Contemporary Management Principles 4th Edition T Brevis and M Vrba

MANAGEMENT PRINCIPLES
T Brevis and M Vrba

(editors)
CONTEMPORARY
MANAGEMENT
PRINCIPLES
Editors
5#SFWJTr.7SCB
Contemporary management principles
First edition 2014
Print fourth edition 2014
© Juta and Company Ltd, 2014
1st Floor, Sunclare Building

21 Dreyer Street
Claremont
7708
South Africa
ISBN: 978 1 48510 229 8 (Parent)

ISBN: 978 1 48510 427 8 (WebPDF)
All rights reserved. No part of this publication may be reproduced or transmitted in any form or by
any means, electronic or mechanical, including photocopying, recording, or any information storage or retrieval
system, without prior permission in writing from the publisher. Subject to any applicable licensing terms and
conditions in the case of electronically supplied publications, a person may engage in fair dealing with a copy of
this publication for his or her personal or private use, or his or her research or private study. See Section 12(1)(a)
of the Copyright Act 98 of 1978.
Project manager: Deidré Mvula

Editor: Karoline Hanks
Proofreader: Mariana Swart
Typesetter: Hendali Steynberg
Cover designer: Adam Rumball
Indexer: Jennifer de Wet
The author and the publisher believe on the strength of due diligence exercised that this work does not contain
any material that is the subject of copyright held by another person. In the alternative, they believe that any
protected pre-existing material that may be comprised in it has been used with appropriate authority or has been
used in circumstances that make such use permissible under the law.
Contents
Preface ....................................................................................................................................................... viii
About the authors ................................................................................................................................ ix
PART I: INTRODUCTION
Chapter 1 The evolution of management theory .......................................................................... 1

1.1 Why managers need to study the history of management theory ................................. 3
1.2 The classical approach to management ............................................................................ 4
1.3 The behavioural approach ................................................................................................ 10
1.4 Quantitative management theory ..................................................................................... 14
1.5 The quality movement ....................................................................................................... 15
1.6 Systems approach .............................................................................................................. 17
1.7 Contingency theory ........................................................................................................... 20
1.8 The information revolution ............................................................................................... 21
Chapter 2 The management process ................................................................................................ 28

2.1 Managers and management ............................................................................................... 29
2.2 Management and the management process ..................................................................... 30
2.3 Levels and areas of management ...................................................................................... 36
2.4 The role distribution of managers ..................................................................................... 39
2.5 Managerial skills .................................................................................................................. 40
2.6 Learning to manage successfully ........................................................................................ 43
Chapter 3 Features of contemporary organisations and new management challenges ......... 46

3.1 The changing face of contemporary organisations .......................................................... 48
3.2 Variables influencing contemporary organisations to change .......................................... 49
3.3 The classic model of the formal organisation ................................................................... 55
3.4 The new organisation model ............................................................................................. 56
PART II: MANAGEMENT IN A CHANGING ENVIRONMENT
Chapter 4 Composition of the management environment .......................................................... 69

4.1 The importance of the management environment and its impact on managerial
decision-making .................................................................................................................. 71
4.2 Management theories and the management environment .............................................. 72
4.3 The structure and dynamics of the management environment ...................................... 74
4.4 Analysis of the management environment ....................................................................... 83
iii
Chapter 5 Managing organisational change and individual stress ................................................. 90
5.1 Forces of organisational change ........................................................................................ 92
5.2 The dimensions of change ................................................................................................. 96
5.3 Resistance to change .......................................................................................................... 97
5.4 Overcoming resistance to change ..................................................................................... 98
5.5 Approaches to change ....................................................................................................... 101
5.6 Areas of organisational change .......................................................................................... 103
5.7 Managing work stress .................................................................................................... 104
Chapter 6 Corporate culture .............................................................................................................. 116

6.1 The concept of culture ...................................................................................................... 118
6.2 Organisational culture ........................................................................................................ 118
6.3 The levels of culture .......................................................................................................... 120
6.4 The different cultures evident in a business organisation ................................................. 122
6.5 The elements of culture .................................................................................................... 124
6.6 Types of culture ................................................................................................................. 126
6.7 Changing organisational culture ......................................................................................... 128
Chapter 7 Power, politics, conflict resolution and negotiation .................................................... 134

7.1 Power .................................................................................................................................. 137
7.2 Interests .............................................................................................................................. 144
7.3 Influence tactics and taking political action ........................................................................ 145
7.4 Conflict management ......................................................................................................... 148
7.5 Negotiation ........................................................................................................................ 152
Chapter 8 Business ethics, corporate social responsibility and corporate governance ......... 159
8.1 The components of ethical business ................................................................................. 162
8.2 Business ethics ................................................................................................................... 163
8.3 Corporate social responsibility ......................................................................................... 168
8.4 Corporate governance ...................................................................................................... 173
8.5 The King Report on Governance for South Africa .......................................................... 175
Chapter 9 Workforce diversity .................................................................................................. 185

9.1 Dimensions of diversity ..................................................................................................... 187
9.2 Misconceptions of diversity ............................................................................................... 189
9.3 What is diversity? ............................................................................................................... 192
9.4 What is workforce diversity? ............................................................................................. 194
9.5 Reasons for the increased focus on managing workforce diversity ................................. 196
9.6 The need for diversity management in South Africa ....................................................... 197
9.7 Managing diversity .............................................................................................................. 199
9.8 Diversity training ................................................................................................................ 204
iv CONTEMPORARY MANAGEMENT PRINCIPLES

Contents
PART III: PLANNING
Chapter 10 Principles of planning ............................................................................. 211

10.1 The nature and importance of planning ............................................................................ 213
10.2 The benefits and costs associated with planning .............................................................. 218
10.3 Types of plan ...................................................................................................................... 220
10.4 Barriers to effective planning ............................................................................................. 226
10.5 Overcoming barriers to effective planning ........................................................................ 227
Chapter 11 Strategic management .......................................................................... 233

11.1 Strategy and strategic management .................................................................................. 235
11.2 The strategic management process .................................................................................. 237
Chapter 12 Decision-making .................................................................................... 259

12.1 Decision-making and the management process ............................................................... 261
12.2 The relationship between problems, problem-solving and decision-making .................. 262
12.3 Types of managerial decisions ........................................................................................... 262
12.4 Decision-making conditions ............................................................................................... 263
12.5 Decision-making models .................................................................................................... 266
12.6 Group decision-making ...................................................................................................... 269
12.7 Techniques for improving group decision-making ............................................................ 270
12.8 Tools for decision-making under various decision-making conditions ............................ 274
Chapter 13 Information management ..................................................................... 282

13.1 Information management and the decision-making process ............................................ 284
13.2 Managing information for sustaining competitive advantage ............................................ 286
13.3 The basic functioning of an information system ............................................................... 287
13.4 Characteristics and costs of useful information ................................................................ 289
13.5 Organising information systems ......................................................................................... 290
13.6 Classification of information systems ................................................................................ 291
13.7 Developing an information system .................................................................................... 298
Chapter 14 Project management ............................................................................. 305

14.1 The philosophy and meaning of project management ..................................................... 306
14.2 Perspectives of project management ................................................................................ 309
14.3 Key role players in project management ........................................................................... 312
14.4 The project management process ..................................................................................... 314
CONTEMPORARY MANAGEMENT PRINCIPLES v

PART IV: ORGANISING
Chapter 15 Principles of organising ......................................................................... 339

15.1 Organising, organisation and organisational structure ..................................................... 342
15.2 The importance of organising ........................................................................................... 343
15.3 Designing an organisational structure ............................................................................... 344
15.4 Principles of organising ...................................................................................................... 345
15.5 Authority ............................................................................................................................ 349
15.6 The departmentalisation approach to organisation structure ......................................... 354
15.7 Designing jobs that motivate ............................................................................................. 361
15.8 Delegation .......................................................................................................................... 363
Chapter 16 Value chain and e-business .................................................................... 373

16.1 The internal value chain ..................................................................................................... 374
16.2 Optimising the value chain ................................................................................................ 377
16.3 Industry-specific value chains ............................................................................................ 378
16.4 The value system ............................................................................................................... 379
16.5 E-business ........................................................................................................................... 381
PART V: LEADING
Chapter 17 Individual behaviour in organisations ................................................... 393

17.1 Individual personalities ....................................................................................................... 396
17.2 The Big Five personality dimensions ................................................................................. 398
17.3 Concepts about personality and work ............................................................................. 399
17.4 Perceptions ......................................................................................................................... 401
17.5 Emotional intelligence ........................................................................................................ 403
17.6 Values .................................................................................................................................. 405
17.7 Attitudes ............................................................................................................................. 407
17.8 Mars model of individual behaviour and results ............................................................... 408
17.9 Individual output ................................................................................................................ 411
Chapter 18 Work groups and teams ....................................................................... 420

18.1 Groups and teams .............................................................................................................. 421
18.2 Reasons why people join groups ...................................................................................... 422
18.3 Types of organisational group ........................................................................................... 422
18.4 Stages in group and team development ............................................................................ 424
18.5 Variables that influence group and team behaviour ......................................................... 426
18.6 Organisational teams ......................................................................................................... 434
18.7 Reasons why organisations use teams .............................................................................. 437
vi CONTEMPORARY MANAGEMENT PRINCIPLES

CONTENTS
18.8 Types of team .................................................................................................................... 438

18.9 Developing individuals into team members ..................................................................... 439
Chapter 19 Principles of leading ............................................................................... 445

19.1 Towards a definition of leadership .................................................................................... 446
19.2 Leadership and management ............................................................................................ 448
19.3 The components of leadership ......................................................................................... 449
19.4 Leadership approaches ...................................................................................................... 450
19.5 Contemporary approaches to leadership ......................................................................... 457
Chapter 20 Workforce motivation ........................................................................... 468

20.1 The nature of motivation .................................................................................................. 469
20.2 The motivation process ..................................................................................................... 469
20.3 The motivation theories .................................................................................................... 471
20.4 Money as a motivator ........................................................................................................ 485
20.5 Designing jobs that motivate ............................................................................................. 486
PART VI: CONTROLLING
Chapter 21 Principles of control ............................................................................... 493

21.1 A definition of control ....................................................................................................... 496
21.2 The importance of control ............................................................................................... 497
21.3 The control process ........................................................................................................... 497
21.4 The levels of control .......................................................................................................... 499
21.5 Functional area control systems ........................................................................................ 507
21.6 Characteristics of an effective control system ................................................................. 513
Index ............................................................................................................................................. 517
CONTEMPORARY MANAGEMENT PRINCIPLES vii

Preface
Contemporary management principles comprises 21 chapters covering a wide range of traditional and
contemporary management principles and concepts and many examples illustrating how successful
managers of 21st century business organisations apply theory to practice in their organisations. The
underlying themes of the book are the changes and challenges facing modern organisations and the
functions that managers perform to manage their organisations in an environment characterised by
major, on-going change. Relevant opening case studies illustrate the practical application of the theoretical
concepts discussed in the book and specific learning objectives provide a map of the essential management
concepts that business management students need to understand and apply in the organisations where
they work.
The first chapter in Part I sets the stage for the remaining chapters, tracing the development of
management theory from the Industrial Revolution to the Information Revolution, which paved the way for
globalisation and the emergence of a global economy. In the second chapter, we introduce the reader to
the management process and the concept of the organisation as an open system, in continuous interaction
with its environment. The last chapter in Part I describes the emergence of new forms of organisation,
which are developing in response to a rapidly changing business environment and are characterised as
being flatter, more flexible, networked, global and more diverse than the traditional bureaucratic form of
organisation. The business environment is the topic of discussion in Part II, which comprises six chapters,
each focusing on a different aspect of managing organisations in a changing environment. The reader is
first introduced to the components of business management and then to the different variables in the
internal (micro-) environment of organisations, such as corporate culture, the role of power, politics,
conflict resolution and negotiation, managing business ethics, corporate social responsibility, corporate
governance and sustainability and the managing of workforce diversity. Parts III, IV, V and VI focus on
the traditional management functions of planning, organising, leading and control, with the emphasis on
how managers apply these functions in contemporary organisations in order to achieve organisational
goals. In addition to the traditional topics of planning, strategic planning, decision making and information
management, a chapter on project management enhances the discussion on the various aspects of goal
setting and planning. A chapter on value chain and e-business adds further value to the book as it promotes
an understanding of the many aspects of contemporary business organisations.
The authors
December 2013
viii
About the authors
Prof Tersia Brevis is an associate professor in Business Management and the Chair of the Department of
Business Management in the College of Economic and Management Sciences at the University of South
Africa.
Mari Vrba is a senior lecturer in Business Management in the Department of Business Management at the
University of South Africa.
Louis Botha is the founder and managing director of Davis & Dean South Africa, a rapid skills development
company registered with the Project Management Institute.
Prof Hellicy C. Ngambi is a professor in Business Leadership and the Vice-chancellor at Malungushi
University in Zambia.
Dr Minka Woermann is a lecturer in Business Ethics and Philosophy in the Department of Philosophy
and the Head of the Unit for Business Ethics and Public Integrity in the Centre for Applied Ethics at
Stellenbosch University.
ix
x
PART I
Introduction
Chapter 1
The evolution of
management theory
Mari Vrba
PART I: Introduction
OPENING CASE
The capitalist philosophers that contemporary managers strive to achieve.

Through the ages, relatively few individuals rose The human problems resulting from Taylor’s
above their contemporaries to shape the course of scientific method have been obvious ever since its
history in the context of the specific social, scientific inception. Taylor himself recognised the limitations
and political settings of their time. Albert Einstein, of the scientific knowledge at his disposal and he
Franklin Roosevelt – and closer to home, Nelson understood that he was dealing with a human
Mandela – are just a few individuals who achieved problem as well as with materials and machines.
such status. He readily admitted that ‘… the motives which
Frederick Winslow Taylor is another example influence men warrant serious studying’5.
of an achiever whose name appears in history Viewed in their historical context and judged
books. Taylor is widely considered to be the father with reference to the intellectual framework
of scientific management and although others and assumptions of the period in which he lived,
made substantial contributions to this approach to Taylor’s ideas still have relevance for contemporary
management, it is Taylor’s name that is closely linked managers6. One example is fast-food chains that
to the metaphor of a factory as a ‘machine’ and serve hamburgers and other standardised products.
the mission to find the ‘one best way’ to manage. The food chains organise work in the smallest
‘Taylorism’ captivated the attention of management detail; they analyse the total process of production,
theorists in the United States of America, where determine the most efficient procedures, and
Taylor’s influence was (and still is) substantial, but allocate specialised duties to people trained to
also in countries ranging from Germany and the perform them in a very precise way7.
Soviet Union to India and China1. It is true that scientific management discounted
Taylor was an engineer and a colourful the value of human creativity. What sets current
personality who, by the time of his death in 1915 thinking apart from earlier management trends is
had gained the reputation of being an ‘enemy of the recognition that people are the source of the
the working man’2. A committee of the United competitive advantage and the heart of the survival
States House of Representatives summoned him to instinct that drives the most successful organisations
defend his system of management in 1911. in the twenty-first century. Outside units, including
Conversely, in the context of the historical remote divisions, suppliers, and even customers,
setting at the time, when the average educational influence the decisions of top management, and
level in the USA workforce was three years, Taylor’s teams or work groups are an integral part of
ideas instigated a revolution that enabled workers organisational activity8.
to earn middle-class wages and achieve middle-class Globalisation, the increasing complexity of
status. His ideas resulted in greater productivity, markets and production systems, and the exchange
greater purchasing power, and the highest standard of ideas across cultures have all helped the
of living ever seen in the world3. converging of the humanistic and scientific tracks
Supporters of Taylor and his ideas say that he of management9. This trend is meaningful as it also
is the most popular target of modern management recognises that, for capitalism to succeed globally,
theorists to criticise. One critic described him as it must be bearable for society – markets are
the ‘epitome of anachronistic management studies sustainable because social and political institutions
and dehumanising time-motion studies’4. This is an underpin them. The success of capitalism will
unfortunate presentation of Taylor’s work because continue to rest on the example set by business
the fundamental aim of his philosophy was to organisations, and increasingly by that of global
replace rule-of-thumb opinions with scientific study organisations. A new band of twenty-first
in a search for the best way to manage complex century managers are shaping and developing
organisations. Ironically, this is precisely the goal these organisations’ views and leadership10.
2 CONTEMPORARY MANAGEMENT PRINCIPLES

CHAPTER 1 Evolution of management theory
LEARNING OBJECTIVES
The purpose of this chapter is to provide an overview of the history of management theory, from the
Industrial Revolution to the point where the world has entered another revolution, the Information
Revolution, which developed in the context of a global economy. The objective of studying this
chapter is to enable you to:
1. Explain why managers need to study the history of management theory.
2. Discuss the important contributions made by Frederick W Taylor, Max Weber and Henri Fayol to
management theory.
3. Distinguish between human relations, human needs, motivation, and the integration phases of the
behavioural approach to management.
4. Explain why the quantitative approach to management emerged and how it led to the focus on
quality.
5. Discuss the contributions of W Edwards Deming, Joseph M Juran and Philip B Crosby to the
quality approach to management.
. Discuss the systems approach to management and explain how systems thinking inƃuenced the
Ƃeld of cybernetics and Peter 5engeos ideas on the learning organisation.
. Discuss the contributions of Tom Burns, )eorge M 5talker, Paul .awrence, Jay .orsch, Joan
Woodward, and Alfred Chandler to the contingency approach to management.
8. Describe the three revolutions that took place since the late eighteenth century and explain how
the Information Revolution changed the business environment of organisations.
1.1 WHY MANAGERS NEED TO STUDY THE LEARNING OBJECTIVE 1

HISTORY OF MANAGEMENT THEORY Explain why managers
need to study the history of
When studying the evolution of management theory, one recurring management theory.
theme is that management theorists have developed numerous
responses to the same basic management question: What is the best
way to manage an organisation? The reason why this question elicited
so many different responses is that one should see the proposed ‘best’
ways to manage organisations in the context of the social, political,
economic, technological, international and ecological forces that affect
organisations (and society) at any specific time. As these forces change,
so do the theories on management, adjusting to changing circumstances
in the environment.
This chapter reviews the major approaches to management since the
beginning of the twentieth century. A study of these approaches is the
basis for understanding the practice of management today.
Management theorists distinguish between six various approaches
to management that had evolved since the 1890s, namely the classical,
behavioural, quantitative, systems, contingency and quality approaches
to management. Many of these major approaches still influence
management thinking today, but towards the end of the previous
century, new approaches emerged because of the major changes
occurring in the environment since then.
CONTEMPORARY MANAGEMENT PRINCIPLES 3

8IZEPXFTUVEZIJTUPSZ
‘Today is not like yesterday, nor will tomorrow be like lessons in history for management scholars, and
today, yet today is a synergism of all our yesterdays, the most important one is the study of the past as
and tomorrow will be the same. There are many prologue’11.
LEARNING OBJECTIVE 2 1.2 THE CLASSICAL APPROACH TO

Discuss the important MANAGEMENT
contributions made by
The Industrial Revolution had a considerable impact on the development
Frederick W Taylor, Max
of management theory. The Industrial Revolution created extraordinary
Weber and Henri Fayol to
growth, resulting in the development of unique problems in Europe and
management theory.
the United States. In response to these problems, three management
theories emerged, collectively known as the classical approach to
management. The premise of the classical approach to management is
that organisations are rational systems that should operate in the most
efficient manner possible. The three management theories are scientific
management, bureaucratic management and administrative (or process)
management and they focus on different aspects of the organisation:
1. Scientific management – production efficiency
2. Bureaucratic management – the structure of organisations
3. Administrative management – the process and principles of
management.
1.2.1 Scientific management

UEKGPVKƂEOCPCIGOGPV A few individuals had a strong influence in the TDJFOUJųDNBOBHFNFOU
scientific management focused area: Frederick Taylor, Frank and Lillian Gilbreth, Henry Gantt, Harrington
on production efficiency Emerson and Morris L Cooke.
Frederick W Taylor (1856–1915)

Theorists often credit Taylor as the originator of the scientific
management era, where in fact his crucial role in the development of
scientific management was that he was the personification of an idea:
‘Scientific management was not an invention; it was a synthesis, a
stage in evolving management theory. Taylor became the focal point
for an idea. Scientific management was more than methods and
time study; it was a much deeper philosophy of managing human
and physical resources in a technologically advanced world where
people had gained greater control over their environment than
ever before. The Industrial Revolution had provided the impetus;
Taylor provided the synthesis.’12
Taylor advocated five simple principles13:
1. Managers should carry the responsibility for the planning, design
and organisation of work and workers should implement the work.
This principle of separating the planning and design of work from its
execution is the most criticised and far-reaching element of Taylor’s
approach to management.
2. Use scientific methods to establish the most efficient way of doing
work and design jobs by specifying the exact way the worker should
do it.
3. Select the best person to do the work.

4. Provide training to the worker to do the work.
5. Monitor the performance of the worker to make sure that it is in
accordance with the prescribed procedures and that the worker
achieves the specified results.
Organisations first applied Taylor’s principles on the factory floor, but

it spread to offices where the implementation of organisation methods
and work-study projects were used to design work into specialised jobs
and frequent performance evaluation.
Although opponents of his ideas often accused Taylor of dehumanising
and misusing workers because of his focus on designing jobs to strict
performance standards, it remains the foundation of modern industrial
engineering. At the heart of Taylor’s philosophy was his belief that
organisations and their employees benefit from better designed jobs,
more systematic work methods, higher productivity and efficient
management processes. Underpinning his ideas of linking performance
to reward, Taylor introduced the concept of piece-rate work whereby
the organisation pays a worker for each piece of work the worker
completes. The underlying principle of this idea is that workers who
work harder earn more money and therefore are motivated to be more
productive.
Taylor’s contributions include the development of job analysis; time
and motion studies; standardisation of processes; efficiency techniques
and productivity measurements to track labour costs. He also advocated
the provision of rest periods for workers and introduced the idea of
training for both managers and employees.
Henry L Gantt (1861–1919)

Gantt, a consulting industrial engineer, focused his research on control
systems for production scheduling and developed the still relevant Gantt
chart for scheduling multiple overlapping tasks over a specific period.
Gantt emphasised the importance of people and their motivation at
work and developed motivational schemes that emphasised the greater
effectiveness of rewards for good work (rather than penalties for poor
work). He developed a pay incentive system with a guaranteed minimum
wage and bonus system for people on fixed wages. Gantt was one of the
first to recognise the role of the quality of leadership and management
skills in effective industrial organisations.
Frank Bunker Gilbreth (1868–1924)

Frank Gilbreth was a pioneer in the field of motion study. His research
focused on eliminating waste, reducing fatigue, and increasing worker
productivity by finding ‘the one best way to work’. He identified 17 work
elements and called them therbligs (his surname spelled backwards).
His rules for motion economy and efficiency provide guidelines on planning
jobs for maximum achievement by using minimum effort, through the
effective interaction between job, worker and working environment14.

Lillian Evelyn Moller Gilbreth (1878–1972)

While her husband Frank was doing motion studies, Lillian Gilbreth, an
industrial psychologist, studied individual workers and their performance
under stressful conditions. She advocated standard working days,
scheduled breaks and normal lunch periods. She brought about the
cooperation between scientific management and applied psychology – a
crucial step in the evolution of management thinking and practice15.
Morris L Cooke (1872–1960)

Morris L Cooke introduced the concept of efficiency to educational and
municipal organisations and added fresh ideas to scientific management
to develop cooperation between labour and management. He
advocated more participation by workers and he appealed to leaders to
assist organised labour16.
While Taylor and people such as Gantt, the Gilbreths, and Cooke
concentrated their work on improving the efficiency of individual
workers, another pioneer of management theory during the scientific
management era, Max Weber, focused his attention on organisational
design.
1.2.2 Bureaucratic management

Max Weber (1864–1920) was born in Germany. He qualified in law and
then became an academic. He remained an academic for the rest of
his life, having an interest in the historical development of civilisations
through studies of the sociology of religion and the sociology of
economic life.
DWTGCWETCVKEOQFGN Weber developed the CVSFBVDSBUJD NPEFM which is a rational
method of structuring complex organisations. His aim was to define an
a rational method of structuring
ideal system where positions were well defined, the division of labour
complex organisations
was clear, objectives were explicit, and a clear chain of authority existed.
Weber’s major contribution to the study of organisations and their
management was his theory of authority structures, which led him to
characterise organisations in terms of the authority relations within
them. This stemmed from his interest in the question of why individuals
in organisations obey commands. Weber made a distinction between
power (the ability to force people to obey) and authority (where those
who receive orders obey them voluntarily).
Under a system of authority, subordinates perceive the issuing
of orders by superiors as legitimate. Weber distinguished between
organisational types according to the way in which they ‘legitimise’
authority.
He identified three pure types of legitimate (ie socially acceptable)
authority, which he labelled charismatic, traditional and rational-legal17.
EJCTKUOCVKEQTICPKUCVKQP Charismatic organisations

organisations with charismatic The first pure type of organisation, according to Weber, is the
leaders who have exceptional DIBSJTNBUJDPSHBOJTBUJPO. These are organisations with charismatic
powers or qualities leaders who have exceptional powers or qualities. Weber used the

Greek term ‘charisma’ to mean any quality of individual personality

whereby the leader is set apart from ordinary people by possessing
exceptional power or qualities. In this type of organisation, the authority
in the organisation stems from the characteristics of one person, which
is the basis of command. According to Weber, organisations managed
by a charismatic leader have a built-in instability because the question
of succession always arises when the leader leaves the organisation. It
is unlikely that another charismatic leader will be present, and so the
organisation loses its charismatic form and has to revert to one of the
remaining types18.
Despite Weber’s sketchy outline of charismatic leadership, his ideas
so fascinated researchers, scientists and sociologists that they still explore
the sources of a leader’s charisma. Research on the topic culminated
over four decades to reveal what we know today about charismatic and
transformational leaders (see Chapter 19).
Traditional organisations
Weber’s USBEJUJPOBM PSHBOJTBUJPO is one where subordinates obey VTCFKVKQPCNQTICPKUCVKQP
people who occupy a formal position of authority. In such organisations, an organisation where
the basis of authority is a belief in the legitimacy of the status of the subordinates obey people who
people who exercise authority and implies that because a person occupy a formal position of
occupies a formal position of authority, subordinates should obey him authority
or her. In Weber’s view, this type of authority is not efficient because it
is based on custom and not on competence.
Rational-legal organisations
The concept of rational analysis led to Weber’s third type of authority
system, the SBUJPOBMMFHBM one, with its bureaucratic organisational TCVKQPCNNGICN
form. As a basis for his theory, Weber compared the bureaucracy with rational-legal organisations have
the traditional organisation. He concluded that bureaucracies are more a bureaucratic form
powerful and more responsive to authority because of four elements,
namely differentiation, integration, constraints and incentives19:
1. Differentiation. An intensive division of labour, a hierarchy of
authority, and a clear separation of official duties from personal
interests and obligations.
2. Integration. Bureaucracies have written rules and regulations,
codified procedures for selection and advancement of officials, and
a specialised administrative staff charged with maintaining these
rules and procedures.
3. Constraints. Strict subordination requires all actions to be
justified in terms of the larger purposes of the organisation, the
norm of impersonality requires detachment and objectivity and
advancement is contingent on both seniority and performance.
4. Incentives. The prospect of a lifetime career, salaries paid in cash
rather than in kind, and social esteem attached to the status of the
official.
The major characteristics of a bureaucracy are summarised in Table 1.1

on the next page.

