Business Management 621

Business
Management 621
Year 2 Semester 1
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FACULTY OF BUSINESS AND MANAGEMENT SCIENCES
STUDY GUIDE
MODULE: BUSINESS MANAGEMENT 621

(1ST SEMESTER)
Copyright © 2023
Richfield Graduate Institute of Technology (Pty) Ltd
Registration Number: 2000/000757/07
All rights reserved; no part of this publication may be reproduced in any form or by any means, including photocopying machines, without the
written permission of the Institution
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TABLE OF CONTENTS
TOPIC PAGE NO.

SECTION A: PREFACE
1. Welcome VI
2. Title of Module VI
3. Purpose of Module VI
4. Learning outcomes VII
5. Methods of Study VII
6. Lectures and Tutorials VII
7. Notices VII
8. Prescribed and Recommended Materials VII
9. Assessment and Key Concepts in Assignment and Examinations VIII
10. Work Readiness Programme XII
11. Work Integrated Learning XII
ST
SECTION B: BUSINESS MANAGEMENT 621 (1 SEMESTER)
TOPIC 1: NATURE OF MANAGEMENT 1

1.1 Introduction 1
1.2 Role of business organisations 2
1.3 Components of the management process 3
1.4 Definition of management 4
1.5 Different levels and kinds of management in the organisation 6
1.6 Areas of management 9
1.7 The role distribution of managers 10
1.8 Managerial skills and competencies at various managerial levels 11
1.9 Management and organisational performance 17
1.10 The scope of management 17
Assessment Questions 17
TOPIC 2: THE EVOLUTION OF MANAGEMENT THEORY 24
2.1 Introduction 24
2.2 Why study management theory 24
2.3 Understanding the different management theories 25
2.4 The theories of management 25
2.5 Contemporary approaches 28
2.6 Total Quality Management 30
2.7 Current and near-future management realities 31
2.8 Summary 32
TOPIC 3: MANAGING IN A CHANGING ENVIRONMENT 35
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3.1 Introduction 35
3.2 Concepts of systems theory 35
3.3 The composition of the management/business environment 35
3.4 The internal or micro-environment 36
3.5 The market/task environment 37
3.6 The macro-environment 37
3.7 Interfaces between the organisation and the environment 37
3.8 Ways in which management can prepare for environmental changes 38

3.9 Summary 39
TOPIC 4: STRATEGIC PLANNING 42
4.1 Introduction 42
4.2 Strategic planning, what it encompasses 43
4.3 The strategic planning process 48
4.4 Grand strategies 71
4.5 Growth strategies 72
4.6 Decline strategies 75
4.7 The selection of Grand strategies 77
4.8 Factors affection strategic choice 80
TOPIC 5: PLANNING 85
5.1 Introduction 85
5.2 The nature and importance of planning 86
5.3 Kinds of organisational plan 89
5.4 The time – frame for planning 92
5.5 Steps in the planning process 93
5.6 Barriers of effective planning 97
5.7 Planning tools 99
5.8 Goal formulation 103
5.9 The process of goal setting 106
5.10 Techniques for goal setting 107
TOPIC 6: MANAGERIAL DECISION MAKING 115
6.1 Introduction 115
6.2 The relationship between problems, problem solving, & decision making 115
6.3 Types of managerial decision-making 116
6.4 Levels of decision making 117
6.5 Decision-making process 118
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6.6 Group decision making 118
6.7 Techniques for improving group decision making 119
6.8 Tools for decision making 120
6.9 Summary 120
TOPIC 7: INFORMATION MANAGEMENT 122
7.2 The link between decision making and information 123
7.3 What is an information system 124
7.4 Characteristic of useful information 126
7.5 Organising information system 126
7.6 Classification of information systems 127
7.7 Developing an information system 133
TOPIC 8: ORGANISING AND DELEGATION 140
8.2 Organising, organisation, and organisational structure 140
8.3 Reasons for organising 141
8.4 The process of organising 141
8.5 Principles of organising 142
8.6 Authority 143
8.7 Organisational design 145
8.8 Job design 145
8.9 Delegation 148
TOPIC 9 - ADDENDUM 621 (A): CASE STUDY FOR TUTORIAL DISCUSSION 150
TOPIC 10 - ADDENDUM 621 (B): ASSIGNMENT QUESTIONS 151
TOPIC 11 -- ADDENDUM 621 (C): TYPICAL EXAMINATION QUESTIONS 152
TOPIC 12 - ADDENDUM 621 (D) TYPICAL EXIMINATION MEMO 160
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SECTION A: PREFACE
1. WELCOME
Welcome to the Faculty of Business and Management Sciences at Richfield Graduate Institute of
Technology. We trust you will find the contents and learning outcomes of this module both interesting
and insightful as you begin your academic journey and eventually your career in the business world.
This section of the study guide is intended to orientate you to the module before the commencement
of formal lectures.
The following lectures will focus on the common study units described:
SECTION A: WELCOME
Study unit 1: To teach students how to paraphrase and to reference using the Harvard Lecture 1
method of referencing.
Study unit 2: To teach students how to paraphrase and to reference using the Lecture 2
Harvard method of referencing.
2. TITLE OF MODULES, CODE, NQF LEVEL, CREDITS & MODE OF DELIVERY
1st Semester
Title of the Module: Business Management 621

Code: BMN 621
NQF Level: 6
Credits: 10
Mode of Delivery: Contact / Distance
3. PURPOSE OF MODULE
3.1 Business Management 621
To develop the student’s knowledge relating to an intermediate level of management skills in the
business organisation. In addition, students will be able to interpret and compare the different
components of management in the business environment.
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4. LEARNING OUTCOMES
On completion of these modules the student will be able to:
• Expound the major challenges faced by management in South Africa, Africa and abroad
• Analyse how environmental forces cause management theory to evolve over time
• Propose ways in which management can prepare their organisations for environmental changes
• Recommend different approaches’, tools and techniques that can be used when formulating a
strategic plan
• Explain the nature and importance of planning – including goal formulation – as a management
function
• Recommend tools for decision – making under the various decision making
• Explain how a management information system can support decision- making
• Expound on the importance of organizing in attaining the organization’s goal
5. METHOD OF STUDY
The sections that must be studied are indicated under each topic. These form the basis for tests,
assignments, and examination. To be able to do the activities and assignments for this module, and to
achieve the learning outcomes and ultimately to be successful in the tests and examination, you will
need an in-depth understanding of the content of these sections in the learning guide and prescribed
book.
To master the learning material, you must accept responsibility for your own studies. Learning is not
the same as memorising. You are expected to show that you understand and can apply the
information. Use will also be made of lectures, tutorials, case studies and group discussions to present
this module.
6. LECTURES AND TUTORIALS
Learners must refer to the notice boards on their respective campuses for details of the lecture and
tutorial timetables. The lecturer assigned to the module will also inform you of the number of lecture
periods and tutorials allocated to a particular module. Prior preparation is required for each lecture
and tutorial. Learners are encouraged to actively participate in lectures and tutorials to ensure success
in tests, assignments, and examinations.
7. NOTICES
All Business Management 621 notices will be uploaded on Moodle (e.g., change of test dates, tutorials,
meetings etc.). Students are advised to visit Moodle daily.
8. PRESCRIBED & RECOMMENDED MATERIAL
8.1 Prescribed Textbook

Smit, P. 2021. Management Principles: A Contemporary Edition for Africa .7th Ed. South Africa: Juta and
Company.
8.2 Recommended Material

Erasmus, B. J. 2019. Introduction to Business Management. 11th Ed South Africa. USA: Oxford University
Press.
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Louw, L. 2019. Strategic Management “Towards sustainable strategies in Sustainability in Southern
Africa. 4th Ed. Cape Town: Oxford University Press.
Smit, P. 2016. Management Principles: A Contemporary Edition for Africa. 6th ed. Cape Town: Juta
Publishers
8.3 Recommended E-books

Note: E-books are accessible via Moodle under libraries
https://link.springer.com/book/10.1007/978-3-658-11229-5
8.4 Independent Research:

The student is encouraged to undertake independent research
8.5 Library Infrastructure

The following services are available to you:
• Each campus keeps a limited quantity of the recommended reading titles and a larger variety of
similar titles which you may borrow. Please note that learners are required to purchase the
prescribed materials.
• Arrangements have been made with municipal, state, and other libraries to stock our
recommended reading and similar titles. You may use these on their premises or borrow them if
available. It is your responsibility to safe keeps all library books.
• Richfield Graduate Institute of Technology has also allocated one library period per week as to assist
you with your formal research under professional supervision.
• Richfield Graduate Institute of Technology has dedicated electronic libraries for use by its learners.
The computers laboratories, when not in use for academic purposes, may also be used for research
purposes. Booking is essential for all electronic library usage.
9. ASSESSMENT
Final Assessment for this module will comprise two CA tests, an assignment, and an examination. Your
lecturer will inform you of the dates, times, and the venues for each of these. You may also refer to the
notice board on your campus or the Academic Calendar which is displayed in all lecture rooms.
9.1 CA Tests
There are two compulsory tests for each module (in each semester).
9.2 Assignment
There is one compulsory assignment for each module in each semester. Your lecturer will inform you
of the Assessment questions at the commencement of this module.
9.3 Examination
There is one two-hour examination for each module. Make sure that you diarize the correct date, time,
and venue. The examinations department will notify you of your results once all administrative matters
are cleared and fees are paid up.
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The examination may consist of multiple-choice questions, short questions and essay type questions.
This requires you to be thoroughly prepared as all the content matter of lectures, tutorials, all
references to the prescribed text and any other additional documentation/reference materials are
examinable in both your tests and the examinations.
The examination department will make available to you the details of the examination (date, time, and
venue) in due course. You must be seated in the examination room 15 minutes before the
commencement of the examination. If you arrive late, you will not be allowed any extra time. Your
learner registration card must be always in your possession.
9.4 Final Assessment
The final assessment for this module will be weighted as follows:
CA Test 1
CA Test 2 40%
Assignment 1
Examination 60%
Total 100%
9.5 Key concepts in assignments and examinations
In assignment and examination questions you will notice certain key concepts (i.e., words/verbs) which
tell you what is expected of you. For example, you may be asked in a question to list, describe,
illustrate, demonstrate, compare, construct, relate, criticize, recommend, or design information /
aspects / factors /situations. To help you to know exactly what these key concepts or verbs mean so
that you will know exactly what is expected of you, we present the following taxonomy by Bloom,
explaining the concepts and stating the level of cognitive thinking that these refer to.
Competence Skills Demonstrated

Knowledge Observation and recall of information
Knowledge of dates, events, places
Knowledge of major ideas
Mastery of subject matter
Question
Cues
list, define, tell, describe, identify, show, label, collect,
Examine, tabulate, quote, name, who, when, where, etc.
Comprehension Understanding information

Grasp meaning
Translate knowledge into new context
Interpret facts, compare, contrast
Order, group, infer causes
Predict Consequences Question
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Cues
summarize, describe, interpret, contrast, predict, associate,
distinguish, estimate, differentiate, discuss, extend
Application Use information

Use methods, concepts, theories in new situations
Solve problems using required skills or knowledge
Questions
Cues
apply, demonstrate, calculate, complete, illustrate, show,
solve, examine, modify, relate, change, classify, experiment, discover
Analysis Seeing patterns

Organization of parts Recognition of
hidden meanings Identification of
components
Question
Cues
analyse, separate, order, explain, connect, classify,
arrange, divide, compare, select, explain, infer
Synthesis Use old ideas to create new ones

Generalise from given facts
Relate knowledge from several areas
Predict, draw conclusions
Question
Cues
Combine, integrate, modify, rearrange, substitute, plan, create,
design, invent, what if? compose, formulate,
prepare, generalize, rewrite
Evaluation Compare and discriminate between ideas

Assess value of theories, presentations Make choices based
on reasoned argument Verify value of evidence recognize
subjectivity
Question
Cues
assess, decide, rank, grade, test, measure, recommend,
convince, select, judge, explain, discriminate, support, conclude,
compare, summarise
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10. WORK READINESS PROGRAMME (WRP)
To prepare learners for the world of work, a series of interventions over and above the formal
curriculum, are concurrently implemented to prepare learners.
These include:
• Soft skills
• Employment skills
• Life skills
• End –User Computing (if not included in your curriculum)
The illustration below outlines some of the key concepts for Work Readiness that will be included in
your timetable.
SOFT SKILLS LIFE SKILLS

Time Management Manage Personal Finance
Working in Teams Driving Skills
Problem Solving Skills Basic Life Support & First
Attitude & Goal Setting Aid
Etiquettes & Ethics Entrepreneurial skills
Communication Skills Counselling skills
WORK READINESS
PROGRAMME
EMPLOYMENT SKILLS
CV Writing
Interview Skills
Presentation Skills
Employer / Employee Relationship
End User Computing
➢ Email & E-Commerce
➢ Spread Sheets
➢ Data base
➢ Presentation
➢ Office Word
It is in your interest to attend these workshops, complete the Work Readiness Logbook and prepare
for the Working World.
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11. WORK INTEGRATED LEARNING (WIL)
Work Integrated Learning forms a core component of the curriculum for the completion of this programme.
All modules which form part of this qualification will be assessed in an integrated manner towards the end
of the programme or after completion of all other modules.
• Completion of all tests & assignment
• Success in examination
• Payment of all arrear fees
• Return of library books, etc.
• Completion of the Work Readiness Programme.
Learners will be fully inducted on the Work Integrated Learning Module, the Workbooks & assessment
requirements before placement with employers.
The partners in the Work Integrated Learning are the same as the Work Readiness Programme (WRP):
Good luck and success in your studies…
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INTERACTIVE ICONS USED IN STUDENT GUIDES
Writing Activity
Learning Outcomes Study Read
Think Point Research Glossary Interactive Questions
Review Questions Case Study Questions and Answers Group work
Web Resource
Multimedia Resource
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TOPIC 1
THE NATURE OF MANAGEMENT
After studying this topic, you should be able to:
• Analyse the important role that business organisations

play in modern economy.
• Expound the components that make up the management
process.
• Evaluate the different levels and kinds of management in
an organisation.
• Examine managerial roles performed by managers
• Evaluate the managerial skills needed at the different
levels of management
• Recommend ways in which to master management skills
and competencies
• Analyse the major challenges faced by management in
South Africa, Africa and abroad
1.1 INTRODUCTION
Organisations acquire human, financial, physical and information resources to produce a product or
render a service for which there is a need in society. Society depends on business organisations that
satisfy the complex needs of society. Government organisations such as hospitals and clinics provide
health care; the South African Police Services provide protection against crime; and municipalities
provide water and electricity.
Non-profit organisations also help to satisfy society’s needs.
1.2 THE ROLE OF BUSINESS ORGANISATIONS IN A MODERN SOCIETY
All the organisations, whether private of state provide for the complex needs of society through the
utilisation of resources, namely:
• People (human resources with specific knowledge, skills, abilities and so on)
• Money (capital of financial resources)
• Raw materials (physical resources)
• Knowledge (information resources)
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Different combinations of these resources produce different products and services to meet the needs
of society.
Critically analyse the role of business in the society.
Managers follow a specific process to reach the organisation’s mission and goals. All managers,
regardless of their skills or the level at which they are involved, perform four fundamental
management functions:
• Planning
• Organising
• Leading
• Controlling.
The fundamental functions of a manager link up in a specific sequence to form a process, which
comprises planning, organizing, leading, and controlling.
Table 1.1: Basic resources of an organisation
Organisation Human resources Financial Physical Information

resources resources resources
University of Lectures and State subsidies, Buildings, Expertise in
South Africa administrative investment libraries, lecture distance learning,
staff income, student rooms, research reports,
fees computers, annual reports
conferencing
equipment
Toyota South Managers, Shareholders, Assembly plants, Market trends,
Africa engineers, loans, profit buildings, environmental
technicians, equipment, information,
administrative computers statistics, skills in
staff, workers car manufacturing
City Council of Engineers, jurists, Municipal taxes, Buildings, power Statistics on
Tshwane town planners, fines, fees stations, urban population,
technical and waterworks, annual reports,
administrative pipelines, vehicles budgets, expertise
staff, councillors in town
management
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Joe’s Bicycle Shop Owner manager, Owner’s equity, Counters, shelves, Knowledge of
members of profits, loans tools, equipment models, price,
family, labourer lists
Source: Smith, et al. (2013:7)
1.3 COMPONENTS OF THE MANAGEMENT PROCESS
Figure 1.1 illustrates the process as a logical sequence of decisions performed managers. It is
meaningless to perform the four management functions in any other sequence, since managers
cannot decide to do something before:
• they know what must be done.
• they cannot order a job to be done before they decide how it should be done.
• and they certainly cannot control the results before the order has been given.
Organising
Performance
Resources
Achieve
Planning goals
Human Leading Products
Financial
Services
Physical
Productivity
Information
Profit
Controlling
Figure 1.1: The four fundamental management functions

Depict and discuss the components that make up the

management process. Support your answer with suitable
examples.
It is important to realize that the functions of management do not occur in a tidy step-by step
sequence. Managers do not plan on Mondays, organize on Tuesdays, lead on Wednesdays, control
on Thursdays, and take corrective action on Fridays. At any given time, a manager is likely to be
engaged in several management functions simultaneously. However, to simplify the complex process
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of management, it is depicted in a model. The solid lines indicate how, in theory, the functions of
management are performed. The dotted lines represent the true reality of management.
The external environment
Planning (Part II)

Managers determine the organisation’s vision, mission,
and goals and decide on a strategy to achieve them
Organising (Part lll)

Controlling (Part V) Manager’s group activities
Managers monitor progress together, establish authority,
and take corrective steps to allocate resources, and
reach the mission and goals delegate
Leading (Part IV)

Managers direct and motivate members of the
organisation to achieve the mission and goals
Figure 1.2 The interactive nature of the management process

1.4 A DEFINITION OF MANAGEMENT
Follow from the above introductory remarks about (1) how organisations try to satisfy the ever-
changing needs of society (2) by utilizing its scarce resources as productively as possible and (3)
through decisions made by its managers, management can now be described as the process of
planning, organizing, leading, and controlling the scarce resources of the organisation to achieve the
organisation’s mission and goals as productively as possible. A concise description of each of the
fundamental management functions will further explain the concept of management and the nature
of the management process.
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Planning is the management function that determines where the organisation wants to be in future:
in other words, its vision, mission, and goals. A car manufacturer may see its future in the
manufacturing of eco-friendly cars that are able to drive themselves.
The manufacturer then must identify ways (called ‘strategies’) in which it can reach its mission and
goals, and find the resource needed for this challenging task. The plan to manufacture eco-friendly
cars that drive themselves is called a strategic plan. Strategic plans are made by top management. In
large organisations, such as Toyota, long-term plans of five to ten years mean that management could
(and often does), commit billions of rands to achieve a certain future position. Strategic plans are
translated into tactical plans. Tactical plans are made by functional managers (such as financial,
human resources, research and development, marketing, and operations managers) to support the
organisation’s strategic plan.
Tactical plans are translated into operational plans. Operational plans are made by lower management
(often called ‘first-line’ or ‘supervisory management’) and these are shorter term plans which might
have daily, weekly, and monthly schedules.
Organizing is the second step in the management process. Once the goals and plans have been
determined, management must allocate the organisation’s human and other resources to relevant
departments or sections. Tasks, roles, and responsibilities must be defined to ensure that each person
knows what he or she is responsible for within the organisation. Thus, organizing involves the
development of a framework or organizational structure to indicate how and where people and other
resources should be deployed to achieve the set goals.
The success of an organisation lies in directing the various resources towards the achievement of a
common set of goals. The better these resources are organized and coordinated, the more successful
the organisation will be. Because organisations have different missions, goals, and resources, it stands
reason that each one should have its own organizational structure to accommodate its needs.
Management must match the organisation’s structure to its strategies. This process is called
‘organisational design’.
Leading refers to directing the human resources of the organisation and motivating them in such a
way that they will be willing to work productively to reach the organisation’s mission and goals.
Managers are responsible for getting things done through other people – they collaborate with their
superiors, peers, and subordinates, with individuals and groups, to reach the goals of the organisation.
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Leading the organisation means making use of influence and power to motivate employees to achieve
organizational goals.
Controlling means that managers should constantly make sure that the organisation is on the right
course to reach its goals. The aim of control is therefore to monitor actual results against planned
results. For instance, an organisation might have as one of its goals (planned result) plans to increase
its sales by ten per cent within one year.
However, after the first three months, management determines that the organisation’s sales have
declined (actual result) by two per cent. Management then must rectify the deviation in order to
control the performance. To do this, management may decide to appoint more sales managers, give
discounts to certain clients or it may even decide to adapt its goals.
The management process – obviously including the four management functions – is performed by
managers at all levels of the organisation (top, middle and lower management) and in all departments
and sections of an organisation. However, the complexity of the decisions made by top, middle and
lower management differs considerably. These differences will be looked at briefly.
1.5 DIFFEFENT LEVELS AND KINDS OF MANAGEMENT IN THE ORGANISATION
Against the background of the explanation of management, the term ‘manager’ is used to include
anyone who carries out the four fundamental functions of management, namely planning, organizing,
leading, and controlling. The four management functions must be performed in all organisations, but
managers are responsible for different departments; they work at different levels and deal with
different challenges.
Managers are usually classified into two categories:
• According to their levels in the organisation (the top, middle, and lower or first-line managers)
and
• By the functional or specialist area of management for which they are responsible (the functional
managers). Figure 1.3 (p.30 below) indicates how managers within an organisation can be
differentiated according to level and functional area.
1.5.1 Top management
Top management represents the relatively small group of managers who lead the organisation and
with whom the final authority and responsibility rests for performing the management process
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successfully. This level of management comprises, for example, the board of directors, partners, the
managing director, chief executives, as well as management committees (consisting mainly of
members of top management). Top management is usually responsible for the organisation, as well
as for determining its vision, mission, goals, and overall strategies of the entire organisation. Top
management is concerned mainly with long – term planning, designing the organisation’s broad
organizational structure, leading the organisation (through the top executive), and monitoring
(controlling) its overall performance.
Web Resource
The annual reports of organisations usually depict the topic management structure of the organisation.
You can access many of these reports on each organisation’s website, such as:
www.kumbaresources.co.za www.edcon.co.za
1.5.2 Middle management
Middle management is responsible for specific departments of the organisation and is primarily
concerned with implementing the strategic plan formulated by top management. Middle
management normally includes the functional heads, such as the financial manager, marketing
manager, the purchasing manager, and the human resources manager. Middle management is
concerned with the near future and is therefore responsible for medium-term planning, organizing
functional areas, leading by means of the departmental heads, and controlling the management
activities of the middle managers’ own departments.
Middle managers also continually monitor environmental influences that may affect their own
departments. The head of the finance department must monitor the environment for possible
changes in tax legislation; the marketing manager must monitor the environment for possible new
competitors that may enter the market; the human resource manager must be aware of competitors
that may enter the market; the human resource manager must be aware of changes in legislation
regarding overtime work, while the operations manager must be aware of new technologies that
could replace old machines in the future.
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1.5.3 Lower/first-line management
Lower or first-line management is responsible for even smaller segments of the organisation, namely
the different sections within an organisation. The marketing department, for instance, could be
subdivided into the product design section, the marketing communication section, and so on. Lower
management also includes supervisors or foremen. Mining companies such as Kumba Resources refer
to their first-line managers as ‘supervisors’.
First-line managers deal with the monthly, weekly, and daily management of their sections. They must
ensure that the plans made by middle managers are implemented. For example, the operations
manager in a manufacturing plant may have a goal to replace all the old machines and equipment
with more environmentally friendly ones within three years; the first-line managers will then have to
ensure that monthly, weekly, and daily plans are in place to ensure proper maintenance of the old
machines for the following three years.
The primary concern of a supervisor is to apply policies, procedures, and rules to achieve a high level
of productivity in his/her section, to provide technical assistance, to motivate subordinates, and to
ensure that the section’s goals are reached. First-time managers typically spend a large portion of
their time supervising the work of subordinates. Because of this, first-line management holds the
power to increase or decrease the productivity of most organisations.
For the sake of clarity and convenience, we have distinguished only three levels of management.
Obviously, the size of an organisation plays an important role in the number of levels encountered in
practice. This is because one person can manage only limited number of people, a consideration that
will be discussed in more detail later. A one-person business, therefore, has only one level of
management and the owner embodies top, middle, and lower management. However, large
organisations with thousands of employees have many more levels of management. We shall deal
with this issue in greater detail, in the discussion of the organizational structure.
Although we have distinguished different levels of management, the four fundamental functions of
management are still performed at each level of management, but in different combinations. The
time spent on the different management functions can also differ from one organisation to another
or between different industries.
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Identify the organization of your choice and analyse the
fundamental functions of managers in relation to the three levels
reflected above.
1.6 AREAS OF MANAGEMENT
Another factor that influences the classification of managers is the type of activity they manage.
Almost all organisations will have a general manager, as well as marketing, finance, human resource,
and operations (production) managers. Organisations in the mining industry will also have safety,
health, and environment managers (SHE). A pharmaceutical company may have a research and
development manager. Some organisations, especially larger ones, may have public relations
managers.
The general manager focuses on the entire organisation. He or she is responsible for providing
direction to the entire organisation. The general manager of boutique hotel must decide on strategic
issues that impact the entire organisation. A decision to expand the facilities of the hotel will have an
impact on the financial manager; the human resources manager must also decide on a structure for
the entire organisation, must lead from the top and must monitor and control the activities of the
entire organisation.
The marketing function entails the marketing strategy by segmenting the market and determining the
target market and positioning of the organisation in relation to its competitors. The marketing
manager is also responsible for making decisions regarding the product, such as its design and
packaging, price, promotion (advertising, personal selling and so on) and distribution. The financial
manager must make decisions regarding issues such as how to finance a new project and how to invest
its funds to ensure that the organisation prospers. The financial manager is also responsible for
reporting on the financial performance of the organisation. A major challenge for a financial manager
is to manage the cash flow of the organisation.
The production or operations management functions includes that group of activities concerned with
the physical production of products, namely the establishment and layout of the production unit and
the conversion of raw materials and semi-finished products into finished products for the market.
Operations management also examines problems related to the supply of services. In Toyota’s
production plant in Durban, the production manager is responsible for, amongst other things,
ensuring that the layout of the plant is optimized and that all processes required to assemble the cars
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are well aligned. The purchasing function entails the acquisition of all products and materials required
by the business to function profitably, namely raw materials, components, tools, equipment, and, in
the case of a dealer, the inventory.
The purchasing manager must be in contact with suppliers, must be aware of new products, and must
know the prices at which goods can be bought. The purchasing manager must be a good negotiator.
He or she also must keep the inventory up to date to ensure continuity of functioning. The research
and development function are responsible for developing new products and improving old products.
This function plays a crucial role in organisations that operate in fast-changing industries, such as
information technology, communications, and the pharmaceutical industry. The human resource
function entails finding the right people for the job, training and developing them and ensuring fair
remuneration/compensation for each worker.
Finding the right people means that the human resource manager must recruit candidates, select the
best one for the job and appoint that person. In South Africa laws govern this process to the human
resource manager must be well-formed about these laws. To ensure that employees and managers
are suitably skilled, the human resource manager must ensure that a sound performance
management system is in place and that performance appraisal is done regularly and fairly. Assessing
the performance of employees helps the human resource managers to design training and
development opportunities for them.
Finally, the human resource manager must ensure fair remuneration for each employee and manager.
Remuneration is more than paying a salary. It includes other benefits such as paid annual and
maternity leave, free transport to and from work and a healthy and safe work environment. The public
relations function aims to create a favourable, objective image of the organisation and establish good
relations with those directly or indirectly concerned with the business and its products or services. In
organisations where safely is an issue, such as a mining company, one will also find a safety, health,
and environment (SHE) function.
This function is responsible for looking after the mental health of employees, such as Worker Street
and burnout, and for ensuring that programmes are in place to assist employees who may need them.
It is also responsible for managing safety in the workplace. The management of health includes
managing HIV/AIDS in the environment are ‘healthy’ places in which to work.
10
Functional managers are responsible mainly for their department’s specific managerial activities.
Financial managers, human resource managers, purchasing managers, and the other functional
managers perform the same management functions as the general manager. However, the focus and
time horizons that their planning, organizing, leading, and controlling decisions cover differ from
those of the general manager. The general manager focuses on the long-term success of the entire
organisation; a functional manager focuses on their own department’s performance.
1.7 THE ROLE DISTRIBUTION OF MANAGERS
During their work, managers are required to perform certain roles in addition to the management
functions. Henry Mintzberg, a famous management theorist, has studied the activities of a group of
managers and came to the conclusion that managers play about ten different roles, which, can be
classified into three overlapping groups, namely an interpersonal role, an information role, and a
decision-making role. As far as the interpersonal role is concerned, three groups of activities can be
distinguished.
Firstly, all managers must perform duties that are ceremonial and symbolic in nature. When the mine
manager of platinum mine delivers a speech at the opening of a new mine, he or she acts as a
figurehead for the mine. The supervisor who takes the attendees on a tour of the plant after the
opening is also acting in a figurehead role. Second, all managers have a role to play as a leader. This
role includes motivating employees and dismissing employees who do not perform. The third role
within the set of interpersonal roles is liaison, which aims at maintaining good relations within and
outside the organisation. In a production plant, the maintenance manager must make continual
contact with the production manager to ensure proper maintenance of the equipment; the
maintenance manager must also make contact with outside suppliers of the equipment used in the
maintenance process to ensure availability.
The managers’ information role enables them to obtain information from colleagues, subordinates,
and department heads, as well as outside stakeholders, which they can use to make sound decisions.
This information role of the manager involves monitoring or gathering information on trends and
passing on relevant information to colleagues, superiors, and subordinates. The manager is, therefore,
a vital link in the organisation’s communication process. The manager’s information role also entails
acting as a spokesperson for the department or for the organisation.
The third set of managerial roles is grouped into what is known as the decision-making role. A manager
is regarded as an entrepreneur, using the information that he or she obtain to identify new business
11
opportunities or threats. Secondly, in this decision-making role, a manager also must deal with and
solve problems such as how to improve on low productivity, which actions to take to minimize the
chances of strikes, and which departments to restructure.
Thirdly, managers must make decisions about the resources available to the organisation. Resource
allocation, or deciding to whom resources such as money, people, and equipment are to be assigned,
is often a critical management decision. In their role as negotiators, managers often must negotiate
with individuals, other departments or organisations, and trade unions about goals, standards of
performance, and the allocation of resources. The role distribution framework is especially useful in
explaining why managers cannot move systematically from planning, to organizing to leading and
ultimately to controlling. The volatility of their environment requires a more flexible managerial style.
Interpersonal role
Figurehead
Leader
Relationship builder
Decision-making role Information role

Entrepreneur, Problem solver, Monitor
Allocator of resources, Negotiator Analyser
Spokesperson
Figure 1.3 The overlapping role distribution of managers

