demonstrate a suitable understanding of management

concepts and functions. Effectively identify and apply a comprehensive knowledge of the
business environment
4. Essential (Prescribed) Reading
Your essential (prescribed) reading comprises the following:
4.1. Prescribed Reading
• Erasmus, B., Strydom, J. W., and Rudansky-Kloppe, S. (2016). Introduction to

Business Management – 10th Edition. Oxford University Press

4.2. Recommended Reading
• Hellriegel, Slocum et al. (2017). Management, 5th ed. South Africa: Oxford
University Press
• Nieman and Bennet. (2014) Business management - A value chain approach, 2ND
ed. South Africa: Van Schaik publishers
• Smit, Cronje et al. (2011). Management Principles, 5th ed. South Africa: Juta
• Van Rensburg, L.R.J. (ed). (2008). Business Management, 2nd edition. South
Africa: Van Schaik publishers
5. How to use this Module
This module should be studied using the recommended and prescribed textbook/s and
the relevant sections of this module. You must read about the topic that you intend to
study in the appropriate section before you start reading the textbook/s in detail. Ensure
that you make your own notes as you work through both the textbook/s and this module.
You will find a list of objectives and outcomes at the beginning of each section. These
outline the main points that you need to understand when you have completed the
section/s. The purpose of this guide is to help you study. It is important for you to work
through all the tasks and self-assessment exercises as they provide guidelines for
examination purposes.
6. Navigational Icons
Think Point
When you see this icon, you should think about and reflect on the
issues/challenges/themes presented.
Tasks
When you see this icon, you will know that you are required to perform
some kind of task to gauge how well you remember or understand
what you have read or how good you are at applying what you have
learnt.

Definitions
This icon will alert you to a specific definition related to the topic under
discussion
Case Studies
Case studies are often used to illustrate a concept within the setting
of a real life scenario. Answer the questions that follow to ensure that
you have a proper understanding of what has been discussed.
7. Specific Outcomes and Chapter Alignment
SPECIFIC PROGRAMME OUTCOMES CHAPTER

ALIGNMENT
Describe the fundamental concepts of business
SO 1: 1,2,3,4,5,6,7,8,9
management in an organisational environment.
Provide an elementary understanding of the evolution
SO 2: 2
of management theory in relation to current business
practice.
SO 3: Effectively determine the relationships between the 3

organisation and external environmental factors.
Describe the different internal and external factors that
SO 4: 3
may affect a business organisation.
Constructively apply factors of the business
SO 5: 3
environment to a variety of business contexts.
SO 6: Demonstrate a sound understanding of the four basic 4

management functions.
Display a basic knowledge of management adapting
SO 7: 4
from traditional management methods to the digital age.
Clearly define the terms and concepts relating to supply
SO 8: 5
chain management.

SPECIFIC PROGRAMME OUTCOMES CHAPTER

ALIGNMENT
SO 9: Effectively discuss the roles, responsibilities and 5
activities pertaining to each of the key functions during
the different stages of the supply chain process.
SO 10: Have a rudimentary knowledge of the importance of 5

supply chain management to the business function.
SO 11: Explain how marketing management creates value in 6

the organisation by providing clear insight into the
components of the marketing strategy
Describe the rudimentary functions and concepts
SO 12: 7
pertaining to human resource management within a
business.
Provide an elementary understanding of the scope and
SO 13: 8
responsibilities of the financial manager.
Critically discuss types of financial decisions available
SO 14: 8
and determine the evolution of finance through the
digital era.
Provide a fundamental understanding of the role,
SO 15: 9
functions and process that encompasses the public
relations management function
8. Specific Outcomes and Assessment Criteria
SPECIFIC PROGRAMME ASSESSMENT CRITERIA

OUTCOMES
The student should demonstrate the ability to have:
SO 1: Describe the fundamental Clearly discuss the fundamental concepts of

concepts of business management; explain the importance of
management in an management to business.
organisational environment.


OUTCOMES
The student should demonstrate the ability to:
SO 2: Provide an elementary Discuss the evolution of management theories

understanding of the in theory and apply knowledge to current
evolution of management business practices within various
theory in relation to current organisations.
business practice.
SO 3: Effectively determine the Describe in detail the composition of the
relationships between the business environment.
organisation and external
environmental factors.
SO 4: Describe the different internal Explain the relationship between the internal
and external factors that may and external environments; apply knowledge
affect a business of the factors of the business environment.
organisation.
SO 5: Constructively apply factors Demonstrate an understanding of
of the business environment environmental analysis to a variety of business
to a variety of business scenarios.
contexts.
SO 6: Demonstrate a sound Demonstrate a sound understanding of the
understanding of the four four management functions: apply knowledge
basic management of each of the functions to a variety of
functions. business operations.
SO 7: Display a basic knowledge of Discuss a basic understanding of the evolution
management adapting from from traditional to digital management.
traditional management
methods to the digital age.
SO 8: Clearly define the terms and Define and discuss the key roles, functions
concepts relating to supply and activities associated with supply chain
chain management. management.


OUTCOMES
SO 9: Effectively discuss the roles, Define and discuss the key roles, functions
responsibilities and activities and activities associated with supply chain
pertaining to each of the key management.
functions during the different
stages of the supply chain
process.
SO 10: Have a rudimentary Demonstrate knowledge in determining the
knowledge of the importance importance of the supply chain management
of supply chain management within best business practice.
to the business function.
SO 11: Explain how marketing Demonstrate a basic and applied knowledge
management creates value in of marketing the function and concepts in
the organisation by providing relation to the value and significance provided
clear insight into the to an organisation.
components of the marketing
strategy.
SO 12: Describe the rudimentary Discuss detailed knowledge pertaining to the
functions and concepts function and scope of the Human Resource
pertaining to human resource department by explaining the various goals,
management within a challenges, and activities of HR management
business. within a business.
SO 13: Provide an elementary Identify and discuss the role and
understanding of the scope responsibilities of a financial manager.
and responsibilities of the
financial manager.
SO 14: Critically discuss types of Apply knowledge of financial decision-making

financial decisions available to a business and understood the evolution of
and determine the evolution finance function through the digital era.
of finance through the digital
era.


OUTCOMES
SO 15: Provide a fundamental Define and explain the role and responsibilities
understanding of the role, of public relations managers; differentiate
functions and process that between marketing and PR functions and
encompasses the public discuss the functions and processes of the
relations management public relations management for the benefit to
function. business organisations.

CHAPTER 1:
Introduction to Business Management
Chapter Outcomes
On completion of this chapter, you should be able to:
• Clearly discuss the importance of studying of business management

• Identify and discuss the functional areas of business management
• Effectively describe an organisation’s value chain model
• Successfully identify and discuss the factors of production required to start a
business
• Describe the fundamental concepts of business management in an organisational
environment
• Clearly understand and apply the roles, skills, and levels of management within an
organisational context
1.1. Introduction
As a subject, Business Management is relevant for every person in society. Although

many people are not actively involved in “business” as such, they are still involved in the
economic life of the country. The moment they are employed in the workplace, or make
use of a service, or buy a product, they are involved in economic life. Better knowledge
and improved understanding of what a business is and how it functions increases
understanding and appreciation. A thorough understanding of a business, its workings
and its management is essential for every business manager. Managers need training
on various matters relating to business, to generic management and to a number of
related subjects. The subject of business management encompasses all activities that
are related to the management of all types of organisations.
This chapter introduces students to the scope as well as some of the core principles of

Business Management-in particular, the value chain model, factors of production,

managerial roles and skills and types of business ownership.
1.2 Functional Areas of Business Management
The management of a business involves various functional areas of

management, each of which should receive careful consideration. The extent to which a
particular functional area of business is important in a particular business depends on
several factors, for example the type of product or service, the location which enables
businesses to transform so-called inputs into outputs, as well as the size of the
organisation. The following functional areas are identified and discussed:
• Production and operations management

• Marketing management
• Financial management
• Human Resources management
• Public Relations
It is important to note that these functions can be identified as separate functions and
can be studied on their own. However, in practice, these functions cannot be separated;
t hey wo rk t og e th e r to achieve the goals and objectives of the
business.
Tasks
Take any business as an example (e.g. a café).
Think about the business activities of this business and classify these
as part of the various functional management areas.

1.3 Factors of Production
Business Management is concerned with the management aspects of the inputs, the
conversion process, and the outputs. Traditionally, the production factors (inputs) are
summarised a s fo llows :
• Land
• Capital
• Labour
• Entrepreneurship
Land is now considered to include all natural resources used as raw materials. Capital
represents the financial means for acquiring other forms of production factors, for
example buildings and machinery. Labour refers to all physical and mental abilities of
human resources. Entrepreneurship refers to the initiative of putting together a range of
production factors in various combinations in diverse businesses to satisfy the numerous
needs of consumers. The optimal combination of factors requires various other aspects
such as internal and external communication. These aspects and functions are linked in
a value chain where each activity needs to note the influence it may have on every other
aspect of the business. The application of the economic principle must be visible
throughout the entire organisation.
1.4 Adding Competitive Value: The Value Chain
At every stage of the conversion process, one has to examine how value can be added
to the process in the most efficient way. The entire chain of linked activities and
processes, from the most rudimentary raw material to the most sophisticated end
product, must be guided by adding value.
This value concept is broad, not only in terms of financial or monetary value, but also of
adding value in terms of place, time and form utilities. By adding value to these utilities,
the products and services become enhanced need-satisfiers and can therefore demand
higher monetary value as well. If a particular activity does not add value to the end
product, then why have that activity?

The concept of the value chain was used in accounting analysis for some years before
Michael E. Porter of Harvard University suggested that it could be used as a tool for
identifying ways of creating customer value. As such, the value chain can be used as a
systematic means of examining all of the organisation's functional activities and their
effectiveness in creating customer value.
The idea behind value chain analysis is to identify the value that is added with each
activity in the process of providing products and/or services and to compare a business's
performance with the performance of competitors.
The knowledge obtained in this way will help management to make decisions and follow
them up with effective action to provide value for their customers. However, competitive
advantage is obtained on overall value added, not through superior value added with
each activity. Hence, a business that sees itself as behind in one activity can make up
its shortfall in another, and emerge competitively in the end.
Therefore, analysing a business's value chain can draw attention to the organisation's
strengths and weaknesses.
A typical value chain divides activities within the business into two broad categories:
primary activities and support activities.
Primary activities (sometimes called line functions) are those involved in the physical
creation of the product, marketing and transfer to the buyer, and after sales support.
Support activities (sometimes called staff or overhead functions) assist the business as
a whole by providing infrastructure or inputs that allow the primary activities to take place
on an ongoing basis. The value chain includes a profit margin since a mark-up above the
cost of providing a firm's value-adding activities is normally part of the price paid by the
buyer. The value created should exceed cost so as to generate a return for the business's
effort.

Figure 1.1: The Value Chain Model
The primary activities are:
• Procurement and inbound logistics

These are areas concerned with sourcing and receiving goods from suppliers,
storing them until required by production/operations, and handling and transporting
them within the organisation.
• Production/Operations
This is the production area of the business. In some businesses, this might be split into
separate departments, such as design furniture, make furniture, and quality inspection
in a furniture manufacturer, or receipt and payment of money, keeping records of
accounts, and safekeeping of valuable articles for a bank. In a service business, where
there is no production of tangible goods, this refers to the technical core, or the
backstage area where service support activities are carried out, such as the mail sorting
and distribution facility of a post office, and the servuction system, that is the client
service area such as the lobby of a hotel or the check-in counter of an airline.

• Outbound logistics
These distribute the final product to the customer. They would clearly include transport
and warehousing but might also include selecting and wrapping combinations of
products in a multi-product business. For a bank or other service business, this activity
would be reconfigured to cover the means of bringing customers to the bank or
service, including service centres (branches) or Internet access to the organisation's
services.
• Marketing and sales
This function analyses customers' wants and needs and makes customers aware of
those products or services that the business has to offer for sale.
• Customer service
Before or after a product or a product has been sold, there is often a need to arrange
financing, installation, or after- sales service. There may also be a need to train
customers, answer their questions, and so forth. Each of the above categories adds
value to the organisation in its own unique way For the business to undertake its
task more efficiently than its competitors, these activities must ensure lower
production costs, faster and cheaper outbound delivery, higher standards of service
etc. By this means, they provide the areas of competitive advantage of the organisation.
The support activities, according to the value chain, are:

• Financial management
All activities, costs and assets related to the acquisition, utilisation and control of the
money the organisation required to finance its activities.
• Human resource management

Activities, costs and assets associated with the recruitment, training,
development and compensation of all types of personnel and labour relations
activities.
• Communication
Activities, costs and assets associated with communicating with all the internal and

external publics of the organisation.
• Information management and e-business

Information management is the management of organisational processes
and systems that acquire, create, organise, distribute, and use information. E-
business (electronic business) is the conduct of business processes on the internet.
These e-business processes include buying and selling products, supplies and
services, servicing customers, processing payments, managing production control,
collaborating with business partners, sharing information, running automated
employee services, recruiting, and more.
These support activities add value, just as the primary activities do, but in a way that is
more difficult to link with any one particular part of the organisation. This is also the case
with general management and leadership that is required to plan, direct and control all
activities and functions at all levels within the organisation management plan, direct and
control.
1.5 Definition of Management
With regard to a definition of management, on the whole, a considerable degree of

consensus exists within the literature. Definitions include:
• “the process of planning, organising, leading and controlling the resources of the
organisation to achieve stated organisational goals as productively as
possible” (Cronjé, et al., 2004: 10).
• “the process of getting things done through the efforts of other people”
(Mondy, Sharplin & Premeaux, 1991: 3).
• “the process of planning, organizing, leading, and controlling the work of
organisation members and of using all available organisational resources to reach
stated organisational goals.” (Jones, George & Hill, 1998: 5).
An analysis of the above definition’s points to the essential components which should
be included in a definition of management:

For an organisation to effectively and efficiently achieve its goals, its management must
involve a process in which …
• the management functions of planning, organising, leading and controlling are

executed;
• organisational resources are utilised; and
• work is achieved through the efforts of other employees.
1.6 Levels of Management
Three levels of management within an organisation may be identified:

• Top Management
• Middle Management
• Lower / First Line / Supervisory Management
TOP MANAGEMENT MIDDLE LOWER

MANAGEMENT MANAGEMENT
RESPONSIBILITY Overall responsibility for Responsible for specific Responsible for
the organisation departments departmental sections /
subsections
MAIN FUNCTION Strategic management Implementation of Application of rules &
policies, plans & procedures to achieve
strategies high levels of productivity
TIME Long Term Medium Term Short Term
ORIENTATION
POSITIONS HELD Board of Directors, Departmental heads, Section/subsection
Managing Director, CEO, e.g. Marketing Manager, heads, e.g. Product,
Management HR Manager Sales & Promotion
Committees Managers within the
Marketing Department
Table 1.1: The levels of management
1.7 The Role Distribution of Managers
The manager’s relation to the organisation can be further explored from a role distribution
perspective.

Figure 1.2: Henry Mintzberg’s managerial roles
According to (Erasmus, et al, 2016), each manager must fulfil a specified role,
irrespective of the managerial level or area he or she occupies. After all, a manager will
perform certain roles, meet certain needs and assume responsibilities. Mintzberg (1990)
presents the three categories of managerial roles in a sequential manner. As illustrated
in Figure 1.2, the sequence begins with the status emerging from the formal authority
vested in the manager’s position.
This status allows for the formation of interpersonal relationships and the execution of
Interpersonal Roles. The interpersonal relationships in turn provide the manager with
access to information and the consequent carrying out of Informational Roles. This
information consequently enables the manager’s decision making, and his execution of
Decisional Roles.
• Interpersonal Roles
❖ Figurehead Role: the manager is involved in the performance of ceremonial
duties, such as officiating at a long-service award evening.
❖ Leader Role: the manager works with and through his/her subordinates to
achieve the work of his/her department. For example, the manager appoints,
trains, motivates, and promotes his/her subordinates.
❖ Liaison Role: the manager makes contacts outside of the vertical chain of
command to maintain good relationships within and outside the organisation,

such as the forming of a sound relationship with a supplier or distributor.
• Information Roles
❖ Monitor Role: the manager is involved in constantly seeking pertinent
information through, for example, scanning the environment and receiving
information from his or her network of contacts.
❖ Disseminator Role: the manager passes on information received to individuals
within the organisation who would benefit from it, such as subordinates and
colleagues.
❖ Spokesperson Role: the manager communicates information to people outside
the organisation, for example, the Marketing Director may ensure that the media
is kept informed about the organisation’s social responsibility initiatives.
• Decision-Making Roles
❖ Entrepreneur Role: the manager seeks to maintain and extend the unit’s/
organisation’s sustainability through adapting it to changes within the environment.
For example, the CEO and the management team may decide to change strategy
and reengineer the organisation as a result of influential changes within the
organisation’s environment.
❖ Disturbance Handler Role: the manager is involved in involuntarily responding to
pressures and solving problems. For example, the HR Director may be required to
address an unexpected situation within the company which may lead to strike
action.
❖ Resource Allocator Role: the manager decides what quantities of resources such
as people, equipment and money each part of the department/ organisation should
receive. For example, during the company’s budgeting period, the CEO approves
a budget for the Information Technology department which is considerably larger
than the other departments’ budgets.
❖ Negotiator Role: due to his/her authority to allocate resources and his/her access
to information, the manager is involved in negotiations within the company. For
example, a supervisor may negotiate changes to job specifications with his/her
subordinates.
In closing, it needs to be noted that although Mintzberg (1990) distinguishes ten

managerial roles, he argues that all ten roles form an integrated whole and cannot be
easily separated.
It needs to be noted that Mintzberg (1990) emphasises that although he breaks down the
manager’s work into ten different roles, his focus is on the Gestalt (whole) approach, and
he argues that the roles are not separable. In so doing, the complex nature of managerial
work is acknowledged.
Mintzberg (1990) argues that the managerial role approach contributes to more effective
management in that, unlike the traditional POLC approach, it provides managers with
insight into the pressures and complexities of their work.
1.8 Managerial Skills
Certain managerial skills are required For managers to effectively perform their duties.
Erasmus et al (2016) identify three categories of skills that managers at all levels of the
organisation are identified to possess:
• Conceptual Skills: which refer to the manager’s ability to view the operation
of the organisation and its parts holistically e.g. analytical thinking,
strategizing or being innovative.
• Technical Skills: which refer to the ability to use discipline specific skills to
complete a particular task e.g. programming, engineering, fashion design,
operating systems and machinery.
• Interpersonal Skills: which refer to the manager’s ability to communicate and work
effectively with others e.g. delegation and conflict resolution.
Obviously, managers at different hierarchical levels within the organisation will employ
these skills to varying degrees. For example, the nature of the work which top
management performs requires a greater reliance on, and employment of, conceptual
skills.

1.9 Conclusion
This chapter focused on the core concepts of business management as well as the
functional areas of business management. All organisations are systems where inputs
are transformed into outputs. To survive, organisations must add value to their processes
either by raising the value of their output or by lowering the costs of their inputs. The
importance of understanding the various interactions of management levels and
determining their roles and skills in an organisation.
Tasks
With the aid of a labelled value chain model diagram, illustrate the
value chain model for a business of your choice.
Case Studies
Martin Brink is a co-owner of a family business located in the Eastern Cape. The
business, Brink & Brink, manufactures wooden furniture for both the local and
international markets. Recently, Martin read the following in an article in a journal
for the South African wood furniture industry:
“The use of the Internet in facilitating and enhancing the access to global markets
is becoming increasingly important to South African producers of wooden furniture
as they become integrated into the global economy and are exposed to the
demands of more sophisticated markets. Failure to adopt e-commerce
technologies could marginalize producers of wooden furniture and isolate them
from the international markets that they wish to supply.”
After reading this article, Martin realised that Brink & Brink, although it had up to
now not invested in e-technology, should consider doing so. He decides to prepare
a proposal for the next management meeting to suggest this. Assist Martin to
prepare for the meeting by answering the following questions.

Questions
1. Explain how enterprise’s e-technology activities can be represented in its value
chain.
2. Explain how the adoption of e-commerce technology can add value to a
furniture manufacturing enterprise such as Brink& Brink by referring to the
value chain concept.
3. “The management of e-technology is not only an important value chain activity
but is also a critical supply chain enabler”. Explain this statement.
4. Formulate three arguments, derived from the questions above, that Martin can
use to convince Brink & Brink’s management team to invest in e-technology.

CHAPTER 2:
Development of Management Theory
Chapter Outcomes
• Highlight the significance of learning management theory

• Display a basic understanding of the factors that have contributed to management
theory
• Provide an elementary knowledge and understanding of the theorist contributions
and findings of the Classical Management Approach, Behavioural and Human
relations Approach, Quantitative Approach and Contemporary theories
2.1 Introduction
This chapter examines the Evolution of Management Theory. Management theory

is argued by some to have originated with Nicolé Michiavelli, while others argue that the
Egyptians were the first management thinkers (Micklethwait and Wooldridge, 1996).
However, while Michiavelli and the Egyptians may well have been management thinkers,
it is only during the last century that management has undergone systematic
investigation and has been established as a formal discipline. This section of the module
examines the body of management knowledge which has emerged since the early 1900s.
2.2 Why Study Management Theory?
You may wonder why the study of management theory is necessary. The study of
management theory is critical in developing a holistic understanding of the discipline and
professional competence..

Think Point
Think about your experience in your current organisation and /or

organisation for which you have worked in the past:
1. Identify two managers, with whom you have dealt with who have
demonstrated vastly different management styles (for example, an absolute
autocrat vs. a democratic manager).
2. Identify the one manager as “Manager A” and the other as “Manager B”.
From your experience and observations, what principles do you think underlie
Manager A’s view of and approach to management?
S t o ne r a n d Freeman (1992) point out that the study of management theory is

important in that the theories serve to:
• Guide management decisions
• Shape the manager’s view of organisations
• Make the manager aware of the business environment
• Provide the manager with a source of new ideas
2.3 Understanding Management Theory

In studying management theory, it is important for you to have an understanding of
the concept of theory, as well as the factors that influence the development of theory.
Tasks
Define the concept “theory”.
What factors do you think influence the development of a theory?

Comment on Activity
Definition of Theory
Stoner and Freeman (1992) define a “theory‟ as a “coherent group of assumptions
put forth to explain the relationship between two or more observable facts and to provide
a sound basis for predicting future events”. Another definition of “theory‟ is “a
supposition or system of ideas explaining something”. In essence, therefore, a theory is
a framework of principles.
From the management perspective, it may be argued that each management theory
provides a framework of principles that guide not only the managers understanding of
management issues, but his/her management-related actions as well.
Factors Influencing the Development of Theory
Management theories do not develop in a vacuum but within, and as a result of, the
dynamic environment. The environmental forces which impact on the development of
management theory are depicted below:
Figure 2.1: Environment forces that shape management thought

Source: Smit & Cronje (2011)
Evolution of management theory
A study of the evolution of management schools of thought reveals that theories tended
to emerge in tandem with, or just after, notable environmental changes (See Chapter 3
for an understanding of environmental forces):

• The Classical Management School that emerged in the early 1900s was
influenced by the economic, technical and cultural changes which were brought
about as a result of the industrial revolution and the introduction of steam.
• The Behavioural Management School emerged in the 1920s and 1930s and was
influenced by the Great Depression and decline in prosperity as well as failure of
the Classical Management School to provide for workplace harmony.
• The Quantitative Management Approach t hat emerged in the 1940s was

influenced by World War II during which both the British and the Americans
utilised mathematical approaches and technology to solving war-related problems.
• The Contemporary Management Theories began to emerge during the 1950s

and were influenced by the rapid and ongoing change which characterised the
business environment after World War II (Cronjé,et al 2004).
2.4 Theories of Management

We will explore the following schools of management:
2.4.1 The Classical Management Approach
The emergence of the Classical Approach was influenced by the steam-engine which
was a product of the Industrial Revolution. Steam power provided for efficient production
which in turn led to a shift from farm work to factory work where the principle of mass
production was upheld. This shift from the agrarian mode to the factory system brought
about a number of organisational problems, such as poor motivation of workers. The
classical theories emerged to address these problems.
Scientific Management Theory

Scientific Management Theory arose partly due to the need to increase productivity.
Fredrick Taylor, Henry Gantt and Frank and Lillian Gilbreth are best known for their
contributions to the field of Scientific Management.