Table 1.1: The major characteristics of a bureaucracy

Organisational activity Related management activity
Formulating goals, decision-making r top-down goal-setting
and using power r centralised power
r preHerence Hor larger units
r leaders control, monitor and set oDLectiXes D[ using Hormal autJorit[
r strict JierarcJ[
%ontrolling tJe ƃow oH resources r tJe organisation as a unit oH anal[sis
into and out oH tJe organisation and r Doundaries are clearl[ speciƂed
estaDlisJing Doundaries r reliaDle and replicaDle
r Xertical
r rule-Dased
r assets linked to organisational units
&iHHerentiating Hunctions and roles, r specialised roles
estaDlisJing duties and rigJts including r clear role deƂnitions
goXernance r tJe remoXal oH uncertaint[
r relatiXe permanence
r eHƂcienc[-orientated
Source: Adapted from: Child, J. & McGrath, R.G. 2001. Organizations unfettered: organization form in an information-intensive
economy. Academy of Management Journal, 44(6):1135–1148.
Weber’s bureaucratic management theory made a substantial

contribution to the classical management approach. The bureaucracy
remains a popular form of organisation for organisations functioning
in a stable environment. However, in an environment characterised by
change and instability, the very strengths of the bureaucracy expose
its weaknesses. Max Weber himself, when describing the strengths of
the bureaucracy, unintentionally described precisely why it is not an
optimal form of organisation for organisations functioning in unstable
environments – characteristics such as hierarchical control and authority
relations, relatively fixed boundaries, and top-down authority render the
bureaucracy unsuitable for such environments20.
The bureaucracy, in the words of Max Weber:
‘The fully-developed bureaucratic mechanism compares with other
organisations exactly as does the machine with non-mechanical
modes of production. Precision, speed, no ambiguity, knowledge
of the files, continuity, discretion, unity, strict subordination,
reduction of friction and of material and personal cost – these are
raised to the optimum in the strictly bureaucratic administration’21.
1.2.3 Administrative (or process) management

administrative management The third classical theory is administrative management developed
the functions of managers within by Henri Fayol. This is the first attempt to define the functions of
a framework of clear guidelines managers within a framework of clear guidelines or principles. The
or principles significant contribution of administrative management is to define the
general duties or functions of managers within a framework of clear
guidelines or principles.
Henri Fayol (1841–1925), a French engineer, was one of the most
influential management thinkers of the early twentieth century. Fayol’s
work complements that of Taylor as it contains the first significant

attempt to develop principles for top-level management, and to analyse
the different activities that comprise the managerial role22.
Fayol used the term ‘administration’, which is often translated into
English as ‘management’. He viewed administration (or management) as
one of six functional areas of management, the others being technical
operations, commercial operations, financial operations, security and
accounting. Fayol considered administration to be the most crucial
element for the success of the organisation.
Fayol was among the first to see administration as a process rather
than just a set of rules or structures. He identified five activities (or
management functions, in today’s management language, as we explain
in Chapter 2), comprising the administrative (or managerial) role:
r QMBOOJOHGPSFDBTUJOH
r PSHBOJTJOH
r DPPSEJOBUJOH
r DPNNBOEJOH
r DPOUSPMMJOH
Fayol considered these activities as the work of the administrator (or

manager, as we use the term today) rather than specific actions in
themselves. He focused on the organising activity and divided it into
16 duties, most of which could be classified in today’s language as the
human resources responsibilities of line management. He proposed that
14 principles of administration govern the five activities of management
and the 16 duties of the organising activity. Fayol’s 14 principles of
administration are23:
1. Division of work. By dividing the work into smaller elements and
assigning specific elements to specific workers, they can perform the
work more productively.
2. Authority and responsibility. Authority is necessary to carry out
managerial responsibilities. Managers have the authority to give
orders to subordinates to do the work.
3. Discipline. Members of the organisation should respect the rules of
the organisation to ensure its smooth operation.
4. Unity of command. Each employee should report to one manager
only.
5. Unity of direction. Only one manager should coordinate and direct
similar activities in the organisation.
6. Subordination of individual interests to general interests. The goals
of the organisation should take precedence over the interests of
individual employees.
7 . Fair remuneration of personnel. Financial compensation for work
done should be fair to both the employees and the organisation.
8. Centralisation of power and authority. Power and authority should
be concentrated at the upper levels of the organisation, with
managers maintaining final responsibility. However, managers should
give their subordinates enough authority to enable them to do their
work.
9. Scalar chain. A single, uninterrupted chain of authority should

extend from the top level to the lowest position in the organisation.
10. Order. Material should be in the right place at the right time, and the
organisation should assign workers to do the work best suited to
them.
11. Equity. Managers should display friendliness and fairness towards
their employees.
12. Stability of tenure of personnel. A high turnover of personnel leads
to the loss of organisational knowledge and a loss in the return on
investment of human capital.
13. Initiative. Subordinates should have freedom to take initiative in
carrying out their work.
14. Esprit de corps (union is strength). Team spirit and harmony should
be promoted among workers to create a sense of organisational
unity.
LEARNING OBJECTIVE 3 1.3 THE BEHAVIOURAL APPROACH

Distinguish between the human The CFIBWJPVSBM BQQSPBDI developed because of the research
relations, human needs, by behavioural scientists, including sociologists, psychologists and
motivation, and the integration anthropologists. They attempted to find ways to change individual and
phases of the behavioural group behaviour to improve organisational efficiency. The behavioural
approach to management. approach developed during the 1920s when research inspired the
beginning of the human relations movement and during a second phase
beJaviQWral aRRrQaEJ in the post-World War II period, when theorists focused on human
focused on changing individual needs and motivation.
and group behaviour to improve A number of prominent thinkers contributed to the behavioural
organisational efficiency approach, notably Hugo Münsterberg, Mary Parker Follett, Chester
Barnard, Elton Mayo, Kurt Lewin, Abraham Maslow and Douglas
McGregor. We shall discuss their contributions briefly.
1.3.1 Human relations movement

The human relations movement focuses on individuals who work in
organisational groups. The research of contributors to the movement,
some of whose contributions are still relevant in contemporary
organisations, established that by improving workers’ satisfaction with
their jobs, organisations could increase productivity. They encouraged
managers to be supportive of workers, improve the social environment
at work and to help individual employees to improve their self-esteem.
Hugo Münsterberg, (1863–1916)

Theorists often cite Hugo Münsterberg, a German psychologist and
philosopher, as the founder of applied psychology. In 1913, he published
Psychology and Industrial Efficiency, a textbook in which he offered new
ideas in industrial psychology and showed the linkage between scientific
management and human effort in working environments24.

Kurt Lewin (1890–1947)

Kurt Lewin originated the concept of group dynamics, a construct for
analysing group behaviour. In addition to generating group dynamics,
Lewin initiated and contributed to the study of subordinate participation
in decision-making and the use of the group to achieve changes in
behaviour25.
Chester Barnard (1886–1961)

Chester Barnard was a manager. He studied economics at Harvard,
but failed to obtain his degree when he did not complete one minor
course – but he received seven honorary doctorates for his lifelong
contributions to the body of knowledge on the nature and purpose of
organisations. Barnard started his career by working for the American
Telephone and Telegraph system and in 1927, he became president of
New Jersey Bell. At the height of his career, in 1938, he published a
book that had a huge impact, The functions of the executive, in which
he described the importance of employee training, group processes
and management practices that could improve cooperation between
employees and supervisors.
Barnard made three significant contributions to management theory:
r 'JSTU IF WJFXFE PSHBOJTBUJPOT BT TPDJBM TZTUFNT UIBU OFFE UIF
support of employees to be effective.
r 4FDPOE IFQSPQPTFEUIFUIFPSZPGUIFBDDFQUBODFPG BVUIPSJUZ
r 5IJSE BOE NPTU JNQPSUBOU IF SFDPHOJTFE UIF JNQPSUBODF PG UIF
interaction between the organisation and its external environment.
We examine each of these contributions briefly:

1. The organisation as a social system. According to Barnard,
organisations are social systems that need the support of employees
to be effective and in this regard, managers should perform three
functions:
r FTUBCMJTIBOENBJOUBJOBOFŲFDUJWFDPNNVOJDBUJPOTZTUFNJO
the organisation
r IJSFBOESFUBJOFŲFDUJWFQFSTPOOFM
r FOTVSFUIBUQFSTPOOFMBSFNPUJWBUFEUPBDIJFWFPSHBOJTBUJPOBM
goals.
Closely related to the functions of a manager, Barnard believed that

subordinates choose if they want to accept or reject a manager’s
authority.
2. The theory of the acceptance of authority. Managers have as much
authority as employees allow them to have, and each person has a
range within which he or she would willingly accept orders without
purposefully questioning authority. Employees will choose to follow
orders if they:
r VOEFSTUBOEXIBUJTSFRVJSFEPG UIFN
r IBWFUIFQFSDFQUJPOUIBUUIFPSEFSTBMJHOXJUIPSHBOJTBUJPOBM
goals
r TFFQPTJUJWFCFOFųUTUPUIFNJODBSSZJOHPVUUIFPSEFST
Barnard maintained that organisations should provide sufficient

incentives to satisfy these criteria.
3. The importance of the organisation and its environment. Barnard
was one of the first to look at an organisation as a system because
of the interrelatedness of the various parts of an organisation.
Barnard introduced the following ‘new’ ideas26:
r 5IFTVDDFTTPG BOPSHBOJTBUJPOEFQFOETPONBJOUBJOJOHHPPE
relationships with the people and institutions it interacts with
outside the organisation on a regular basis.
r 0SHBOJTBUJPOTBSFEFQFOEFOUPOJOWFTUPST TVQQMJFST DVTUPNFST
and other external stakeholders. Managers should therefore scan
the environment to align the organisation and its resources with
opportunities and threats that occur because of changes in the
environment.
r 'PSBOPSHBOJTBUJPOUPTVSWJWF JUNVTUCFCPUIFŵDJFOUBOE
effective27.
Barnard’s ideas on the interaction between the organisation and

its environment created much interest and debate. In many ways,
Barnard was ahead of his time and many of his ideas are still relevant
in contemporary strategic management theory especially regarding the
unstable and dynamic nature of the business environment.
Mary Parker Follett (1868–1933)

Mary Parker Follett was another pioneer of the human relations
movement. She graduated in economics, government, law and
philosophy and brought to management theory her knowledge and
experience from these fields.
Follett wrote about the basic questions that lie behind all human
relations: authority, power, conflict, leadership and control. Her work
formed the basis of many contributions to the theory of industrial
psychology and sociology. She promoted the idea of integration in
all her work. She was an early advocate of the systems approach to
organisations and maintained that organisations should emphasise
interdependence among their parts, activities and functions28.
Follett based her philosophy on two concepts. Her ‘universal goal’
implies that group ethics rather than individualism should form the basis
of organisation and her ‘law of the situation’ states that it is impossible
for a manager to achieve success unless there is unity and cooperation
among all elements, material and people, in a given situation’29.
Follett’s two laws clearly separated her from the classical theorists’
view that there is only ‘one best way’ to manage. Her ideas have much in
common with more recent management theories, such as contingency
theory and systems theory, although management theorists seldom
mentioned her after her death in 1933. It was only since the late 1980s
that prominent management theorists such as Peter Drucker30 began
to credit her for her farsighted ideas. It is because Mary Parker Follett’s
philosophy of organisation opens up the possibility of such identification
that it is the most important contribution to the business literature of
our time31.
George Elton Mayo (1880–1949)

George Elton Mayo pioneered experimental research on human
behaviour in work settings. Mayo and a Harvard research team
conducted a series of experiments at the Western Electric Company’s
Hawthorne plant in Illinois. The experiments began in 1924 and
spanned several years. The first experiment focused on changing the
physical lighting in the company’s Relay Assembly Test Room. Mayo
hypothesised that he could find one best method of illumination that
would result in optimal productivity. What his team found, however,
was that every change in illumination resulted in higher productivity.
They conducted another experiment with the plant’s bank wiring
room employees where they implemented several types of piece-rate
incentive pay systems, hypothesising that they would discover one best
pay system for motivating employees. Instead, they found that workers
were equally motivated under a variety of pay systems. Mayo realised
that the Hawthorne employees did not react to illumination or incentive
pay, but to attention and recognition. Subsequent experiments by
Mayo confirmed that employees felt good about themselves and the
value of their jobs because of the interventions of the researchers.
Mayo concluded that improved human relations, social contacts
and behavioural rewards (such as recognition), were important for
motivating employees.
1.3.2 Human needs and motivation

The second era of behavioural research emphasised motivation. This
research focused on employees’ personal needs and how these needs
influence performance. Contributions to motivation theory by several
important scholars immediately after World War II inspired greater
efforts to understand individual behaviour in work environments. This
focus led to a field of study called organisational behaviour. We mention
only two theorists here, namely Douglas McGregor and Abraham
Maslow, but many others contributed to the study of organisational
behaviour.
Douglas McGregor (1906–1964)

Douglas McGregor brought a fresh perspective to management by
challenging leaders to think of employees as responsible, capable,
creative individuals. McGregor formulated his theories by considering
two different views of people: a negative view, which he termed Theory
X, and a positive view, which he termed Theory Y.
McGregor studied the behaviour of managers towards their
subordinates and concluded that managers base their behaviour on a
specific set of assumptions and beliefs about human nature. The basis of
5IFPSZ9 is a set of assumptions that take a command and control view TJeQr[ :
of management, underpinned by five beliefs that many managers hold based on a set of assumptions
about their employees. These assumptions are that people are lazy by that take a command and
nature; lack ambition, dislike responsibility and prefer that managers lead control view of management,
them; they are inherently self-centred and indifferent to organisational underpinned by a negative view
needs; and by nature resistant to change, gullible and not very bright. of human nature

McGregor argued that managers need a different view when managing

Theory Y employees. He proposed Theory Y, a mixture of assumptions and
a mixture of assumptions
underlying beliefs based on a positive view of human nature, taking a
and underlying beliefs based
leadership and empowering view of management. These beliefs are the
on a positive view of human
following:
nature, taking a leadership r 1FPQMF BSF OPU QBTTJWF CZ OBUVSF BOE SFTJTUBOU UP PSHBOJTBUJPOBM
and empowering view of needs, but their experiences in organisations cause them to become
management that way.
r 1FPQMF BSF NPUJWBUFE IBWF UIF QPUFOUJBM GPS EFWFMPQNFOU BOE
the readiness to achieve organisational goals, but management is
responsible for ensuring that people recognise and develop these
characteristics.
r 5IF FTTFOUJBM UBTL PG NBOBHFNFOU JT UP BSSBOHF PSHBOJTBUJPOBM
conditions so that people can achieve their own goals best by
directing their own efforts to achieve organisational objectives32.
McGregor’s major contribution is his conviction that managers could be

better if they changed their assumptions about people. He argued that
the way a manager treats employees is largely a self-fulfilling prophecy;
if the manager assumes that people are lazy and treats them as if they
were, they would be lazy. However, if the manager assumes that people
want challenging work and provided opportunities for them to do
such work, employees would in fact respond positively and seek more
responsibility. Theory Y is consistent with the emphasis in contemporary
organisations on employee participation, involvement, empowerment
and self-management33.
Abraham Maslow (1908–1970)

A contemporary of McGregor, Abraham Maslow, also a psychologist,
based his theory of human behaviour on the idea that individuals work
to satisfy unfulfilled needs. Maslow developed one of the most widely
recognised theories of motivation, the hierarchy of needs theory. He
proposed that every person has a hierarchy of five needs: psychological
needs, security needs, social needs, esteem needs and self-actualisation
needs and that only unsatisfied needs can motivate people. We discuss
Maslow’s theory in Chapter 20.
LEARNING OBJECTIVE 4 1.4 QUANTITATIVE MANAGEMENT THEORY

Explain why the quantitative During the late 1950s and early 1960s, the typical business school
approach to management curriculum in the United States fell short in terms of mathematics
emerged and how it led to the content. An influential report on higher education emphasised this
focus on quality. shortcoming34 and business schools responded by adding quantitative
methods in the curricula. This resulted in new management specialties.
1SPEVDUJPO NBOBHFNFOU UFYUCPPLT FNFSHFE IFBWJMZ JOŴVFODFE CZ
operations research techniques. Techniques such as statistics, linear
programming, waiting line or queuing theory, game theory, decision
trees, the transportation method, Monte Carlo methods, and simulation
devices became the new vocabulary. The United States Navy, the
Lockheed Missile System Division, and the consultants Booz, Allen

and Hamilton devised the Program Evaluation and Review Technique 2'4T
(PERT). This is an operations research technique that uses statistical
an operations research
probability theory for planning and controlling larger projects. This
technique that uses statistical
technique used statistical probability theory to furnish three time
probability theory for planning
estimates (pessimistic, most probable, and optimistic) for planning and
and controlling large projects
controlling large projects35.
1.5 THE QUALITY MOVEMENT LEARNING OBJECTIVE 5

Discuss the contributions of
The challenge for improved productivity, mainly in response to the
W Edwards Deming, Joseph
Japanese ‘productivity miracle’, interrupted the American preoccupation
M Juran and Philip B Crosby
with the application of quantitative methods to the solution of managerial
to the quality approach to
problems. Joseph M Juran and W Edwards Deming were two of the
management.
major contributors to the quality movement in the USA.
8 &EXBSET %FNJOH (1900–1993) is often associated with total
quality management (TQM), but he never used the term because he
had a low regard for both the term and the application of a quality
management practice that differed substantially from his own36.
Juran and Deming’s working lives were similar in many ways. Both
started their careers by working at Western Electric’s Hawthorn plant
in Chicago, where the work of statistician Walter Shewhart influenced
them both. While working at Western Electric as head of industrial
engineering, Juran conceptualised the Pareto principle. After the war,
the Union of Japanese Scientists and Engineers invited both Juran and
Deming to Japan. Juran delivered lectures in Japan about managing for
quality, while Deming taught Japanese engineers and top management
statistical methods and how to view production as a system that
included suppliers and consumers. The Japanese greatly appreciated
their teachings and the Emperor of Japan presented both men with
medals as high awards for their assistance37.
The productivity achievements of the Japanese paved the way for the
advent of Japanese management with its distinctive philosophy and style.
As the Japanese management approach evolved, it combined elements
of work simplification, lifetime employee participation, statistical
quality control and value analysis. The most distinctive characteristic
of Japanese management was the formation of small problem-solving
groups of workers, supervisors and specialists to improve the quality
of task performance. These groups epitomised group decision-making
by consensus, mentoring and training on a continuous basis, open
communication and group loyalty.
The success of the Japanese management style inspired management
researchers to determine what Western organisations could learn from
the Japanese.
1.5.1 The Deming approach to quality management

Deming kept his contacts with the Japanese from 1950 until his death
in 1993. Initially he focused his clients’ attention on statistics, but then,
upon requests from the Japanese, he gave them advice on how to
improve actual results. As his contacts with the Japanese continued
during the 1950s, Deming formalised his ideas about good management
practices. From 1946 to 1980, he primarily worked as a consultant in

statistical studies. From 1980, after gaining fame as the world’s leading
expert on quality, until his death 13 years later, he focused his attention
on transforming the ways of Western management.
Deming advocated continual improvement through lifelong
learning. He provided a new and comprehensive theory for managing
organisations. His description of production as a system of inter-
relationships between consumer research, design, suppliers, materials,
production, assembly, inspection, distribution, and consumers added
significantly to the body of knowledge of management theory38.
Deming developed a new approach to management – his ‘system of
profound knowledge’ – based on the following: appreciation for a system,
knowledge about variation, theory of knowledge, and psychology.
‘Deming was the unlikeliest of management gurus to rise to
prominence in the United States. A physicist and statistician by
training, he had the single-focused personality of an Einstein. Both
the humanistic and scientific strands of his quality philosophy can
be traced to the same root idea, a profoundly simple statistical
observation about how processes work: all processes are subject to
some level of variation that is likely to diminish quality. Variation is
the enemy of quality; yet it is inevitable and ubiquitous as gravity’39.
1.5.2 Total quality management

By the 1950s, the realisation dawned on the top managers of huge
American corporations that they could not achieve improvements in
quality by using a variety of tools and techniques in a disorganised way.
It was necessary to apply the knowledge, techniques and tools of quality
throughout their organisations, to all functions and at all levels, and to
total quality management do so in a coordinated way – total quality management (TQM).
(TQM) Two people who deserve recognition as major contributors to the TQM
to apply in a coordinated way movement are Joseph M Juran and Philip B Crosby40.
the knowledge, techniques and Joseph M Juran was the most important contributor to the TQM
tools of quality throughout an movement. He made three notable contributions to the field: the Juran
organisation, to all functions and trilogy, the tripol concept, and organisation-wide quality management.
at all levels r +VSBOTUSJMPHZVOEFSTDPSFTUIFJOUFSSFMBUJPOTIJQPG UISFFQSPDFTTFT
to manage quality: quality planning, control and improvement.
r +VSBOT USJQPM DPODFQU DPNQSJTFT UIF UISFF SPMFT UIBU QFPQMF IBWF
in an organisation, as customer, processor, or supplier. According
to Juran, the idea of the tripol is to consider systems rather than
individual functions.
r 5IFTFJOUFSSFMBUJPOTIJQTQSPWJEFBOVOEFSTUBOEJOHPG UIFTZTUFNBOE
could result in substantial increases in quality. Another major theme
of Juran is company-wide quality management – organisations need
an all-inclusive, systematic approach to set and meet quality goals
throughout the company41.
Philip B Crosby was another popular figure in the TQM movement

and the creator of the zero defect concept – the only performance
standard is zero defects.
1.5.3 In search of excellence

During the height of the Japanese successes, Peters and Waterman
published In search of excellence42, a book welcomed by many Western ME-insey 5 model
managers because it showed American corporations in a more positive comprises the seven Ss:
light. Peters and Waterman both worked at McKinsey as researchers. structure, strategy, systems,
The basis of the research and the theorising in their book rested on the style, skills, staff and shared
.D,JOTFZ4NPEFM. The model comprises seven elements: values
r structure r skills
corporate
Mc-inseyos 5s
r strateg[ strengtJs
r s[stems r staHH
r st[le
management r sJared Xalues
(igure 1.1: The Mc-insey 5 model
Peters and Waterman analysed the best performing McKinsey clients

in terms of the 7-S performance measures with the view to selecting
the best amongst them. The result was lessons from 42 of the best-run
companies in the United States. The research of Peters and Waterman
justified the strengths of American corporations in relation to Japanese
corporations and provided an effective counterbalance to the obsession
with Japanese productivity achievements in the West.
1.6 SYSTEMS APPROACH LEARNING OBJECTIVE 6

A theoretical biologist -VEXJH WPO #FSUBMBOŲZ observed that
43 Discuss the systems
certain similar characteristics appeared in all disciplines: approach to management
r TUVEZPG UIFXIPMFPSHBOJTNmUIFXPSEAPSHBOJTNIBTUIFTBNF and explain how systems
Greek and Latin roots as the word organisation because both deal thinking inƃuenced the Ƃeld
with function, structure and relationship of parts to a whole of cybernetics and Peter
5engeos ideas on the learning
r BUFOEFODZPOUIFQBSUPG BOPSHBOJTNUPTUSJWFGPSBTUFBEZTUBUFPS
organisation.
equilibrium
r UIFPQFOOFTTPGBMMTZTUFNT NFBOJOHUIBUBOPSHBOJTNJTBŲFDUFECZ
its environment and also affects its environment.
The TZTUFNT BQQSPBDI asserts that the whole is greater than systems aRRroaEh
the sum of its individual parts. How do the systems approach and asserts that the whole is greater
Ludwig von Bertalanffy’s observations of organisms contribute to our than the sum of its individual
understanding of management thinking? Organisations, similar to other parts
organisms, comprise many parts, including for example, individuals,
groups and teams, systems, processes and structure. All these parts
are interdependent to achieve organisational goals. Another feature
of a system is that the whole is greater than the sum of its individual
parts. Thus, by combining the efforts of all the individuals, sections and
departments in an organisation, managers can achieve more than those
individuals and the sections, groups, teams and departments to which
they belong can achieve on their own. Every department or section of
an organisation fits into the rest of the organisation and together, as a
whole, they achieve the goals of the organisation.
Organisations are open systems because the environment outside an

organisation has an influence on the organisation and the organisation
influences the outside environment. The environment influences the
organisation because it does not function in isolation. The organisation
procures its resources such as raw materials, human resources, capital
and information from suppliers outside the organisation. Inside the
organisation, through various systems and processes and the human
resources, managers transform resources into outputs such as products
and services and sell them to customers outside the organisation.
Thus, the organisation is open to influences coming from the external
environment.
In order to understand this approach to management it is crucial
to understand the interaction between the organisation and its
environment. The environment can range from stable to turbulent and
gradual or rapid economic, social, political, and technological changes
influence it (see Chapter 4).
1.6.1 Systems and information

A relatively new interdisciplinary science based on general systems theory,
which influences management theory, is cybernetics. The research into
cybernetics focuses on information, communication and control.
Cybernetics: learning and learning to learn44

Complexity is inherent in dynamic systems (such as organisations)
because their processes are often non-linear and hard to view and
control. However, the only way to address complexity is to acknowledge
its existence in the first place. Cybernetics is about the knowledge of
applying regulation, controlling and communicating in a system. In an
organisational context, such an approach can help managers understand
complex situations and attempt to deal with them.
Developments in cybernetics and cybernetic technology have
contributed much to the body of knowledge of how systems learn. A
core insight that emerged through research into cybernetics is that the
ability of a system to engage in self-regulatory behaviour depends on
processes of information involving negative feedback. An analogy to
negative feedback can be a skipper and a boat. If the skipper steers the
boat off course by taking the rudder too far in one direction, he can get
back on course by moving it in the opposite direction.
Research based on the idea of negative feedback led to a theory of
communication and learning underpinned by four key principles. Systems
should be able to:
r TFOTF NPOJUPSBOETDBOTJHOJųDBOUBTQFDUTPGUIFJSFOWJSPONFOU
r SFMBUF UIJT JOGPSNBUJPO UP UIF PQFSBUJOH OPSNT UIBU HVJEF TZTUFN
behaviour
r EFUFDUTJHOJųDBOUEFWJBUJPOTGSPNUIFTFOPSNT
r JOJUJBUFDPSSFDUJWFBDUJPOXIFOUIFZEFUFDUEJTDSFQBODJFT
If these conditions are satisfied, it creates a continuous process of

information exchange between the system and its environment and the
system can monitor changes and initiate responses, thus operating in an

intelligent, self-regulating manner.
The downside is that, because the system can maintain only the
courses of action allowed by the guiding operating norms or standards,
it limits the learning abilities. When the guiding standards are not
appropriate for dealing with the changes the system come across, its
intelligence breaks down because the process of negative feedback
attempts to maintain an inappropriate pattern of behaviour. The term
used for this type of learning is ‘single-loop learning’ because it is an ability
to detect and correct error only in relation to a given set of standards.
‘Double-loop’ learning (the process of learning to learn), depends on
being able to take a ‘double look’ at the situation by questioning the
relevance of operating standards.
The ideas associated with cybernetics, single-loop learning and
double-loop learning have important implications for organisations and
provide a framework for the development of the concept of learning
organisations.
Learning organisations
Writers of management theory often use the term ‘organisational
learning’ interchangeably with the term ‘learning organisation’. The
difference is that ‘organisational learning’ describes certain types of
activity in an organisation while the ‘learning organisation’ refers to a
particular type of organisation. However, there is a simple relationship
between the two – a learning organisation is one that is good at
organisational learning45.
Many organisations have become good at single-loop learning by
developing the ability to scan the environment, set objectives, and
monitor the general performance of the system in relation to the
objectives. Organisations often institutionalise this basic skill in the form
of information systems designed to keep the organisation on course by,
for example, using budgets. Double-loop learning is often more difficult
to implement – not many organisations have systems that review
and challenge basic models and operating standards. Bureaucratic
organisations in particular actually obstruct the learning process46.
1FUFS4FOHF popularised the concept of learning organisations
in his book The fifth discipline. He challenged linear, cause-and-effect
thinking about organisational behaviour and identified five new
‘competent technologies’47:
r TZTUFNTUIJOLJOHmMPPLJOHGPSDZDMJDBMQSPDFTTFT
r QFSTPOBMNBTUFSZmDPNNJUNFOUUPMJGFMPOHMFBSOJOH
r NFOUBMNPEFMTmDIBMMFOHJOHEFFQMZJOHSBJOFEBTTVNQUJPOT
r TIBSFEWJTJPOmDSFBUJOHBOBJNXJUIXIJDIFNQMPZFFTDBOJEFOUJGZ
r UFBNMFBSOJOHmUIFGVOEBNFOUBMMFBSOJOHVOJUTJONPEFSO
organisations.
The competent technologies join to form innovative learning

organisations. Each provides a vital dimension for building organisations
that can learn and continually enhance their capacity to realise their
goals.
Senge maintained that learning organisations must develop capacities

that allow them to do the following48:
r 4DBO BOE BOUJDJQBUF DIBOHF JO UIF XJEFS FOWJSPONFOU UP EFUFDU
significant variations.
r %FWFMPQ UIF BCJMJUZ UP RVFTUJPO DIBMMFOHF BOE DIBOHF PQFSBUJOH
standards and assumptions.
r "MMPXBOBQQSPQSJBUFTUSBUFHJDEJSFDUJPOBOEQBUUFSOPG PSHBOJTBUJPO
to emerge.
r &WPMWF EFTJHOT UIBU BMMPX UIFN UP CFDPNF TLJMMFE JO UIF BSU PG
double-loop learning.
The ideas on system thinking paved the way for management

practitioners to break free from bureaucratic thinking and encouraged
them to consider the possibilities of organising their organisations
according to the requirements of the environment.
LEARNING OBJECTIVE 7 1.7 CONTINGENCY THEORY

