TOPIC 1

INTRODUCTION TO BUSINESS
MANAGEMENT
 INTRODUCTION AND AIM OF THE TOPIC
The aim is to provide an overview of the business world and business management,
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the role of entrepreneurship and its nature and role in society, how a business can be
established and the business environment in which a business functions. Lastly we look
at corporate social responsibility.

Learning objectives
1

After completing this topic, you should be able to

 demonstrate an understanding of the role of business in society and the position of busi-
ness management in the business world
 identify an entrepreneur and explain his or her role in society
 recognise how an organisation functions and how it is established
 explain the term “business environment”, examine its composition and investigate aspects
of environmental scanning
 explain what corporate social responsibility is and what it entails
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CONTENT
140 Topic 1 comprises five learning units:

LEARNING UNIT 1:
The business world and business management
LEARNING UNIT 2:
Entrepreneurship
TOPIC 1:
LEARNING UNIT 3:
INTRODUCTION TO BUSINESS
The establishment of a business
MANAGEMENT
LEARNING UNIT 4:
The business environment
LEARNING UNIT 5:
Corporate social responsibility

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Learning Unit 1
The business world and business management

INTRODUCTION AND AIM OF THE UNIT

This learning unit discusses the role of business in society and explains how a business
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organisation in a market economy employs the limited resources of a nation, its natural
resources, human resources, financial resources and entrepreneurship to satisfy the need
for products and services. The learning unit gives an overview of the main prevailing
economic systems in the world and explains how the business organisation functions
in a market economy. Against this background, the purpose and nature of business
management is examined: specifically the task of business management, namely studying
the factors, methods and principles that enable a business to function as efficiently as
possible. A classification of the study material on business management is also presented.

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

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MANAGEMENT (ITBM)

Contents of the learning unit:

 The role of business in society

 Needs and need satisfaction
 The main economic systems
 The need-satisfying institutions of the market economy
 The nature of business management and the classification of the study material on busi-
ness management

Learning objectives
3

When you have worked through learning unit 1, you should be able to

 demonstrate an understanding of the role of business in society

 explain the needs of society and how need satisfaction occurs
 discuss the three main economic systems in the world
 explain the differences between need-satisfying institutions and non-profit institutions
 explain the inherent nature of business management
 understand how the study material on business management is classified

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KEY TERMS

community development market economy

needs classification
economic systems free market
society

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

terms for this learning unit before continuing.

1.1 THE ROLE OF BUSINESS IN SOCIETY

Study section 1.2 in ITBM.

The business activity generally involves the transformation of resources into goods and
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services to meet society’s needs. Business, however, cannot operate without society at
large. It is important to understand how closely any business organisation is linked to the
society in which it operates. The needs and values of a society have a strong influence
on what a business does. For example, if the people in the society are very aware of the
need for protecting the environment, they will soon bring pressure to bear (often through
the news media) on any business that pollutes the environment with its waste materials.

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

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

ronmental damage, for example, a society can persuade an organisation not to pollute
or damage the environment or fix prices. Just as a society can influence its business
organisations, so these organisations can have a significant influence on the society. By
developing new products, businesses can influence the behaviour patterns of people in
a particular society. Just think of the impact that the electronics industry (with its pro-
duction of cell phones and DVD recorders, for example) has had on the social life of our
society. The success of businesses also has a major impact on the prosperity of a society.
In a town such as Secunda, for example, Sasol employs many of the inhabitants. If Sasol
were to go bankrupt, thousands of people would be left jobless and the entire town
would be affected.

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Did you know?

South Africa’s steel industry was on the verge of collapse. Read the case study above section 1.2
in ITBM to begin forming an understanding of the effect of business sustainability on society.

Activity 1.1

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

• “Miners and their families without food in Stilfontein”

• “New questions raised about the fiduciary responsibilities of directors of Saambou Bank”
• “Jonathan Oppenheimer of De Beers announces a black economic empowerment
partner”
• “Small landholders lodge claims against Mittal Steel for environmental damage”
• “Consumer organization complaints about the high telecommunication prices”
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From the five headlines above, identify what type of influence is being exerted by South
African organisations on society.

Feedback:
6

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

1.2 NEEDS AND NEED SATISFACTION

Study section 1.3 in ITBM.

Human beings have many varied and seemingly unlimited needs. Society, however, has
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limited resources to satisfy those needs and so a choice has to be made how best to uti-
lise those resources. Most of us would like to live in a mansion, drive a luxury car, own a
seaside cottage, go on an overseas trip every year, wear the latest fashion clothes and so
on, but very few people have enough money to afford all these products and services.
Most of us have limited resources (money), so we have to decide how to utilise the little
we do have to obtain the greatest satisfaction possible. The decision to obtain the great-
est possible benefit (or satisfaction) with the limited resources we have is known as the
economic principle.