Frederick Taylor was a manufacturing manager (originally a mechanical engineer)

who sought to increase the productivity of the individual worker by increasing
specialisation and job division of labour. He developed four principles to increase
efficiency in the workplace:
• Examine the way in which workers perform their tasks and experiment with ways
of improving the way in which the task is performed
• Record the new methods of performing the task as rules and standard operating
procedures
• Ensure that workers’ skills and abilities match the needs of the task, and train them
to perform the task according to the written rules and standard operating
procedures
• Determine an acceptable level of performance for each task and develop a
remuneration system which rewards performance which exceeds the acceptable
level
Frank and Lillian Gilbreth built on the work of Taylor and focused on work simplification.
Their approach included:
• Analysing each individual action required to perform a task

• Identifying better ways of performing each action
• Increasing the efficient performance of the whole task through reorganising the
individual actions (Jones et al., 1998).
Henry Gantt redesigned the incentive system developed by Taylor by providing not only
for the payment of a bonus to the worker who exceeded the daily standard, but to the
worker’s supervisor as well. He also devised a chart for production scheduling, the Gantt
Chart, which is still in use today (Stoner & Freeman, 1992). The Scientific Management
Approach succeeded in its endeavour to increase productivity. However, the approach,
in focusing on work and productivity, neglected to address the “human‟ element, which
ultimately resulted in worker dissatisfaction and distrust of management.

Administrative Management Theory

While Scientific Management Theory focused on the productivity of the worker,
Administrative Management Theory essentially focused on how to increase productivity
at the level of the organisation. Henri Fayol and Max Weber made significant
contributions to this view of management.
Henri Fayol, recognised as Europe’s greatest management pioneer, adopted a process

approach to management. He identified 14 principles which he argued could increase
the efficiency of the management process. Many of these principles (e.g. Division of
labour, authority and responsibility, unity of command, unity of direction, team spirit)
form the basis of management and research today (Erasmus, et al, 2016).
Fayol also identified five basic functions of administration:

• Planning
• Organising
• Commanding
• Coordinating
• Controlling
Max Weber: developed a theory of bureaucratic management and emphasised the need
for a hierarchy governed by lines of authority.
Administrative Management Theory has made a significant contribution to the field of

management in that a considerable number of its principles are still being used in
management research and applied in management practice today. However, this theory
is criticised because it is more applicable for the stable organisations and predictable
environments of the past (Peak; 2020).
2.4.2 The Behavioural and Human Relations Approach
While the focus of the Classical Management Approach was either the productivity
of the worker or the productivity of the organisation, the Behavioural & Human Relations

Approach focuses on the needs of the worker. Indeed, the Behavioural & Human
Relations Approach emerged in part in reaction to the ‘inhumane” view of the Classical
Approach. Mary Parker Follett, Elton Mayo and Douglas McGregor are recognised as
having made significant contributions to the Behavioural & Human Relations Approach
Mary Parker Follett: Much of Follett’s writing emerged in reaction to Taylor’s scientific
approach. Indeed, Follett argued that it is the worker who knows most about his/her
job and therefore the worker should be involved in the job analysis and work development
process. She also anticipated the current management interest not only in self-managed
teams and empowerment, but in horizontal (as opposed to Fayol’s and Weber’s vertical)
power and authority.
Elton Mayo: An experiment, which investigated the relationship between the level of
lighting in the workplace and workplace productivity at the Hawthorne Works at
the Western Electric Company near Chicago during 1924 – 1933, showed that
productivity improved not only when lighting was improved, but when lighting conditions
were made worse as well. Elton Mayo, a Harvard psychologist was called in to investigate
this phenomenon. It was argued that management’s interest in, and concern for, the
workers’ well-being had served to enhance worker performance. This phenomenon has
come to be known as The Hawthorne Effect.
The findings of the Hawthorne experiment precipitated an interest in research in the

area of managerial behaviour and leadership, and thus emerged the Human Relations
Movement.
Douglas McGregor: McGregor argued that two different sets of assumptions

determine how manager’s view their subordinates and manage their departments. He
argued that Theory X managers assume that employees are inherently lazy and
therefore need to be closely supervised and controlled. On the other hand, Theory Y
managers adopt a positive view of employees and believe that it is the manager’s task
to create a climate in which employees can effectively perform their work.
The Behavioural and Human Relations Approach has contributed to the field of
management in that it has stressed the employee’s social needs, which in turn has led

to a focus on the development of people-management skills, as opposed to technical
skills alone. Further, it has provided insights into issues such as individual motivation,
group behaviour and interpersonal relationships at work. A limitation of the
Behavioural & Human Relations Approach lies in the fact that human behaviour is
complex in nature, which presents challenges to its study.
Tasks
Consider the organisation for which you currently work. What

particular organisational and managerial practices show evidence of
a Behavioural and Human Relations Approach?
Comment on Activity
Organisational and managerial practices that exhibit a Behaviour & Human Relations
Approach could, for example, include:
• Allowing for self-direction in employee work

• Participative decision-making
• Self-managed work-teams
• Knowledge sharing at, and between, all levels
• Training and development initiatives for employees
2.4.3 Quantitative Approach
According to Technofunc (2020), the Quantitative Approach, also referred to as the

Management Science Approach, is essentially an extension of Taylor’s Scientific
Management Theory. It focuses on the use of rigorous quantitative techniques that
enable managers to achieve productivity through the most effective and efficient use of
organisational resources to produce goods or services. Management science is an
approach that aims at increasing decision effectiveness through the use of sophisticated
mathematical models and statistical methods.
Whenever management has a problem, it calls on relevant disciplines which analyses

business problems and frames a mathematical model by collecting the relevant data (like

cost of machine, cost of raw material, selling price of the product etc.) and tries to
maximise the output and minimise the cost. Computers have simplified application of
these models to deal with various problem-solving situations.
By changing values of variables in the model, different equations can be solved through
computers and it makes it possible to find the effect of each change on the dependent
variable to arrive at the optimum and rational solution to managerial problems.
The Quantitative School includes the following approaches, all of which provide the
manager with tools and techniques to increase the effectiveness of his/her decision-
making:
• Quantitative management (employs mathematical techniques such

as linear programming, modelling, simulation & queuing theory)
• Operations management
• Total Quality Management (TQM); and
• Management information systems (MIS)
2.4.4 Contemporary Approaches
A considerable number of contemporary management theories exist. The following

contemporary theories will be studied in this sub-section:
• Systems Theory
• Contingency Theory
• Chaos Theory
• Other Theories
2.4.4.1. Systems Theory
The Classical Approach, The Behavioural and Human Relations Approach and the
Quantitative Approach have two major shortcomings which Systems Theory
(also known as Organizational-Environment Theory) seeks to address:

• The influence of the environment is not considered; and

• One part or aspect of the organisation is focused on the neglect of all
other parts and/or aspects.
Systems theory views the organisation as a purposeful and unified system which is
composed of interrelated elements. The principle of synergy applies in that the whole is
regarded to be greater than the sum of its parts (Stoner and Freeman, 1992).
The view of organisations as open social systems that must interact with their
environments in order to survive is known as the systems theory approach. Organisations
depend on their environments for several essential resources: customers who purchase
the product or service, suppliers who provide materials, employees who provide labour or
management, shareholders who invest, and governments that regulate.
Characteristics of a System
A system is defined to be a set of interrelated components. An open system is one
which interacts with its environment, and in so doing becomes part of a greater system.
Basic system characteristics include:
• Internal interdependence: where changes in one of the system’s components

will result in changes or repercussions in the system’s other components.
• Capacity for feedback: information about the output can be used by the
organisation to address problems. However, organisations do not always use
the information available.
• Equilibrium: the system seeks homeostasis i.e. if an event leaves the system
in a state of imbalance, it will react in such way so as to regain equilibrium.
• Equifinality: the system can achieve its outputs through a number of different
ways or system configurations.
• Adaptation: a systems survival depends on it maintaining a state of balance
within the greater system in which it operates, i.e. the environment.

Figure: Organisational systems theory model
Nadler and Tushman’s (1980) Congruence Model of Organisation Organisational

Behaviour views the organisation as a system that takes inputs from the environments
and transforms them within its system to produce outputs. The system (or
organisation) is identified to consist of four main components, namely the informal
organisation, task, individual and formal organisation. The effectiveness of the
organisation’s performance depends on the achievement of congruence between all four
components.
2..4.4.2. Contingency theory
Systems Theory provides for a Contingency Approach (also known as a Situational

Approach) to management.
The basic premise of Contingency Theory is that there is no one best way to lead an
organisation. There are too many external and internal constraints that will alter what really
is the best way to lead in a given situation. In other words, it all depends on the situation
at hand as to what will be the best course of action.
Fred Fiedler is a theorist whose Contingency Trait Theory was the precursor to his
Contingency Management Theory. Fiedler believed there was a direct correlation to the
traits of a leader and the effectiveness of a leader. According to Fiedler, certain
leadership traits helped in a certain crisis and so the leadership would need to change
given the new set of circumstances. Fiedler's Contingency Theory proposes the following

concepts:
1. There is no one best way to manage an organisation.

2. A leader must be able to identify which management style will help achieve the
organisation's goals in a particular situation.
3. The main component of Fiedler's Contingency Theory is the least preferred co-
worker (LPC) scale that measures a manager's leadership orientation.
Think Point
Consider the organisation in which you are currently employed. To

what extent are the following approaches evident in the organisational
and management practices within your organisation?
• The Classical Approach
• The Behavioural & Human Realtions Approach
• The Quantitative Approach
• The Systems Approach
It is likely that you can identify practices within your organisation that demonstrate
elements of all four approaches to management. Indeed, given the complexity of today’s
management environment, it would be unwise for a manager to adhere to one particular
school and neglect the others. Rather, given the dynamic environment in which
organisations operate, it is the manager’s task to tailor his/her management approach
to the particular situation – and this would require drawing on a range of management
theories.
2.4.4.3. Chaos Theory
For decades, managers have acted from the premise that organisational events can be
controlled. However, Chaos Theory, is based on the premise that very rarely can events
be controlled, and thus acknowledges the dynamic nature of the contemporary
management environment.

Tasks
1. Why is Chaos Theory appropriate to the present-day

organisation?
2. What are the key characteristics of Chaos Theory?
3. How could management go about transforming the organisation
for which you work into a chaotic organisation?
Comment on Reading Activity
Chaos Theory argues that relationships in complex systems, like organisations, are
nonlinear, made up of interconnections and branching choices that produce unintended
consequences and render the universe unpredictable.
Chaos Theory and the Present-Day Organisation

The industrial era of the past is fundamentally different to the information age of the
present. During the industrial age, the environment was relatively stable and
organisational work was routine. The information age to be characterised by the
following:
• Technology that increases production, efficiency and consumer

power
• Globalization
• Competition which, as a result of technology and globalization, has become
more fierce
• Change, the pace of which is considerable
• Speed
• Complexity & Paradox which has emerged as a result of the above 5 factors and
presents the manager with the challenge of conflicting choices and conditions.
Key Characteristics of Chaos Theory

Chaos Theory focuses on the “web of feedback loops present in every system”
(Tetenbaum, 1998: 24). While feedback loops are linear in certain systems, they are
non-linear in systems characterised by complexity, such as the business organisation.

The characteristics of Chaos Theory include:
• Chaos as Order: Tetenbaum (1998: 24) asserts that “chaos describes a complex,
unpredictable, and orderly disorder in which patterns of behaviour unfold in irregular
but similar forms”. An example of such orderly disorder is the regular irregularity of a
snowflake.
• Chaos as a Self-Organising Entity: Chaos Theory views systems to be self-

organising in that they are self-adaptive and complex (Tetenbaum, 1998). Thus
structure evolves and change emerges (this differs from the Classical Approach
where structure is imposed). Visa is an example of an organisation that is managed
according to chaos principles and which is thus self-organising. Visa has grown by
10,000% since 1970, consists of 20,000 financial institutions and operates in more
than 200 countries. However, despite its size and growth, we do not know where it
is located due to the fact that it is decentralised, non-hierarchical and evolving
(Tetenbaum, 1998).
Building a Chaordic Organisation

Tetenbaum (1998) identifies the following characteristics of a chaordic
organisation (i.e. an organisation that embraces the chaordic paradigm):
• Knowledge and information sharing

• Innovation and creativity
• Teamwork and project orientation
• Diversity
• Strong core values
The role of management in facilitating the move to the chaordic organisation is to:
• Manage the transition

• Build resilience to change
• Destabilise the system
• Manage complexity and paradox i.e. order and disorder, the present and the
future
• Create and maintain a learning organisation (Tetenbaum, 1998).

2..4.4.4 Other Contemporary Theories
Cronjé (2004) identify three further contemporary management theories:
• Total Quality Management (TQM)

• The Learning Organisation
• Re-engineering
Total Quality Management (TQM)

A core definition of total quality management (TQM) describes a management approach
to long-term success through customer satisfaction. In a TQM effort, all members of an
organisation participate in improving processes, products, services, and the culture in
which they work
Focuses the business on the achievement of quality through the prevention of mistakes.
The central principles of TQM, which have emerged from the work of Deming, include:
• Strong emphasis on the customer

• Focus on continual improvement
• Quality improvement in all that the organisation does
• Accurate measurement
• Employee empowerment (Cronjé, 2002).
The Learning Organisation approach, advocated by Peter Senge, is based on the

Systems Theory and argues that organisations should overcome their learning
disabilities through:
• Commitment to lifelong learning

• Challenging assumptions and generalisations
• Sharing the organisation’s vision
• Promoting active dialogue within the organisation
• Encouraging systems thinking (Cronjé et al., 2004).
Re-engineering is an approach put forth by Hammer & Champy, and involves the
redesign (re-engineering) of organisational processes so as to “create and sustain
value for customers while managing costs”.

Business Process Reengineering involves the radical redesign of core business

processes to achieve dramatic improvements in productivity, cycle times and quality. In
Business Process Reengineering, companies start with a blank sheet of paper and rethink
existing processes to deliver more value to the customer.
This chapter has explored various management theories. The theories that fall within
the Classical School, the Behavioural & Human Relations School, the Quantitative
School and Contemporary School have been examined.
Tasks
Read the following case study adapted from Stoner and Freeman
(1992:52) and then answer the question which follows
Case Studies
Consolidated Automobile Manufacturers Inc.
On Tuesday morning at 6 am, two young automobile assembly-line workers, disgruntled

after failing to get their supervisor transferred, shut off the electric power supply to an auto-
assembly line and closed it down at Consolidated Automobile Manufacturers, Inc.
The electric power supply area, containing transformers, switches, and other high-voltage
electrical equipment, was positioned near the centre of the plant in a 1.5-by-1.5 metre
area. Enclosing this area was a 2.5-metre-high chain-link fence with a locked gate of
equal height that formed a protective cage around the facility and provided a measure of
security.
The two assembly-line workers, Kagiso Mabuso and Ernest Raymond, gained access to
the electric power supply area simply by scaling the fence. Once inside, they halted the
assembly line by opening the switches and cutting off the electrical power.
Mabuso and Raymond, who worked as spot welders, had taken matters into their hands
when the union’s grievance procedure had not worked fast enough to satisfy them. Co-
workers, idled by the dramatic protest and the motionless assembly line, grouped

themselves around the fenced area, shouting encouragement to the two men inside. In
response, Mabuso and Raymond were chanting, “When you cut the power you’ve got the
power.” They were in the process of becoming folk heroes to their co-workers.
Sam Nkosi, who supervised Mabuso and Raymond and who was the target of their
protest, had been supervisor for only a short time. In explaining the events that led to the
protest, Nkosi said that production on the assembly line had been chronically below quota
before he took charge, and the plant manager had plainly told him that his job was to
improve the production rate. Production had improved markedly in the short time that
Nkosi had been supervisor.
Nkosi advised the plant manager that his transfer would only set a serious long- term
precedent. “The company’s action to remove me would create a situation where the
operations of the plant would be subject to the whims of any employee with a grudge,” he
argued. His contention was confirmed by the comments of a union steward who said
there were other conditions in the plant that needed improving – such as cafeteria food
and relief from the 40-degree heat in the metal shop. Moreover, the steward said, there
was at least one other supervisor who should be removed. He implied that, if successful,
the power cage protest would achieve two goals – namely employees could dictate the
company’s problem-solving agenda and simultaneously undermine its power to determine
decision-making priorities. The union steward’s final comment was that two men on an
unauthorised, wildcat strike might accomplish the same thing as a full-blown strike.
Each passing minute was costing the company a production loss of one automotive unit
valued at R15 000; the cost of each lost production hour, therefore was R900 000.
As he began a staff meeting to resolve the dilemma, the plant manager felt pressure to
accomplish two objectives: (1) to restore production on the profitless assembly line (a
solution about which he was uncertain) and (2) to develop policies for preventing future
interruptions by assembly line workers.
Article adapted from https://www.citeman.com/5089-theory-and-policy-encounter-power-

and-motivation-%E2%80%93-a-case.html
Answer the following questions:
1. Explain how the plant manager would go about resolving the dilemma and
accomplishing the two objectives (stated in the last paragraph of the case study)
according to:

1.1 The Classical Approach
1.2 The Behavioural & Human Relations Approach
1.3 The Quantitative Approach
1.4 The Contemporary Approach
2.5 Conclusion
This chapter provided an understanding of the evolution of management theory. The

reasons for studying management theory were elucidated and the concept of
management theory was examined. Various approaches to management theory,
including the Classical Approach, the Behavioural and Human Relations Approach, the
Quantitative Approach and the Contemporary Approach were explored.
The next section examines the management environment that was alluded to in this
chapter during the discussion on the contemporary approach.

CHAPTER 3:
Environmental Analysis
Chapter Outcomes
• Identify and discuss the salient characteristics of the management environment

• Distinctly discuss the composition of management environment in its entirety
• Comprehensively discuss and apply fundamental knowledge of the macro, market
and micro-environment to a business context
• Clearly explain the importance of conducting an environmental analysis and
scenario development in business
• Effectively acknowledge and understand the approaches management can adopt
when relating to scenario development
• Have a perspicuous understanding of the elements of a SWOT analysis matrix
3.1. Introduction
The value chain discussed in Chapter 1 suggests that businesses create value by
performing a range of activities, some of which are considered primary and others
supportive. These activities are largely controllable by the individual organisation.
Outside the organisation, however, lies an environment that is largely uncontrollable by
the individual business. This suggests that an organisation must continuously monitor
events in its environment to remain competitive, and that the business and its
environment are not closed, independent or mutually exclusive entities, but rather
influence and depend on each other for their existence. This mutual dependence arises
from the fact that society largely depends on business to satisfy its needs for products,
services and employment.
Conversely, a business depends on its environment for such resources as labour, capital
and raw materials. In a certain sense, the business can be regarded as a creation of its

environment in that its assets, income, problems, opportunities and continued survival
depend on the environment. Because of changes in the environment, management is
continually forced to make adjustments to its competitive strategy. There is a continual
interaction between the organisation and its environment and this, to a large extent,
determines how the organisation is structured and how it functions. In a dynamic
environment management must strive to adapt timeously and effectively to
current and anticipated changes in its environment.
A thorough investigation or scanning of the environment is therefore essential. This

enables management to avert threats in the environment timeously and to exploit
opportunities. This chapter discusses the relationship and the interaction between the
organisation and its environment.
3.2. The Environment Of The Organisation In Perspective
The environment within which the business finds itself changes rapidly and this
necessitates a thorough environmental awareness on the part of management, as well
as adaptability with regard its approach to management. The democratisation of South
Africa in 1994 normalised international relations, but at the same time exposed South
African businesses to a borderless world in which they suddenly had to compete.
Globalisation and the trend towards a world without barriers affect businesses in new
ways, and some have responded by taking their investments out of the country.
Accelerating urbanisation and increased poverty in southern Africa, the influx of

immigrants, the high crime rate and the breakdown of law and order, and the impact of
the COVID-19 pandemic have affected – and continue to impact - the environment in
which South Africans must do business and make decisions regarding their
investments. Thus, when planning strategically, it is critical for management to consider
the interaction between the organisation and its environment. In so doing, long-term
planning becomes geared towards the future. This makes planning more systematic
and integrated.
The number of environmental factors influencing organisations is i n c r e a s i n g ,

and this necessitates a new approach to future events. Appropriate methods of research
frequently need to be developed and organisational structures and management aids
must be revised to stay abreast of new challenges.
The business uses inputs from the environment and in turn delivers outputs in the form
of products or services for which there is a need in the environment. The management
task cannot be carried out effectively and efficiently without taking external factors into
consideration. The internal environment is also known as the decision-making or micro-
environment.
The micro-environment encompasses, among others, the strategy, business functions,

and management tasks, setting of goals, resource abilities and expectations of interest
groups that must be considered. Management must therefore make decisions that relate
to the strengths and weaknesses of the business. Strength is defined as a unique
capability of a particular organisation that gives it an advantage over competitors, while
a weakness can be described as a deficiency, which, if not addressed, could negatively
affect the organisation's position in the market.
Management can control the elements of the micro-environment, and is therefore able
to use its strengths to improve the position of the organisation in the market, or to rectify
weaknesses to improve its competitive capacity.
The market or task environment is the environment immediately outside the

organisation. The market environment lies between the micro and macro business
environments and, while influenced by both, serves as a buffer between the two. This
environment includes factors such as suppliers, competitors, consumers, interest groups,
intermediaries and strategic alliances (Erasmus, et al, 2016).
The macro business environment encompasses all uncontrollable variables and the
implications they have for management. Management must therefore make strategic
decisions with regard to economic, social, technological, physical, political and
institutional and international environments, based on the changes in the macro-
environment.

Changes in the market and macro-environment give rise either to opportunities or
threats. An opportunity is defined as a favourable condition in the external environment
that could be exploited to the benefit of the organisation by the deliberate actions of
management. A threat, on the other hand, is defined as an unfavourable condition in the
external environment, which, if not responded to by management, could seriously harm
the organisation's position in the market. The organisation's management must be well
informed of international events, especially with regard to economic, social, and political
developments.
3.3 Characteristics of the Business Environment
The business environment is characterised by the following:
• Interrelatedness of environmental factors

Change in one of the external factors may cause a change in the micro-environment
or internal factors, and, similarly, a change in one external factor may cause change
in other external environmental variables.
• Increasing instability
One of the consequences of interdependence in the environment is increasing

instability and change. Although the general rate of change in the environment
accelerates, environmental fluctuation is greater in some industries than others.
• Environmental uncertainty
Uncertainty about the environment is, of course, a function of the amount of

information about environmental variables and of the confidence that management
has in such information.
• Complexity of the environment

This indicates the number of external variables to which a business organisation
has to react as well as variations in the variables themselves.

3.4. The International Environment
International business activities refer to profit-oriented activities across national borders.