Discuss the contributions of As one of the major strands of thinking about organisations, contingency
Tom Burns, )eorge M 5talker, theory proposes that there is no one best way of organising; instead,
Paul .awrence and Jay .orsch, the best organisation structure depends on a number of contingency
Joan Woodward and Alfred factors. Rather than accepting an approach that all organisations should
Chandler to the contingency be the same or that all organisations should be different, contingency
approach to management. theorists argue that it is possible to analyse the variation in organisations
in a systematic way by considering the contingencies, or situational
factors, for every organisation. The major contingency factors include
environmental complexity, technology, organisational strategy and
organisation size49.
5PN#VSOT and (FPSHF.4UBMLFS conducted one of the most
EontingenEy aRRroaEh influential studies to establish the credentials of the DPOUJOHFODZ
this approach analyses the BQQSPBDI to organisation in the 1950s. The contingency approach
variation in organisations in a analyses the variation in organisations in a systematic way by considering
systematic way by considering the contingencies, or situational factors for every organisation. Their
the contingencies, or situational work is famous for establishing the distinction between mechanistic
factors, for every organisation and organic approaches to organisation and management. Focusing
on organisations in a variety of industries (eg manufactured fibres,
engineering and electronics), Burns and Stalker illustrated that when
conditions in the environment are relatively stable with predictable
technological and market conditions, the mechanistic organisation
structure is suitable. However, when the environment becomes highly
unpredictable, with rapid technological advances and boundless market
opportunities, open and flexible styles of organisation and management
are required50.
In their study of American organisations in the container, food and
plastics industries, 1BVM -BXSFODF and +BZ -PSTDI concluded that
environmental conditions surrounding the organisation had a significant
effect on their choice of structure.
In her study of manufacturing firms in England, +PBO8PPEXBSE
(1965) was the first to look into the effect of technology on the design
of organisations. She classified organisations by the complexity of the
technology they use in producing goods and found that technology

influences the choice of structure in organisations. She categorised
organisations as less complex to more advanced, in terms of their
production operations as small batch, large batch and long-run
continuous-process production. Woodward found that the more
successful organisations in each category had the same structures51.
A group of researchers from the 6OJWFSTJUZ PG "TUPO in
England found that the size of the organisation best explained many
of the characteristics of its structure. They found that the larger the
organisation, the more important the standardisation as a coordinating
mechanism became52.
"MGSFE$IBOEMFS53 conducted a study of the influence of strategy
on structure and maintained that ‘structure follows strategy’. He argued
that different strategies create different administration needs; therefore,
organisational structure will eventually change to accommodate these
needs.
While contingency theory still has its followers, there is a shift in
emphasis in the literature towards an integration of approaches and
the many environmental and structural variables that interact to create
superior performance, rather than one or two primary contingencies.
However, contingency theory still offers insight into the relationship
between certain contingency variables and organisation structure.54
1.8 THE INFORMATION REVOLUTION LEARNING OBJECTIVE 8

Historians55 argue that there have been at least two Industrial Describe the three revolutions
Revolutions. The first started at the end of the eighteenth century when that took place since the late
new technology resulted in developments such as the steam engine, eighteenth century and explain
the spinning jenny and machines replacing traditional hand tools. The how the Information Revolution
second Industrial Revolution, about 100 years later, produced electricity, changed the business
the internal combustion engine, science-based chemicals, efficient steel environment of organisations.
casting and the beginning of communication technologies with the
invention of the telephone.
The first two revolutions had certain features in common, which
offer valuable insights into the nature of technological revolutions56:
r #PUI SFWPMVUJPOT TJHOBMMFE B QFSJPE PG TQFFEZ BOE VOQSFDFEFOUFE
technological change.
r 5IF MPDBUJPO PG XFBMUI BOE QPXFS CSPVHIU CZ UIF UFDIOPMPHJDBM
changes moved power to those countries able to master the new
technologies.
r #PUI SFWPMVUJPOT DPOųSNFE UIBU UFDIOPMPHJDBM JOOPWBUJPO JT OPU
an isolated instance and that technological breakthroughs come
in clusters, interacting with each other in a process of increasing
returns.
r 5IF USBOTGPSNBUJPO PG TPDJFUJFT IBQQFOT GBTUFS JG UIFSF JT B DMPTF
relationship between the sites of innovation, production and the use
of new technology, and results in more innovation.
Both revolutions brought a whole array of new technologies that formed

and transformed an industrial system in successive stages57.
r 5IFHFOFSBUJPOBOEEJTUSJCVUJPOPG FOFSHZXBTBUUIFDPSFPG CPUI

revolutions, for example, the invention of the steam engine in
the first revolution and the invention of electricity in the second
revolution.
r 5FDIOPMPHJDBM CSFBLUISPVHIT JO FMFDUSPOJDT EVSJOH 8PSME 8BS **
preceded the third revolution. The invention of the first
programmable computer, the transistor and the discovery of the
source of microelectronics followed.
r %JŲFSFOUGPSNTPG VTJOHUIFSBEJPFNFSHFETVDIBTCSPBEDBTUJOH
direct satellite broadcasting, microwaves and digital cellular
telephony.
r $PBYJBM DBCMF BOE ųCSF PQUJDT PŲFSFE B EJWFSTJUZ BOE WFSTBUJMJUZ
of transmission technologies, which were adapted to a whole
range of uses, and enabled extensive communication between
mobile users. Each leap and bound in a specific technological field
amplified the effects of related information technologies.
The third revolution, the Information Revolution, emerged in the

1970s when a ‘great technological divide’ took place and resulted in
rapid technological advances, including the following58:

r 5IF 6OJUFE 4UBUFT %FGFODF %FQBSUNFOUT "EWBODFE 3FTFBSDI
Projects Agency set up a new, electronic communication network
that would develop into the internet.
r 5IFųSTUJOEVTUSJBMFMFDUSPOJDTXJUDI
&BSMZT
r 5IFųSTUJOEVTUSJBMMZQSPEVDFEPQUJDųCSFBQQFBSFE

r 5IFJOWFOUJPOPG UIFNJDSPQSPDFTTPS
NJET
r 5IFEFWFMPQNFOUPG EJHJUBMTXJUDIJOH

r 5IFBQQFBSBODFPG UIF9FSPY"MUP

r 5IFJOWFOUJPOPG UIFNJDSPDPNQVUFS

r "QQMFJOUSPEVDFT"QQMF** JUTųSTUTVDDFTTGVMDPNNFSDJBMQSPEVDU
r .JDSPTPGU QSPEVDFT PQFSBUJOH TZTUFNT GPS NJDSPDPNQVUFST UIF
matrix of many software technologies developed during the 1990s.
The Information Revolution changed the world and the way in which
organisations function and resulted in the emergence of a global
economy. Organisations have changed fundamentally since the first
revolution, the pace of change accelerated rapidly since the Information
Revolution and there is no slowing down. The Information Revolution
and the emergence of globalisation are two factors that, in tandem,
forced business organisations to change fundamentally in order to be
able to function in a fast-changing, dynamic environment.

Chapter 1 Evolution of management theory
Copyright © 2014. Juta and Company. All rights reserved. May not be reproduced in any form without permission from the publisher, except fair uses permitted under U.S.
Information technology and globalisation are the two major factors

responsible for the emergence of new organisation forms, the topic
of discussion in Chapter 3.
CHAPTER SUMMARY
1. Explain why managers need to study the history of management theory.
• The proposed ‘best’ ways to manage organisations through history took place in the context
of the social, political, economic, technological, international and ecological forces that affect
organisations at any specific time. As these forces change, so do the theories on management,
adjusting to changing circumstances in the environment. Managers need to be aware of the
influence of environmental factors on the development of management theory.
• There are many lessons in history for management scholars. The most important one is the
study of the past as an introduction (prologue) to the study of contemporary organisations.
2. Discuss the important contributions made by Frederick W Taylor, Max Weber and Henri Fayol
to the management theory.
• Frederick W Taylor was the father of scientific management with the emphasis on efficiency.
• Max Weber focused on how to structure organisations and developed the bureaucracy.
• Henri Fayol pioneered administrative management with the focus on the process and
principles of management.
3. Distinguish between the human relations, human needs and motivation and the integration
phases of the behavioural approach to management.
• The human relations movement focuses on individuals working in group environments.
• The human needs and motivation phase of the behavioural approach to management focuses
on personal needs and their influence on performance.
• The integration phase is about searching for concepts that integrate various theories.
4. Explain why the quantitative approach to management emerged and how it led to the
focus on quality.
During the mid-1960s, business schools in the United States began to teach more statistics and
mathematics to their students in response to the increasing complexity of managerial problems.
This resulted in the qualitative approach to management. However, the challenge for improved
productivity, mainly in response to the Japanese superior productivity, interrupted the American
preoccupation with the application of quantitative methods to the solution of managerial problems
and led to the focus on quality.
5. Discuss the contributions of W Edwards Deming, Joseph M Juran and Philip B Crosby
to the quality approach to management.
or applicable copyright law.
• Edwards W Deming’s basic philosophy was continual improvement through lifelong learning.
He provided a new and comprehensive theory for managing organisations. His description of
production as a system of interrelationships between consumer research, design, suppliers,
materials, production, assembly, inspection, distribution, and consumers added significantly
to the body of knowledge of management theory. His ‘system of profound knowledge’ – based
on appreciation for a system, knowledge about variation, theory of knowledge, and psychology
was an important contribution to the quality movement.
Contemporary Management Principles 23
EBSCO Publishing : eBook Collection (EBSCOhost) - printed on 5/3/2018 12:40 PM via UNISA
AN: 707010 ; Vrba, M. J., Brevis, Tersia.; Contemporary Management Principles
Contemporary.indb 23 2013/11/20 4:23 PM
Account: s7393698
Part I: Introduction
• Joseph M Juran was the most important contributor to the TQM movement. He made three
notable contributions to the field: the Juran trilogy, the tripol concept, and organisation-wide
quality management.
• Philip B Crosby was a popular figure in the TQM movement and the creator of the zero defect
concept – the only performance standard is zero defects.
6. Discuss the systems approach to management and explain how systems thinking
influenced the field of cybernetics and Peter Senge’s ideas on the learning organisation.
• Systems researchers observed that organisations, similar to other ‘organisms’, comprise
many ‘parts’ including for example, individuals, groups and teams, systems, processes and
structure. All these ‘parts’ are dependent on each other (interdependent) in order to achieve
the goals of the organisation. Another characteristic of a system is that the whole is greater
than the sum of its individual parts. By combining the efforts of all parts of the organisation,
managers can achieve more than what those individuals and the sections, groups, teams and
departments to which they belong can achieve on their own.
• Organisations are also open systems because the environment outside an organisation has
an influence on the organisation and the organisation influences the outside environment.
• Cybernetics entails knowledge on how to apply regulation, control and communication in
a system. In an organisational context, such an approach can help managers understand
complex situations and to deal with them more effectively.
• Developments in cybernetics and cybernetic technology have contributed much to the
body of knowledge of how systems learn. A core insight that emerged through research into
cybernetics is that the ability of a system to engage in self-regulatory behaviour depends on
processes of information involving negative feedback.
• Peter Senge popularised the concept of learning organisations. He challenged linear, cause-
and-effect thinking about organisational behaviour and identified five new ‘competent
technologies’ which, in his opinion, were gradually converging to form innovative learning
organisations. Each provided a vital dimension of building organisations that can truly ‘learn’
and that could continually enhance their capacity to realise their aspirations.
7. Discuss the contributions of Tom Burns, George M Stalker, Paul Lawrence, Jay Lorsch,
Joan Woodward and Alfred Chandler to the contingency approach to management.
• Tom Burns and George M Stalker conducted one of the most influential studies to establish
the credentials of the contingency approach to organisation. Their work is famous for
establishing the distinction between mechanistic and organic approaches to organisation
and management.
• Paul Lawrence and Jay Lorsch found that environmental conditions surrounding the
organisation had a significant effect on the choice of structure.
• Joan Woodward was the first researcher to study the effect of technology on the design
of organisations. She classified organisations by the complexity of the technology used in
producing goods and found that technology influenced the structure of organisations.
• Alfred Chandler conducted a study of the influence of strategy on structure and asserted that
strategy determines structure. He argued that different strategies create different administration
needs; therefore, organisational structure will eventually change to accommodate these
needs.
24 Contemporary Management Principles
Account: s7393698
Chapter 1 Evolution of management theory
8. Describe the three revolutions that took place since the late eighteenth century and explain
how the Information Revolution changed the business environment of organisations.
• The first started at the end of the eighteenth century and was characterised by new
technologies such as the steam engine and the spinning jenny and the replacement of hand
tools by machines.
• The second Industrial Revolution, about 100 years later, entailed the development of
electricity, the internal combustion engine, science-based chemicals, efficient steel casting
and the beginning of communication technologies, with the diffusion of the telegraph and the
invention of the telephone.
• The Information Revolution, as a revolution, started in the 1970s. During this time, a great
‘technological divide’ took place.
• The Information Revolution changed the world and the way in which organisations
function and resulted in the emergence of a global economy. Organisations have changed
fundamentally since the first revolution, the pace of change accelerated rapidly since the start
of the Information Revolution and there is no slowing down.
KEY TERMS
administrative approach internationalisation
bureaucratic approach learning organisations
behavioural approach quantitative management theory
charismatic organisations quality movement
classical approaches rational-legal organisations
contingency theory scientific management approach
double-loop learning single-loop learning
cybernetics systems approach
globalisation systems and information
human relations movement the learning organisation
human needs and motivation total quality management
Information Revolution traditional organisations
Account: s7393698
REVIEW QUESTIONS
1. Why are the three theories comprising the classical approach to management still relevant today?
2. Which shortcomings of the classical approach led to the emergence of the behavioural approach to
management?
3. What were the contributions of Chester Barnard and Mary Parker Follett to the human relations
movement?
4. How did Douglas McGregor challenge managers to think differently about their employees as was
previously done?
5. W Edwards Deming is the pioneer of TQM (total quality management). Is this statement correct?
Substantiate your answer.
6. What is the difference between a learning organisation and organisational learning?
7. What are the differences between single-loop learning and double-loop learning?
8. Contingency theory proposed that there is no ‘best way’ of organising. Discuss how the contributions
of Burns & Stalker, Lawrence & Lorsch, Woodward and Chandler substantiated this premise.
END NOTES
1 Gabor, A. 2000. The Capitalist Philosophers. New York: Three Rivers Press, p xi.
2 Morgan, G. 1997. Images of organization. London: Sage, p 22.
3 Gabor, 2000, op. cit., p xi.
4 Bedeian, A.G. 1998. Exploring the past. In Journal of Management History, 4(1), pp 4–16, quote on p 6.
5 Taylor, F.W. 1911. The principles of scientific management. New York: Harper Collins, p 119.
6 Bedeian, 1998, op. cit., p 6.
7 Morgan, 1997, op. cit., p 24.
8 Ibid., p 327.
9 Ibid., p 329.
10 Ibid., p 330.
11 Wren, D.A. 1994. The evolution of management thought. 4th edition. New York: John Wiley & Sons, p 442.
12 Ibid., p 230.
13 Morgan, 1997, op. cit., p 23.
14 Warner, M. (ed). 2002. International encyclopaedia of business & management. Vol 3, 2nd edition. Thompson Learning,
p 2297.
15 Ibid., p 2303.
16 Wren, 1994, op. cit., p 153.
17 Pugh, D.S., Hickson, D.J. & Hinings, C.R. 1996. Great writers on organizations. Cornwall: Ashgate.
18 Conger, J.A .1989. The charismatic leader: behind the mystique of exceptional leadership. San Francisco: Jossey-Bass.
19 Cooper, G.L. & Argyris, C. (eds).1998. The concise Blackwell encyclopaedia of management. London: Blackwell.
20 Ibid., p 1137.
21 Weber, M. 1946. The theory of social and economic organisation, translated by T. Parson, New York: Free Press. In The
concise Blackwell encyclopaedia of management. Edited by Cooper, G.L. & Argyris, C. London: Blackwell.
22 Campbell, A. 2002. Fayol, Henri (1841–1925). In M Warner (ed) International encyclopaedia of business & management,
3(2), London: Routledge: Thompson Learning, pp 38–59.
23 Fayol, H. 1984. General and industrial management (translated by I. Gray). New York: David S Lake. In International
encyclopaedia of business & management. Edited by Warner, M. Vol. 3. 2nd edition. Thompson Learning, p 59.
24 Robbins, S.P. 2003. Organizational behavior. 10th edition. Upper Saddle River, NJ: Prentice Hall, p 599.
25 Moreno, J.L. 1924. Who shall survive: a new approach to human interrelations. In The evolution of management thought.
4th edition. New York: John Wiley & Sons.

:UHQRSFLWS
5REELQVRSFLWS
,ELG
:UHQRSFLWS
3XJKHWDORSFLW
8UZLFN/,QThe capitalist philosophers.*DERU$1HZ<RUN7KUHH5LYHUV3UHVVS
0F*UHJRU'The human side of enterprise. 1HZ<RUN0F*UDZ+LOO
6FKHUPHUKRUQ-5Core concepts of management. 'DQYHUV0$-RKQ:LOH\ 6RQVS
:UHQRSFLW
3DOPHU31'H.OHUN$ 9UED0-+LVWRULFDQGFRQWHPSRUDU\PDQDJHPHQWSHUVSHFWLYHVRQDWKHRUHWLFDOQH[XV"
Management Dynamicsŋ
3HWHUVRQ3%7RWDOTXDOLW\PDQDJHPHQWDQGWKH'HPLQJDSSURDFKWRTXDOLW\PDQDJHPHQWJournal of Management
Historyŋ
/DQGHVEHUJ3,QWKHEHJLQQLQJWKHUHZHUH'HPLQJDQG-XUDQJournal for Quality and Participation
/DQGHVEHUJRSFLWS
*DERURSFLWS
3HWHUVRQRSFLWSSŋ
,ELG
3HWHUV7- :DWHUPDQ5+-UIn search of excellence: lessons from America’s best-run companies. 1HZ<RUN+DUSHU
5RZ3XEOLVKHUV
0RUJDQRSFLWS
7KHVHFWLRQRQŁ&\EHUQHWLFVOHDUQLQJDQGOHDUQLQJWROHDUQłLVEDVHGRQDGLVFXVVLRQLQ*0RUJDQSSŋ
7VDQJ(:.2UJDQL]DWLRQDOOHDUQLQJDQGWKHOHDUQLQJRUJDQL]DWLRQDGLFKRWRP\EHWZHHQGHVFULSWLYHDQGSUHVFULSWLYH
UHVHDUFKHuman Relationsŋ
0RUJDQRSFLWS
6HQJH30The fifth discipline: the art and practice of the learning organization. 1HZ<RUN'RXEOHGD\S
0RUJDQRSFLWS
L3XJK'6+LFNVRQ'-+LQLQJV&50F'RQDOG.07XUQHU& /XSWRQ7ŋ$FRQFHSWXDOVFKHPHIRU
RUJDQL]DWLRQDODQDO\VLVAdministrative Science QuarterlySSŋLL&KLOG- 0DQVğHOG57HFKQRORJ\VL]HDQG
RUJDQL]DWLRQVWUXFWXUHSociologyŋ
0RUJDQRSFLWS
%LUNHQVKDZ-1REHO5 5LGGHUVWDOH-.QRZOHGJHDVDFRQWLQJHQF\YDULDEOHOrganization Science0D\ŋ
-XQHŋ
3XJKHWDOŋRSFLWSSŋ
&KDQGOHU$Strategy and structure: chapters in the history of the industrial enterprise&DPEULGJH0,73UHVV
%LUNHQVKDZRSFLWSSŋ
&DVWHOOV0The rise of the network society2[IRUG%ODFNZHOOS
,ELGSSŋ
,ELG
,ELG

Chapter 2
The management process
Tersia Brevis
OPENING CASE
MTN South Africa: Best large-sized annual turnover of R34 billion in 2009. Although
employer in South Africa: 2010/2011 MTN is still a relatively young company – it opened
its doors in 1994 – it has 110 million subscribers
Since 1991, the Corporate Research Foundation across Africa and the Middle East, of which 17
(CRF) Institute has developed and run a BEST million reside in South Africa. The company’s flair
Employers methodology in South Africa, with the for innovation is seen to be its biggest advantage.
aim to identify and rate employers that are among MTN’s simplified solutions allow people from all
the best in the country and create the best working areas, no matter how remote, to have access to
conditions for their employees. In order to be communication. MTN is a company that gives its
certified as one of the country’s BEST Employers, employees every opportunity to realise their full
organisations must exceed the objective rating potential. Like many companies in South Africa,
standards in an in-depth benchmarked assessment MTN is affected by the skills shortage, particularly
of their policies in terms of the following areas: within the Information Communications Technology
organisational strategy; the human resources (ICT) industry. There is a scarcity of engineers to
function; communication; diversity management; configure modern society.
corporate social responsibility; knowledge MTN was one of the main sponsors of the 2010
management; talent management and engagement; FIFA World Cup and this opportunity has opened
employee development; performance management; a number of doors for its employees. 2010 gave
and rewards and recognition. them the opportunity to enhance their broadband
The CRF publishes best employer rankings in the capabilities and improve the network. For example,
following categories: Best 10 Overall Employers; they had to ensure that people would be able to
Best 10 Large-sized Employers; Best 10 Medium- watch the games from their handsets if desired.
sized Employers; Best 10 Small-sized Employers; Their World Cup sponsorship provided the impetus
Best Employers in Industry; and Best Empowered to develop new technology and infrastructure that
Employers. In the Best 10 Large-sized Employers, will be maintained after the event. For example, the
MTN South Africa was ranked first. company has built 3G stations across the country
MTN is a telecoms service provider, head- which will need continued maintenance and upkeep.
quartered in South Africa and operates across 24 Executive managers, general managers and
countries, predominantly in the developing world. senior managers are provided with mentors and
MTN offers voice, data and internet solutions to coaches. These mentors come from outside the
clients. It employs 4 583 permanent staff with an company and are seasoned executives who have
CHAPTER 2 The management process
retired from other businesses and are willing to customer service. MTN also has a retail division,
lend MTN their skills and expertise. They assist which is growing at a rapid rate. In 2009, the number
managers in various areas such as their approach of retail shops increased from 18 to 235.
to market, business-related problems and issues MTN’s main objective for the near future is to
associated with behaviour in the organisation. This position the South African business strategically in
provides a valuable input from individuals who have the broadband space. Essentially, the voice telecoms
practical, independent experience. market has been saturated. Consumers are no
MTN makes various career opportunities longer using their mobile phones exclusively for
available to potential employees. The backbone voice communication but also for news, banking,
of the organisation comprises high-level engineers. internet and the like. Therefore, the company will
From there, frontline positions include solutions be targeting this market and making opportunities
consultants who take the specifications for product available for people to work within these specialist
design to the engineers, as well as IT, sales and fields.
LEARNING OBJECTIVES
The purpose of this chapter is to provide a comprehensive contemporary view of general
management principles and their application in modern organisations. The objective of studying this
1. Understand the importance of managers and management in modern society.
. &eƂne management and eZplain the management process.
3. Identify and explain the different levels and areas of management in an organisation.
4. Explain the role distribution of managers.
5. Expound on the various skills needed by managers.
6. Explain how one can learn to manage successfully.
2.1 MANAGERS AND MANAGEMENT LEARNING OBJECTIVE 1

Managers experience more pressure today than any other time in Understand the importance of
history. Changes in the world that are impacting on managers include the managers and management in
growing globalisation of economies, technological innovations, trends modern society.
towards democratisation and increasing social imbalances. The nature of
management is to cope with these diverse and far-reaching challenges.
Managers have to keep pace with ever-advancing technology and find
ways to incorporate the internet and e-business into their strategies and
business models. They must strive to remain competitive in the face of
increasingly tough global competition, uncertain environments, cutbacks
in personnel and resources and massive economic, political and social
shifts. The diversity of the workforce creates other dynamics: How can
managers maintain a strong corporate culture while supporting diversity,
balancing work and family concerns, and coping with the conflicting
demands of all employees for a fair chance at power and responsibility?

The field of management is undergoing a revolution that demands

managers have to do more with less, to see change rather than stability
as the nature of things, and to create a vision and cultural values that
allow people to create a truly collaborative and enabling workplace.
Successful organisations don’t just happen; they are managed to be that
way. To be successful under such circumstances, every organisation
needs skilled managers. In our opening case, we saw that MTN proved
itself as the best South African employer in the large-sized employers’
category. MTN is a relatively young company. It opened its doors in
1994 and boasts 110 million subscribers across Africa and the Middle
East, 17 million of which reside in South Africa. During this short period
of time, management at MTN succeeded in fostering a highly enabling
environment and culture for their employees. It is a modern company,
conceived in a modern age. MTN’s management also succeeded in
integrating the company in both developed and developing countries.
To navigate the turbulence of today’s world, managers need to shift
their mindsets. Making a difference as a manager today and tomorrow
requires integrating tried-and-tested management skills with new
approaches that emphasise the individual, enhance flexibility, and involve
employees’ hearts and minds as well as their bodies. In our opening
case, we saw MTN using mentors from outside the company to coach
their executive managers, general managers and senior managers.
These mentors are willing to share their skills and expertise with MTN’s
management in various areas.
A company is only as good as its management. Managers have the
most direct influence on the performance of the company’s employees
and have the primary responsibility for inculcating the values, beliefs,
norms and values of top management for the long-term sustainability of
the organisation.
LEARNING OBJECTIVE 2 2.2 MANAGEMENT AND THE MANAGEMENT

&eƂne management and PROCESS
explain the management
MTN’s management proved their ability to steer the company
process.
successfully through many changes and challenges, especially the global
economic turbulence of the past few years. Taking into consideration
how broad the concept of management is, as it was exercised by MTN,
it is important to define the term ‘management’. For the purposes of
this book, management is defined as the process of working with and
through others to achieve organisational objectives as efficiently and
effectively as possible within a changing environment. This definition
of management essentially has six components which require closer
examination:
1. management is a process
2. working with and through others
3. achieve organisational goals and objectives
4. balance effectiveness and efficiency
5. make the most of limited and scarce resources
6. coping with a changing environment.

2.2.1 Management is a process

A process is a structured, interrelated set of activities designed to
produce a specific output. The management function in an organisation
can also be viewed as a process, as illustrated in Figure 2.1.
PLANNING
CONTROL ORGANISING
LEADING
Figure 2.1: The management process
Managers need certain inputs (or resources) to deliver certain outputs

(or performance). Managers need people (human resources); capital
(financial resources), physical resources, raw materials, components,
information and entrepreneurial skills to produce products and/or
services, create jobs, make a profit, achieve organisational goals and
contribute to the wealth of society. The transformation of inputs to
outputs requires management to perform certain activities or functions.
All managers, regardless of the type of organisation, the level at which
they are involved, their designated role(s) or specific skills, engage in
some manner in four fundamental, interrelated activities, also called the
management functions, in order to achieve some or other goal(s): management functions
r QMBOOJOH managers engage in four
r PSHBOJTJOH fundamental functions of
r MFBEJOH management, namely planning,
r DPOUSPMMJOH organising, leading and
controlling
The management functions
Planning (setting an organisation’s goals and finding the best way to planning
achieve them) is one of the management functions that determines setting an organisation’s goals
the organisation’s mission and goals. It involves identifying ways of and finding the best way to
reaching the goals and finding the resources needed for the task within achieve them
a complex environment. Hence the activities of the organisation cannot
be performed in a random fashion, but should follow a specific, logical,
scientific method or plan. Plans are mostly made by top management
and they vary from one to five or even ten years. These are called
‘strategic 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 long-term plans.