1.8 MANAGERIAL SKILLS AND COMPETENCIES AT VARIOUS MANAGERIAL LEVELS

Although management is found at all levels and in all departments and sections of an organisation,
the management skills required at the different levels (top, middle and lower management levels)
differ. Figure 1.6 depicts the different skills needed at top management level, versus those required
at middle and lower-level management. It also shows how these skills differ from the dominant skills
required by non-managers (workers).
The three major skills needed by managers at all levels and in all departments and sections of an
organisation are:
• Conceptual
• Interpersonal
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• Technical
The following three main skills are identified as prerequisites for sound management. Conceptual skills
refer to the mental ability to view the organisation and its parts holistically. Conceptual skills involve
the manager’s thinking and planning abilities to ensure that the organisation is prepared for the
future. They also include the manager’s ability to think strategically about the organisation and how
it will exploit opportunities and minimize threats cause by a changing business environment.
Interpersonal skills refer to the ability to work with people. It stands to reason that if managers spend
about 60 per cent of their time working with people, a manager should be able to communicate
clearly, understand people’s behaviour, resolve conflict, optimize diversity, and motivate both groups
and individuals. Technical skills refer to the ability to use knowledge or techniques of a specific
discipline to reach specific goals.
Knowledge of accountancy, or engineering, or currency trading is an example of a technical skill that

can be used to perform a task. A manager at a lower level required a sound knowledge of those
technical activities (such as accounting) that he or she must supervise. The time spent on technical
activities decreases, however, when a first-line manager gets promoted to a middle management
position.
13
Figure 1.4 Managerial skills needed at various managerial levels
The major difference between non-managers and managers is the shift from technical skills to
interpersonal and conceptual skills. Promotion from the non-manager level – where technical
expertise is essential – to the lower and even middle management level is often the result of high
achievement based on technical ability.
An engineer who is excellent in his job as engineer – and promoted to a management position purely
because he or she is a good manager. This is often the case in South Africa because of the severe
shortage of suitably skilled managers. Because of this, new managers often mistakenly continue to
rely on the technical skills with which they are familiar, rather than on interpersonal skills to deal with
involve communication skills, motivation and negotiation skills and the skills to deal with conflict in
the workplace.
It is, therefore, essential that management training be provided to non-managers when they are
promoted to managerial positions. A recent approach to defining to manager’s job and the
competencies needed to do the job focuses on what a manager must be able to do in the workplace
– rather than what he or she needs to know or simply the skills that are required to do the job. This
competency – based approach to defining a manager’s job forms the basis of the Management
Charter Initiative (MCI), which originated in the United Kingdom (UK). Based on an analysis of
management functions and focusing on what effective managers should be able to do (rather than
what they should know), the MCI sets generic standards for management competence at first-line,
middle, and top management levels. For each area of competence in the MCI there is a related set of
specific standards that defines effectiveness in that area. For instance, one area of competence at
middle management level is: ‘… to initiate and implement change and improvement in services,
products, and systems….’. The MCI standards are attracting global interest and the developers of the
MCI believe that the standards can be applied to management jobs worldwide and in any industry.
A competency refers to the relevant (1) knowledge, (2) skills, and (3) value orientation that are
required to do the job of a manager. A manager is considered ‘competent’ if he or she can apply these
in a work situation. To learn more about SAQA and the NQF, you should visit the following website:
www.saqa.org.za
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Is South Africa the National Qualifications Framework (NQF), through the work of standards
generating bodies (SGBs), defines management competence in terms of eight levels of competence.
(These eight levels have recently been changed to ten.) Each level clearly specifies what a manager
must know, what the skills are that the manager must have, and what value orientation the manager
must have to be declared ‘competent’ at that level. ‘Competent’ means that the manager must
demonstrate that he or she can apply the competence in a work situation. Level eight was the most
advanced level of competence on the old NQF. Level 10 become the most advanced level of
competence on the new NQF.
1.8.1 The difficult transition from non-manager to manager
New managers often mistakenly continue to rely on technical skills rather than concentrating on
management skills. Indeed, some people fail to become managers at all because they let technical skills
take precedence over interpersonal skills. Consider George Mthombeni, who has a bachelor’s degree
and has worked for five years as a computer programmer for a motor manufacturer. In four short years,
he has more new software programs to his credit than anyone else in the department. He is highly
creative and widely respected for his programming skills.
How can managers acquire management functions, roles

and skills in order to run the operations of an organisation
at any level in the organisational hierarchy?
However, George is impulsive and has little tolerance for whose word is less creative, He does not
offer to help co-workers, and, because of this, they are reluctant to ask. George is also slow to
cooperate with other departments in meeting their needs, because he works primarily to enhance his
own software-writing ability. He spends evenings and weekends working on his programmes. George
is a hard-working programmer, but he sees little need to interact with his colleagues.
George received high merit increase but was passed over for promotion to a management position
and does not understand why. His lack of interpersonal skills, lack of consideration for co-workers,
and failure to cooperate with other departments severely limit his potential as a supervisor. George
has great technical skills, but his interpersonal skills are simply inadequate to make the transition from
worker to supervisory management level.
15
1.8.2 Stress in the workplace
Business owners across the world, including South Africa, were asked about the major cause of
workplace stress. The most common cause globally during 2009 was the economic climate with 38%
of respondents globally citing this as one of their major causes of stress. This was followed by pressure
on cash flow (26%), competitor activities (21%) and heavy workload (19%).
Web Resource
For further insight on the subject matter, you can go to

http://www.moneyweb.co.za/mw/view/mw/en/page292681?oid=481724&sn=2009%20Det ail.
The previous discussion on the different skills and competencies that managers must be understood
against the background of the specific environment in which a manager works. It is probably true to
say that manager’s experience more pressure today than in the past, and therefore need
supplementary skills to deal with situations. In the 1960 organisations queued for the service of
graduates, such as MBAs graduates. However, the situation has changed profoundly.
Modern organisation finds itself in a different environment. Never have the executives been better
rewarded, but there has never been so much change in the form of new technologies, diseases to
cope with in the workplace, currency collapses, new wars, legislation, labour movements, crimes, and
corruption. Additional pressure in South Africa is caused by crime, violence, corruption, shortage of
skilled people at all levels, and a loss of investor confidence.
Managers are required to learn and educate themselves continually in many disciplines. This means
that today’ managers must prepare themselves physically, mentally, and spiritually for their tasks.
Furthermore, this calls for additional skills. Coaches and mentors, whose function will be discussed
later, play an important role in widening the range of a manager’s skills.
1.9 MANAGEMENT AND ORGANISATIONAL PERFOMANCE
It was explained in the introduction that the business organisation can be best satisfy the unlimited
needs of the society by means of the productive use of the community’s limited resources. Achieving
16
the highest possible satisfaction of needs with scarce resources is known as the `fundamental
economic principle’. The task of management in a free-market economy is to manage in such way that
the organisation makes a sustainable profit, that is, earns the highest possible income with lowest
possible costs.
In America literature on business management in particular, the productivity of management or the

performance of management has, in the past, been expressed somewhat simplistically as efficiency
and effectiveness. Efficiency means doing something right, whereas effectiveness means that the right
thing is done. However, the fact remains that the management of a business organisation operate in
the free-market economy must adhere to the economic principle and run the organisation as
productively (and therefore as profitably) as possible. Of course, this should be done with due
consideration of the social responsibility of the organisation towards the community in which it
operates, as well as the environment for which it needs to care (called the `triple bottom line,).
The term èfficiency’ and èffectiveness’ can cause major confusion and are often used
interchangeably due to lack of clarity as to what they mean. An example will hopefully help to clarify
the difference between the two. If a manufacturer manufactures the highest quality ox wagon for
commercial use in Gauteng, it can be called èfficient’ as it is `doing things right’ by delivering high-
quality products.
However, there is no need in business for an ox wagon and therefore the manufacturer is not
èffective’, meaning it is not `doing the right things with its scarce resources. Against the background
of these brief remarks about the purpose of management, management is an important
contemporary social institution. Judging by the search for improved standard of living in society world-
wide, management continues to grow in stature. There are, however, many challenges facing
management in a changing environment which make it a discipline that is constantly evolving.
1.10 THE SCOPE OF MANAGEMENT
The study of management traditionally focused on business management and, therefore, the
management of business organisations. This does not mean, however, that the practice of
management is limited to large business organisations only. Effective and efficient management
practice is equally important in smaller business organisations as well as in non-profit organisations
such as government departments, organisations, municipalities, universities and schools, sports clubs,
and even political parties. In fact, good management practice is applicable to every organisation
17
where one, two or more people work together to achieve a set of goals. The scope of management
practice is virtually unlimited and necessary to the success of all kinds and sizes of organisation.
1.10.1 Large business organisations
Any successful nation needs large business organisation with necessary resources to compete globally.
PricewaterhouseCoopers (PwC) surveyed 50 large South African companies, which include South
African Breweries, Sasol and MTN, and found that the large corporations contributed about 10% of
total taxes received by government. The 50 companies paid on average 8.7 different taxes including
corporation tax, secondary tax on companies, fuel levy, and excise and property taxes. Management
training and development is therefore imperative for large South African Business organisation
because of important role these play nationally, and internationally, to earn much needed foreign
currency for domestic development.
1.10.2 Small business organisations
Management training and development for small and medium-sized business organisation (SMEs) is
also essential for a variety of reasons. In the economically successful countries of the world, SMEs
provide as much as 85 per cent of the job opportunities and are therefore important economically.
South African SMEs need to play a greater role in the economy because their current contribution to
GDP is far less than that of similar organisation in Japan, Singapore, the USA, and other countries.
Various reasons why management training and development for small business should be apriority
are highlighted in a World Bank reports which shows that the survival rate of new business in South
Africa is low. In Asia, Latin America, and West Africa, the rate at which surviving businesses graduate
from being micro-enterprises to dynamic small and medium enterprises is, on average, 50 per cent.
In East Africa and Southern Africa, it is only about ten per cent. Improved management skills would
increase the capability of black managers and entrepreneurs and help them to deal with constraints
on business development.
1.10.3 Non-profit organisations
Although non-profit organisations such as government-subsidised universities and schools, health-

care facilities, and charity organisations may not have to be profitable to attract investors, they must
still employ sound management principles if they are to survive and achieve their goals. South Africa’s
vast new government structure, which involves a central government, nine provincial governments,
and thousands of local governments, schools, clinics, and service centres, make tremendous demands
on scarce resources and pose a real challenge to management.
18
1.10.4 Poverty in South Africa
There is direct relationship between level of education and poverty in South Africa. People with low
levels of education are much more likely to be poor than those with higher qualifications. A survey
revealed that poverty affected 66.3% of those who had no schooling and 59.9% of those who had not
completed primary schooling. By contrast, poverty was rare amongst those who had obtained a post-
matric certificate or diploma/degree: in these groups the poverty rates were 4,6% and 1,2%
respectively.
South Africa, with its desperate need to overcome poverty and improve the standard of living of its
citizens, can be successful only if it improves its level of management skills and accepts the challenges
that face management in its entire organisation.
Multiple choice questions
3.1 Managers are responsible for utilising the scarce resources of

an organisation, namely ________to ensure that the
organisation reaches its goals.
A. Peoples
B. People, finance, and information
C. Finance
D. People, finance, physical resources, information
3.2 Managers are responsible for _______.
A. The physical production of the products

B. Planning, organising, and leading
C. Ensuring that the organisation makes profit in the short
term
D. Planning, organising, leading, and controlling
3.3 Planning, organisation, leading, and controlling are called

____________.
A. Managerial roles
B. Management functions
C. 1 and 2
D. None of the above
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3.4 First National Bank has decided to close down its non-
profitable branches in the Limpopo and Mpumalanga
provinces. This is an example of a __________ decision.
A. Strategic
B. Tactical
C. Operational
D. Policy
3.5 How many of the following statements are correct:
▪ Only managers at top management level plans, organise, lead,

and control
▪ Middle managers need conceptual, interpersonal and technical
in skills order to manage professionally
▪ First-line managers are also called supervisors
▪ The dominant skills needed by a middle manager are
interpersonal skills
A. One
B. Two
C. Three
D. Four
3.6 Segmenting the market, targeting specific market segment,

and positioning the organisation are responsibilities of the
__________ manager.
A. Public relations
B. Operations
C. Marketing
D. General
3.7 Despite the managerial functions for which managers are

responsible, Mintzberg has also identified certain roles that
they must fulfil. These roles_____________.
A. Planning and interpersonal roles

B. Negotiating and information sharing
C. Interpersonal, decision-making and information sharing
D. None of the above
3.8 The latest NQF comprises ________ levels.
A. 2
B. 5
C. 8
D. 10
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3.9 Èlectricity is available to everyone, everywhere, anytime’ is an
example of a ________________.
A. vision statement
B. mission statement
C. strategy
D. policy
3.10 We produce the lowest-cost electricity to people of Southern

Africa through our extensive infrastructure’ is an example of
a______________.
A. vision statement
B. mission statement
C. strategy
D. policy
1.1 Identify the nature and size of organisation’s which typify the
scope of management in different industries as well as provide
their principle objectives.
1.2 In less than 600 words, describe what the job of a general
manager of a medium-sized hotel entail.
Read the case study below and answer the question that follows:
South African Breweries (SAB) price rule ‘sank my business’
A former wholesaler of SAB products told the Competition Tribunal

Yesterday that his business failed after just four months because he did
not know beforehand, he would be having to buy beer at the same price
as his intended customers.
Gerrie Mofokeng opened a warehouse in Springs in October 2005. It

closed in February 2006, after he had spent about R1.3m on stock and
sold it at cost to move the product, he said. Mr Mofokeng said in
response tom questioning by Competition Commission advocate Richard
Mkhabela that he became aware SAB gave all independent distributors
the same price on stock only after opening his business.
21
Ì had a huge problem when I started this business. When I got to buy
stock at SAB, I was buying with the retailers, the people I must sell to.
When I wanted to make a mark-up, it was not possible,’ he said.
His table of a would-be entrepreneur, who failed on business, rather

than anticompetitive grounds, seemed to do little to advance the
Competition Commission’s argument that SAB benefits a chosen group
of so-called appointed distributors at the expense of independents. Mr
Mofokeng had worked in the liquor business of Metro Cash & Carry for
30 years. Under questioning by SAB advocate Paul McNally SC, he gave
the impression that he had counted on the relationships built up during
that time to draw customers, even though there were suppliers closer to
Kwa Thema township, the largest local market.
Having obtained the distributor licence, rather than the retail one that
would allow him to sell beer to shebeens those accounts for 40% of the
beer drunk in SA, and unable to compete effectively with distributors
that sold a wider range, Mr Mofokeng was left without a viable business.
He wrote to SAB managing director at the time, Tony van Kralinger, in
February 2006 requesting a better price, but was told he would not get
one.
Source: www.businessday.co.za/articles/Content.aspx?id=118315
Questions:
1.1 Based on the information provided on the case study above, would
you consider Mr. Mofokeng a good manager? Provide reasons for your
answer.
2.2 What plan should Mr. Mofokeng have had in place to ensure that his
business survived in the long term?
2.3 If you were Mr. Mofokeng, on which key performance areas would
you have focused in the first few months to ensure that the business
survived?
2.4 Despite the pricing issue discussed in the case study, how could Mr.
Mofokeng have created a competitive advantage for his business?
22
TOPIC 2
THE EVOLUTION OF MANAGEMENT THEORY
• Analyse how environmental forces cause management theory

to evolve
• Expound the various classical and contingency theories

• Sketch the evolution of management theories over the past
centuries
• Defend the use of management theories in different

environments
• Defend the use of the systems approach to management

• Identify and analyse the management principles that have
stood the taste of time
• Present basic arguments regarding the relevance of the various

management theories to today’s managers is South Africa,
Africa and globally.
• Depict briefly current and near-future management realities
2.1 INTRODUCTION
This topic looks at management from the perspective of a science (basic principles), a profession (one
can learn and apply management principles), and an art (people approach management issues
differently). There is no single best way to manage, and we therefore need to look at different
management theories and how the theorists behind the – at a specific time and within a certain
environment – thought they had the answer to management issues. A closer look at the evolution of
management will place these different management theories in context.
23
2.2 WHY STUDY MANAGEMENT THEORY?
Theory is often criticised by managers because it is associated with the word ‘theoretical’ - which to
many means ‘divorced from reality’, or ‘impractical’. Business literature is abounding with theories
that contradict one another A sound theory will describe the circumstances under which it will or will
not work.
• Management theory allows the manager to predict his or her future with a degree of confidence.
• Managers can learn from the without repeating the same management mistakes.
• It provides knowledge and background of the evolution of management.
• Theories equip learners of management with additional alternatives and answers to build into
their decision making.
2.3 UNDERSTANDING THE DIFFERENT MANAGEMENT THEORIES

When studying the evolution of management theory, one should bear in mind that any science is
shaped by environmental influences. These influences will therefore be reflected in the different
theories or approaches of management experts at different times and different situations. Figure 2.1,
Smith, et al. (2013:31), shows certain environmental forces that are responsible for the evolution of
management theory, namely social, economic, technological, political, international, and ecological
forces. As these forces change, the theoretical body of knowledge of management also changes to
adjust to changing circumstances.
How do the following environmental forces shape

management though Body of theoretical knowledge?
• economic
• technological
• political
• social
• ecological
• international
For example, new technological breakthroughs in communication have caused managers to reassess
their approaches to management – approaches to work with people at arms’ lengths. In addition,
knowledge is highly portable resulting in the mobility of the workforce. Traditional /conventional
24
organisational structures cannot accommodate this type of workforce. Consequently, resulting in
more flexible forms such as network or even virtual organisation.
2.4 THEORIES OF MANAGEMENT

The theories of management can be classified into two main schools of thought, namely (1) classical
approaches and (2) contemporary approaches. At a certain point in time each of these theories was
held to be the answer to the productive attainment of the goals of an organisation. It is important to
realize, however, that no one theory dominates the field of management. Instead, the eclectic
approach – the practice of borrowing management principles from different theories as dictated by
circumstances – is the state of the art in management theory and practice today.
2.4.1 CLASSICAL THEORIES

The classical theories extend from the late 1920s. Many of these management theories developed
simultaneously; some, on the other hand, were a direct reaction to the perceived limitations of
previous approaches.
2.4.2 Scientific management school

As a supervisor at the Philadelphia MIDVAL Steel Company in the 1800s, Frederick W Taylor, a
mechanical engineer, become interested in ways to improve the productivity of workers. He studied
the work of individual workers to discover exactly how they performed their tasks. Tailor believed
that there was one best way to perform any task. He analysed each aspect of each task measured
everything that was measurable/ unnecessary physical movements that slowed down production
down were identified and eliminated, and the exact sequence of activities was determined. A
standard time for the accomplishment of each task was then determined. This allowed him to describe
performance objectives quantitatively, such as the number of units that a worker should produce per
shift. This is known as a time-and-motion study. Scientific management focused on the issue of
management – not on managing people. What are limitations of this approach?
2.4.3 The process (or administrative) approach

While scientific management focused on increasing the productivity of the work, process approach to
management grew out of the need to find guidelines for managing complex organisations such as
factories. As output increased and operations grew in these industries, organisations had to deal with
more complex problems than mere the productivity of the workers. Planning, and the organisation of
people in the workplace, became the focus of consideration. The process approach focuses on
managing the total organisation.
25
Henri Fayol, who was managing director of a large French coal-mining company, is recognized as the
greatest European pioneer. He was interested in the administrative side of operations. Fayol’s
experience led him to conclude that there were five basic functions of administration: planning,
organising, commanding, coordination, and controlling. Fayol formulated guidelines for managers to
follow. These guidelines form 14 principles for effective management.
2.4.4 Fayol’s 14 principles
1. Division of labour
2. Authority and responsibility
3. Discipline
4. Unity of command
5. Unity of direction
6. Subordinate of individual interest to the common good
7. Remuneration
8. Centralisation
9. Hierarchy
10. Order
11. Equity
12. Stability of staff 13. Initiative of staff
14. Team spirit:
2.4.5 The bureaucratic approach

The main concert of Max Weber, a German sociologist, was the more fundamental issue of how
organisations are constructed. Reasoning that any goal-oriented organisation comprising thousands
of individuals would require carefully controlled regulation of its activities, he developed a theory of
bureaucratic management that stressed the need for a strictly defined hierarch, governed by clearly
defined regulations authority. Weber’s ideal bureaucracy is based on legal authority. Legal authority
stems from rules and other controls that govern an organisation in its pursuit of specific goals.
26
Is this approach applicable to all situations in a society or
organization? Provide reason for your thought process
2.4.6 The human relations movement

The early approaches of management emphasised the technical aspect of work at the expense of its
personal aspects. The Depression of the 1930s and major changes in the economic, political, social,
and technological environments caused managers to challenge these approaches and their relevance
in the business environment. Managing people became the major issue facing managers, and
managers became more oriented to human relations and behavioural science.
Researcher Mayo and his associate decided that a complex chain of circumstances had touched off
the productivity increases observed. Management’s concern for the well-being of their subordinates
and sympathetic supervision enhanced the workers’ performance. This phenomenon was
subsequently labelled the ‘Hawthorne effect’. The studies concluded that group pressure, rather than
management demands, had the strongest influence on worker productivity. In short, employees were
more motivated by social needs than economic needs.
2.4.7 THE QUANTITATIVE MANAGEMENT THEORY

This theory deals with mathematical models, statistics, and other models, and their use in
management decision making. The quantitative school postulates that management is primarily
about ‘crunching numbers. This school argues that management decisions should be based on
quantifiable information. The quantitative perspective comprises:
▪ Management science
▪ Operations research (OP).
Management science deals with the development of mathematical models to assist managers in
decision making. Operations research is an applied form of management science that helps
managers develop techniques to produce their products and services more efficiently.
2.5 CONTEMPORARY APPROACHES

The classic approaches management, discussed above, provide the foundation for management and
organisations as they function today. These approaches responded primarily to the pressing issues of
their times, particularly the need for internal efficiency. They took a simplistic view of the
27
organisation, however, ignorant the broader role of the organisation in its environment. This
environment became increasingly turbulent after World War II and managers realized that, to survive,
they had to take the business environment into consideration in their management decisions. The
following are the contemporary approaches: system approach, contingency approach, and total
quality management.
2.5.1 The systems approach

The system approach to management developed in the 1950s. This approach compensated for the
two main limitations of the classical approaches – first, that they ignored the relationship between
the organisation and its environment and, second, that they focused on specific aspects of the
organisation at the expense of other considerations. To overcome these deficiencies, management
scholars based their conceptions of organisations on a general scientific approach called systems
theory.
The systems school of thought views an organisation as a group of interrelated parts with a single
purpose: to remain in balance (equilibrium). The action of one part influences the other parts and
causes imbalance.
The open system perspective of an organisation depicts the organisation as a system that comprises
four elements:
▪ Input (resources.
▪ Transformation process (managerial processes, systems, and so on)
▪ Outputs (products or services)
▪ Feedback (reaction from the environment).
What can organisations do to optimize decision making when

they apply the contingency school of thought?
2.5.2 The contingency approach

The contingency school of thought is based on the systems approach to management. The basic
premise of the contingency approach is that the application of management principles depends on
the situation that management faces at a given point in time. There is no single best way to manage.
A method highly effective in one situation may not work in another. Management must decide
28
whether to use the principles of the scientific, bureaucratic, administrative, behavioural, or
quantitative approaches – or even a combination of these. The characteristics of the situation are
called ‘contingencies’, and they can be used in helping managers identify the situation.
External Organisation's
environment capabilities
Most suitable
management
approach
Managers and
workers Technology
Figure 2.1: Major contingencies

Source: Smit, et al. 2013: 42
2.6 TOTAL QUALITY MANAGEMENT

Today, a quality revolution is taking place in the business world. The term that has evolved to
describe this evolution is ‘total quality management’ (TQM). It was inspired by a small group of
quality experts, the most prominent of them being W Edwards Deming. According to Deming, a
well-organised organisation was one in which statistical control reduced variability and resulted in
uniform and a predictable quantity of output. TQM encompasses employees and suppliers, as well
as the people who buy the organisation’s products and services. The goal is to create an organisation
committed to continuous improvement bit is essentially about creating learning organisations and
promoting an intrinsic motivation for learning instead of merely relying on extrinsic punishments
and rewards.
Analyse how can TQM be used as a strategic weapon to build

a competitive advantage.
29
Web Resource
For further insight about TQM and six sigma go to http://www.qualityamerica.com
2.6.1 The learning organisation

“The fifth discipline: The art and practice of the learning organisation”, contributed a great deal in
this approach. The learning organisation is a management approach that is also based on the systems
approach to management. In many ways Senge’s work is a direct offshoot of Deming’s work on quality
management, which was discussed earlier. A learning organisation therefore requires learning
individuals.
2.6.2 Re-engineering
Re-engineering involves a significant reassessment of what a particular organisation is all about. It
entails a fundamental reprisal of the way the organisations operate. Organisations may stagnate when
their members, including management, focus on their immediate environments – such as their jobs
and departments – rather than on the larger patterns of relationships in which they work and
influence the lives of others.
Re-engineering thus involves rethinking and redesigning the process connecting organisational
members with people, such as customers and suppliers, outside the organisation. Speed, quality of
service, and overhead costs is some of the issues that re-engineering can address. It is an ongoing
process rather than a one-off project.
2.7 CURRENT AND NEAR-FUTURE MANAGEMENT REALITIES

In the previous section we looked at some of the contemporary management approaches that are
based on the systems approach to managing. However, the current and near-future environments
pose challenges to managers that require radical new ways of dealing management issues. The fact
that new competitive advantage lies in the human assets of organisations poses unprecedented
challenges to the modern manager. Managing this source of competitive advantage requires
managers to thoroughly grasp:
30
▪ how the current and near-future environments differ from
the previous ones
▪ how today’s organisations differ from the older ones
▪ the impact of both the above and management.
Analyse some of the most pressing issues of modern times

that the environment poses to managers.
2.8 SUMMARY
This topic focused on the major approaches to management during the last century. Therefore, it
should be clear from our discussion of the evolution of management theory that this management
approaches cab be studied meaningfully only if they are seen against the dominant culture of their
time. Schools of thought ranging from classical theories to contemporary approaches, as well as near-
future realities were introduced and discussed.
The classical approaches to management put much emphasis on the internal functioning of the
organisation. Renowned figure of the scientific management approach which looked inter alia at the
best way to complete production tasks was Taylor. Today managers need an eclectic approach to
managing the contemporary, flexible organisation. They need to take from different theories what is
still relevant today and unique of managing. This is particularly evident when one looks at current and
near-future realities that may require radically new management approaches.
The human relations approach as well as the behavioural science approach focused on the worker,
groups, and organisational processes as a possible solution to the productivity problem. The
quantitative management approach developed because of the intervention of computers and enabled
experts to apply mathematical techniques to management problems. The contemporary /systems
approaches have developed since the World War II. The interaction between the external
environment and the organisation became the focus of the systems theory of management.
The contingency and the learning organisation approach to management is based on the systems
approach. The contingency determines the best way on how to manage whereas the learning
approach stresses lifelong learning, scrutinising our mental models, sharing the vision for the
31
organisation and active dialogue within the organisation. Currently, managers need an electric
approach to managing the contemporary, flexible organisation. They need to tarp from the different
theories what is still relevant and finding ways of managing
Critically assess the relevance of at least five approaches

/theories to management when managing a workforce
comprising mostly of workers with little or no experience in
the building industry, working with highly skilled specialists
(such as engineers and project managers).
Frederick Taylor is known for his scientific approach to management. A

well-known example of the scientific management theory is the pig iron
experiment. Iron was loaded onto rail cars by workers - each lot
weighing 92 pounds (41.73 kg) and known as a ‘pig’. On average 12.5
tons were loaded onto the rail cars per day, but Taylor believed that
scientific management could be used to increase this to almost 48 tons
per day. Through experimenting with various producers and tools Taylor
achieved this as follows:
• He carefully matched each of the jobs to each of the

workers’ skills and abilities.
• He provided the workers with the correct tools.
• He provided workers with clear instructions about how

to do each job.
• He then created worker motivation by providing a

significantly higher daily wage.
It is believed that through the use of scientific management Taylor

increased productivity on the shop flow by almost 200 per cent.
Source: Smit, et al. (2013: 54)
Questions:
1. What are the main advantages and disadvantages of the

scientific approach to management for a business organisation
operating in a volatile business environment?
32
2. Which of Taylor's viewpoints regarding management are still
appropriate to use in a modern business organisation?
3. Criticise Tylor’s approach to management from a humanistic

perspective.
33
TOPIC 3
MANAGING IN A CHANGING ENVIRONMENT
• Convince an inexperienced manager of the importance of

considering the business environment when making
management decisions
• Depict diagrammatically and explain the concepts of the
system approach to management
• Examine the main characteristics of the business
environment
• Depict diagrammatically and discuss the macro, market,
and micro-environments, and the variables that comprise
each of these
• Evaluate uncertainty in the environment in terms of the
extent of change and the level of its complexity
• Propose ways in which management can prepare for
environmental changes
3.1 INTRODUCTION
This topic describes and explains the ever-changing environment in the business organisations have
to survive. These changes could either pose a major opportunity for the business organisation to
exploit, or they could pose a threat to the existence of the business. Because the business
environment constantly changes, management can not merely repeat what they did in previous years
to be successful. Therefore, this topic provides some insight in dealing and responding to
environmental changes.
3.2 CONCEPTS OF SYSTEMS THEORY
The organisation as a subsystem of its environment

The system theory was first developed from physics, and management borrowed concepts of this
theory to explain the interdependence between the business and the organisation. Smit et al.
(2013:61) defines a system as a set of interrelated elements {sub-systems) functioning.
3.3 THE COMPOSITION OF THE BUSINESS ENVIRONMENT
The importance and influence of environmental change on the successful management of the
organisation cannot be understated and have changed the organisational landscape forever. These
instabilities increased the need for managers to study environmental influence and change.
34
Management environment is defined as all those factors, both inside and outside the organisation
that may influence the continued and successful existence of the organisation.
The components of the business environment consist of:

• Micro-environment
• Market environment
• Macro-environment
Main characteristics of the management/business environment

To understand the complexity of the business environment one needs to understand its principal
characteristics. These characteristics comprise:
• The interrelatedness of environmental factors or variables.
• Increasing instability.
• Environmental uncertainty.
• The complexity of the environment.
• The environment is becoming unpredictable.
3.4 THE INTERNAL OR MICRO-ENVIRONMENT
The micro-environment consists of the organisation itself, and management has almost complete
control by applying the management functions.
The variables in this environment are as follows:
• The vision, mission, goals, and organisational strategies
• The structure of the organisation
• Various management functions
• The resources of the organisation
• Organisational culture.
It is the internal environment of the organisation and is the main environment in which management
operates. The micro-environment is often depicted as a chain of activities that that must be
performed to create a product or service. This depiction of the macro environment is referred to as
the value-chain approach. According to this approach an organisation comprises (1) primary activities
and (2) secondary activities. Primary activities are those activities that lead directly to the production
35
of a product or service. On the other hand, secondary activities include all activities that support the
primary activities to ensure that the cars can indeed be manufactured.
With reference to the value-chain approach, think any product

or service of your choice and specify activities which will be
required in producing that product or service.
3.5 THE MARKET OR TASK ENVIRONMENT
The market or task environment is the one which surrounds the organisation. It forms the buffer
between the organisation and macro-environment. The key variables in the market environment
include:
• The market
• Suppliers
• Intermediaries
• Competitors
Determinants of the nature and the intensity of completion:
• Rivalry among competing firms
• Bargaining power of customers
• Bargaining power of suppliers
• Potential entry of new entrants

• Potential development of substitute products
3.6 THE MACRO-ENVIRONMENT
• The composition of the macro-environment
• The technological environment
• The economic environment
• The socio-cultural environment
• The ecological/natural environment
• The political environment
• The international environment
36
3.7 INTERFACES BETWEEN THE ORGANISATION AND ENVIRONMENT
• Environmental change and the organisation
• Uncertainty in the environment
• Crisis in the environment
3.8 WAYS IN WHICH MANAGEMENT CAN PREPARE FOR ENVIRONMENTAL CHANGES
Insight into the trends in the management/business environment and the ability to predict their
implications for decision making are becoming management priorities. The extent to which the
environment influences management of an organisation there depends primarily on the type of the
organisation and the nature of the environment. The response mainly revolves around environmental
scanning and information management.
3.8.1 Information management
For management to have knowledge of possible changes in the environment, its information
management system should make adequate provision for environmental scanning. The importance
of environmental scanning is:
• The environment is constantly changing.
• It is necessary to identify opportunities.
• To determine factors which may constitute threats
• Organisations which scan the environment are more successful than organisations which do not.
The following factors determine the extent of environmental scanning:
• The nature of environment in which the organisation operates and the demands the environment
makes on it.
• The basic relation that an organisation has with its environment.
• The source and extent of change will also influence the degree of meaningful environmental
scanning.
3.8.2 Strategic responses
Once management has an adequate information base and insight into its environment, the next logical
step is to decide on a strategic response to the change. What management might do among other
things is, to adapt an existing strategy, develop a new one or decide to do nothing at all.
37
3.8.3 Structural change
Another type of response to environmental change is to adapt or redesign an organisation’s structure.