Organisations that operate within a country while drawing resources from or selling
products to another country can be affected on both a national and an international
level.
Local organisations must keep up to date with international data on inflation, exchange
rates, interest rates, recession, and shortages of natural resources, the gold price and
especially international political events. Organisations involved in international trade
quickly realise that success or failure greatly depends on knowledge of legislation,
customs, ethics, economic systems and on the management practices that are followed.
The professional manager must be conversant with the nature of international
management and must be trained not only to recognise threats, but also to convert these
threats into opportunities.
3.5. The Macro Business Environment
The macro-environment includes all external influences that have a bearing on the
business but do not fall within its direct sphere of influence. In the study of the macro-
environment, the emphasis falls on the changes that uncontrollable macro-variables
bring about, and their implications for the business.
Remaining abreast of environmental changes to predict environmental changes is a

difficult task. Certain changes are unpredictable owing to the speed with which they take
place, while others are difficult to predict owing to a lack of information or knowledge.
The main characteristics of these external factors are that their origin is outside the
business, that they are largely unpredictable and that they change constantly, but they
are nevertheless a determining factor in the survival of the business. Because of the
uncertainty of the future, it is absolutely essential that environmental scenarios be
developed for the business.

3.5.1. The economic environment
Economic factors such as the business cycle, inflation, and recession, influence the
demand for goods and services by compelling consumers to reassess their priorities in
terms of consumer products. Each significant economic change requires appropriate
reaction by the business. It is the responsibility of management not only to try to
determine the intensity of the business cycle for a specific industry, but also to try to
forecast the possible cycle of the economy for at least the following year. In the
following sections, we consider some of the most important economic factors to be
considered by managers.
3.5.1.1 Inflation
Price stability is an important part of the economic landscape. Inflation is described as a
continual rise in the general price level.
The two forms of inflation are demand inflation and cost push inflation. Demand inflation
occurs when the demand for goods and services is higher than the supply, resulting
in higher prices. Cost push inflation occurs when production costs of goods and services
continually increase, resulting in higher selling prices. The organisation must counteract
the influence of inflation as far as possible. Under condition of high inflation, the emphasis
is, to a large extent, placed on the management of working capital, such as debtors,
stock and creditors.
3.5.1.2 The business cycle

This involves the pattern of expansion and contraction of economic activities around a
long-term growth tendency. Western economies, including South Africa, are harassed by
inflation as well as periods of recession that follow each other in quick succession,
interrupted by short periods of economic growth. The business and the consumer must
make certain value adjustments during the various phases of the business cycle to adapt
to emerging economic realities.
At the cycle peak, the economic activity is high in relation to the general trend whereas
the lowest rate of economic activity is reached at the trough. A practical measure is to
link the business cycle to the behaviour of the real gross domestic product (GDP), which

provides a combined indicator of the prevailing economic climate of an economy.
Exogenous factors such as wars, drought, natural disasters, inventions and drastic
changes in consumer demands may lead to an increase or decrease in economic
activities. These factors result in changes in the volume of production activities and the
volume of bank credit, in interest rate patterns, in orders for and the installation of capital
equipment, and in price increases or decreases.
3.5.1.3 Interest rates

Interest is the price paid for money. The level of interest rates is largely determined by
the demand for and the supply of funds. The Reserve Bank also uses interest rates to
influence the money supply. The "repo" rate is the cost at which banks can borrow money
from the Reserve Bank. The prime rate is the floor price at which banks make loans or
overdraft facilities available to their clients. Personal risk leads to an increase in this rate
for the individual and the organisation. Both current and expected interest rate levels are
important since these have a marked influence on the cost of capital as well as on the
expected minimum return on capital. Relatively high interest rates have the following
implications:
• The use of debt financing becomes more expensive and places liquidity
under pressure.
• High interest rates can dissuade the consumer from buying durable
consumer products like furniture, cars or electrical household appliances.
Many consumers purchase these items on a hire-purchase basis and an
increase in interest rates discourages such purchasing. The same applies to
interest on overdrawn bank accounts.
3.5.1.4 Provision of employment

Unemployment is one of the biggest problems in the South African economy. In the early
1990s, unemployment spread beyond the unskilled labour force. An unemployment
figure of 40 per cent of the economically active population has enormous social
implications. Crime is on the increase and is a problem not only for homeowners who
have to spend more of their disposable income on home security, but also for the
business community.

3.5.1.5 Productivity and profitability
Even though productivity and profitability are not synonymous, there is a strong
relationship between them. If productivity increases, profitability should also increase.
Increased productivity enables the organisation to compete better in the market. The
labour unit cost in South Africa is among the highest in the world. Owing to the conduct
of labour unions, and because of a low work ethic, the situation continues to deteriorate,
with serious consequences for the South African economy in general and for business
in particular, as businesses find it difficult to compete on the basis of price with
businesses in other parts of the world.
It is clear that South Africa is locked into an increasing wage psychosis. There is no
positive correlation between wage increases and productivity. South Africa is included
among countries that have the highest disparity between labour productivity and wages,
with a resulting increase in labour-unit cost and inflation.
3.5.1.6 The influence of trade unions

Due to the activities of trade unions, many organisations have been forced to close their
doors, resulting in a loss in employment opportunities. It is imperative that
management knows how to deal with labour disputes. Trade union activities in South
Africa are often characterised by acts of intimidation and violence. Until such time that
government realises the seriousness of the situation and is willing to restore order in
labour relations, South African and local businesses will pay a heavy price.
3.5.2 The technological environment
Many of the recent changes within the business environment are the result of
technological advances and innovation. Research and development provide the source
of technological innovation and new products, processes, methods and approaches to
management result from this. Because of the interaction between technology and other
environmental factors, there is a continual tendency towards innovation in all spheres
of the business community.
Scientific research produces and systematises new knowledge, and when knowledge is
applied in practice, new goods and services are developed. The economic environment

largely determines the direction of technological innovation.
• Trading
Developments in electronic communication, as manifested by the Internet, for
example, have changed the business. This has created new business
opportunities or capabilities, such as e-commerce, e-trading, e-marketing, e-
supply and others. It has also created new types of businesses, such as cellular
communication services, vehicle tracking services, sophisticated information
supply services and on-board vehicle navigational systems.
• Labour-saving machinery, equipment and products. New and improved

products, which satisfy specific needs, have been made available to the consumer,
thanks to technological innovation. The research and development departments of
manufacturers must continually pursue the improvement of existing products and
the development of new ones.
• Administrative systems and equipment. New technology in the form of electronic

and automated apparatus and systems has introduced a new area of competition
among organisations. Especially in the areas of banking, retailing, tourism and
recreation, entrepreneurs are forced to keep abreast of new developments
regarding credit cards and computer- backed services. These services are
primarily focused on the convenience of and service to the consumer.
• Increased productivity. This is probably the most outstanding result of advanced

technology. Increased productivity demands or increases turnover of the
organisation's products and services. It creates more intense competition and may
reduce employment opportunities.
3.5.3 The social environment
The organisation is a creation of the social environment. The role of an organisation in

a dynamic environment is to adapt continually to changing circumstances and to
meet the expectations of the society. There is also an overlapping of some of the
elements in the social and the economic environments. The organisation is at the

centre of changes taking place in the social environment. The organisation contributes
to social change, but is also influenced by it. The organisation must therefore be aware
of the culture, needs, preferences, purchasing patterns, nationality, religion and
geographical location of consumers.
3.5.3.1. Distribution of income

South Africa, with its heterogeneous population and geographical vastness, consists of
many subcultures, each of which reacts differently to change. Increasing income levels
and improved literacy among the country’s Black population in recent years has greatly
influenced the market. The growth of the black consumer market and buying power is
already of vital importance in many branches of industry. Management must establish
where its biggest buying power is located and ensure that that market is exploited
and served with high quality products and service.
LANGUAGE
INCOME
RELIGION
DISTRIBUTION
SOCIAL
CULTURE
RESPONSIBILITY
SOCIAL
ENVIRONM
ENT
POPULATION
HIV/AIDS
GROWTH
URBANISATION EDUCATION
CONSUMERISM
Figure 3.1: the social environment
3.5.3.2 Consumerism and employee interests

The primary responsibility that the organisation has towards the consumer lies in
protecting him or her, but the demands of society for greater social responsibility on the
part of the organisation culminate in consumerism. This is also the link between the

organisation and the social environment. Previously, social responsibility was limited
largely to social and welfare services. The employer concerned himself only with the
social well-being of his workers, without paying attention to the socio-economic and
cultural fate of individuals. Nowadays, the totality of the employee's existence and
experience is studied, and the expectations not only of his family but of the entire
community demand attention. By neglecting the latter, the organisation will definitely elicit
the criticism of the community, consumer groups and even of government.
3.5.3.3 Participation of employees and the community (social involvement)

The new labour community is characterised by the principles of labour democracy.
This implies that the worker has a greater say in the design, execution and
evaluation of work. The employer provides additional educational services, like literacy
training. Other areas of direct social involvement are transport, housing, financial
assistance, clothing, medical services, recreational facilities, cultural facilities and general
counselling.
3.5.3.4 Different languages
In an effort to inform consumers about their products and services, organisations must
communicate with their target market(s) in a language that they understand. This can be
a challenging task, as South Africa is a multi-lingual country.
3.5.3.5 Level of education
The low levels of productivity and skill in the South African labour force are, to some
degree, attributable to the relatively low level of education of the broader society.
This also makes it difficult to develop a sophisticated industrial and work ethic. Education
is an important key to future socioeconomic development.
3.5.3.6 The threat of HIV/Aids
HIV/AIDS has become an extremely important factor in the process of strategy

formulation. In Africa especially, there is much speculation as to the implications of this
threat for the future. The first cases of HIV/AIDS in South Africa were reported in 1982.
Since then, the number of cases has increased dramatically each year.
Management must, as a matter of urgency, develop a personnel policy for dealing
with HIV/AIDS in the workplace, and organisations should be prepared for the direct and
indirect consequences of the disease. Costs associated with HIV/AIDS are reflected in
the following areas:
• Loss of trained manpower
• Costs associated with the recruitment, training and induction of
replacement personnel
• Loss of labour productivity
• Loss of efficiency due to the loss of skills and experience
• Direct and indirect costs associated with health care
• Interruptions in the production process
• Increased costs of employee benefits
• A decline in the consumer base
• A decline in the disposable income of consumers as a result of higher health
care costs
The handling of AIDS- related issues must be incorporated into strategic planning by
management. A policy regarding HIV/AIDS must be formulated timeously and be
incorporated into the existing health and security policies of the organisation.
Tasks
List the activities that have been carried out in your area to address
concerns around HIV/AIDS. Do you think your community is doing
enough to address the problem?

3.5.3.7 Population growth
The size of the market, the labour force and unemployment are closely related to
population growth. By 1850, the world population numbered 1 b i l l i o n . By 1925,
it was already 2 billion. Now in 2021, the world population is at a staggering 7.9 billion
and counting (Worldometer, 2021). Population figures of Third World countries double
every 32 years.
Urbanisation
The current population of South Africa is 59,990,356 as of Tuesday, June 1, 2021, based
on Worldometer elaboration of the latest United Nations data (worldometer, 2021).
Urbanisation, along with the expected population growth, has far-reaching social
implications and consequences. Urbanisation greatly influences the economy, for
example, purchasing power is increasingly concentrated in urban areas.
3.5.4 The physical environment (Ecological)
The physical environment includes the availability, conservation, improvement and

utilisation of the limited natural resources a country possesses. The business obtains its
basic raw materials from the physical environment in order to place a product on the
market in combination with other factors of production. The shortage of basic factors of
production influences the supply of goods and contributes to large price increases and
resultant high inflation. Consideration must be given to different and more sophisticated
methods of production, and even a reorientation in marketing thinking. Each business
should have a clear policy regarding its responsibility for the most judicious utilisation
and conservation of the physical environment.
Another factor that determines economic essential is the availability of sufficient suitable
and qualified personnel and entrepreneurs. South Africa is experiencing a shortage of
skilled labour, mainly because of the mass exodus of highly trained individuals that
occurred in the last few decades. A dramatic increase in productivity by means of training
can help alleviate the skills problem.

3.5.5. The political environment
The political environment encompasses complicated variables that are extremely difficult
to control or predict. Management's responsibility is to acquaint itself with government
policy with regard, inter alia, to the acceptance of a free market system as the key to
economic activity. Management must ensure that it is informed on the general economic
policy and specific policies with regard to underlying economic issues. Specific
government policy standpoints are implemented by government ordinances. This
includes monopolistic laws, environmental conservation, employment policies and
taxation laws. Owing to the complexity of the political environment and the different ways
in which it influences the management environment, it is probably the most unpredictable
environment and consequently the most difficult to scan. In South Africa, the effect of
political decision-making on the economy as a whole and on the organisation in particular
must form part of strategy formulation in all organisations. The role of government is to
create a conducive climate where business can flourish and develop. The government’s
policy on the above factors could either foster or hinder such a climate.
3.5.6. The institutional environment
The institutional environment encompasses all the government, semi- government

and other institutions with which the organisation is directly or indirectly involved.
Many associations protect the interest of organisations and branches of industry.
3.6 The Market Environment
The ability of a business to be competitive is determined by the interaction between

the business and its immediate environment, the market environment. The market
environment surrounds the organisation, and it forms the link between the
organisation and the macro-environment. The importance of environmental variables
varies according to the influence that they have on the organisation via the market
environment. Management is responsible for identifying the needs of the consumer
within the market environment and identifying opportunities and threats, to convert
threats into opportunities and to develop specific strategies to counteract competition.

Management by carefully analyse the following components within the market
environment:
3.6.1. Interest groups
These include institutions and groups who have an interest in the existence and future of
the business. Each group will place a different emphasis on the activities of the
business. These interest groups lack the power of government agencies, but they can
exert considerable influence by using the media to their advantage.
3.6.2. Consumers
Consumers have a major effect on the organisation’s performance by purchasing

products and services. Effective managers realise the need to offer the consumer value
for money. The creation of consumer value is the primary responsibility of the marketing
department of the organisation. Through comprehensive and continual market research
the business stays in touch with the needs, motives and behaviour of consumers.
The changing needs of consumers may offer opportunities as well as threats.
3.6.3 Competition
Business must compete for customers. Effective managers develop strategies that
offer a unique advantage over the competition in the market. Because all businesses
strive to increase their market share, their market strategies are continually adjusted to
ensure an advantage over competitors. The formulation of strategy requires a sound
competitive strategy that ensures that business can increase its competitive edge.
3.6.4 Suppliers
Effective managers realise the importance of suppliers and develop close working
relationships with them. Suppliers impact the organisation’s performance and the
relationship with suppliers is an important part of effective management.
3.6.5 Labour force
An organisation’s employees directly affect its performance. The organisation’s mission,

its structure and its systems processes are major determinants of the capability levels
employees need to meet objectives. Organisations must focus on labour organised into
unions.
3.6.6 Strategic alliances
This refers to two or more companies that work together in joint ventures. Strategic
alliances help organisations obtain from other companies whatever expertise they lack.
Management must look outside the organisation and be aware of trends in the market
environment in order to utilise opportunities (upon which profits depends) and to
counteract threats. Knowledge, information and market research are thus important.
Think Point
Think of an organisation that is familiar to you. How is the organisation

affected by the macro-environment? How has that particular
organisation adapted?
3.7 The Micro-environment
The micro-environment is also known as the decision-making environment. It

incorporates the goals of the organisation, management of the functions of the
organisation, entrepreneurial ability, interest groups and all other aspects controllable
by management.
3.7.1. The functional division of the organisation
The micro-management environment encompasses all the functions of the organisation.

These functions complement one another; they form a coherent unit and cannot
function in isolation. Together, they serve the organisation as a whole. Thus, the
production and marketing functions, for example, have to cooperate, otherwise that
which is produced will not be sold. Each function therefore has a stake in the
entrepreneurial ability of the organisation, and as such on the capital, labour, raw
materials and expertise of management. In the process of decision-making,
management must continually consider the total interdependency of these functions.
These functions are discussed at length in later chapters.
3.7.2. Entrepreneurial ability
Resources within the organisation include fixed assets, equipment, labour, capital
and specific expertise. Analysis of the organisation’s business potential is of primary
importance. This encompasses an analysis of the potential availability of the means of
production, as well as of possibilities for the creative utilisation of these means of
production. The potential of these resources is to a large extent reflected in the functional
activities of the organisation. Inadequate knowledge of the relevant resources, as well
as of basic evaluation techniques that can be used to determine the capacity of these
resources, often makes it difficult for the individual organisation to determine
its entrepreneurial ability. A few o f the resources which contribute to the
entrepreneurial capacity of the organisation are discussed below:
• Capital. In most cases, capital determines the entrepreneurial ability of the

organisation, since little can be done with limited capital. The funds obtained by
the financial function are vital for the continuation of the activities of the various
departments: this supply the fuel for the "motor" of the organisation. Financial
management must always be attuned to the capital needs of the organisation, as
well as to the sources of finance, to ensure that the right type of capital is available
at the lowest possible cost. Financial management must see to it that the goals of
the organisation are realistic and attainable, from a financial point of view, by
undertaking sound financial planning and control.
• Labour and expertise. This includes the acquisition, retention and utilisation
of adequate and suitable personnel to handle the activities of the organisation
as efficiently as possible. Through human resources planning and task analysis,
the personnel department can remain informed of the total personnel
requirements of the organisation, that is the number and type of employees
required. Without comparable labour advantages, the organisation loses its
competitive edge.
• Raw materials. The marketing and production functions must be well informed
about the type of goods and services that should be “placed at the disposal of
the consumer”. This information can be obtained through market research into

consumer needs. The purchasing function is responsible for obtaining basic
raw materials and parts for production purposes. It therefore has to be certain
of the needs of the production function so it can ensure that the right quantity and
quality of materials are always in stock. Delays due to a shortage of raw materials
must be avoided at all times.
• Management skill. Ultimately, the quality of management is the organisation's

most important asset. Without expert and skilled management, it is unlikely that
an organisation will achieve success, even with a good product and market
potential.
• Expert management at all levels is a necessity.
Figure 3.2: Micro-environment of the firm
3.8 Environmental Analysis and Scenario Development
Environmental analysis is essential for the formulation of a corporate strategy for the
organisation - a strategy which must be seen as the deliberate decision of management
to adapt to the current and anticipated change in the market and micro-environments in
a timeous, economical and effective manner. A step-by- step approach is necessary for
the formulation of a strategy for the organisation. Functional strategies with regard to
financing, production, personnel, purchases, liaison work and marketing must be
developed on a coordinated basis. Through a process of environmental exploration,
management must become aware of all external powers, opportunities and threats, and
also of the strengths and weaknesses of the organisation.
3.8.1. The process of scenario development
To reduce uncertainly about the future, it is important to develop environmental
scenarios for an organisation. The following steps are required to develop a typical
scenario:
• Determine the internal and/or external factors for which scenarios have to be
developed. This implies that management has to decide which factors will have
an important influence on the organisation.
• Select critical indicators for each factor.
• Determine the nature, occurrence and trend of the indicators in the past. This is
known as TIA (trend impact analysis). The reasons for trend behaviour must
be determined in the process.
• Verify potential future trends. Make suppositions.
• Forecast or extrapolate to form idea of what might happen in the future.
• Write the scenario on the basis of the information gleaned.
3.8.2 Use the scenarios to formulate strategy for the organisation
A general and simple application of the analysis of the external and the internal
environment is possible with the aid of a SWOT (strengths, weaknesses, opportunities,
threats) analysis. By comparing the strengths, weaknesses, opportunities and threats of
the organisation, a logical framework for the systematic analysis of the activities of the
organisation can be obtained. A SWOT analysis allows
management to convert threats into opportunities and weaknesses into
strengths.
Think Point
Define and analyse the expression “environmental scanning”.

Comment to think point
Environmental scanning may be defined as a method of keeping abreast of external
social, economic, technological and political developments which may be difficult to
observe or predict, but which management dare not ignore. It entails the identification
and monitoring of every opportunity or threat, and may range from a simple information
system to a formal environmental scanning division or unit whose sole task is to monitor
external environmental factors.
Please note that the word "scanning" is defined in the dictionary as "scrutinising minutely"
and also as "glancing over quickly". When we speak of the need for an enterprise to scan
the environment, we refer to the first meaning, that is, to scrutinise carefully and
systematically.
3.9 The Result of Environmental Scanning and Scenario Development
The purpose of environmental scanning and scenario development is to provide a basis

for the formulation of a strategy regarding the activities of the organisation. Some
of the possible strategic decisions that may be taken include the following:
1. A maintenance strategy where the organisation continues along the route

taken and attempts to maintain the current profit position.
2. A growth strategy involving an extension of activities.
3. A combination strategy, which may be a combination of the above strategies and
is mainly used in cases where the organisation serves a variety of markets.
4. A specific activity strategy whereby a strategy concerning specific aspects such
as finance, investment, personnel, production or purchases, is formulated.
Reading
How the Fourth Industrial Revolution Is Catalysing Massive

Social Change - Tiana Laurence (April 27, 2021)
According to (Laurence, 2021) The term Fourth Industrial Revolution (4IR) often

refers to a series of technological breakthroughs: the improvement of artificial

intelligence (AI), robotics and automation, dramatic advances in biotechnology, and
so on. While these technologies are central to 4IR, there’s an even more
fundamental shift taking place – consumers and companies are increasingly
moving the economy toward socially responsible production and consumption.
It’s vital for forward-looking companies to make issues such as environmental

sustainability, racial equality and justice, the fight against poverty, and other
contributors to the public good top priorities. The move toward social responsibility
isn’t just what the next generation of consumers is demanding – it’s also one of the
most powerful engines of innovation, as it orients companies toward the
development of radical solutions for the most pressing issues on the planet. But
above all, it’s the right thing to do.
Even companies that aren’t explicitly focused on providing products and services
that address public health, education, the environment, and other social issues now
have more options than ever to have a positive impact. Any company can change
its business practices to reduce its environmental footprint; address racial, gender,
and socioeconomic inequality; and work toward a safer, healthier, and more equal
world.
A permanent shift in consumer and employee expectations

In many ways, 4IR is being driven by younger generations. Millennials have been
the largest generation in the workforce for several years, while members of Gen Z
are quickly moving into adulthood, graduating from college, and starting their
careers. These changes are having a profound impact on how companies
approach social responsibility.
For example, Millennials are disproportionately likely to prioritize diversity in the

workplace – they say they’re motivated by diverse leadership teams and they’re
more loyal to companies that embrace diversity and inclusion. Millennials and Gen
Z report that their top concern is climate change, and significant proportions of
these groups have taken action to improve their impact on the environment. Three-
quarters of Millennials say they would take a pay cut to work for a socially

responsible company, compared to 55 percent of other American workers.
As younger generations facilitate long-overdue change in workplaces around

diversity and gender equity, they’re also transforming markets in which they have
rapidly increasing buying power. According to a 2020 Edelman survey, 81 percent
of consumers say they “must be able to trust the brand to do what is right,” while
almost two-thirds say they’ll “choose, switch, avoid or boycott a brand based on its
stand on societal issues.” Other Edelman surveys have found that Millennials are
disproportionately likely to describe themselves as belief-driven buyers.
It’s clear that employees and consumers are only going to become more concerned
with social responsibility, and 4IR companies are in an ideal position to capitalize
on this trend.
Many people automatically associate the Fourth Industrial Revolution with Silicon
Valley tech start-ups or major companies attempting to capture market share in
emerging fields like AI, but this is misleading. Beyond the fact that regions beyond
the West Coast and Mid-Atlantic are seeing a long-overdue increase in VC activity,
4IR encompasses much more than a few new developments in the software
industry. It represents a sweeping shift in how we interact with technology, our
environment, and one another.
Consider the implications of telemedicine for inequalities in access to healthcare;

augmented reality and biotechnology for people with disabilities and injuries; or
access to digital financial tools for entrepreneurs in developing countries. The sheer
range of applications for AI alone is remarkable: self-driving cars that have the
potential to drastically reduce traffic fatalities, the rapid diagnosis of illness,
language translation tools and resources to help people with atypical speech, the
research implications of big data analysis, and so on.
A recent article in Nature Communications explained that the AI for Social Good
(AI4SG) movement seeks to facilitate “collaborations between AI researchers and
application-domain experts, relate them to existing AI4SG projects and identify key
opportunities for future AI applications targeted towards social good.” A focus on

social responsibility isn’t incidental for 4IR companies – it’s an essential part of what
makes them contributors to the Fourth Industrial Revolution in the first place.
Making social responsibility a core business function

AI4SG is intended to “deliver positive social impact in accordance with the priorities
outlined in the United Nations’ 17 Sustainable Development Goals (SDGs).” These
goals – which include ending poverty and hunger, improving access to education,
achieving gender equality, creating sustainable economic growth, and reducing
inequality – serve as a useful framework for 4IR companies to think about their
impact.
The vast range of issues covered by the SDGs should be a reminder to all
companies that there are many ways to contribute. For-Progress-For-Profit (4P4P)
companies can work toward many SDGs with how they conduct business: by
promoting diversity and inclusion at the workplace, keeping their environmental
impact as sustainable as possible, providing paid family leave and taking an active
interest in the emotional wellbeing of their employees, and developing products and
services that make the world a better place.
This should come particularly naturally to 4IR companies, which are leveraging the
most advanced technologies in human history to solve the most pressing problems
our species faces.
Article adapted from: https://www.business2community.com/business-

innovation/how-the-fourth-industrial-revolution-is-catalyzing-massive-social-
change-02401302
3.10 SWOT Analysis
SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. Strengths and
weaknesses are internal to your company i.e. things that you have some control over and
can change. Examples include who is on your team, your patents and intellectual property,
and your location.
Opportunities and threats are external i.e. things going on outside your company, in the
larger market. You can take advantage of opportunities and protect against threats, but
you can’t change them. Examples include competitors, prices of raw materials, and
customer shopping trends.
A SWOT analysis organises your top strengths, weaknesses, opportunities, and threats
into an organised list and is usually presented in a simple two-by-two grid
HELPFUL HARMFUL
INTERNAL STRENGTHS WEAKNESSES
EXTERNAL OPPORTUNITIES THREATS
3.11 Conclusion
There is continuous interaction between the organisation and its environment, which
determines the organisational structure and functioning of the business. Management
must be aware of all internal and external forces, opportunities, threats, and strengths
and weaknesses of the organisation. This can only occur through a process of
environmental exploration.