Operational plans are made by lower management (often called ‘first-
line’ or ‘supervisory’ management) to plan for short periods ahead.
organising 0SHBOJTJOH is the second step in the management process. Once
developing an organisational the goals and plans have been determined, management has to allocate
structure that indicates how the organisation’s resources to relevant departments or individuals.
people and other resources Tasks, roles and responsibilities have to be defined and policies and
should be deployed to achieve procedures established to achieve the goals. Thus organising involves
organisational goals developing a framework or organisational structure to indicate how
people and other resources should be deployed to achieve the goals.
The success of an organisation lies in directing the different resources
towards the achievement of a common set of goals. The better the
resources are coordinated and organised, the more successful the
organisation will be. Because organisations have different goals and
resources, it stands to reason that each one should have an organisational
structure that will accommodate its particular needs. Management must
match the organisation’s structure to its strategies. This process is called
‘organisational design’.
leaFing -FBEJOH refers to directing the human resources of the organisation
directing human resources and and motivating them in such a way that their actions are aligned with
motivating them in such a way previously formulated goals and plans. Managers are responsible for
that their actions are aligned getting things done through other people – they collaborate with their
with previously formulated goals superiors, peers and subordinates, with both individuals and groups,
and plans to attain the goals of the organisation. Leading the organisation means
making use of influence and power to motivate employees to achieve
organisational goals. Leading means communicating goals through the
organisation and motivating departments, sections and individuals to
perform as well as they possibly can.
controlling $POUSPMMJOH means that managers should constantly make sure
monitoring the organisation’s that the organisation is on the right course to attain its goals. Control
progress towards the attainment also enables management to identify and rectify any deviations from the
of its goals plans, and to take into account factors which might oblige them to revise
their goals and plans.
It is important to realise that the functions of management do not
occur in a tidy, step-by-step order. At any given time, a manager is likely
to be engaged in several management functions simultaneously.
Inputs or resources
resources 3FTPVSDFT are the inputs that are utilised by managers to achieve
inputs that are utilised organisational goals. The following basic resources can be found in all
by managers to achieve organisations:
organisational goals r QFPQMF IVNBOSFTPVSDFT
r NPOFZ DBQJUBMPSųOBODJBMSFTPVSDFT
r SBXNBUFSJBMT QIZTJDBMSFTPVSDFT
r LOPXMFEHF JOGPSNBUJPOSFTPVSDFT
r UFDIOPMPHZ
r JOGPSNBUJPO
r DPNQPOFOUT
These are the resources utilised by management to achieve the goals

of the organisation as efficiently and effectively as possible. Resources

are usually scarce and management’s biggest challenge is to utilise its
resources as productively as possible. Managers have the task of bringing
resources together, deciding which resources are necessary for a specific
situation or specific circumstances, and in what quantities, to achieve the
organisation’s goals. The success with which an organisation achieves
its goals and satisfies the ever-increasing needs of society depends
on the competence of its managers in utilising its scarce resources. If
managers utilise resources well, the organisation will be successful. If a
country’s organisations are all competitive and successful, the country as
a whole will prosper because successful organisations satisfy needs not
only by producing products and services, but also by providing jobs and
contributing to the wealth of society.
Like many companies in South Africa, MTN is affected by the skills
shortage, particularly within the ICT industry. There is a scarcity of
engineers to configure modern technology. MTN’s managers utilise
its scarce skilled human resources by making use of a proactive model
to identify high performers within the company, known as ‘Leadership
Talent Management’. According to this model, management sits down
with the individual and look at his or her developmental talent path. The
path is confirmed collaboratively and once all parties are in agreement,
MTN will make the necessary investment, financially or otherwise, to
make sure that the individual’s development is actioned. The company
also practices job rotation. Via the Leadership Talent Management
programme, employees are moved across positions, within the
various countries in order to gain the necessary exposure for further
progression2.
Outputs or performance
Inputs or resources are transformed in the organisation to realise certain
outputs, of which goal achievement, products, services, profit, job
creation, efficiency and effectiveness are the most important outputs.
This is called the organisation’s performance. performance
the outputs realised by
2.2.2 Working with and through others transforming or utilising
Managers get things done by working with and through other people. resources
MTN’s management, for example, needs various people with various
skills to achieve the company’s goals and objectives, such as high-level
engineers, solutions consultants, IT specialists, and sales and customer
service specialists.
Management is, above all else, a social process. Many collective
purposes bring individuals together – building houses and cars, publishing
books, offering tertiary education, providing personal financial services
and so on. The activities that are needed to build a house or a car, publish
a book, offer tertiary educational programmes and to provide advice on
personal finances, cannot happen on their own. In all cases, managers
are needed for getting things done by working with and through other
people and other organisations.

The ability to work with and through others is therefore an important

skill that managers should have in order to be successful. Problems with
interpersonal relationships and failure to build and lead a team are often
the reasons why managers fail. However, the ability to work with and
through others is not the only important skill that managers should
have in order to be successful. Learning Objective 5 will focus on other
important managerial skills.
2.2.3 Achieving organisational goals and objectives

An objective can be described as a target to be strived for. A university
student, for example, can set an objective for himself or herself to
graduate with a specific degree by a given date. All actions taken or
activities performed by the student will be with the view of achieving
this target. As with individuals, organisations formulate organisational
objectives. Organisations will also be more successful when their
activities are guided by challenging, yet realistic and achievable objectives.
Nokia’s target, for example, is to increase their net sales of $41.0 billion
in 2009 by 10 per cent by the end of 2015. This goal will require Nokia’s
managers to work with and through their 123 553 employees (as at the
end of 2009) as they strive to increase their market share among diverse
customers around the world3.
Organisational goals and objectives serve later as measuring sticks for
performance. Without goals and objectives, the management process
would be aimless and wasteful. The formulation of organisational goals
will be addressed in more detail in Chapter 10, Principles of planning.
2.2.4 Balancing effectiveness and efficiency

It is important to distinguish between the concepts of effectiveness and
efficiency. Effectiveness is achieved when the organisation formulates
and pursues appropriate (or stated) goals. For example, Nokia needs
to meet their sales objective. Effectiveness in essence means ‘doing the
right things’.
Given the reality of limited resources, effectiveness alone is not
enough. An organisation also needs to be efficient. Efficiency enters
the picture when the resources required to achieve an objective are
weighed against what was actually accomplished. The organisation will
be more efficient if the ratio between benefits (outputs or performance)
and costs (inputs or resources) is more favourable. Efficiency essentially
means ‘doing things right’. Efficiency is achieved by using the fewest
inputs (such as the number of people employed or the amount of capital
utilised during the financial year) to generate a maximum amount of
output (such as number of products produced or the profit realised
within a financial year).
Managers are responsible for balancing effectiveness and efficiency.
Too much emphasis on either effectiveness or efficiency leads to
mismanagement. On the one hand, managers must be effective by
getting the job done. On the other hand, managers need to be efficient
by reducing costs and not wasting resources. Too much emphasis on
effectiveness will mean that the job gets done, but limited resources

are wasted. Too much emphasis on efficiency will mean that the job
doesn’t get done because available resources are underutilised. Thus,
the answer lies in a balanced emphasis on effectiveness and efficiency –
the job gets done and limited resources are not wasted.
2.2.5 Making the most of limited and scarce

resources
We live in a world of scarcity and limited resources. Like many
companies in South Africa, MTN is challenged by the skills shortage. In
fact, all resources and inputs needed by an organisation are scarce and,
in some countries more than in others, very expensive.
Although experts and non-experts alike may quibble over exactly
how long it will take to exhaust our non-renewable resources or come
up with clever new technological alternatives, one fact remains: our
planet is becoming increasingly crowded. For South Africa, Statistics
South Africa (Stats SA) estimated the 2010 mid-year population as 49.99
million4. Table 2.1 illustrates the estimated annual population growth
rates in South Africa for the period 2001 to 2010.
TaDle 2.1: 5outh #fricaos estimated annual population growth rates 1s1
2001– 2002– 2003– 2004– 2005– 2006– 2007– 2008– 2009–
2002 2003 2004 2005 2006 2007 2008 2009 2010
Male 1.53 1.43 1.34 1.30 1.27 1.25 1.26 1.25 1.18
Female 1.29 1.18 1.08 1.03 1.00 0.99 1.00 1.01 0.94
Total 1.40 1.30 1.21 1.16 1.13 1.11 1.13 1.12 1.06
Source: www.statssa.gov.za/keyindicators/mye.asp. Accessed on 6 February 2011.
Table 2.1 shows the South African annual population growth rate as a
positive figure, yet there are fewer resources to sustain this growing
population. South Africa is already experiencing increasing pressure to
divide limited resources more equitably.
In productive organisations, managers are the custodians of limited
and scarce resources and it is their job to see that the basic factors of
production are used efficiently and effectively.
2.2.6 Coping with a changing environment

Successful managers are those who anticipate and adjust to changing
circumstances rather than those who are passively swept along or
caught unprepared. Management at MTN South Africa has proved an
ability to anticipate and adjust to the opportunities of being one of the
main sponsors of the 2010 FIFA World Cup.
Chapter 4 (Composition of the management environment), provides
detailed coverage of important changes and trends in management’s
social, political, legal, economic, international and technological
environments. For now we can conclude with Business Week’s amusing
but challenging profile of tomorrow’s managers:
‘The next generation of corporate leaders will need the charm

of a debutante, the flexibility of a gymnast, and the quickness of

a panther. A few foreign languages and a keen understanding of
technology won’t hurt either’5.
LEARNING OBJECTIVE 3 2.3 LEVELS AND AREAS OF MANAGEMENT

Identify and explain the The management process and functions of management as explained
different levels and areas of earlier only provide us with a starting point for understanding what
management in an management entails. To add to the complexity of the process,
organisation. management takes place at different levels and in different areas within
organisations. While managers at each level and in each area must
generally possess planning, organising, leading and controlling skills,
certain job-specific activities and skills are more important at one level
than at another.
2.3.1 Levels of management

Managers function at various levels in the organisational hierarchy. A
small organisation may have only one layer of management, whereas
a large organisation may have several layers. In general, relatively large
leXels of management organisations (especially governmental organisations) have threeMFWFMT
differentiation of managers into PG NBOBHFNFOU: top-level managers, middle-level managers and
three basic layers: top-level; lower-level managers.
middle-level and lower-level 5PQ NBOBHFNFOU represents the relatively small group of
managers managers who control the organisation as a whole and with whom the
final authority and responsibility for executing the management process
rests. Top management is usually responsible for determining the
organisation’s mission, goals and overall strategies. Top management is
concerned mainly with long-term planning, designing the organisation’s
broad organisational structure, leading the organisation (through the
top executive) and controlling it. Top management also influences the
corporate culture. The annual reports of organisations usually depict
their top management structure. This level of management usually
comprises the board of directors, partners, the managing director, chief
executive officers and management committees.
.JEEMFNBOBHFNFOU is responsible for specific departments of the
organisation and is primarily concerned with implementing the policies,
plans and strategies formulated by top management. It normally includes
the functional heads, such as the 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 and short-term planning, organising 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 trend in recent years of corporate restructuring,
delayering, downsizing and decentralisation of decision-making has
been responsible for many of middle managers becoming redundant.
Electronic technology has reduced the need for middle management
in some organisations. It is in the area of information management, in
particular, that computers have replaced the information-gathering tasks
of middle managers. Middle managers are, however, still necessary to

link the upper and lower levels of the organisation and to implement the
strategies developed at the executive level.
Lower-level management (also called first-line management) is
responsible for even smaller segments of the organisation, namely the
different subsections. The managerial functions of first-line managers
are centred on the daily activities of their departments or sections,
on short-term planning, and on implementing the plans of middle
management. Their primary concern is to apply policies, procedures and
rules in order to achieve a high level of productivity, to provide technical
assistance, to motivate subordinates and to accomplish day-to-day
goals. Typically, they spend a large portion of their time supervising the
work of subordinates. Because of this, first-line management is a vital
force in the organisation. These managers hold the power to increase
or decrease the productivity and output of most organisations. They
also maintain the crucial interface between management and the major
body of employees in the organisation. This level of management usually
comprises titles such as office manager, shift supervisor, advertising
manager, debtors’ clerk or a section manager.
Figure 2.2 summarises the various levels of management, the
responsibilities of managers at each level of management and the titles
that are normally associated with each.
Top-level management
Responsible for determining the vision, mission, goals and
strategies of the organisation. Managerial titles such as board
of directors, partners, managing directors, chief executive ofƂcer
and management committees are used.
Middle-level management
Responsible for implementing policies, plans and strategies
developed by top management. Managerial titles are usually
functional head, such as marketing manager, Ƃnancial managers,
and so on.
Lower-level management
Responsible for short-term planning, applying policies, procedures
and rules, providing technical assistance and executing day-to-
day activities. Managerial titles are usually ofƂce manager, shift
supervisor, section manager and so on.
Figure 2.2: The levels of management, management responsibilities

and managerial titles

areas of management 2.3.2 Areas of management

managers can be differentiated At each managerial level, different functional areas can also be
into finance, operations, human distinguished. These functional areas may include finance, operations,
resources, procurement, human resources, procurement, research and development, public
research and development, relations and marketing.
public relations and marketing r 5IFųOBODJBMGVODUJPOJTSFTQPOTJCMFGPSPCUBJOJOHUIFOFDFTTBSZ
finances for an organisation at the lowest cost, investing these
finances in assets that would earn greater returns than the cost of
capital as well as managing the profitability, liquidity and solvency of
the organisation.
r 5IFPQFSBUJPOTGVODUJPOJODMVEFTUIBUHSPVQPGBDUJWJUJFT
concerned with the actual provision of goods and services to the
organisation’s clients. Operations management systematically
designs, directs and controls the process that transforms inputs
into products and services for internal and external customers.
r 5IFIVNBOSFTPVSDFTGVODUJPOFOUBJMTUIFBQQPJOUNFOU
development and maintenance of the human resources of the
organisation. To enable the organisation to operate at optimum
levels, the human resources manager must appoint the right people
and provide them with the right training in order to make the best
use of them.
r 5IFQSPDVSFNFOUGVODUJPOJTDPODFSOFEXJUICVZJOHUIFNBUFSJBMT
and resources needed to create products and services. The
manager responsible for procurement needs to balance a number
of constraints. He or she needs to ensure that the right product
is available, at the right time, in the right quantity and of the right
quality, at the best possible price.
r 5IFSFTFBSDIBOEEFWFMPQNFOUGVODUJPOJTSFTQPOTJCMFGPS
developing new products and services and improving old products
and services. This function plays a crucial role in organisations
that operate in fast-changing environments, such as information
technology, communications, etc.
r 5IFQVCMJDSFMBUJPOTGVODUJPOPGBOPSHBOJTBUJPOJTSFTQPOTJCMFGPS
creating a favourable, objective image of the organisation and to
establish good relations with those directly or indirectly concerned
with the business and its products or services.
r 5IFNBSLFUJOHGVODUJPOJTSFTQPOTJCMFGPSHFUUJOHUIFųOBMDVTUPNFS
or client to buy the organisation’s products or services. The
marketing function is concerned with new product development,
promotion and distribution.
While these are specialised areas of management which require more

specific and specialist skills, managers in each area still plan, organise,
lead and control. A financial manager, for example, is responsible for
determining the financial goals of the organisation, thus performing
the planning function of management. Sappi Limited, for example, set
specific financial goals in terms of two key financial measures, namely
return on capital employed (ROCE) and cost of capital. For the year

2010, Sappi’s financial goal was to achieve their ROCE target of greater
than 12 per cent and to exceed their cost of capital. The financial
goal is in accordance with the overall strategic goal of the company6.
The financial manager needs to organise financial activities by allocating
financial tasks to people so that financial goals can be achieved. The
financial manager also needs to take the lead in financial activities,
motivate and direct members of staff in the financial section to perform
their duties in pursuit of the financial targets. Lastly, financial managers
need to ensure that financial goals are accomplished. In the case of Sappi
Ltd, the financial manager needs to determine whether their target to
achieve a ROCE of greater than 12 per cent was achieved.
2.4 THE ROLE DISTRIBUTION OF MANAGERS LEARNING OBJECTIVE 4

Explain the role distribution of
Regardless of the managerial level or the management area in which
managers.
a manager works, the manager is also required to perform certain
managerial roles. Professor Henry Mintzberg followed five American
Chief Executive Officers, shadowing each for a week and analysing their managerial roles
mail, their conversations and their actions. He concluded that managers managers fulfil three major roles
play ten different but highly interrelated roles that can be grouped under while performing their jobs:
three overlapping primary headings, namely information, decision- interpersonal, informational and
making and interpersonal roles7. In other words, managers talk to decision-making roles
people, gather and give information and make decisions.
2.4.1 Interpersonal role

More than anything else, management jobs are people-intensive.
Evidence shows that managers spend most of their time in face-to-face
communication with others8. In fulfilling the interpersonal role of interpersonal role
management, managers perform three sub-roles. All managers have the role that includes the
to perform duties that are ceremonial and symbolic in nature. For sub-roles of figurehead, leader
example, managers may have to appear at community functions, attend and liaison
social events or host luncheons for important customers. In doing so,
managers fulfil their role as figureheads. Second, all managers have a
role as a leader. In this capacity, managers work with and through their
employees to ensure that organisational goals are met. The third sub-role
within the interpersonal role is that of liaison, which aims at maintaining
good relations within and outside the organisation. Managers must
be politically sensitive to important organisational issues so that they
can develop relationships and networks both within and beyond their
organisations.
2.4.2 Information role

A manager’s information role enables him or her to obtain information information role
from colleagues, subordinates and departmental heads, as well as the role of monitor, disseminator
outside individuals and organisations. He or she can use this information and spokesperson
for making decisions. The information role of the manager involves
monitoring or gathering information on trends and passing on relevant
data or information to their 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 whole organisation.
2.4.3 Decision-making role

The third set of managerial roles is grouped into what is known as the
decision-making role. A manager is regarded as an entrepreneur.
decision-making role
As an entrepreneur, the manager initiates projects that capitalise on
the role of entrepreneur, opportunities that have been identified in the monitoring role. This
problem solver, resource may involve developing new products, services or processes. A second
allocator and negotiator decisional role that managers play is that of problem-solver. Regardless
of how well an organisation is managed, things do not always run
smoothly. Managers must cope with conflict and resolve problems as
they arise. This may involve dealing with an irate customer, negotiating
with an uncooperative supplier or intervening in a dispute between
employees. Managers must also 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 his or her role as negotiator, a
manager often has to negotiate with individuals, other departments or
organisations, and trade unions about goals, standards of performance
and resources. Figure 2.3 summarises Mintzberg’s managerial roles and
sub-roles.
Managerial roles
Interpersonal role Information role Decision-making role
ƂIWTGJGCF OQPKVQT GPVTGRTGPGWT
NGCFGT FKUUGOKPCVQT RTQDNGOUQNXGT
NKCKUQP URQMGURGTUQP TGUQWTEGCNNQECVQT
PGIQVKCVQT
Figure 2.3: Mintzberg’s managerial roles and sub-roles
The environment in which managers perform their main functions and

their roles is complex. Its fast-changing and uncertain nature means
that managers need to have a flexible managerial style with certain
essential skills and competencies in order to survive. These skills and
competencies are explored further in Learning Objective 5.
LEARNING OBJECTIVE 5 2.5 MANAGERIAL SKILLS

Expound on the various skills Each level, area and management role requires different knowledge,
needed by managers. skills and competencies for the performance of the management
task. Clark L Wilson did 30 years of research involving thousands of
managers, and thereby provides a very clear picture of what it takes
to be an effective manager. Wilson identified three skill categories –

technical, teambuilding and drive – where each category branches into

various specific managerial skills.
2.5.1 Technical skills

Technical skills refer to the manager’s ability to apply his or her technical skills
education, training and experience to effectively and efficiently ability or apply education,
organise a task, job or project. The first branch of technical skills is training and experience to
technical expertise, which refers to the skills that have been acquired organise a task, job or project
by a manager through education and/or actual experience of the task
at hand. A knowledge of accountancy or logistics are examples of a
technical expertise that can be used to perform a task. The second
branch of technical skills is the clarification of goals and objectives. A
manager should have the ability to determine what actual activities need
to be performed in order to meet established targets. These activities
should then be organised and scheduled. The third branch of technical
skills is problem solving, which refers to the manager’s ability to resolve
issues confronted within his or her day-to-day work as well as the
development of team collaboration. Lastly, technical skills also involve
a manager’s ability to use imagination and creativity. This is the ability to
originate ideas and to correct and develop ways to improve the overall
productivity of the organisation.
2.5.2 Teambuilding
Teambuilding refers to the ability or skill of a manager to listen teambuilding
carefully to others, to communicate effectively with others and to ability to listen and
develop and coordinate an effective group or team. The first branch of communicate with others and
teambuilding is listening for insights. The manager should keep aware to develop and coordinate a
of team activities by listening to team members. The second branch group or team
is directing and coaching. Directing refers to the manager’s ability to
work through and with team members to achieve organisational goals
and objectives. A directive manager lets team members know what
is expected of them and gives specific guidance as to how the work
should be done. Coaching focuses on the improved performance of a
less experienced individual and imparts skills that this individual needs
to accept new responsibilities. Coaching in a business sense is very
similar to that in sport, where a tennis coach will direct the learning of
his or her pupil. The third branch of teambuilding is solving problems
as teams. An efficient manager should have the ability to help his or her
team to contribute ideas and solutions to improve their performance
in the organisation. Lastly, teambuilding branches into coordinating and
cooperating. Coordination is an important principle in organising.
Coordination means that all departments, sections and individuals within
an organisation should work together to accomplish strategic, tactical
and operational goals and objectives of the organisation. Coordination
will be discussed in more detail in Chapter 15 (Principles of organising).
Cooperation means the willingness to work with others, be it your team,
other teams or units close to you.

2.5.3 Drive
drive The third category of skills needed by managers is drive. Having the
ability to set goals, maintain skill to drive an organisation, team or unit successfully, means that a
standards and evaluate manager should have the ability to set goals, maintain standards and
performance evaluate performance in order to achieve effective outcomes. In this
sense, outcomes refer to costs, output, product quality and customer
service. The first branch of the skill to drive is setting standards of
performance. Managers should have the skill to keep that part of the
organisation for which they are responsible and for moving and aiming
towards new accomplishments. The second branch refers to control
of details, which refers to the ability to oversee the performance of
work in detail in order to meet overall goals and objectives. The third
branch of the driving skill of a manager is energy. Successful managers
demonstrate the willingness and ability to work with their team and they
expect cooperation from others. The last branch of this category of
managerial skills is exerting pressure. This refers to the manager’s ability
to urge others to perform, without dominating.
According to Wilson’s research, about one third of managers at
all levels do not achieve an appropriate balance between technical,
teambuilding and drive skills and are thus ineffective. The answer lies
in finding a balance in all three categories of managerial skills, fit for the
manager’s specific situation. Figure 2.4 summarises the three categories
of managerial skills.
Technical skills Teambuilding Drive
r technical expertise r listening for insights r set standards of

r clariƂcation of goals and r directing and coaching performance
objectives r solving problems as r control of details
r problem solving teams r energy
r imagination r coordinating r exerting pressure
r creativity r cooperating
Figure 2.4: Managerial skills

Source: Wilson, C.L. 2003. How and why effective managers balance their skills: technical,
teambuilding and drive. Rockatech Multimedia Publishing: Columbia, p 13, 18–20 and
Kreitner, R. 2009. Principles of management. 11th edition. Arizona: Cengage Learning,
p 1415.

2.6 LEARNING TO MANAGE SUCCESSFULLY LEARNING OBJECTIVE 6

Explain how one can learn to
Managers acquire management skills through management training and
manage successfully.
development, as well as through practical experience.
2.6.1 Management training and development

In South Africa, management and entrepreneurship training and
development is obtained in schools, business colleges, technical
universities and academic universities. Some institutions and
organisations provide in-house management training and development.
It is important that the management training and development offered
by these institutions is aligned with the NQF (National Qualifications
Framework). This ensures that the training is accredited. Non-formal
management training and development, often called ‘continuous
learning’, refers to non-degree programmes offered by universities,
organisations and in-house training facilities set up by business
organisations themselves. Management training and development is of
major importance to the South African economy. The economy must
grow at a rate of well above three per cent per year to reverse spiralling
economic stagnation and impoverishment. This will be possible only if
there are enough skilled managers to drive the economy. It is widely
recognised that a moderate real economic growth rate of 2.7 per cent
per year will require an additional 100 000 managers each year for the
foreseeable future. In order to provide for this need, significant levels of
management training and development are required. In order to create
equitable representivity and empowerment, these managers cannot be
white males (as has traditionally been the case).
2.6.2 Practical experience

A second source of managerial competence is practical experience.
There is no doubt that a natural aptitude for management, self-motivation
and ambition plays a decisive role in the development of managerial
competence. Most managers have advanced to their present positions
from other jobs. Through experience, and by facing and meeting a variety
of managerial challenges, the individual develops insights that cannot be
learnt from training alone. Efficient managers, however, develop their
skills through a combination of training, development and experience.
Management is a science, a profession and an art. The growing body
of knowledge around management and organisational performance
is acquired through scientific research and is disseminated through
teaching, textbooks and articles. Management is also often viewed as
an art because many of the skills cannot be learnt from a book or in a
classroom. Management requires practice, and many of the required
skills – especially interpersonal and conceptual skills – are learnt through
experience. Becoming a successful manager, therefore, requires a blend
of formal learning and practice of science and art. Practice alone used to
suffice when learning how to manage, but this is no longer the case. The
study of management enables managers to see and understand aspects
of organisations that others cannot.

CHAPTER SUMMARY
1. Understand the importance of managers and management in modern society.
• Managers need to cope with diverse and far-reaching challenges from inside as well as
outside the organisation.
• Managers have the most direct influence on the performance of its employees and have
the primary responsibility for inculcating the values, beliefs, norms and values of the top
management for the long-term sustainability of the organisation.
2. Define management and explain the management process.

• Management can be defined as a process of working with and through others to achieve
organisational goals and objectives as effectively and efficiently as possible within an ever-
changing environment.
• Managers need certain resources or inputs to deliver outputs or performance.
3. Identify and explain the different levels and areas of management in an organisation.
• Managers can be differentiated between three basic layers, namely top-, middle- and lower-
level management.
• At each of these levels, different functional areas can be distinguished, which include finance,
operations, human resources, procurement, research and development, public relations and
marketing.
4. Distinguish between the role distribution of managers.

Professor Henry Mintzberg concluded that managers play ten roles that can be grouped into
three primary headings: interpersonal, informational and decision-making roles.
• The interpersonal role has three sub-roles, namely the role of figurehead, leader and liaison.
• The informational role has three sub-roles, namely the role of monitor, disseminator and
spokesperson.
• The decision-making role has four sub-roles namely entrepreneur, problem solver, resource
allocator and negotiator.
5. Expound on the various managerial skills and competences needed by managers.

Clark L Wilson identified three skill categories, where each category has various branches:
• The technical skills category branches into technical expertise, clarification of goals and
objectives, problem solving and imagination and creativity.
• The teambuilding category branches into listening for insights, directing and coaching,
solving problems as teams, and coordinating and cooperating.
• The drive category branches into standards of performance, control of detail, energy and
exerting pressure.
6. Explain how one can learn to manage successfully.