Organisations in an environment with low level of uncertainty may, for example, maintain a
bureaucratic type of structure in which basic rules and a system of stereotyped actions are sufficient
for successful existence. In contrast, organisation that operate in an environment with a high level of
uncertainty prefer a more flexible structure with fewer levels of authority and fewer rules to deal with
environmental change more quickly.
3.9 SUMMARY
In this topic, among other things, the nature and forces in the business environment were explained
and discussed. It was indicated that an organisation functions as a system with sub-systems where
every component thereof is important for efficiency. The composition of the management/business
environment, i.e., micro, market and macro-environment were also being discussed. The discussion
concludes with ways which can be applied to deal with an ever-changing business environment.
Read the following case study and answer the questions that follow:
Sony Shock
All is not well in the Sony dynasty. The company’s performance in recent
years has been less than stellar for this global brand icon. The Sony
brand was once a byword for innovation; now it is seen as failing to tap
new opportunities, being complacent and over-reliant on past
successes. Its share price has fallen by two thirds in the space of five
years, and its credit rating has been downgraded. Its pioneering
electronics division is struggling, sales have plummeted, and profits are
in decline.
Aggressive competitors are stealing market share in key markets where

it once dominated. The company is being criticised for its lack of focus
and for failing to take advantage of strategic windows of opportunity
that its competitors have rapidly exploited. In the wake of this “Sony
Shock”, the company has initiated a raft of changes to turn around its
performance, including the replacement of its leader by Sony’s first non-
Japanese chief executive, in the wake of poor results.
Sony briefly
• Headquarters based in Tokyo, Japan
• Sony employs over 158 500 people worldwide
38
• Annual sales exceed over 55 billion Euros per year
• One of the world’s most valuable brands • Pioneers of ground-
breaking technology such as the Walkman, PlayStation,
transistor radios, tape recorders, video recorders, CD players
and video cameras.
• Owns second largest music company in the world
• Large investment in the motion picture and television industry,
with Sony Pictures.
• Company has 1035 subsidiaries worldwide and is listed on 16
international stock exchanges.
One of the biggest areas of concern for Sony is its electronics business.
This accounts for nearly 70 percent of its revenues and is the
cornerstone of the company. In 2005, the electronic division lost $1.2
billion on revenues of $44.6 billion, while other electronics firms such as
Samsung Electronics ($8.1 billion profit) were making considerable
profits. The firm appeared to be over-reliant on the success of the
PlayStation games console business. Sony has lost ground to its
competitors, and its iconic status as the world’s leading electronic brand
is losing its lustre; other firms have taken the lead, such as the Korean
Samsung and Apple Computers.
Some blame Sony’s problems on its past successes, making it

complacent to the changing needs of the market. The company is facing
intense competition from several key competitors in the diverse markets
in which it operates. In televisions, where it was once so dominant, it lost
its impetus. Losing market leadership in the television sector could have
serious detrimental implications for the Sony brand and sales of other
products. Typically, a television is the centrepiece of the home where
other electronics peripherals would be attached, such as camcorders
and DVD players. Consumers buy devices that work well with their
television. Having a Sony branded television had a knock-on effect for
the sale of other peripherals.
In other markets, Sony is feeling the pressures of intense competition on

multiple fronts. Competitors are offering very high-quality technology
products at competitive price points. Apple Computer’s iPod became the
‘new’ Walkman. While Apple pioneered this market, Sony was more
concerned with the piracy and copyright issues associated with the
digital revolution. It was reluctant to manufacture devices that could
impinge on its music business. The company ultimately failed to rekindle
the Walkman brand as a digital music device. It is fighting Dell, Toshiba,
and HP in its mobile computing business. Nikon and Canon have retaken
their lead in the digital photography market. Sony faces strenuous
competition in the games console market against the Microsoft Xbox
39
360 and Nintendo’s Wii. Nokia and Motorola continue to dominate the
mobile telephone market.
In the wake of ‘Sony shock’, and after several years in charge, Sony’s
president steeped down, and, for the first time, a non-Japanese
executive took over the reins of Japans leading company. Sir Howard
Stringer, who headed up Sony’s Entertainment division, was the surprise
choice of CE. He speaks little Japanese and has the onerous task of
turning around the fortunes of Sony.
Source: Adapted from Jobber D (2007) Principles and Practice of

Marketing 5th edition McGraw-Hill
Questions:
1.1 Present a clear SWOT analysis of Sony.
1.2 Analyse and assess the challenges facing Stringer at the helm of Sony.
1.3 Elucidate the strategic options available and make recommendations
to Sony, in the wake of ‘Sony shock’.
40
TOPIC 4
STRATEGIC PLANNING
• Depict the strategic management process

• Expound what strategic planning encompasses
• Defend the important of strategic plans in the hierarchy of
organisation.
• Analyse the three levels of strategy
4.1 INTRODUCTION
A hierarchy of plans exists in all organisations. At the top of the hierarchy, one finds the strategy plan
followed by the tactical and then the operational plans at the lower levels of the planning hierarchy.
The strategic plan provides focus to all other plans in the organisation. It states the direction that the
organisation has chosen for its future as well as its `game plan’ (strategy) to compete in the business
world. The strategic plan is built around the organisation’s unique strengths; it also endeavours to
minimise its weaknesses to enable the organisation to compete with other organisations. The
strategic plan also deals with major opportunities and threats that the changing business environment
(see chapter 3) poses to the organisation. Management’s priorities for the future can be clearly seen
in an organisation’s strategic planning document.
As stated earlier, a sound knowledge of what strategic plans encompass is essential for managers at
all levels of the organisation to ensure that each manager aligns his or her departments or section’s
plans with the overall strategic plan of the organisation. But what is strategic planning and how
important is it to the contemporary organisation organisation/ a meaningful answer to this question
requires us to consider how the world has changed and how management has had to cope with these
changes (see chapter 3). Strategic management is about to change, and planning to survive – and
thrive – amid this change.
The first half of the twentieth century, especially the period before World War II, was characterised
by a steady business environment in which inflation was virtually unknown, interest rates remained
steady, urbanisation was not seen as a viable alternative to farming, and the business environment
was an unexplored field. During this era there was no shortage of naturel resources and rate of
41
technological development was much slower than it is today. There were few unforeseen changes in
the business environment and little effort was required to keep up with the pace of change.
Explain how an organisation can formulate a strategic plan. Your

answer must deal with all the components of a strategic plan
However, this situation has changed drastically since the end of World War II. Today’s business
environment is more turbulent than ever before. In fact, one can describe the environment as
revolutionary – as opposed to evolutionary. Evolutionary environment as is predictable; revolutionary
environments change at such rate that they cannot be predicted.
One of the `culprits’ that has caused – and is still causing - revolutionary change is the Internet. The
Internet has catapulted society into information and knowledge era. In this era, South African and
other African organisations must compete in the borderless world against established competitors
such as the USA, a united Europe, a highly competitive Finland, and New Zealand. In formulating their
strategic plans, South African companies such as Edcon (comprising, among other business units,
Edgars, Jet, Sales House, Smiley’s Warehouse, Cuthberts, and ABC) now must compete with
international players that make their products available to anyone, anytime, and anywhere in the
world through the internet.
Strategic planning is not concerned with record or photograph; it creates and projects. It is concerned
not with things as they are, but with things as they might be and ought to be Managers need a tool to
help them ensure that the organisation survives I this changing environment. One such tool is strategic
planning.
4.2 STRATEGIC PLANNING: WHAT IT ENCOMPASSES
`Strategic planning’ can be defined as the process of proactively aligning the organisation’s resources
(internal environment) with threats and opportunities caused by changes in the external environment
(see chapter 3). The focus of strategic planning can be depicted as follows. The focus of strategic
planning is the changing future – not the present or the past. Strategists at a coal-mine, for instance,
need to ask themselves:
Future
Past Present
42
Figure 4.1 The focus of strategic planning.
Source: Smit, at al. (2013:92)
Coal as an energy source in the future holds for us. They may come up with an answer that is
profoundly different from their current reality. They must plan strategically to ensure that the coal
company can thrive in a future environment in which overall demand for energy is projected to
increase by almost 70 per cent over the next 30 years. Even then 1,4 billion people in developing
countries will probably still not have access to electricity in 2030. At the same time, society is
demanding cleaner energy and less pollution.
Analyse the purpose and importance of internal analysis of a

company’s strengths and weakness in strategy development and
strategic management.
The desire for lower emissions has led to wider spread questioning of the role of coal. Coal-mining
companies also must compete with suppliers of renewable energy utilising wind, sun, and water. To
exacerbate their situation, coal companies in South Africa must comply with the Mining Charter,
which is a major drive for the equitable distribution of South Africa’s mining resources and is binding
on all companies in the mining sector. Moreover, the coal companies also must deal with international
commodity prices and exchange rates.
Should a coal-mining company consider the future to be a starting point in their planning (that means,
strategic planning), they would have to ask themselves: `What does the future hold for a coal mine?
What substitutes may be discovered that may replace coal as an energy source? What if current
energy supplies do not meet our demand to mine coal? What if new international competitor enters
our market and poaches our major clients?’ It is obviously not only coal-mining companies that face a
`different’ future. At the beginning of this chapter, we saw how Nintendo has disrupted the video
game industry with their innovative strategy to focus on non-users in the industry. This surprised
Microsoft and Sony who were competing by increasing the computing power of their products.
Because strategic planning deals with:
1. An environment that is constantly changing.

2. An organisation that needs to be flexible to adapt to these changes; and
43
3. Strategic to align the organisation with the changing environment, strategic planning has unique
characteristics. Strategic planning, therefore.
▪ Is an on-going activity (a process).
▪ Requires well-developed conceptual skills and is performed mainly by top management.
▪ Focuses on the organisation as a whole and not only on specific departments in the
organisation.
▪ Is the future oriented.
▪ Is concerned with the organisation’s vision, mission, long-term goal and strategies.
▪ Aim at integrating all management functions.
▪ Focuses on opportunities that may be exploited, or threats that may be dealt with, through
the application of the organisation’s resources.
The explanation of strategic planning in this chapter is based on Figure 4.2 (p.68 below). Before we
discuss this Figure, however, it is important to look briefly at the difference between the strategic
planning, tactile planning, and operational planning (see chapter 5 for a more in-depth discussion).
▪ Strategic planning is performed by top management with input from managers at the other
levels.
▪ Tactical planning and operational planning are performed by middle and lower management.
A major implication of the above is that one group of managers (top management) formulates the
strategic plan, whereas other groups of managers (middle and lower management) must put these
plans are clear and understandable. The principles discussed in this chapter should guide top
management in this regard.
44
Vision
Mission
Opportunities
Resource
and threat
Capabilities
Strategic goals
Strategy
Implement through: functional tactics, annual objectives, policies

Institutionalise through structure, leadership and culture, reward system, training,
resource allocation
Strategic control
Figure 4.2 The strategic management process (planning, implementation, and control) Source: Smit,
at al. (2013:93)
It is important to note that the implementation (including the institutionalisation) and control of the
strategies do not form part of strategic planning. They have been depicted here to complete the
strategic management process. It is also important to note that strategic planning takes place both at
corporate and at business level. It also takes places at functional level (e.g., financial strategy and
marketing strategy) but is often called `tactile’ at this level. The corporate strategy (also called the
`grate strategy) is the course charted for an organisation as a whole and specifies which set of business
the organisation should be
45
The city Lodge Family of Hotels
Corporate
strategy
Business
strategy
Functional
Business Finance strategy
development
Marketing Others
Figure 4.3The levels of strategy: multiple-business organisations

Source: Smit, at al (2013:94)
In and in which market it intends to compete. This decision is driven by `synergy’, which means that
at corporate level strategist will look for a business organisation s that produces an effect greater than
the sum of the individual businesses. The City Lodge hotel group decided at corporate level to focus
on four businesses: Courtyard, City Lodge, Town Lodge.
The set of decisions about which new businesses to enter, which businesses to buy, and possibly which
businesses to sell, represents The City Lodge hotel group ‘s corporate strategy. In short, the corporate
strategy focuses on the organisation’s scope of activities and resource deployment.
Analyse what the resource-based view of an organisation

encompasses by specifically focusing on what makes a resource
valuable to an organisation.
IN A NUTSHELL
Strategies are formulated at:
▪ Corporate level
▪ Business level
▪ Functional level
46
Business strategy determines how best to compete in a particular industry or market. It is concerned
with the strategies for each unit or business within a corporation. City Lodge hotels group has a unique
business strategy for each of its four businesses as they compete in different markets. Courtyard
Hotels focus on the upmarket traveller, whereas the Road Lodge Hotels focus on business travellers
on a tight budget. The business strategies for these businesses differ to gain a specific advantage in
the markets in which they operate. Although each business has its own strategy, the formulation of
the strategies does not take place in isolation. The focus of all these strategies should be on the
achievement of the corporate goals.
Functional-level strategies are derived from business-level strategies. A function is a department in

which people have the same type of skills or use the same resources, to perform their jobs. Town
Lodge Hotels will, for instance, have marketing, finance, human resources, and other functional
strategies. Each functional-level strategy states the goals that functional managers propose to pursue
to help the business attain its goals. The marketing strategy for Town Lodge Hotels could be to
increase its market share in the two-star accommodation business or to ensure that they retain their
leadership position in this market segment.
Ensuring consistency of strategies across all three levels is an important issue in strategic planning.
Functional strategies must be aligned with the business strategies; the business strategies must be
corporate strategies.
Choose two organisation in your local community with which you

are familiar. Arrange a meeting with one of the managers and
analyse the twenty-first century competitive landscape to them.
Obtain their feedback about how they anticipate that this
landscape will influence their operations during the next five years.
4.3 THE STRATEGIC PLANNING PROCESS
Although each of the components of the strategic planning process is explained separately in the
section that follows, we should always remember that these components are interdependent. For
instance, when formulating the mission statement, top management needs information on the
internal and external environments. A realistic mission statement should take into account the
capabilities (internal environment) of the organisation, as well as threats and opportunities in the
external environment.
47
4.3.1 The vision
For top management to lead the organisation to success in the future it needs an inspiring vision that
everybody in the organisation – and external stakeholders – shares in and is excited about. Effective
vision pushes the organisations and individuals within that organisation to look outside of themselves
to see what is currently are but what they could be in the future. A vision is also about creating
expectations at an organisational level as well as at an individual level. 3 Henry Ford had such a vision
for his company, namely `to make the automobile accessible to every American’. McDonald’s vision
statement is `to be the world’s best quick service restaurant experience’.
It should be clear from both these statements that the vision is not what these companies do, but
where they dream to be in the future. The vision should provide clear sense of what the organisation
hopes to become – an anchor for decision making in the organisation. The vision is the end, not the
means of getting to the end. A company in the railroad business (means) should rather see their
business as `getting people to their destinations’ (end). When formulating a vision statement, the
means should not be confused with the end. The success of the vision statement depends largely on
how well it is shared the organisation’s stakeholders.
These stakeholders include the organisation’s shareholders, its employees, customers, suppliers, the
community in which it operates, and the government. These stakeholders all have vested interests in
the future of the organisation. Employees, for instance, want to know that the organisation can
provide them with job security – now and in the future; shareholders want to know that their invested
will grow bovver the long term; customers want to know that they have bought from a reputable
organisation, and so on.
A clear vision is important to an organisation for the following reasons:
▪ It portrays the dream that the organisation has for the future.
▪ It promotes changes. A vision serves as a road map for an organisation as it moves through
accelerated change. It is also a vehicle for driving change.
▪ It provides the basis for a strategic plan
▪ It enhances a wide range of performance measures. It has been found that organisations with a
clear vision statement outperform those that do not possess one. This should be considered by
shareholders when selecting organisations in which they can invest.
▪ It helps to keep decision making in context. Vision provides focus and direction. Organisations
with a clear vision help employee to focus their attention on what is most important to the
48
organisation, discouraging them from exploiting short-term opportunities they may otherwise
seize. In South Africa, as well as in other countries, organisations, organisation s tend to become
managerially leaner and flatter; decision making becomes more decentralised. A clear vision can
affect the perspectives or premises that people use to make decisions in the absence of direct
supervision.
▪ It motivates individuals and facilitates the recruitment of talent. A vision should enable employees
to see how their effort contributes to the organisation’s success. The vision should also indicate
the attributes valued by the organisation, for example innovation and knowledge.
▪ It has positive consequences. When top management effectively communicates the vision, there
is a significantly higher level of job satisfaction, commitment, loyalty, pride, esprit de corps, clarity
about the organisation’s values, productivity, and encouragement.
Some vision statements are written in a conversational prose. Some crisply outlined in point form;
some are vague and abstract on some topics but clear and precise on others. There is no template for
the style of a vision statement. Companies often keep their vision statement to themselves: if the
competition knew where you wanted to be, they could easily create a strategy to get in the way and
prevent the business from moving closer to its vision.
4.3.2 The mission statement
The vision statement reflects the perfect future; the dream that the organisation has for itself. Henry
Ford had the dream to `make the automobile accessible to every American’. This was certainly an
exciting dream in 1903 for Henry Ford and 11 business associates who started their company with US
$ 28 000 in cash! However, this vision had to be translated into reality. This `reality’ is called the
mission statement in strategic planning.
The vision statement is the dream; the mission statement deals with reality. The vision statement
guides the formulation of the mission statement. The mission statement aligns the organisation with
its dream in the terms of its (1) products, (2) market, and (3) technology. These three form the core
components of any mission statement. Management will typically ask following questions when
formulating questions when formulating a mission statement:
▪ What is (are) our business (is) (in other words, our product)?
▪ Who is our client (our market)?
▪ How will we provide this product or service to the client (technology)?
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The answer to these three questions should clearly set the organisation apart from similar
organisations. It should state what makes the organisation unique and therefore provides the
organisation with a competitive edge. A mission statement should ensure unanimity of purpose within
the organisation. Because the mission statement will state management’s priorities and focus areas
it will also serve as the basis for resource allocation. The mission statement also sets the parameters
within which all decisions should be made. For instance, if Eskom statement that it wants to be the
most cost-effective provider of electricity to southern Africa, the parameters for `spending’ have been
set.
How JavaNet deals with the core components (product, market, technology) of a mission
statement:
JavaNet provides communities with the ability to access the Internet, enjoy a cup of coffee, and share
Internet experiences in a comfortable environment. People of all ages and background will come to
enjoy the unique, upscale, educational, and innovative environment that JavaNet provides.
In addition to the core components, organisations should also address the following components in
their mission statement- or they should state them in an addendum to the mission statement, often
referred to as the `philosophy’ of the organisation:
▪ Concern for survival/growth /profitability (the organisation’s concern for financial soundness);
▪ Philosophy (the values, ethics, and beliefs of the organisation)
▪ Public image (social responsibility)
▪ Employees and all other stakeholders
▪ Distinctive competence (how is the organisation different from or better than its competitors?)
The above components should be adjusted to reflect the important issues of a specific industry or
organisation. For instance, a mining company should also refer to SHERQ (safety, health, environment,
risk, quality) in their mission statement. A software development company may want to adjust their
mission statement to refer to ìnnovation’ as a key focus area.
The mission statement is a strategic tool when used properly. 6 Managers who see mission statements
as tools that can influence the inner workings of their organisations swear by them; those who see
them as something simply to put on display are usually critical of them. First, top management must
make the mission statement a living document. Top management can accomplish this by constantly
referring to how their decision supports the mission statement.
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Second, the key performance areas for the whole organisation must be stated clearly in the mission
statement. Third, all management levels and functional areas must be involved in the formulation of
the mission statement. This should lead to buy-in from everyone in the organisation. However, the
ultimate responsibility for the mission lies with top management.
Fourth, the key performance areas referred to in the mission statement must be cascaded down all
the way to each manager and employee’s performance contract. If Eskom states in its mission
statement that it wants to be the most cost-effective provider of electricity, all managers and
employees must be assessed on how they have contributed in their section to ensure cost
effectiveness. Finally, if everyone achieves his or her goals, the organisation will achieve its goals. In
today’s diverse work environment, many organisations have a specific section in their mission
statements that deals with the values of the organisation. This ensures that all managers and
employees know what behaviour acceptable in the organisation – and what is unacceptable.
One can differentiate between three types of types of values when writing a mission statement for
an organisation:
▪ Business –focused values will state clearly what management considers acceptable behaviour in
terms of efficiency, planning, productivity, responsibility, and so on. An example of value focusing
on èfficiency’ could be stated as `we care for our resources’.
▪ People-focused values will state acceptable behaviour that relates to issues such as honestly,
respect, trust, listening and openness. An example would be to state that `we respect our
differentness’ meaning that diversity is appreciated in the organisation.
▪ An example of a development –focused value could be to state that `we celebrate creativity’,
meaning that originally and research is appreciated in the organisation.
Read the case study below and answer questions that follows:
Shoprite - Overview
Shoprite started out as a small Cape based retailer. In the late 1970’s
they bought the much larger but ailing Checkers groups of supermarkets
that was heading towards insolvency. Contrary to what critics expected
Shoprite-Checkers managed to beat all odds and show growth. They
later acquired OK Bazaars from SAB for a mere R1.00 but took on the OK
debt. Managing to turn around OK Bazaars into a profitable entity was a
feat that even SAB had failed to do. Under the leadership of Whitey
Basson Shoprite-Checkers continued to grow. The Sentra group was also
taken over by Shoprite. Basson and his management team managed to
take over Checkers, make it a profitable business and grow the Shoprite
group into the leading retailer in Africa in under thirty years.
Shoprite Today
51
Shoprite Holdings Limited is an investment holdings company whose
combined subsidiaries constitute the largest fast moving consumer
goods (FMCG) retail operation on the African continent. Its various
chains operate a total of 1948 stores in 17 countries, all integrated
electronically into a central data base and replenishment system.
Shoprite is the largest retailer in Africa and has a strong presence in the
Middle East.
The Group’s primary business is food retailing to consumers of all income

levels, and there are outlets from Cape Town to Accra and on some
islands of the Indian Ocean. Management’s goal is to provide all
communities in Africa with food and household items in a first-world
shopping environment, at the Group's lowest prices. At the same time
the Group, inextricably linked to Africa, contributes to the nurturing of
stable economies and the social upliftment of its people. The Shoprite
Group said sales exceeded R100bn for the first time in the 12 months to
June 2014. It created 11 762 new jobs and opened a record number of
stores in a single year.
Source: Caselet compiled by A Bozas – taken from Shoprite Holdings

web pages Sept 2014
Question:
Assume you have appointed as a Strategic Manager at Shoprite,
present a clear vision and mission statement to the Top Management
of the organisation.
Top management to create the mission

statement
State key performance areas (KPAs)
Get buy-in from everyone in the

organisation
Base individual’s performance contracts

on KPAs
Figure 4.4: The mission statement as a strategic tool

Source: Smit, et al. (2013:98)
52
Source: Adapted from Mullane, J.V.(2002). ‘The mission statement is a strategic tool: When used
properly Management Decision, 40(5), p 453.
Lockheed Martin’s values

Lockheed Martin aeronautics Company is considered the leader in the design, development, and
production of jet fighters. The company has a clear set of values, namely:
▪ Passion. To be passionate about winning and about our brands, products, and people, thereby
delivering superior value to our shareholders.
▪ Risk tolerance… to create a culture where entrepreneurship and prudent risk taking are
encouraged and rewarded.
▪ Excellence… to be the best in quality and in everything we do.

▪ Motivation… to celebrate success, recognizing and rewarding the achievement of individuals and
teams.
▪ Innovation… to innovate in everything, from products to processes.

▪ Empowerment… to empower our talented people to take the initiative and to do what’s right.
4.3.3 Assessing the internal environment
We stated that the vision is management’s dream of the perfect future for the organisation. The
mission statement, however, states what the organisation must be to move toward its vision. To
ensure that the mission statement is realistic, management must (1) evaluate the organisation’s
(internal) capabilities as well as (2) the opportunities and threats posed by the changing external
environment. The assessment of the internal capabilities (strengths and weaknesses) of an
organisation gives management a clear picture of unique strengths that the organisation may possess
that they can use to outwit their competitors.
The internal assessment also highlights the weaknesses that the organisation may have that
competitors may exploit. The result of an internal environmental assessment is called the
organisational profile. This profile should depict the strategically important strengths and weaknesses
on which the organisation should base its strategy. Figure 4.6 illustrates internal analysis as a three-
step process. By following these steps, management can identify those factors that give the
organisation a competitive advantage, those that meet the basic business requirements, and those
that make it vulnerable to the realities of the volatile business environment.
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Step 1: Identify strategic internal factors
In step 1, managers identify and examine key aspects of the organisation’s basic capabilities,
limitations, and characteristics – those internal capabilities that are most critical to success in a
particular industry or competitive area. Factors strategic to organisations in the fast-food industry, for
example, would be quite different from those strategic to organisations in the aircraft industry. A
strategic internal factor for fast food businesses may be the speed at which orders can be processed.
This strategic internal factor is not important at all to business organisations manufacturing aircraft.
Choose two organisation in your local community with which you

are familiar. Arrange a meeting with one of the managers and
analyse the twenty-first century competitive landscape to them.
Obtain their feedback about how they anticipate that this
landscape will influence their operations during the next five years.
Identify strategic
internal factors
Evaluate strategic
internal factors
Develop input for the

strategic planning
process
Figure 4.5: Step in the development of an organisation profile

In the letter case access to the latest and most advanced technological research is a strategic internal
factor. Strategic factor can also vary between organisations in the same industry. For example, the
strategic of Edgars Stores and a very exclusive woman’s boutique would be based on different internal
strengths: Edgars on its strength in mass marketing, credit facilities, extensive advertising, and
specialised managerial skills; the exclusive woman’s boutique on high quality, image, and customer
loyalty.
54
How do managers decide which factors are truly strategic for the survival of their business
organisation? To help managers with this challenging task, the following approaches have been
identified.
The evaluation of functional segments

The functional approach to internal assessment concentrates on in-depth studies of the functional
areas of an organisation. This would mean making a thorough analysis of its marketing, financial,
production, human resources, research and development, external relations functions. In Table 4.1,
the focus is on general management as one of the key internal factors in an organisation, and the
factors listed have been identified as potential strengths or weaknesses. This table serves as an
illustration of how one of the segments of the organisation has been assessed in terms of those factors
critical to its success.
According to Table 4.1, the major strengths of this organisation are clear and realistic mission
statement, its policies and procedures, its integration with the other systems, and its reaction to
external changes. Weaknesses in the general management function are the organisational structure
and planning systems.
The value-chain approach

A second approach to identifying an organisation’s strengths and weaknesses (internal assessment) is
called the value-chain approach. A mining company such as Kumba.
Table 4.1 The development of an organizational profile
Key internal factor Potential Strengths And weaknesses
++ + - ---
1. Clear and realistic mission statement ++
2. Organisation’s record +
3. Planning systems -
4. Organisational structure -
5. Policies and procedures ++
6. Effectiveness and utilization of +

control system
7. Alignment with organizational +

culture
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8. Innovative decision making +
9. Integration with other systems ++
10. Reaction to external changes ++
Resources use this approach extensively in assessing their own strengths and weakness. So too do
financial institutions such as First National Bank, Standard Bank, ABSA and Ned bank. The value-chain
approach can be used in any type of business to assess its strengths and weakness. The value chain
looks at an organisation as a chain of activities that transforms inputs into outputs that customer
value.
The value chain distinguishes between two types of activities in an organisation:
▪ Primary activities.
▪ Secondary activities.
The primary activities are those involved in the physical production (or delivery) of the product (or
service). In the case of Toyota South Africa, these activities will relate to the actual manufacturing of
the cars in the assembly plant and marketing and transfer to the buyer – including after-sales service.
The secondary activities provide the infrastructure that allows the primary activities to take place.
These include general administration, human resource management, research and development,
technology, systems, and procurement.
Expound the roles of the different management levels in strategic

management. In your opinion, what would be an important
consideration that needs to be considered in the levels of strategic
management, given the challenges of the twenty-first century
competitive landscape?
The value-chain approach surveys the costs across the series of activities that the organisation
performs to determine where the organisation has low-cost advantages. To determine whether
Toyota SA’s assembly line is strength to the company or weakness, Toyota SA can compare their cost
of assembling a motor car to the comparable costs of other car manufacturers. If it costs Toyota R80
000 to completely assemble a mid-sized car but it costs a competitor R75 000 to perform the same
activities, Toyota will consider the assembly part of the value chain as a weakness to their company.
Low cost does not have to be the only yardstick that can be used to determine Toyota SA’s strengths
and weaknesses if the value-chain approach is used. Differentiation and response time can also be
56
used a yardstick. Research companies often do research to determine industry standards against
which business organisations can measure them. Synovate is such a research company that
determines industry yardsticks for the motor industry.
For instance, the industry average for servicing a motor car in South Africa is 80.3% customer
satisfaction. Nissan achieved 85.5% for their customer satisfaction. This obviously means that is
strength for Nissan – something on which they can build their strategy.
General administration
Human resource management
Research and development
Technology and systems
Procurement
Margin
Inbound Operations Outbound Marketing After - sales

Logistics Logistics and sales service
Primary activities
Figure 4.6: The value-chain approach to internal assessment

The resource-based view (RBV) of an organisation

A third approach to assessing an organisation’s strengths and weaknesses is called the resource-based
view (RBV) of an organisation. The underlying assumption in this approach to internal assessment is
that organisations differ in fundamental ways because each organisation possesses a unique mixture
of resources. For instance, AstraZeneca is a pharmaceutical company that is known for its research
capabilities. It has vast resources that can be used to do research on new medicines. Also in the
pharmaceutical industry is Aspen, a supplier of generic pharmaceuticals.
Aspen’s resource is profoundly different from those that give AstraZeneca its competitive advantage.
Aspen’s unique resources include its production capabilities that can be used for a wide variety of
product types. It has manufacturing sites on four continents. However, it does not have major
research capabilities as it provides generic medicines.
According to the resource-based view of an organisation, there are three types of resources:
57
▪ Tangible assets are those resources found on an organisation’s balance sheet (such as property
and warehouses)
▪ Intangible assets are assets that one cannot see or touch but are critical to creating competitive
advantage to an organisation (such as brand names, patents, knowledge of the market)
▪ Organisational capabilities refer to the ability of an organisation to turn input into outputs (such as
an organisation’s capability to transform its raw material into final products faster or cheaper than
its competitors).
For a resource to be valuable to an organisation – therefore strength – it must be:
▪ Superior to the resources of a competitors (e. g. a better location)

▪ Scarce so that competitors struggle to get hold of the resource
▪ Difficult to imitate (e.g., the view that a restaurant has over the ocean)
▪ Under the control of management
▪ Slow to depreciate
▪ Difficult to substitute.
Strategic/
competitive
Base
Peripheral
Figure 4.7: The hierarchy of resources

Strategic resource s or capabilities are the unique resources or capabilities of an organisation that
cannot be easily emulated by competitors. For many contemporary organisations, the single most
important asset must be its human resources members and their accumulated knowledge and
experience. For Toyota its low-cost, high-quality manufacturing capability.
58
Motorola considers its defect-free (six Sigma) manufacturing of cell phone a strategic capability.
Strategic resources or capabilities should be nurtured and continuously improved to ensure that they
remain strategic. Base resources are those resources that an organisation cannot operate without. To
Toyota these would be its plant and equipment. Peripheral resources are necessary resources but can
easily be outsourced. Toyota can easily outsource resources involved in providing meals to its
employees.
The product/market evolution

A fourth approach to internal assessment is the product/market evolution approach. The
requirements for success in an organisation’s product/market relationship change over time.
Management can therefore apply the framework of a product life cycle to identify strengths and
weaknesses in the internal environment as an on-going exercise. Based on this concept, key success
factors during the introductory phase of the product’s life cycle would revolve around marketing
capabilities to create awareness of the product, whereas key factors in the decline phase of the
product’s life cycle would encompass cost advantages, good supplier relations, and financial control.
Using financial analysis

Financial analysis can be used assess the strengths and weaknesses of an organisation. This is a fifth
approach to assessing an organisation’s strengths and weaknesses. However, it should be kept in mind
that financial analysis provides an organisation with a picture of its strengths and weaknesses that is
based on past data. Organisations often use the balance sheet and income statement in their financial
analyses to determine their strengths and weaknesses.
The key financial ratios that are used are:
1. Liquidity. Liquidity ratios refer to an organisation’s ability to meet its short-term obligations. The
optimum ratio differs from industry to industry.
2. Leverage. Leverage ratios looks at the source of the organisation’s capital, such as its owners or
outside creditors. It could measure the percentage provided by owners.
3. Activity. Activity ratios measure how well the organisation is using its resources. An important ratio
for Edgars would be to determine the average length of time it takes to collect on credits sales.
4. Profitability. Profitability ratios measure how well an organisation is managed.
59
Find additional information on any two organisation (in the same
industry) listed on the JSE. Compare their strategic directions and
business level strategies. Use the criteria to evaluate strategies and
then comment on the appropriateness of each organisation’s
strategies.
An organisation can measure its gross profit margin, that is, the total profit margin after the cost of
sales has been deducted from the income they have generated. For instance, a gross profit percentage
of 85% is realistic for a laundry and cleaning company. An organisation in this industry can measure
itself against this yardstick to determine whether its sales and cost of sales are weaknesses or
strength.
Five approaches to determining an organisation’s strength and weakness (internal assessment) are:
▪ Functional approach
▪ value-chain approach
▪ resource-based view of the organisation
▪ product/market evolution
▪ financial ratios
Step 2: Evaluation strategic internal factors

Once the strategic internal factors have been identified, the next issue that arises is; what are the
potential strengths and weaknesses of the organisation? A factor is considered a strength if it is a
competency or a competitive advantage for an organisation. For example, Rolls Royce’s image and
quality are two distinct competencies for that organisation and these competencies should be
exploited to the full. A weakness, on the other hand, is something that an organisation does poorly.
For any organisation operating in turbulent environment, a lack of management vision can be
considered a major weakness, as this lack of vision will hamper the organisation in its attempt to keep
pace with the changing business environment.
What yardsticks can management use to determine whether an internal factor is a strength or
weakness? Four popular yardsticks are:
▪ A comparison with the organisation’s performance in the past