CHAPTER 4:
General Management
Chapter Outcomes
• Demonstrate a well-rounded understanding of the general management functions

• Identify and discuss the levels and fundamentals of the planning process
• Demonstrate an understanding of the essential aspects of the organising function
• Successfully apply the elements and critical aspects of leadership within a business
• Display knowledge and understanding of the rudimentary aspects of the control
process to maintain efficiency within a business
• Provide a clear understanding of the evolution of traditional management to digital
management
4.1. Introduction
Planning is the first primary management task conducted by managers. Strategic

planning is conducted by top level management, and focuses on developing a mission
and long-term objectives for the organisation as a whole. Functional planning, on the
other hand, focuses on medium-term objectives and is conducted by middle
management. Operational planning is the process of setting short-term objectives and
determining in advance how they will be accomplished. The difference between strategic,
functional and operational planning is primarily the time frame and management level
involved.
Think Point
List the reasons why management is indispensable to any business.

Comment to think point:
• Management is necessary to direct a business toward its objectives.

• Management is necessary to set and keep the operations of the business on
a balanced course.
• Management is needed to keep the organisation in equilibrium with its
environment.
• Management is necessary to reach the goals of the organisation, because it
maintains the organisation's equilibrium and helps it to attain its goals
synergistically and at the highest possible level of productivity.
4.2 Planning
Planning is the first primary management task conducted by managers.

The planning function includes defining an organisation’s goals, establishing an overall
strategy for achieving those goals, and developing a comprehensive hierarchy of plans to
integrate and co-ordinate activities. Setting goals keeps the work to be done in its proper
focus and helps members of the organisation focus their attention on what is most
important.
4.2.1 Strategic planning
Strategic planning includes developing a vision, mission statement and long-term

objectives. This is done by considering the norms, values and philosophy of
management and the employees of the organisation, its internal strengths and weakness
the external opportunities and threats in the organisation’s business environment.
In South African organisations, "long-term" generally means that it will take between one
and ten years to achieve the objective. Strategic plans are usually reviewed and revised
every year so that there is always a two-year, five-year or even ten-year plan. This allows
the organisation to be future-oriented and able to adapt to changes in the business
environment. In the strategic process, top management develops the long-term plans,
and the middle and first level managers develop the tactical (medium-term) and

operational (short-term) plans to accomplish these objectives.
Develop strategies (corporate level, business level and functional level). At the corporate
level, grand strategies are formulated for the overall performance of the organisation.
These include growth, stability, turnaround and combination strategies. These corporate
level strategies, described by Porter (2003) as grand strategies, can be summarised as
follows:
Growth strategies attempt to increase the organisation's size through increased sales.
Examples of growth strategies are concentration, integration, diversification, mergers
and acquisitions. A stability strategy attempts to hold or maintain the organisation's
present size or enable it to grow slowly. A turn-around strategy is an attempt to reverse
a declining business as soon as possible. Finally, an organisation can consider
combining the above-mentioned strategies for different lines of business in the
organisation.
At the business level, generic strategies identified by Porter (2003) include cost
leadership, differentiation and focus strategy. Generic strategies allow the organisation
to create or maintain a competitive advantage. For an organisation consisting of more
than one business unit, each business unit will have its own generic strategy, linking up
with the grand strategy at corporate level.
At the functional level, strategies are developed for each management function (e.g.
marketing and sales, logistics and operations) and must be aligned with the business unit
generic strategy as well as the corporate level grand strategy, to ensure success and a
competitive advantage. Implement and control the most appropriate strategies selected.
The implementation of the planned strategies is the responsibility of first level managers.
An effective support system provided by higher level managers is of great importance to
ensure the successful implementation of strategic planning.
4.2.3. Functional planning
Functional planning refers to medium-term planning carried out by middle management

(in cooperation with top management) for the various functional departments to realise

their objectives (which are derived from the long-term goals)
Examples of functional strategies or functional plans include human resources strategy

on employment equity, marketing strategy on product positioning and financial strategy
on profit management and dividend payments.
4.2.3. Operational planning
Operational plans have short-term objectives that should be met in less than one year.
Middle and first-level managers develop operational plans. Examples include plans
that reflect the day-to-day activities of the organisation, such as equipment maintenance
to maximize plant production or sending sales staff to training seminars.
Some organisations distinguish tactical plans from strategic and operational plans.
Tactical plans have an intermediate range between strategy and operational plans and
focus on functional planning issues. Many organisations combine tactical and operational
plans and describe them both as tactical and operational. The organisational structure of
the organisation will indicate whether a distinction is made only between strategic and
operational planning (applicable to flat organisation structures) or between strategic,
tactical (functional) and operational planning (applicable to high organisational
structures).
4.2.4. Levels of planning
As discussed under strategic planning, developing strategies takes place at three levels:
corporate, business and functional. The corporate-level strategy is the plan for
managing multiple lines of businesses. This includes broad strategies for the
organisation as a whole, such as Woolworths or McCarthy Retail, each of which consists
of a variety of independent businesses. The business level strategy is the plan for
managing one line of business, for example Game Stores or Dion. This strategy focuses
on the product line or service provided by one of the enterprises. The functional level
strategy is the plan for managing one functional area of the business, for example the
marketing or financial division.

4.2.5. The Planning process
Planning can only be successful in terms of goal achievement based on appropriate

strategies and tactics, if the allocation of resources (e.g. human, capital and
technology) is well planned. Planning allows management to identify opportunities,
anticipate and avoid problems (threats), and develop courses of action with the
related risks involved.
Thus the organisation will have a better chance of achieving its general goals. These
goals include adapting and innovating to create desirable change, improving productivity
and maintaining organisational stability. Obtaining these goals should enable the
organisation to achieve future performance, including long-term growth, profitability and
survival in a growing, turbulent business environment.
Why is planning so important to management?
• It gives direction and focus to each functional department in an organisation.

• It forces people to think before acting. Resources must be used efficiently to
achieve the desired results.
• It encourages managers to analyse changes in the macro and market
environments and to plan to take them into account.
• When an organisation plans together, its people begin to understand each other’s
business and operational problems. They also develop a better appreciation of the
business as a whole. This is the systems approach being applied in practice.
• Planning together improves the horizontal communication and co-ordination
between sections and departments when the plans are implemented.
• Good plans help reduce waste of time and materials. It makes the organisation
more effective and efficient.
• The standards of performance and objectives set at the planning stage are used in
the controlling stage to ensure the company is ‘on track’ towards achieving its
results.
Briefly, the steps in the planning process are as follows:

Step 1 This step is the awareness of opportunities. Analyse the macro and market
environments (Chapter three) for changes that affect your organisation. Identify
opportunities and threats to your organisation. Be aware of what the customer (whether
internal or external) wants from the section, department, and organisation as a whole. You
may think that you work in a department that does not have external customers. However,
you have internal customers who provide products and services to departments with
external customers. You may establish the needs of those customers. Every person in
your organisation contributes to a business process that either finds or keeps customers.
If they do not, then perhaps the organisation does not need that job function. Think about
your computer’s activities.
Step 2 Develop a mission and vision for the organisation. Where do we want to be, what
do we want to accomplish and by when? Develop purpose statements for each functional
department. They must be based on the mission statement and show its contribution to
the organisation. Set objectives or goals for the organisation as a whole and each of its
functional areas. Clearly state the results to be achieved. They must satisfy the
characteristics for objectives discussed earlier in this module.
Step 3 Develop your planning premises. These are assumptions the management team
make about changes in the macro and market environments. Existing organisation
strengths and weaknesses, policies and plans are also considered. Forecasts of possible
environmental changes are critical inputs to this process. Planning assumptions for each
functional area will become more specific the further down the organisation hierarchy you
go.
Step 4 Search for the alternate courses of action (or plans) that will help you reach your
objective. Several courses of action are often available to reach an objective.
Step 5 You must now evaluate each alternative with its use of resources, ease of
implementation, impact on other departments, and effectiveness.
Step 6 Select the plan you will use. Invariably, you will have to think of supporting plans
to make the main plan work. At middle manager, supervisor, and operator levels, other

sections and departments will frequently be involved. (This occurs because you are all
working to satisfy customers’ needs).
Step 7 The final step is to convert the plan into a budget, where necessary. Some
objectives must be converted into financial results, and the resources and actions needed
to achieve them must also be put into financial terms.
Think Point
Can an organisation survive without a plan? How is the controlling

element linked to the planning process?
4.3. Organising
Organising entails structuring the activities of the organisation to facilitate the attainment
of its objectives.
Organising determines an organisation’s division of labour into specific departments and

teams as well as what tasks are to be done, who is going to do them and how they will
be grouped. Organising also encompasses deciding the formal chain of command,
operational processes, reporting structures and decision-making authority that will be
used.
To ensure continued competitiveness, as a manager you are expected to use your

organising skills to restructure and maintain a leaner, or maintain a more efficient and
more productive department or team. You are expected to place the right people with the
right skills in the right roles at the right time to achieve maximum productivity and
performance.
4.3.1 Definitions of organising
Organising analyses how we are going to carry out our plans. Organising creates a
framework that allows you to allocate resources, responsibilities, and tasks to achieve
the organisation’s objectives effectively and efficiently.

• Koontz and O’Donnell say this about organising: “Organising is the grouping of
activities necessary to attain objectives. The assignment of each grouping to a
manager with authority necessary to supervise it and the provision for horizontal
and vertical coordination in the enterprise structure.”
• Smit and Cronje say this about organising “Organising is the process of creating
a structure for the organisation that will enable people to work effectively towards
its vision, mission and goals, and for people to work effectively towards its vision,
mission and goals.”
4.3.2 The steps in the process of organising
The vision, mission goals/objectives and strategies for the organisation inform the
process of organising. Organising is deciding how to execute the strategies and plans. It
consists of these steps:
• List and write down all the business processes for selling to customers, executing
their orders and collecting money from them. (These processes link the various
functional units). Identify the work to be done (tasks and activities) for each stage
in the processes, as its contribution to overall process performance. Use the
systems approach to help you do this.
• Then group the work into logical operating functions or units. That makes sure
the organisation is designed to implement the strategy of the business. The modern
trend is to focus on the ‘value’ customers need from the organisation, and to
develop the appropriate structures.
• Establish positions and working relationships between units and departments. The
systems approach also requires managers to view the organisation as one system.
The new trend to downsize or reduce ‘layers’ of management in organisations
requires the employees to be multi-skilled. This means that individuals are taught
how to do several jobs, which are combined into one. The detailed job

descriptions of the past will, or should become more flexible, to allow for this
situation.
• Recruit, select and place people in positions. The Labour Relations Act has
implications for organisations and managers. Your organisation may have a
Human Resources (HR) Manager, who helps establish and implement the
recruitment policies decided by the board of directors, as part of their strategic
planning process. As a line manager responsible for recruiting and selecting staff,
you must know the conditions of the Act, even though your HR manager is there to
help you.
• Establish methods of co-ordinating activities between units and departments.

Identification of the business processes forms part of this function.
4.3.2. Organising concepts
4.3.2.1. Unity of command
This means that each employee should report to only one boss or superior to whom he
or she is directly responsible. This allows employees to know who is giving direction and
to whom he or she reports.
4.3.2.2 Chain of command
Chain of command is the clear line of authority running from top level of management to
the first level of management, including non-managerial employees within a particular
organisation. This is a vertical separation between levels based on differences in
authority and responsibility. All members of the organisation should know to whom they
report and who, if anyone, repots to them. The chain of command also identifies
communication lines within a formal structure.
4.3.2.3 Span of control

This refers to the number of employees reporting to a manager. The number of
employees reporting to manager should be limited to a number that can effectively
be supervised.
4.3.2.4. Division of labour
Specialization, or the degree to which a person’s work is limited to one or a few tasks,
becomes more pronounced as we move down the organisational hierarchy. With the
division of labour, employees have specialised jobs, and related functions are grouped
together under a single manager. Employees generally have specialised jobs in a
functional area such as marketing, operations and finance.
4.3.2.5. Coordination
All departments and individuals within the organisation should work together to
accomplish the strategic, tactical and operational objectives and plans. Coordination
requires conceptual skills to understand the greater organisation. It can therefore be
explained as the process of integrating organisational and departmental tasks and
resources to meet objectives.
4.3.2.6. Responsibility and authority.

All employees should be given the authority needed to meet their responsibilities and
should be held accountable for meeting them. It is therefore extremely important
for each employee’s responsibility and authority to be clearly defined. Responsibility
can be defined as the obligation to achieve objectives by performing required activities.
Accountability ensures that individuals meet their responsibilities. Authority is the right to
make decisions, issue orders or utilise resources.
4.3.2.7. Delegation
Delegation is the process of assigning responsibility and authority for accomplishing

objectives. Responsibility and authority are delegated down the chain of command from
top management to enable managers to concentrate on more important issues or to get
more work done
4.3.2. Organisational structure
Organisational structure can be described as a formal system of working relationships

that both separates and integrates tasks. Separation of tasks makes clear who

should do what, and integration of tasks indicates how efforts should interact and
interrelate.
4.3.2.2 Departmentalisation
Departmentalisation is the grouping of related activities into units. Departments can be
created with an internal or external focus. An internal focus would result in functional
departmentalisation, whereas an external focus would result in product,
customer, or geographic departmentalisation.
Think Point
Why is the organising component so important in any organisation?
Comment on think point:

Organising is important for several reasons:
• As with planning, it forces managers to think through how they are going to achieve
their results. It requires a detailed analysis of the work to be done and the resources
needed to do it.
• It allocates responsibilities to people and their accountability for its accurate
performance.
• No one can be led, motivated, and controlled unless he or she knows what must be
done and how.
• It divides the total workload into related activities that can be logically and comfortably
performed by an individual and group.
• It establishes clear vertical and horizontal operating and communications
relationships between individuals, and departments. This is especially true if the
systems approach is used.
• Related activities are grouped in specialised, functional units that have a clear focus
on their contribution to the overall results of the organisation.
• A clear organisation structure allows for mechanisms of co-ordination to be
developed and jobs to be clearly defined. This helps the recruitment and selection
process.

The interaction of organising, as a management task, with planning, leading and
controlling is based on the following: Planning can be implemented and leading can take
place only once human resources are assigned to tasks. Leading can be effective only
once clear responsibilities and authority are allocated to employees. Controlling can take
place once procedures are established for collecting and evaluating information to help
managers make decisions, evaluate performance and solve problems.
4.4 Leading
Leadership may be defined as “the process by which an individual exerts influence over
other people and inspires, motivates, and directs their activities to help achieve group or
organisational goals” (Jones, et al, 1998: 403).
Another definition proposed by Smit and de Cronje (2011) is: “That management
function that activates people to do things willingly”.
Charismatic leaders have the ability to enable ordinary people to achieve extraordinary
results. They are known for their capacity to inspire their employees to over-achieve.
Some of the characteristic qualities of the charismatic leader are: self- confidence, a
clear vision, extra-ordinary behaviour and environmental sensitivity.
4.4.1 The Nature and Elements of Leadership
Leaders have to communicate their vision, strategies and expectations to their followers.
Leadership is a complex process which directly impacts on the performance of an
organisation.
Leadership comprises a number of elements, which include:
• Authority: provides the leader with the right, by virtue of his/her position within
the organisation, to give instructions and delegate work to subordinates (Smit and
de Cronjé, 2011).

• Power: the leader’s ability to influence (without necessarily using his/her

authority). Various types of power exist and include legitimate, reward,
coercive, referent and expert power (Smit and de Cronjé, 2011).
• Influence: involves using authority and power in a manner which inspires and
motivates subordinates to take action.
• Delegation: the leader allocates a part of his/her own task to a subordinate to
perform together with the necessary authority to execute it.
• Responsibility and Accountability: the leader is responsible for carrying out
his tasks and must account for his/her performance.
4.4.2 Types of Power
Leaders can influence their followers and apply their authority effectively because a true
leader has power of one kind or another. Power is the ability to influence the behaviour
of others (Smit and de Cronjé 2011). John French and Bertram Raven identified the
following five types of power exerted by leaders:
Legitimate Power
This is based on the leader’s formal position in the organisation’s hierarchy. Richard
Brasher has legitimate power as the Chairman of Pick ‘n Pay. He has the right to compel
employees to perform their duties or to dismiss them. Thus, legitimate power is the same
as authority.
Reward Power
This is the power to give or withhold rewards such as:
• A salary increase
• Bonuses
• Recognition
• Interesting assignments
The more important these rewards are to subordinates; the greater the reward power of
the leader. Employees act on a manager’s requests in the belief that their behaviours will
be rewarded.

Coercive Power
This is the ability of a leader to obtain compliance through fear of punishment.
Punishment may take the form of:
• Official reprimands
• Less desirable work assignments
• Pay cuts
• Demotions
• Suspensions
• Termination of employment
Coercive power is usually less effective than reward power. Some employees respond
to coercion by falsifying performance reports or stealing company property rather than
improving their performance.
Referent Power
This refers to personal power. The followers are apt to like, admire, and want to emulate
the leader. Subordinates will follow the leader because they like and respect him /her.
In other words, the leader has “charisma” which makes this person attractive. Former
South African President and global icon, Nelson Mandela, had much referent power.
Expert Power
This is power based on specialised knowledge and expertise. The more important
the information, and the fewer people who possess it, the greater the power of the person
who commands it.
A manager who has all five kinds of power is an exceptionally strong leader. The
possession of power is not restricted to managers and leaders only. Subordinates also
possess and exercise power.
4.4.3 The process of leading
It is easy to talk about leading and managing other people, but what about managing
yourself? Every day you interact with people in the work environment. These include your

manager, subordinates, peers, and customers. How can you effectively ‘lead’ any of them
unless you show certain personal characteristics? In dealing with people, what are some
of the key issues to consider?
• Communicate effectively with each category of person. This includes listening and
speaking to encourage sincere response. Ongoing communication with a person
enables you to give continuous response to that person on performance. It helps you
and subordinates build relationships and agree on expectations for the future. It also
enables the person to adjust his or her behaviour as s/he progresses in the daily work
environment.
• Behave ethically towards each person you meet. Do you behave towards other
people in a way that you would like to be treated? Do you have any hidden agendas?
• Do you take ownership for making things happen? This is acting assertively with
your team and other people. A leader and manager must show initiative, take
decisions, and accept responsibility for their outcome.
• Manage your time effectively. Do you know how to say and mean “no”? How much
of your time do you control? How well do you allocate your time?
• Maintain a clear focus on objectives and priorities. Do you take your team with you
in this? Do you monitor and evaluate progress towards these objectives? How do you
ensure individual members are achieving their objectives?
• Learn continuously. Learning is a life-long process. What notes do you keep of your
successes and mistakes and the reasons for them? What learning outcomes have
you set yourself? What formal studies are you following?
• Are you a pro-active decision-maker or do you react to events? What decision
processes do you use? What group involvement do you seek? Do you set high
standards of personal excellence and set an example to your followers? Do you
continuously look for improvement in what your team does and how it does it?
4.4.4 The difference between management and leadership
The words manager and leader are frequently used in organisations. What do the two
words mean? What is required in these two roles? All managers should also be leaders
because it is part of the management process. The differences between management and

leadership can be described as below:
• Management is concerned with the activities of developing strategies and goals,

planning, budgeting, organising, staffing, problem-solving and controlling. It
focuses on ensuring results are achieved for customers and shareholders.
Management tends to think of getting things done in a more predictable, task-
oriented and efficient way. It makes use of systems and controls.
• Leadership is concerned with developing a vision and mission for the future and
the strategies for that to happen. It creates teams around the vision, which is
communicated to and accepted by everyone. Leadership makes change occur in
ways acceptable to everyone and motivates people to work towards satisfying
organisational and individual needs. Leadership relies on people and their
participation and development to achieve results. Motivation focuses on making
work challenging and meaningful.
4.4.5 Importance of leadership
There are a multitude of reasons as to why leadership is important to an organisation and

their subordinates:
• Leadership pulls up the group to a higher level of performance through its work on
human relations.
• Leadership contains all the essential ingredients of direction for inspiring people and
providing the will-to-do for successful work accomplishments.
• It is the social skill of leadership that accomplishes objectives by mobilisation and
utilisation of people.
• Competent leadership can, however, integrate informal organisations with formal
organisation and utilise them constructively for achieving company objectives.
• Forms a basis of cooperation between leaders and their subordinates in terms of
communicating different viewpoints.
• Increases commitment from all parties.
• Encourages new ideas and innovation.
• Maintains integrity for the organisation.