Managers can acquire management skills through management training and development, as
well as practical experience.
Account: s7393698
KEY TERMS
controlling management process
decision-making role managerial experience
drive managers
education in management marketing
effectiveness middle management
efficiency objectives
finance operations
goals organising
human resources outputs
informational role planning
inputs procurement
interpersonal role public relations
leading research and development
lower-level management teambuilding
management technical skills
management environment top management
REVIEW QUESTIONS
1. Why are managers and management so important in modern society?
2. Define the term ‘management’.
3. Explain the management process and illustrate your answer diagrammatically.
4. Identify the various levels of management that can be found in most medium- to large-sized
organisations.
5. Explain the various areas of management that can typically be found in large-sized organisations.
6. Explain the various categories of roles that managers fulfill according to Professor Henry Mintzberg.
7. Identify and explain the various categories of managerial skills identified by Clark L Wilson. In your
answer you also need to discuss the branches of each skill category.
8. Explain how a manager and potential managers can acquire managerial skills.
END NOTES
%HVW(PSOR\HUV6RXWK$IULFDSSŋ
%HVW(PSOR\HUV6RXWK$IULFDS
KWWSZZZQRNLDFRPDERXWQRNLDFRPSDQ\IDT
ZZZVWDWVVDJRY]D$FFHVVHGRQ)HEUXDU\
'LDQH%UDG\:DQWHG(FOHFWLFYLVLRQDU\ZLWKDVHQVHRIKXPRUBusiness Week$XJXVWS
KWWSZZZVDSSLFRP6DSSL:HE,QYHVWRULQIR*OREDOEXVLQHVVVWUDWHJ\$FFHVVHGRQ-DQXDU\
0LQW]EHUJ+The nature of managerial work1HZ<RUN+DUSHU 5RZ
+DOHV&3:KDWGRPDQDJHUVGR"$FULWLFDOUHYLHZRIWKHHYLGHQFH Journal of management studies
ŋ

Chapter 3
Features of contemporary
organisations and new
management challenges
Mari Vrba
OPENING CASE
WL Gore & Associates, Inc.1 early years. This approach to business emerged
from founder Bill Gore’s experience with task
WL Gore & Associates, Inc. is a privately held force teams while he worked at the DuPont
company that was founded in 1958 with its Company. DuPont formed such groups on an ad
headquarters in Newark, Delaware, USA. For hoc basis to attack problem situations. They were
more than 50 years, Gore has built a worldwide usually multidisciplinary and typically operated for
reputation for ethics and integrity in its dealings short periods outside of the company’s formal
with customers, suppliers, and employees, and for management hierarchy.
taking a long-term view when assessing business Bill Gore first presented the concept of a
situations. ‘lattice’ organisation to the company in 1967.
Gore employs approximately 9 000 associates. Unlike the traditional management structure
They are located in 30 countries worldwide, that Bill Gore had experienced at DuPont,
with manufacturing facilities in the United States, he proposed a flat, lattice-like organisational
Germany, Scotland, Japan and China, and sales structure where everyone shares the same title of
offices around the world. ‘associate’. There are neither chains of command
Gore’s fluoropolymer products provide nor predetermined channels of communication.
innovative solutions for many industries, in next- Leaders replace the idea of ‘bosses’. Associates
generation electronics, for medical products, (not employees) work in general work areas.
and with high-performance fabrics. While their With the guidance of their sponsors (not bosses)
best-known product is GORE-TEX® fabrics, their and a growing understanding of opportunities
products are all distinguished in their markets. and team objectives, associates commit to
Their technologies and fluoropolymer expertise projects that match their skills. All of this takes
are unsurpassed. place in an environment that combines freedom
Gore also has a unique – and successful – with cooperation and autonomy with synergy.
management style. In 2013, for the fifteenth Associates choose to follow leaders rather than
consecutive year, WL Gore & Associates, Inc. have bosses assigned to them and peers review
earned a position on Fortune magazine’s annual list and rate associate contributions.
of the U.S. ‘100 Best Companies to Work For’. A leader’s job at Gore is not to take individual
Its European operations have also earned similar decisions, but rather to act as the representative
honours. An important factor in this recognition of the ten-or-so member team that is the basic
is Gore’s unique culture, which evolved from the management unit at Gore. Everyone can earn the
company’s success with small teams during its credibility to define and drive projects. Sponsors
CHAPTER 3 Features of contemporary organisations and new management challenges
help associates plan their career choices in the of the employee base at a plant to approximately
organisation that will offer personal fulfilment 250 workers – small for a company comprising
whilst maximising their contribution to the 9 000 employees. The underlying philosophy is
organisation. Leaders may be appointed, but that the cost savings from large plants cancels out
‘followership’ defines them. More often, leaders the loss of efficiency and productivity that is a
emerge naturally by demonstrating special consequence when employees do not know one
knowledge, skills, or experience that advances a another well.
business objective. Committees at Gore determine performance,
It can be confusing for new people who following a comprehensive review process. Every
are used to looking to their line managers for year, each team ranks every member relative to
guidance, but because people choose their own all of the others by asking them who has made the
leaders, they are committed to meet objectives. biggest impact on the organisation. They leave the
Leadership at Gore is truly participatory, for question deliberately undefined, to allow people
example, the team, not the leader, will decide to to interpret it as they wish. Special committees
accept or reject a new product innovation. sort through the rankings and use it as the basis
In this lattice organisation, associates for decisions on compensation. The process
communicate directly with each other and are works because associates perceive it as being fair.
accountable to fellow members of their teams. All associates are part owners of the company
At Gore, hands-on product innovation and through a stock plan; therefore, Gore associates
prototyping are encouraged. Teams typically expect much more from one another in terms of
organise around opportunities, new product innovation and creativity, high ethics and integrity,
concepts, or businesses. As teams evolve, leaders and making commitments and delivering on them.
frequently emerge as they gain followership. This Gore is more informal than most workplaces.
unusual organisational structure and culture is Relationships between associates are open and
a significant contributor to associate satisfaction informal, and everyone is treated respectfully
and retention. and fairly. This type of environment naturally
Bill Gore articulated four principles that define promotes social interaction and many associates
the culture at Gore. He calls them freedom, have made lifelong friends with those they met
fairness, commitment and waterline. working at Gore. Because the organisation views
1. Associates have the freedom to encourage, its associates as their most valued asset, they try
help, and allow other associates to grow in to provide tools and resources to allow flexibility
knowledge, skill and scope of responsibility. in balancing work/life needs. This includes
2. Associates should demonstrate fairness to internal training, continuous learning, and external
one another and everyone with whom they education, resource and referral programmes for
come into contact. childcare, adoption assistance, domestic-partner
3. Associates choose their own commitments benefits, and flexible work hours.
and they should keep them. While all of these processes sound very
4. A waterline situation involves consultation complex, the feeling at Gore is that it contributes
with other associates before undertaking to a freer, more innovative and flexible workforce.
actions that could influence the reputation or Bill Gore once commented that the aim of the
profitability of the company and otherwise organisation is to make money and to have fun
‘sink the ship’. doing so, and the results seem to bear this out.
Although Gore is private, it has been growing
Gore ignores the conventional wisdom when revenues consistently for the last decade.
it comes to production. Although the company Voluntary turnover at the company is only five
manufactures a vast range of products ranging from per cent. This is a strikingly low number for an
medical devices to guitar strings, it limits the size industrial company with many manufacturing units.

LEARNING OBJECTIVES
The purpose of the chapter is to examine the emergence of organisations that differ substantially
from traditional organisations because of on-going and turbulent environmental change. The
objective of studying this chapter is to enable you to:
1. Cite reasons why organisations change.
. +dentify nnewo variables in the business environment of contemporary organisations.
3. Defend the statement that bureaucracy fails to provide for the needs of modern organisations.
4. Expound on the features of the new, emerging organisation.
LEARNING OBJECTIVE 1 3.1 THE CHANGING FACE OF CONTEMPORARY

Cite reasons why organisations ORGANISATIONS
change.
We use the words ‘change’ and ‘challenge’ often in this book. In this
chapter, we focus on the challenges that managers face to meet the
radical changes occurring in the world, the business environment and
the workplace.
In Chapter 1, we explained why the Information Revolution changed
the entire world and the world of work. The Information Revolution
and the emergence of globalisation are two factors that, in tandem,
forced organisations to change fundamentally. These factors enabled
organisations to function in a fast-changing, dynamic environment. Some
of these changes are so revolutionary that some authors in influential
journals refer to ‘new organisation forms’ emerging. However, another
faction of prominent authors has unresolved issues with the use of the
concept ‘new organisation forms’. Palmer and Dunford2, for example,
ask if ‘new’ relates to new in time (the first time we have seen it) or
new in context (the first time we have seen it here). Ambiguity also
exists regarding the word ‘form’ – the question is whether the concept
is interchangeable with ‘structure’ or ‘design’. These ambiguities
notwithstanding, there is a high degree of consistency in the nature of
organisational practices attributed to the ‘new organisation form’: flat,
flexible, networked, global and diverse. For the purposes of this chapter,
we focus on these features.
WL Gore & Associates Inc., the organisation discussed in the
opening case study, meets the challenges presented by a fast-changing
environment in an innovative manner. Admittedly, not all organisations
change as dramatically as this organisation, but many exhibit one or more
of the features of the ‘new’ organisation and differ fundamentally from
the traditional model of formal bureaucratic organisations discussed in
Chapter 1.
The key features of emerging ‘new’ organisations are that they are
flatter and leaner, flexible, networked internally and externally, diverse,
and global in orientation and operations3.
The discussion in this chapter sometimes overlaps with topics and
issues we shall deal with in the rest of the book because the parallel
themes of change and challenge are prevalent throughout the book.
However, in this chapter, we introduce the ‘new’ organisation, we

expand on the challenges contemporary managers face, and explain
how these changes and challenges affect management theories.
3.2 VARIABLES INFLUENCING LEARNING OBJECTIVE 2

CONTEMPORARY ORGANISATIONS TO +dentify nnewo variables in
the business environment of
CHANGE contemporary organisations.
In Chapter 1 we introduced you to the concept of systems thinking and
why organisations, as open systems, are in continuous interaction with
their environment. Organisations worldwide have to deal with a number
of variables in their environment that emerged during the last decade or
so, including:
r HMPCBMJTBUJPOBOEUIFHMPCBMFDPOPNZ
r UFDIOPMPHJDBMBEWBODFT
r SBEJDBMUSBOTGPSNBUJPOPG UIFXPSMEPG XPSL
r JODSFBTFEQPXFSBOEEFNBOETPG UIFDVTUPNFS
r UIFHSPXJOHJNQPSUBODFPG JOUFMMFDUVBMDBQJUBMBOEMFBSOJOH
r OFXSPMFTGPSBOEFYQFDUBUJPOTPGXPSLFST
3.2.1 Globalisation and the global economy

Previously, international organisations operated in many countries, but
they kept their operations in each country separate, with little interaction
or interdependence between them. In contrast, being global means
operating without the constraints or traditions of national boundaries,
and seeking to compete in any high-potential marketplace on Earth4.
At its most basic, globalisation refers to the worldwide integration of
markets, and cultures, the removal of legal and political barriers to
trade, the ‘death of distance’ as a factor limiting material and cultural
exchanges’5.
The global organisation is a consequence of several new and
sophisticated forces influencing the world economy6.
r *OUFSOBUJPOBMUSBOTQPSUBUJPOBOEDPNNVOJDBUJPOTIBWFCFDPNF
cheaper. For example, China and Korea manufacture clothes that
sell at competitive prices in other markets in the world.
r 0SHBOJTBUJPOTDPQZBOEBQQMZOFXQSPEVDUPSQSPDFTTUFDIOPMPHJFT
because they possess a highly educated workforce, technological
and managerial capabilities, and advanced telecommunications and
transportation infrastructures. On the one hand, this intensifies
international competition but, on the other, it increases the
available strategic options of individual organisations in such areas
as purchasing components or finding markets for products or
services.
r .BSLFUTBSFCFDPNJOHNPSFIPNPHFOFPVTCFDBVTFDPOTVNFSTBSF
acquiring a taste for foreign products.
r $PTUTUSVDUVSFTEJŲFSGSPNDPVOUSZUPDPVOUSZ NBLJOHJUQPTTJCMF
for organisations to take advantage of lower-cost locations for
support activities or production.
r $SPTTCPSEFSMFBSOJOHJODSFBTFTUIFQPTTJCJMJUZPGPSHBOJTBUJPOT
expanding their capabilities, for example by building networks into
leading markets.
r 'JOBODJBMNBSLFUTBSFUSBEJOHIPVSTBEBZBSPVOEUIFXPSME
r (MPCBMTUBOEBSETBOESFHVMBUJPOTGPSUSBEFBOEDPNNFSDF ųOBODF
products, and services have emerged.
Globalisation is the catalyst for the worldwide merging of economic

and social forces, interests and commitments, values and tastes, and
challenges and opportunities.
Manuel Castells places global organisations in the context of a global
economy. He defines the global economy as follows:
‘It is an economy with the capacity to work as a unit in real time
on a planetary scale. ...[W]hile the capitalist mode of production
is characterized by its relentless expansion, always trying to
overcome limits of time and space, it is only in the late-twentieth
century that the world economy was able to become truly global
on the basis of the new infrastructure provided by information
and communication technologies … it is informational because the
productivity and competitiveness of units or agents in this economy
(be it firms, regions or nations) fundamentally depend upon their
capacity to generate, process, and apply efficiently knowledge-
based information. It is global because the core activities of
production and circulation, as well as their components (capital,
labour, raw materials, management, information, technology,
markets) are organised on a global scale, either directly or through
a network of linkages between economic agents’7.
Not so long ago, the international scope of South African companies

was limited. Sanctions, political isolation and legislative constraints
during the apartheid years made anything beyond normal trade relations
almost impossible. After the release of Nelson Mandela in 1992, both
business and diplomatic relations with the rest of the world began to
expand slowly. However, the democratic elections of 1994 provided the
impetus for South African corporations to move rapidly into the rest of
Africa and beyond.
3.2.2 Advances in technology

CFXCPEGUKPVGEJPQNQI[ As mentioned in Chapter 1, BEWBODFT JO UFDIOPMPHZ have
the Information Revolution and dramatically changed the world of work and will continue to do so in
other technological advances the future. Modern managers need to appreciate and understand the
that have had a powerful power of technology and must be able to use it in the best interests
influence on organisations of the organisations where they work. The Information Revolution was
discussed in Chapter 1. The way in which technological advances force
organisations to change will be discussed in Chapter 5.
"GSJDBKPJOTUIFJOUFSOFU#BOEXBHPO8
South Africa has the best internet access in Africa. Elsewhere in Africa, the average is nearer to one in
One in 65 people has direct access to the internet. 4 000 people. Zimbabwe ranks third in Africa with

one in 1 000 people boasting direct access, while cost of computer and communication equipment,
approximately 700 000 of the estimated one million inadequate telecommunications infrastructure and
people in Africa with public access to the internet unreasonable regulatory environments in many
reside in South Africa. E-mail access, although often countries.
too expensive, too slow, and hampered by phone One of the most serious problems in Africa is
lines that are inadequate in both number and quality, teledensity – the number of telephone lines per 100
is spreading rapidly in Africa. There are only a few people. There are more telephone lines in New
countries without known connectivity. Internet York or Tokyo alone than in the whole of Africa.
access is limited, but it is also spreading rapidly. The state control and monopoly model adopted
On the continent, South Africa is comparable to by African countries and the fact that governments
most European countries at the level of connectivity. have concentrated their telecommunication
In general, Southern Africa is the most advanced drives in urban areas while 89 per cent of Africa’s
region, but countries all over the continent are in population lives in rural areas are responsible for
the process of being connected. Africa continues this state of telecommunication. The only solution
to lag far behind the developed world where, for to the problem is for governments to embrace
example, an estimated one in six people in North privatisation. This does not necessarily mean
America and Europe use the internet regularly. handing the telecommunication industries entirely
Internet and e-mail are essential in assisting African over to multi-national companies. South Africa has
businesses to overcome the traditional constraints proved that local investors are more than willing to
to economic development, such as distance from invest in potentially lucrative markets either directly
markets. High internet access charges are also a or through the stock exchange.
serious problem. Other problems include a severe
shortage of skilled technology personnel, the high
3.2.3 Radical transformation of the world of work9

The world of work has transformed – moving from the total quality
management efforts (TQM) through the re-engineering processes of
the 1990s to the radical transformation of the workplace itself in the
2000s. Organisations have moved from focusing on reducing defects
and streamlining business processes to focusing on managing continuous
and radical change. Today the emphasis is on creating organisations in
which work is re-organised, redesigned, or re-engineered to improve
performance.
The biggest difference between the old work and the new is the
pressure to do it all better, faster, and cheaper10. Organisations are
focusing and organising around what they do best – they structure
according to core competencies, instead of according to product or
market. Autonomous work teams and strategic alliances are becoming
more important. They outsource work that is not part of the core
work or hire temporary and contract workers as needed. New ways of
viewing the organisation are emerging as more organisations realise that
the key resources of business are knowledge, information and ideas.
Organisations are restructuring, creating integrated organisations, global
networks, and leaner and more flexible structures. They are becoming
more fluid, shifting in size, shape and arrangement. (We consider these
characteristics in more detail when we discuss the unique features of
contemporary organisations.)

3.2.4 Increased power and demands of the

customer
New communication, transportation and information technologies
allow customers to compare prices, quality, availability and so forth
between local organisations and organisations abroad. When buying
a book, buyers no longer have to buy from a local bookshop – or
even a South African-based bookshop. Buyers can access the website
of the South African organisation Kalahari.net or the website of
Amazon.com to do so. Both organisations can deliver ordered books to
one’s doorstep within as little as two days, or one can have the book of
one’s choice available on an Amazon Kindle within minutes.
Consumers’ awareness of possible products and services has
increased because of global competition – a greater variety and higher
quality of choice is available to them. Consumers are now able to choose
the products and services they want according to the criteria they set in
terms of the following:
r DPTUmUIFNPTUFDPOPNJDBMDIPJDF
r RVBMJUZmCFTURVBMJUZ NFFUJOHBOEFYDFFEJOHUIFDVTUPNFST
expectations
r UJNFmBWBJMBCMFBTTPPOBTQPTTJCMF
r TFSWJDFmCFTUTFSWJDFQPTTJCMF
r JOOPWBUJPOmTPNFUIJOHOFX OPUZFUFOWJTJPOFECZUIFDVTUPNFS
r DVTUPNJTBUJPOmUBJMPSFEUPUIFTQFDJųDOFFETPGFBDIDVTUPNFS
The needs of customers are determining how organisations set strategies

and carry out operations. The prime focus of twenty-first century
managers is to serve customers better through continuous innovation
of products and services.
3.2.5 The growing importance of intellectual capital

and learning
The critical factors of production previously were land, labour and
raw materials. The challenge to managers was to use these production
factors to create products that were more valuable than the sum of
their parts. The key factors of production have changed dramatically in
KPVGNNGEVWCNECRKVCN the recent past – JOUFMMFDUVBMDBQJUBM has become the critical resource
the sum and synergy of the
for the organisation of today. Fewer people are doing physical work and
knowledge, relationships,
more are doing knowledge-based work. This trend is likely to continue in
experience, discoveries,
the future – many employees will work in knowledge organisations, and
processes, innovations, market
the value of their knowledge, as both input and output, will determine
presence, and influence of an
their value to the organisation. Intellectual capital is the sum and synergy
organisation on the community
of the knowledge, relationships, experience, discoveries, processes,
innovations, market presence, and influence of an organisation on the
community12.
The three major categories of intellectual capital are as follows:
r 4USVDUVSBMDBQJUBMmUIFBDDVNVMBUFELOPXMFEHFBOEFYQFSUJTFPG
the organisation, represented by its copyrights, trademarks and
patents, systems, and proprietary databases
r $VTUPNFSDBQJUBMmUIFWBMVFPG FTUBCMJTIFESFMBUJPOTIJQTXJUI
suppliers and customers
r )VNBODBQJUBMmUIFDPNCJOFETLJMMTBOELOPXMFEHFPGUIF
employees in the organisation.
Many management theorists stress that contemporary organisations

must develop, measure and manage their intellectual assets if they
are to be successful – the term coined for this process is ‘knowledge
management’. Knowledge management is an integrated, systematic
approach to identifying, managing and sharing the information assets
of an organisation. These include databases, documents, policies, and
procedures, as well as previously unarticulated expertise and experience
available to individual knowledge workers, who are responsible for using
it wisely and for replenishing the stock13. This ongoing cycle encourages
a learning organisation, stimulates collaboration and empowers people
continually to enhance the way they perform at work.
We discuss the learning organisation in detail in Chapter 1. Successful
learning organisations exhibit a number of distinctive features: individual
learning is continuous; employees share knowledge; the organisational
culture supports learning; employees are encouraged to think critically
and to take risks with new ideas; and all individuals are valued for their
contributions to the organisation.
Organisational learning is the process that enables an organisation to
adapt to change and move forward by acquiring new knowledge, skills,
or behaviours, and thereby to transform itself.
Knowledge management and organisational learning will have
an increasing impact on organisations in the future because they can
enhance the potential of an organisation to increase productivity, quality
and innovation.
3.2.6 New roles and expectations of workers

As society moves from the Industrial Era to the Knowledge Era, job
requirements are changing, as illustrated in Table 3.1. From this table
it is clear that the profile of the workforce will rapidly change to fit
the job requirements of the Knowledge Era. This is significant, as a
disproportionate number of jobs are already originating from the
knowledge and service industries, and this trend will continue. Many of
these jobs require a much higher level of technical skill than the jobs they
are replacing, especially in resource-based and manufacturing industries.
For South African leaders this has special significance.
6CDNGThe changing job requirements of workers
Industrial Era Knowledge Era

TGRGVKVKXGUMKNNU MPQYNGFIGVQFGCNYKVJVJGWPGZRGEVGF
FGRGPFKPIQPOGOQT[CPFHCEVU DGKPIURQPVCPGQWUCPFETGCVKXG
TKUMCXQKFCPEG risk taking
HQEWsing Qn RQNitiEs anF RrQEGFWrGs EQNNaDQrating YitJ RGQRNG
Source: Adapted from Marquardt, M.J. & Berger, N.O. 2000. Global leaders for the twenty-first century. New York: University of
New York Press, p 17. And Ancona, D., Kochan, T.A., Scully, M., Van Maanen, J. & Westney, D.E. 2005. Managing for the future:
Organisational behaviour and processes. 2nd edition. Cincinnati: South-Western College Publishing, p M1–12.

An interesting aspect of knowledge workers is that they actually own the

means of production. In other words, if they leave the organisation, they
take the knowledge with them. In this respect, managers face another
challenge: to attract and retain knowledge workers and to provide a
fulfilling structure in which they can apply their knowledge.
Another new element in the environment is coping with
‘temporariness’, as indicated by the following14:
r 5IFBDUVBMKPCTUIBUXPSLFSTQFSGPSNBSFJOBQFSNBOFOUTUBUF
of flux, so workers need to update their knowledge and skills
continually to stay on top of new job requirements.
r 8PSLHSPVQTBSFBMTPJODSFBTJOHMZJOBTUBUFPGŴVY*OUIFQBTU
workers were part of specific work groups, which were relatively
permanent and offered a considerable amount of job security.
Temporary work groups replaced permanent work groups. Teams
include members from different departments and the members
change all the time to meet changing work assignments.
r 0SHBOJTBUJPOTUIFNTFMWFTBSFBMTPJOŴVYmUIFZDPOUJOVBMMZ
reorganise their various divisions, downsize, unbundle, outsource
and replace permanent employees with temporaries.
Yet another change in the expectations of workers emanates from

the different generations of people working in most contemporary
organisations15:
r 5IFATJMFOUHFOFSBUJPO CPSOCFUXFFOBOE XFSF
children of the Depression.
r #BCZCPPNFST CPSOCFUXFFOBOE XFSFSFTQPOTJCMF
for major social changes worldwide while they were teenagers;
they became ‘yuppies’ (in midlife) and are nearing retirement.
r (FOFSBUJPO9 CPSOCFUXFFOBOEHSFXJOUPBEVMUIPPE
with a sense of world-weariness and many of them earn more in
real terms than their parents.
r A5IF.JMMFOOJBMT BMTPLOPXOBT(FOFSBUJPO:BSFOPXJOUIFJS
early careers in the midst of a slow global economic recovery and
high unemployment.
An article in Time focuses on Generation Y and their influence on the

world of work. The following is an excerpt from the article.
‘The Industrial Revolution made individuals far more powerful
– they could move to a city, start a business, read and form
organizations. The Information Revolution has further empowered
individuals by handing them the technology to compete against huge
organizations: hackers vs. corporations, bloggers vs. newspapers,
terrorists vs. nation states, YouTube directors vs. studios, and
app-makers vs. entire industries. ….. [T]om Brokaw, champion of
the Greatest Generation (Generation Y) loves millennials. He calls
them the Wary Generation, and he thinks their cautiousness in life
decisions is a smart response to their world. “Their great mantra
has been: Challenge the convention. Find new and better ways of

doing things. And so that ethos transcends the wonky people who
are inventing new apps and embraces the whole economy”, he
says’16.
The world that most managers and workers work in today is one of
permanent temporariness.
3.3 THE CLASSIC MODEL OF THE FORMAL LEARNING OBJECTIVE 3

ORGANISATION Defend the statement that
bureaucracy fails to provide
To study the features of the new organisation in the proper perspective, for the needs of modern
it is necessary to take another brief look at the traditional model of the organisations.
organisation. In Chapter 1 we discussed the work of Max Weber, the
German sociologist who, at the turn of the last century, developed the
model of ‘rational-legal bureaucracy’, based on his studies of Germany’s
government bureaucracy17.
Weber was one of the first researchers to identify systematically a
set of characteristics shared by many ‘modern’ large-scale organisations
in both the private and the public sectors. Based on his research, Weber
developed a model, which, at the time, served to analyse the key
elements of a complex social phenomenon – the bureaucracy18.
The emphasis here is on the word ‘model’ – not all real-life
organisations described as bureaucracies embody all the characteristics
identified in Weber’s model.
Weber’s model provided the conceptual base for many further
studies of the ‘modern’ organisations of the twentieth century.
Generations of organisational researchers expanded the model of
bureaucracy, moving beyond his focus on the organisation’s internal
factors to include the analysis of its relationships with the external
environment. In addition to the characteristics of the bureaucracy which
we discussed in Chapter 1, the organisation’s environment is analysed in
terms of one country, even in multinational organisations. Multinational
organisations are organised into country subsidiaries19, linked to the
rest of the organisation through specified departments, such as an
international division.
The traditional model of organisation has many strong points,
including its predictability and reliance, impartiality, expertise through
specialisation and clear lines of control. The expected benefits of a
bureaucracy are efficiency and consistency. The bureaucracy functions
best when the organisation performs many routine tasks because lower-
level employees take care of the bulk of the work by simply following
rules and procedures. Furthermore, employment is a lifelong career
commitment; both the employee and the organisation view themselves
as being committed to each other over the working life of the employee20.
Bureaucracies also have many weaknesses, such as rigid rules and red
tape, the protection of authority, slow decision-making, incompatibility
with changing technology and incompatibility with workers’ values.
Despite its weaknesses, however, the bureaucracy is still widely used in
many organisations, especially where:

r MBSHFBNPVOUTPG TUBOEBSEJTFEJOGPSNBUJPOIBWFUPCFQSPDFTTFE
and an efficient processing method is in operation
r UIFPSHBOJTBUJPOJTGBNJMJBSXJUIUIFOFFETPGJUTDVTUPNFSTXIJDI
are relatively stable
r UIFUFDIOPMPHZJTSPVUJOF
r UIFPSHBOJTBUJPOEFMJWFSTBTUBOEBSEJTFEQSPEVDUPSTFSWJDF21.
Whilst the bureaucracy still works well for many organisations, the very
strengths of the model became weaknesses for organisations operating
in dynamic and turbulent environments because such organisations have
to respond to increased competition in terms of customer service,
continuous improvement in manufacturing, and greater diversity of
products, services and customers. For these organisations, the strengths
of predictability and stability of the bureaucracy turns into weaknesses22.
Contemporary organisations23 operate in a world of changing markets,
technologies, customers and products. Economists call it a secular shift
– a big, broad increase in uncertainty and volatility. The transition is a
result of globalisation, the digital revolution and the information-based
economy it creates. By freeing companies from their physical assets, it
has made them more flexible and more vulnerable to competitors. For
example, Microsoft can get into and out of many businesses – internet
search, online advertising, mapping and electronic payment – at virtually
a moment’s notice, but so can any other organisation.
The digital revolution also makes business more chaotic by shifting
information and power toward customers. Moreover, it changes
products in every industry, new or old. Modern cars are essentially
computers on wheels. Credit cards have chips in them. Computer chips
transformed industries and will transform more industries every day
as the cost of computing power, telecommunications and data storage
continues to plunge.
Modern organisations created strategies and structures to buffer
them against the forces of change. This strength, so desirable in a
stable environment, is turning into a weakness in the current business
environment.
LEARNING OBJECTIVE 4 3.4 THE NEW ORGANISATION MODEL

Expound on the features of the The new organisation model has characteristics that differ substantially
new, emerging organisation. from those embodied in the bureaucracy. The features of the new
organisation we examine in this chapter are not typical of all modern
organisations but serve as a guide to analyse the trends of change in
contemporary organisations24. Table 3.2 on the next page shows the
differences between the features of traditional organisations and those
of organisations emerging because of change in the environment.

6CDNGDifferences between traditional and nnewo organisations
Dimension Traditional New

critical tasks RJ[sical OGntal
knQYlGFgG
rGlatiQnsJiRs JiGrarcJical lateral
inHQrOatiQn ƃQY Xertical JQri\Qntal anF Xertical
decision-making top-down wJere inHormation resides
s[stems and processes inƃeZiDle ƃeZiDle
leXels man[
tall strWctWre Hew
ƃat strWctWre
DoWndaries ƂZed permeaDle
competitiXe tJrWst Xertical integration networked
management st[le autocratic participatiXe
culture compliance commitment and results
mindset etJnocentric gloDal
workHorce Jomogeneous diXerse
strategic Hocus eHƂcienc[ innoXation
Source: (i) Adapted from Marquardt, M.J. & Berger, N.O. 2000. Global leaders for the twenty-first century. New York: State University
of New York Press, p 17. (ii) Ancona, D., Kochan, T.A., Scully, M., Van Maanen, J. & Westney, D.E. 2005. Managing for the future:
In the following sections, we discuss the specific features of the new

organisation and outline the unique managerial challenges inherent in
each feature.
3.4.1 Global
The new organisation is effective at operating in an increasingly global
economy. We have explained the reasons for the emergence of the
global economy and the importance for organisations to be part of it in
Section 3.2.1. The global business environment is more complex than
the domestic environment and managers of organisations operating in
the international marketplace have to deal with a much broader set of
environmental forces.
Management challenges
The managers of organisations competing in the complex global
environment require global leadership skills. For example, managers
should establish networks with suppliers and customers in other
countries in order to compete worldwide and that requires international
management skills25.
It is vitally important for the managers of any organisation competing
in the global marketplace to understand the diverse cultures of the
individuals involved. Whether managing culturally diverse individuals
within a single location or communicating with diverse individuals at
remote locations around the globe, an appreciation of the differences

among cultures is crucial and training in cross-cultural communication is
essential for managers26.
Finally, the ability to think and operate globally is one of the major
challenges for the managers of new organisations. Lane and DiStefano27
identified a profile of effective global managers after reviewing a wide
range of literature dealing with global leadership. According to them,
managers of global organisations should have the ability to:
r EFWFMPQBOEVTFHMPCBMTUSBUFHJDTLJMMT
r NBOBHFDIBOHFBOEUSBOTJUJPO
r NBOBHFDVMUVSBMEJWFSTJUZ
r EFTJHOBOEGVODUJPOJOŴFYJCMFPSHBOJTBUJPOTUSVDUVSFT
r XPSLXJUIPUIFSTBOEJOUFBNT
r DPNNVOJDBUFFŲFDUJWFMZ
r MFBSOBOEUSBOTGFSLOPXMFEHFJOBOPSHBOJTBUJPO
%PJOHCVTJOFTTJO"GSJDB28
The key to successful business dealings elsewhere in r In many African countries, using the left hand to
Africa is a good understanding of African business receive or give a gift is considered impolite and
culture. Success or failure in doing business in Africa therefore, unacceptable.
depends on the ability to understand and adjust to r Africa’s considerable cultural diversity is not an
Africa’s dynamic market. The complex and changing impediment to successful business operations. To
African environment requires business people to manage cultural differences, one must understand
have a degree of flexibility. In addition, the potential the need for personal relations and the role that
for turbulence requires them to monitor and assess connections play in African business and the
the political risks in the countries with which they are African respect for hierarchy, titles and age.
doing business. Some aspects to consider include the
r One must also comprehend the concept of
following:
‘African time’ and make provision for it when
r People are sensitive about how you pronounce arranging business meetings and to ensure that
their names. there is considerable follow-up.
r Business people should avoid patronising and r When practices, not tolerated or permitted in
condescending behaviour or demonstrating one’s own country, are rampant in another country,
prejudice, bias, or stereotypical beliefs. business people should follow the rule of thumb,
r In Senegal and Ghana, parents teach children not which is to do what is legal and avoid what is illegal.
to look adults in the eye since they consider it an It is essential to know the rules and to realise that
act of defiance or a lack of respect. This means laws are often openly broken because of lack of
that eye contact, considered as a mark of trust or enforcement.
truthfulness elsewhere in the world, may have a r Africans tend to be communal, emphasising
different meaning in some African countries. collectivism instead of individualism. The tendency
r In most African cultures, greeting is very important is to take decisions more slowly, looking for
and it is common to see the same greeting, such unanimity before acting and a reluctance to
as a welcome, repeated several times. Africans contradict or challenge the system.
often shake hands to greet people and the greeting Inter-cultural business is always a challenge; African
could range from a simple handshake to prolonged business is no different, but if one keeps an open
and sometimes vigorous forms of handshaking. It mind, you should be able to proceed with confidence
is common to find younger people, women, or and could reap the many profitable rewards the
subordinates offering both hands as a mark of dynamic African market offers.
respect.