▪ A comparison with competitors
▪ A comparison with industry ratios
▪ Benchmarking
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Many managers start their planning efforts by comparing their current results with the organisation’s
previous years’ results. These are the capabilities and problems with which they are most familiar. A
major problem of this very popular approach, however, is that managers may compare their current
performance to their own very poor results of the past. Any improvement on the poor results may
then wrongly be considered strength. However, if the factor was to be compared with an industry
standard or yardstick, it might in fact be a weakness.
Comparing the organisation’s capabilities with those of major competitors is a second approach that
managers might use to evaluate the organisation’s strategic internal factors. Road Lodge, the one-star
lodge, can compare its internal factors to that of Formula 1 hotels to determine it strengths and
weaknesses. Road Lodge will compare itself in terms of factors such as occupancy rate of its hotel
rooms, customer satisfaction and number of re-bookings by previous customers.
Determinants of success differ from industry to industry. Each industry has its own ratios that measure
success in that industry. In the hotel and tourism industry occupancy rates of hotel rooms are essential
for survival in the industry.
Occupancy rates as a yardstick in the hotel industry

Average hotel occupancies fell to 10-year lows of 60.4% in 2009, down from more than 70% during
the boom years of 2006, 2007 and 2008. Hotel revenues simultaneously dropped 10% from January
to August 2009 year-on –year. It seems that the luxury end of the Cape Town’s hotel market has been
particularly hard hit, with occupancies down to 30% for the year to date.
The five-star Mount Nelson Hotel in Cape Town can use the above yardstick (30% occupancy levels)
for luxury hotels to determine whether this strategic factor is a strength or weakness to the hotel. In
other words, is the Mount Nelson Hotel performing better (strength) or worse (weakness) than its
competitors in terms of occupation of hotel rooms? Benchmarking is another approach that can be
used to identify an organisation’s strengths and weaknesses. Benchmarking is the search for the best
practices amongst the competitors and non-competitors that lead to their superior performance.
A car dealership can compare its customer satisfaction ratings to the rating of the best in the business.
The spray-painting done on Boeing aeroplanes can be used as the benchmark for a car manufacturer
to compare the quality of its spray-painting against. Determining the strengths and weaknesses of an
organisation is not a subjective exercise.
Yardstick like the ones mentioned above-should be used to identify the organisation’s capabilities.
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These yardsticks are:
▪ The organisation itself (its previous performance)

▪ Competitors
▪ Industry ratios
▪ Benchmarks
Although the identification (step 1) and the evaluation (step 2) of key internal factors have been
discussed as two separate steps, it should be stressed that, in practice, they are not differentiated.
Step 3: Develop input for the strategic planning process

The results of the second step could be applied to determine those internal factors that:
▪ Provide an organisation with an edge over its competitor-factors around which to builds the
organisation’s strategy.
▪ Are important capabilities for the organisation to have but are typical of every competitor in the
industry
▪ Are currently weaknesses in the organisation – managers should avoid strategies that rely on those
key vulnerabilities.
The results obtained in this final step in the internal analysis process serve as inputs into the strategic
planning process. In the next section we discuss a further input into the strategic planning process,
namely the assessment of the external environment (macro and market environments).
Read the following mini case study and the questions that follows:
During 2015 financial year, Jet stores faced the challenge of

realigning its strategy to fit the changes in its environment.
Worsening economic conditions had reduced real disposable
income and changed customer preference towards increased debt
aversion and cost sensitivity. As higher interest rates propelled
customers into cash-based sales, retailers could no longer win
customers by offering better credit terms. Value had become the
most significant factor in the success of any retail company.
This put Jet stores in an unfavourable position characterised by

losses in market share and stagnating sales revenues. While the
group had pioneered some innovative concepts, its weakness in
implementation skills, coupled with underlying inefficiencies in the
business, had not allowed it to make a positive impact on the
business. The group began piloting insurance and micro lending in
stores and also took ownership of some third-party debtor's book.
These initiatives could have delivered some benefit to the company
had the core retailing business been in shape. In order to bring
62
customers back to the Jet stores, management is relying on a few
strategies with the emphasis on growth rather than cost slashing.
Questions:
1.1 Present a clear SWOT analysis for Jet stores

1.2 Assume you have been appointed as a Strategic Manager for Jet
stores, and you are asked to come up with a Turnaround Strategy
and make the recommendations to the Top Management of the
company.
4.3.4 The external environment
The focus in this section will be on identifying key variables in the external environment that can cause
the organisation to thrive (opportunities) or pose major threats to the organisation’s survival. The
macro-environment includes forces that originate beyond any single organisation’s immediate
environment. These forces constantly change.
This uncontrollable, remote environment is composed of the political, economic, social, technological,
international, and ecological environment – often called the PESTIE environment. When assessing the
economic environment, managers should analyse factors such as the stage of the economic cycle,
inflation and interest rates, and unemployment levels. An assessment of the political environment
should address environmental protection law, tax laws, special incentives, and other political issues,
such as the nationalisation of mines.
The societal environment includes factors such as attitudes towards quality of life, life expectancy, the
population growth, the increasing/decreasing gap between the rich and poor, urbanisation and the
career expectations of the population. The market environment is also constantly changing. Market
environmental factors include competitors, customers, suppliers, potential entrants, and substitute
products.
An organisation’s survival depends to a large degree on the ability of management to anticipate trends
and/or changes in the environment (macro and market) and to prepare in advance for these changes.
It is therefore necessary to predict the type of environment that the organisation will face in the
future. In this regard the steps illustrated in Figure 4.9 are recommended to ensure that the
organisation is pro-active in terms of possible changes – and not merely reactive.
The selection of critical environmental variable is usually a responsibility of top management. Time
and money constraints obviously preclude the forecasting of all possible variables in the external
environment. The most important variable that should be forecast are those that drive an industry.
63
For instance, the birth rate of the population is significant for manufacturers of educational toys for
children. The birth rate of the population, in turn, is greatly affected by variables such as the
educational level of parents and the lifestyles of the population.
Select critical
environmental
variables
Select sources of
information
Evaluate forecasting
techniques
Develop an
environmental profile
Monitor forecasts
Figure 4.8 Steps in environmental forecasting

Many organisations find that environmental forecasting is beyond their capabilities.
Web Resource
For further insight on information on the business environment visit http://www.werksmans.co.za
64
The changing male consumer
Discovery Networks (responsible for the Discovery channel on DSTV) has recently concluded a
comprehensive, unparalleled study of the changing male consumer. The mammoth research
undertaking involved the study of more than 12000 men in 15 countries.
The report findings suggest that there are four types of modern male consumers:
▪ `Pressured Provider’ – 26% are traditional family men with a conservative’s view of his role in
family and society.
▪ `Modern and Control’ – 34% are men who have a modern view of gender roles and can juggle
numerous commitments.
▪ Àll About Me’- 26% of young men priorities themselves over relationships and are less family
oriented.
▪ `Non-Committal’ – 14% live for the day and shy away from serious commitment or responsibility.
Some of the findings of this report that shows a definite change in the male consumer are:
▪ Men are very aware of greater equality between men and women.
▪ Young men are delaying becoming dads
▪ Young men are spending more time and money on their looks.
▪ Being aware of their image can bring anxiety as well as pride to men.
Participants in the study were made to complete, amongst others, lifestyle diaries, telephone
interviews and in-depth lifestyle interviews at their homes. Over 50 experts were consulted during
the process, including academics (professors of gender studies, psychology, and sociology),
economists, marketers, journalists, and social commentators.
Contrast and compare a low-cost provider strategy and a best-cost

provider strategy in terms of the following:
1. Main characteristics of each strategy

2. The circumstances in which each one of the strategies
would be most appropriate
3. The advantages, disadvantages, and risks of each of these
strategies
Compile a brief, motivated report on your findings.
65
The study has significant relevance for business as it shows profound changes in how modern young
males view various life issues such as relationships, success, money, grooming, and health and so on.
Supplied by these institutions and publications lies with the organisation and not the forecasters.
If an organisation can gather primary data, a number of quantitative and qualitative forecasting
techniques can be applied. The choice of technique depends on considerations such the nature of the
forecast decision, the usefulness and accuracy of available, and be cost and importance of the
forecast.
4.3.5 Forecasting environmental
The next step in forecasting environmental variables is the development of an environmental profile.
An environmental profile. Is a summary of the key environmental factors evaluated for their potential
impact on the organisation? An environmental [profile for an organisation manufacturing roof trusses
for low-cost housing will clearly show ìnterest rates as an environmental factor with huge impact on
the business. The final step in environmental forecasting is to monitor the critical aspects of
management forecasts.
Managers nowadays must imagine alternative futures and prepare the organisation for any of these
possibilities. Scenario planning is a tool used for creating these futures. It came into prominence in
the 1970s, when it was credited with helping Royal Dutch/shell to cope with uncertain ties in the oil
industry. Royal Dutch/Shell used scenario planning as an opportunity-management tool.
Scenarios can be built as follows:

▪ Determine which decisions will make or break the organisation in the next few years.
▪ Put together an information-gathering network that focuses on forces that seem most likely to
have a significant impact on the organisation.
▪ Sketch `what if’ scenarios that deal with the most influential external forces in the environment.
Limit the number of scenarios to three: the worst case, a status quo world, and a fundamentally
different but better world.
▪ Assess the implications of each scenario.
▪ Identify signs which could indicate that a particular scenario is materialising.
▪ Reassess your company’s vision in the light of the scenarios.
66
Scenario planning is based on the premise that you cannot control or predict the future. It helps
management envision equally plausible ways in the future might unfold and chart appropriate
responses to each.
4.3.6 Translating the mission into long-term goals
The assessment of both the external and internal environments will indicate to management whether
the mission statement is realistic. This statement must reflect reality as it the document that guides
decision making in the organisation. It also serves as the basis for performance contracting for
managers at all levels in the organisation as well as for workers. However, the mission statement is a
broad statement indicating the organisation’s intent. It often contains words such as `most cost-
effective producer of…’ or `to be the leader’. `Most cost-effective’ and `leader’ are vague terms that
lend themselves to different interpretations. The mission statement therefore still needs to be
translated into measurable, long-term goals to ensure that it is clearly understood by everyone in the
organisation. The Balanced Scorecard (BSC) is used by many organisations in South Africa, including
Edcon, Kumba Resources, universities, and government departments, for this purpose.
An organisation’s measurement system affects the behaviour of managers and employees. BSC
includes financial measures to measure profitability, liquidity, cost, and any other measures that focus
on financial performance. Kaplan and Norton added three additional dimensions to measure namely:
(1) operational measures on customer satisfaction, (2) internal processes and (3) the organisation’s
innovation activities as this drive future financial performance. This perspective must be linked to the
mission statement to ensure that the organisation’s purpose is achieved. When fully deployed, the
BSC transforms strategic planning from a conceptual exercise into the nerve Centre of an organisation.
The four BSC perspectives measure the following:
▪ The financial perspective includes measures such as operating income, return on capital employed,
and economic value added.
▪ The customer perspective looks at measures such as the number of new customers, customer
retention, customer defection and customer satisfaction.
▪ The third perspective of BSC, namely internal business processes, deals with continuous
improvement, throughput, and quality. Measures can include number of mistakes made during a
certain process (such as the registration process at a university); number of new processes
incorporated into the business during the past year and productivity measures.
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▪ The learning and growth perspective focuses on, among other things, the competency of
employees, innovative ideas generated by employees and managers and staff retention.
The four perspectives of the BSC do not operate in isolation. They are closely related. For instance, if
employees are competent (learning and growth perspective), they should be able to improve
continuously on the processes of the organisation (internal business processes perspective). This
should b of the organisation (internal business processes perspective). This should enable the
organisation to improve on their customer service (customer perspective). This will eventually
contribute to bottom-line improvement (financial perspective).
Although the `pure’ BSC comprises four perspectives, organisations should adapt the above
perspective to reflect their own unique key drivers. Kumba Resources, for instance, is in the mining
industry. Because safety, health environment are key focus areas for the organisation in this industry,
they have added a further perspective to their BSC, namely: safety, health environment, risk and
quality.
Web Resource
For further insight on the subject matter, you can go to http://www.balancedscorecard.org
Kaplan and Norton have also created a new tool, called `strategy maps. A strategy map visually
represents how an organisation creates value. Just as you can’t manage what you can’t measure, so
too according to Kaplan and Norton, you can’t measure what you can’t describe. They argue that
sustained value creation depends on managing four key internal processes; operations, customer
relationships, innovation, desired outcomes, the tool therefore allows an organisation to align
processes, people, and information technology to achieve superior performance.
You are invited to consult on the business level strategy choices in

an organisation. The CEO advice that they have identified several
possible strategies. You are required to advise them on why it is
unwise to pursue too many strategies simultaneously. How would
you explain this to them?
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4.3.7 Choosing a strategy
The choice of strategy is guided by the organisation’s mission statement and its long-term goals (see
BSC, discussed in the previous section). When choosing a strategy or combination of strategies,
strategic planners decide on a core idea about how the organisation can best compete in the
marketplace. The term used in strategic planning for this core idea is ` generic strategy’.
There are three types of `generic strategy’
• Low – cost leadership

• Differentiation
• Focus
An overall low-cost leadership strategy attempts to maximise sales by minimising costs per unit and
hence prices. Several things can be done to minimise costs. First, as workers gain more experience in
producing a particular product, productivity should increase, and unit costs decrease. This is called a
`learning curve’ or èxperience curve’. Second, an organisation can expand the size of its operations.
As the size of operations increases, the costs per unit decrease because the fixed costs (plant,
equipment, and others) are shared by a larger number of products. This is referred to as èconomy of
scale’. An example of this is the reduction in the price of plasma screen television sets over the years
as result of economies of scale.
Differentiation is the second generic strategy that distinguishes an organisation’s products or service
from those of its competitors. The rationale for differentiation is that the organisation can charge
higher prices (and make more profit per unit) for a product that the customers perceive to be different
from similar products offered by rivals. Differentiation may be in terms of quality, the production
process, design, and reputation, friendliness to the environment or any number of other attributes.
Woolworths has differentiated itself in terms of its environment-friendly approach to doing business;
Volvo has differentiated itself as the builder of safe cars.
The third generic strategy is to focus on a specific product line or a segment of the market that gives
an organisation a competitive edge, Harvely-Davidson focuses on a specific segment of the motorcycle
market, namely heavyweight motorcycles. This focus enables the company to differentiate itself from
other manufacturer of motorcycles. A focus strategy could also be anchored in a low-cost leadership
strategy; Kulula and 1 Time use this strategy to compete in the airline industry in South Africa.
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Choose any organisation you are familiar with and indicate how the
differentiation strategy is applied in that their establishment.
Furthermore, determine whether it works effectively
4.4 GRAND STRATEGIES
Once an organisation has chosen a generic strategy – or core idea – it should decide on a more specific
grand strategy for each business. Grand strategies should be developed for both single-business and
multi-business organisations (figures 4.3 and 4.4). Single-business organisations limit their operations
to one major industry. A multi-business organisation such as the City Lodge hotel group develops a
business strategy for each business. Single business organisation addresses the same issues as multi-
business organisations, but their scope is more limited.
Pfizer’s strategy
Pfizer is committed to being a leader in healthcare and to changing lives for the better by providing
access to safe, effective affordable medicines to those who need them. But in South Africa the
company faced a major challenge. How do you provide medicine to those who need medication but
cannot afford expensive medication? Pfizer crafted a clever strategy to support their mission
statement. They established Pharmacia, a generic subsidiary with the aim of producing quality original
generic medicines for the South African market. It is the only Pfizer generic company.
The City Lodge hotel group, for instance, must look at the different strategies to find out which
strategy, or combination of strategies, will enables each business unit to attain its mission and long-
term goals. There are many strategies that they can consider. However, when one looks at all these
strategies it becomes clear that they are either:
▪ Growth strategies.
▪ Decline strategies; or
▪ Corporate combination strategies.
This choice of strategies is depicted in Figure 4.11. The choice of a strategy depends on an
organisation’s strengths and weaknesses as it should choose a strategy that
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4.5 GROWTH STRATEGIES
4.5.1 Internal growth strategies
Should City Lodge Hotel or any other organisation decide that they want to grow the business to
ensure sustainable profitability, it can consider internal growth strategies. These strategies are usually
relatively low in risk as the organisation keeps its focus on what it does well already. One such internal
growth strategy is called a `concentration growth strategy’. This strategy implies `sticking to the
knitting’. It involves concentrating on improvement what one is already doing. Resources are directed
towards the continued and profitable development of a known product, in a known market, using a
known technology. What these (product, market, technology) are, will found in the mission
statement, as they are the core components of a mission statement.
A concentration growth strategy can be accomplished by attracting new customers, increasing the
consumption rate of existing customers, or `poaching’ from the competition. The City Lodge hotel
group can offer their business travellers a package where they can bring their spouses with them to
minimal additional fee. This is a low-risk strategy as the hotel group is familiar with the service they
provide and know their market and the technology that they use to provide the accommodation
service.
Concentration
Market
Internal development
Growth Product
development
Grand
strategies Decline Innovation
External Diversification
Corporate
combination Integration
Figure 4.9: Grand strategies
The core components of a mission statement are:
▪ Product,
▪ Market.
▪ Technology
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The four internal growth strategies discussed in this section focus on changing one of the core
components. For instance, if the strategy focuses on the product, the strategy is called `product
development ‘. If the strategy focuses on the market, the strategy is called market development’.
Review the vision and mission of the City Lodge Group and
then evaluate their hotel portfolio and analyse the business
level strategies pursued. Comment on the appropriateness of
their business strategies with reference to the strategic
direction of the Group
Known skills and capabilities are major advantage in this low-risk strategy. However, organisations
choosing this strategy are susceptible to new competitors and innovations. City Lodge Hotels also
must compete with so-called `boutique hotels’ – a new type of `designer’ hotel. If City Lodge Hotels
keep on focusing their current product, current market, and current technology – the three core
components of a mission statement – they will have to ensure that their strategy will enables them
to grow in the future.
Market development is a second internal growth strategy that can be considered by an organisation
that wants to grow, but still focus on what they are currently doing. Market development is closely
related to a concentration strategy. The market development strategy also builds on existing strength
and skills. Market development is a strategy according to which an organisation sells it present
products in new market by opening additional new outlets or attracting other market segments.
Protea Hotels’ decision to manage a hotel in Ghana is an example of market development. Another
example of this strategy would be a university designing non-degree courses for students who wish
to obtain a professional qualification but do not want to study full time.
A third internal growth strategy that can be considered by an organisation who feels that they want
to compete in the arena that they know well is called `product development’. Product development
implies modification of existing products or addictions to present products to increase market
penetration within existing customer groups. Toyota chose this strategy when they introduced to
Toyota Prius hybrid car that runs on petrol and electricity. Nissan followed with their Nissan Leaf which
is already being pre-booked by thousands of customers who insist on owning and driving
environment-friendly cars.
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While the first three internal growth strategies discussed here are relatively low in risk, the fourth
internal growth strategy, namely ìnnovation’ is a riskier strategy. Organisations choosing this strategy
continuously search for original or novel ideas. A concentration strategy can focus on creating
innovative products, or on creating new way of getting their products to the market, or on designing
new processes, or it could focus on any other area in which they can innovate. The first bank that
made cell phone banking possible, chose an innovation strategy which was a risky strategy at that
time as there was no proof that this strategy could work in the banking industry.
Internal growth strategies comprise
• Concentration strategies.
• Product development strategies.
• Market development strategies.
• Innovation strategies.
4.5.2 External growth strategies
Internal strategies do not always provide the answer to an organisation regarding how to compete in
an industry to remain profitable. Organisations often must look for growth opportunities outside of
the organisation. Higher risk external growth strategies, compromising integration and diversification,
can also be considered, if they are in line with the organisation’s mission.
Backward vertical integration is the strategy followed by an organisation seeking increased control of
its supply sources. This strategy is very attractive if there is uncertainty about availability, cost, or
reliability of deliveries by suppliers. An example of this strategy would be Sappi (a paper producer)
acquiring a plantation to secure raw suppliers for the acquisition of a business nearer to the ultimate
consumer, it is called `forward vertical integration’. An example would be paper producer purchasing
a bookstore. Forward vertical integration is an attractive alternative if an organisation is receiving
unsatisfactory service from the distribution of its products.
Horizontal integrating is a long-term growth strategy by which one or more similar organisations are
taken over for reasons such as scale-of-operations benefits or a larger market share. Such acquisitions
provide access to new markets, on the one hand, and get rid of competition, on the other. The
integration of two paper producers, two restaurant chains, or two world boxing associations, for
example, would be classified as horizontal integration. Diversification growth strategies may be
appropriate to organisations that cannot achieve their growth objectives in their current industry with
their current products and markets.
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The reasons for an organisation to diversify could include the following:
▪ The markets of current businesses are approaching the saturation or decline phase of the product
life cycle.
▪ Risk can be distributed more evenly.

▪ Current businesses are generating excess cash that can be invested more profitably elsewhere.
▪ Synergy is possible when diversifying into new businesses.
Concentric diversification involves the addition of a business related to an organisation in terms of

technology, markets, or products (the core components of a mission statement). In this type of grand
strategy, the new business selected must possess a high degree of compatibility with the current
businesses. The key to successful concentric diversification is to take advantage of at least one of the
organisation’s major strengths. A major strength could be an organisation’s knowledge of the market
or its processes that can be easily adapted for other types of business or any other strength that it
possesses. Nando’s decision to diversify, by selling its sauces used in its Nandos outlets to retailers
such as Checkers, is an example of a concentric diversification strategy based on Nandos’ knowledge
of the market as well as its technical know-how.
Conglomerate diversification involves seeking growth by acquiring a business because it represents

the most promising investment opportunity available. Neither the new market nor new products must
be technologically related to the product currently being offered by an organisation. This strategy can
be chosen to offset deficiencies such as seasonality, a lack of cash, or lack of opportunities in the
marketplace. However, this strategy is not without its pitfalls, the primary one being the lack of
managerial experience in the new business.
Use the annual report of three organisations in the same

industry and identify the competitive strategies of each
organisation. Find reasons why the different
organisations have chosen those specific strategies.
4.6 DECLINE STRATEGIES
We often read about relatively successful organisations selling off some of their major assets or even
selling a division of the organisation, often resulting in the elimination of many jobs. Why then would
an organisation such as Kumba Resources sell off their training department, legal department, and
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information technology department if these departments functioned well and provided Kumba
Resources with essential services?
The situation described above could be justified in situations which an organisation needs to:
a) refocus its activities to remain or become profitable by cutting costs drastically,
b) where long-run growth and profit opportunities are unavailable,
c) where other opportunities are more attractive, or
d) where there is a period of economic uncertainty.
The decline strategies discussed in this section are:
4.6.1 Turnaround
4.6.2 Divestiture
4.6.3 Harvesting
4.6.4 Liquidation
An organisation can find itself with declining profits for many reasons but still be worth saving. South
African Airways (SAA) is good example. Poor management, inadequate financial control, price and
product competition, a high-cost structure, and a change in the pattern of demand are some of the
possible factors that can lead to a decline in profits. In such circumstances, turnaround is an
appropriate strategy, as it focuses on eliminating inefficiencies in an organisation. Top management
usually looks at cost and asset reduction to reverse declining sales and profits. Closing unprofitable
routes and reducing the number of employees were options chosen by SAA. Turnaround strategies
could, however, also focus on increasing sales to put the organisation back on track.
A divestiture strategy – another decline strategy – involves the sale of business or a major component
of it, to achieve a permanent change in the scope of operations. Reasons for divestiture vary. It may
arise when top management recognise that one of their businesses presents a mismatch with their
other businesses. Another reason may be the financial needs of an organisation: the cash flow or
financial stability of an organisation can be greatly improved if businesses or components of
businesses with a high market value can be sold.
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Harvesting is an appropriate decline strategy when an organisation seeks to maxims cash flow in the
short run, regardless of the long-term effect. Harvesting is generally pursued in organisations that
unlikely to be sold for profit but is capable of yielding cash during the harvesting. Management can
decrease investments, cut maintenance, and reduce advertising and research to cut costs and
improve cash flow. This strategy could be detrimental effects on the organisation’s long-term survival,
though.
In selecting liquidation as a strategy, the owner and strategic managers of an organisation admit
failure and recognise that this least attractive of all strategies is the best way of minimising the loss to
the stakeholders of the organisation. Liquidation can therefore be seen as the most extreme form of
the decline strategies in that the entire organisation ceases to exit. Planned liquidation may be a
worthwhile strategy for an organisation because the organisation can liquidate its assets for more
cash than the market value of its shares.
Although the different strategies discussed are treated as separate, organisations can implement
multiple grand strategies simultaneously
Which company has adopted these decline strategies? Do you think

there is another strategic option they could have chosen to better
handle this situation?
4.6.5 Corporate combinations

Recently, four corporate combinations strategies have gained popularity in South Africa, African and
many countries abroad. One such corporate combination strategy is called a joint venture. A joint
venture is a long-term strategy that requires commitment of resources and services by two or more
legally separate entities to a combined undertaking for their mutual benefit. Because of the
magnitude of the Gautrain project many companies had to form a joint venture with another company
to have sufficient resources to do their job. A joint venture (JV) between two local companies, Nu Tog
and Strategic Partner Group was established to supply personal protective equipment (such as hard
hats and safety glasses) to the Gautrain project. Neither of these two companies had sufficient
resources to provide the equipment by themselves. Corporate combination strategies discussed in
this section are joint ventures; strategic alliances; mergers; and acquisitions.
4.7 SELECTION OF GRAND STRATEGIES
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Why did First National Bank decided to close 34 of their branches in South Africa? Why would Wyeth,
a world leader in pharmaceutical and healthcare products, merge with Pfizer, another pharmaceutical
company? These questions can best be answered by looking at the strategy selection process that
shows the logical steps that lead to the choice of a strategy. The selection of grand strategy starts with
the identification of the recent grand strategy or strategies. External factors (such as a change in
legislation) and internal factor (such as the organisation’s management competence and experience)
should be well understood when considering different strategies. So should the behavioural
considerations be affecting the choice
of strategies in an organisation (see section 4.6) as they also play a major role in selecting a strategy
or combination of strategies for an organisation? The choice of a strategy may seem like a very
scientific process, but it is far from that. The choice of a strategy reflects the current strategists’
preferences in terms of risk that they are comfortable with, time horizon of the strategy and the
strategists’ personalities. Change the composition. Change the composition of the team of strategist
who must choose a strategy and you will most probably find that the new team chooses a different
strategy or set of strategies.
Identify the present

grand strategy
Conduct a portfolio
analysis
Select a grand strategy
Evaluate the selected

strategy
Figure 4.10: The grand strategy selection process

Organisations offering one product or service need to choose a strategy for this one business only.
However, the choice of a strategy for a multi-business organisation is more complex. Consider again
the City Lodge hotel group. The group comprises four distinct brands of hotels, namely: Courtyard
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(four stars), City Lodge (three stars), Town Lodge (two stars) and Road Lodge (one star). Knowing how
to manage multiple businesses or units calls for knowledge of portfolio management. The portfolio
approach is a useful aid to multiple business organisations in which each business is managed as a
separate business or profit centre. The portfolio approach provides a visual way of identifying and
evaluating alternative strategies for the allocation of corporate resources.
Although many different approaches to portfolio management can be identified, we shall focus only
on the Boston Consulting Group growth/share matrix, each of an organisation’s strategic business
units (SBUs) is plotted according to its (1) market growth rate (percentage growth in sales) and (2)
relative competitive position (market share). City Lodge hotel group will plot their four brands
(Courtyard, City Lodge, Town Lodge, Road Lodge) according to each business unit’s market growth
rate and relative competitive position in the industry.
The horizontal axis represents the market share of each SBU of a fictitious organisation relative to the
industry leader. The vertical axis represents the annual market growth rate for each SBU, s particular
industry. SBU s are plotted on the matrix once their market growth rates, and relative market shares
have been computed. Figure 4.14 represents the BCG matrix for a company with multiple SBUs, such
as South African Breweries or Edcon or the City Lodge hotel group. Each circle represents a business
unit. The size of the circle represents the proportion of corporate reserves generated by that SBU.
On the BCG matrix, businesses are classified as stars, cash cows, question marks, and dogs. Stars are
businesses in rapidly growing market shares. These businesses should be quite profitable. They
require substantial investment to maintain their dominant position in a growing market. This
requirement is often generating a large amount of cash that can be used to support other SBUs,
especially question marks. These cash-generating businesses are called `cash cows’ because they can
be `milked’ for resources to supports other businesses. Cash cows are the foundation of the corporate
portfolio.
Question marks are high-growth, low-share SBUs that normally require a lot of cash to maintain.
Management must decide whether they want to invest additional cash to convert these SBUs into
stars or to faze them out.
The BCG matrix calls SBUs with a low market share and market growth the `dogs in an organisation’s
portfolio. A dog is usually a candidate for divestiture or liquidation. Such an SBU is in a saturated,
mature market with intense competition and low profit margins. If a portfolio analysis is conducted,
management should be able to select a grand strategy for the corporation. A strategy for dog
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businesses, for instance, would be to cut on maintenance or research and development – a strategy
called `harvesting’.
Management needs to ask and answer several searching questions about its strategies to evaluate the
strategies selected. The most important question is: will the strategies achieve the mission and long-
term goals of the organisation?
Obtain the Annual Report of a company listed on the JSE and

determine the following:
1. The industry or industries in which it is involved

2. The type(s) of products or services it markets
3. The strategy or strategies it appears to pursue
4. The extent to which the company appears to have
attained its strategic and financial objectives
What do you conclude regarding the long-term prospects of this

company? Motivate your answers to the above issues.
4.8 FACTORS AFFECTING STRATEGIC CHOICE
The choice of a grand strategy or strategies requires a clear decision that allows an organisation to
attain its goals. If an examination of the different strategies identifies a clearly superior strategy, the
decision is relatively simple. However, such clarity is the exception, which makes most decisions in
this regard judgemental. Several factors influence the decision to implement a specific strategy. We
shall discuss some of the more important factors below.
Firstly, corporate governance plays a major role in strategic planning and therefore in the choice of
strategy or combination of strategic planning and therefore in the choice of strategy or combination
of strategies. The King Report on Corporate Governance in South Africa acknowledges that there is a
move away from the single bottom line (that is, profit for shareholders) to a triple bottom line, which
embraces the economic, environmental, and social aspects of a major company’s activities. The board
responsible for ensuring that the organisation has implemented an effective ongoing process to
identify risk, measure its potential impact on the environment and society against a set of
assumptions, and then activate what it believes is necessary to manage these risks proactively. The
board should therefore decide on what risk that a company is prepared to take and the risks it will
take in pursuance of its mission and long-term goals.
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The fact that a strategy, once initiated, is very difficult to change because organisational momentum
keeps it going, is confirmed by Mintzburg’s research, which suggest that past strategy strongly
influences current strategic choice. The older and more successful a strategy is, the hard it is replacing.
Mintzburg also found that, even when a strategy begins to fail because of changes in the business
environment, strategists often increase their commitment to that strategy. It seems that, to change
unsuccessful past strategies, an organisation may have to replace key strategists to lessen the
influence of the past strategies on the future strategic choices.
Factors that influencing the choice of a strategy are:
▪ Corporate governance guidelines pertaining to risk management

▪ Previous strategies chosen
▪ Dependence on external factors
▪ Attitude towards risks
▪ Personalities of strategists
▪ Alignment with the organisation’s mission and long-term goals
▪ Proper timing
Some organisations are extremely dependent on one or more external factors, such as suppliers,
customers, or competition. These organisations may have to choose a strategy that they would
normally not choose to maintain their relationship with specific external factors. A gymnasium
offering aerobics and weight-lifting facilities, for example, may have to expand to offer Internet
facilities to members’ children so that the children can be kept busy while their parents are training.
The success of an organisation’s strategies also depends on proper timing. A seemingly good strategy
may be disastrous if undertaken at the wrong time. A construction company that decides to
concentrate on the first-time homeowner for the following two years may be detrimentally affected
by a sharp increase in interest rates. The same strategy may be very successful if the organisation
decides to hold off entering this market until interest rates have settled down.
Multiple Choice questions:
Question 1
The plan that provides direction to all decision made in an
organisation is called a _______plan.
A. Tactical
B. Operational
C. Strategic
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D. Marketing
Question 2
Which of the following best describes strategic planning?
A. Strategic planning focuses on the present
B. Strategic planning is also called tactical planning
C. Strategic planning focuses on aligning the organisation with
its changing environment
D. Strategic planning focuses mainly on refining the internal
processes in an organisation
Question 3
The Ford Motor Company’s ______is `to become the world’s
leading consumer company for automotive products and services’
A. Long-term goal
B. Strategy
C. Vision
D. Mission
Question 4
`We provide environment-friendly educational to pre-school
children through our franchised outlets’ is an example of a_______.
A. Vision statement
B. Mission statement
C. Long-term goal
D. Strategy
Question 5
The core components of a mission statement are_______.
A. Product, profit, productivity
B. Profit, people, productivity
C. Productivity, market, technology
D. Product, market, technology
Question 6
How many of the following are approaches that can be used to
determine an organisation’s strengths and weaknesses (internal
assessment)?
• Functional approach
• Value-chain approach
• Resource-based view
• Financial ratios
A. One
B. Two
C. Three
D. Four
Question 7
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According to the value-chain approach to internal assessment, a car
manufacturer will consider the assembly of cars in its plant
a________ activity.
A. Functional
B. Primary
C. Secondary
D. Support
Question 8
The resource-based view of an organisation focuses on_______
when assessing an organisation’s capabilities.
A. Tangible assets
B. Intangible assets
C. Organisational capabilities
D. All of the above
Question 9
The external business environment comprises the ________.
A. Macro-environment
B. Micro-environment
C. Macro-and market environment
D. Macro-, market and micro-environments
Question 10
Which of the following makes most sense?
A. Internal growth strategy, retrenchment, corporate
combination
B. External growth strategy, integration, joint venture
C. Decline strategy, turnaround, liquidation
D. Corporate combination, joint venture, internal growth
Sappi limited
Sappi was founded and incorporated in South Africa in 1936 and is a
global paper and pulp group today. Sappi is a leading producer of coated
fine paper used in books, brochures, magazines, catalogues, and other
print applications. The company also producer’s newsprint, uncoated
graphic paper, paper for packaging and more. Sappi is also the world’s
largest producer of chemical cellulose.
The company prides itself in its history of paper technology

breakthroughs and considers its technical competence and innovation
major strengths. Research and development is used by Sappi to ensure
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that they constantly satisfy the needs of their customers. Sappi’s
workforce comprises 16 400 committed employees.
Sappi’s vision is.