• Creates a positive working environment.
• Provides guidance and clear direction to subordinates.
4.5. Controlling
Control can be defined as the management task that ensures the coordination and
effective functioning of all the organisational activities, so that formulated organisational
objectives are implemented and pursued according to plan.
After management has set the goals, determined the structural arrangements, and hired,
trained and motivated people, some things may still go amiss. Therefore, the manager
must constantly monitor, compare and correct the organisation’s performance. This is
usually done against previously set goals to ensure things are going as they should.
4.5.1 Definition for Control
“Control consists in verifying whether everything occurs in conformity with the plans
adopted the instructions issued and principles established. It has the object to point out
weaknesses and errors in order to rectify them and prevent reoccurrence.” —Henry
Fayol
4.5.2 Types of control
There are three types of organisational control: pre-control or proactive control,

concurrent or steering control, and post or reactive control.
Pre-control focuses on inputs (human resources, materials, capital, technology and
entrepreneurship); steering control on the transformation process (production process
and service process) and post control on outputs (produced goods and services).
4.5.3 Steps in the control process
Step 1: Establish the performance standard. This is done at the planning stage.
Organisational level and functional departments must set these objectives and

performance standards, for each area of the organisation. They must ensure that the
overall strategy is implemented in each area of the business. Standards can be set based
on a person’s experience and judgement. They can be based on the performance of
similar people in their organisations. Standards can also be based on the previous
performance of an individual and department. MBO is a technique for individual control.
At the end of the planning process, a budget is prepared with standards of performance
in each area and level in an organisation.
The idea of using benchmarks is becoming more frequent. These focus on cross-company
comparisons of how well basic functions and processes in the value chain are performed.
You will recall that we spoke about the processes of selling to and executing customer
orders as being a key factor in organisational success. Individual companies can compare
themselves with the achievements of other similar companies.
Step 2: Measure performance against the standard. A manager needs information to

measure performance. Useful information must be accurate, relevant, timely, and
complete. Performance may be assessed visually or in writing. Performance should be
measured as close to the point of action as possible. Each functional area and level in the
organisation will have its appropriate reports.
Step 3: Evaluation of performance must occur after measurement. If there is no

deviation from the standard, then the management process continues normally. If there
are deviations from the standard, you must assess the reasons for their occurrence. A
small deviation may be significant under some circumstances, but not under others. For
example, tight control is needed over the manufacture of the turbine blades of jet engines.
The tyre pressures on your car may differ from the manufacturer’s specification, but it is
not serious, provided they are not too far out. To be successful, performance evaluation
must: concentrate on exceptions to the standards. We must concentrate on what is not
going to plan. Have allowable upper and lower limits of deviation for the process being
measured.
Step 4: Correction of performance is the final step in the process. If performance is out
of line, then three possible choices are available:

• The first is to maintain the deviation provided it is within the set limits.
• The second choice is to correct the deviation and return to the standard. This could
be achieved through training, changing the reward system, re-designing jobs and
processes, or changing the people doing the job.
• The final choice is to change the standard. It could have been originally incorrectly
set (too high or too low) or market conditions might have changed since the standard
was set. If a person does not reach a standard, especially one that has been set for
him, then he will often blame the standard! He may be completely correct in that
assertion.
4.5.4 Criteria for effective control
To be effective, control must comply with certain criteria which include the following:
• Control systems should be linked to the desired objectives of the

organisation.
• The control process must be objective to eliminate subjectivity.
• The control process must be completed by considering all relevant factors and
evaluating what is supposed to be evaluated.
• Timely control provides information when it is needed most.
• Acceptable control is recognised by employees as necessary and appropriate for
establishing and maintaining good performance.
• All individuals exposed to a control system must fully understand the meaning
of the system and specifically the implications of the set standards.
• The cost-benefit scenario regarding control must be clearly evaluated to establish
the economic viability of the measure.
• Control is of no use if the control measures indicate deviations, but no applicable
corrective action follows.
4.5.5 Importance of control for an organisation
Several authors have stated that control is important for the following reasons:

• It helps managers, supervisors and operatives to focus on what results must be

achieved – at a departmental, section and individual level.
• It ensures that available resources are used effectively and efficiently, without
waste.
• It helps identify and eliminate mistakes that people in organisations make. The
sooner mistakes are recognised, the earlier and cheaper it will be to rectify them.
It is easy for mistakes to compound themselves. It improves the quality of
performance.
• We have already discussed the impact of the market and macro-environments on
organisations. A properly designed control system helps managers identify
factors that may cause change and disrupt plans.
• As organisations grow and become more complex, with a wide diversity of
products and activities, controls are more important. A small business, with a
functional organisation structure, will need a simpler control system than a larger
organisation.
• An effective control system enables managers to delegate with more confidence
because they can monitor subordinates’ performance.
• It makes sure that activities go according to plan.
Think Point
Briefly summarise the fundamentals tasks of management in your own

words .
• Planning entails determining what the objectives and goals of the enterprise
are.
• Organising means establishing the structures and processes required to achieve
those objectives.
• Leading involves directing, equipping and motivating employees to achieve
the objectives.
• Control means determining whether the objectives have been achieved.

4.6. Managerial Decision-Making
Decision-making is the process of making a choice between various alternatives to select

the most appropriate alternative to solve the problem or utilise the opportunity. The ability
to solve problems in innovative ways through decision-making is one of the essential
management roles and skills. Decision-making is a supportive secondary management
task that assists managers in the process of planning, organising, leading and controlling.
4.6.1. Types of decision
Decisions can be categorised in various ways, depending on situational factors Bennet

(et al, 2014).
Routine decisions are described as a selection or choice in response to relatively well-
defined and common problems and alternative solutions. Such decisions are made under
conditions of low risk and a high degree of certainty, using organisational policies, rules
and procedures as a frame of reference, for example, ordering stock on a monthly basis.
Adaptive decisions are choices under conditions of average levels of risk and
uncertainty. Adaptive decisions are made to continuously adapt to
changes, and can involve improving past routine decisions and practices. Continuous
improvement is a core component of the learning organisation.
Innovative decisions are choices under conditions of high risk and uncertainty.
These problems involve decisions about unusual and unknown problems and hence
require the development of creative solutions.
4.6.2. The rational decision-making process involves the following steps:
Step 1: Definition and diagnosis of the problem.

Step 2: Setting of goals and objectives.
Step 3: Searching for alternative solutions.
Step 4: Comparing and evaluating alternative solutions.
Step 5: Choosing from among alternative solutions.
Step 6: Implementing the solutions selected.

Step 7: Follow up and control.
4.7 Traditional to Digital Management
“No product is made today, no person moves today, nothing is collected, analysed or
communicated without some ‘digital technology’ being an integral part of it. That, in itself,
speaks to the overwhelming ‘value’ of digital technology,” Wired Magazine founder and
former editor-in-chief Louis Rossetto (2019) asserts. Indeed, digital is everywhere, but
how do organisations position themselves to make the most of it? The answer is simple:
hire the right people. Specifically, this means digital leaders with the skills to navigate the
transformation while simultaneously imbuing their employees with the capabilities they will
need to deliver in the digital age.
Case Studies
8 Ways Remote and Traditional Management Meet in Today's

Workplace by David Roe, 14 May 2020
.
As countries around the world start looking at lifting restrictions on movement to

enable people to get back to work despite the persistence of the coronavirus,
enterprises are looking at ways to minimize the economic impact that consistent
reduced economic activity has had on them.
While many are looking at staff reductions and downsizing business, one of the
common characterizations across all businesses that is emerging is that a large
number of people who used to work onsite are now working remotely and will
probably continue to do so in the future. To enable that, digital transformation has
become top of the C-Suite agenda with recent research from OpsRamp showing
that 73% of IT operations and DevOps teams expect to either accelerate or
maintain digital transformation spending through the global pandemic and into the
future.
The report, titled Thriving In The New Normal, third party surveyed a total of 137
respondents on April 1, 2020. All respondents work at the IT director level or above,
across IT/technology operations teams in the United States, the report adds.

Many enterprises envisage a permanent transition to remote work. Enterprises are

scrambling to figure out the right tools, business processes, and security
frameworks that can support the needs of remote employees.
Some of those teams will be managed remotely, and some of those teams will be
managed from the workplace, or digital workplace. No matter what happens,
though, there will be a need to manage remote teams in way that has not happened
before. Does this mean that traditional management techniques go out the window?
While there will be some differences between the two, traditional management will
stay at the heart of digital workplace. Here we explore the eight points at which
remote and onsite management meet.
1. Management Effectiveness
Greg Wood is CEO of Ontario-based MASV.io. He argues that there is no
fundamental difference between remote managers and workplace managers.
Remote work simply removes the veneer of good management from managers who
might be nice, friendly and personable, but managerially insufficient. Presence
should never be confused for productivity. “In remote work and remote
management, you're forced to take dedicated actions to manage, and this
separates the wheat from the chaff,” he said.
High social and emotional intelligence is 100% required since you need to
empathize with your employees who might be working in a tiny apartment with kids
running around, or who might rather be escaping to an office to get away from
issues at home. Remote work is a huge litmus for true management effectiveness
2. Keeping Employees Accountable

Remote managers are not that different from workplace leaders, Dusan Goljic, a
co-founder of DealsOnHealth, told us. Their management methods slightly differ
due to the different situation they operate in. Because they are “out of sight”, remote
managers have to learn how to be authoritative when their employees cannot see
them. Furthermore, they must let their employees know they have somebody they
can turn to. “Keeping employees accountable, motivated, and engaged is slightly
different from achieving the same things in the office. That is how good
communication and organization skills come in handy when it comes to managing

remote teams,” he said.

Overall, there are the same rules that apply to both remote and workspace
managers. However, those rules should be highlighted in the remote setting due to
the physical barrier.
3. Delegating Responsibility
While remote and digital managers implement many of the same processes, a
remote manager must be able to delegate and give their remote team the freedom
that they require to complete their tasks without a lot of micromanaging, Angela
Ash, digital marketing specialist at Belingham, Wash.-based UpFlip, said. It takes
a lot of organization to do this, which is why almost all remote managers depend
on a tool kit filled with organization, communication and motivation apps and
software. Keeping the entire team on the same page — literally — is imperative.
Additionally, the hiring process is quite different for a remote manager.
“Through work experience, documentation and perhaps a Zoom call or two, he or
she must be able to spot those candidates who possess entrepreneurial traits that
can be harnessed for the company's growth. A remote manager must really depend
on their number 2 and the rest of their supporting team to provide the best services
and products to the customer," Ash said.
4. Metric Driven
Adam Sanders is a director with Philadelphia-based Successful Release. He leads
a fully remote team of 25 at Successful Release and has led large in-house teams
in the past as well. He points to three differences between remote and on-site digital
workplace managers.
If you can't measure it does not matter. It is very tempting to have metrics that
sound good but if you can't easily measure it you have no business holding your
employees accountable to it. These types of metrics are quickly ignored. When
you're in a remote; environment where it is extremely difficult to measure employee
effort and time working (input metrics) you have to really heavily on output metrics.
Being able to craft effective metrics, rally your team around them, and manage your
team to achieve them is a skillset many traditional managers struggle with.

5. Disciplined Performance Management

Discussing and evaluating employee performance needs to be happening
constantly to be effective. When you are not physically working side-by-side
everyday it can become very difficult to evaluate performance and coach effectively
on a regular basis. Remote managers need to be able to effectively gather
feedback on their employee's performance, coach them on their opportunities, and
have a strong performance management plan that spans the entire year. It is much
more common on remote teams for annual reviews to be a surprise to an employee
and that is typically due to a failure of the manager to manage expectations and
provide accurate ongoing feedback and coaching.
6. Top Project Managers

A lot of communication happens informally from desk to desk or through hallway
conversations. All these informal touchpoints are eliminated with a remote team
and it has a big impact on how quickly information spreads across the
team. Remote managers must rely on emails, instant messages, and meetings
which all take time and planning to execute. All these little additions to your
workload add up quickly and remote managers need to become very adept at
project management very quickly to survive.
7. Job Description
Jacob J. Sapochnick, who runs a firm by the same name, is an attorney based in
San Diego, Calif., working with entrepreneurs. He explained that the pandemic has
forced his office and field workforce to switch into a remote work set up in their
homes and apartments for these past few weeks.
Although remote work is not something new, as there are already 4.7 million home-
based workers in the U.S. alone, the sudden shift has become a challenging hurdle
not only for employees but for team leaders and managers as well. With the rise of
remote managers, the question now is how do they rate against workplace
managers?
A remote manager is someone who, in effect, manages a team of remote workers.

His or her job entails keeping the team in check, helping increase their productivity

by creating effective work systems, providing communication channels, and

offering emotional support and encouragement to the team.
Meanwhile, a digital workplace manager focuses on choosing the best software
and digital platforms for efficient information transfer and storage, as well as
developing online policies for the business or company.
8. Purpose or Focus
Remote managers are more focused on remote working people and how to manage
them efficiently, making use of whatever online platform is necessary to achieve
that. While digital workplace managers are more focused on digital platforms itself,
managing it, and providing the company with the best software and online social
networking tools.
Adapting to Change
Eyal Feldman, co-founder and CEO of Mountain View, Calif.-based Stampli, an AI-
based platform that streamlines the accounts payable process. Stampli is in a
unique position because they are managing locations in both Israel and U.S., so
how they approach remote working and learning in each country is a little different
(yet they have experience with dispersed teams).
Adaptability is a critical component of leadership, Eyal Feldman, co-founder and
CEO of Stampli, said. Whether you are thrown, into remote management due to a
crisis like COVID-19 or your organization was built completely dispersed from the
ground up, the most important job of a leader is to help your team face the
challenges in front of them and work together to achieve more.
If your situation changes, you adapt to those changes and you help your team to
adapt to those changes so the goals can still be achieved. People are capable of
doing much more than they initially think they can and great leaders know how to
get them to achieve amazing results. From this perspective, there is no difference
https://www.reworked.co/leadership/8-ways-remote-and-traditional-management-
meet-in-todays-workplace/

4.8. Conclusion
Management is a complex approach represented by an interactive combination of tasks.

The basic management tasks namely planning, organising, leading and controlling are
interdependent and cannot be seen in isolation. A successful manager uses primary
management tasks in collaboration with supportive or secondary tasks to analyse and
consider environmental factors in the process of transforming all resources into final
goods and services.
Case Studies
Precious and Fly have decided to expand their business. Over the last five years,
they have developed a very successful health and beauty organisation catering for
the specific needs of men in Cape Town. The organisation is known as “Cape-male
health and beauty”. Their services include facials, haircuts, massages, manicures
and pedicures for men. They want to open three new stores in the next financial
year throughout the country. They are considering Johannesburg, Pretoria, Durban
or Bloemfontein as possible locations.
Fly and Precious have decided to change the name of their business to “Beauty
for Men” in order to accommodate the different locations in the country. Their
customer base in Cape Town is mostly professional working men earning more
than R20 000 per month. They provide their services to an average of a thousand
male customers per month, making their Cape Town branch very profitable. Their
main competition is female health and beauty facilities in the various cities. At
“Beauty for Men” all staff appointed are trained at the International School for
Beauty in Pretoria. Fly has taken the responsibility of Chief Executive Officer and
Precious has taken responsibility for Marketing, Sales and Advertising. Additional
senior staff has been appointed for the other functional management activities.

Questions
1. What type of departmentalisation would you suggest for a business such as
Beauty for Men? Support your answer.
2. Carry out a SWOT analysis to establish which of the possible locations you
think would have a suitable market. Identify the advantages and disadvantages
of each city.
3. Suggest ways Precious and Fly can establish and maintain competitive
advantage.
4. Identify which management skills and tasks will be relevant to Fly in her position
as CEO and which to Precious as Marketing Manager.

CHAPTER 5:
Production/Operations, Purchasing and Logistics
Management
Chapter Outcomes
After completion of this chapter, you should be able to:
Purchasing Management:
• Clearly define the terms purchasing function and purchasing management in the
context of business
• Successfully explain the tasks and activities of the purchasing function
• Provide and elementary understanding of the purchasing process
• Critically discuss the importance of the purchasing functions for business operations
Production and operations:

• Describe the different tasks of production and operations management
• Discuss the basic aspects pertaining to quality control within a business
• Successfully distinguish between the different types of production layouts
Logistics Management:
• Clearly define the terms logistics and logistics management
• Efficiently describe the logistics management activities
• Effectively outline the phases of development pertaining to development in the field
of logistics
• Critically discuss the role of logistics management in business

5.1. Introduction
The production and operations management functions represent the link between the
inbound and outbound logistics systems in the value chain. The production and
operations department is responsible for the manufacturing of the finished products
and services that are going to be sold. Raw materials, components and other semi-
finished goods are procured by the purchasing department of the business enterprise.
T h e s e goods are then transformed into finished products that are delivered to the
rest of the value chain members, namely the wholesalers and the retailers.
5.2 Purchasing Function
Most major companies and even some government organisations have a purchasing or
procurement department as part of everyday operations. These departments provide a
service that is the backbone of many manufacturing, retail, military and other industrial
organisations.
Purchasing is the first phase of Materials Management. Purchasing means procurement

of goods and services from some external agencies. The object of purchase department
is to arrange the supply of materials, spare parts and services or semi-finished goods,
required by the organisation to produce the desired product, from some agency or source
outside the organisation.
5.2.1. Activities of the purchasing function
According to (Writing, 2019) the purchasing department is responsible for procuring raw
materials and other resources at the best possible price. Some of the activities include:
• Procuring Raw Materials and Other Resources

All necessary materials needed for production or daily operation of the company or
government organisation must be procured. For a manufacturing company, this
might include raw materials such as iron, steel, aluminium or plastics, but it also
might include tools, machinery, delivery trucks or even the office supplies needed
for the secretaries and sales team. In a retail environment, the purchasing
department makes sure there is always sufficient product on the shelves or in the
warehouses to keep the customers happy and keep the store well-stocked.
• Achieving the Best Possible Price

A purchasing department also is charged with continuously evaluating whether it
is receiving these materials at the best possible price to maximise profitability. This
can be challenging for a small business that may purchase in lesser quantities
than a larger vendor and which thus may not receive the same type of bulk
discounts. A purchasing department in a small business needs to shop around to
find the best vendors at the most reasonable prices for the company's particular
size orders.
Purchasing department staff may communicate with alternate vendors, negotiate

better pricing for bulk orders or investigate the possibility of procuring cheaper
materials from alternative sources as part of their daily activities.
• Paperwork and Accounting

Purchasing departments handle all of the paperwork involved with purchasing and
delivery of supplies and materials. Purchasing ensures timely delivery of materials
from vendors, generates and tracks purchase orders and works alongside the
receiving department and the accounts payable department to ensure that
promised deliveries were received in full and are being paid for on time. In a small
business, this means working closely with the accounting department to ensure
that there is sufficient capital to buy the items purchased and that cash is flowing
smoothly, and all payments are made on time.
• Compliance with Business Protocols

The purchasing department also must ensure that it is complying with all company
policies. In a small business, for instance, individual staff members may
communicate with the purchasing department about purchasing needs for things
such as office supplies or computers. Before making a purchase, the purchasing
department must ensure that it heeds the proper protocols for purchase and
budget approval and must ensure that any items are purchased in accordance

with the overall purchasing policy of the organisation.
5.2.2. Importance of Purchasing
1. Purchasing function provides materials to the factory without which wheels of

machines cannot move.
2. A one percent saving in materials cost is equivalent to a 10 percent increase in
turnover. Efficient buying can achieve this.
3. Purchasing managers are the custodians of their firm’s’ purse as they spend more
than 50 per cent of their company’s earnings on purchases.
4. An increasing proportion of firms’ requirements are now bought instead of being made
as was the practice in the earlier days. Buying, therefore, assumes significance.
5. Purchasing can contribute to import substitution and save foreign exchange.
6. Purchasing is the main factor in timely execution of industrial projects.
7. Materials management organisations that exist now have evolved out or purchasing
departments.
5.2.3 Purchasing process
According to planergy.com (2020) the purchasing process is as follows:
1. Needs Analysis
At this stage, the company recognises and documents a need for goods or services to
solve a particular problem. The procurement team describes the need to be met and
works with others to determine how best to do so. For example, a company facing high
travel expenses might invest in more fuel-efficient company transportation for its sales
staff, or reduce the amount of travel required for remote employees by investing in
advanced telecommunication software.
2. Purchase Requisition to Purchase Order

The “purchasing” portion of the purchasing process kicks off with a purchase
requisition submitted to the purchasing department or purchasing manager by the
individual, team, or department requesting the goods or services. The purchase

requisition contains full details on the items or services to be obtained.
Purchase requests below established budget thresholds are automatically updated to

purchase orders and submitted to the preferred supplier for that item or service. More
expensive purchases, or unexpected purchases not in the budget, will be forwarded
to the appropriate individuals for review and approval before they can be transferred
to POs. Rejected purchase requisitions are returned to the issuing party for review and
correction or clarification as needed.
3. Purchase Order Review and Approval
Approved purchase orders are sent to accounting to verify the funds exist in the
appropriate budget to cover the requested goods and services.
4. Requests for Proposal

POs that receive budget approval are returned to the procurement department and, as
required, used to create requests for proposal (RFPs), also known as requests for
quotation, or RFQs. These are dispatched to vendors to solicit bids to fulfil the order
for goods or services.
Potential suppliers submit their bids, and are carefully reviewed based on their
performance history, compliance records, and important characteristics such as
average lead times, reputation, and price.
5. Contract Negotiation and Approval

The vendor with the winning bid is then awarded a contract, which is further refined
before signing to ensure optimal terms and conditions and to ensure a mutually
satisfactory arrangement for both parties.
Once the contract is signed, the purchase order is a legally binding agreement
between buyer and seller.

6. Shipping and Receiving
The supplier delivers the goods or services within the agreed-upon timeframe. Once
they’ve been received (in the case of goods) or performed (in the case of services),
the purchaser carefully reviews the goods and services to ensure they’ve received
what was promised, and notifies the vendor of any issues.
7. Three-Way Matching
A cornerstone of spend management, three-way-matching is the comparison of
shipping documents/packing slips with the original purchase order and the invoice
issued by the supplier. This comparison is used to ensure all the information related
to the transaction is accurate.
Discrepancies must be rectified as soon as possible to avoid additional charges,

delays in production and payment, or damage to supplier relationships.
8. Invoice Approval and Payment

Successfully matched orders are approved for payment. Any modifications or
additional charges may require another layer of approvals before payment can be
issued. Once approved, payment is issued to the vendor. Ideally, such payments are
made with the goal of capturing early payment discounts and other incentives while
avoiding late payment fees.
9. Accounting Records Update

Completed orders are recorded in the company’s books, and all documents related to
the transaction are securely stored in a centralised location.
5.3 Production and operations management
5.3.1 Tasks of production and operations management
The tasks of production and operations management include planning,

organising, leading, coordinating and controlling the production and operations activities
of the business. The tasks of production and operations management can be classified

into long, medium- and short-term aspects of the production and operations
management.
5.3.1.1 Long-term aspects

These involve planning for the future for a period longer than five years. This includes
fixed capacity planning such as the choice of a location, the choice of optimal quantitative
ratio in the allocation of production factors, the choice of an optimal size of production
unit and organisation, as well as the layout and equipping of the factory, offices and other
buildings.
5.3.1.2 Medium-term aspects

The medium-term aspects cover a period longer than one year, but shorter than five
years. These aspects include variable capacity planning, sales forecasting, master
scheduling, operations scheduling and inventory management.
5.3.1.3. Short-term aspects

Short-term aspects cover a period shorter than a year. These include compiling and
implementing the work plan, materials management, quality control, maintenance,
replacement and occupational safety. They also have to do with the day-to-day
activities in the production and operations department.
5.3.2 Layout of operations
One of the critical success factors to ensure effective and efficient production is the layout
of the production facility. The following requirements are applicable in the layout of a
production unit:
• The layout must be adapted to the production process. It must make provision
for a constant flow of raw materials and goods from the point of input right through
to the point of output.
• The distance between the starting and finishing points must be short to enable
production to take place in the shortest possible time.
• Factors such as lighting, temperature, waste removal, humidity and supply of

water are important for effective production.
• The requirements of the employees are important, as they have direct influence
on productivity. These factors include health, lighting, safety, noise and air
conditioning. Other factors include eating areas, parking facilities, security,
recreational and sports facilities.
• The internal transport system must be effective. The transport system
must transport people, raw materials, machinery, equipment, half-finished
products and finished products as effectively as possible.
• An effective external transport system is an important requirement for the layout
of the production unit.
• Space must be used effectively. Space costs money and must be occupied
to its fullest capacity.
• Provision must be made for maintenance work. Workshops must be placed
in places where they are near to the machinery. This should speed up the
maintenance work and prevent the occurrence of production stoppages.
• Provision must be made for any possible future changes in products,
processes and capacity. Modern computerised equipment changes almost daily,
and the new technology must be accommodated in the layout.
5.3.3 Types of production layouts
Four types of production layout can be identified namely
• Fixed product layout

• Horizontal grouping of machinery
• Vertical grouping of machinery
• A combination of the above three types of layout
5.3.3.1 Fixed product layout

A fixed location is used in which a product is built from the beginning to the finished
product. The product is static and all the workers, machinery, equipment, raw materials,
components and other goods are brought to the product. An example of a fixed
product layout is the factory in which large aircraft, such as Boeing aircraft, are built.