3.4.2 Networked
There is interdependence between individuals, groups and sub-units
within the contemporary organisation:
r 5FBNTBSFFNQIBTJTFEBTGVOEBNFOUBMVOJUTPGBDUJWJUZ SBUIFSUIBO
individual jobs.
r $SPTTGVODUJPOBMUFBNTEFWFMPQ DPNQSJTJOHQFPQMFGSPNEJŲFSFOU
departments or sections of the organisation.
r *OGPSNBUJPOJTXJEFMZTIBSFE
WL Gore & Associates, Inc. (see opening case study) is a prime example
of how the interdependence between employees can achieve successful
results. Teams are the fundamental units of activity, to the point where a
ten-or-so member team is the basic management unit. Gore ‘associates’
are encouraged to communicate directly with each other and are
accountable to fellow members of their teams. Teams typically organise
around opportunities, new product concepts, or businesses.
The boundaries of the networked organisation are permeable or
semi-permeable. This allows for frequent movement of information and
people across the boundaries of the organisation.
r 5IFPSHBOJTBUJPOGPSHFTDMPTFSFMBUJPOTIJQTXJUIJUTTVQQMJFST TIBSFT
much more information with suppliers and develops higher levels
of interdependence with them. For example, when an organisation
integrates suppliers into the manufacturing process, the suppliers
could deliver parts or products as needed by the organisation,
eliminating the need to keep high levels of inventory.
r 5IFGVODUJPOBMBSFBTPG UIFPSHBOJTBUJPOUIBUEFWFMPQBOE
produce products and services are in direct contact with certain
customers – rather than relying on specialised departments such
as marketing or customer service – to mediate between customer
and organisation.
r 0SHBOJTBUJPOTCVJMEDPBMJUJPOTUPXPSLUPHFUIFSXJUIDFSUBJO
stakeholders, such as community groups, government agencies,
or labour unions, rather than adopting a defensive or aggressive
stance.
r 0SHBOJTBUJPOTCVJMEBMMJBODFTBOEDPPQFSBUJWFOFUXPSLTXJUIPUIFS
organisations.
Management challenges30
Network organisations rely on teams, meaning that individual managers
must develop their skills as team members and as team leaders.
These skills include understanding the dynamics of team interaction,
developing observation skills to examine team dynamics and learning
how to diagnose team problems. Switching to teams requires processes
within the organisation to facilitate the formation of effective teams.
This means that organisations should develop team structures and
processes for each kind of team in the organisation – and everybody
in the organisation should clearly understand how the processes work.
As far as the organisation’s interactions with its environment are

concerned, networks with outside organisations involve forming

alliances with them. Forming and maintaining alliances with customers,
suppliers and competitors often requires a delicate balancing between
cooperation and competition, which poses challenges for managers. An
organisation must, therefore, develop systems to manage information
flows with the organisations with which it forms alliances. Long-term
alliances with supplier or key customers require different systems for
management than short-term alliances.
Developing and continuously adapting these information systems
is one of the major managerial challenges of operating an external
network.
3.4.3 Flatter and leaner

The most common characteristic of the new organisation is that it is
flat, which is considered the best practice today. The trend in recent
years has been for large organisations to remove several layers of
management, resulting in much flatter organisations. By employing fewer
people (becoming leaner) and by improving their turnover in sales,
organisations can significantly improve productivity.
Flattening of the hierarchy causes changes in the authority
relationships of new organisations. Decision-making takes place at
the level where the information resides. The unit responsible for the
implementation of a decision has the authority to make the decision
or, at the very least, to participate in the decision-making process. WL
Gore & Associates Inc., for example, has a flat, lattice-like organisational
structure where there are neither chains of command nor predetermined
channels of communication.
Reasons for the shift to flatter and leaner organisations are many and
varied, depending on the environmental factors influencing change, but
the following factors may influence the decision of some organisations
to opt for a flatter structure:
r 0SHBOJTBUJPOTOFFEUPCFŴFYJCMFUPSFTQPOERVJDLMZUPDIBOHFTJO
the environment and flatter organisations are more agile.
r 5IFUSBEJUJPOBMSPMFPG NJEEMFNBOBHFNFOUUPDPMMFDUBOE
disseminate information and to control the activities of employees
at the operational level are replaced by information systems that
enable organisations to monitor and adjust operational activities
continuously.
r *ODSFBTFEHMPCBMDPNQFUJUJPOBOEQSFTTVSFGSPNTIBSFIPMEFSTGPS
improved financial performance force organisations to cut costs
and retrenching managers can cut costs significantly.
Management challenges32
In the flat organisation, managers cannot rely on the authority
relationships created by the traditional organisational hierarchy, such as
chain of command and unity of command. Instead, they must work with
individuals, groups and teams who report to various managers, have
different priorities, and are motivated by different incentives.
In the flat organisation, managers must develop negotiating skills
to enable them to negotiate win-win situations for all involved in the

different organisational processes.
In addition, the flat organisation does not allow for the normal
progress up the organisational ladder – there are fewer opportunities
for promotion. The organisation must provide alternative incentive
systems and new concepts of career planning involving more horizontal
than vertical movement.
In flat organisations, more individuals are working across the external
boundaries of the organisation, interacting with customers, suppliers and
other stakeholders. It can be difficult to remain committed to one’s own
organisation while cooperating with other organisations. Organisations
with flat structures need to manage the interaction between employees
and suppliers, customers and competitors to maintain cooperation but
also to keep employees committed to the interests of the organisation.
The drift worldwide towards flatter and leaner organisations
requires more frequent and effective communication between senior
and junior managers. In South Africa, a widening skills gap often prevents
effective communication. Experienced managers are in short supply,
and affirmative action is rapidly changing career patterns and corporate
cultures, often causing a hindrance to effective communication. This
presents a major challenge for South African managers.
3.4.4 Flexibility
Flexibility is a key feature of new organisations because organisations
need to respond to changes in their environment, changing customer
needs, intense competition and the needs of a diverse workforce.
Organisations have to be innovative and creative to respond to these
challenges and they may actively encourage initiatives for innovation
and change on the part of employees. The systems and processes in
flexible organisations respond differently to different situations. Flexible
organisations have fewer rules and standard operating procedures.
WL Gore & Associates, Inc. is a flexible organisation where hands-on
product innovation and prototyping are encouraged and teams typically
organise around opportunities, new product concepts, or businesses.
This is a good example of an organisation where employees configure
according to challenges and opportunities in the environment.
Part of the flexibility in new organisations is the growing use of
temporary or contingent workers, which relates to diversity in the
workforce – another characteristic of the new organisation.
Management challenges
Managers in flexible organisations need to work on more than one
project simultaneously. They are also members of various teams at
any given time. Developing managers’ skills in multi-tasking is crucial if
organisations want them to work productively at several tasks. Flexible
organisations must also have flexible labour practices to deal with their
flexible working practices. Employees, independent knowledge workers,
and prospective work applicants need to33:

r CFŴFYJCMFBOEQSPBDUJWFJOJNQSPWJOHUIFJSQFSGPSNBODF
r MFBSOUPBEBQUUPDIBOHF
r CFJOOPWBUJWF
r CBMBODFXPSLBOEOPOXPSLBDUJWJUJFT
r NBJOUBJOBTFOTFPG SFTQPOTJCJMJUZGPSUIFJSDBSFFST
r BEBQUUPBOFXQTZDIPMPHJDBMDPOUSBDUXIFSFMJGFMPOHFNQMPZNFOU
with one organisation is unlikely
r BDDFQUUIBUFNQMPZNFOUDPOUJOVJUZmSBUIFSUIBOKPCTFDVSJUZ
– means continuous development, retraining and renewal of
knowledge.
The flexible organisation is a learning organisation and its wealth lies in

how it uses knowledge. Organisations that use information and ideas
intelligently govern by consent and participation rather than by command,
as is the case at WL Gore & Associates, Inc., where leadership is more
about recognising and communicating a decision already made than
barking out orders. When it comes to new product innovation, teams
decide whether to go ahead with the project or not.
Legitimised authority in flexible organisations insures that people
contribute because they identify with the core values and exciting work
opportunities existing at the organisation. For managers who aspire to
advance in flatter, more agile organisations, technical skills and financial
acumen are not enough. Leadership, people skills, a positive attitude and
maturity are critical for personal progress.
-FUFNQMPZFFTDIPPTFXIFSFUIFZXPSL34
Not so long ago, occupying the corner office was Google then joined the conversation stating that
a sign that a manager has ‘made it’ to the top. it does not even have a policy that says when and
However, all that is changing as the permission for a where people need to work because if a workplace
manager to work from home signals greater power is comfortable, healthy and inviting, people would
and autonomy within the organisation. want to be there.
‘In this sense, Yahoo CEO Marissa Mayer’s ban These examples illustrate the principle of
on working from home was viewed as much as an autonomy – control of employers over how
attack on individual freedom as an attack on the employees use time and space. Working from home,
family. Paradoxically, FastCompany.com published an employees have total control over time and space.
article that same week about how “employees work Another solution is to create private and common
beyond the cube”, showcasing Plantronics’ decision spaces at work. Private spaces are where people
to give its employees the choice of working from can work uninterruptedly and common areas where
home, commuting to headquarters or joining one they might share ideas and critical ‘face time’. Every
of three San Francisco Bay locations of NextSpace organisation has to find its own balance between
(shared workspaces). The decision was heralded private and common spaces and the balance will
as a win-win for workers and their companies, depend on the organisation’s unique goals and
with proximity, diversity and choice of location all challenges.
stimulating creativity.’

3.4.5 Workforce diversity

One of the most important and broad-based challenges currently facing
organisations is adapting to the diversity of their employees. In South
Africa, the Employment Equity Act gives legal weight to the requirements
of XPSLGPSDFEJWFSTJUZ. Workforce diversity is a term that describes YQTMHQTEGFKXGTUKV[
the fact that organisations are becoming more heterogeneous in terms a term that describes the fact
of gender, race and ethnicity. We examine diversity in Chapter 9; our that organisations are becoming
discussion here focuses only on the reasons for workforce diversity in more heterogeneous in terms of
the new organisation. gender, race and ethnicity
A characteristic of the traditional organisation is the ‘corporate
man’ – a male executive, committed to serving the interests of the
organisation in return for lifelong employment. Employment contributes
to the incumbent’s social identity and by a style where a predetermined
and standardised set of rules governs every situation35.
In contemporary organisations exhibiting the features of new
organisations, the workforce is heterogeneous in terms of gender, race,
and ethnicity, and it includes people who are part of the organisation,
but in unconventional ways, such as full-time contract workers or
former employees working as consultants (especially in South Africa).
There is part-time work and home-based telework, and various other
forms of employment, which may depend on employees’ own interests
and family situations.
.BOBHFNFOUDIBMMFOHFT
Workforce diversity has crucial implications for managers because
they need to shift their philosophy from treating everyone alike to
acknowledging differences and responding to those differences in
ways that will ensure employee retention and greater productivity.
This includes, for example, training in diversity and developing listening
skills36. Managers need to focus on creating environments that utilise the
potential of all sources of difference within an organisation’s workforce.
By listening to diverse perspectives in their organisations, for example,
managers can rethink their approaches to tasks and markets, gaining
competitive advantage in the process.
The organisation must also develop systems for conflict resolution.
Diversity, when positively managed, can increase creativity and
innovation. When an organisation does not manage diversity properly,
there is the potential for ineffective communication and interpersonal
conflict37. We discuss conflict and conflict resolution in Chapter 7.
People with different needs and expectations present challenges
to the human resources policies of organisations. Working parents
with children often require adaptations to work schedules or day care
facilities. Disabled people may require special access to buildings and
specially designed work areas. Part-time workers may need to arrange to
share jobs so that organisations can benefit from their skills and abilities.
The global environment adds another layer of complexity to
workforce diversity. To be effective, managers should understand
cultural differences around the world.
In addition, workforce diversity in organisations causes their culture

to change in terms of values, rituals and assumptions to support the

heterogeneous values of the diverse groups working in modern
organisations. For example, social activities that are rituals in male
cultures will need to change to allow ready access by female members
of the workforce38. We examine organisational culture in Chapter 6.
This concludes our discussion on the features of emerging
organisation forms and the challenges managers of contemporary
organisations face. Some South African organisations already feature
many of the characteristics discussed in this chapter – they understand
the challenges of the new world of work. Others do not. Whichever
way organisations look at it, change is part of the South African business
environment, and managers will have to deal with it in order for their
organisations to survive.

Chapter 3 Features of contemporary organisations and new management challenges
CHAPTER SUMMARY
1. Cite reasons why organisations change.
Organisations are open systems. They influence their environments and vice versa. During
the previous century, the environment was much more stable and the traditional form
of organisation, the bureaucracy, worked well. Contemporary organisations function in
an environment characterised by major, ongoing change, hence the emergence of ‘new’
organisation forms.
2. Identify and discuss the forces that stimulate change in organisations.

The forces that stimulate change are:
• globalisation and the global economy
• advances in technology
• radical transformation of the world of work
• increased power and demands of the customer
• growing importance of intellectual capital and learning
• the learning organisation
• new roles and expectations of workers.
3. Defend the statement that bureaucracy fails to provide for the needs of modern
organisations.
While the bureaucracy still works well for many organisations, the very strengths of the model
became weaknesses for organisations operating in dynamic and turbulent environments.
• Organisations operating in turbulent environments have to respond to increased competition
in terms of customer service, continuous improvement in manufacturing, and greater diversity
of products, services and customers. For these organisations, the strengths of predictability
and stability of the bureaucracy turned into weaknesses.
• The Total Quality Management development in the 1980s contrasted with the quest for
specialisation – a feature of the bureaucracy. The strict division between departments made
it difficult to implement quality initiatives, which depend on cooperation between functions
and departments.
• New information technology changed the information channels in organisations, moving
away from the traditional chain of command.
• Finally, international competition and expanding global markets demand more effective
ways to manage the international operations of the organisation than those provided by the
specialised ‘international’ managers.
4. Expound on the features of the new emerging organisation.

To answer this question, you need to study the sections in the chapter dealing with the features
of the new organisation:
• global
• networked, internally and externally
Account: s7393698
• flat and lean

• flexible
• diverse.
5. Identify and discuss the challenges faced by managers of the new organisation.
Each of the possible features of contemporary organisations poses difficult challenges
to their managers. In the text, we described these challenges under the heading of each
feature. The table below provides a summary of the challenges managers of contemporary
organisations face.
Features Management challenges

Global • Develop and use global strategic skills to manage change and transition
• Manage cultural diversity
• Design and function in flexible organisational structures
• Work with others and in teams
• Communicate effectively
• Learn and transfer knowledge in an organisation
Networked, • Individual managers must develop their skills as team members and team leaders
internally and • Team structures and processes must be developed for each kind of team in the
externally organisation
• Networks with outside organisations involve forming alliances with customers,
suppliers and competitors and an organisation must develop systems to manage
information flows with the organisations with which it forms alliances
Flat and lean • Managers must develop negotiating skills, to enable them to negotiate win-win
situations for all involved in flat structures
• The organisation must provide alternative incentive systems and new concepts of
career planning that involve more horizontal than vertical movement
• More frequent and effective communication between senior and junior managers
Flexible • Multi-tasking
• Flexible labour practices
Diverse • Managers will need to shift their philosophy from treating everyone alike to
recognising differences and responding to those differences in ways that will
ensure employee retention and greater productivity
• Training in diversity
• Developing listening skills
Source: Adapted from: Ancona D., Kochan D.A., Scully M., van Maanen J. & Westney, D.E. 2005. Managing for the future:
Account: s7393698
KEY TERMS
bureaucracy intellectual capital
customer capital knowledge management
distributed computing networked organisations (internal and external)
diversity organisational learning
globalisation outsourcing
Generation Y structural capital
flat structure systems thinking
flexible organisations teams
human capital temporariness
REVIEW QUESTIONS
1. Consider the opening case study on WL Gore & Associates, Inc. Explain how the features of the new
organisation are evident at the organisation.
2. Explain why WL Gore & Associates, Inc. is so successful.
3. Do an internet search on one of the global South African organisations. Write an essay describing
the major changes faced by the organisation during the last decade and describe the challenges these
changes presented to the managers of the organisation.
4. Write an essay on Generation Y, people born between 1980 and 2000, and the possible changes they
may bring about in organisations when they join the workforce.
END NOTES
1 (i) The case study is adapted from: Reingold, J. 2007. A job that lets you pick your own boss. Fortune, October 8, 2007.
[Online] Available from: http://money.cnn.com/2007/10/08/magazines/fortune/goretex.fortune/index.htm. Accessed on
12 August 2010. (ii) http://en.wikipedia.org/wiki/W._L._Gore_and_Associates. Accessed on 22 August 2011; http://www.
gore.com/en_xx/aboutus/culture/index.html. Accessed on 21 August 2011.
2 Palmer, I. & Dunford, R. 2009. New organization forms: the career of a concept. In Barry, D. & Hansen, H. 2009. The
Sage handbook of new approaches in management and organization. London: Sage, pp 567–568.
3 Ancona, D., Kochan, T.A., Scully, M., Van Maanen, J. & Westney, D.E. 2009. Managing for the future: organizational
behavior and processes. 3rd edition. Cincinnati: South-Western College Publishing, p M1–13.
4 Lane, H.W. & DiStefano, J.J. 1992. International management behavior. 2nd edition. Boston: PWS-Kent, p 73.
5 Burnes, B. 2009. Managing change. 5th edition. Essex: Prentice Hall, p 597.
6 Ancona et al, op. cit., pp M1–12 to M1–13.
7 Castells, M. 1996. The rise of the network society. Oxford: Blackwell, pp 92–93.
8 Excerpts from: Africa Business Pages. Business guide internet Edition. Africa joins the internet bandwagon. [Online]
Available from: http://www.africa-business.com/features/internet.html. Accessed on 5 August 2010.
9 Marquardt, M.J. & Berger, N.O. 2000. Global leaders for the twenty-first century. New York: State University of New York
Press, p 17.
10 Reich, R.B. 2000. The future of success: Work and life in the new economy. London: William Heinemann, p 25.
11 Reich, op. cit., p 10.
12 Lewis, P.S., Goodman, S.H. & Fandt, P.M. 2001. Management: Challenges in the 21st century. 3rd edition. Cincinnati:
South-Western College Publishing, p 17.
13 Hackett, B. 2000. Beyond knowledge management: New ways to learn. The Conference Board Research Report
1262–00RR. New York: The Conference Board Inc, pp 10–11.

14 Robbins, S.P. & Judge, T.A. 2009. Organizational behavior. 13th edition. Upper Saddle River: Prentice-Hall, p 57.
15 Stein, J. The new greatest generation. Time, May 20, 2013, pp 30–35.
16 Ibid., p 30, p 35.
17 Hellriegel, D., Jackson, S.E. & Slocum, J.W. 2002. Management: A competency-based approach. 9th edition. Ontario:
South-Western College Publishing, p 46.
18 Ancona et al, op. cit., p M1–11.
20 Hellriegel et al, op. cit., p 47.
21 Hellriegel, op. cit., p 49.
22 Ancona et al, op. cit., pp M1–12 to M1–13.
23 Managing on the edge. 2009. Fortune, 9 October, 17: 28–32.
24 Ibid.
25 Lewis et al, op. cit., p 2.
26 Nelson, D.L. & Quick, J.C. 2002. Understanding organizational behavior: A multimedia approach. Cincinnati: South-
Western College Publishing, p 34.
27 Lane & DiStefano, op. cit., p 50.
28 Adapted from: The changing face of Africa. Business Guide: internet edition: [Online] Available: http://www.africa-
business.com/features/changing.html. Accessed on 5 August 2010.
31 Ibid., p M1–14.
32 Ibid., p M1–15.
33 Paul, op. cit., p v.
34 Folkman, J. 2013. Let employees choose where they work. Harvard Business School Publishing Corp. Distributed by
The New York Times Syndicate and accessed in Finweek, 18 April, 2013, p 38.
36 Robbins & Judge, op. cit., pp 52–54.
37 Ibid., p 54.
38 Champoux, J.E. 2000. Organizational behavior: Essential tenets for a new millennium. Ontario: South-Western College
Publishing, p 24.

PART II
Management in
a changing
environment
Chapter 4
Composition of the
management environment
Tersia Brevis
PART II: Management in a changing environment
OPENING CASE
Vodacom1 Vodacom’s culture is shaped by a winning spirit,
Vodacom is the leading cellular network in South a passion for the job and an unwavering belief
Africa with an estimated market share of 58 in the Vodacom team. Vodacom is a company
per cent and more than 23 million customers. that demands the best from the people who
Vodacom was born in the new South Africa and work for it and special effort and dedication are
started commercial operations in 1994 after it accepted as the norm. The group’s progressive
was awarded one of two available GSM licences human resources policies are designed to nurture
in South Africa. Since 1994, the company has its human capital. Potential restrictions on the
become an important agent of change, not only in company are the regulatory environment in which
this country, but also in Africa. The group has built Vodacom operates, as well as legislation such as
networks in Lesotho, the Democratic Republic of the Registration of Information Act.
Congo, Tanzania and Mozambique, putting cell Due to the huge demand worldwide for ICT
phones in the hands of well over 35 million people. (Information, Communication and Technology)
Millions more have gained meaningful access to skills in what is still a relatively young industry, it
telephones through thousands of Vodacom phone is one of the Vodacom Group’s human resources
shops in these countries. Vodacom has been priorities to meet this challenge, especially as
certified as one of South Africa’s Best Employers the company prepares to enter the new spheres
GPSCZUIF$3'*OTUJUVUF*OEFQFOEFOU opened up by the Electronic Communications
research into their employee offerings showed Act. The company is in the fortunate position to
this company is outstanding for being a: cherry pick the best ICT talent in South Africa.
r DPNQBOZUIBUDBSFT At the same time, the company acknowledges
r WJCSBOU FOFSHFUJDUFBN the importance of nurturing and developing their
r IJHIMZJOOPWBUJWFXPSLJOHFOWJSPONFOU growing pool of skilled and competent workforce.
r ZPVOHPSHBOJTBUJPO At the same time, Vodacom is striving to address
r WFSZQSPEVDUJWFPSHBOJTBUJPO the challenges of transformation. Empowerment,
r HSFBUQMBDFUPXPSL and by extension gender empowerment, is a top
priority for Vodacom. Top managers are aware of
Initially, Vodacom was owned on a 50:50 basis the need to ensure that women and previously
by the South African telecommunications group disadvantaged individuals (PDIs) are recognised
Telkom and the British mobile phone operator and fill strategic positions within the company and
Vodafone. On November 6, 2008, Vodafone not just support roles.
announced that it had agreed to increase its stake The ICT workforce is young, which means
to 65 per cent and Telkom listed its remaining that they are mobile and eager to find the next
holding on the Johannesburg Securities Exchange. big career opportunity. For this reason, Vodacom
The introduction of the Electronic Communi- has devised a retention programme that hinges
cations Act in South Africa has enabled Vodacom on providing staff stretching assignments and
to widen its scope far beyond telecommunications encouraging learning and growth – factors which
to make cellular telephones essential lifestyle tools are just as important as an impressive salary when
beyond just voice communications. It has the it comes to holding onto top talent. For example,
potential to democratise the internet and e-mail in employees are able to spend time with Vodacom’s
Africa on the same scale that telephone access has equipment suppliers, such as Motorola and
been made available. Vodacom’s global alliance Siemens, learning about the latest technologies
with ‘Vodafone live’ has put mobile television, and devices. This has the additional benefit of
internet access, e-mail and entertainment on cell giving talented staff international exposure,
phones. which in turn will benefit Vodacom. Furthermore,

CHAPTER 4 Composition of the management environment
rewards and benefits to employees are constantly belief that government alone cannot address the
reviewed. This includes addressing issues that vast need for social development. A pan-African
BŲFDU UIFJS XPSLMJGF CBMBODF JNQMFNFOUJOH company like Vodacom is well placed to join hands
incentive programmes as well as high level with governments to help create stable, peaceful
recognition to top performers. The company has and socio-economically healthy communities. The
a comprehensive skills development framework in Vodacom Foundation was established in 1999 to
place, with training programmes targeting various achieve this objective and its cumulative corporate
occupational levels within the organisation. social investment to date totals millions of Rands
Depth of management and long term succession in various social development areas, especially in
planning is underpinned by various initiatives disadvantaged communities. These activities focus
such as the Vodacom Executive Programme and on education, health, safety and security.
Conversations in Leadership. Vodacom strives to Vodacom is following the worldwide trend
be an employer of choice. It participates in annual of cellular networks entering the fixed line
remuneration surveys and benchmark salaries market. It has established a new company called
above the fiftieth percentile. It is essential that Vodacom Converged Solutions, which will build
employees share the company’s values, which are infrastructure to create additional capacity for the
summarised in ‘The Vodacom Way’, a powerful huge demand for data, especially in the corporate
statement of Vodacom’s ethical intents of being a market. Projects such as these will ensure the long
fair company with a winning attitude. It is Vodacom’s term survival and sustainability of the company.
LEARNING OBJECTIVES
The purpose of the chapter is to provide an overview of the composition of the management
environment. The objective of studying this chapter is to enable you to:
1. Understand the importance of the management environment when making management
decisions.
2. Depict diagrammatically and explain the concepts of the process, systems and contingency
approaches in management.
3. Understand the structure and dynamics of the management environment.
4. Conduct a basic analysis of the management environment.
4.1 THE IMPORTANCE OF THE MANAGEMENT LEARNING OBJECTIVE 1

ENVIRONMENT AND ITS IMPACT ON Understand the importance of
the management environment
MANAGERIAL DECISION-MAKING when making management
With the end of the Cold War in the late 1980s, the management decisions.
environment became increasingly complex and interdependent, with
change becoming more rapid, discontinuous and turbulent. The fall
of the Berlin Wall and the advent of globalisation signalled a radical
transformation of the world that is continuing daily. According to
Angell2, this change is not closely related to the kind and magnitude
of the changes of the past, but rather a severe and total dislocation
with the past. Information technology and other new technologies have
provoked profound structural changes in the world economy and these
are resulting in unimaginable levels of complexity. Furthermore, the
environment is characterised by a growth in interdependence and linkages

between politics, economics, the social dimension and technology
at the global, regional and national levels, providing powerful threats
and exciting opportunities for any organisation and its management.
The pace of events and the speed with which effects are transmitted
between parts of the management environment create difficulties in
terms of the manager’s comprehension due to the sheer scale of it all.
In this environment, everything can appear relevant and the manager’s
task of sorting that which is important to his or her specific organisation
from that which is not, can appear to be almost impossible. Taking into
account the increasing costs of management mistakes and failures, it
is essential to provide managers with the means to identify strengths,
weaknesses, opportunities and threats within the environment correctly
to empower them to make better critical choices and choose more
feasible courses of action in executing their planning, organising, leading
and controlling functions.
LEARNING OBJECTIVE 2 4.2 MANAGEMENT THEORIES AND THE

Depict diagrammatically MANAGEMENT ENVIRONMENT
and explain the concepts of
the process, systems and In Chapter 1, the evolution of management theories was discussed
contingency approaches in in detail. Understanding the evolution of management theories helps
management. managers to make sense of realities that they face, within the business
environment, on a daily basis. In this chapter, and throughout this book,
we focus on some of the more contemporary management theories. The
process approach, the systems approach and the contingency approach
process approach to
are used to describe and explain the complexity of the modern business
management
organisation in relation to the environment in which it functions.
performance of the planning,
The process approach to management is based on the
organising, leading and
four main functions of management. According to this approach,
controlling functions within an
the performance of the planning, organising, leading and controlling
organisation is circular and
functions within the organisation is seen as circular and continuous.
continuous
The systems approach to management views a system as a
set of interrelated and interdependent parts. Systems can be either
systems approach to closed or open. Closed systems do not interact with its environment,
management whereas open systems recognise the dynamic interaction of the system
a system is a set of interrelated with its environment. The organisation, which is a system in its own
and interdependent parts right, is therefore in constant interaction with its environment and is
arranged in a manner that influenced by both the industry-specific and general environments which
produces a unified whole we discuss in the following section in greater detail. The contingency
approach to management is based on the systems approach. The
contingency approach to basic premise of the contingency approach is that the application of
management management principles depends on the specific situation that managers
face at a given point in time. The contingency theory acknowledges
the application of management
that every organisation, even every department or unit within the same
principles depends on the
organisation, is unique. Every organisation exists in a unique environment
specific situation that managers
with unique goals and strategies. By combining these three approaches,
face at a given point in time
Figure 4.1 on the next page illustrates the relationship between the
modern business organisation and its environment.