To embed 3ps of the Prosperity, People and Planet into our everyday
business processes to add value to all stakeholders to help achieve the
Sappi Limited vision of being, on a sustainable basis, the most profitable
company in pulp, paper, and chemical cellulose solutions.
The mission statement of Sappi reads as follows:

Our mission statement fulfils this aspiration by:
Focusing on ethical performance in keeping with our values of
excellence, integrity and respect. Generating prosperity as our ability to
remain a sustainable player is founded on generating profits in the short
and long term.
Improving the lives of people through products and services that enrich
their lives and by providing an environment in which they can develop
their full potential.
Treading more lightly on the planet by balancing our needs with our
impact on the earth. Sappi’s goal is to be most profitable company in the
industry in which they operate. The company has set itself clear goals in
terms of returns, customer satisfaction, employee satisfaction and
engagement. Management is committed to all businesses and decided
that growth and development will be the chosen strategies to success.
In giving effect to Sappi’s strategy management, employees will rely on
the company’s core value of excellence, integrity, and respect. Core to
Sappi’s business is their southern African portfolio of packaging,
newsprint, printing and writing paper, and tissue paper.
Questions:
1.Comment on Sappi’s vision and mission statements from an academic

perspective.
2.Compile a BSC for Sappi, based on the information provided above as
well as your own input.
3.Identify the type of strategy that Sappi wants to implement. Comment
on how well this strategy is aligned with Sappi’s mission statement.
4.Based on the information provided on Sappi above, on which strategic
planning element could you not find information?
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TOPIC 5
PLANNING
• Expound the nature and importance of planning – including

goal formulation – as a management function.
• Depict and discuss the hierarchy of plans and goals in goals.
• Incorporate the use of planning and goal-formulation tools
• Apply the management-by-objectives (MBO) process to set
goals at the individual level
• Translate the organisation’s Balanced Scorecard (BSC) into
a scorecard for their department, section, and individuals.
5.1 INTRODUCTION
All managers engage in planning and goal formulation – some plan informally while others plan
formally by documenting their plans and goals. The Springbok rugby selectors, who consider players
for the bench for a test against Australia, plan for possible replacements due to injury or poor
performance. The mountain climber must plan a route to the top of the mountain. The architect must
draft a plan that the building contractor can interpret when building a house. Top management must
formulate plans (strategies) and goals that will enable the organisation to survive in a very turbulent
environment. Middle management (the financial, research and development, marketing manager,
and so on) must translate top management’s plans and goals into plans and goals for their functional
areas (departments).
First-line managers then translate these into plans and goals for specific sections in the organisation.
If planning and goals formulation are claimed to be such an integral part of the life of managers, these
questions can rightfully be asked: what happens if a manager does not plan or formulate clear goals?
Does formal planning pay off? Is it worthwhile for managers to spend hours planning if the future has
84
become so unpredictable? Must goals really be that specific or is it acceptable to have broad
directions for the organisation only? One of the arguments presented by critics of formal planning is
that planning creates too much rigidity and does not accommodate changes in the unpredictable
environment in which organisations have to survive.
Managers in favour of planning may feel that planning, reduces the impact of change in the
environment, gives direction to the organisation, reduces overlapping and wasteful activities, and
establishes goals or standards that facilitate control, and so on. Who is right – the proponents of
planning or the critics? Many studies have been undertaken to test the relationship between planning
and organizational performance.
Contrary to the arguments made by critics, the overall evidence is generally positive. Results of these
studies allow us to draw, among other things, the conclusion that formal planning is associated with
increased growth in sales and earnings, higher profits, higher return on assets, and other positive
financial results. It also shows us that almost 80 per cent of new product innovations fail – the primary
reason being poor planning. Formal planning encompasses developing a comprehensive hierarchy of
plans and goals to integrate and coordinate activities in the organisation.
The strategic plan (including the strategic goals) serves as the focal point for all other plans and goals;
the strategic plan must be cascaded down into medium – term tactical plans and goals; these must in
turn be translated into short – term operational plans and goals. A hierarchy therefore depicts these
three types of plans goals. Planning and goal formulation are concerned with what the organisation
must do as well as how it is to be done.
5.2 THE NATURE AND IMPORTANCE OF PLANNING
The purpose of a profit-seeking organisation – such as BHP Billiton, Woolworths, Telkom, and Pam
Golding Properties – is to realise an above-average return for its shareholders and to satisfy the claims
of its other stakeholders. These stakeholders include employees, customers, suppliers, the
community, and the government. The object of every plan made by managers in these organisations
is therefore to facilitate the attainment of this purpose.
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CHANGES IN THE ENVIRONMENT
Structuring the organisation
Determining what kind of people

we need
Necessary
Plans (goals)
Determining how we should lead
them
By furnishing standards of
control
Figure 5.1: Planning as the primary management function

Analyse how balanced scorecard helps managers to focus on short

–term as well as long- term goals. Your answer must deal
specifically with the dimensions that compromise the balanced
scorecard.
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Plans have a specific value to an organisation, though it is a time-consuming activity to formulate
them. Time is money; therefore, planning should not be done at an unnecessarily high cost to the
organisation. Managers must make sure that the plans they formulate are effective. The concept of
effectiveness in planning implies much more than the ratio of input to output in terms of rands, labour
hours, or units, or units of production. The effectiveness of a plan also includes such value as individual
and group satisfaction, customer satisfaction, productive use of the organisation’s scarce resources
and concern for the environment. In South Africa, with its severe shortage of suitably skilled
managers, planning plays a crucial role in organisation towards success.
Companies in the mining industry in South Africa must plan carefully for the future to ensure that they
have suitably skilled managers and workers in the mines. Their plans need to take into account
mortality rates, HIV/AIDS, accidents, and occupational diseases. Critical skills that these companies
must plan for are: (1) management, leadership and supervisory skills, (2) skills to deal with health and
safety issues, and (3) technical skills.
The importance of planning is illustrated by the following:

The King Report on Corporate Governance deals with corporate governance in South Africa. This
report states that the board of directors is responsible, inter alia, for establishing a vision, mission,
and value for the organisation as well as approving goals, strategy, and policy. These issues all relate
to planning.
Planning to ensure a suitably skilled workforce to meet the demand for specific skills is essential for
growth in the economy, as well as for business growth.
Statistics affecting skills shortages in South Africa.
• Every 5 years South Africa lose 30% of the executive workforce to Australia.
• The University of Cape Town hoped to produce 12 actuaries at the end of 2008; 7 will leave South
Africa when graduating.
• Of every 100 students that enroll for first year Bcom Finance at university, only 25 will pass.
• South Africa has one engineer for every 3200 people, China and India has 1:150 and Europe 1:250-
300
Source: http://www.moneyweb.co.za
• Planning forces an organisation to be proactive – and not reactive. It forces management to

consider possible changes that may occur and then prepare timeously for these changes.
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• Labour legislation forces South African business organisations to plan their workforce according
to the relevant laws, such as the Employment Equity Act and the Labour Relations Act.
• Planning ensures that managers and workers focus their efforts on the attainment of the same
goals.
• Sound plans are essential when monitoring the progress of an organisation. Actual results can be
measured against clearly stated goals and deviations from the goals can be identified and
rectified.
• The increasing complexity of organisations makes planning essential. Modern organisation often
comprises a network of subcontractors who work for organisation but not at the organisation.
These subcontractors need to understand the plans and goals of the organisation to ensure that
they align their activities with them.
In your understanding, do you think organisations give serious

attention to the importance of planning? Provide reasons for
your thought process!
5.3 KINDS OF ORGANISATIONAL PLAN

The kinds of plan / goals made by top management, middle management, and lower management
(supervisors) differ in many respects. Top management typically must formulate plans (strategies) for
the entire organisation, middle management draft plans (tactics) for specific functional areas in the
organisation (such as the finance or marketing departments) to support top management’s plans;
lower management formulates plans for their specific smaller sections to support middle
management’s plans.
The following plans are found in an organisation:
• Strategic plans
• Tactical plans
• Operational plans
To formulate realistic plans, managers need to understand that the different kinds of plan – and goals
- in an organisation form a hierarchy.
5.3.1 Strategic plans

Strategic plans are designed to ensure that the organisation is aligned with the changing external
environment. These plans are formulated by top management and focus on the entire organisation.
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Strategic planning for a university will focus on issue such as: should the university establish satellite
campuses in all nine provinces of the country? Or should the university change from a traditional
university into an e-university? Or maybe the university should merge with other tertiary institution
to expand its current programmes.
Briefly discuss management by objectives as a goal-setting

approach at individual level in an organisation. Your answer must
focus specifically on how management by objectives enables an
organisation to cascade their strategic goals down to goals for
individuals in the organisation.
Planning at strategic level includes:
• Creating a vision (dream) of the future for the entire organisation

• Translating the vision into a realistic mission statement
• Translating the mission statement into measurable long-term goals
• Choosing a strategy/strategy to attain the above (explained in depth)
The strategic plan of an organisation reflects the following characteristics:
• Strategic plans have an extended time frame, usually more than five years. However, the time
frame depends on the type of industry and may be longer or shorter than five years.
• They focus on the entire organisation and not just certain departments in the organisation.
• Strategic plans look at reconciling the organisation’s resources with threats and opportunities in
the external environment.
• They focus on creating and maintaining competitive advantages for the organisation.
• These plans also take synergy into consideration. Kumba Resources, the South African mining
company, looks for synergy in the types of mines that they acquire. The mines must complement
one another mine could use as an input into its mining processes. Tactical and operational plans
are therefore needed to implement the strategies at middle and lower management levels. The
balanced Scorecard (BSC) is a tool that can be used at strategic, tactical, and operational level to
ensure that all divisions and individuals in the organisation focus on the same key performance
areas.
5.3.2 Tactical plans

Whereas strategic plans focus on the entire organisation and its interaction with the external
environment, tactical planning deals primarily with people and action to implement the strategic
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plans. The focus could be on the functional areas in an organisation, such as the marketing, finance,
operations, human resources, purchasing, research and development, and other functions.
A tactical goal of the marketing manager for a chain of bookstores could be to target and attract two
new market segments over the next five years. In the same chain of bookstores, the operations
manager may have a goal to redesign the layout of each bookstore. The financial manager in this chain
may have a tactical goal to earn at least ten per cent on excess cash over the following two years.
Tactical plans differ from strategic plans in the following ways:
Table 5.1 Difference between strategic and tactical plans
Type of plan Focus Time frame Specificity
Strategic Entire organisation Long term Direction, broad
Tactical Functional areas Medium term More specific
All these plans should be congruent- that is, they should contribute to the attainment of the
organisation’s overall goals. This could mean that some of the tactical plans – and goals – will have to
be reformulated to accommodate the plans from other functional areas.
5.3.3 Operational plans

Operational plans are developed by lower-level managers. These plans focus on carrying out tactical
plans to achieve operational goals. Operational plans are narrowly focused and have relatively short
time horizons (monthly, weekly, and day – to - day). For instance, the supervisor at a mine may
formulate an operational plan to ensure that all work shifts for the next week are properly staffed.
There are two basic forms of operational plan, namely single-use plans and standing plans. Single-use
plans are used for non-recurring activities, such as the refurbishment of South African Airways’
information desks at international airports. Plans that remain roughly same for long periods of time
are called ‘standing plans.
A programme is a single-use plan for a large set of activities. The building and upgrading of the
stadiums for the 2010 World Cup can be seen as a programme that had to be done within a fixed time.
A programme manager manages a portfolio of projects and is responsible for the programme meeting
its deadlines. A programme manager will have project managers working under him or her. A
programme can consist of different projects. The building and/or upgrading of the World Cup
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stadiums can be seen as ten separate projects, each with its project manager. A project plan guides
each project and should clearly state the scope of the project, time, cost, risk and quality issues
relating to the specific projects. A project goes through the following phases:
• Initiating
• Planning
• Executing
• Controlling
• Closing
Project management and general management share many similarities. General management
focuses on the long- term survival of an organisation; project management has a definite beginning
and end. A project is also a unique, once-off undertaking whereas general management is an ongoing
process. A budget is frequently thought of in financial terms only. However, budgets are also used to
plan the allocation and utilization of human, physical, and information resources.
Programmes, projects, and budgets are all single-use plans. They require of the manager to make
unique decisions and to solve unique problems. Policies, standard procedures and methods and rules,
on the other hand, are standing plans that have already been approved and must be applied
consistently throughout an organisation. Policies are general statements that guide decision making
in an organisation. Policies limit an area in which the organisation’s goals. A mining company may
have a policy regarding the appointment of migrant workers during peak demand times. All the shift
bosses will have to comply with this policy should they want to appoint additional workers during
these times.
Standard procedures and methods refer to the steps or tasks that must be taken to achieve a specific
purpose.
5.4 THE TIME-FRAME FOR PLANNING

Why do managers responsible for town planning plan ten years or more ahead, whereas the managers
at a clothing boutique have no plans that extend beyond a year or two? Why does Grootegeluk Coal
Mine in Limpopo plan years ahead to ensure that the mine will have sufficient water in years to come?
These differences in the time frame for planning have nothing to do with the quality of management
– or specifically planning – in these organisations.
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You have recently been appointed as a head of a section in a
medium –sized business. The section has been poorly managed in
the past, mainly because of very poor planning done by your
predecessor. Analyse how you will go about ensuring that proper
plans are in place for this section in future.
Top management at the City Lodge hotel group must commit vast resources when deciding to open a
new hotel in South Africa. However, the supervisor in the breakfast restaurant in one of the City
Lodges rarely – if ever – makes plans that commit the hotel well into the future. This shows us that
plans, and therefore also goals, formulated at different management levels cover different time
frames.
5.4.1 Long-term plans

Strategic planning focuses on the future and extends beyond the organisation’s current realities. The
time frame that it covers can be considered as long term. The time span for strategic planning varies
from one organisation to the next – as was stated in a previous paragraph. The time frame for strategic
plans should take into account variables such as the stability of the relevant industry and turbulence
in the business environment.
5.4.2 Intermediate plans (tactical plans)

Intermediate plans refer to the medium-term planning carried out by middle management for the
various functional departments in the organisation. This includes planning for the research and
development, marketing, financial, operations, human resources, administration, and other
functions. Intermediate plans are components of long-term goals and plans that focus on the
contribution that the different departments must make to help implement the strategic plan.
5.4.3 Short-term plans (operational plans)

Short-term (or operational) plans are concerned with periods of no longer than a year. They are
developed by lower management to achieve the operational goals. Short-term plans are concerned
with the day-to-day activities of an organization and the allocation of resources to individuals in
accordance with projects; budget, and so on, in order to fulfil certain aims. In a take-away restaurant
the scheduling of workers for the different shifts will be considered an operational plan.
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5.5 STEPS IN THE PLANNING PROCESS
Now that we have discussed the different kinds of plans as well as their time frames, we can move on
to the different steps in the planning process. Planning is carried out in identifiable steps. Essentially
the same steps are followed in planning, irrespective of the complexity of the situation – whether it
is planning the Gautrain railway line or planning for an event such as a soccer match. The following
eight practical steps are of general application and should be performed for both simple as well as
complex planning situation.
Step 1: Identifying changes that necessitate planning

The first step in planning is therefore to identify any changes that necessitate planning. These changes
can occur either outside or inside the organisation. The Employment Equity Act may be a trigger for
planning to ensure that the organisation complies with this Act. So too can pressure from
environmentalists cause the organisation to plan for the replacement of equipment with new,
environmentally friendly equipment.
For instance, a pizza takeaway franchise may decide to change its products range due to pressure
from customers for healthier pizza options. This necessitates proper planning at head office as all its
pizza franchises will have to be informed of the changes, menus will have to be changed, and staff will
have to be trained to make the healthier options for the customers.
Step 2: Establishing goals

Once the changes have been identified, goals need to be formulated to give direction to all major
plans. These goals form a hierarchy, starting with the vision at the top of the hierarchy. The vision is
then translated into a mission statement, which is translated into long-term goals for the organisation.
These in turn are translated into functional goals, and so on. The pizza franchise discussed under Step
1 above will have to set goals for its new plan to offer healthier pizza options. It may set a goal to
implement its new menus in all franchises in Gauteng within 18 months.
Step 3: Drawing up premises

It would be surprising if the individual members of an organisation’s management team all agreed
about the organisation’s future. Consistent premises should be agreed upon by top management –
and shared with other managers – to ensure that subordinate managers base their plans upon the
same premises. In the case of the pizza franchise discussed under the previous steps, managers will
have to agree on assumptions regarding the impact that the healthy pizza options will have on the
existing product range, the impact that this change will have on the image of the pizza franchise, and
so on.
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Step 4: Developing various courses of action
It seldom happens that there is a plan for which there are no alternatives. The fourth step in the
planning process is, therefore, to search for and examine various courses of action. The pizza
franchisor may consider (1) enlarging the existing pizza outlets or (2) establishing a new brand for the
healthier pizza options or (3) getting rid of the old ‘unhealthier’ product range.
Step 5: Evaluating various courses of action

The fifth step in the planning process is to evaluate the options by weighing up the various factors in
the light of the premises and goals. One option may appear to be extremely profitable but may require
the retrenchment of many employees; another option may seem less profitable but may not lead to
job losses. The pizza franchisor will have to decide on criteria that will enable it to choose the best
option or course of Action.
They may decide on criteria such as cost, influence on current staff, alignment with the brand,
customer preferences, or any other relevant criteria. The number of options in most situations is
legion, and the numerous variables and limitations may be complex. This makes the evaluation of
options a difficult task. Techniques that are widely used for the evaluation of possible options are risk
analysis, decision trees, and preference theories.
Group System: A tool to support planning

Group System, a US-based company, now offers South African organisations a unique set of
technologies to optimize their planning and decision making. Using these tools and techniques, such
as brainstorming, generating options, voting, alternative analysis and more, group can harness the
intelligence and skills of the entire group when planning. The result is innovation deriving from group
intelligence which reflects the democracy of all, not just of a select few.
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Figure 5.5 Steps in the planning process
Source: http//www.groupsystems.com/technology
95
Step 6: Selecting a course of action
The real point of decision – the sixth step – is now reached. The manager selects the course of action
that he or she wishes to follow; they may even decide to follow several courses rather than a single
one. The pizza franchisor may decide at this point that to enlarge the current outlets will have the
most positive – and least negative – impact in their current operations.
Step 7: Formulating derivative plans

Planning is seldom complete when a decision is made. The decision to enlarge its current pizza
franchise outlets is the signal for the development of a host of derivative plans dealing with the new
layout of the outlets, retraining of staff, updating of the menus, and the processes and system in each
franchise.
Step 8: Budgeting
The eighth and final step in the planning process is the conversation of the plans into budgets. Through
budgeting, managers ensure that they have the resources available to carry out the plans to achieve
the organisation’s goals. The pizza franchisor will have to budget for, amongst others, the cost
involved in the redesign and upgrading of each pizza outlet, training costs, printing costs, and new
signage for the outlets.
Determine a practical situation within the business environment

which has either presented an opportunity or posed a challenge to
the organisation. As a result, this situation has necessitated the
planning process to be undertaken by such an organisation. Provide
the concerned organisation with the requirements and applicable
solutions.
5.6 BARRIES TO EFFECTIVE PLANNING

The dynamic and complex environment in which managers work requires careful consideration during
planning. One of the biggest mistakes that a manager can make is to assume that conditions in the
environment will remain constant.
Unless a manager has insight into the technology affecting the organisation, competition, changes in
customer preferences, new legislation, and may other things, he or she is on very shaky ground. To
plan effectively, managers need a clear understanding of which resources their organisation can utilize
in order to attain the vision, mission, and goals of the organisation in a changing environment. They
need to understand the strategy that the organisation is following. They also need to understand the
goals of their own and of other sub-units (departments, division, or sections).
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Concentration on proven plans and neglecting future plans is, however, certain to lead to their
downfall. Reluctance by some managers to establish goals for their sub-units in another barrier to
effective planning. Managers may not understand the principles of formulating goals. A lack of
confidence, inability of manager and their subordinates could be another reason for this reluctance.
Fear of failure may be another reason why managers are reluctant to formulate goals; by not setting
goals for their sub-units, managers cannot be accused of not attaining their goals. Resistance to
change is another barrier to change. Almost by definition, planning involves changing one or more
aspects of an organisation’s current solutions to enable it to adapt to the ever-changing external
environment. Organizational changes may be required in one or more elements of the organisation:
the organizational structure, the reward system, or work hours, to mention just a few. In planning for
change, management almost inevitably encounters resistance.
Planning is time-consuming and expensive. Managers sometimes become so involved in their day-to-
day activities that they neglect their management task of planning. Setting up a planning system and
gathering information to make it work requires time and effort from many people. This high cost of
planning – especially when it is introduced into an organisation for the first time – is often expected
to be justified with tangible result. Since this is difficult to do, planning is often reduced to a superficial
process.
Barriers to effective planning discussed in this section include:
• Ignoring the constantly changing external environment

• Lack of understanding of the business’s strategic plan
• Poor understanding of the principle of goal formulation
• Resistance to change
• Planning being time-consuming and expensive.
Although the barriers to planning might seem insurmountable, there are guidelines that managers
can use to overcome them:
• Effective planning should start at the top of an organisation. Top management’s sincere
involvement in planning sets the stage for subsequent planning at middle and lower management
levels and stresses the importance of planning to everyone in the organisation.
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• Management should realise the limitations of planning. Although it may sound paradoxical, good
planning does not necessarily ensure success – adjustments and exceptions are to be expected as
a plan unfolds.
• The role that lines and functional managers play in the planning process cannot be
overemphasized. Planning initiated at the top should be communicated to others in the
organisation. Managers and all other employees involved in the planning process should have a
clear understanding of the grand strategy of the organisation (for example, to reduce operating
cost), as well as of the functional strategies (for example, the marketing and production strategies)
and of how they are interrelated.
• Plans should constantly be revised and updated. Planning should be seen as a process and not a
once-off activity. New information on changes in the business environment, an unexpected strike
by factory workers, or the discovery of a hazardous substance in a pharmaceutical product being
developed, are examples of events that make planning a dynamic process.
• Contingency planning may be very useful in a turbulent environment. Contingency planning is the
development of alternative course of action to be taken if an intended plan is unexpectedly
disrupted or rendered inappropriate.
5.7 PLANNING TOOLS

To overcome any resistance, they must planning, managers can use planning tools. These tools enable
managers to plan scientifically and not simply look into a crystal ball. These tools include forecasting,
budgeting, and scheduling and monitoring tools.
5.7.1 Forecasting
An important prerequisite for planning is to have some idea of what is likely to happen in the future
as far as an organisation is concerned. A forecast is therefore a projection of conditions expected to
prevail in the future based on both past and present information.
Forecasting starts with the identification of factors that might provide opportunities or pose threats
to an organisation in the future.
Areas of forecasting that are of the utmost importance to most organisations are sales and revenue
forecasting and technological forecasting.
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Poor forecasting: Some examples
The abolishment of pain in surgery is chimera. It is absurd to go seeking it today. Knife and pain are
two words in surgery that must forever be associated in the consciousness of the patient. (Dr Alfred
Velpead, 1839)
That [the atom bomb] is the biggest fool thing we have ever done…. the bomb will never go off,
(Admiral Will D Lenhy to President Truman, 1945)
My figures coincided infixing 1959 as the year when the world must go to smash. (Henry Adams, 1903)
The demonstration that no possible combination of known substances, known form of machinery and
know form of force can be united in a practical machine by which man shall fly long distances through
the air, seems to the writer as clear as it is possible for the demonstration of any physical fact to be.
(Simon Newcomb, astronomer, 1903)
Forecasting in the South African mining industry

Forecasting plays a vital role in the South African mining industry. To ensure that mines have sufficient
and suitably skilled managers and workers in this industry in the future. The following factors must be
forecast to ensure proper planning:
• HIV/AIDS: A study by the Human Sciences Research Council on the prevalence of HIV in South Africa
estimates the infection rate of adult aged 25 years and above to be 15.5 per cent. It is estimated
that up to 30 per cent of the mining industry’s workers are living with HIV/AIDS.
• INJURIES: Between 4000 and 5000 workers are injured in mining accidents every year.
The above data have an impact on the profitability of organisations, increased medical costs,
employee benefits, and the cost of replacing employees, who die, productivity, absenteeism, the
sagging morale of workers, and so on. Proper forecasting of trends in the above, and other factors, is
essential for long-term survival of the mines.
Source: ‘Sectors Skills Plan for the mining and minerals sector: 2005 to 2010.’ Update 31 October 2005.
Mining Qualifications South Africa.
The term ‘sales forecasting’ is appropriate not only to organisations that sell goods or services. All
kinds of organisations depend on financial resources, which necessitate forecasting. A university must
forecast future student numbers when planning to expand its library facilities; a hospital needs to
forecast its income from patients; and airlines must forecast the number of tourists who may visit a
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specific country during specific period. In these cases, revenue forecasting would seem to be a more
appropriate term than the more conventional term ‘sales forecasting’.
Technological forecasting focuses on the prediction of what future technologies are likely to emerge
and when they are likely to be economically feasible. Managers must be able to anticipate new
technological developments in their industry. This gives the organisation an advantage over its
competitors whose products or services may become obsolete because of new technology. Although
sales and revenue forecasting projects future needs for human, financial, physical, and information
resources.
5.7.2 Budgeting
A budget is a financial plan that deals with the future allocation and utilization of resources over a
given period. A budget can be seen as a tool that managers use to translate future into quantitative
terms (rands and cents). A budget exercises control in two ways:
• It sets limits on the number of resources that can be used by a department or unit.
• It establishes standards of performance against which future events will be compared.
• Characteristics of budgets
• They are most frequently stated in monetary terms.
• They cover a specific period (usually one year).
• They contain an element of management commitment.

• They are reviewed and approved by an authority higher than the one that prepared them.
• Once approved, they can be changed only under previously specified conditions.
• They are periodically compared with actual performance, and variances are analysed and
explained.
Budgets help managers to coordinate resources and projects and they help to define the standards
needed in all control systems. They provide clear guidelines on an organisation’s resources and on
their utilization. Budgets also facilitate performance evaluations of managers and units by assessing a
business organisation, unit, department, or section against specific standards. Zero-based budgeting
(ZBB) is a planning technique that plays an important role in organisations going through change.
ZBB is a technique by which the budget request must be justified in complete detail by each division
manager starting from the zero base. The zero base is indifferent to whether the total budget is
increasing or decreasing.
5.7.3 Scheduling and monitoring

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The Gantt charts
The Gantt chart is a graphic planning and control method in which a project is broken down into
separate tasks. Estimates are then made of how much time each task requires as well as the total time
needed to complete the entire project. The starting and end dates of the tasks are indicated on the
chart. When planning a new training programme, the essential activities of the programme must be
determined. Some of the activities in the chart require the completion of other activities before they
can begin (for example, the training needs analysis must be completed before the design of the
programme can start).
Think of a recent project where a “Gantt chart” scheduling and

monitoring technique can be most suitable.
Once the basic activities have been determined, a target completion date must be set for each activity.
This is depicted on the horizontal axis. The next step is to determine the duration of each activity. If
the programme starts on 2 January, registration must start on 1 November of the preceding year.
Once the activities, as well as the activity duration, completion time, and latest starting time have
been determined, the Gantt chart can be drawn. Managers can monitor the progress of the project
by comparing actual progress with planned progress.
PERT
PERT, an acronym for Programme Evaluation and Review Technique, is a planning tool that uses a
network to plan projects involving numerous activities and their interrelationships.
The key components of pert are activities, events, time, the critical path, and possibly cost. These
components are explained in the following example. If a construction company is awarded the project
by the South African government to upgrade the N3 highway between Heidelberg and Villiers, the
construction of the highway will comprise several events for the company. Each event will require
multiple activities.
Four steps can be followed in developing a pert network:

Step 1 list all activities and events
All the activities and events that must be completed to realise the objective should be listed. Each
should be assigned a letter. In constructing the highway, relevant events for the construction company
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would include design of the highway, approval of the plans, preparing detours for traffic, closing off
certain sections of the highway, demarcating the boundaries of the highway, felling trees, and so on.
Step 2 Determine completion times

The time to complete each activity, and therefore each event, should be determined.
Step 3 Arrange tasks chronologically

Arrange tasks in the sequence in which they should be completed. In figure 5.7, for instance, E must
be completed before H can begin. Note that activity D is independent of the other activities. The
numbered circles signify the completion of an event. in Figure 5.7,1 represents the start of the project
and 9 the completion date.
Step 4 Determine the critical path

The critical path should be determined. To do this, total the time it takes for each path from start (1)
to end (9). Path 2 – 6 – 8 – 9 takes 2 + 7 + 4 + 1 months. Path 1 – 3 – 6 – 8 – 9 takes 16 months. Path 1
– 4 – 7 – 8 – 9 takes 18 months. Path 1 – 5 – 9 takes 10 months. The critical path is 1 – 4 – 7 – 8 – 9.
The project should therefore take 18 months to complete. Pert allows managers to monitor a
project’s progress, identify possible bottlenecks, and shift resources as necessary to keep the project
on schedule.
5.8 GOAL FORMULATION
Formulating goals is an intricate part of the planning process and requires special attention. It would
be difficult to come up with an example of a plan that does not have goals as the foundation from
which the plan evolves.
The hierarchy of plans clearly differentiates between:
• Strategic plans
• Tactical plans
• Operational plans
Goals must be formulated for each of these three levels to ensure that the plans are focused on the
same result – the mission statement. The goals in an organisation therefore also form a hierarchy,
ranging from the broad purpose of the organisation, and its mission, to very specific individual goals.
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If any one of the managers fails to achieve their goals, the company’s profits will be affected, which
will impact not only on the mine, but also on the other stakeholders – shareholders, employees,
customers, suppliers, the community, and the government.
5.8.1 The focus areas
These focus area – also called key performance area – are areas that have been identified by top
management as crucial in the attainment of the organisation’s mission. The key performance areas
stated in the mission statement therefore clearly highlight top management’s priorities for the future.
Words or phrases in the mission statement, such as ‘lower cost producer’, or ‘most innovative’, or
‘superior returns for our shareholders’, indicate what the goals have to focus on. These words or
phrases in the mission statement lend themselves to different interpretation, however, and therefore
must be translated into something more specific and measurable.
What does ‘lowest cost producer’ mean? Or how is ‘most innovative’ interpreted by managers and
employees in different sections and levels of the organisation? The strategic goals of the organisation,
guided by the vision, mission statement and strategies of the organisation, will often focus on such
areas as the following:
• Finance
• Customers
• Internal processes
• Learning and innovation.
These four dimensions are the focus areas suggest by Kaplan and Norton in the Balanced Scorecard.
These focus areas ensure that the organisation focuses on short-term issues (finance) as well as long-
term issues (customers, internal processes and learning and innovation). However, organisations
should adapt the Balanced Scorecard to reflect the key performance areas of the specific organisation.
For examples, an organisation could add a ‘risk’ dimension to the above four dimensions should the
management of risk be a key performance area to that organisation.
5.8.2 Properties of well-formulate goals