5.3.3.2 Horizontal grouping of machinery
This is also known as the process layout or the functional layout. According to this
system, similar machines are grouped together in one department. The planning
machines in a wooden furniture factory will therefore be grouped together in one
department, the sawing machines in another, and the varnishing machines in yet another.
According to this system, the production process is intermittent, and the products are
manufactured in a series. This means that production commences when customers place
their orders, and it is interrupted once an order has been completed.
5.3.3.3 Vertical grouping of machinery

This is also known as the product layout or flow grouping. All the machines used for the
manufacturing of a specific product are placed in one department. They will be
grouped in the sequence of the different operations in the production process. Mass
production takes place here, and this layout is suitable for the manufacturing of beer,
motor vehicles, television sets and other products that are manufactured in mass.
5.3.3.4 Combination of the three types of layout

The above production layouts could also be used in combination with each other. The
building of a block of flats will, for example, accommodate the following production
layouts: firstly, the fixed product layout will be used as the block of flats will be built
on a piece of ground allocated to it. All the machinery, workers, trucks and materials will
be brought to the building site. Project management will be used as the project is costly
and will require a substantial amount of time for its completion.
Secondly, the horizontal grouping of machinery will be used. This layout can be used to
manufacture the interior decorating of every flat, should the different flats have different
kinds of decorating. Thirdly, the vertical grouping of machinery can be used. This layout
can be used for the manufacturing of the toilets, washing basins, baths, doors etc.,
which can all be manufactured in bulk.

Think Point
Do you agree with this statement : that for a fixed product layout, the
product itself cannot be shifted on account of its size, shape, or
location?
In the fixed position layout, the process position is fixed. This means that the product
cannot be moved because of its size, shape or location. The resources required in the
transformation process (e.g. equipment and labour) must be taken to the receiver of the
processing before processing can occur.
5.3.4 Quality control
Quality control is the systematic control of the variables in the manufacturing process
which affect the predetermined quality standard of the finished product. The
predetermined quality standard of the finished product must be high to ensure the
optimal satisfaction of consumer needs.
5.3.4.1 Integral inspection or selection

The variables in a product must constantly be monitored to ensure a high-quality finished
product. The production and operations department must decide where inspections will
take place, what methods of inspection will be used, how many inspections must be
done, and when these will be done. The following guidelines should aid the production
and operations department in deciding on inspections:
• Inspect a product before the start of a manufacturing process and/or

before it moves from one department to the next, where inspection will be expensive
or difficult.
• Inspect before an expensive manufacturing process begins. Raw materials
must be inspected before they are used in the manufacturing process to ensure that
they comply with the set standards.
• Inspect the products where their manufacturing processes are known to have
many defects.

• Inspect the product before it progresses too far in the manufacturing process. The
further it progresses without inspection, the more defects might occur, and it will be
increasingly difficult and expensive to find and fix them.
• Inspect the product before the machine that is manufacturing it gets damaged
because of the defects in the product. A motor vehicle component is made of a
certain kind of steel. Should the steel be too hard for this specific manufacturing
process, it must be replaced before the machine gets damaged.
• The final product should be inspected before delivery to a customer, especially
in the case of machines or any other equipment that will be used by the customer.
5.3.4.2. Statistical quality control
The volume of products such as cans of condensed milk or beer is too high to enable
inspectors to inspect each of them individually. Statistical sampling can be used in
such cases to ensure high-quality finished products. There are two types of statistical
quality control, namely acceptance sampling and process control. Let’s briefly look at
each.
5.3.4.3 Acceptance sampling

This is an inspection method whereby a population of products is accepted or rejected
on the basis of the results of an inspection of a sample of a population. A fair acceptance
sampling percentage is firstly determined by the production manager. Then a sample of
the finished products, from the warehouse or at the end of the production line. If more
than the predetermined percentage of the items is defective, all the items in the sample
will be rejected or another sample will be inspected. Should less than the predetermined
percentage be defective, all the items in the sample will be approved. Two kinds of
error can be made in the case of acceptance sampling. The first one is where all the
items in the population are approved because fewer than predetermined defects
occurred in the inspection of a sample. It can happen that the rest of the sample and the
population have many defects than the inspected items. This is known as consumer risk,
as the consumers will bear the risk of receiving low-quality products.
The second error is made where the whole population is rejected because more than the
predetermined number of defects occurs in the sample. The rest of the population may

have only a few defects. This error is known as producer risk.
5.3.4.4 Process control

This takes place where a product is inspected as it progresses through the manufacturing
process. Samples of the output of the various manufacturing processes are periodically
drawn and inspected. When deviations from the set quality standards occur, the
manufacturing process is interrupted to find the cause of the deviations and to rectify
it. Process control is based on two assumptions:
1. Differences in quality occur in the different manufacturing processes. This will be

the case even if the process was well planned beforehand and it seems that it has
been designed perfectly. A product can still be of a high quality even if some of
the quality variables fall outside the set parameters. The quality of the product will
only become unacceptable when too many variables of the manufacturing process
fall outside the set parameters.
2. Manufacturing processes cannot be controlled on a continuous basis. This often
leads to differences in the quality of the finished products that may be in direct
contrast with the enterprises policy on quality.
Think Point
Does price form one of the features used in quality planning and
control?
Certain quality characteristics relate directly to the design specifications for products or
services for purposes of quality planning and control. These characteristics are:
• Functionality (or performance ability)

• Appearance (or aesthetic attractiveness)
• Durability (or total life expectancy)
• Contact (or convenience of interaction)
Price is not one of these characteristics

5.3.4.5. Quality costs
Quality costs form an important part of quality control. They are costs incurred because
certain of the products do not comply with the predetermined quality standards. Certain
business enterprises experience fairly high-quality costs, especially where the
manufacturing processes are not up to standard. Quality costs are made up of two
components, namely control costs and failure costs. Let’s briefly discuss each.
5.3.4.6. Control costs
Control costs are those relating to removing defective items from the manufacturing
process. There are two methods of moving these items, namely prevention and
inspection.
Prevention costs entail the costs of preparing the production process. Prevention costs
include the cost of activities such as quality planning, drawing up of quality specifications
for new products, creating new testing programmes, developing new training
programmes, and finding and evaluating suitable suppliers. Inspection costs include the
costs associated with eliminating defects after they have occurred, but before the
defective products reach the customer. These costs include the costs of inspecting
raw materials received, the manufacturing process, and the finished products.
5.3.4.7. Total quality management
Total quality management is a philosophy and set of guiding principles that forms the
basis of continuously improving organisation Human resources and quantitative methods
are applied to improve the materials and services supplied to a business, all the
processes within the business, and the degree to which customers’ needs are met.
5.4. Logistics Management
According to Dovetail (2018), logistics is widely known as the process of coordinating and
moving resources such as equipment, food, liquids, inventory, materials and people from
one location to the storage of the desired destination. It was originally a military-based

term that was used to describe how the military force obtained, stored and moved
equipment and supplies. In the supply chain and business sense, logistics is the
management of the flow of things between the point of origin and consumption, so to fulfil
the requirements of consumers or corporations. The logistics of the aforementioned
resources involve the integration of production, packaging, warehousing, transportation,
security, materials handling and information flow.
5.4.1. The logistics/marketing interface
The marketing department of a business is mainly responsible for the contact between
the business and its customers. If the logistics system is not functioning properly, it can
lead to a situation where a customer does not get products at the right time and at the
right price and this can lead to lost sales. When we consider the three product levels that
a buyer is exposed to when buying a certain product, it becomes clear that the
logistics department can supply additional benefits to the customer. Efficient logistics
operations should reduce the costs of the finished product and should ensure that the
quality and quantity of the products are as required by the customer.
5.4.2. Distribution channels
A distribution channel consists of the businesses and individuals who participate in the
flow of goods and services from the manufacturer to the final user or consumer.
Distribution channels range from short to long channels. Long channels are used
for the marketing of consumer goods such as cigarettes while short channels are used
for such goods as machinery and equipment.
5.5. The Transformation of Logistics Management
According to Dovetail (2018), the concept of business logistics has transformed since the
1960s. As the need to supply companies with materials and resources grew over the years,
so did the global expansion of supply chains along with specialists who grew in their niche
and skills. Moving further into the modern era as well, the complexity of logistics processes
have inspired the creation of logistics management software and have launched businesses
that focus solely on accelerating the movement of resource along the supply chain.

Manufacturing companies have even gotten to a point where they choose to outsource the
management of their logistics to specialists; a field that is dominated by Third Party Logistics
(3PLs) providers.
Furthermore, being the in the thick of the digital era too, the logistics and supply chain industry
has caught up and has taken strides towards digitising internal and external processes.. The
Internet of Things (IoT) has already started allowing companies to digitally connect physical
assets and enable flow of data across the value chain, linking every piece of the product
lifestyle.
Digitised supply chains have also given customers insight and transparency into the logistics
process where they have been allowed feedback into their transactions. Every user now
feels like they are in control of the process, eventually leading to consumer satisfaction - a
factor every business should be striving for. Technology has offered numerous benefits and
opportunities when it comes to the supply chain and logistics field and these include
advanced data analytics, ease of scalability, data security, cost saving, integration of
multiple platforms, real-time tracking and automated procedures.
When speaking of logistics management joining forces with technology, software leads
the conversation because logistics processes cannot be highly optimised without the
appropriate software systems. Logistics Management Software aims to plan, implement,
and control the flow and storage of goods, services, and related information. It optimises
this process, allowing for a larger bottom line through an increase in automation, visibility,
communication, and process efficiencies.
5.6 Conclusion
This chapter examined the different tasks of production and operations management.
The different production layouts and the role of quality control in production and
operations management have also been discussed.
Questions
1. Explain the importance of the purchasing function.

2. Critically discuss the transformation of the logistics function.

CHAPTER 6:
Marketing Management
Chapter Outcomes
• Effectively explain how marketing management creates value in the organisation

• Discuss the core principles of the marketing concept
• Outline the fundamental role of marketing objectives in the organisation
• Demonstrate a sound knowledge the elements of the marketing strategy
• Understand the concept of digital marketing
6.1. Introduction
The task of marketing management includes segmenting the heterogeneous market

into different market segments, selecting the segments to target, and positioning the
organisation’s offerings in the minds of consumers. This chapter explains how marketing
management adds value in modern-day organisations.
6.2. Marketing Management Defined
According to mngtblog.com (2021), Marketing refers to the process of communicating,

creating, and delivering the organisational function to their valuable clients. A company
needs to effectively communicate the value and features of its products to customers, if
they don’t they may fail to reach their target. Marketing management should play the
required role and must take care of this critical function.
Marketing management is the organisational discipline, planning, implementation,
analysis, and control of programs design to reach the target markets by applying
marketing orientation, techniques, and methods.

It is critically important to design the organisation’s offering in terms of the target market’s
needs and desires and using workable pricing, communication, and distribution to inform,
motivate and service the market. Hence, marketing management is concerned with the
checking out of a given program, after careful analysis and predicting the market
situations and the ultimate accomplishment of these plans to achieve the goals of the
organisation.
Moreover, their sales plan to a greater range rest upon the requirements and desire of
the consumers in the market. To achieve this, the organisation has to concentrate on the
right pricing, effective advertising and sales promotion, distribution, and stimulating the
consumers through the best services.
So, marketing management may be the process of management the marketing strategy
for achieving the organisational goals and objectives.
Think Point
Can a company survive without adopting the marketing philosophy?

Is there a link between the marketing function and the profit
maximisation objective?
6.3. Marketing Strategy
A marketing strategy is an organisation’s battle plan to help it achieve a pre-defined

marketing objective or range of objectives. To accomplish the set objectives, marketers
of products employ four variables, namely product, price, promotion and place(better
known as the 4 Ps). Marketers of services employ an additional 3 Ps namely people,
process and physical environment.
6.3.1. Marketing objectives
Marketing objectives specify what the organisation plans to achieve with its marketing
strategy. Ideally, an objective must be stated in measurable terms, must be realistic
and must specify by when it must be achieved. Marketing managers pursue various

marketing objectives, depending on prevailing market conditions, the nature of the
competition, the age and nature of the product, as well as the expectations of
management. The following are some of the marketing objectives that may be
pursued:
• Achieving a certain sales volume (in units or turnover)
• Capturing a specified portion of the market (percentage of market share)
• Maintaining or becoming the market leader in an industry or market
• Introducing a specified amount of new products or product improvements
annually
• Achieving a specified amount of earnings per share
• Offering the most cost-effective product on the market
6.3.2. Market segmentation, targeting and positioning
To ensure maximum customer satisfaction, marketers divide the heterogeneous market

into fairly homogeneous subsets of customers, a process that is referred to as market
segmentation. Each segment of the market is assumed to have similar needs and will
respond in a similar way to a given marketing strategy. The process of deciding which
segment to pursue is referred to as market targeting. When choosing market segments
to target, the marketer will consider two main issues: the attractiveness of the market and
the organisation’s competitive position. Once the market segment has been chosen, the
marketer must decide how to compete effectively in the target market. A decision
must therefore be made concerning the competitive advantage to be achieved, and that
is how the organisation’s product can be differentiated from that of other competitors in
the market.
Tasks
Identify and analyse the various criteria according to which a market

segment can be selected.

Comment on activity
These criteria are:
• Demographic: refers to the objective characteristics of consumers, that is, factual

data like age, income, gender etc.
• Geographic: refers to consumers living in the same geographical area.
• Psychographic: refers to subjective characteristics of consumers that is, data that
are difficult to classify factually, for example, and personality.
• Behaviouristic: refers to the things that consumers do when purchasing a particular
product, for example, how often, how sensitive to price or quality they are, how loyal
to a brand etc.
6.3.3. The marketing mix elements
6.3.3.1. Product decisions.

A product is defined as anything that can be offered to a market for acquisition,
consumption or use. Tangible products, services, ideas, places or even people can all
be considered products. Marketers need to think of products as need-satisfying utilities.
When communicating to consumers, marketers must stress these need-satisfying
utilities, rather than the product features. One of the critical product decisions faced by
marketers is branding. A brand is a name, term, symbol, or design or combination of
these that serves to distinguish the products of one organisation from those of other
organisations. Good brand names share several important characteristics: they are
generally descriptive of the product or its benefits, they are easy to pronounce,
remember or recognise, and they can be easily translated into other languages, and are
generally distinctive. Once a brand has been established in the market it must be
protected by the marketer.
6.3.3.2. Pricing decisions.

The price of a product is the amount of money a consumer has to pay to secure the
benefits offered by a particular product or service. To remain in business, marketers
charge prices that cover the production and marketing costs of their products. The costs
of manufacturing and marketing a particular product therefore set the floor price of the
product. Where there is intensive competition in the market, the price of a product is

heavily influenced by the prices of competing products, which often place an upper limit
or ceiling on the price that can be charged for it. The price of a product is heavily
influenced by the organisation’s marketing objectives. If the objective is to achieve
high market penetration quickly, a lower price is required - a strategy known as
penetration pricing. If the objective is to achieve market leadership through product
differentiation and product quality, a higher price has to be charged to fund
research and development costs. A low-cost competitor is obliged to keep prices as low
as possible to live up to its promise to customers.
Mark-up pricing
When using this method, the organisation adds a fixed percentage to the cost of a
product to determine the basic price. In the process, market demand, competitive
forces and perceived value are largely ignored.
Target–return pricing
With this method, the organisation calculates a price based on its desired return on
investment.
Perceived-value pricing
This method uses consumers’ perceptions of value as the main input in the
calculation of the basic price. Costs and competition are seen as less important, and to
increase the price as much as possible, the organisation has to spend large amounts of
money on advertising and personal selling to increase consumers’ perceptions of value.
Value pricing
This approach requires that marketers charge a fairly low price for a high-quality product.
Going rate pricing
This method uses competitive prices as the main point of reference when calculating a
basic price. If the price is set at a similar level to those of competitors, an organisation’s
products must offer at least similar benefits and value as those of the competitors on
whose prices it is based. If the price is set slightly higher, the organisation should attempt
to justify the higher price.
6.3.3.3. Promotion or marketing communication

Marketing communication refers to the communication between the seller and the
potential buyer and institutions in the distribution channel aimed at influencing the
attitudes and behaviours of buyers and /or intermediaries. Marketing communication
broadly aims to inform, remind and persuade prospective buyers of a product or service.
This includes telling the target market about a new product, informing it of new product
features or a sale, correcting false impressions about the organisation or the product,
building brand preferences, encouraging brand switching or maintaining top-of-mind
awareness. Broadly speaking, marketing communication encompasses the following five
elements: advertising, personal selling, sales promotions, publicity, direct
marketing.
Advertising
Advertising is any paid, impersonal conveyance of a message regarding a need-

satisfying service or idea by an identifiable sponsor to a specific target audience, with
the objective of informing and/or reminding and /or persuading the target audience to
take a specific action. It may include print and broadcast adverts, packaging, motion
pictures, brochures and booklets, posters and leaflets, billboards, point of purchase
displays, audio-visual material logos etc.
Personal selling
Personal selling plays an important role in almost every type of business because
all businesses must, to a greater or lesser extent, make use of the services of sales
representatives. Manufacturers use sales representatives to sell products to retailers and
wholesalers, while financial institutions use agents or brokers to sell financial services to
potential consumers. Sales representatives can be divided into the following three
categories according to the tasks they are expected to perform:
• Recruiters are sales representatives who just recruit customers

• Order-takers are sales representatives who engage in routine visits to get orders
• Supporters are sales personnel who give support to the sales
representatives in the other two categories

Sales promotion
Sales promotion refers to promotion activities, other than advertising, publicity, personal
selling and direct marketing, which stimulate interest, trial or purchase by final
consumers or others in the distribution channel. It is generally used to complement the
other promotion elements. Sales promotion methods that focus on the final consumer
have the objective of building long-term consumer loyalty and /or stimulating sales over
the short-term by providing free samples, issue coupons, arranging competitions, giving
trade-in allowances, issuing bonus packs etc.
Publicity
Publicity embraces the non-personal stimulation of demand for a product of the

organisation by making available to the mass media actual newsworthy information and,
in so doing obtaining favourable and free coverage of the enterprise and/or its
products in the relevant media. The primary objective of publicity as a communication
method is to inform the public and to develop an awareness of the organisation, its
products and its services.
Direct marketing
Direct marketing includes the use of mail, telephone, fax, email and other non-personal
tools to communicate directly with or solicit a direct response from specific customers
and prospects. Direct marketing holds many benefits to consumers and companies.
Consumers perceive home shopping as fun, convenient and hassle free. They can
also do comparative shopping by browsing through mail catalogues and online services.
Companies, on the other hand, can personalise and customise their messages, and can
develop a continuous relationship with each customer.
6.3.3.4. Place or distribution

Transfer of goods and services takes place along specific distribution channels. A
distribution channel can be described as consisting of sets of interdependent
organisations involved in the process of making a product or service available for use or
consumption. The nature of distribution channels can vary, depending on the nature of

the product, customers desired service output levels, characteristics of the producer
and competitors, the existing distribution structure etc. Consumers often criticise
intermediaries as unnecessarily increasing prices and may even question their right to
existence. The justification for the existence lies in the activities they help perform to
bridge the gaps (time, place, possession) b e t w e e n producers and consumers.
One of the distribution decisions marketing managers have to make is the extent of
market coverage to achieve. The following types of market coverage may be identified:
1. Intensive distribution
Indicates a situation where many suitable and available intermediaries as possible are
used. An example of this would be Coca Cola.
2. Exclusive distribution
This occurs when the producer consciously limits the number of intermediaries or a few
intermediaries who then obtain the sole right to sell the product in a certain geographical
area. The intermediary usually undertakes not to stock other competitive products. This
kind of market coverage is found especially with exclusive products such as menswear
and cars.
3. Selective distribution
This refers to the choice of only those intermediaries who will distribute the product
effectively. Selective market coverage lies between intensive and exclusive market
coverage and can be used by the producers of convenience products, shopping products
and exclusive products.
Tasks
Identify a company in your area and find out the type of channels it
uses to distribute its products/services. In your opinion, why has the
company adopted such a distribution method?

6.4 Digital Marketing

The development of the Internet, World Wide Web and other digital technologies have
transformed marketing. They give consumers a much wider choice of products, services
and prices from different suppliers and a more convenient way to select and purchase
items.
Consumers can use a range of technology platforms, from desktops and laptops to
smartphone and tablet devices. Digital media and new technology platforms give
organisations the opportunity to expand into new markets, offer new services, apply new
online communications techniques, and compete on a more equal footing with larger
businesses. For those working within these organisations, it provides the opportunity to
develop new skills and to use these new tools to improve the competitiveness of the
company.
At the same time, the Internet and related digital technology platforms give rise to many
threats to organisations. For example, online companies such as ASOS.com (clothing),
Amazon.com (books and retail), iTunes (music) and Expedia (travel) have captured a
significant part of their market and struck fear into the existing players. Many consumers
now regularly use social networks like Facebook, Google+, LinkedIn, Instagram and
Twitter as part of their daily lives. Engaging these digitally savvy consumers is an ongoing
challenge. However, companies like ASOS have taken advantage of these opportunities
to interact with customers in these digital spaces, and as such have evolved into
worldwide brands.
Marketers have quickly realised the critical importance of developing an engaging online
presence to capture market share in the 21st century. In today’s fast-paced and super-
competitive consumer environment, an effective digital strategy is essential to prosper and
possibly even to survive.
6.5. Conclusion
Marketing management fulfils a critical role in the value chain. It is responsible for the
identification of customer needs and preferences, and then the development of a

marketing strategy targeted at a specific target market. This includes activities such as
market segmentation, targeting and positioning, as well as making a range of decisions
concerning the product, price, promotion and distribution of the product. In addition,
marketing management is responsible for environmental scanning, market research,
analysis of consumer behaviour and supporting top management with strategic
planning. All of this requires an intimate knowledge of constantly changing customer
needs and preferences.
Case Studies
Assume you have been working in the marketing division of a large multinational
organisation for some years. At a recent high school reunion, you bumped into an old
school friend who plans to convert his cattle farm into a game farm. He is keen to
attract local and overseas hunters as well as conference groups and families who
enjoy the outdoor life. The farm is situated near Kimberley in the Northern Cape.
Questions
1. Identify and briefly describe the various market segments that he could possibly
target.
2. What would the primary needs of the various segments be?
3. What physical facilities (buildings) would be required to cater for the

various markets?

CHAPTER 7:
Human Resources Management
Chapter Outcomes
• Identify and discuss the essential elements that contribute to human resource (HR)
management
• Display a key understanding of the goals that HR managers work to achieve within
an organisation
• Critically discuss the ongoing challenges that HR managers are faced with
• Demonstrate a sound knowledge of the various categories of HR management,
namely provision, development, maintenance and motivation
7.1. Introduction
This chapter provides an overview of the tasks associated with human resources
management; it is divided into four main parts. The first part focuses on the task and
scope of human resources management, followed by a discussion of the remaining
three parts of human resources provision, human resources retention and the
governance affecting human resources management.
7.2. The Task And Scope Of Human Resources Management
The organisation’s human resources management function is that part of the

management process that specialises in the management of people in the organisation.
It consists of practices that help the organisation’s objectives and thus help gain and
sustain competitive advantage. The task entails much more than maintaining personnel
details and statistics. Human resources management is a specialised management task,
which includes the following aspects:

1. Determining and formulating policy
The human resource manager takes the initiative in creating a human resources policy
and having necessary adjustments to an existing policy accepted.
2. Advising
The human resources department provides information and advice to all management
personnel about any aspect of personnel affairs, for example, handling of disciplinary
procedures.
3. Rendering service
The human resources department renders a service with regard to personnel affairs such
as recruitment, selection, and training of personnel.
4. Controlling personnel affairs

The human resource department continuously monitors the implementation of human
resources policy and procedures by management to ensure that these are applied
uniformly throughout the organisation.
In the normal course of events, human resources managers are expected to:
• Be businesspeop le so that they understand the actual problems of the

organisation and manage them according to sound management principles.
• Be human resource specialists in order to correctly interpret and use
information a b o u t current and future trends, for example tax-friendly
remuneration packages and techniques such as flexible working hours.
• Train managers in the effective use of human resources.
• Help resolve problems by making purposeful suggestions that will help the
organisation achieve its objectives.
Human resources management is divided into two dimensions: human resources

provision and human resources maintenance or retention.