EXTERNAL ENVIRONMENT
ORGANISATION AND ITS INTERNAL ENVIRONMENT
INPUT TRANSFORMATION OUTPUT

Organisation receives Organisation transforms inputs Organisation makes
inputs from the to outputs by means of outputs such as
environment such as technology, operating systems, products/services,
human resources, administrative systems, control proƂts/losses, jobs,
capital, technology and systems and the management available to the
information process environment
Figure 4.1: The organisation and its environment
4.2.1 The environment

Viewed at an elementary level, the management process entails
inputs from the external environment into the organisational system,
the conversion of these inputs within the organisational system
and subsequent outputs/outcomes fed back into the external
environment. Inputs include human resources, capital, technology and
information. The transformation process turns these inputs into finished
products and/or services (the principles of the systems approach to
management). The success of the system is largely determined by the
efficiency and effectiveness illustrated by its management in performing
planning, organising, leading and controlling functions (the principles
of the process approach to management). Furthermore, the system’s
success depends on successful interactions with its environment. In
this context, the environment includes other sub-environments such as
suppliers, labour unions, financial institutions, customers and so on. The
organisation is dependent on its external environment. Management
must therefore understand the structure and dynamics of the unique
management environment of their organisations and, even more
important, the unique strengths, weaknesses, opportunities and threats
pertaining to the environment that impact directly or indirectly on the
success of the organisation (the principles of the contingency approach
to management).

5IFNBOBHFNFOUPGUBMFOUJODPOUFNQPSBSZPSHBOJTBUJPOT
Human resources play a pivotal role in an from outside forces and helped to establish what is
organisation’s ability to attain its vision, mission, today called modern Italy. This shows that talent can
goals and objectives. The management of human be a sustainable competitive advantage.
resources talent has become an essential element in In the twenty-first century, executives and top
sustainable organisational performance. Leonardo da management should view their talent strategies
Vinci used his talent to further the world which just as a top priority in order to build and sustain
emerged from the period called the Dark Ages3. businesses with superior performance. Having
Considered today as one of the most talented aligned and engaged talent is crucial to achieving
people in the world, da Vinci was born in 1452 strategic objectives. The days of fragmented talent
as the illegitimate son of a minor public figure management systems, processes and practices are
in Florence. He was apprenticed at the age of long gone. Too many companies are not sufficiently
fourteen to the artist Verrocchio, who had one of focused on building talent management capabilities
the finest workshops at that time in Florence. His across the organisation. As competition for talent
close association with Verrocchio can be seen as increases in the market, especially in South Africa,
part of his future success as he was exposed to such companies are increasingly facing shortfalls in
theoretical training and a vast range of technical skills critical workforce segments. Truly talent-powered
such as drafting, chemistry, carpentry, mechanics organisations are adept at defining the talent needs
and various artistic skills. He was called an Italian of their organisation, discovering diverse sources of
Renaissance polymath, painter, sculptor, architect, talent, developing individual and collective talents
musician, scientist, mathematician, engineer, inventor, and deploying talent in ways that align people with
anatomist, geologist, cartographer, botanist and the vision, mission and strategic objectives of the
writer. In his life Leonardo’s talent was identified organisation.
by various role players such as Verrocchio and Talent is not a rare commodity – people are
Lorenzo de Medici who was the de facto ruler of the talented in many ways. However, managers need
Florentine Republic. He later worked for the Count to release people’s talents and give it strategic and
of Milan, Lodiwicko il More. His talent was later used holistic attention to obtain sustainable organisational
by the son of Pope Alexander VI to protect Rome performance.
LEARNING OBJECTIVE 3 4.3 THE STRUCTURE AND DYNAMICS OF THE

Understand the structure and MANAGEMENT ENVIRONMENT
dynamics of the management
environment. As a first step to a better understanding of the management
environment, its opportunities and threats, it is important for the
manager to take account of its structure and dynamics. Without
such an understanding, no realistic strategising and planning can take
place. Structurally, the management environment can be divided into
the micro-environment, the market environment and the remote
environment.
4.3.1 The micro- or internal environment

microenXironment The NJDSPFOWJSPONFOU can also be referred to as the internal
the organisation itself over which environment and includes the organisation’s functions, policies,
management has full control strategies, goals, objectives and resources available. From the opening
case, various factors can be identified that originate from the micro-
environment of Vodacom, for example:

r DIBOHFTJOPXOFSTIJQPG UIFPSHBOJTBUJPO
r BDVMUVSFDIBSBDUFSJTFECZBXJOOJOHTQJSJUBOEQBTTJPOGPSUIFKPC
r QSPHSFTTJWFIVNBOSFTPVSDFTQPMJDJFT
r DPNNJUNFOUUPUSBOTGPSNBUJPO
r JOWFTUNFOUJOTPDJBMEFWFMPQNFOUQSPHSBNNFT
r TVDDFTTGVMTUBŲSFUFOUJPOQSPHSBNNFT
r PŲFSJOHDPNQFUJUJWFSFNVOFSBUJPOQBDLBHFT
r TVDDFTTGVMTLJMMTEFWFMPQNFOUQSPHSBNNFT
r DPNNJUNFOUUPFUIJDBMDPOEVDUBOETPDJBMEFWFMPQNFOU
5IFDPNQPTJUJPOPG UIFNJDSPFOWJSPONFOUJTJMMVTUSBUFEJO'JHVSF
Resources
Goals and Micro- Organisational

objectives environment functions
Strategies Policies
Figure 4.2: Composition of the micro-environment
4.3.2 The macro- or external environment

5IFmacro-environment PSFYUFSOBMFOWJSPONFOU
DPNQSJTFTUXP macro-environment
NBKPS DPNQPOFOUT OBNFMZ UIF NBSLFU FOWJSPONFOU BOE UIF SFNPUF area outside of the organisation
FOWJSPONFOU5IFNBDSPFOWJSPONFOUBMTPEFTJHOBUFTUIFBSFBPVUTJEF over which management has no
PGUIFPSHBOJTBUJPOPWFSXIJDIUIFNBOBHFSIBTOPDPOUSPM BMUIPVHIUIF control
PSHBOJTBUJPO NBZ CF BCMF UP FYFSU TPNF JOŴVFODF JO DFSUBJO JOTUBODFT
PWFS UIF NBDSPFOWJSPONFOU UIF SFNPUF FOWJSPONFOU UP B MFTTFS
FYUFOUUIBOUIFNBSLFUFOWJSPONFOU

The market environment

5IFmarket environment MJFTCFUXFFOUIFNJDSPFOWJSPONFOUBOE market environment
UIFSFNPUFFOWJSPONFOUBOEGPSNTBCVŲFSCFUXFFOUIFPSHBOJTBUJPO the environment that surrounds
BOE UIF SFNPUF FOWJSPONFOU 4PNF BVUIPST BMTP SFGFS UP JU BT UIF the organisation in which
PQFSBUJOH DPNQFUJUJWFPSUBTLFOWJSPONFOU0UIFSBVUIPSTBHBJOSFGFS competition within a specific
UPJUBTUIFANFTPFOWJSPONFOUPSUIFJOUFSNFEJBUFFOWJSPONFOU'PS industry takes place
UIFQVSQPTFPG UIJTCPPLXFTIBMMSFGFSUPJUBTUIFANBSLFUFOWJSPONFOU
5IFNBSLFUFOWJSPONFOUDPNQSJTFTUIFGPMMPXJOHTVCFOWJSPONFOUT
r DVTUPNFST DMJFOUT
UIFJSOFFET QVSDIBTJOHQPXFS CFIBWJPVSBOE
CBSHBJOJOHQPXFS
r TVQQMJFSTPG DBQJUBM NBUFSJBMTBOEMBCPVSBOEUIFCBSHBJOJOHQPXFS
PG TVQQMJFST
r UIFQPQVMBUJPOGSPNXIJDIUIFPSHBOJTBUJPOSFDSVJUTJUTMBCPVSGPSDF
BOEUIFVOJPOTSFQSFTFOUJOHJU
r DPNQFUJUPST JODMVEJOHOFXFOUSBOUT FYJTUJOHDPNQFUJUPST BOEUIF
BWBJMBCJMJUZPG TVCTUJUVUFQSPEVDUTPSTFSWJDFT
r JOUFSNFEJBSJFTTVDIBTXIPMFTBMFST SFUBJMFST BHFOUTBOECSPLFST
5IFDPNQPTJUJPOPG UIFNBSLFUFOWJSPONFOUJTJMMVTUSBUFEJO'JHVSF
Customers
Market
Suppliers Intermediaries
environment
Labour market
Competitors and labour
unions
Figure 4.3: Composition of the market environment
&BDIPG UIFTFTVCFOWJSPONFOUTJTEJTDVTTFEJONPSFEFUBJMJOUIFOFYU
TFDUJPO
The customer
customer 5IFcustomerDBOCFEFųOFEBTBMMUIFQFPQMFPSPSHBOJTBUJPOTUIBU
the people or organisations CVZ QSPEVDUT PS TFSWJDFT GSPN PUIFS QFPQMF BOE PUIFS PSHBOJTBUJPOT
that buy products or services 5IF NBSLFU GPS UIF PSHBOJTBUJPOT QSPEVDU BOEPS TFSWJDF DPOTJTUT
from other people and other PG QFPQMF XIP IBWF OFFET UP CF TBUJTųFE BOE UIF ųOBODJBM NFBOT
organisations XJUI XIJDI UP TBUJTGZ UIFJS OFFET 5IF DVTUPNFS BOE UIF NBSLFU GPS
BO PSHBOJTBUJPOT QSPEVDU BOEPS TFSWJDF JT UIF NBJO SFBTPO XIZ BO
PSHBOJTBUJPO FYJTUT 5IJT JT USVF GPS CPUI QSJWBUF BOE QVCMJDTFDUPS
FOUJUJFT'PSCVTJOFTTFOUJUJFTJOUIFQSJWBUFTFDUPSUPIBWFOPDVTUPNFST
JT UP IBWF OP SFWFOVF BOE OP QSPųUT UIFJS TVSWJWBM EFQFOET PO UIF

customer. On the other hand, owing to their annual budget allocations

from government, public-service entities’ survival does not depend on
their products or services to their customer, which is the community.
Poor service may, however, negatively influence their credibility within
the community, making their performance extremely difficult, especially
those departments whose success depends on good relationships with
the community, for example, a police service that is seen to be inefficient
or partisan in its dealings with the public; or a clinic at which staff is rude
and repeatedly administers inappropriate treatments. Ultimately the
community’s sentiment may be reflected in election results. Therefore,
even for public-sector organisations, it is imperative to have an in-depth
understanding of the characteristics, needs and expectations of the
organisation’s customers.
Customers also portray buyer behaviour, which is influenced
by variables in the macro-environment. For example, demographic
trends affect the number of customers, economic trends influence the
purchasing power of consumers and cultural values can influence the
buying behaviour of most customers.
Customers for products and services try to force prices down, they
obtain more or higher quality products and they increase competition
among sellers by playing the one seller against the other. Customers’
bargaining power is likely to be relatively high under the following
circumstances:
r MBSHFWPMVNFT SFMBUJWFUPUIFTVQQMJFSTUPUBMTBMFTWPMVNF BSF
purchased by the customers
r UIFQSPEVDUPSTFSWJDFSFQSFTFOUTBTJHOJųDBOUFYQFOEJUVSFCZUIF
customer
r MBSHFDVTUPNFSTQPTFBUISFBUJGUIFZQVSDIBTFPOFPSNPSFPG JUT
suppliers as a cost-cutting or quality enhancing strategy
r DVTUPNFSTIBWFBWBJMBCMFBMUFSOBUJWFTGPSUIFTBNFQSPEVDUPS
service.
Competition
Aside from customers, competitors are the single most important
day-to-day force facing an organisation. $PNQFUJUJPO in the market competition
environment can be defined as a situation in which different organisations a situation in which different
with more or less the same product or service compete for the business organisations with more or less
patronage of the same consumers. Every organisation that tries to market the same product or service
B TFSWJDF BOEPS QSPEVDU JO UIF NBSLFU FOWJSPONFOU JT DPOTUBOUMZ VQ compete for the business
against existing competition. In the case of business organisations, it is patronage of the same
other businesses currently active in the same market sector competing consumers
for a share of the market.
New entrants refer to the relative ease with which new organisations
can compete with established organisations in the same market. The
following factors create barriers to new entrants:
r &DPOPNJFTPGTDBMF&YJTUJOHPSHBOJTBUJPOTJOBQBSUJDVMBSNBSLFU
can achieve economies of scale when increased volume lowers the
unit cost of a product or service produced by an organisation. The
higher the economy of scale, the greater the entry barrier for new
entrants.
r 1SPEVDUEJŲFSFOUJBUJPO5IJTSFGFSTUPUIFVOJRVFOFTTJORVBMJUZ
QSJDF EFTJHO CSBOEJNBHF PSDVTUPNFSTFSWJDFUIBUHJWFT
POFPSHBOJTBUJPOTQSPEVDUPSTFSWJDFBOFEHFPWFSBOPUIFS
PSHBOJTBUJPOTQSPEVDU1SPEVDUEJŲFSFOUJBUJPOJTPGUFOVTFECZ
PSHBOJTBUJPOTUPMPDLJODVTUPNFSMPZBMUZUPJUTQSPEVDUTBOEPS
TFSWJDFT
r $BQJUBMSFRVJSFNFOUT5IJTSFGFSTUPUIFBNPVOUPGDBQJUBMOFFEFE
UPųOBODFFRVJQNFOUBOENBDIJOFSZ QVSDIBTFTUPDL QVSDIBTFPS
MFBTFMBOEBOECVJMEJOHT IJSFDPNQFUFOUBOETLJMMFETUBŲBOETPPO
r (PWFSONFOUSFHVMBUJPO*OTPNFJOTUBODFT HPWFSONFOUSFHVMBUJPO
DBOQSPIJCJUPSSFTUSJDUQPUFOUJBMOFXFOUSBOUTUPBOJOEVTUSZ
4VCTUJUVUFQSPEVDUTPSTFSWJDFTSFGFSUPQSPEVDUTBOETFSWJDFTUIBUDBO
FBTJMZ SFQMBDF BOPUIFS PSHBOJTBUJPOT QSPEVDUT PS TFSWJDFT 4VCTUJUVUFT
BSF B QPXFSGVM GPSDF FTQFDJBMMZ JO UIF QIBSNBDFVUJDBM JOEVTUSZ 5IF
UISFBUPG TVCTUJUVUJPOJTMBSHFMZCBTFEPOUIFGPSNVMBJOUIFQBUFOU5IF
QSJDF EJŲFSFODF CFUXFFO B ACSBOEFE BOE HFOFSJD ESVH JT PGUFO NPSF
UIBOQFSDFOU
" UIPSPVHI DPNQFUJUPS BOBMZTJT DBO IFMQ BO PSHBOJTBUJPO UP
VOEFSTUBOE JOUFSQSFUBOEQSFEJDUJUTDPNQFUJUPSTBDUJPOTBOESFTQPOTFT
6OEFSTUBOEJOH UIF BDUJPOT PG DPNQFUJUPST DMFBSMZ DPOUSJCVUFT UP UIF
PSHBOJTBUJPOTBCJMJUZUPDPNQFUFTVDDFTTGVMMZ
Labour market
labour market "MUIPVHI UIF labour market JT JO FDPOPNJD UIFPSZ FRVBUFE UP
PUIFSNBSLFUTTVDIBTUIFųOBODJBMNBSLFUPSUIFNBSLFUGPSQSPEVDUT
comprised of many different
BOE TFSWJDFT JU IBT JUT PXO VOJRVF DIBSBDUFSJTUJDT 5IF MBCPVS NBSLFU
markets, such as those for
JTDPNQSJTFEPG NBOZEJŲFSFOUNBSLFUT TVDIBTUIPTFGPSWBSJPVTTLJMM
various skill levels, occupations,
MFWFMT PDDVQBUJPOT BHF HSPVQT JOEVTUSJFT TFYFT BOE HFPHSBQIJDBM
age groups, industries, sexes
SFHJPOT5IFTFNBSLFUTBSFUPTPNFFYUFOUJOUFSDIBOHFBCMF ZFUCBSSJFST
and geographical regions
UPNPCJMJUZEPFYJTU"OPUIFSJNQPSUBOUEJŲFSFODFCFUXFFOUIFMBCPVS
NBSLFUBOEPUIFSNBSLFUTJTUIFUFNQPSBSZOBUVSFPG UIFFNQMPZNFOU
SFMBUJPOTIJQT 0ODF B QVSDIBTFS CVZT QSPEVDUT GPS DPOTVNQUJPO JU
CFDPNFTUIFQSPQFSUZPG UIFCVZFS5IJTJTOPUTPXJUIUIFFNQMPZNFOU
SFMBUJPOTIJQ&JUIFSUIFFNQMPZFSPSFNQMPZFFNBZEFDJEFUPUFSNJOBUF
UIFSFMBUJPOTIJQ5IJTMFBETUPHSFBUFSŴVJEJUZBOEVOQSFEJDUBCJMJUZJOUIF
MBCPVS NBSLFU "O PSHBOJTBUJPOT BCJMJUZ UP BUUSBDU BOE SFUBJO DBQBCMF
FNQMPZFFTGSPNUIFMBCPVSNBSLFUJTFTTFOUJBMUPJUTTVDDFTT)PXFWFS
BO PSHBOJTBUJPOT QFSTPOOFM SFDSVJUNFOU BOE TFMFDUJPO BMUFSOBUJWFT
PGUFOBSFJOŴVFODFECZUIFOBUVSFPG CPUIJUTFYUFSOBMBOEJUTJOUFSOBM
FOWJSPONFOUT"OPSHBOJTBUJPOTBDDFTTUPOFFEFEQFSTPOOFMJTBŲFDUFE
QSJNBSJMZ CZ UISFF GBDUPST OBNFMZ UIF PSHBOJTBUJPOT SFQVUBUJPO BT BO
FNQMPZFS MPDBM FDPOPNJD DPOEJUJPOT BOE TVCTFRVFOU FNQMPZNFOU
SBUFT BT XFMM BT UIF BWBJMBCJMJUZ PG QFPQMF XJUI UIF SFRVJSFE TLJMMT
0SHBOJTBUJPOTUIVTDPNQFUFBMTPGPSTLJMMFEBOEDPNQFUFOUMBCPVSXJUI
PUIFSPSHBOJTBUJPOT XIFSFMBCPVSVOJPOTQMBZBOJOUFHSBMSPMF
intermediaries
act as middlemen between Intermediaries
manufacturers and final #FTJEFTDPOTVNFST DPNQFUJUPST UIFMBCPVSNBSLFUBOEMBCPVSVOJPOT
consumers JO UIF NBSLFU FOWJSPONFOU intermediaries BMTP QMBZ BO JNQPSUBOU
role and affect the organisation directly and indirectly. Intermediaries act
as middlemen between the manufacturer of products and services and
the final consumer thereof. Intermediaries include wholesalers, retailers,
agents and brokers, all of which play a role in bringing a product or service
from manufacturer to the final consumer. Financial intermediaries, such
as banks, insurers and other financial institutions, play a role in providing
an organisation with the necessary capital to start up and run a business
successfully.
Suppliers
In Section 4.2 and Figure 4.1 of this chapter, the systems and process
approaches to management were discussed, where the organisation is
regarded as a system that attracts inputs from its external environment.
The inputs that an organisation requires were identified as human
resources, capital, technology and information. The organisation
depends on suppliers to provide regular supplies of these inputs. suppliers
Most of the inputs used by the organisation form part of a value- provide regular supplies of
creation process manifested in the value chain. The value chain can necessary inputs to produce
be described as a chain of activities that an organisation, operating in outputs
a specific industry, performs in order to deliver a valuable product or
service for the market that it serves. The value chain will be discussed value chain
in more detail in Chapter 16. In the case of public-sector organisations chain of activities that an
the final consumer is represented by the community. Through the use of organisation, operating in a
a value chain, value can be created for all role-players and a sustainable specific industry, performs
competitive advantage created for the organisation. The concentration in order to deliver a valuable
of suppliers and the availability of substitutes are, on the one hand, of product or service for the
extreme importance to the effective functioning and survival of the market that it serves
organisation, and, on the other, also significant factors in determining
supplier bargaining power.
The bargaining power of suppliers often controls how much they can
raise prices of their products or services above their costs or reduce
the quality of goods and services they provide before losing customers.
From the opening case, various factors can be identified that
originate from the market environment of Vodacom, for example the
high demand for ICT skills in their labour market and an ICT workforce
that is young, mobile and eager to advance their careers to higher levels.
These factors will influence the strategies and activities of Vodacom to
a large extent.
The remote environment

The remote environment refers to the broader environment remote environment
within which the organisation must function. It surrounds the market the broader environment within
environment and includes all external influences that do not fall directly which the organisation functions
within the sphere of influence of the organisation, but which do have and that surrounds the market
a bearing on its activities. When analysing the remote environment environment
the emphasis falls on the changes that the uncontrollable variables at
the macro-level cause and the strategic implications these hold for the
organisation. For the purpose of systematic analysis a number of sub-
environments can be distinguished within the remote environment,
namely the political/legislative, economic, cultural, technological and
ecological/physical environments. Figure 4.4 below illustrates the

composition of the remote environment.
Ecological/
physical
environment
Political/
Technological Remote
legislative
environment environment
environment
Cultural Economic
environment environment
Figure 4.4: Composition of the remote environment
Each of the sub-environments of the remote environment will be

discussed in more detail in the next section.
Technological environment
The technological environment is primarily responsible for changes in
the remote environment. Technology can be defined as the knowledge,
tools, actions and techniques that are used to transform ideas,
information, raw materials and components into finished products and
services. Furthermore, technology encapsulates the physical elements
of human invention and innovation.
Many new technologies are radical enough to force organisations,
especially in high tech industries, to reconsider their vision, purpose
and methods of operation or face extinction. Consider the following
examples:
r 8JUIPOMJOF SFBMUJNFųOBODJBMNBOBHFNFOUTZTUFNT NBOBHFST
can determine profit and loss positions of their organisations on a
daily basis, which was impossible with manual methods and earlier
stages of computer technology.
r 3FUBJMCBOLJOHDVTUPNFSTDBOQFSGPSNOVNFSPVTCBOLJOH
functions from remote locations, reducing banking costs and fees
considerably.
r 5IFJOUFSOFUBOE8PSME8JEF8FCNBEFPOMJOFPSEFSJOH
distribution and sales of products possible and also changed the
way that many organisations compete for customers.
The most basic effect of technology and technological innovation is

probably higher productivity. The ability of an organisation to produce
more and better products poses a threat to competitors, compelling them

to reassess their strategic plans, organisational structures, production
methods, markets and other functional strategies. Effective management
of technology and innovation can be an extremely important source of
competitive advantage for an organisation.
Economic environment
After technology, the economic environment plays a huge role in the
remote environment. Organisations are influenced by factors such as
business cycles, interest rates, inflation, unemployment, trends with
regard to the gross national product (GNP) and economic growth
rate, monetary and fiscal policy, trends in the balance of payments, the
current and provisional status of the economy in terms of recession
and depression, the influence of resources, and so on. The economy,
in turn, is affected by technology, politics, the ecology, social trends and
the international environment. These cross-influences constantly cause
changes in the economy, affecting organisations and its management.
Economic changes and trends therefore demand constant vigilance from
management and may require them to revisit the organisation’s vision,
mission statement, goals and strategies.
Political/legislative environment
The state is a major role player in the remote environment of an
organisation, since it influences the organisation primarily as a regulating
force. The state enforces laws, directly affecting the way that organisations
operate. Tax regulations, for instance, have a direct influence on each
and every organisation. Value added taxes in South Africa, for instance,
are currently 14 per cent. Besides value-added taxes, companies are also
influenced by companies’ taxes. Individuals need to pay individual taxes
on income earned. Changes in income tax laws will have a direct effect
on the purchasing power of an organisation’s customers, consequently
also affecting the sales figures of organisations.
Cultural environment
Cultural forces, underlying a society and surrounding an organisation,
are often not as visible as other general environmental forces. Culture
refers to the unique pattern of shared characteristics, such as values, that
distinguish the members of one group of people from another group.
A value can be defined as the basic belief about a certain condition that
has considerable importance and meaning to individuals. People’s values
are relatively stable over time. A value system comprises multiple beliefs
that are compatible and supportive of one another. Managers need to
appreciate the significance of the values and value systems of themselves
and of others. Values and value systems greatly affect how a manager:
r WJFXT PUIFS QFPQMF BOE HSPVQT UIJT JOŴVFODFT UIFJS PXO JOUFS
personal relationships and the relationships between other people)
r QFSDFJWFTTJUVBUJPOTBOEQSPCMFNT
r HPFTBCPVUTPMWJOHQSPCMFNT
r EFUFSNJOFTXIBUJTBOEXIBUJTOPUFUIJDBMCFIBWJPVS

r MFBETBOEDPOUSPMTFNQMPZFFT
r VOEFSTUBOETBOEQSFEJDUTPUIFSTFYQFDUBUJPOTBOEBWPJETDVMUVSBM
QJUGBMMT
(MPCBMJTBUJPO BOE HMPCBM DPNQFUJUJPO JT B SFBMJUZ BOE UIF OVNCFS PG
PSHBOJTBUJPOT UIBU BDDFQU DPOUSBDUT BOE PUIFS BTTJHONFOUT JO PUIFS
DPVOUSJFT JT SBQJEMZ JODSFBTJOH 3FBMJTJOH UIF JNQPSUBODF PG DVMUVSBM
EJWFSTJUZDBOIFMQNBOBHFSTVOEFSTUBOEUIFJSJOUFSOBUJPOBMQBSUOFSTBOE
VMUJNBUFMZUPCFNPSFFŲFDUJWFBOEFŵDJFOUNBOBHFST
Ecological/physical environment
5IF FDPMPHJDBM FOWJSPONFOU DPOUBJOT UIF MJNJUFE OBUVSBM SFTPVSDFT
GSPN XIJDI BO PSHBOJTBUJPO PCUBJOT JUT SBX NBUFSJBMT 5IF FDPMPHJDBM
FOWJSPONFOUDPOTJTUTPG UIFOBUVSBMFOWJSPONFOUBTXFMMBTNBONBEF
JOGSBTUSVDUVSF 5IF DMJNBUF OBUVSBM SFTPVSDFT SBX NBUFSJBMT TPJM PS
XBUFSGPSFYBNQMF
DPOTFSWBUJPOBHSFFNFOUTBOEDPOWFOUJPOTBMMGPSN
QBSU PG UIF OBUVSBM FOWJSPONFOU .BONBEF JOGSBTUSVDUVSF SFGFST UP
UIF SPBET SBJMXBZT BJSQPSUT IBSCPVST DPNNVOJDBUJPO JOGSBTUSVDUVSF
BOEFOFSHZTVQQMJFTUIBUIBWFBOJOŴVFODFPOBMMPSHBOJTBUJPOT"MNPTU
BMM PSHBOJTBUJPOT BMTP EJTQPTF PG UIFJS TPMJE BOE MJRVJE XBTUF JOUP UIF
FDPMPHJDBMFOWJSPONFOU
0SHBOJTBUJPOT BSF CFDPNJOH JODSFBTJOHMZ BXBSF PG UIF
JOUFSEFQFOEFODF CFUXFFO PSHBOJTBUJPOT BOE UIF OBUVSBM FOWJSPONFOU
5IJTJOUFSEFQFOEFODFQSFTFOUTPQQPSUVOJUJFTBOEUISFBUTUPPSHBOJTBUJPOT
0OFPG UIFNBKPSUISFBUTJTBTIPSUBHFPG OBUVSBMSFTPVSDFT FTQFDJBMMZ
JO UFSNT PG XBUFS BOE FOFSHZ 5IF SJTJOH DPTU PG FOFSHZ EVF UP BO
FWFSEJNJOJTIJOHTVQQMZ
QPMMVUJPOBOEDMJNBUFDIBOHFBSFBMMUISFBUTUP
PSHBOJTBUJPOBMTUBCJMJUZ.BOBHFSTTIPVMEUBLFUJNFMZTUFQTųSTU UPFOTVSF
UIBUOPBDUJPOTPOUIFQBSUPG UIFJSPSHBOJTBUJPOIBWFEFUSJNFOUBMFŲFDUT
PO UIF FOWJSPONFOU 4VTUBJOBCJMJUZ JTTVFT TVDI BT HSFFO JOEVTUSJFT
CVJMEJOHTBOEUSBOTQPSU IBWFCFDPNFDSVDJBMGPSNBOBHFNFOU
7BSJPVT GBDUPST GSPN 7PEBDPNT SFNPUF FOWJSPONFOU BSF FWJEFOU
GSPN UIF PQFOJOH DBTF TVDI BT UIF DPNQBOJFT NBSLFU FYQBOTJPO UP
-FTPUIP 5BO[BOJB %FNPDSBUJD3FQVCMJDPG UIF$POHPBOE.P[BNCJRVF
BOEMFHJTMBUJPOTVDIBTUIF&MFDUSPOJD$PNNVOJDBUJPOT"DU5IFTFJNQBDU
POUIFPSHBOJTBUJPOTTUSBUFHJFTBOEBDUJWJUJFT'JHVSFTVNNBSJTFTUIF
DPNQPTJUJPOPG UIFNBOBHFNFOUFOWJSPONFOU
Internal environment Market environment Remote environment

resources customers ecological/physical environment
organisational functions intermediaries political/legislative environment
policies labour market and unions economic environment
strategies suppliers cultural environment
goals and objectives competitors technological environment
Figure 4.5: The composition of the management environment