Understanding the nature of goals – especially their hierarchy and areas of focus – enables managers
to formulate goals for the organisation, for its departments and sections, and for the individuals in
them, that focus on the mission of the organisation. The Balance Scorecard was designed to ensure
that all goals in the organisation are well aligned and focus on the same key performance area.
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Specificity
Good goals should be specific and should indicate what they are related to, the time frame for
accomplishing them, and the desired results. For instance, a goal should not only state that ‘cost must
be reduced by 12%’; it should be much more specific and state that ‘operating cost must be reduced
by 12% within the next two years.
Flexibility
The turbulent environment in which organisations operate in South Africa and abroad makes it
necessary to allow for goals to be modified. Flexibility is often achieved at the expense of specificity.
Organisations are often ‘guilty’ of not changing their goals when the conditions on which goals were
based subsequently change. This could result in the unfair ‘punishment’ of managers and employees
who then cannot attain these goals.
Measurability
Measurability means that goals should be stated in terms that can be evaluated or quantified
objectively. The primary reason why goals should be measurable is to facilitate control – goals often
evolve into control standards for performance appraisal. The poorly formulated goal ‘to improve on
customer satisfaction’ can be made more measurable by stating that the organisation wants to
improve its customer satisfactions rating to a rating of at least 85 per cent within the next 18 months.
Attainability
Goals should be realistic and attainable but should also provide a challenge for management and
personnel. People are most productive when goals are set at a motivating level – a level high enough
to challenge, but not so high that it frustrates or so low that it is too easy to attain.
Congruency
Goals should be congruent with one another. Congruency means that the attainment of one goal
should not preclude the attainment of another. A marketing goal to increase visibility of a specific
brand through an advertising campaign could be incongruent with the financial goal of ‘cutting cost
in all areas of the business by 20 per cent over the next 12 months. Incongruent goals may lead to
friction and conflict between departments and sections. This can be overcome if managers are
allowed to function across boundaries.
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Acceptability
Managers are most likely to purpose goals that are consistent with their values, attitudes, perceptions,
and preferences. The collaboration of managers at all levels in the goal – formulation process is
therefore important. While the other specifications of goals discussed in this section may be
influenced by management, they cannot influence the acceptability of goals.
5.8.3 The degree of openness

We can also distinguish between official and operative goals. The official goals of the organisation are
those that society expects the organisation to pursue. They are derived from the vision and mission
of the organisation and the organisation espouses these official goals formally and publicly in annual
reports and company publications.
Operative goals represent the private, unpublished goals of an organisation. The operative goals of
Toyota South Africa might include delaying the launch of a new motorcar until after the dust has
settled regarding their recalled cars. A university might have an operative goal of an eight per cent
budget increase because it recognizes that its formal request for a 16 per cent increase is unlikely to
be granted by the government.
5.9 THE PROCESS OF GOAL SETTING

A question that needs to be answered at this stage is: who sets these goals in an organisation? This
question is not easily answered, as different organisations use different goal-setting processes. These
processes range from centralized to decentralised goal setting.
In some organisations, the board of directors sets the goals.
These goals encompass the entire organisation, and this typically results in more congruent goals, as
the setting of long-term as well as short-term goals is more likely to focus on the organisation’s
mission. A retail company may decide at head office that in all its retail outlets at least 40 per cent of
managers must be from designated groups before the end of 2012.
When goals are set in this way, we speak of centralized goal setting. Although centralized goal setting
has important advantages, it also has significant disadvantages. One major disadvantage is that the
goal-setters may know little about the opportunities and problems faced by lower-level manager.
Lower-level managers may also resist directives coming from above if they do not understand the
reasons for them.
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With the advent of technology and the speed with which it
changes, what challenges are organisations likely to encounter
as they keep their operative goals closely guarded.
What measures do organisations resort to once they realise

that their goals have been either violated or abused in one way
or the other. In your response, offer an example
Decentralized goal setting takes place when managers at each level of an organisation have dominant
influence on their unit or department’s goals. Two basic approaches can be identified, namely the
top-to-bottom approach and the bottom-up approach. In the top-to bottom approach to goal setting,
the board of directors or corporate-level managers set the corporate goals and the head of each
division or business unit sets the goals for his or her division or business unit in line with the corporate
goals.
The same approve the goals of lower-level managers. In the bottom-up approach, the lower levels set
their goals, and higher-level managers set their goals to be in line with the lower level goals. This
approach is sometimes less likely to yield a coordinated effort and congruent goals, as some managers
tend to fall into the trap of tunnel vision and therefore focus only on what in important for their unit.
Decentralized goal setting can be:

• Top-to-bottom
• Bottom-up
• A combination of the above.
A combination of the top-to-bottom and the bottom-up approaches is an approach to goal setting
used by many organisations – this approach stresses the importance of the purpose and mission of
the organisation as formulated by top management, but also takes into account the strengths and the
weaknesses of each division. Whether goals are proposing from the bottom or imposed from the top,
once agreement has been reached, there should be a firm commitment at all levels to provide the
resources and achieve the results. Finally, it should be noted that the decision to use centralized or
decentralized goal setting affects strategy selection, the organizational structure, and the
management of the organisation in general.
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5.10 TECHNIQUES FOR GOAL SETTING
The Balanced Scorecard (BSC) discussed in Chapter 4 and earlier in this chapter, is used by
organisations such as Kumba Resources and Edcon to set goals at all levels of the organisation – from
top management right down to goals for individuals.
The Balanced Scorecard can then be used for performance management purposes at individual level.
The BSC as a goal-setting tool ensures that all departments, sections, and individuals in the
organizational goals are called management by objectives or MBO. MBO is based on the belief that
the joint participation of subordinates and superiors in translating or converting broad organizational
goals into more specific individual goals has an impact on employee motivation. In other words, MBO
is based on the belief that you are motivated to perform more efficiently in an organisation if you
participate in selecting your own personal goals. Obviously, these goals must support the
organisation’s strategic goals.
MBO managers focus on the result – not the activity. They delegate tasks by ‘negotiating a contract
of goals’ with their subordinates without dictating a detailed roadmap of how to do it. Stated
differently, MBO is about the end, not the means of achieving the end. The principle behind MBO is
to make sure that everybody within the organisation has a clear understanding of the strategic goals
of the organisation, as well as their own roles and responsibilities in achieving those goals.
MBO refers to goal formulation at the individual level. The importance of objectives or goals in
management can best be seen by showing how MBO works in practice.
Job output Performance

The gaol targets
hierarchy
Evaluation and Determination Discussion of

feedback of checkpoints goals
Figure 3.10 the process of MBO
For an MBO programme to be successful, the process should start at the top of the organisation and
should have the active support of the top managers. Top management should create an organizational
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culture that is supportive of a goal-oriented approach. Before the process MBO is implemented in an
organisation, top management should explain to subordinates why it has adopted the process.
Management and subordinates should then be informed about MBO and their role in it. Top
management should tell subordinates what MBO will do for the organisation, for each department
and section, as well as everyone in the organisation. Top management should stress the fact that it
actively supports and is committed to MBO.
The goal hierarchy

Having adopted the MBO philosophy in an organisation, it is necessary for each subordinate involved
in the MBO process to have a clear understanding of the hierarchy of plans and goals in the
organisation. Subordinates should also understand what the area are that management is focusing on
(key performance areas) over the next period. If one of the focus areas is to reduce costs, the
subordinate should understand why this is important to the organisation.
Job output
The goal-setting process starts with a discussion between the manager and the subordinate about the
outputs for which the letter is responsible. The key performance areas as well as the key performance
indicators of the subordinate – as agreed upon in his or her performance contract – should be
discussed to ensure that both parties are familiar with the subordinate’s job output. The key
performance areas (KPAs) must be aligned with the organisation’s KPAs.
Performance targets
The subordinate formulates performance targets in predetermined areas of responsibility for a
forthcoming period. Each goal should be as quantitative as possible, specific, concise, and time
related.
Discussion of goals
During this stage the subordinate meets with his or her superior to discuss potential performance
targets. The purpose of this discussion is to arrive at a set of goals that the subordinate and the
superior have developed jointly and to which both ate committed. Involvement is the key element at
this stage. Goals dictated by a superior do not evoke full commitment from subordinates. By the same
token, failure by a superior to participate fully and actively in this step leads subordinates to believe
that management places little value on MBO. Superiors play the critical role of counsellors in the goal-
setting discussion. They should ensure, amongst other things, that subordinates’ goals are indeed
attainable and that these goals will facilitate goals at the higher levels of the goal hierarchy. The
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goalsetting process may, however, take the form of a struggle. The employee may want to see easy
targets to ensure their achievement, whereas the supervisor may want to set challenging targets to
increase work performance.
The discussion between subordinate and superior should also spell out the resources that a
subordinate need to work effectively towards goal attainment. A subordinate should know which
human resources he or she is allowed to mobilise (for example, the number of marketing researchers
from the marketing department), the financial resources available to him or her (budget), the physical
resource allocated to him or her (office space, computers, vehicle, warehouse, and so on), and the
information resources at his or her disposal (such as reporters, surveys, and financial statements).
Determination of checkpoints
A subordinate’s progress needs to be measured periodically and checkpoints need to be established
for this purpose. If the goals are established for a one-year period, it may be a good idea for
subordinate and superior to meet on a more regular basis to discuss progress to date. These periodic
reviews not only monitor the subordinate’s progress, but also provide an opportunity to adjust goals
that have become unrealistic in the light of changing conditions or uncontrollable events – such as the
loss of productive hours due to a strike or the resignation or the resignation of a key person in a
project.
Evaluation and feedback

At the end of the predetermined performance period, the superior should meet with the subordinate
to review the degree of goal attainment. The meeting should focus on goal analysis and a discussion
of the results achieved. The supervisor should also give feedback to the subordinate on his or her
progress. From the discussion above a great deal of planning and commitment from top management,
superiors, and subordinates is necessary to implement MBO successfully. It is also evident that
changes in an organisation may have to make in areas such as communication between managers and
subordinates to facilitate the MBO process. The question now arises: is it worthwhile for an
organisation to adopt the MBO philosophy? The benefits that are discussed below should convince a
critic of MBO that it is a very useful planning tool if used correctly.
Some of the major benefits that organisations experience when they implement MBO are:
• Improved employee morale through participation in goal setting

• Increased clarity of the outputs that have to be delivered
• Improved communication resulting from the process of discussion of goals.
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MBO also has limitations, one of them being the overburdening of manager and subordinate with the
administration of the process.
MULTIPLE CHOICE QUESTIONS
Question 1
Which one of the following statements is correct?
1. Planning is done by top management only

2. Top management relies primarily on their
technical skills when planning
3. Supervisors are responsible for tactical
planning in an organisation
4. Strategic plans are translated into tactical and
operational plans
Question 2
The management functions are best described as

_________.
1. Planning, leading, organizing, controlling

2. Planning, organizing, leading, controlling
3. Leading and motivating
4. None of the above
Question 3
Planning activities include_________.
1. Forecasting
2. Goal formulation
3. Scenario planning
4. All of the above
Question 4
___________ Plans should ensure that the

organisation is aligned with opportunities and
threats in the external environment.
1. Tactical
2. Operational
3. Strategic
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Question 5
The upgrading of the N1 highway between Pretoria

and Polokwane is called a_____________
1. Programme
2. Project
3. Recurring plan
4. Standard plan
Question 6
_______________are standard plans and must be
applied consistently throughout an organisation.
1. Budgets
2. Programmes
3. Projects
4. Policies
Question 7
The terns ‘activity, event, critical path, network’

relate to _____________.
1. The Balanced Scorecard

2. The Ghannt chart
3. PERT
Question 8
The ___________focuses on ‘finances’,

‘customers’, ‘internal processes’ and ‘learning and
innovation’ as focus area for goal formulation.
1. The Balanced Scorecard

2. The Ghannt chart
3. PERT
Question 10
MBO means that managers_________.
1. Focus on the end, not the means

2. Involve subordinates in formulating their
individual goals
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3. Must ensure that subordinates understand
the organisation’s strategic plan
4. All of the above
Eskom secures R271.8bn of R300bn needed for expansion programme
Picture: THINKSTOCK
POWER utility Eskom has secured R271.8bn of the R300bn needed for its
current capacity expansion programme and is optimistic that it can raise the
remainder, executives said on Friday.
Eskom’s strained financial position, the result of a huge capital investment
in new power stations which are running late and over budget, is raising
concerns about its credit rating and the potential effect on future energy
tariffs.
After the utility was granted an 8% a year tariff increases by the regulator
over five years against the 16% it asked for, it warned of a R225bn revenue
shortfall over the five years to 2018 and has called on the government, its
only shareholder, for a R50bn equity injection.
Eskom senior GM of treasury Caroline Henry said the utility had issued a
request for proposals for international finance for the remaining R30bn it
needed and would time its capital raising according to market conditions. A
decision on issuing preference shares to the public had to come from the
government, but this was a sensitive issue as it might lead to perceptions
that Eskom was being sold.
Interim CE Collin Matjila said Eskom’s R300bn fund-raising programme

covered no more major construction after the completion of Kusile. The
government was finalising the updated Integrated Resource Plan, its long-
term energy strategy, and would then make decisions on future energy
projects.
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For several years’ energy experts have argued the government must decide
on the next build programme urgently because of the long time needed to
bring on stream a substantial new coal or nuclear power station.
In the year to March Eskom grew revenue 8.3% to R139.5bn compared with
last year, in line with the tariff increase granted by the regulator, although
demand rose only 0.6%, finance director Tsholofelo Molefe said.
Flat demand largely reflected strikes and weak commodity prices in the gold
and platinum sectors, while Eskom’s other customers were not using more
electricity as they were switching to energy efficient technology.
Bottom-line profit rose 36.5% to R7.1bn. The bottom line was boosted by a
R2.1bn profit on the embedded derivative, against last year’s R5.9bn loss.
The embedded derivative reflects the estimated gain or loss on the long-
term supply agreement between Eskom and BHP Billiton which is linked to
the aluminum price and exchange rates. In the past year the movement in
the rand/dollar exchange rate and interest rates has moved the value of the
contract in Eskom’s favour.
The utility sold 217,903 gigawatt-hours (GWh) of electricity last year, slightly
above the 216,561 GWh sold in 2012/3, earning average revenue of
62.82c/kilowatt hour (kWh). However, operating costs rose 10% year on
year to 59,67c/kWh, well above the target of 52.67c/kWh. Mr Matjila
reiterated that the first unit of the Medupi power station was still expected
to be synchronised in the second half of this year, but key challenges
remained, including finding solutions for the control and instrumentation
systems.
Kusile’s first unit was scheduled for synchronisation by the end of next year,
where the key challenge was to find a solution for control systems to avoid
repeating the delays experienced at Medupi. Work at the Ingula pumped
storage scheme was delayed by a year to the second half of next year after
the recent accident that cost the lives of six contractors, Mr Matjila said.
Source: Charlotte Mathews:

http://www.bdlive.co.za/business/energy/2014/07/11/eskomsecures-
r271.8bn-of-r300bn-needed-for-expansion-programme
Questions:
1. Evaluate the implications of a delay at the Ingula pump storage area.
2. Analyse the financial managerial implications of funding for Eskom.
113
TOPIC 6
MANAGERIAL DECISION MAKING
• Analyse the differentiate between problems, problem

solving, and decision making.
• Compare different types of managerial decision making
and decision-making conditions.
• Examine the various decision-making models.
• Evaluate e group decision making.
• Suggest techniques for group decision making.
• Recommend tools for decision making under the various
decision-making conditions.
6.1 INTRODUCTION
Organisations, large or small, profitable, or non-profitable, are confronted with challenges on their
daily operations in an ever changing and dynamic environment. These challenges can range from
simple to complex, known to the unknown. However, they all warrant the organisation’s measured
attention. They need to assess, creative solutions weighted, and decisions taken. In a nutshell, this
topic will provide some insight in terms of what can be done when organisations are faced with such
challenging situations. It will also provide and explain an array of techniques that can be applied to
deal with them.
All managers, regardless of their skills or level at which they are involved; perform the four
fundamental management functions of planning, organising, leading, and controlling. While
performing these functions, managers are constantly faced with opportunities and threats that need
114
to be solved and decisions that need to be made. This concept explores creative problem-solving
techniques that can assist managers in these processes.
6.2 THE RELATIONSHIP BETWEEN PROBLEMS, PROBLEM SOLVING & DECISION MAKING.
Irrespective of level, all managers are responsible for goal setting. Whenever these goals are not met,
a problem exists. Therefore, a problem exists whenever managers perceive a difference between the
results and predetermined plans. Consequently, steps must be taken to solve the situation. Problem
solving can be defined as the process of taking corrective action that will solve a problem and that will
realign the organization with its goals. Whereas decision making refers the process of taking an
alternative course of action that will solve a problem.
Various tools are available to assist managers in especially two

stages of the decision making, namely the evaluation of alternative
courses of action and the selection of the best option.
Discuss these tools for decision-making and distinguish between

the tools that are most appropriate for use by top, middle and lower
management of an organisation.
6.3 TYPES OF MANAGERIAL DECISIONS
All managers in all organisations have difference backgrounds and run organisations with different
corporate cultures; they must all make decisions involving several options and outcomes. These
decisions vary in terms of content and frequency. The decisions can be identified as either
programmed or non-programmed decisions.
• Programmed: Decisions are programmed to the extent that they are repetitive and routine.
There are definite methods for obtaining a solution to some decisions, so that they do not have
to be investigated anew each time they occur.
• Non-programmed: Decisions are non-programmed to the extent that they are novel and ill-
structured. Non-programmed decisions have never occurred before, they are complex and
elusive, and there are no established methods of dealing with them.
Conditions for decision making

By identifying the type of decision, as well as the conditions under which it will be made, managers
should be able to make better decisions. These are certainty, risk, and uncertainty.
• Certainty: A decision is made under conditions of certainty when the available options and the
benefits or costs associated with them are known in advance.
115
• Risk: When making a decision under the condition of risk, the manager does not know the
outcome of each alternative in advance but can assign a probability to each outcome.
• Uncertainty: A decision is made under a condition of uncertainty when there is a lack of

information – the outcome of each alternative is unpredictable, and managers cannot determine
probabilities.
Two primary decision-making models

Having considered the type of decisions and conditions under which they must be executed, managers
need to increase the level of confidence in decision-making. There two basic decision-making models
that can assist managers with this realisation.
• Rational model: According to this model, the decision maker should select the best possible
solution. This is known as optimizing.
• Bounded-rationality model: The decision maker uses satisficing; thus, selecting the first option
that meets the minimum criteria.
6.4 LEVELS OF DECISION MAKING

Decisions are made at different levels in an organisation's hierarchy:
Strategic decisions are long-term in their impact. They affect and shape the direction of the whole
business. They are generally made by senior managers. The managers of the bakery need to take a
strategic decision about whether to remain in the cafe business. Long-term forecasts of business
turnover set against likely market conditions will help to determine if it should close the cafe business.
Tactical decisions help to implement the strategy. They are usually made by middle management. For
the cafe, a tactical decision would be whether to open earlier in the morning or on Saturday to attract
new customers. Managers would want research data on likely customer numbers to help them decide
if opening hours should be extended
Operational decisions relate to the day-to-day running of the business. They are mainly routine and
may be taken by middle or junior managers. For example, a simple operational decision for the cafe
would be whether to order more coffee for next week. Stock and sales data will show when it needs
to order more supplies
Source:http://businesscasestudies.co.uk/cima/improving-strategic-decision-making/levelsof-
decision-making.html
The decision-making process:

• Step 1: Recognize, classify, and define the problem or opportunity
• Step 2: Set goals and criteria
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• Step 3: Generate creative alternative courses of action
• Step 4: Evaluate alternative courses of action
• Step 5: Select the best option
• Step 6: Implement the chosen option
• Step 7: A Conduct follow-up evaluation
6.5 GROUP DECISION MAKING
Group decision making attempts to enhance the process of decision making, especial in the case of
non-programmed decision making where there is a great deal of uncertainty about the outcome.
Whether group’s yields better outcomes than individuals, it is a moot point. Suffice to highlight some
of the benefits and limitations of group decision making.
Advantages of group decision making:
• The availability of a variety of skills and special knowledge to deal with problems.
• Diversity of views can be considered.
• Beliefs and values can be transmitted and aligned.
• More organisational members will be cooperative and committed to decisions.
• Participation in problem solving and decision making will improve the morale and motivation of
employees.
• Allowing participation in problem solving and decision-making trains people to work in groups.
Disadvantages of group decision making
• It may be more time consuming and lead to slow decision making.

• Groups are more likely to satisfice than an individual, especially when group meetings are not
run properly.
• One group member, a sub-group, may dominate and nullify the group decision.
• It may inhibit creativity and lead to “groupthink”.
6.5 TECHNIQUES FOR IMPROVING GROUP DECISION MAKING
To overcome the disadvantages and to capitalise on the disadvantages of group decision making,
various techniques have to be suggested to make group decision making more creative. These
techniques are brainstorming, the nominal group technique, the Delphi technique, and group decision
support systems (GDSS).
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6.5.1 Brainstorming
It is a technique used to stimulate creative or imaginative solutions to organisational problems. Group

participants informally generate as many ideas as possible without evaluation by others.
Determine a situation that will be best suited for brainstorming

with organization that is experiencing an unprecedented
problem in the business environment.
The following rules govern brainstorming sessions:
▪ Criticism is prohibited
▪ No “Yes, but ...” comments are allowed.
▪ Imaginative solutions are welcomed.
▪ Quantity is important.
▪ The combinations of various solutions and the improvement of suggested solutions are
encouraged.
It is important to note that brainstorming is merely a process for generating ideas. The next techniques
go further by offering methods of arriving at a preferred solution.
6.5.2 Nominal Group Technique (NGP)
The technique is a structured group decision-making technique. The nominal group technique restricts
discussion or interpersonal communication during the decision-making process. Group members are
all physical present, as in a traditional committee meeting, but members operate independently.
6.5.3 The Delphi technique
Decisions often must be made by experts in different geographical areas. In this case neither
brainstorming nor the normal group technique can be used, as both techniques require the presence
of participants.
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6.5.4 Group decision support system (GDSS)
GDSS is a generic term that refers to various kinds of computer-supported group decision-making
systems. Mos6t of the GDSSs can be used to support face-to-face groups as well as groups that
communicate through electronic media.
6.6 TOOLS FOR DECISION MAKING

▪ Quantitative tools for decision making
▪ The Kepner-fourie method
▪ Cost-benefit analysis.
Assume you have a company selling cupcakes. Take one of the

decision-making tools and apply it to your organisation in order to
boost sales.
6.7 SUMMARY
Managers are faced with a difficult task of making decisions. Some are recurring while other are new;
nevertheless, managers must continuously take appropriate actions to solve different kinds of
problems ranging from simple to complex. These decisions must be made under certain, risky and at
times uncertainty conditions and there are models to minimise risks and increasing the benefit of
making decisions. We have also identified some of the methods that can be used by managers to help
optimise the level of satisfaction in selecting among an array of alternative actions. Finally, various
decision-making tools were assessed.
119
Tiger Brands’s grains division has recalled certain Tastic Simply Delicious
products after tests found traces of colorants in them, the company said.
“Tastic believes in perfection for every one of its products and that the
health of its consumers is paramount,” the company said in a statement.
“The Simply Delicious range of products is produced in India under the

strict control of an internationally renowned flavour house and re-tested
by Tastic in an independent laboratory in
South Africa to ensure that our high specifications are met.”
Following recent laboratory tests, the company was concerned to find

traces of colorants Methyl Yellow and Sudan 1 in certain Simply Delicious
products, produced in June and July 2014. “These colorants can make
food unsafe because of the possible toxicity and carcinogenic properties
of such compounds,” Tiger Brands said.
“Both substances are described by the World Health Organisation as
representing possible risk to human health, and are prohibited in certain
countries around the world, including South Africa.”
The company has therefore temporarily withdrawn the Simply Delicious

product from all supermarkets because of the findings. Any consumer
who had Simply Delicious cook-in-sauces or ready-to-eat rice products
produced specifically in June and July this year were advised to
return them to any of the major supermarkets in their neighbourhood.
“Affected consumers will receive in return a coupon to the value of the
returned product, which they can use to purchase any product of their
choice,” Tiger Brands said.
“We apologise to consumers, and we also want to reassure consumers

that the problem affects only these specific batches of Simply Delicious
product.” All other Tastic rice products met the company’s “very high
standards of perfection”. “Once we are fully satisfied that supplies of
Simply Delicious meet our stringent quality standards, the products will
be supplied again to supermarkets as soon as possible,” Tiger Brands
said.- Sapa
Source: http://citizen.co.za/258803/tiger-brands-recalls-tastic-simply-
delicious-products/
Questions:
Tiger Brands is the biggest consumer producer in Africa and operates

worldwide. Therefore, any malfunction or problem is likely to affect a
huge market audience.
1. Analyse the main problems that may affect Tiger Brands operations.
2. Examine and classify the problems that Tiger Brands experienced
according to this case study.
120
TOPIC 7
INFORMATION MANAGEMENT SYSTEMS
• Examine the link between decision making and

information management.
• Classify information systems according to their use in
operational and managerial support
• Evaluate how a management information system can
support decision – making
• Analyse the role of managerial end-users in developing an
information system
• Develop a generic information system for managers.
7.1 INTRODUCTION
The modern computer has many origins. Early manual computing devices and the use of machinery
to perform arithmetic operations were important advances. The earliest data- processing devices
included the use of fingers, stones and sticks for counting, knots on a string, scratches on a rock, or
notches in a stick as record-keeping devices. The Babylonians wrote on clay tables with a sharp stick,
while the ancient Egyptians developed written records on papyrus using a sharp-pointed reed as a
pen and organic dyes for ink. The earliest form of a manual calculating device was the abacus.
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In the late 1940s, Herbert A Simon popularized the notion that management was primarily a decision-
making process. He later received the Nobel Prize for economics for his work on managerial decision
making. He argued that all managerial activities involve the conscious or unconscious selection of
actions. In many cases, the selection process consists simply of an established reflex action or habit.
In other cases, the selection is the product of a complex chain of activities.
He suggested that for any decision there are numerous possible solutions, any of which may be
selected. By applying the decision-making process, the possible options are narrowed down to the
one that is selected. Essential to the process of narrowing down options is information – which is
provided by an organisation’s information system. The quality of the decision is related to the quality
of the information, whereas the quality of the information depends on the accuracy with which data
is gathered, coded, processed, stored, and presented. These are the main elements of an information
system.
Electronic technology designed to process and transport data and information has been developing
at exceptional rates for more than four decades. This information technology (IT) revolution has
significantly affected employees, managers, and their organisations. It has created opportunity as well
as challenges for millions of companies and individuals. The challenges facing managers are extremely
high – managers need to learn to maximize the advantages offered by IT, while avoiding the many
pitfalls associated with it.
7.2 THE LINK BETWEEN DECISION MAKING AND INFORMATION
The external and internal environments in which the organisation operates were discussed. An
information system transforms data from an organisation’s external and internal environments into
information that can be used by managers in the decision-making process.
Discovery is a highly successful company serving more than two million customers. They did research
into the socio-economic trends (external environment) and combined that with the company’s own
strengths (internal environment) in innovative thinking sessions. The group can provide solutions that
have a profound effect on clients and, in turn, offer excellent business opportunities.
The success of Discovery can be attributed to the information supplied by their research. The
environment in which management must operate today is becoming more complex than ever before.
Managerial problems are also becoming increasingly complex, and this will continue and even grow.
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First, the number of available options is much greater today than ever before, owing to improved
technology and communication system. Second, the cost of making errors may be excessive, owing
to the complexity and magnitude of operations, automation, and the domino effect of an error
through the organisation. By the same token, the benefits may be numerous, if correct decisions are
being made.
Because of these trends and changes, it is extremely unwise to rely on a trial-and-errors approach to
decision making. Managers need to become more sophisticated – they must learn how to manage the
information in their fields. In what follows, we will focus on computer-based information systems that
support managerial decision making in organisations.
Information systems can conceptually be classified as operations

information systems, management information systems and other
classifications (such as the internet, extranet, and so on). Where
would you classify the optimization model developed by ACE?
Substantiate your answer.
7.3 WHAT IS AN INFORMATION SYSTEM?
7.3.1 A definition of an information system

Data refers to raw, unanalysed numbers and facts about events or conditions from which information
is drawn. Sales figures for Discovery’s five companies for 2005 are an example of data. Information,
on the other hand, is processed data that is relevant to a manager. In the Discovery example, the
given data can be processed into information. The financial manager can calculate an increase in the
sales of each of the five companies for the past few years.
Individual companies’ sales can be compared with one another as well as with the sales of other
competitors in the healthcare industry. Management information is information that is timely,
accurate, and relevant to a particular situation. Management information enables management to
establish what should be done in a specific situation.
Increases in Discovery’s sales in all five of its companies’ can be seen as management information,
since it indicates immediate action: management should capitalize on their decisions and successes
of the past. They may decide to enter even more markets where they can expect profitable growth,
such as providing more cost-effective private healthcare for the millions of individuals who, even
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though employed, cannot afford access to private healthcare. A system comprises sub-systems that
form a whole.
These sub-systems are linked and interact in such a way that they achieve a goal. An ‘information
system’ can now be defined as the people, procedures, and other resources used to collect, transform,
and disseminate information in an organisation. Stated differently, an information system accepts
data resources as input and processes them into information products as output.
7.3.2 The basic components of an information system
An information system utilises hardware, software, and human resources to perform the basic
activities of input, processing, output, feedback, control, and storage. Information systems receive
data as input. Discovery receives data such as their sales figures from each of their five companies.
The information system needs to process this data by organizing and analysing it in a meaningful way
to provide information as output to managers.
Information systems include certain resources that contribute to their information – processing
activities. ‘Hardware resources’ is a broad term that denotes the physical components of a computer
system.
The four main categories of computer system components are:
• Input devices, such as keyboards, optical scanning devices, and magnetic ink character readers
which allow one to communicate with one’s computer.
• A central processing unit (CPU), which consists of electronic components that interpret and
execute the computer program’s instructions. The CPU can be seen as the ‘brain’ of the computer.
• Output devices, for example printers, audio devices, and display screen.
• Auxiliary storage, for example magnetic disks and tapes, and optical disks.
Software resources are the programs or detailed instructions that operate computers these include:
• System software, which manages the operations of a computer.