Since the business world is geared towards satisfying needs in the society, it is important
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for management to know what those needs are. According to Maslow, all people have
the same basic needs, but not everybody strives to satisfy the same needs. In countries
with severe famine, for example, people will direct a great deal of their energy towards

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the satisfaction of physiological needs such as hunger and thirst. However, according to
Maslow, once these needs are satisfied, people will strive to satisfy the next level of needs
(i.e. security needs) and so on.

In the business world, there are four types of resources available to manufacture goods
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or provide services. These resources are known as production factors and refer to all the
resources used for producing goods or services. Whether a certain item is a production
factor or an end product will depend on the use it is put to. For a truck manufactur-
ing company, a truck is not a production factor – it is the end product. However, for a
transport company, a truck is a production factor, since without it the company would
not be able to provide the basic service of transporting goods. The figure below depicts
the four production factors.

Society is confronted with the fundamental economic problem of how to ensure the
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highest possible satisfaction of needs with the limited, scarce resources available. Within
a community, needs satisfaction occurs within a cycle, as can be seen in figure 1.5 in your
prescribed book. One of the elements within this cycle is the economic system determined
by the community. We will have a look at the main economic systems in the next section.

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

Activity 1.2

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

• Not having eaten lunch, you are quite hungry and thirsty.
• You are scared to sleep at night after a neighbour was murdered.
• You are worried about your continuing relationship with your partner, as he has indi-
cated that he wanted to move out of the flat that you share.
• Your boss has screamed at you at work in the presence of fellow workers.
• You want to enrol for further studies in the field of management in order to further
yourself in life.

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

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Feedback:

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

1.3 THE MAIN ECONOMIC SYSTEMS

Study section 1.4 in ITBM.

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

158 Free-market economy 159 Socialism Command economy

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At the one end of the spectrum we have the free-market economy, also referred to as
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capitalism. This economic system is based on the principle that each individual in soci-
ety is free to choose his or her own economic activity. Private individuals mostly own
the society’s resources and they are free to utilise those resources in whatever way they
wish. Everyone is free to work where they like, providing whatever service they like or
manufacturing whatever they want to, and so on.

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

In-between these two systems is the system known as socialism. According to this system,
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individuals may certainly own private property and choose their own form of economic
activity. The state, however, also owns many of the country’s resources and plays a far
greater economic role than in a free-market system. Many of the large corporations, for
example, are owned by the state and therefore managed by government employees.

Table 1.2 in the prescribed book provides a useful summary of the key differences be-
164

tween the three economic systems. You do not have to memorise these differences, but
to understand the different economic systems you must read through this table. It is also
important to note that no country in the world has an economy that is a pure capitalist
economy, or a communist economy, or a socialist economy. The economic system of a
country may range along a scale from pure communism to pure capitalism, or vice versa.

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

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 A mixed economy is an economic system that includes a variety of public and government
control, or a mixture of capitalism and communism.
There is not one single definition for a mixed economy, but relevant aspects include a degree of
private economic freedom (including privately owned industry) intermingled with centralised
economic planning and government regulation (which may include regulation of the market
for environmental concerns, social welfare or efficiency, or state ownership and management
of some of the means of production for national or social objectives).
Adapted from source: http://en.wikipedia.org/wiki/Mixed_economy

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

Activity 1.3

When a giant private organisation such as Masterbond or Saambou in South Africa or Enron
in the USA goes bankrupt, critics of capitalism have a handy stick to beat this economic
system. In South Africa we hear regular voices saying that the solution to South Africa’s
problems lie in socialism, that is, an economic system where the rich are heavily taxed
and where government intervention, ownership and control is at the order of the day.
What is important to remember, however, is that the downfall of organisations such as
Saambou and Enron actually shows that capitalism is functioning very well. If an organ-
isation is inefficient, it will go bankrupt. If government intervenes to keep such organisa-
tions afloat, it will keep inefficient companies going on for a longer period of time. On
the other hand, state organisations cannot fail, even if they perform badly, because they
are supported by taxpayers’ money!
(1) How would you classify the South African economic system?
(2) Would socialism be the answer to South Africa’s economic problems?

167

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

Feedback:
8

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

1.4 THE NEED-SATISFYING INSTITUTIONS OF THE MARKET

ECONOMY

Study section 1.5 in ITBM.

The functioning of the South African economy is affected by need-satisfying institutions

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such as business organisations, government institutions and non-profit-seeking institutions.

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Business organisations are also referred to as profit-seeking businesses since their aim is
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to conduct their business in such a way that it will lead to a profit for the owners. Most
of these business organisations are privately owned, but remember that the state also
owns business organisations. These are called public corporations (e.g. Transnet) and
they function just like any other kind of business organisation.

There are also government organisations that do not operate on a profit-seeking basis.
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They are usually referred to as government departments. The Department of Public

Works and the South African Police Service are examples of government departments
that do not operate on a profit-seeking basis. They provide a service to society and they
obtain their funds from Treasury. In other words, the people in the society pay for these
services by means of taxes.

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

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

Activity 1.4

How would you classify the following organisations in the South African economy?