7.3. Human Resources Provision
Human resource provision is a consecutive process of human resource planning, job

analysis, recruitment, selection, placement and incorporation.
7.3.1. Human resource planning
Human resource planning can be described as the process of systematically reviewing

human resources requirements to anticipate and meet changing needs to ensure that
the required number of employees, with the required skills, knowledge and ability, are
available when they are needed. Human resources planning is the basis of human
resources provision, and the plan will always be linked to the organisation’s goals.
Human resources planning take place on a continuous basis because we live and work
in a dynamic world.
7.3.2. Job analysis
Job analysis is the process whereby the substance, demands and responsibilities of a
job are determined. It is the systematic process of collecting, evaluating and arranging
information about all tasks, duties and responsibilities of a job. Two sets of information
originate from the job analysis namely those relating to the tasks, responsibilities and
duties constituting a position (job description) and those related to the characteristics
of the incumbent (job specification).The job description is a written document that
identifies, describes and defines a job in terms of its tasks, responsibilities, duties,
working conditions and supervisory relationship. The job specification is a written
statement emphasising the characteristics required from the incumbent to perform
the job successfully. These characteristics include skills, knowledge and abilities. By
making use of regularly updated job analyses, managers will add value to the
organisation by means of improved productivity.
7.3.3. Recruitment
Recruitment involves searching for and obtaining a pool of qualified job candidates so
that the organisation can select the most appropriate person to fill its job needs. South

Africa’s Labour Relations Act and the Employment Equity Act prohibits any discrimination
on the basis of race, sex, ethnic origin colour age, disability, religion, political opinion,
culture, language, marital status on employment and these should be taken on board
during the recruitment process. The employment Equity Act aims to bring about a diverse
workforce that broadly represents South Africa’s demographics. It is therefore also
important to take affirmative action into account when determining the recruitment and
selection policies.
Tasks
Identify the advantages of a policy of recruiting from inside the

organisation.
Comment on the activity:

The advantages of a policy of recruiting from inside are the following:
• Career planning becomes possible, in that individual employees see a future for
themselves in the business. This has a positive effect on morale.
• Assessment of applicants is easier because the business already has
considerable information on the possible candidates’ abilities and work
performance.
The cost of recruitment is low because advertising, travel, and board-and- lodging
expenses are largely eliminated.
7.3.4. Selection
Selection is the process in which the most suitable individual out of a group of applicants
is selected by obtaining and using information about the job applicants to determine who
should be hired for a specific position. The purpose of selection is to appoint the right
person to a position - a person who will perform well and meet the desired standards of
performance, resulting in high productivity. To ensure transparency and employee
satisfaction, labour unions and workplace forums are becoming more involved in the
selection process. However, the departmental manager makes the final decision about

which applicant should be appointed. Selection is thus a joint effort on the part of line
management, labour unions and human resources management. The latter does the
screening and, at most, makes a recommendation as to who should be appointed.
The final decision remains the prerogative of line management. The human resources
function is therefore a staff function.
7.3.5. Placement
Placement is the process by which the newly- appointed employee is placed in the
organisation or in which existing employees are transferred, promoted or demoted.
Placement therefore occurs when there is a new or existing position to be filled.
7.3.6. Incorporation
Incorporation is the last step in the process of human resources provision. The new
employee must be made to feel part of the new work environment and work group as
soon as possible.
7.4 HR Development
7.4.1 Induction
A programme that orients new employees and familiarises them with their tasks, fellow
employees, the company’s goals, policies and procedures.
7.4.2 Training
Teaching an employee specific skills to accomplish the organisation’s goals – e.g.

human relations and decision-making skills.
7.4.3 Career management
This matches the organisation’s needs with that of the employee. In other words,
employees are encouraged to follow a career path that benefits them as well as the
company. There are three main participants in this process – the employee, her
supervisor and the HR manager.
7.5. Human Resources Retention
In an attempt to retain employees, the human resources function must concentrate on a

variety of issues, including training and development, performance appraisal, job design,
labour relations and human resources administration.
7.5.1. Training and development
Training is the learned, systematic and organised process of providing

employees with specific knowledge (and skills) needed for them to perform their
present jobs effectively, not only to achieve the objectives of the organisation, but also
their own objectives. The goal of training is to master the skills and knowledge that
employees apply in their day-to-day work activities. Development is a systematic
planned experience to provide employees with knowledge, skills, abilities, insights and
attitudes to prepare them to perform jobs the organisation will need in the future. The
following eight principles of learning help accelerate the learning process during training:
• Readiness of the employee for training

• Active participation in the learning process
• Repetition and practical application
• Timely feedback and results
• Meaningfulness and relevance of the learning material or work that should be
learned
• Acknowledgement and encouragement to perform
• Whole or part training
• Transfer of training to the work situation
7.5.2. Performance appraisal
Performance appraisal is a system of periodic review of the employee’s current or past

performance relative to a set performance standards. The appraisal process consists
of the following steps:
• Setting work standards

• Assessing the employee’s actual work performance relative to the set standards
• Providing feedback to the employee with the aim of encouraging
performance that is better than the set standard
The supervisor, who knows the employee’s skills, knowledge, attitudes and
performance best and has the greatest access to information, should play an important
part in the appraisal. It is, however, crucial that the supervisor has the necessary skills to
do performance appraisal. Performance appraisals are often subject to criticism by the
employees. The most common problems that lead to criticism are:
• Unclear standards, for example, what do excellence, good, fair, and poor mean?
• Halo effect, which occurs when one or a few performance aspects
dominate all other aspects.
• Central tendency, which occurs when a manager rates all the employees in the
middle of the scale.
• Leniency, which occurs when the manager assigns high ratings to all
employees.
• Strictness, which is the opposite of leniency.
• Bias that is the tendency to allow individual differences such as age, race, sex
and religion to affect the appraisal ratings that employees receive.
• Relevance that is the degree to which the rating form includes necessary
information.
• Recency error, which occurs when ratings are heavily influenced by recent events.
Performance appraisals, when used as a management tool, have the

following uses:
• Improve performance
• Help evaluate the validity of selection tests
• Help identify employees’ specific needs for training and development
• Help identify employees’ strengths and weaknesses, thus assisting in
the development and implementation of their career plans
• Provides a basis for fair compensation
• Helps assess employees’ potential

Think Point
Most people think that performance appraisals are done just to “fix” those
employees who are out of favour with management. What is your
viewpoint? Support your answer.
7.5.3. Remuneration and benefits for employees
Remuneration is what employees receive in return for their services. To a large extent it
determines their willingness to stay on with the organisation, and can also determine
their loyalty to the organisation. The employee who is remunerated monthly
receives a salary, whereas a worker who is paid per week, per day, per hour or per piece
receives a wage. Remuneration packages are one of the major aspects that give rise
to dissatisfaction among employees, which can i m p a c t the employee as well as
the organisation. Labour unions play an important role in the compilation of compensation
packages. The Basic Conditions of Employment Act, No 75 of 1997 should also be kept
in mind when constructing a remuneration package. The Act ensures that the employee
is able to maintain a realistic standard of living and can make sufficient provision for the
future. In exchange for remuneration, the organisation expects certain behaviour from the
employee. Given this, the remuneration system should meet the following requirements:
• The employees should be aware of the remuneration and it must be worthwhile

to them.
• The employees must know exactly what is required of them to receive the
remuneration.
• The employees must know that they are capable of performing as required for the
remuneration.
• There m u s t be a direct relation between the remuneration and the required.
• The employees must be assured that they will be evaluated correctly and fairly by
third parties.
• It must be possible to adjust the remuneration upwards to make provision for
increase in the cost of living.

An individual employee’s remuneration is determined in five steps:
1. Job analysis
2. Job evaluation
3. External comparisons
4. Determining the remuneration value of jobs
5. Performance appraisal
7.5.4 Motivation
According to Inc.com (2020), employee motivation is the level of energy, commitment,
and creativity that a company's workers bring to their jobs. Whether the economy is
growing or shrinking, finding ways to motivate employees is always a management
concern. Competing theories stress either incentives or employee involvement
(empowerment). Employee motivation can sometimes be particularly problematic for
small businesses. The owner has often spent years building a company hands-on and
therefore finds it difficult to delegate meaningful responsibilities to others. But
entrepreneurs should be mindful of such pitfalls: the effects of low employee motivation
on small businesses can be harmful. Such problems include complacency, disinterest,
even widespread discouragement. Such attitudes can cumulate into crises.
But the small business can also provide an ideal atmosphere for employee motivation:
employees see the results of their contributions directly; feedback is swift and visible. A
smoothly working and motivated work force also frees the owner from day-to-day chores
for thinking of long-term development. Furthermore, tangible and emotional reward can
mean retention of desirable employees. People thrive in creative work environments and
want to make a difference. Ideally the work result itself will give them a feeling of
accomplishment - but well-structured reward and recognition programs can underline this
consequence.
What is the importance of employee motivation?

According to psychologists, self-realisation is a very human thing. It is our basic nature to
nurture something and see it flourish, it is applicable to most things we do in our day-to-

day life. This is true for both social and societal spaces.
Motivation plays a critical factor in a person’s life. Whether it is about improving ourselves
or our organisation’s performance. Motivated employees don’t need to be told how to get
things done; they take initiatives, are eager to take up additional responsibilities, are
innovative and go-getters.
According to Questionpro.com (2020), motivated employees ensure:
• There is a positive atmosphere within the organisation

• Co-workers are happy and feel safe at work
• Make sure clients are happy
• They always achieve better results than their counterparts
Motivation, therefore, plays a particularly important factor and ensures employees remain
active and contribute their best towards their organisation. Furthermore, a high level of
motivation leads to a lower level of employee turnover. In the next section, you will learn
5 simple ways to motivate your employees
7.6 HR Maintenance
7.6.1 Benefit administration
Benefits could include pension, medical aid, annual leave, maternity leave, sports
facilities, a canteen, crèche, accident, unemployment and group life insurance. Some are
required by law, others are optional.
7.6.2 Health and Safety
Employers have a duty towards their employees to ensure their health and safety in the
workplace. If employees are not healthy and safe their productivity decreases. Unsafe
work environments can lead to unnecessary absences due to illness or accidents.

7.6.3 Labour relations
Collective bargaining between management and union representative should take place
to ensure fair remuneration and working conditions. The HR manager is responsible for
keeping channels of communication open and continuously communicating with
employees.
7.6.4 Record-keeping
The HR department keeps records on all employees. These include job application forms,
sick leave, leave, performance appraisal and salary records.
7.7 Human Resource Management 21st Century Challenges
In the Survey of Global HR Challenges: Yesterday, Today and Tomorrow, conducted by

PricewaterhouseCoopers (2018) on behalf of the World Federation of Personnel
Management Associations (WFPMA), several challenges for human resource
management were revealed. These are:
• Change management
• Leadership development
• HR effectiveness measurement
• Organisational effectiveness
• Globalisation
• Retention of the employees
• Multicultural workforce
• Female workforce
• Retrenchment of employees
• Change in the demand of the government
• Technology

Case Studies
Challenges facing 21st century HR managers

Published on February 11, 2016
Williams Olalekan
Human Resources Manager at Multi-Dimensions resources Inc
HRM includes conducting job analyses, planning personnel needs, recruiting the right
people for the job, orienting and training, managing wages and salaries, providing
benefits and incentives, evaluating performance, resolving disputes, and
communicating with all employees at all levels. Examples of core qualities of HR
management are extensive knowledge of the industry, leadership, and effective
negotiation skills, formerly called personnel management.
Typically, HRM is the function within an organisation that focuses on recruitment of,
management of, and providing direction for the people who work in the organization.
HRM can also be performed by line managers. It can also be described as the
organisational function that deals with issues related to people such as compensation,
hiring, performance management, organisation development, safety, wellness,
benefits, employee motivation, communication, administration, and training.
It is also a strategic and comprehensive approach to managing people and the

workplace culture and environment. Effective HRM enables employees to contribute
effectively and productively to the overall company direction and the accomplishment
of the organization’s goals and objectives.
In modern time, HRM is moving away from traditional personnel, administration, and
transactional roles, which are increasingly outsourced. HRM is now expected to add
value to the strategic utilization of employees and that employee programmes impact
the business in measurable ways, hence, the new role of HRM involves strategic
direction and HRM metrics and measurements to demonstrate value.

Human Resource Management challenges

Over the last two decades, there has been an unprecedented increase in the number
of organisations that have internationalised their operations. The international
movement of labour that has been concomitant with such expansion of international
business has meant that issues associated with the management of human resources
across International borders are increasingly important to international human
resource managers and academics. This poses a lot of challenges to HR managers.
The rapidly-transforming business landscape means that there are currently many
human resource management challenges which will continue to evolve for years to
come. Tom Marsden, Director of Professional Services at Alexander Mann Solutions
says that HR departments really need to be adding real business value to their
organisations.
“Although the restrictions of the recession aren’t over yet, companies are recognizing
that in 2010, they will need to take steps to retain their workforce. This could be through
an increased emphasis on training and engagement programs or by investing in areas
that will optimize expenditure, such as integrated technology systems or improved
candidate attraction schemes. The signs are that HR departments are preparing to
maximize their resources and staff as organisations look to grow.”
Due to the fluctuating economy as well as local and global advancements, there are
many changes occurring rapidly that affect HR in a wide range of issues. In the Survey
of Global HR Challenges: Yesterday, Today and Tomorrow, conducted by
PricewaterhouseCoopers on behalf of the World Federation of Personnel Management
Associations (WFPMA), several challenges for human resource management were
revealed.
This survey, which concluded that “despite national and regional differences, there was
remarkable unanimity,” disclosed some of the top human resource management
challenges as follows:

Change management (48%),

Leadership development (35%),
HR effectiveness measurement (27%),
Organisational effectiveness (25%).
But , typically, the main challenges of HR manager include adding value to an

organisation both the labour force and the business itself, manage talent within your
organisation – try to attract and keep talented and hard-working people in the
organisation; managing globalisation, Information Technology, business control,
Information-workers and info-management.
The modern business cannot effectively operate in the business world if the human
force is not well equipped with the latest technology and techniques. This is the
responsibility of the human force manager to properly train the work force and to see
the basic things the human force needs to achieve the competitive advantages of
business in 21st century.
Great debates on this topic have been ongoing for several years and no doubt, people
are important in any organisation but due to rapid changes in the business world,
globalization, change in customer taste and habits, new techniques of production,
human in the organisation now facing different kind of problems, to cope with this
situation the today’s HR manager is also facing a variety of issues and challenges on
how they can best manage and solve all these issues and challenges with splendid
ways.
The average HR manager is facing a variety of challenges to meet these challenges

for the future, tomorrow. HR manager or department must be much sophisticated than
their predecessors. Because an international or multinational organisation cannot
perform their activities well when their HR manager knows the diversity of technique
to hack it with these issues and to how they can prepared a unobjectionable force for
the organisation to face the rapid competitive business word and to operate in the
situation.

All the organisations should prepare their human resources people well keeping in
view the global environment or marketplace to ensure competitive advantage. Human
resource manager will have to build or developed such a framework that allows
flexibility to develop such a workforce that will be the work force for tomorrow. The
main aim of the paper is to address HR issues and challenges in the light of variety of
literature work by different authors.
What should be the priorities for human resource in future what should be? The answer
to this question is very difficult but there are many factors contributing to HR managers
functions and these activities are constantly changing. By keeping in view the entire
situation, the organisation's HR department is continuously being transformed as well.
Some pieces of research have pointed out that most of the challenges faced by the
HR in 21st century are also, retention of the employees, multicultural workforce,
women workforce, retrenchment of employees, change in the demand of the
government, technology , globalisation, and initiating the process of change.
The World Federation of Personnel Management Association (WFPMA) survey

pointed out the most important top ten HR challenges are leadership development,
organizational effectiveness, change management, compensation, health and safety,
staff retention, learning and development, succession planning. Staffing: recruitment
and skill labour. Liz Weber has pointed out that the most important challenges of the
HR in business are layoffs. Most of the owners and managers are facing this hard
issue. This laid off may be due to several reasons which include the economic
uncertainty, the employee’s job instability and HR less effectiveness.
In the viewpoint of Gary Dessler, the most important challenges of HRM, are
technology, e- commerce, and workforce diversity, and globalisation, ethical
consideration of the organisation which may directly or indirectly affect the organisation
competitive advantages, especially with technological advancement the effect on
recruitment, training and development and job performance with great extent can be
study in organisation.

We can sum up these from the following points that the foremost challenge faced by
HRM is the globalisation. Globalisation means the present flow of goods, services,
capital, ideas, information and people. It means the movement of these things without
using any human resource. In this modern business world, markets have become
battlegrounds where both the domestic and foreign competitors try to capture as
maximum market shares as possible. Such globalisation is a challenge for HRM.
However without human resource they have no value because a workforce is

knowledgeable and skilled, who facilitates a company in gaining competitive
advantage over others and enable a company to compete in the foreign market and to
make investment in not only in a domestic market but also in foreign markets.
Therefore all the HR Managers come up several strategies to develop and retain such
human resource, because Human Resource is the tool which makes an organisation
successful in the field of globalisation.
Today, many business leaders and executives view HR as a non-strategic cost centre
instead of a core, profit-contributing function. This is especially true during the tough
economic times like in the past few years which have put more organizational demand
on the revenue generating business functions – and more of a focus on cost saving for
the other functions. Unfortunately most organisations still view HR as a transactional
cost centre which makes them to under play the function.
One of the most common complaints about HR is that many professionals lack the
forward thinking, strategic advisory focus needed to be an effective business partner.
They don’t spend the time to understand the business they support and focus more on
transactional HR activities that don’t have the impact the business desires. HR
Business Partners need to be trusted advisers to the businesses and leaders they work
with. They need to be effective coaches and remain aware of their critical role as to
effectively assess workforce capabilities and enable planning for future needs. HR
must be focused on becoming a trusted advisor to their business to empower
managers to drive improved organisational performance.

Talent acquisition & talent management challenges

Organisations are continuing to struggle with hiring and managing their talent
effectively. Most corporate recruitment and talent functions are reactive and rarely are
future focused. These functions aren’t aligned to their organisation’s business
strategy, aren’t part of a formal organisational talent strategy and in fact seldom even
communicate with each other. Most HR leaders and their teams aren’t spending the
necessary time upfront to analyse and properly plan their organisational talent assets,
needs, and gaps. When an organisation’s recruitment and talent management
functions are performing effectively, the rewards far outweigh the investments.
Organizations must be self-aware and understand their true functional capabilities

within recruitment and talent management. An organisation which isn’t effective in
managing and developing their own talent will need to rely more on hiring new talent
to fulfil the talent requirements of the business strategy. The organisation must
understand the limitations of their talent functions and make the appropriate decision
to either invest quickly in resolving their functional deficiencies or work around the
deficiencies.
Thank you.
Article adapted from: Olaken. W. (2016). Challenges facing 21st century HR Managers
https://www.linkedin.com/pulse/challenges-facing-21st-century-hr-managers-williams-
olalekan
7.7 Conclusion
In our complex modern world, with globalisation and its extensive technological
developments, great pressure is placed on people as a production factor. The need for
effective human resources provision and retention places considerable demands on
human resources management.

Tasks
1. Carry out a job analysis of a painter who must be able to paint

multi-storey buildings. After completion of the job analysis, write
up a job description and job specification.
2. Interview the human resources manager of a medium-sized
organisation and establish what the organisation does to retain
good and effective employees.
Case Studies
John Ellis is a driver of a 6-ton truck and has three years’ service with KTK Transport
(Pvt) Ltd. Koos Theron, a driver of a 30-ton truck, has been with the company for
only one year and earns R500 per month more than Ellis. Because Ellis is also
qualified to drive an extra heavy-duty truck, he stands in for Theron when the latter
is sick or on leave. Ellis feels that he is being treated unfairly, therefore he asks for
an increase, which is refused. The managing director also puts it to Ellis that if he
continues to involve the other truck drivers in his dissatisfaction, he will be fired
on the spot. More than 60 per cent of KTK Transport’s employees belong to the same
labour union.
Questions:
1. Discuss whether the difference in salary between Ellis and Theron is justified.
2. Explain how renumeration is determined.
3. Discuss the importance of employee motivation in relation to the above.

CHAPTER 8:
Financial Management
Chapter Outcomes
• Clearly define the scope of financial management within a business

• Provide a basic understanding of the key responsibilities of a financial manager
• Effectively determine the tasks undertaken by the finance department
• Successfully identify and discuss the types of financial management undertaken
through effective financial management
• Efficiently explain the evolution of financial management in terms of
communication and information technology
8.1 Introduction
According to Strutner (2020), at its core, financial management is the practice of

formulating a business plan and then ensuring all departments stay on track. Solid
financial management enables the Chief Financial Officer (CFO) or Vice President
(VP) of finance to provide data that supports creation of a long-term vision, informs
decisions on where to invest, and yields insights on how to fund those investments,
liquidity, profitability, cash runway and more.
ERP software can help finance teams achieve these goals: A financial management
system combines several financial functions, such as accounting, fixed-asset
management, revenue recognition and payment processing. By integrating these key
components, a financial management system ensures real-time visibility into the
financial state of a company while facilitating day-to-day operations, like period-end
close processes.

8.2 Scope of Financial Management
Financial management encompasses four major areas:
• Planning
The financial manager projects how much money the company will need to
maintain positive cash flow, allocate funds to grow or add new products or services
and cope with unexpected events, and shares that information with business
colleagues.
Planning may be broken down into categories including capital expenses, T&E and
workforce and indirect and operational expenses.
• Budgeting
The financial manager allocates the company’s available funds to meet costs, such
as mortgages or rents, salaries, raw materials, employee T&E and other
obligations. Ideally there will be some left to put aside for emergencies and to fund
new business opportunities.
Companies generally have a master budget and may have separate sub
documents covering, for example, cash flow and operations; budgets may be static
or flexible.
• Managing and assessing risk

Line-of-business executives look to their financial managers to assess and provide
compensating controls for a variety of risks, including:
Market risk: Affects the business’ investments as well as, for public companies,
reporting and stock performance. May also reflect financial risk particular to the
industry, such as a pandemic affecting restaurants or the shift of retail to a direct-
to-consumer model.
Credit risk: The effects of, for example, customers not paying their invoices on time
resulting in the business not having funds to meet obligations. This, in turn, may
adversely affect creditworthiness and valuation, which dictates ability to borrow at
favourable rates.
Liquidity risk: Finance teams must track current cash flow, estimate future cash

needs and be prepared to free up working capital as needed.