• Application software, which performs specific data-processing or text-processing functions such
as a word-processing package or a payroll program.
• Procedures that entail the operating instructions for users of an information system.
The human resources required to operate an information system include specialists and end-users,
specialists are people who develop and operate information systems, such as systems analysts,
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programmers, and computer, and computer operators, while end-users are people who use the
information produced by a system. Managers are end-users of information. The toll on information
system in the world Trade Centre attacks On 11 September 2001, the World Trade Centre in New York
was attacked by terrorists.
The financial toll on computerized information system was:
• US$500 million one-time cost to replace hardware destroyed in the attack
• US$15.8 billion cost of restoring all IT and communications disrupted by the attack
• US$8.1 billion long-term IT cost to enterprises.
7.4 CHARACTERISTICS OF USEFUL INFORMATION
Information must have certain benefits over raw data to be considered a value-added resource to the
organisation. There are certain characteristics that information should have to be useful and of value
to the organisation. These characteristics are:
• Quality (accuracy). Information is of high quality if it portrays reality accurately. The more
accurate the information, the higher its quality.
• Relevance. Managers and employees often receive information that is of little use. Information
is relevant only when it can be used directly in problem-solving and decision-making processes.
• Quantity (sufficiency). Managers and employees often complain about an information overload.
Quantity is enough information available when users need it – more is not always better.
• Timeless (currency). Timeless means the receipt of the needed information while it is current
and before it ceases to be useful for problem-solving and decision-making processes. Receiving
information too late can have a detrimental impact on an organisation.
Information must be:
• Accurate
• Relevant
• Sufficient
• Current
The above four characteristics of useful information, namely accuracy, relevance, sufficiency, and
currency, are interrelated and are essential to the provision of information that serves as a value-
added managerial resource. In what follows, we examine how organisations organize information
system so that they can provide managerial end-users with information that is all those things.
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Analyse some of the common challenges faced by underdeveloped
economies in adopting MIS in their establishment. Pinpoint
effective remedies that can offset these obstacles.
7.5 ORGANISING INFORMATION SYSTEMS

An organisation’s corporate or grand strategy feeds down, through divisional or business unit
strategies, into several functional strategies, such as the marketing strategy, the financial strategy,
the financial strategy and the information system (IS) strategy. Most organisations organize
information systems in such a way that is has similar status as other functions of the organisation’s
strategy. IS strategy, as one of an organisation’s functional strategies, may have various sub-
strategies. Examples are the IT strategy, the communications strategy, and the manual systems
strategy. These sub-strategies can then be developed in more detailed strategy.
7.6 CLASSIFICATION OF INFORMATION SYSTEMS
Information systems perform operational and managerial support roles in organisations.
7.6.1 Operations information systems
The purpose of operations IS being to support business operations. These systems process data
generated by and used in business operations. The SAP system is widely used in South Africa, by
companies such as BMW and Iscor. It is also very popular abroad. The major categories of such
systems and the roles they play are:
• Edgars and Woolworths use transaction-processing systems (ITS) to record and process data
resulting from business transactions, such as sales, purchases, and inventory changes. These
systems produce a variety of documents and reports for internal and external use. They also
update the databases used by an organisation for further processing by its management
information system.
• Operations IS can make routine decisions that control physical processes. The financial health
and success of the Coca-Cola Company’s bottling partners is a critical factor in the company’s
ability to create and deliver leading brands. Coca-Cola may, for example, implement an automatic
inventory recorder system. Reordering from their bottling partners then becomes a programmed
decision. Decisions rules outlines the actions to be taken when the IS is confronted with a certain
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set of events. Information systems in which decisions adjusting a physical production process are
automatically made by computers are called process control systems’ (PCS).
• Office automations systems (OAS) transform traditional manual office methods and paper
communications media. These systems support office communication and productivity. For
instance, instead of using typewriters to produce the company’s annual reports, Discovery can
use word-processing system. Other examples of office automation applications are electronic mail
(e-mail), desktop publishing, and teleconferencing. Teleconferencing has become very popular in
South Africa because of the long distances that managers and employers have to cover to attend
meetings.
Discovery can use this facility to communicate with their centres spread across South Africa, the
USA, and the UK
Table 4.1 Organisational functions and IT supporting them

Function Supporting IT applications
Product development Design automation and component catalogue
Manufacturing Materials logistics and factory automation
Distribution Warehouse automation, shipping and receiving
Sales Order entry, sales analysis, and
commission calculation
Service Failure analysis, call centres
Financing and accounting Record keeping and financial planning
Administration Office systems and personal records
Source: Adapted from Frenzel (2005:10)
To develop the optimization model, ACE needed to go through a

systematic development process. Discuss this process and apply
each step of the process to ACE.
7.6.2 Management information systems (MIS)

The term ‘management information systems’ has several popular meanings. Many writers use the
term as a synonym for ‘information systems. In this text we use MIS to describe a broad class of IS,
the goal of which is to provide information on and support for decision making by managers.
Management information system support the decision-making needs at the operational, tactical, and
strategic levels of management. At the operational level, decisions are mainly structured, and MIS
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process transactions as they occur to update internal records and provide reports and documents.
The Coca-Cola Company, for instance, records the details of each sale customers are provided with a
receipt of the sales transaction.
At the end of the day, summary records are produced, and orders are electronically transmitted to
replenish inventories. At the tactical level, decisions are semi-structured, and middle managers
receive results from the operational level. At this level, information is needed on important matters
such as problems with suppliers, abrupt sales declines, or increased consumer demand for a particular
product line.
In addition, middle managers also access data from external source to support their own planning and
control activities. At the strategic level, decisions are unstructured. Top management needs
information from internal and external sources to gauge the organisation’s strengths and weaknesses,
as well as opportunities and threats in the external environment. Information on the financial
performance of the organisation is derived from internal sources and is needed by top management
to make sound financial decisions.
Management needs information on quarterly sales and profits, on other relevant indicators of
financial performance (such as share value), on quality levels, on customer satisfaction, and on the
performance of competitors. Information from external sources is more difficult to obtain and to
computerize than internal information. Top management also needs information on interest rates,
possible changes in tax laws, the latest technological breakthroughs, substitute products, and other
variables. Discovery’s top management specifically needs information on changing healthcare laws,
as they operate in a highly regulated business environment.
Providing information and support for managerial decision making at all levels of management is a
complex task. Several major types of IS are needed to support a variety of managerial end-user
responsibilities. These types of MIS are information-reporting systems, decision support systems, and
executive information systems.
Information-reporting systems (IRS)

Information-reporting systems provide managerial end-users with the information reports they need
for making decisions. These systems access database on internal operations containing information
previously processed by transaction-processing systems. Data on the external environment is
obtained from external sources. A sales manager of Discovery Life can receive instantaneous visual
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displays at his or her workstation on the sales of a particular product in a particular market, such as
the sales of life insurance in South Africa. The sales manager can also use weekly sales analysis reports
evaluating the sales of life insurance in South Africa, USA, and the UK.
Decision support systems (DSS)

Decision support systems are a natural progression from transaction-processing system and
information-reporting systems. They are computer-based information systems that provide interactive
information support to managers during the decision-making process. Decision support systems use
(1) analytical models, (2) specialized database, (3) the decision maker’s own insights and judgement,
and (4) an interactive, computer-based modelling process to support the making of semi-structured
and unstructured decisions by the individual manager. Electronic spreadsheets and other decision
support software allow a managerial end-user to receive interactive responses to ad hoc request for
information posed as a series of ‘what if’ questions. A DSS produces sales forecasts and profitability
estimates using internal and external data on customers, competitors, retailers, and other economic
and demographic information.
Executive information systems (EIS)

Executive information system is MIS that are tailored to the strategic information needs of top
management. The function of computer-based executive information systems is to provide top
management with immediate and easy access to information on the organisation’s critical success
factors – that is, the factors critical to accomplishing the organisation’s strategic goals. Executives of
Discovery would consider the following factors critical to their success and survival: an insightful
understanding of socio-economic trends; innovative thinking; an understanding of the impact on a
highly regulated business environment and ways to deal with it; research into the issue of enabling
more cost-effective private healthcare for individuals who cannot afford access to private healthcare,
and creative and consistent customer care.
There are several major categories of IS that provide unique or broader classifications compared to
those just mentioned. These are IS that can support business operations as well as managers at the
operational, tactical, or strategic levels of an organisation. Examples are expert systems, business
function IS, the Internet, the external, the intranet, and electronic commerce (or e-commerce).
Expert systems (ES)

When an organisation has a complex decision to make or problem to solve, it often turns to experts
for advice. These experts have specific knowledge and experience in the problem area. They are
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aware of the alternatives, the changes of success, and the costs the organisation may incur.
Organisations engage experts for advice on matters such as equipment purchases, mergers and
acquisitions, and advertising strategy.
The more structured the situation, the more specialized and expensive is the advice. Expert systems
are an attempt to mimic human experts. Typically, an expert system is a decision-making and/or
problem-solving package of computer hardware and software that can reach a level of performance
comparable to – or even exceeding that of – a human expert in some specialized and narrow area. It
is a branch of applied artificial intelligence (AI).
The logic behind expert systems is simple. Expertise is transferred from the human being to the
computer. This knowledge is then stored in the computer and users call on the computer for specific
advice as needed. The computer can make inferences and arrive at specific conclusion. Then, like a
human consultant, it advices non-experts and explains the logic behind the advice. Financial managers
need information on financing costs and investments returns – provided by financial IS.
The Internet
The Internet is a loosely configured, rapidly growing web of thousands of corporate, educational, and
research computer networks around the world. Information on the Internet is potentially available to
almost everyone in the world. It offers almost unlimited communication opportunities. One drawback
in communication through the Internet is the limited privacy of information sent over it. As a result,
finding methods to make information secure is a high priority of both researchers and users.
Internet access usually provides four primary capabilities:
• Electronic mail (e-mail) enables users to send, receive, and forward messages from people all
over the world. Users can reply to, save, file, and categorise received messages. E-mail makes
participation in group decision support systems such as electronic brainstorming, electronic
meetings, and real-time Delphi possible.
• Telnet enables users to log in to remote computers and to interact with them. Users’ computers
are remotely connected to computers at other locations but act as if they directly connected.
• File transfer protocol (FTP) enables users to move files and data from one computer to another.
Users can download magazines, books, documents, software, music, graphics, and much more.
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• World Wide Web (or ‘the Web’) is a set of standards and protocols that enable users to access
and input text, documents, images, video, and sound on the Internet. The Web is non-linear by
design and permits users to jump from topic to topic, document to document, and site to site.
As Web-based systems began to flourish, businesses gained efficiency by integrating the individual
system that supported their value chains. This led to the introduction of enterprise resource planning
(ERP) systems. These complex, comprehensive systems cover most of the value-chain elements and
are used to purchase parts and supplies, accept customer orders, maintain work-in-process
inventories, service customers, support salespeople and help to manage many other important
activities.
The extranet
The extranet is a wide area network that links an organisation’s employees, suppliers, customers, and
other key stakeholders electronically. Unlike the Internet, the public does not have access to an
extranet. The purpose of an extranet is to provide vast, reliable, secure, and low-cost computer-to-
computer communication for a wide variety of applications, such as sales, marketing, product
development, and employee communications.
The intranet
The intranet is a semi-private internal network where access is limited to an organisation’s employees.
It uses the infrastructure and standards of the Internet and the Web. It enables managers and
employees to communicate with one other and to access internal information and databases for
which they have been cleared, through their desktop or laptop computers. Sensitive information, such
as employee salaries and performance appraisals, can be restricted to authorized employees.
Electronic commerce
Electronic commerce (e-commerce) can be defined as ‘the process of buying and selling goods and
services electronically by means of computerized business transactions. The Internet has emerged as
the dominant technology for conducting e-commerce. On almost a daily basis we read in newspapers
of some new organisation that will sell its products or service online.
Three types of e-commerce exist, namely business-to-customer, business-to-business, and customer-
to-customer. Business-to-customer (B2C) e-commerce involves selling products and services to
customers over the Internet.
Amazon.com is an example of a company selling products over the Internet to the customer. They sell
books that can be delivered around the globe in 24 hours. Although this may be the most visible
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expression of e-commerce to the public, the fastest growing area of ecommerce is business-to-business
(B2B) e-commerce, which refers to electronic transactions between organisations.
Many B2B transactions take place over the Internet – for example, the Ford Motor Company buys and
sells billions of US dollars’ worth of goods a year via Internet linkages. Lastly, consumer-to-consumer
(C2C) e-commerce is made possible when an Internet-based business acts as an intermediary between
and among customers. An example is Web-based auctions where consumers can buy and sell directly
to one another, often handling the entire transaction via the Web.
Information systems can be classified as either operations or management information systems

Examples of operations IS being transaction-processing systems, process control systems, and office
automation systems. Examples of management IS being information reporting systems, decision
support systems, and executive IS. However, some IS cannot be classified as either operations or
management IS: for example, systems, business function IS, Internet, the extranet, the intranet, and
e-commerce.
7.7 DEVELOPING AN INFORMATION SYSTEM

Most managers are not Information System specialists. It is therefore imperative for end-users to have
a say in the development efforts of IS specialists to ensure that the system meets their information
requirements.
ACE designed an optimization model to solve their problems

pertaining the choosing and balancing amongst various product
recipes.
Analyse the basic components of this model and illustrate your

answer by means of a diagram.
7.7.1 Systems investigation

Information System is usually conceived, designed, and implemented through a systematic
development process in which end-users (managers) and technical staff design systems based on an
analysis of the specific information requirements of an organisation, or of departments in an
organisation. All the activities involved in the development cycle are closely related and
interdependent, with the result that several development activities can, in practice, occur at the same
time. The first step in the IS development life cycle is to determine the nature and scope of the need
for information.
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If the need is incorrectly or incompletely defined, the entire process could address the wrong issues.
The management of a retail store, such as Edgars, may need information on annual sales, bad debt,
effective customer service, styling of merchandise, and quality control. A life insurance company, such
as Sanlam, may need information on the effective training of agency management, new product
development, and the productivity of clerical operations.
Management must define these needs clearly so that the systems specialists know which systems to
utilize in order to generate the information. Since the development process may be costly, systems
investigation frequently requires a preliminary study, known as a ‘feasibility study’, to be conducted.
The purpose of the feasibility study is to evaluate different systems, to analyse the costs and benefits
of each option, and to propose the most feasible system for development.
A feasibility study therefore determines the information needs of prospective users and the
objectives, resource requirements, cost benefits, and feasibility of proposed projects. The findings of
a feasibility study are usually formalized in a written report and submitted to management for
approval before development begins.
Systems
Systems Systems analysis Systems design implementation,
investigation maintenance, and
security
Figure 4.6 The information systems development life cycle
7.7.2 Systems analysis

Systems analysis involves many of the activities used when a feasibility study is conducted but is a
more in-depth study of end-user information requirements. The first step in systems analysis involves
a study of the information requirements of an organisation and its end-users. Managers at Sanlam
e.g., should specify that they need information on every new product that has been developed, and
on the success of these product in the market. They should also specify the need to compare the need
to compare their new product development with new products offered by rivals, such as Old Mutual.
The second step in systems analysis is to understand the current system that is to be improved or
replaced, and to determine the importance, complexity, and scope of the problem at hand. Much of
this phase involves gathering information on what is being done in this regard, why it is being done,
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how it is being done, who is doing it, and what major problems have developed. The third step is to
determine the system requirements for a new or improved IS.
This means finding out an end-user’ specific information requirements as well as the information-
processing capabilities required for each system activity to meet these information needs. For
example, management at Edgars could specify that they want the information in bar chart form, and
that they want only to management to access the information on their own personal computers.
7.7.3 Systems design
Systems design involves logical and physical design activities. Logical design activities involve the
development of a logical model of the proposed system. A logical data-flow diagram is used to depict
activities entail the process of developing specifications for a proposed physical system. This process
includes the design of report layouts, screens and input documents, forms, and physical file structures.
The design specifies what types of hardware, software, and human resource are needed. Once the
proposed system has been designed, it is implemented.
7.7.4 Systems implementation, maintenance, and security

The systems implementation phase involves acquiring hardware and software, developing software,
testing programs and procedures using both artificial and live data, developing documentation, and
carrying out a variety of other installation activities. Systems implementation also involves the training
of end-users and operating personnel. Systems maintenance involves monitoring, evaluating, and
modifying or enhancing a system once it is up and running. it includes a post audit, which establishes
investigation activities were conducted. Systems security is an issue that must be addressed in the
design and implementation stages.
As users of IS, managers have a major role to play during the systems investigation, systems analysis,
and – to a lesser extent – systems design phases. Lack of end-users Involvement in systems
development almost certainly guarantees the failure of an IS because it will not satisfy the
requirements of the organisation.
Multiple choice questions
Question 1
A claim adjuster from an insurance company needs to estimate
the value required to repair a hotel totally devastated by a
hurricane. The replacement cost of only the hotel’s roof is
estimated at R3 million.
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The replacement cost of the hotel roof is an example of
______________.
A. Information
B. Data
C. Management information
D. An information system
Question 2
An information system utilizes ____________ to perform the basic
activities of __________.
A. Data and information; financial planning
B. Hardware, software, and human resources; input,
processing, output, feedback, control, and storage
C. Computers; input, processing, and output
D. Information technology; operational efficiency
Question 3
The handheld PCs with handwriting recognitions used by Symbility
in the case study are an example of _____________.
A. Software resources
B. Hardware resources
C. Procedures
D. Human resources
Question 4
The adjuster’s PC is connected over a wireless network to a special
information service provided by Symbility that supports all the
calculations, data manipulation, and processing required adjusting
claims.
This is referred to as ___________, and more specifically

______________.
A. Systems hardware; central processing unit
B. Human resources; the adjuster
C. Procedures; computer procedures
D. Software resource; application software
Question 5
The accuracy of the claims calculated by claims adjusters is a
function of the following characteristics of the information used in
the calculation process:
A. Accuracy
B. Relevancy
C. Sufficiency
D. Currency
A. AB
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B. BCD
C. D
D. ABCD
Question 6
The information system used by Symbility whereby expertise is
transferred by the adjusters to the handheld PC, the knowledge is
then stored in the computer and users then call on the computer
for calculating the claims, is an example of a(n)_____________
system.
A. Business function information

B. Decision support
C. Expert
D. Executive information
Question 7
When an insurance company needs a computer network that links
the company with its employees, suppliers, customers and
other key stakeholders electronically, they
should use the ______________.
A. Internet
B. Extranet
C. Intranet
D. World Wide Web
Question 8
An insurance company wants to launch an innovative product. They
are using electronic spreadsheets and other software that allows
their management to receive interactive responses to requests for
information posed as a series of ‘what if’ question. The insurance
company is using a ___________ system.
A. Information reporting
B. Decision reporting
C. Executive information
D. Business function information
Question 9 and 10
The information system designed by Symbility is usually conceived

designed and implemented through a systematic development
process in which end-users and technical staff design systems based
on an analysis of the specific information requirements of an
organisation.
Question 9
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During the ______________ stage of the development process, the
current system (that is to be improved or replaced) is examined to
determine the importance, complexity, and scope of the problem
at hand.
A. Systems investigation
B. Systems analysis
C. Systems design
D. Systems security
Question 10
Training of end-users and operating personnel is part of the
systems _____________ stage in the development process.
A. Implementation
B. Analysis
C. Design
D. Investigation
Speeding up claims with new information systems
Insurance companies employ claims adjusters to visit property damaged

by disaster, analyse the damage, and estimate the value required to
repair the property. Each estimate can take considerable time and effort.
Adjusters might visit four or five properties in the morning and
afternoon, then return to the office where they review notes taken at
each property, consult reference charts to calculate repair costs,
complete paper forms and enter data into the victim of the disaster.
Multiply the complexity of this process by the thousands of claims that

an insurance company processes each year, and the result is a lot of
paperwork, wasted time and mistakes. The executives of Gore Mutual
Insurance in Canada wanted to streamline the claims adjustment
process, making it more effective and efficient by applying new
information systems. They partnered with a software company named
Symbility to create a state-of-the-inspection. They goal of the new
system was to process claims onsite during the damage inspection. Gore
Mutual wanted to eliminate paper notes that adjusters carried back to
the office for processing. Even processing on a notebook PC in a van on
site was not efficient enough. Symbility turned to tablet and handheld
PCs with handwriting recognition to provide the ideal solution. Tablet
and hand-writing PCs allow users to enter data by writing on the touch
screen with a stylus.
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Symbility designed pen-based software to run on Windows tablet PCs
and handheld PCs. Adjusters can now take notes, sketch floor plans and
diagrams, even transfer digital photos from mobile phones. All forms and
references charts are accessible and easy to manipulate. The adjuster’s
PC is connected over a wireless network to a special information service
provided by Symbility that supports all calculations, data manipulation,
and processing required adjusting claims. Gore Mutual found that the
tables PC solution let adjusters spend more time meeting with customers
in the field. Estimates were calculated quickly and accurately. Symbility
estimates that the system results in claims being settled to six times
faster and more accurately.
Source: Stair, R, Reynolds, G & Chesney, T. 2008. Fundamentals of

business information system. London: Cengage learning.
Questions:
1. Symbility designed a new information system that speeds up the

processing of claims by insurance companies. Explain the basic
components of the new information system. Illustrate your
answer by means of diagram.
2. To be of value to insurance companies, the information

produced by the Symbility information system should have
certain characteristics. Explain these characteristics.
3. To develop the new information system, Symbility needed to go

through a systematic development process involving end-users
(the insurance companies) and their own technical staff. Discuss
this process and apply each step of the process to the case study.
4. Information systems can conceptually be classified as operations

information systems, management information systems and
‘other classifications (such as the Internet, extranet and so on).
Where would you classify the information systems developed by
Symbility? Substantiate your answer.
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TOPIC 8
ORGAINISING AND DELEGATING
• Examine the concepts of organising, organisation, and

organisational structure
• Evaluate how the organisation used its structure to
implement its strategic plans and goals
• Expound on the importance of organising in attaining the
organisation’s goals
• Critically analyse the steps to follow (the organizing
process) in designing an organisational structure
• Analyse the principles of organizing that should be
considered in designing an organisational structure
• Comment how the principles of organising are applied in
the different types of organisational structure
• Design and provide implementation guidelines for a
delegation process
8.1 INTRODUCTION
This topic focuses or organizing as the process that creates a structure for the organisation which will
enable its people to work effectively towards its vision, mission, and goals. Managers organise and
deploy resources to achieve these ideals. Organising resources, such as people, technology, and
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knowledge, and b marshalling their strengths, managers can support the organisation despite the
downturns or competitive threats to attain organisational goals. Thus, organising is the most visibly
and directly concerned with the systematic coordination of the many tasks that must be performed
in an organisation and, consequently, the formal relationships between the people who perform
them.
8.2 ORGANISING, ORGANISATION, AND ORGANISATIONAL STRUCTURE
Organising is the process of creating a structure for the organisation that will enable its people to work
effectively towards its vision, mission, and goals. Therefore, organising can be viewed as an ongoing
and interactive process that occurs throughout the life of an organisation. Organisation refers to the
result of the organising process. The task of diving up the work, allocating responsibility, and so on, is
referred to as the ‘design of the organisational structure’. An organisational structure is the basic
framework of formal relationships between responsibilities, tasks, and people in the organisation.
8.3 REASONS FOR ORGANISING
• Allocation of responsibilities
• Accountability
• Establishing clear channels of communication.
• Resource deployment
• The principle of synergy enhances the effectiveness and quality of work performed
• Division of work
• Departmentalization
• Coordination
Devise ways in which the stated reasons can help an

organization to attain its mission and objectives.
8.4 THE ORGANISING PROCESS
• Identify the tasks – all the activities which must be performed in an organization have to be
identified first. The work must be classified in systematic way so that each person in the
organization gets a separate and distinct task. Work must be divided and distributed because
no one can handle the total work in an organization overall.
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• Division of work –it creates the need for coordination. To provide specialization and
efficiency, all closely related and similar activities must be grouped together. Thus,
departments and divisions are created under the supervision of a manager.
• Establish relationships – to avoid furs explicit reporting relations must be established. Once
formal relationships are established, it would help individuals know what must be done, how
it must be done, to whom the matters must be referred and how particular jobs relate to one
another, etc. This organisation of dividing the whole concern into independent units and
departments is called depart mentation.
• Delegate authority – Responsibility cannot alone accomplish the given task. Authority is
required being a right to act, to issue orders and exact obedience from others. Without
authority, a manager may not be able to perform the tasks with confidence and show results.
But limits of the authority have also to be assigned.
• Coordination and control – the interrelationships between various positions must be stated
clearly. The activities and efforts of various individuals must be coordinated. The performance
must be measured, evaluated, and controlled at constant intervals. If deviations occur, they
must be looked into, and appropriate remedial steps should be taken immediately
8.5 PRINCIPLES OF ORGANISATION
8.5.1 Unit of command and direction

Unity of command means that each employee should report to only one supervisor. Reporting to more
than one supervisor can be very confusing to employees as supervisors may focus on different aspects
of the work.
8.5.2 Chain of command

Chain of command or the ‘scalar principle’ states that a clear unbroken chain of command should link
every employee with someone at a higher level, all the way to the top of the organisation.
8.5.3 Span of control refers to the number of subordinates reporting to a manager.

8.5.4 Division of work
Division of work determines how work should be divided. Related jobs are grouped together in a
section or department assigned to assigned to specialists or relevant personnel.
8.5.5 Standardisation
Standardization is a process of developing uniform practices that employees are to follow in doing
their jobs. The purpose is to develop a certain level of conformity.
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8.5.6 Coordination
Coordination means that all departments, sections, and individuals within the organisation should
work together to accomplish the strategic, tactical, and operational goals of the organisation. In
general, the degree of coordination between tasks depends on their interdependence.
There are three major forms of interdependence:
➢ Pooled interdependence: The units operate with little interaction; the outputs of the units are
pooled at organisational level.
➢ Sequential interdependence: The output of one unit becomes the input for the next unit. The
second unit is directly dependent upon the first unit to finish its work before it can begin its
assigned task.
➢ Reciprocal interdependence: refers to a situation in which the outputs of one work unit become
the inputs for the second work unit, and vice versa.
8.5.7 Responsibility, authority, and accountability

These three terms are closely related and are often used interchangeably by managers and
employees. However, there is a distinction. Responsibility simply means the obligation to achieve
goals by performing required activities. On the other hand, authority refers to the right to make
decision, issue orders, and use resources. (Refer to section 8.6 for further discussion). Whereas
accountability is the evaluation of how well individuals meet their responsibility.
8.5.8 Power
Power refers to the ability to influence the behaviour of others in an organisation. There are different
kinds of power, and they are distinguished below:
• Legitimate power is the authority that the organisations grant to a particular position.
• The power of reward is the power to give or withhold rewards.
• Coercive power is the power to enforce compliance through fear, either psychological
or physical.
• Referent power relates to personal power and is a somewhat abstract concept. People
follow a person with referent power simply because they like, respect, or identify with him or
her.
• Expert power is based on knowledge and expertise.
Identify examples where these different types of power are

applicable or relevant in an organisation or society.
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8.5.9 Delegation
Delegation is the process of assigning responsibility and authority for attaining goals. (A detailed
discussion appears on section 8.9.)
8.5.10 Downsizing and Delayering

Downsizing is a managerial activity aimed at reducing the size of an organisation’s workforce. This can
be achieved by reducing the number or employees in one or more departments – leaving the
organisational unit intact – or through eliminating a department unit by outsourcing activities.
Delayering is the process of reducing the number of layers in the vertical hierarchy.
8.6 AUTHORITY
Authority has been defined in the previous section as the right to make decision, issue orders, and use
resources. It includes the right to take action to compel the performance of duties and to punish
default or negligence. The following are different types of authority:
• Formal and informal

• Line and staff authority
• Centralised and decentralised
8.6.1 Formal and informal authority

Formal authority refers to the specified relationships among employees. It is a sanctioned way of
getting things done, illustrated by the organisational chart. Informal authority refers to the patterns
of relationships and communication that evolve as employees interact and communicate.
8.6.2 Line and staff authority

Line authority entails the responsibility to make decisions down the chain of command. It originates
at top management level, with the directors, and is delegated to the heads of the different units,
departments, or sections. It then delegated down the various hierarchical levels to the level where
the basic activities are carried out. Staff authority entails having the responsibility to advise and assist
other personnel.
8.6.3 Centralised and decentralised authority

The major difference between centralised and decentralised authority is in who makes the important
decisions in an organisation. In centralised authority, important decisions are made b top managers.
In decentralised authority, important decisions are also made by middle and lower management.
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In deciding whether to centralise or decentralise authority, the following factors should be
considered:
• The external environment

• The history of the organisation
• The nature of the decision
• The strategy of the organisation
• Skills of lower-level managers
• The size and growth of the organisation
• The workload of top management is reduced
• Decision making improves
• There should be improved morale and initiative at the lower levels of management
• It is faster and more flexible
• Fosters a competitive climate in the organisation
Advantages of decentralisation
• There is a danger of loss of control
• There is the danger of duplicating tasks
• Requires more expensive and more intensive management training and development
to enable managers to execute delegated tasks
• Demands sophisticated planning and reporting methods
8.7 ORGANISATIONAL DESIGN

Organisational design refers to the arrangement of positions into work units or departments and the
interrelationship among them within an organisation. It involves the organisational chart and different
types of departmentalization.
• Organisational chart simply refers to a graphic presentation of the way in which an
organisation is out together.
• Departmentalization can be described as the grouping of related activities into units or

departments.
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8.8 JOB DESIGN
Once the organisational structure is in place, management must consider the design of jobs to
motivate the incumbents of the different positions in the structure to contribute towards the
organisation’s goals. Job design refers to the process of combining the tasks that each employee is
responsible for. There are two distinct approaches to achieve this:
• Job Specification
• Job expansion
8.9 DELEGATION
The job of a manager is to get the work done through the effort of others. It is neither desirable nor it
is possible, in many instances, for managers to perform all the work for which they are held
responsible. Delegation is the process through which managers assign a portion of their total
workload to others. In this process, authority is also passed on to an employee, who then has the
authority to deploy the necessary resources to complete the delegated task.
Even though managers delegate authority, they remain accountable for the completion of the job.
They are accountable both for their own actions and for those of their subordinates. Managers my
hold subordinates responsible for a job, but they are still accountable to their own superiors for the
work.
According to the ‘parity principle’, neither the manager nor the subordinate should be held
responsible for things beyond their control or influence. The parity principle stipulates that authority
and responsibility should be co-equal. This means that, when a manager assigns the responsibility for
a task to be performed, he or she must also give the subordinates the full author to perform the task.
Identify an organization and activities which can best match or suit

above job design approaches.
8.9.1 The importance of delegation

• It promotes succession planning
• It enables managers to get more work done
• Subordinates learn to develop their decision-making and problem-solving skills
• Subordinates improve their managerial skills
8.9.2 Principles of effective delegation

• Explain the reason(s) for delegation.
• Set standards and goals.
• Ensure clarity of authority and responsibility.
• Involve subordinates.
• Request the completion tasks.
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• Provide performance training.
• Provide feedback to the subordinates.
8.9.3 The advantages of delegation

• Managers who train their staff to accept more responsibility from higher levels
management.
• Delegation encourages employees to exercise judgment and accept accountability.
• Better decisions are often taken by involving employees who are ‘closer to action’ and
know more about the practical execution of tasks.
• Quicker decision making takes place.
8.9.4 Obstacles to effective delegation

• A manager may fear that his or her own perform evaluation will suffer if subordinates
fail to do a job properly.
• The manager may also feel that subordinate will not do the job as well as he or she can
do.
• Managers are often too inflexible or disorganized to delegate, or sometimes they feel
that it takes too long to explain to subordinates how to do the job and that they may as well
do it themselves.
• Managers may also be reluctant to delegate because they fear their subordinates will
do the job better than they can.
Managers often inherit organisations that have been designed by others. It is possible that the
current design of the organisation itself may be an impediment to delegation.
The following are examples of organisational impediments to delegation:

• Delegation is not effective if authority and responsibility are not clearly defined.
• When a manager does not make subordinates accountable for the task performances,
there is a likelihood that this responsibility will be passed on to others, creating additional
staff and communication burdens.
• In the absence of or with poorly developed job descriptions individuals may not have a
good understanding of what is expected of them.
8.9.5 Overcoming obstacle of delegation

• To create a culture of continuous learning.
• Managers should realize that there is more than one way to deal with a situation and
they should, therefore, not compel subordinates to apply their methods.
• Managers should clearly state the outcome that the subordinate should deliver.
• Managers should give subordinates maximum freedom to perform their delegated
tasks.
• When mistakes are made, the subordinate should be assisted to find solutions to
problems.
• Improved communications between subordinates and managers removes obstacles.
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• Managers must provide proper training.
• Subordinates should be made aware of the extent of their contribution in achieving the
goals of the organisation.
• Managers should be able to analyse the organisation’s goals and requirements and
determine to what extent employees can perform the task they wish to delegate.
• They should be able to trust employees and have faith in the ability to complete the
task successfully.
8.9.6 The delegation process
• Step 1: Decide on the task to be delegated

• Step 2: Decide who should perform the task
• Step 3: Provide resources
• Step 4: Delegate
• Step 5: Step in
• Step 6: Feedback
8.9.7 SUMMARY
This topic has shed some light into one of the most fundamental functions of management; that is,
organising. Amongst other concepts which were explained and discussed at length were reasons for
organising, the organising process, organisational design, and the principles of organising. It is of
utmost importance for an organisation to follow and adapt these principles in an ever-changing
environment to attain its vision, mission, and objectives.
Read the case study below and answer questions that follows:
Group Chief Executive’s Review: Standard Bank of South Africa Limited
Challenges in South Africa included very slow economic growth; rising political
tension and uncertainty; the downgrade of South Africa’s sovereign debt; low
business and consumer confidence; the finalisation of the Basel III net stable funding
ratio (NSFR) and liquidity coverage ratio (LCR) requirements; and the costs imposed
by the transition to the International Financial Reporting Standards (IFRS) 9 reporting
standard. In the Africa Regions, challenges included elevated political risk, currency
depreciation against the rand, and the imposition of regulatory caps and floors on
interest rates in several countries.
Group headline earnings were R26.3 billion, up 14% – growing more than twice as
fast as South Africa’s nominal GDP. Group ROE was 17.1%, up from 15.3% in 2016.
Headline earnings per share was 1 640 cents, 14% ahead of last year, and dividend
per share of 910 cents was up 17% on 2016. I share our chairman’s sense of hope
that South Africa stands on the brink of renewal. The early signs of opportunity are
encouraging. Following a contraction in the first quarter of 2017, the South African
147
economy began a moderate acceleration in the second half of the year. By the end
of 2017, it had picked up to 1.3% GDP growth for the year.
The outcome of the African National Congress’ (ANC) leadership election in