• Telkom
• The Treatment Action Campaign organisation (TAC)
• Pirates soccer club

Feedback:
9

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

1.5 THE NATURE OF BUSINESS MANAGEMENT AND THE

CLASSIFICATION OF THE STUDY MATERIAL ON BUSINESS
MANAGEMENT

Study sections 1.6 and 1.7 in ITBM.

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

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latter studies the “management of a need-satisfying institution”. Economics is a study of
the broader area of economic problems in the community, whereas Business Management
focuses on the problems of individual organisations in the same community. Business
Management as a subject entails the study of how to manage a business as productively
as possible. This ties in with the economic principle, which states that the business must
strive to attain the highest income with the lowest cost, with the difference between the
income and cost being the profit. Note that the economic principle applies as much to
non-profit-seeking businesses as it does to profit-seeking businesses. The difference is
that any form of profit is ploughed back into the community for which the non-profit-
seeking organisation is working.

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

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to find out whether there is a need for the product of the business; acquiring and pro-
cessing raw materials in the manufacturing process; and appointing people to operate
the machinery in the manufacturing process. Capital must be obtained and the income
generated must be managed while creditors must be paid and workers remunerated.
These are just a few of the activities being performed in a business organisation. Further-
more, these activities must be coordinated and managed. This is the reason why activities
are grouped into functional areas to ensure proper coordination and management. The
functional areas are depicted in the following figure:

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

As we can see, general management is at the centre and deals with the planning, imple-
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mentation and control of activities (management functions) that are needed to run the
business. These management functions will be dealt with in considerably greater detail
in the rest of the prescribed book, but section 1.7 provides a useful summary of what
these functions entail.

Activity 1.5

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

• The unemployment rate in South Africa is too high. Consumers are warned to use
credit with caution, because there is a strong case for increasing the interest rate by 2%.
• The labour laws of the country are very restrictive and are hampering economic growth.

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Which of these statements have to do with the broad South African economy and society
in general? What are the implications of these statements for South African businesses?

10 Feedback:

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

SUMMARY
You now have a basic insight into the business world, economic systems, institutions of
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the free market and the nature of business management. In the next learning unit you
will study entrepreneurship in business.

BUSINESS IN CONTEXT
One of the recommended books for the MNB1501 module is entitled Business Cases.
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This book provides students with actual business scenarios and case studies which cover
relevant theoretical business aspects. It is not compulsory that you read these case
studies, but it will provide you with real local and international implementation of theory
in practice. For this learning unit, you can read the various case studies covered in this
book for a better understanding of business management within the business world.

SELF-ASSESSMENT QUESTIONS

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182 QUESTION 1

183 Which of the following statements are correct?

184 An entrepreneur is someone who ...

185 a pursues profit.

186 b accepts risk.
187 c makes the most of opportunities in the environment.
188 d combines expertise and resources to produce products and services.
189

190 1 ab
191 2 cd
192 3 bcd
193 4 abcd
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195 QUESTION 2

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

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economic system?

197 a private ownership of production factors

198 b free competition
199 c profit motive recognised
200 d limited right to strike in state enterprises
201

202 1 ab
203 2 ac
204 3 abc
205 4 abcd
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207 QUESTION 3

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

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

move towards a command or centrally controlled economy.
210 b Government intervention in the economic system aims at encouraging economic
growth and stability.
211 c Control of strategic organisations cannot be left to profit-seeking entrepreneurs.
212 d An expanding entrepreneurial role by the state eventually leads to a democracy.
213

214 1 ac
215 2 abd
216 3 bc
217 4 abcd
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THE ANSWERS TO THE SELF-ASSESSMENT QUESTIONS

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220 Question 1

All four of the statements are correct regarding the characteristics of an entrepreneur. Such
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a person normally pursues profit in starting and running a business, and in the process
also accepts risk. An entrepreneur also makes the most of opportunities in the environ-
ment; in fact, one of the traits of entrepreneurs is that they can foresee opportunities in
a dynamic business environment much quicker than other people. Lastly, entrepreneurs
also combine expertise and resources to provide products and services. The correct an-
swer is therefore option 4 (a b c d).

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223 Question 2

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

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free competition, and the profit motive is recognised. There is also freedom of association
and the right to strike. So statements a, b and c are correct and d is incorrect. The right
answer is therefore option 3 (a b c).

225 Question 3

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

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market economy does not necessarily mean a move towards a command or centrally
controlled economy. The elected government of the day is duty-bound by the Constitu-
tion to improve the life of all its citizens, which could entail state intervention from time
to time. The second statement about government intervention in the economic system
that aims at encouraging economic growth and stability is obviously correct, as explained
earlier. Control of strategic organisations cannot be left to profit-seeking entrepreneurs
only, because these strategic organisations must be managed to the benefit of all the
citizens. This statement is therefore correct. The last statement is obviously wrong. Ex-
panding the government’s entrepreneurial role does not have a corresponding positive
influence on the development of a democracy. The right answer is therefore option 3 (b c).

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