Operational risk: This is a catch-all category, and one new to some finance teams.
It may, for instance, include the risk of a cyber-attack and whether to purchase
cybersecurity insurance, what disaster recovery and business continuity plans are
in place and what crisis management practices are triggered if a senior executive
is accused of fraud or misconduct.
• Procedures
The financial manager sets procedures regarding how the finance team will
process and distribute financial data, like invoices, payments and reports, with
security and accuracy. These written procedures also outline who is responsible
for making financial decisions at the company - and who signs off on those
decisions.
8.3 Three Types of Financial Management
The functions outlined above can be grouped into three broader types of financial
management:
• Capital budgeting, which relates to identifying what needs to happen financially for
the company to achieve its short- and long-term goals. Where should capital funds
be expended to support growth?
• Capital structure, which determines how to pay for operations and/or growth. If
interest rates are low, taking on debt might be the best answer. A company might
also seek funding from a private equity firm, consider selling assets like real estate
or, where applicable, selling equity.
• Working capital management, as discussed, is making sure there’s enough cash

on hand for day-to-day operations, like paying workers and purchasing raw
materials for production.

8.4 Responsibilities of a Financial Manager
According to Oertogo.com (2019) Financial Managers typically do the following:
Financial managers also do tasks that are specific to their organisation or industry. For
example, government financial managers must be experts on government
appropriations and budgeting processes, and healthcare financial managers must
know about issues in healthcare finance. Moreover, financial managers must be aware
of special tax laws and regulations that affect their industry.
8.5 Types of Financial Managers
• Controllers direct the preparation of financial reports that summarise and forecast
the organisation's financial position, such as income statements, balance sheets,
and analyses of future earnings or expenses. Controllers also are in charge of
preparing special reports required by governmental agencies that regulate
businesses. Often, controllers oversee the accounting, audit, and budget
departments.
• Treasurers and finance officers direct their organisation's budgets to meet its
financial goals. They oversee the investment of funds. They carry out strategies
to raise capital (such as issuing stocks or bonds) to support the firm's expansion.
They also develop financial plans for mergers (two companies joining together)
and acquisitions (one company buying another).
• Credit managers oversee the firm's credit business. They set credit-rating criteria,
determine credit ceilings, and monitor the collections of past-due accounts.
• Cash managers monitor and control the flow of cash that comes in and goes out
of the company to meet the company's business and investment needs. For
example, they must project cash flow (amounts coming in and going out) to
determine whether the company will not have enough cash (and will need a loan)
or will have more cash than needed (and can invest some of its money).
• Risk managers control financial risk by using hedging and other strategies to limit

or offset the probability of a financial loss or a company’s exposure to financial

uncertainty. Among the risks they try to limit are those due to currency or
commodity price changes.
• Insurance managers decide how best to limit a company’s losses by obtaining

insurance against risks such as the need to make disability payments for an
employee who gets hurt on the job, and any costs imposed by a lawsuit against
the company.
Financial management and digitisation

According to Sage (2021), CFOs face new complexities as a result of the COVID-19
pandemic, including managing a remote workforce and an expanding security and
compliance mandate.
Current and evolving digital technologies are empowering businesses to prosper and
become more profitable, even in unpredictable circumstances.
Digital transformation offers a host of benefits to businesses, including:
• Improved customer experience

• Data-based insights
• Collaboration across business departments
• Increased agility and innovation
• Updated skillsets and knowledge
• Consolidated processes and operations
• Fostering a digital culture
Read the following article to understand more about going digital.
Readings
Role of Information Technology in Financial Reporting and

Management
By Abhijeet Pratap January 1, 2018
Information technology has continued to play an important role in the growth of the
business industry in the 21st century. The advent of computers, IT and the Internet

has changed the way businesses operate. From HR to marketing and financial
management, everywhere the role of IT has grown. None of these functions can be
run without using Information Technology. Use of IT means adding speed,
efficiency, and convenience to these functions. These three are important factors
that can help improve productivity. IT trends have also shown that the world of
technology will continue to grow. Businesses are using every form of technology to
grow their sales and revenue. Finance is an important and a bit complex function
that cannot be run efficiently without the use of IT.
Every finance manager is expected to have a sound knowledge of Information

technology and a nice level of IT skills. Finance has traditionally been a complex
function that has boggled minds. Chances of errors have always remained high in
financial management. Its role is central to business and most businesses take the
function very seriously. Finance is risky business and errors in this area can ruin all
the efforts made by the staff through an entire year. IT can be a very important
support for the finance staff. This is why finance managers must have IT skills and
should focus on use of IT for efficient financial management.
IT in finance and banking

Financial management and reporting need to be free from errors. For a long time,
the world was dependent on financial managers and handwritten accounts for
storing and publishing financial data. This made the task cumbersome, and things
have changed with the development of IT. The internet has brought the biggest
change in this area. It has made storing, sharing, and publishing of financial data
easier. IT has also reduced the costs of financial management.
With less staff more can be achieved, and accuracy is always higher. Accuracy is
a key requirement in financial management and helps reduce the need for
redundant work or wastage of time. The world of finance is fraught with risks and
every small error can prove costly. Moreover, accounting managers are always
under pressure related to ethics and performance. IT improves performance and
can process larger amounts of financial data within less time. So, finance managers
stand to gain a lot from IT.

The key advantages of IT in the area of financial management:
Accuracy: Financial management requires lots of attention and precision. It helps

with these things. It becomes easier to calculate and study data. Input and
calculations are easier, and it becomes easier to calculate rows of financial data.
Tonnes of data can be calculated easily and processed without any headache.
Accuracy of financial data makes it understandable and based on its managers and
CEOs can make important decisions without any obstruction. CEOs can take
financial management inside their organisation a step farther with the use of IT.
Speed: In financial management you do not just need efficiency but also speed.
You cannot keep sitting for ages waiting for the balance sheet to be ready. The
decision makers always need financial reports to be ready on the table. IT helps
finance managers prepare these reports and process data without any complexity
and do real time analysis. In the 21st century, speed is important. You have to make
key decisions within seconds and for that you need reliable information in your
hands within seconds. Reliability is also an important advantage of IT in financial
management apart from speed and accuracy. Suppose you are the CEO of a firm
and want to make some key decisions about an upcoming product release. If your
finance managers are ready with the right data at the right time, you can make
decisions and the operational flow will be better.
Performance: Performance includes accuracy and speed with simplicity.

Organisations are using better software for financial management and for higher
efficiency. The finance function has to process loads of data that becomes easier
with financial management software and information systems. Data managers also
need to present this data in a simple and actionable form and that is possible
through the use of IT tools. The simpler the reports, the easier it is for the leadership
and executives to act on them. IT boosts performance and enables fast operational
flow. Human ability is limited and manipulating a very large amount of data is
impossible for humans without the use of IT.
Exchange of financial data and information between various functions is easier with
the use of Information Technology. Sales and marketing functions need support
from finance department. They need actionable financial data to make key

decisions. Important sales and marketing decisions are based upon financial
information and data. The finance function plays a critical role in this area and
supports these functions with important financial information that helps them plan
and create effective marketing programs. Effective financial management helps
with so many things because finance supports every other function. Internet’s role
in financial reporting has grown. Apart from online exchange of financial data,
online information systems have also helped the finance function. There are several
online tools and financial software that help finance managers to understand data
and analyse trends.
A key responsibility of the managers inside financial organisations is to analyse the

data trends and to understand what will happen next. The world of finance is full of
risks and if you are not looking forward, you will find it difficult to be competitive.
Information Technology has eased so many pressures on finance managers and
reduced their tension. The need for accuracy and ethical pressures have always
been a major burden for finance managers. With increased use of IT tools and
software, both these burdens have eased. It is right that IT has given rise to some
disadvantages, but it has also balanced some forces. Automation was feared to
affect employment but the increase in capacity offered by it is a great factor. Two
hands and a mind are not enough to create as much as a single computer can.
Today’s financial analysts are equipped with best-in-class technology that enables
the analysis of loads of data with ease. Financial data can be complex and small
errors can give rise to chances of loss.
IT reduces this probability and helps handle large loads of data with efficiency and
relieves finance managers and companies from the most cumbersome task.
Financial and statistical tools are a major support in case of data analysis.
Enterprise Resource Planning systems are a great tool for the planning of financial
resources. It helps make key investment decisions and ensures greater productivity
and profits. Accurate financial information is a key necessity for the executives
since they have to make important decisions within seconds. A key benefit arising
from the use of IT is accessibility. Another key benefit is affordability. Since sharing
of data is easier, it makes data accessible. Shared management information
systems enable the sharing of data between the various departments and faster
workflow. The field of IT has seen a lot of innovation and made everyone’s task

easier. Several companies share their financial information publicly online from
their websites. Balance sheets and proforma statements get ready within minutes
and are published and shared with stakeholders with ease.
Small and big companies alike need to use IT tools for financial analysis. In the
small companies, the load of finance department may be lower and yet the benefit
of using IT can be immense. One important challenge that IT has faced is that of
data safety. However, in the sphere of IT, as the challenges take place innovation
too happens. Cloud based storage systems have helped companies store their
precious data with care and kept finance managers free from worry. IT has
emerged as a boon for managers. In the banking and finance sector it has come
as the biggest enabler. It has helped financial companies serve their customers in
new and better ways. They can market themselves and their brands in new and
better ways and use their websites to publish financial information. It has helped
them reach new market segments and serve customers with higher efficiency.
Information technology has helped companies bring in transparency and efficiency
both. The most important effect is on quality of financial services. Financial
reporting is not only better and quicker but also the task burden is greatly reduced.
People feared that IT could kill jobs but it ended up creating new opportunities. It
enabled greater security in the world of finance and higher accountability too. More
financial data can be handled with higher accountability, greater ease and the
chances of violation are also low.
The banking sector was caught in a chasm for ages. IT added speed and efficiency
to this sector. IT saw a swift jump with increased reach and better performance.
Banking and finance sector have grown very fast in the past decade. It has brought
growth in the financial world and helped it in several spheres. Data processing,
quality of reporting and marketing in the banking world, all have grown very fast
with the arrival of the internet.
Article adapted from: Salehi and Torabi (2018), The role of information technology
in financial reporting https://notesmatic.com/role-information-technology-financial-
reporting-management/

CHAPTER 9:
Public Relations Management
Chapter Outcomes
• Clearly define the term public relations management in business

• Determine the key responsibilities of Public Relations Manager
• Discuss the functions of Public Relations in business
• Successfully distinguish between the public relations and the marketing function
• Provide a basic understanding of the public relations process when managing
business
9.1 Introduction
A contemporary definition of public relations management states that is:
‘The management of mutually influential relationships within a web of constituency

relationships. To qualify as public relations, actions must involve sustained strategic
attempts, to influence the relationships with constituents’ (Coombs and Holladay,
2010).
The International Public Relations Association (IPRA) States that public relations
practice is the:
‘Art and social science of analysing trends, predicting their consequences, counselling
the leaders of the organisations and implementing planned programmes of action,
which will serve both organisations and the public interest.’
The definition adopted by Public Relations Institute of Southern Africa (PRISA) states
that public relations is the:
‘Management through communication of perceptions and strategic relationships
between an organisation and its internal and external stakeholders.’

9.2 What is Public Relations Management?
Public relations (PR) are two-way communication between an organisation and its
various publics. It is an effective management role in various industries from
commerce and politics to religion, charities and many others in between.
A formal definition of public relations is difficult to rationalise as it deals with a number

of different facets. However, it is viewed as helping organisations and its publics to
mutually adapt to each other.
Public relations deal with both internal (e.g. employees and shareholders) and external
(e.g. media and the general public) communication with various stakeholders.
The point of public relations is to generate a favourable long-lasting opinion about the
organisation. Often a difficult, and robust task for any organisation but necessary to
gain goodwill and support to ultimately ensure ongoing success for a business.
For example, ignoring goodwill of employees can lead to lower levels of productivity
within a business.
Avoiding an unfavourable situation is always better than being exposed to all the ills
and negative attention and then trying to remedy the situation.
As mentioned, PR is two-way communication between stakeholders and the

organisation. PR practitioners manage the process by:
• Keeping management updated about public opinion

• Managing all communication
• Accentuating the organisations interest to the public
• Effectively handling corporate social responsibility
9.3 Responsibilities of a PR Manager
• Be the main contact as Media Liaison/company spokesperson

• Create and maintain a company’s communication, content and PR
• Identify opportunities to be seen as company of choice in your related
industry/market

• Manage the Public Relations budget of the company

• Promote and protect the brand ethos and reputation
• Create, supervise, and attend company events
• Assist with the creating of all company marketing material, including media
releases, company website and social media
• Communicate to internal and external clients about the company’s products,
news and other developments
• Maintain close contact with media and other marketing outlets for
disseminating communications to targeted audience
9.4. Functions of PR
Developing and implementing a strategic coordinated PR programme rely heavily on

marketing and integrated marketing communication. Therefore, PR practitioners must
clearly understand what is expected of them. Table 9.1 clearly summarises the
functions of public relations.
Function Explanation
Research • Gathering information
• Monitor program implementation
• Assess effectiveness
Planning and • Determine needs, priorities, goals and objectives
Advising • Collaborate with management/ customers
• Problem-solving
Media Relations and • Contact media houses
Placement • Negotiate publishing of news articles and broadcasting
via television and radio
• Respond to media requests for information
• Arrange production, booking and placement of corporate
advertisements
Organising • Handle media conferences, conventions and exhibitions
• Organise open house days, celebrations, fundraising
events, competitions, programmes and sponsorships

Function Explanation
Writing • Write news releases, newsletters, correspondence,
reports, booklets, radio and television text, magazine
articles, product information, trade papers, technical
material and corporate advertisements
• Check and edit special publications, employee
Editing
newsletters, shareholders reports and other
communications for internal/ external groups
Production • Multifaceted and very challenging
• Create communication using multimedia knowledge and
skills including art, photography, design and audio-visual
presentations
Speaking • Either the PR practitioner will speak or arrange for
another to speak
• Plan programmes in response to public and problem
situations
• Monitor their effectiveness during implementation
• Evaluate overall impact
Training • Prepare executives for dealing with the media,
presentations and other public appearances
• Service staff development
Management • Manage personnel, budget and action programmes
Table 9.1: Function of PR Fourie and Cant (2017)
9.5 Marketing vs. Public Relations
We already know that public relations is about generating ‘goodwill’ and reputation
management for the business whereas marketing focuses on directly driving sales for
the organisation. As much as traditional discipline tends to merge these two functional
areas as there are notable overlaps in roles and responsibilities, it is important that we
make clear distinction of these functions in an organisation. According to author Kirsch
(2019), marketing and PR, especially in larger companies work towards different goals
and have different measures for success. Below is a table outlining the differences:

Marketing Public Relations

Focuses on the bottom line. Focuses on the brand or reputation.
Creates value for the customer and Crafts and communicates a message
builds relationships. By achieving these with the end goal of achieving a
goals, an organisation will gain and favourable image.
retain valuable and loyal customers.
Focuses on the offerings of a company, Focuses on beneficial relationships
whether a product or a service. between organisations and their
publics.
Marketing is challenged to create action Public relations is challenged to create
– the purchase of the product or service credibility about the brand.
that is offered.
Marketing success is based on return It’s harder to specifically measure
on investment (ROI). opinions and perspectives, so reviews
and comments about a brand are key to
determining success of efforts.
Table 9.2: Marketing vs. Public Relations

Source: Adapted from Prworksinc.com (2019)
9.6 The PR Process
The RACE model is the most common and widely used model to develop a strategic
PR plan. It involves a process of developing positive communication between the
organisation and their publics. The four stages in this model are termed as follows
Research, Action, Communication and Evaluation (RACE)

Figure 9.1: The RACE Model
• Research
This involves looking at available information, evidence and data and documenting
this in a methodical manner to define a problem or in reaction to an opportunity.
This can involve looking at past information of both internal and external
stakeholders. Information should be accurate and collected from reliable sources.
Methods can be of a formal or informal nature.
Some of the data could include research on:
o Background information on the client and organisation

o Problems/ potential problems or opportunities for PR
o Stakeholders and publics
o Action (Planning)
During this stage, PR practitioners set out the goals and objectives for the programme.
Goals should indicate what can be done to achieve the desired results.
A goal is an observable and measurable end result, having one or more objectives to
be achieved within a more or less fixed timeframe. If goals are about the big picture,
then objectives are all about tactics. Mechanically, tactics are action plans to get from
where you are to where you want to be.
A goal defines the direction and destination, but the road to get there is accomplished
by a series of objectives.

A SMART goal is used to help guide goal setting. SMART is an acronym that stands
for Specific, Measurable, Achievable, Realistic, and Timely. Therefore, a SMART goal
incorporates all of these criteria to help focus your efforts and increase the chances of
achieving that goal.
o Specific: Well defined, clear, and unambiguous.

o Measurable: With specific criteria that measures progress towards the
accomplishment of the goal.
o Achievable: Attainable and not impossible to achieve.
o Realistic: Within reach, realistic, and relevant.
o Timely: With a clearly defined timeline, including a starting date and a target
date. The purpose is to create urgency.
• Communication (Implementation)
According to Axiapr.com (2017), communication is key to achieving the goals and
objectives of a PR plan, by creating mutually beneficial relationships with the
publics. Communication has evolved over the years from simple email messages
to creating and sustaining a positive image around the organisation/brand.
Messages need to be communicated in ways that meet the needs of your target
audience. For example, language, tone and jargon are important aspects to
consider when planning, preparing and delivering your message. Giving
consideration to factors such as demographics and exposure to the product helps
the PR professional to select the correct communication channels for the target
audience.
Methods of communicating and timely communication play a pivotal role, especially
in the case of newsworthy information. Communication and implementation should
focus on:
o Tool and techniques for communication

o Timelines for campaigns
o Budgets
• Evaluation of the campaign

Evaluating the campaign can be done at different stages. Identify methods that can
be used to determine progress, achieve goals and evaluate progress both during

and after the campaign. The main aim of evaluation is to check that the goals and
objectives have been accomplished.
Determining your ROI is a great way to evaluate your campaign. This can be done
by monitoring your generated value of content in the media and comparing that
with the expenses incurred with running the PR campaign.
o Monitoring the media coverage

Taking into consideration all mentions and full coverage of stories covered by
the various media channels e.g. magazines, newspapers, blogs, television, and
radio interviews etc.
o Taking note of media impressions

Consider the reach of each piece of coverage e.g. if a media release is featured
in a local newspaper and the newspaper has a reach of
5 000 readers, then you have accumulated 5 000 impressions.
o Analysis coverage
Analysis on the type of coverage i.e. in terms of the general message, positive
and negative tones etc. needs to be considered.
o Interview the publics

To determine the impression the publics may have on decision-making when
purchasing a product.
o Market Surveys
Survey your target market before the campaign begins to determine awareness
of your brand and then again at the end of a campaign to see if there were any
significant changes after the program.
o Social Media tracking

This coverage can be tracked from users across the globe engaging in
conversations about your brand.
Many media and communications houses offer tracking services for various
forms of media. This can be a resourceful tool for any PR practitioner to keep
a step ahead of ongoing mentions in the media.

Questions
1. Determine the responsibilities of a PR Manager.

2. Differentiate between PR and marketing.
3. Summarise the PR process.
9.7. Conclusion
According to PRISA public relations is ‘Management through communication of

perceptions and strategic relationships between an organisation and its internal and
external stakeholders. One of the fundamental reasons are to generate a favourable
image between the organisation and various publics/ stakeholders.
The PR environment can be characterised as being in a constant state of change,

which requires logical analysis and careful strategy and execution. Some of the
functions of a practitioner include researching, planning, communicating, and training
management in order to generate positive communication for the organisation.
The PR process is complex. PR strategies differ from organisation to organisation,

depending on the company’s strategy, goals and its organisational culture. In a
nutshell, PR involves generating goodwill and loyalty towards a brand. Using the
RACE model, you can create a PR plan with the numerous techniques and tools that
would be most suitable for your target audience.

BIBLIOGRAPHY AND RECOMMENDED READINGS
Cant, M.C. and Fourie, L. (2017) Public relations theory and practice, 2edn Cape
Town: Juta
DelVechio, L, (2020). [Online] Available at https://planergy.com/blog/purchasing-

process/ Accessed on 16/05/2020
Dovetail Business Solutions, (2018) [Online] Available at

https://www.dovetail.co.za/what-is-logistics-all-you-need-to-know-about-logistics-
management/ Accessed on 16/05/2020
Erasmus, B.J et al, (2016) Introduction to business management, 11th ed. South
Africa: Oxford university press
Hellriegel, Slocum et al (2017) Management, 5th ed. South Africa: Oxford University
Press
Nieman and Bennet, (2014) Business management - A value chain approach, 2ND
ed. South Africa: Van Schaik publishers
Oalekan, W (2016)[Online] Available at https://www.linkedin.com/pulse/challenges-

facing-21st-century-hr-managers-williams-olalekan Accessed on 16/05/2021
Skinner, C and Benecke, D.R and Mersham, G. (2016). Handbook of public

relations, 11th edn. Cape town: Oxford University Press Southern Africa
Smit, Cronje et al, (2011) Management Principles, 5th ed. South Africa: Juta
Strutner, S (2020) [Online] Available at

https://www.netsuite.com/portal/resource/articles/financial-management/financial-
management.shtml Accessed on 16/05/2021

Van Rensburg (ed), (2008) Business Management, 2nd edition. South Africa: Van
Schaik publishers
Writing, A, (2019) [Online] Available at https://smallbusiness.chron.com/functions-

purchasing-department-organization-158.html Accessed on 16/05/2021

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BUSINESS MANAGEMENT 1

BACHELOR OF COMMERCE IN SUPPLY CHAIN MANAGEMENT 1

INTRODUCTION TO BUSINESS MANAGEMENT 1 .....................................................3

BIBLIOGRAPHY AND RECOMMENDED READINGS ............................................... 154

BACHELOR OF COMMERCE IN SUPPLY CHAIN MANAGEMENT 2

INTRODUCTION TO BUSINESS MANAGEMENT 1

Welcome to the Bachelor of Commerce Degree programme and the Business

3. Aim of the Module

This module aims to successfully demonstrate a suitable understanding of management

4. Essential (Prescribed) Reading

Your essential (prescribed) reading comprises the following:

4.1. Prescribed Reading

• Erasmus, B., Strydom, J. W., and Rudansky-Kloppe, S. (2016). Introduction to

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4.2. Recommended Reading

5. How to use this Module

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7. Specific Outcomes and Chapter Alignment

SPECIFIC PROGRAMME OUTCOMES CHAPTER

SO 3: Effectively determine the relationships between the 3

SO 6: Demonstrate a sound understanding of the four basic 4

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SPECIFIC PROGRAMME OUTCOMES CHAPTER

SO 10: Have a rudimentary knowledge of the importance of 5

SO 11: Explain how marketing management creates value in 6

8. Specific Outcomes and Assessment Criteria

SPECIFIC PROGRAMME ASSESSMENT CRITERIA

SO 1: Describe the fundamental Clearly discuss the fundamental concepts of

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SPECIFIC PROGRAMME ASSESSMENT CRITERIA

SO 2: Provide an elementary Discuss the evolution of management theories

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SPECIFIC PROGRAMME ASSESSMENT CRITERIA

SO 14: Critically discuss types of Apply knowledge of financial decision-making

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SPECIFIC PROGRAMME ASSESSMENT CRITERIA

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On completion of this chapter, you should be able to:

• Clearly discuss the importance of studying of business management

As a subject, Business Management is relevant for every person in society. Although

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Business Management-in particular, the value chain model, factors of production,

1.2 Functional Areas of Business Management

The management of a business involves various functional areas of

• Production and operations management

Take any business as an example (e.g. a café).

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1.3 Factors of Production

1.4 Adding Competitive Value: The Value Chain

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Figure 1.1: The Value Chain Model

The primary activities are:

• Procurement and inbound logistics

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• Marketing and sales

The support activities, according to the value chain, are:

• Human resource management

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external publics of the organisation.

• Information management and e-business

1.5 Definition of Management

With regard to a definition of management, on the whole, a considerable degree of