December reinforced this positive momentum. According to South Africa’s National
Treasury, growth at around 1.5% is forecast in 2018, rising to 2.1% by 2020 – or
sooner if we can achieve some quick structural reforms. Having reached a 22-year
low in 2016, sub-Saharan Africa’s GDP growth rate was 2.7% in 2017, and it is
expected to accelerate to 3.3% in 2018, in line with a worldwide economic upswing,
and steady or slightly rising commodity prices. In the longer term, the fortunes of our
industry, South Africa and the continent will depend to a great extent on how
successfully we adapt to, and take advantage of, the Fourth Industrial Revolution that
is being driven by universal broadband, artificial intelligence, and robotics. These
developments make it even more urgent and imperative that we modernise South
Africa’s information and communications technology (ICT) regulatory framework and
that we radically improve education and training in South Africa and Africa-wide.
President Ramaphosa’s decision to establish a Digital Industrial Revolution

Commission is a good first step in this direction. Over the past decade, the Standard
Bank Group has proven that we can weather severe economic and political
turbulence. We have shown that, even in the most difficult times, we can continue
to serve our clients well; to modernise our systems to improve our services and
increase our efficiency, reinforcing our future competitiveness; to reward our
shareholders well for their capital; and to add many billions of rand in SEE value to
the South African and African economies. It might be tempting to say that the group
will automatically do better in more favourable external conditions. In truth, there is
absolutely nothing automatic about it. Yes, there will be opportunities to reach our
goals faster and to exceed our targets, and we will ensure that we will seize these
opportunities – and then immediately stretch ourselves further. There is certainly no
room for complacency. We remain vigilant against the ever-present risk of
cybercrime to our group and our clients.
We also face fast-growing competition from unregulated entities offering wholesale

and retail financial services, modernising incumbent banks and new digital bank
competitors, with formidable new rivals entering the South African retail banking
market during 2018. Further, we can be certain that difficult conditions will come
again. There will be market turbulence; there will be demanding new regulations;
and there will be new political storms ahead.
http://annualreport2017.standardbank.com/downloads/Standard_bank_AIR2017_
group_chief_executives_review.pdf
Questions:
2.1 Explain the reasons why an organisation such as Standard Bank should create a
structure for their organisation.
2.2 Expound organising process steps that Standard Bank probably followed.
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TOPIC 9
ADDENDUM 621 (A): CASE STUDY FOR TUTORIAL QUESTIONS
New Challenges for ComAir

Comair Limited
The following is an interview that Money web had with the Chief Executive Officer of Comair on 23 May
2008 at 22:04
MONEY WEB: in the studio with me now is Gidon Novick, the joint CEO of ComAir. Oil is at $135 a barrel or
thereabouts, Gidon. What does that mean for a business like yours?
GIDON NOVICK: Well, it means a lot. Fuel has always been a big cost for us, and you can imagine that having
our biggest cost, the kind of changes we’ve seen, more than doubling in a single year, has a dramatic impact.
And it takes action, it takes reflection on the industry in terms of where we are, how strong we are in the
industry. If you look, globally we’ve seen some reasonably sound global airlines really struggling and quite
a few going out of the business, so it’s challenging times. But I guess at the end of the day it comes down
to what we are doing about it.
MONEYWEB: What are you doing about it?
GIDON NOVICK: The biggest thing we are doing about it is upgrading our fleet. The new aircraft that we are
bringing in, the 737 – 400s, which replaced the oldMV-82S, had a significant impact on our fuel burn. We
save around 26% on every seat that we sell because the new aircraft not only are more fuel efficient, but
they are bigger aircraft, so we get a big saving there.So I think in some ways we are quite lucky that we put
that programme in place two years ago, and we are coming to the end of that programme where our full
fleet will be replaced, both on the British Air (BA) brand and the Kulula brand.
Source: http://www.moneyweb.co.za/mw/view/mw/en/page82475?oid=Detail&pid=82475
As cited in Smit, et al. (2013:107).
Questions:
2.1 Examine the critical environmental variables which were posing a challenge to ComAir.
2.2 Select sources of information from which Gidon Novick could use to make informed decisions. Give
reasons for your answers.
2.3 The CEO developed strategies to remedy the effect of the challenges ComAir was experiencing. What
did he do?
2.4 Recommend ways by which the airline’s top management can be assisted to better prepare for
effective planning.
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TOPIC 10
10. ADDENDUM 621 (B): ASSESSMENT QUESTIONS
Question 1 (50 Marks)

You have recently been appointed as the Head of a section in a medium-sized business. The section
has been very poorly managed in the past, mainly because of very poor planning done by your
predecessor.
Expound how you will go about ensuring that proper plans are in place for this section in future.
Question 2 (50 Marks)

Decision making is one of the central activities of management and is a huge part of any process of
implementation. Good decision making is an essential skill to become an effective leader and for a
successful career. Management needed to go through several stages that helped them think through
the problem and make optimal decisions.
Identify the organisation of your choice and analyse the stages in the decision-making process that
your organisation needed to follow.
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TOPIC 11
ADDENDUM 621 (B): TYPICAL EXAMINATION QUESTIONS
RICHFIELD GRADUATE INSTITUTE OF TECHNOLOGY (PTY) LTD

HIGHER EDUCATION AND TRAINING
FACULTY OF LEADERSHIP AND BUSINESS ADMINISTRATION
BUSINESS MANAGEMENT 621
1ST SEMESTER NATIONAL SUPPLEMENTARY EXAM
DURATION: MARKS: 100 DATE:
EXAMINER: INTERNAL MODERATOR:

EXTERNAL MODERATOR:
This paper consists of 5 questions of 9 pages including this page.
PLEASE NOTE THE FOLLOWING:
1. Ensure that you are writing the correct examination paper, and that there are no missing pages.
2. You are obliged to enter your student details on the answer sheet. The answer sheet provided are the property
of Richfield Graduate Institute of Technology (Pty) Ltd and all extra sheets must be handed to the invigilator
before you leave the examination room.
3. If you are found copying or if there are any documents / study material in your possession, or writing on parts
of your body, tissue, pencil case, desk etc. your answer sheet will be taken away from you and endorsed
accordingly. Appropriate disciplinary measures will be taken against you for violating the code of conduct of
Richfield Graduate Institute of Technology (Pty) Ltd Examinations Board. Therefore, if any of these materials
are in your possession you are requested to hand these over to the invigilator before the official
commencement of this paper.
4. The question paper consists of 3 sections.
4.1. Sections A and B are compulsory.
4.2. Section C comprises of 3 questions; you are required to answer any 2 questions.
SUGGESTED TIME REQUIRED TO ANSWER THIS QUESTION PAPER

NUMBERS QUESTIONS MARKS TIME IN MINUTES
SECTION A: MULTIPLE CHOICE QUESTIONS COMPULSORY
1 Question One 30 35
SECTION B: SHORT QUESTIONS COMPULSORY
2 Question Two 30 35
SECTION C: ANSWER ANY TWO QUESTIONS
3 Question Three 20 25
4 Question Four 20 25
5 Question Five 20 25
TOTAL 100 120
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SECTION A: ANSWER ALL QUESTIONS
QUESTION ONE (30 MARKS)
Four (4) alternatives are provided for each of the following questions. Choose the correct alternative for each of
the questions/statements and write down the alphabet corresponding to your choice next to the question number
in the answer sheet provided.
1.1 The Ford Motor Company can assemble a car and deliver it straight to its customers. What kind of an activity is
being performed by The Ford Motor company? (1)
A. Primary activities
B. Secondary activities
C. Manufacturing activities
D. Logistical activities
1.2 The purchasing manager at Toyota Durban has recently purchased a new assembling machine but none of the
shop floor workers are able to operate it. Thus, a supervisor was hired to train workers. What kind of a skill was
missing from the workers? (1)
A. Tactical
B. Technical
C. Knowledge
D. Conceptual
1.3 Falling interest rates are an example of what external force? (1)
A. Marketplace
B. Government laws and regulations
C. Labour markets
D. Economic changes
1.4 A graphic planning and control method in which a project is broken into separate parts. Select the BEST option.
(1)
A. Entity-relationship diagram (ERD)
B. Gantt chart
C. work breakdown structure
D. context diagram
1.5 Traditionally, a span of management of about _________ has been recommended. (1)
A. three
B. five
C. fifteen
D. seven
1.6 Which of the following organizations have a flat structure compared to others? (1)
A. Organization A with eleven hierarchical levels
152
B. Organization B with three hierarchical levels
C. Organization C with eight hierarchical levels
D. Organization D with six hierarchical levels
1.7 Which of the following factors is NOT associated with larger span of control? (1)
A. Work performed by subordinates in stable and routine
B. Subordinates perform similar work tasks
C. Subordinates are located at various locations
D. Subordinates are highly trained and need little direction
1.8 The _________ is a sequence of tasks that cannot be delayed without causing the project to be completed late.
(1)
A. float
B. critical path
C. payback period
D. milestone
1.9 Select the correct statement in the context of management. (1)

A. Planning is done by top management only
B. Top management relies primarily on their technical skills when planning for the future
C. Supervisors are responsible for tactical planning in an organisation
D. Strategic plans are translated into tactical and operational plans
1.10 A retail store applies the queuing theory for analysing the costs of clients waiting in queues in their different
branches. By applying the queuing theory, the retail store is trying to achieve an optimal balance between
the_________ and the________. (1)
A. cost preventing individuals from waiting for services; bank’s return on investment
B. productivity of their tellers; satisfaction of their clients
C. cost of increasing service; amount t of time individuals must wait for service
D. number of individuals waiting for service; capacity of their clients
1.11 An information system utilizes _________to perform the basic activities of___________. (1)
A. hardware, software, and human resources; input, processing, output, feedback, control, and storage
B. data and information planning
C. information technology; operational efficiency
D. computers; input, processing, and output
1.12 When a company needs a computer network that links the company with its employees, suppliers, clients, and
other stakeholders electronically, they should use the__________. (1)
A. World Wide Web
B. intranet
C. extranet
D. internet
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1.13 The first item to be reviewed during a structured walkthrough is the documentation that was developed as part
of the _______ phase of the systems development life cycle. (1)
A. design
B. planning
C. analysis
D. Implementation
1.14 Rainbow Chickens used to own their own fleet of trucks. This was costly for the business as it was not their core
competency. As a result, they decided to outsource that function and sold all their trucks, allowing them to
allocate funds that were received in product development. What kind of a role was taken by the CEO of
Rainbow chickens? (1)
A. Interpersonal role
B. Decision-making role
C. Information role
D. Tactical
1.15 Walton’s has been manufacturing staplers of high-quality standard thus creating value for their customers,
meaning that the company is being _________. (1)
A. efficient
B. effective
C. accurate
D. sufficient
1.16 OLX has experienced a no demand state for its newly developed face wash products during the past few
months. The company is then not being ________ with its scarce resources. (1)
A. effective
B. efficient
C. resourceful
D. sufficient
1.17 Who was recognised as the greatest European pioneer and was interested in the administrative side of
operations. (1)
A. Max weber
B. Mayo
C. Henri Fayol
D. Fredrick W. Taylor
1.18 To be successful in implementing Total Quality Management (TQM), an organisation must concentrate on the
following key elements. Identify the incorrect option. (I). Ethics; II. Compromise; III. Integrity; IV. Dishonesty; V.
Teamwork. (1)
A. I, II, III
B. II, III, IV
C. I, III. V
D. III, IV, V
154
1.19 Select the option that BEST describes the relationship between quality management and product strategy.
(1)
A. Product strategy is set by top management; quality management is an independent activity
B. Quality management is important to the low-cost product strategy, but not to the response or differentiation
strategies
C. High quality is important to all three strategies, but it is not a critical success factor.
D. Managing quality helps build successful product strategies
1.20 Senzo Mkhize has been experiencing bullying at work by his colleague. He then decided to go to his manager
because she has the skill to deal with people effectively. What kind of a skill does Senzo’s manager have?
(1)
A. Technical
B. Interpersonal
C. Conceptual
D. Tactical
1.21 The unwritten, common rules and perceptions about relationships among people and between people and
organizations are called ________. (1)
A. political contracts
B. social contracts
C. human relations perspective
D. systems viewpoint
1.22 _______is the process of taking a creative idea and turning it into a useful product, service, or method of
operation. (1)
A. Innovation
B. Imagination
C. Team building
D. Uncertainty
1.23 What OD technique involves changing the attitudes, stereotypes, and perceptions that work groups have about
each other? (1)
A. team building
B. intergroup development
C. survey feedback
D. sensitivity training
1.24 Before using the same OD techniques to implement behavioural changes, especially across different countries,
managers need to be sure that they’ve taken into account _______________. (1)
A. cultural characteristics
B. organizational differences
C. employee attitudes
D. societal differences
155
1.25 An individual is likely to resist change because of all of the following reasons except _______. (1)
A. uncertainty
B. increased productivity
C. concern over personal loss
D. belief that the change is not in the organization’s best interest
1.26 To cope with the complexity of life, individuals rely on habits or _______________. (1)
A. programmed responses
B. the status quo
C. beliefs
D. certainties
1.27 Which of the reasons for resistance to change expressed by an employee may be beneficial to the
organization? (1)
A. uncertainty
B. freezing
C. change is incompatible with the interests of the organization
D. refreezing
1.28 All the following are mentioned as actions that managers can use to deal with resistance to change except
______________. (1)
A. education and communication
B. diversification
C. participation
D. facilitation and support
1.29 _________ refers to an organisation’s ability to meet it short-term obligations. (1)

A. Leverage.
B. Liquidity
C. Activity
D. Profitability
1.30 For ________ to be effective, there must be mutual trust and credibility between managers and employees.
(1)
A. education
B. coercion
C. negotiation
D. participation
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SECTION B: COMPULSORY (30 MARKS)
QUESTION TWO (30 MARKS)
Comair Limited
The following is an interview that Money web had with the Chief Executive Officer of Comair on 23 May 2008 at 22:04
thereabouts, Gidonn. What does that mean for a business like yours?
GIDON NOVICK: Well, it means a lot. Fuel has always been a big cost for us, and you can imagine that having our
biggest cost, the kind of changes we’ve seen, more than doubling in a single year, has a dramatic impact. And it acts,
it takes reflection on the industry in terms of where we are, how strong we are in the industry. If you look, globally
we’ve seen some reasonably sound global airlines really struggling and quite a few going out of the business, so it’s
challenging times. But I guess at the end of the day it comes down to what we are doing about it.
GIDON NOVICK: The biggest thing we are doing about it is upgrading our fleet. The new aircraft that we are bringing
in, the 737 – 400s, which replaced the oldMV-82S, had a significant impact on our fuel burn. We save around 26% on
every seat that we sell because the new aircraft not only are more fuel efficient, but they are bigger aircraft, so we
get a big saving there.
So, I think in some ways we are quite lucky that we put that programme in place two years ago, and we are coming
to the end of that programme where our full fleet will be replaced, both on the British Air (BA) brand and the Kulula
brand.
Questions:
2.1 Examine the critical environmental variables which were posing a challenge to ComAir. (9)
2.2 Select sources of information from which Gidon Novick could use to make informed decisions. Give reasons for
your answers. (6)
2.3 The CEO developed strategies to remedy the effect of the challenges ComAir was experiencing. What did he do?
(5)
2.4 Recommend ways by which the airline’s top management can be assisted to better prepare for effective planning.
(10)
157
SECTION C: ANSWER ANY TWO QUESTIONS (40 MARKS)
QUESTION THREE (20 MARKS)
You have recently been appointed as the Head of a section in a medium-sized business. The section has been very
poorly managed in the past, mainly because of very poor planning done by your predecessor.
Expound how you will go about ensuring that proper plans are in place for this section in future. (20)
QUESTION FOUR (20 MARKS)
Information systems perform operational and managerial support roles in organisations. Explore the conceptual
classification of information systems in an organisation. (20)
QUESTION FIVE (20 MARKS)
Change management is a structured approach to moving an organisation from the current state to the desired future
state. Recommend ways in which management can prepare for change in the business environment.
(20)
END OF PAPER – ALL THE BEST!!!
158
TOPIC 12
12. ADDENDUM 621 (C): TYPICAL EXAMINATION MEMO
RICHFIELD GRADUATE INSTITUTE OF TECHNOLOGY (PTY) LTD

HIGHER EDUCATION AND TRAINING
FACULTY OF LEADERSHIP AND BUSINESS ADMINISTRATION
BUSINESS MANAGEMENT 621
MEMO
1ST SEMESTER NATIONAL SUPPLEMENTARY EXAM
DURATION: MARKS: 100 DATE:
EXAMINER: INTERNAL MODERATOR:

EXTERNAL MODERATOR:
This paper consists of 5 questions of 12 pages including this page.
PLEASE NOTE THE FOLLOWING:
5. Ensure that you are writing the correct examination paper, and that there are no missing pages.
6. You are obliged to enter your student details on the answer sheet. The answer sheet provided are the property
of Richfield Graduate Institute of Technology (Pty) Ltd and all extra sheets must be handed to the invigilator
before you leave the examination room.
7. If you are found copying or if there are any documents / study material in your possession, or writing on parts
of your body, tissue, pencil case, desk etc. your answer sheet will be taken away from you and endorsed
accordingly. Appropriate disciplinary measures will be taken against you for violating the code of conduct of
Richfield Graduate Institute of Technology (Pty) Ltd Examinations Board. Therefore, if any of these materials
are in your possession you are requested to hand these over to the invigilator before the official
commencement of this paper.
8. The question paper consists of 3 sections.
8.1. Sections A and B are compulsory.
8.2. Section C comprises of 3 questions; you are required to answer any 2 questions.
SUGGESTED TIME REQUIRED TO ANSWER THIS QUESTION PAPER

NUMBERS QUESTIONS MARKS TIME IN MINUTES
SECTION A: MULTIPLE CHOICE QUESTIONS COMPULSORY
1 Question One 30 35
SECTION B: SHORT QUESTIONS COMPULSORY
2 Question Two 30 35
SECTION C: ANSWER ANY TWO QUESTIONS
3 Question Three 20 25
4 Question Four 20 25
5 Question Five 20 25
TOTAL 100 120
159
SECTION A: ANSWER ALL QUESTIONS
QUESTION ONE (30 MARKS)
Four (4) alternatives are provided for each of the following questions. Choose the correct alternative for each of
the questions/statements and write down the alphabet corresponding to your choice next to the question number
in the answer sheet provided.
1.31 The Ford Motor Company can assemble a car and deliver it straight to its customers. What kind of an activity is
being performed by The Ford Motor company? (1)
A. Primary activities
B. Secondary activities
C. Manufacturing activities
D. Logistical activities
ANSWER: A
1.32 The purchasing manager at Toyota Durban has recently purchased a new assembling machine but none of the
shop floor workers are able to operate it. Thus, a supervisor was hired to train workers. What kind of a skill was
missing from the workers? (1)
A. Tactical
B. Technical
C. Knowledge
D. Conceptual
ANSWER: B
1.33 Falling interest rates are an example of what external force? (1)
A. Marketplace
B. Government laws and regulations
C. Labour markets
D. Economic changes
ANSWER: D
1.34 A graphic planning and control method in which a project is broken into separate parts. Select the BEST option.
(1)
A. Entity-relationship diagram (ERD)
B. Gantt chart
C. work breakdown structure
D. context diagram
ANSWER: B
1.35 Traditionally, a span of management of about _________ has been recommended. (1)
A. three
B. five
C. fifteen
D. seven
ANSWER: D
160
1.36 Which of the following organizations have a flat structure compared to others? (1)
A. Organization A with eleven hierarchical levels
B. Organization B with three hierarchical levels
C. Organization C with eight hierarchical levels
D. Organization D with six hierarchical levels
ANSWER: B
1.37 Which of the following factors is NOT associated with larger span of control? (1)
A. Work performed by subordinates in stable and routine.
B. Subordinates perform similar work tasks.
C. Subordinates are located at various locations.
D. Subordinates are highly trained and need little direction.
ANSWER: C
1.38 The _________ is a sequence of tasks that cannot be delayed without causing the project to be completed late.
(1)
A. float
B. critical path
C. payback period
D. milestone
ANSWER: B
1.39 Select the correct statement in the context of management. (1)

A. Planning is done by top management only
B. Top management relies primarily on their technical skills when planning
C. Supervisors are responsible for tactical planning in an organisation
D. Strategic plans are translated into tactical and operational plans
ANSWER: D
1.40 A retail store applies the queuing theory for analysing the costs of clients waiting in queues in their different
branches. By applying the queuing theory, the retail store is trying to achieve an optimal balance between
the_________ and the________. (1)
A. cost preventing individuals from waiting for services; bank’s return on investment
B. productivity of their tellers; satisfaction of their clients
C. cost of increasing service; amount t of time individuals must wait for service
D. number of individuals waiting for service; capacity of their clients
ANSWER: B
1.41 An information system utilizes _________to perform the basic activities of___________. (1)
A. hardware, software and human resources; input, processing, output, feedback, control and storage
B. data and information planning
C. information technology; operational efficiency
161
D. computers; input, processing and output
ANSWER: A
1.42 When a company needs a computer network that links the company with its employees, suppliers, clients and
other stakeholders electronically, they should use the__________. (1)
A. World Wide Web
B. intranet
C. Extranet
D. internet
ANSWER: C
1.43 The first item to be reviewed during a structured walkthrough is the documentation that was developed as part
of the ____ phase of the systems development life cycle. (1)
A. design
B. planning
C. analysis
D. Implementation
ANSWER: C
1.44 Rainbow Chickens used to own their own fleet of trucks. This was costly for the business as it was not their core
competency. As a result, they decided to outsource that function and sold all their trucks, allowing them to
allocate funds that were received in product development. What kind of a role was taken by the CEO of
Rainbow chickens? (1)
A. Interpersonal role
B. Decision-making role
C. Information role
D. Tactical
ANSWER: B
1.45 Walton’s has been manufacturing staplers of high-quality standard thus creating value for their customers,
meaning that the company is being _________. (1)
A. efficient
B. effective
C. accurate
D. sufficient
ANSWER: A
1.46 OLX has experienced a no demand state for its newly developed face wash products during the past few
months. The company is then not being ________ with its scarce resources. (1)
A. effective
B. efficient
C. resourceful
D. sufficient
ANSWER: A
162
1.47 Who was recognised as the greatest European pioneer and was interested in the administrative side of
operations. (1)
A. Max weber
B. Mayo
C. Henri Fayol
D. Fredrick W. Taylor
ANSWER: C
1.48 To be successful in implementing Total Quality Management (TQM), an organisation must concentrate on the
following key elements. Identify the incorrect option. (I). Ethics; II. Compromise; III. Integrity; IV. Dishonesty; V.
Teamwork. (1)
A. I, II, III
B. II, III, IV
C. I, III. V
D. III, IV, V
ANSWER: C
1.49 Select the option that BEST describes the relationship between quality management and product strategy.
(1)
A. Product strategy is set by top management; quality management is an independent activity.
B. Quality management is important to the low-cost product strategy, but not to the response or differentiation
strategies.
C. High quality is important to all three strategies, but it is not a critical success factor.
D. Managing quality helps build successful product strategies.
ANSWER: D
1.50 Senzo Mkhize has been experiencing bullying at work by his colleague. He then decided to go to his manager
because she has the skill to deal with people effectively. What kind of a skill does Senzo’s manager have?
(1)
A. Technical
B. Interpersonal
C. Conceptual
D. Tactical
ANSWER: B
1.51 The unwritten, common rules and perceptions about relationships among people and between people and
organizations are called ________. (1)
A. political contracts
B. social contracts
C. human relations perspective
D. systems viewpoint
ANSWER: B
163
1.52 _______is the process of taking a creative idea and turning it into a useful product, service, or method of
operation. (1)
A. Innovation
B. Imagination
C. Team building
D. Uncertainty
ANSWER: A
1.53 What OD technique involves changing the attitudes, stereotypes, and perceptions that work groups have about
each other? (1)
A. team building
B. intergroup development
C. survey feedback
D. sensitivity training
ANSWER: B
1.54 Before using the same OD techniques to implement behavioural changes, especially across different countries,
managers need to be sure that they’ve taken into account _______________. (1)
A. cultural characteristics
B. organizational differences
C. employee attitudes
D. societal differences
ANSWER: A
1.55 An individual is likely to resist change because of all the following reasons except _______. (1)
A. uncertainty
B. increased productivity
C. concern over personal loss
D. belief that the change is not in the organization’s best interest
ANSWER: B
1.56 To cope with the complexity of life, individuals rely on habits or _______________. (1)
A. programmed responses
B. the status quo
C. beliefs
D. certainties
ANSWER: A
164
1.57 Which of the reasons for resistance to change expressed by an employee may be beneficial to the
organization? (1)
A. uncertainty
B. freezing
C. change is incompatible with the interests of the organization
D. refreezing
ANSWER: C
1.58 All of the following are mentioned as actions that managers can use to deal with resistance to change except
______________. (1)
A. education and communication
B. diversification
C. participation
D. facilitation and support
ANSWER: B
1.59 _________ refers to an organisation’s ability to meet it short-term obligations. (1)

A. Leverage.
B. Liquidity
C. Activity
D. Profitability
ANSWER: B
1.60 For ________ to be effective, there must be mutual trust and credibility between managers and employees.
(1)
A. education
B. coercion
C. negotiation
D. participation
ANSWER: A
SECTION B: COMPULSORY (30 MARKS)
QUESTION TWO (30 MARKS)
Comair Limited
The following is an interview that Money web had with the Chief Executive Officer of Comair on 23 May 2008 at 22:04
thereabouts, Gidonn. What does that mean for a business like yours?
GIDON NOVICK: Well, it means a lot. Fuel has always been a big cost for us, and you can imagine that having our
biggest cost, the kind of changes we’ve seen, more than doubling in a single year, has a dramatic impact. And it acts,
165
it takes reflection on the industry in terms of where we are, how strong we are in the industry. If you look, globally
we’ve seen some reasonably sound global airlines really struggling and quite a few going out of the business, so it’s
challenging times. But I guess at the end of the day it comes down to what we are doing about it.
GIDON NOVICK: The biggest thing we are doing about it is upgrading our fleet. The new aircraft that we are bringing
in, the 737 – 400s, which replaced the oldMV-82S, had a significant impact on our fuel burn. We save around 26% on
every seat that we sell because the new aircraft not only are more fuel efficient, but they are bigger aircraft, so we
get a big saving there.
So, I think in some ways we are quite lucky that we put that programme in place two years ago, and we are coming
to the end of that programme where our full fleet will be replaced, both on the British Air (BA) brand and the Kulula
brand.
Questions:
2.1 Analyse the critical environmental variables which were posing a challenge to ComAir. (9)
2.2 Select sources of information from which Gidon Novick could use to make informed decisions. Give reasons for
your answers. (6)
2.3 The CEO developed strategies to remedy the effect of the challenges ComAir was experiencing. What did he do?
(5)
2.4 Recommend ways by which the airline’s top management can be assisted to better prepare for effective planning.
(10)
Lectures to use their discretion when marking this question.
SECTION C: ANSWER ANY TWO QUESTIONS (40 MARKS)
QUESTION THREE (20 MARKS)
You have recently been appointed as the Head of a section in a medium-sized business. The section has been very
poorly managed in the past, mainly because of very poor planning done by your predecessor.
Elucidate how you will go about ensuring that proper plans are in place for this section in future. (20)
Benefits of planning:
• See the whole business. Business planning done right connects the dots in your business, so you get a
better picture of the whole. Strategy is supposed to relate to tactics with strategic alignment. Does that
show up in your plan? Do your sales connect to your sales and marketing expenses? Are your products right
166
for your target market? Are you covering costs including long-term fixed costs, product development, and
working capital needs as well? Take a step back and look at the larger picture. 
• Strategic Focus. Start-ups and small business need to focus on their special identities, their target markets,
and their products or services tailored to match. 
• Set priorities. You can't do everything. Business planning helps you keep track of the right things, and the
most important things. Allocate your time, effort, and resources strategically. 
• Manage change. With good planning process you regularly review assumptions, track progress, and catch
new developments so you can adjust. Plan vs. actual analysis is a dashboard, and adjusting the plan is
steering. 
• Develop accountability. Good planning process sets expectations and tracks results. It's a tool for regular
review of what's expected and what happened. Good work shows up. Disappointments show up too. A well-
run monthly plan review with plan vs. actual included becomes an impromptu review of tasks and
accomplishments. 
• Manage cash. Good business planning connects the dots in cash flow. Sometimes just watching profits is
enough. But when sales on account, physical products, purchasing assets, or repaying debts are involved,
cash flow takes planning and management. Profitable businesses suffer when slow-paying clients or too
much inventory constipate cash flow. A plan helps you see the problem and adjust to it. 
• Strategic alignment. Does your day-to-day work fit with your main business tactics? Do those tactics match
your strategy? If so, you have strategic alignment. If not, the business planning will bring up the hidden
mismatches. For example, if you run a gourmet restaurant that has a drive-through window, you're out of
alignment. 
• Milestones. Good business planning sets milestones you can work towards. These are key goals you want to
achieve, like reaching a defined sales level, hiring that sales manager, or opening the new location. We're
human. We work better when we have visible goals we can work towards. 
• Metrics. Put your performance indicators and numbers to track into a business plan where you can see
them monthly in the plan review meeting. Figure out the numbers that matter. Sales and expenses usually
do, but there are also calls, trips, seminars, web traffic, conversion rates, returns, and so forth. Use your
business planning to define and track the key metrics. 
• Realistic regular reminders to keep on track. We all want to do everything for our customers, but
sometimes we need to push back to maintain quality and strategic focus. It's hard, during the heat of the
everyday routine, to remember the priorities and focus. The business planning process becomes a regular
reminder. 
Other marks for practical examples 
QUESTION FOUR (20 MARKS)
Information systems perform operational and managerial support roles in organisations. Explore the conceptual
classification of information systems in an organisation.
• Operations information systems

• Management information systems
• Other classifications of information systems
Other marks for explanation and practical examples 
167
QUESTION FIVE (20 MARKS)
Change management is a structured approach to moving an organisation from the current state to the desired future
state. Recommend ways in which management can prepare for change in the business environment.
• Information management
• Strategic responses
• Structural change 
Other marks for practical examples 
END OF PAPER – ALL THE BEST!!!
168

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MODULE: BUSINESS MANAGEMENT 621

TOPIC PAGE NO.

TOPIC 1: NATURE OF MANAGEMENT 1

3.8 Ways in which management can prepare for environmental changes 38

2. TITLE OF MODULES, CODE, NQF LEVEL, CREDITS & MODE OF DELIVERY

Title of the Module: Business Management 621

On completion of these modules the student will be able to:

6. LECTURES AND TUTORIALS

8. PRESCRIBED & RECOMMENDED MATERIAL

8.1 Prescribed Textbook

8.2 Recommended Material

8.3 Recommended E-books

8.4 Independent Research:

8.5 Library Infrastructure

9.4 Final Assessment

The final assessment for this module will be weighted as follows:

9.5 Key concepts in assignments and examinations

Competence Skills Demonstrated

Comprehension Understanding information

Application Use information

Analysis Seeing patterns

Synthesis Use old ideas to create new ones

Evaluation Compare and discriminate between ideas

SOFT SKILLS LIFE SKILLS

Good luck and success in your studies…

Think Point Research Glossary Interactive Questions

Review Questions Case Study Questions and Answers Group work

After studying this topic, you should be able to:

• Analyse the important role that business organisations

1.2 THE ROLE OF BUSINESS ORGANISATIONS IN A MODERN SOCIETY

• Money (capital of financial resources)

• Raw materials (physical resources)

• Knowledge (information resources)

Critically analyse the role of business in the society.

Table 1.1: Basic resources of an organisation

Organisation Human resources Financial Physical Information

Source: Smith, et al. (2013:7)

1.3 COMPONENTS OF THE MANAGEMENT PROCESS

• they know what must be done.

Figure 1.1: The four fundamental management functions

Depict and discuss the components that make up the

The external environment

Planning (Part II)

Organising (Part lll)

Leading (Part IV)

Figure 1.2 The interactive nature of the management process

1.4 A DEFINITION OF MANAGEMENT

1.5 DIFFEFENT LEVELS AND KINDS OF MANAGEMENT IN THE ORGANISATION

Managers are usually classified into two categories:

1.5.1 Top management

1.5.2 Middle management

1.6 AREAS OF MANAGEMENT

1.7 THE ROLE DISTRIBUTION OF MANAGERS

Decision-making role Information role

Figure 1.3 The overlapping role distribution of managers

1.8 MANAGERIAL SKILLS AND COMPETENCIES AT VARIOUS MANAGERIAL LEVELS

Knowledge of accountancy, or engineering, or currency trading is an example of a technical skill that

1.8.1 The difficult transition from non-manager to manager

How can managers acquire management functions, roles

For further insight on the subject matter, you can go to

1.9 MANAGEMENT AND ORGANISATIONAL PERFOMANCE

In America literature on business management in particular, the productivity of management or the