4.4 ANALYSIS OF THE MANAGEMENT LEARNING OBJECTIVE 4

Conduct a basic analysis of the
ENVIRONMENT management environment.
A key element in the effective management of an organisation is to
determine the ideal alignment between the environment and the
organisation and then working to achieve and maintain that alignment. In
order to do so, an analysis of the management environment is necessary.
Conducting an analysis of the management environment in such a
manner that it contributes to the management process in a meaningful
way, requires an understanding of the theory of the environment as
explained above, as well as an appreciation of where and how the analysis
fits into the management process. The phases involved in conducting an
environmental analysis are the identification of the key environmental
variables, an evaluation and selection of a technique for analysing the
environment, the development of an environmental profile, and the
continuous control over the variables, trends and the environment.
These phases are discussed below.
Phase 1: Identify key environmental variables. When we speak of
conducting an analysis of the environment, the contingency approach
(discussed in Chapter 1) becomes applicable. The contingency approach
states that since organisations are diverse in terms of the specific
industry that the organisation is competing in, its objectives, size and so
on, it would be surprising to find that there would be large numbers of
universally applicable variables within the environment that would apply
to all organisations and in all situations. The same variables, especially
variables from the external environment, will in many instances
IBWF B EJŲFSFOU JNQBDU JO UFSNT PG UZQF BOEPS EFHSFF PO EJŲFSFOU
organisations. Thus, managers are required to take into account the
unique nature and characteristics of the organisation they serve and to
identify key variables that will specifically apply to the organisation or
have bearing on it within a specific situation. This is usually the task of
top management, partly because of their assumed experience over a
number of years within a specific industry or organisation and also the
fact that they are responsible for the organisation as a whole, its vision,
mission and long-term survival strategies.
Phase 2: Evaluate and select a technique for analysing the environment.
The next step in conducting an analysis of the environment is the
evaluation and selection of a technique or techniques that will assist
the manager in conducting the analysis. There are literally hundreds, if
not thousands, of methods and techniques to choose from. In order to
assist the manager in this process the following criteria are important in
the evaluation and selection process:
r Explicitness. Explicitness applies when a technique is so completely
specified that any individual can apply the method without having
to make independent judgements and come up with the same
results4. The technique can be taken apart, its components
examined for the plausibility of underlying assumptions and their
consistency checked. This has a number of advantages, namely:

i. it allows the initial user of the technique to go on to other

tasks, leaving his or her knowledge embedded in the technique
so that others can apply it, thereby saving time and money
ii. no hidden biases of the user can be introduced, because all
of the assumptions are expressed within the steps of the
technique (except if the method conveys its own hidden biases
or preconceptions)
iii. it tends to raise the level of discussion and by so doing
enhances the quality of decision-making.
r $PNQSFIFOTJWFOFTT$PNQSFIFOTJWFOFTTSFGFSTUPUIFEFHSFFPG
inclusion and integration of the interactions within and between
all the dimensions within the internal and external environments,
whether mathematically or judgementally derived, without
reverting to unfounded speculation. Taking into consideration the
constraints of time, money and personnel, the technique must
allow an overview of the maximum number of factors potentially
relevant to the problem, so that the manager can decide which,
and how many, he or she deems necessary to consider in order to
make an informed decision.
r 4JNQMJDJUZ"TDIFSBOE0WFSIPMU5 stress three aspects that should
be kept in mind in terms of practicality when selecting a technique.
The first is that complicated methods are often difficult to employ.
They are cumbersome, difficult to ‘debug’, and intimidating to
their users and even their creators. Second, simplicity eases the
understanding of the method and of the real-life situation. The
usefulness of complicated techniques is often negated by a lack
of understanding on the part of the manager. The third aspect
relates to the fact that the simpler the technique, the easier it is to
assess in terms of consistency and the plausibility of the underlying
assumptions.
r 4FOTJUJWJUZUPOVBODFT"UFDIOJRVFBMMPXJOHGPSTFOTJUJWJUZUP
nuances with regard to a particular situation is another criterion
that should be considered. Subtle differences in the meaning of the
on-going events, or in the configuration of factors or variables, can
have a substantial effect on the results achieved and may result in
misinformed decisions and incorrect options being implemented.
r 5JNFMJOFTT*OUFSNTPG UIFUJNFJUUBLFTUPQSPEVDFUIFSFRVJSFE
information, the methodology of the technique must be able to
provide the manager with the required information within the
deadline that has been set. Information that is made available after
a decision should already have been taken is rarely of any use.
Incomplete information that is known before the decision-making
stage but which reduces the level of ‘uncertainty’ partially, is better
than complete information that reduces ‘uncertainty’ totally but is
obtained too late6.
r $PTUFŲFDUJWFOFTT5IFVTFPG BOZUFDIOJRVFNVTUBMTPCFKVEHFE
in terms of its cost-effectiveness. Time, equipment (such as
computer hardware and software) and techniques as inputs must
be related to the potential value of the information as output.
Efficiency and effectiveness are achieved where the relation of

input to output is optimised7.
Examples of two simple, yet powerful, techniques that comply with the
above criteria are the classic linear trend estimation (a form of time
series analysis) and a SWOT analysis. -JOFBS USFOE FTUJNBUJPO is linear trend estimation
a technique that uses regression analysis to project future trends. It is uses regression analysis to
based on the analysis of numerical values (for example, interest rate project future trends
figures, crime statistics, sales figures, and so on) collected at multiple
points in time (current and historical) and presented chronologically. S9OT analysis
4805BOBMZTJTis one of the most common and simple, yet powerful, identifies opportunities
techniques to aid analysis of the environment. SWOT stands for: S and threats in the external
– strengths; W – weaknesses; O – opportunities and T – threats. It environment and strengths
involves identifying the most important opportunities and threats in and weaknesses in the internal
the organisation’s external environment and the key strengths and environment
weaknesses in its internal environment. A SWOT analysis is based on the
assumption that an effective strategy derives from a sound ‘fit’ between
an organisation’s internal resources (strengths and weaknesses) and its
external situation (opportunities and threats). A good fit maximises an
organisation’s strengths and opportunities and minimises its weaknesses
and threats8. Understanding the key opportunities and threats facing an
organisation is essential when managers are identifying realistic options in
terms of strategising and planning9. The four elements of the acronym can
CFEFųOFEBTGPMMPXT4USFOHUITBSFUIFSFTPVSDFTBOEPSDPNQFUFODJFT
available to an organisation which represent distinctive advantages
(relative to its competitors) that allow it to achieve its objectives10.
A high market share, good financial position, low staff turnover rate,
and a skilled and competent human resource team are all examples of
organisational strengths. Weaknesses, in contrast, are the limitations
or deficiencies in one or more resource or competency (relative to
competitors) that impede an organisation’s effective performance and
may prevent it from achieving its objectives11. A poor financial position,
high staff turnover rate, shortage in skilled and competent human
resources, low productivity and obsolete production techniques are all
examples of organisational weaknesses. Opportunities are favourable
situations12 or trends13 in an organisation’s external environment upon
which it can capitalise and improve its position. Economic growth, low
interest rates, low inflation rates, political stability, government incentives
and legislation supporting an organisation’s growth are examples of
opportunities originating from an organisation’s external environment.
Threats are unfavourable situations or trends in an organisation’s
external environment that are key impediments to its current or desired
position14. Examples of threats include terrorism, political instability,
nationalisation of strategic assets by newly constituted governments,
new or revised legislation or industry regulations, poor government
administration and service delivery, slowing economic growth, high
inflation, increasing interest rates, rising oil prices, pandemics such
BT )*7"JET IJHI DSJNF SBUFT JOBEFRVBUF USBOTQPSU BOE FMFDUSJDJUZ
infrastructure, climate change, new competitors entering the market,
revolutionary technological innovations by competitors and poor service
delivery by suppliers or suppliers going out of business.
The previous two techniques are often used by organisations when

analysing the environment. It provides a basis upon which more
sophisticated techniques can be executed.
Phase 3: Develop an environmental profile. An environmental profile
entails summarising the results of the analysis of the management
environment in a useful and user-friendly way. In terms of the SWOT
analysis technique this means summarising opportunities and threats,
together with their potential impact on the organisation, as well as
strengths and weaknesses in a useful and user-friendly way.
Phase 4: Monitor the variables, trends and environment continuously.
Once the environmental profile has been completed, the key variables
identified have to be continuously monitored to ensure they are still
valid, providing timeous warning as to changes in trends, and identifying
potential new opportunities, threats, strengths and weaknesses so that
strategies and plans can be proactively implemented if required. Figure
4.6 summarises the basic framework for conducting an analysis of the
environment.
Phase 1
Identify key environmental
variables
Phase 4 Phase 2
Monitor the variables, Evaluate and select a
trends and environment technique for analysing the
continuously environment
Phase 3
Develop an environmental
proƂle
Figure 4.6: Framework for conducting an environmental analysis

Chapter 4 Composition of the management environment
CHAPTER SUMMARY
1. Understand the importance of the management environment when making management
decisions.
• The management environment is complex and interdependent.
• Change is becoming more rapid, discontinuous and turbulent.
• Management mistakes are becoming increasingly costly.
• Managers need a means to identify strengths, weaknesses, opportunities and threats within
the environment to empower them to make better critical choices and choose more feasible
courses of action in executing planning, organising, leading and controlling functions.
2. Depict diagrammatically and explain the concepts of the process, systems and
contingency approaches in management.
• The process approach to management is based on the four main functions of management.
According to this approach, the performance of the planning, organising, leading and
controlling functions within the organisation is seen as circular and continuous. The process
approach focuses on managing the total organisation.
• The systems approach to management defines a system as a set of interrelated and
interdependent parts arranged in a manner that produces a unified whole. The organisation,
which is a system in its own right, is therefore in constant interaction with its environment and
is influenced by both the industry-specific and general environments.
• The contingency approach to management is based on the systems approach. The basic
premise of the contingency approach is that the application of management principles
depends on the specific situation that managers face at a given point in time.
The concepts of the process, systems and contingency approaches are depicted in Figure 4.1.
3. Understand the structure and dynamics of the management environment. The management
environment can be divided into the micro-environment, the market environment and the
remote environment.
• The micro-environment can also be referred to as the internal environment and includes the
organisation’s functions, policies, strategies, goals, objectives, resources available and also
designate the area over which the manager has total or full control.
• The market environment is the environment that surrounds the organisation in which
competition within a specific industry takes place.
• The broader environment within which the organisation functions and that surrounds the
market environment is called the remote environment.
4. Conduct a basic analysis of the environment.

The phases involved in conducting an environmental analysis are the following:

Phase 1: Identify key environmental variables.
Phase 2: Evaluate and select a technique for analysing the environment.
Phase 3: Develop an environmental profile.
Phase 4: Monitor the variables, trends and environment continuously.
Account: s7393698
KEY TERMS
bargaining power of customers micro-environment
bargaining power of suppliers new entrants
competitors opportunity
contingency approach to management organisational functions
cultural environment policies
customer needs QPMJUJDBMMFHJTMBUJWFFOWJSPONFOU
customers process approach to management
FDPMPHJDBMQIZTJDBMFOWJSPONFOU purchasing behaviour of customers
economic environment remote environment
environmental analysis resources
environmental profile strategies
existing competitors strength
goals and objectives substitutes
intermediaries suppliers
labour market SWOT analysis
labour unions systems approach to management
linear trend estimation technological environment
macro-environment threat
management environment weakness
market environment
REVIEW QUESTIONS
1. Differentiate between the process, systems and contingency approaches to management.
2. Explain the importance of management in a changing environment.
3. Discuss the micro-environment as well as the variables in this environment.
4. Explain the market environment as well as the sub-environments within it that have an influence on the
management of organisations.
5. Discuss the remote environment with an explanation of all the sub-environments in this environment
affecting the organisation and its management.
6. Depict the management environment diagrammatically.
7. Discuss the various phases that a manager should follow in conducting an environmental analysis.

END NOTES
LKWWSZZZWRSHPSOR\HUVFR]D%(67(PSOR\HUV%HVW(PSOR\HUV$FFHVVHGRQ$XJXVW
LLKWWSHQZLNLSHGLDRUJZLNL9RGDFRP$FFHVVHGRQ-XQH
$QJHOO,The New Barbarian Manifesto: How to Survive the Information Age/RQGRQ.RJDQS
KWWSZZZELRJUDSK\FRPSHRSOHOHRQDUGRGDYLQFL$FFHVVHGRQ-XQH
$VFKHU: 2YHUKROW:+Strategic Planning and Forecasting. 1HZ<RUN-RKQ:LOH\ 6RQVS
$VFKHU 2YHUKROWRSFLWS
.URRQ- General ManagementQGHGLWLRQ3UHWRULD+$803XEOLVKHUVS
$VFKHU 2YHUKROWRSFLWS
*RRGPDQ6+)DQGW300LFKOLWVFK-) /HZLV36Management: Challenges for Tomorrow’s Leaders
0DVRQ7KRPVRQ6RXWK:HVWHUQS
3HDUFH 5RELQVRQRSFLWS
,ELG
,ELG
,ELG
*RRGPDQHWDORSFLWS
3HDUFH 5RELQVRQRSFLWS

Chapter 5
Managing organisational
change and individual stress
OPENING CASE
Mari Vrba
OPENING CASE
The reinvention of Pick n Pay1 its market share because it showed substantial year
Raymond Ackerman listed his seven Pick n Pay on year increases. However, the recession of 2009
supermarkets at 4 cents a share on the (then) revealed the weaknesses in its business model. Pick
Johannesburg Stock Exchange ( JSE) in 1968. n Pay was steadily losing market share and it failed
The event marked the beginning of the rise of a to follow its major competitors in adopting central
company that grew into the largest food retailer distribution. It had a bloated labour force and a
in South Africa. Pick n Pay, a household name in fragmented corporate structure. In addition, Pick
the country, was a winner – the darling of food n Pay’s acquisition of Australian retailer Franklins
retailing, a tough competitor, with loyal customers in 2001 was a drain on its capital resources and
and satisfied shareholders – and its magic lasted for management time and the acquisition was not
40 years. In the year that ended in February 2009, a success. The retailer needed to embark on a
Pick n Pay reported a headline profit of R989m complex reinvention programme to regain what
– a massive return on equity (RoE) of 132.7 per was lost during years of complacency.
cent for its shareholders. Then suddenly the magic
ended – by February 2011 the RoE dropped to Reinventing Pick n Pay
47.2 per cent and by March 2013 it was the worst Pick n Pay appointed Nick Badminton as CEO
in three years of consecutive decline. in 2007 – analysts described him as a key driver
of change – and in 2011 appointed Richard van
What went wrong? Rensburg as his Deputy CEO and the head of a
Ironically, the phenomenal return on equity it earned transformation team responsible for implementing
for its shareholders was the first sign that Pick n Pay the change programme. The first change they
was not investing enough2 in its sustainability. Pick implemented was an initiative by the previous
n Pay was raking in the profits3 for management CEO Sean Summers, in the pipeline since 2005. It
and shareholders, but failed to reinvest in the entailed replacing the company’s old technology
company. Meanwhile competitors Shoprite, Spar platform (an in-house developed system) with a
and Woolworths were eroding Pick n Pay’s market SAP fully integrated system providing improved in-
share in both the lower LSM (lifestyle measure) store disciplines, more efficient business processes
and the upper LSM respectively. The booming and more timely information thus enabling better
economy during the previous 17 years gave a false and more rapid decision-making across the
sense of performance to Pick n Pay in respect of organisation. This was a costly process.
CHAPTER 5 Managing organisational change and individual stress
A second area that needed attention was Pick however, switched to centralised distribution – in
n Pay’s labour policies. The retailer and the SA the face of strong opposition from the major food
Commercial, Catering & Allied Workers Union producers, but CEO Whitey Basson persevered
reached an agreement in 1995 to implement a and soon Shoprite’s market share grew and the
9 am to 5 pm working-hour arrangement for their retailer gained a decisive advantage in this respect.
labour force. This resulted in an expensive increase Pick n Pay embarked on the costly process
in staff, which the company could have mitigated of adopting centralised distribution. The retailer
if the labour union was prepared to be more implemented operational improvements at
flexible – which they were not. Pick n Pay returned Longmeadow, its Gauteng distribution centre,
to the negotiation table and an arbitration process which became operational in mid-2010. In
of which the findings were largely in favour of the 2012, the Cape Town and Durban centralised
retailer. At the end of 2011, Pick n Pay retrenched distribution centres came into operation and the
3 137 employees and decreased their labour costs R2b centralised distribution system, including an
substantially. inland facility, will become operational in 2014.
Yet another change intervention involved Another Pick n Pay strategy to win back market
the consolidation of the company’s fragmented share was the launching of its Smart Shopper
corporate structure to a more centralised structure loyalty programme, which, according to Pick n Pay
resulting in lower costs, but also in a more efficient management would help to stabilise the retailer’s
structure. market share and provide valuable information
The biggest challenge was changing Pick n regarding its customer’s needs and preferences.
Pay’s outdated approach to procurement and
distribution. Analysts attributed some of the A new CEO
company’s loss in market share to its lagging In February 2013, Richard Brasher, with 26 years
behind Shoprite and other competitors in adopting of experience at Tesco in the United Kingdom,
centralised distribution. This hampered Pick n replaced Badminton as CEO of Pick n Pay. Once
Pay’s ability to meet the demand for large numbers South Africa’s largest food retailer, Pick n Pay is still
of smaller shops – only 15 per cent of Pick n Pay trailing its competitors despite spending billions on
shops were in areas where customers wanted its massive change programme.
them. In contrast, its competitors could place up
The new CEO has plans to convert the capital
to 60 per cent of their stores in locations where
expenditure of the last few years into profit. He
their customers prefer to shop.
stated that the pace of change at Pick n Pay has
In a 2011 interview, Raymond Ackerman4 been rapid and he wants the management team
defended Pick n Pay’s position arguing that its to shift their focus on what they have and to make
management realised as early as the 1970s that it work rather than initiate more change. The
direct store delivery was inefficient and that retailer’s future rests on the skills and leadership of
centralisation was a better option. However, its new CEO to help it rebound.
key suppliers opposed such a change. Shoprite,

LEARNING OBJECTIVES
The purpose of this chapter is to investigate the management of change in organisations. The
1. Identify and discuss the forces of change.
2. Discuss the dimensions of change.
3. Explain why organisations and individuals resist change.
4. Provide advice to managers on how to overcome resistance to change.
5. Discuss the approaches to managing change.
6. Identify the areas of organisational change.
7. Discuss the nature of stress.
8. Identify the sources of managerial stress.
LEARNING OBJECTIVE 1 5.1 FORCES OF ORGANISATIONAL CHANGE

Identify and discuss the forces
Organisations need to anticipate and react to changes in their business
of change.
environment. The ‘frog and boiling water’ metaphor illustrates this
well. When you put a frog in a pot containing very warm water, it will
immediately react and jump out; if you fill the pot with cold water and
gradually turn up the heat, the frog will stay in the water, not noticing
that its environment is changing and that it will perish. Similarly, some
organisations change when their environment changes, they ‘jump out
of the pot’, others fail to react to the change and cease to exist or they
implement radical change interventions in order to survive.
The opening case study illustrates how Pick n Pay, the successful
South African food retailer, failed to react to important changes in
its business environment. The management and shareholders of the
retailer became complacent and did not reinvest in the sustainability of
the organisation operating in a changing environment. The company lost
market share because it did not implement crucial changes timeously,
such as an advanced information system, centralised distribution and
a centralised corporate structure. These changes were required to
maintain its competitive position in the food retailing industry.
Change in the environment of an organisation can emanate from
forces within the organisation or outside the organisation. You may
want to revisit Chapter 4, where we describe the organisation as an
open system, in continuous interaction with its market- and macro-
environments. When change occurs in the external environment, it
affects the internal (micro-) environment of an organisation.
In Chapter 3, we discuss the unique variables that cause organisations
to adapt to new forms of organisation, such as becoming flatter,
more flexible, networked, diverse and global. In the current chapter,
we identify and discuss additional external and internal variables that
force organisations to change. The primary focus of the chapter is on
how organisations implement change: the dimensions of change, why
organisations and their employees resist change and how managers

could overcome barriers to change. The approaches to change are many

and varied, but we limit our discussion to two well-known approaches,
those of Kurt Lewin and John Kotter. We conclude the chapter with a
discussion on the consequences of change on individuals, namely stress,
and how to manage personal stress.
5.1.1 Internal forces of change

The reasons for individual organisations to change are different for
every organisation and emanate from the specific context of the change
initiative in an organisation. We discuss a few internal forces for change
in the section below5.
r $IBOHFJOTUSBUFHZ"DIBOHFJOUIFTUSBUFHJDEJSFDUJPOPGBO
organisation would inadvertently cause change in any or all of the
following areas: structure, culture, the balance of power or the
technology it uses. We discuss the areas of change in more detail
elsewhere in the chapter.
r 1PPSQFSGPSNBODF1PPSQFSGPSNBODFSFTVMUTNBZUSJHHFSDIBOHFJO
organisations. After delivering spectacular results for 40 years, Pick
n Pay’s performance declined and management realised that they
had to embark on a change programme to put the retailer back on
track.
r 1SFTTVSFUPHSPX5IFQSFTTVSFGSPNTUBLFIPMEFSTDPVMEGPSDF
organisations to initiate change efforts in order to stimulate
growth. Pick n Pay implemented a change programme in order
to function more efficiently, regain the market share it had lost to
competitors and to stimulate growth.
r 8PSLGPSDFQSPCMFNT1SPCMFNTXJUIJUTXPSLGPSDFNBZQSPNQUBO
organisation to change, for example, by entering into a favourable
agreement with the labour union representing its workforce to
save on labour costs as Pick n Pay did, enabling it to retrench more
than 3 000 employees.
r *NQMFNFOUBUJPOPG OFXUFDIOPMPHZ5IFBWBJMBCJMJUZPG OFX
technology may force organisations to change in order to remain
competitive. (We discuss this in Chapter 3.) Implementing new
technology may bring about much change and resistance to change
from employees.
r $IBOHFTJOUPQNBOBHFNFOU$IBOHFTJOUIFUPQNBOBHFNFOUPG
organisations often lead to change within organisations because a
new CEO or a new management team often ring in the changes
soon after they take office. This is sometimes referred to as the
‘new broom’ effect6.
r 1PXFSBOEQPMJUJDT1SFTTVSFUPDIBOHFNBZEFWFMPQGSPNQPXFS
sources and political struggles within organisations. The opening
case study in Chapter 7 describes the events that led to the
appointment and resignation of a powerful CEO at the helm of a
giant manufacturing organisation. The case study illustrates how a
shift in power can lead to internal conflict and change.

r -BDLPG JOOPWBUJPO*OOPWBUJPOJTBCPVUUIFDPNNFSDJBM
exploitation and application of ideas, services and inventions.
A lack of innovation in an organisation may result in stagnation
and will become a force for the organisation to change. This
is especially true in industries where continuous innovation is
required in order to compete in that industry and to survive. An
example is Silicone Valley in California, where organisations have to
offer new innovative products and services in order to compete in
an environment characterised by innovation and change7.
5.1.2 External forces of change

OCTMGVGPXKTQPOGPV External forces for change in organisations mainly stem from the NBSLFU
comprises consumers, FOWJSPONFOU and macro-environments of organisations. Changes in
competitors, suppliers of the needs and behaviour of consumers, the offerings of competitors, or
resources and intermediates the changes in the availability of key suppliers may force the organisation
such as banks to change its products or services to meet the demands of the market.
OCETQGPXKTQPOGPV The NBDSPFOWJSPONFOU comprises several sub-environments,
including the technological, economic, social, political, ecological
comprises several sub-
and international environments. A change in any one of these sub-
environments, including the
environments may cause change in the other sub-environments, in the
technological, economic,
market environment and in the internal (or micro-) environment of
social, political, ecological and
an organisation. The sources of change emanating from the external
international environments
macro- sub-environments include:
r /FXUFDIOPMPHZDSFBUFTUIFBWBJMBCJMJUZPGOFXQSPDFTTFT
systems, materials and equipment and accelerates change and
innovation because it enables organisations to develop new and
innovative products and services. Advanced information systems
can disseminate essential information faster and more efficiently
and new processes can increase the productivity of organisations.
New technology results in increased competition and forces
organisations to use the latest technology in order to remain
competitive. You may want to revisit the discussion in Chapter
1 on the Information Revolution and the changes it brought to
profoundly influence how contemporary organisations function.
r &DPOPNJDGPSDFTBŲFDUPSHBOJTBUJPOTBOEGPSDFUIFNUPDIBOHF"O
FYBNQMFIFSFJTUIFSFDFTTJPOJO XIJDIBŲFDUFEDPOTVNFS
behaviour and forced organisations to adapt to the changing needs
of their customers.
r 4PDJBMGPSDFTTUFNNJOHGSPNFDPOPNJD UFDIOPMPHJDBMBOEDVMUVSBM
environments affect people such as employees and consumers,
which in turn, forces organisations to change. Demographic trends,
levels and quality of education, ethical, gender and race issues, and
changes in lifestyle are variables that act as forces for organisations
to change. Technological advances in medicine and medical care
enable people to live longer, which in turn can affect organisations
such as insurance companies, forcing them to change the products
UIFZPŲFS0OUIFPUIFSIBOE IFBMUIJTTVFTTVDIBT)*7"JETBOE

antibiotic-resistant tuberculosis force organisations to change their

human resources policies and practices.
r &DPMPHJDBMBOEQIZTJDBMGPSDFTPGDIBOHFQFSUBJOUPUIFOBUVSBM
resources from which organisations obtain raw materials and the
environment into which organisations discharge their waste. In
recent years, issues such as climate change and sustainability are
enjoying a prominent place on the agendas of international forums.
This in turn forces countries to promulgate legislation to govern
the impact of organisations on the environments where they
operate. In South Africa, there is a call for organisations to report
on their sustainability and their impact on the environment (see
Chapter 8). Clearly, the worldwide interest in environmental issues
forces organisations to change their operations and this trend will
continue in the future.
r 1PMJUJDBMGPSDFTPGDIBOHFJODMVEFUIFQPMJUJDBMSJTLHPWFSONFOUT
create by their actions, governance (such as corruption and
grafting) and the integrity of courts, policies and laws that affect
the stability and thus the level of direct foreign investment in a
country. It also influences the decisions of existing organisations
pertaining to plans to expand, decrease or cease their operations
in the country. Labour and other laws that govern economic
activity in the private sector could determine whether it is a
suitable environment for local and international entrepreneurs
to do business in a country. In South Africa, laws that govern the
employment decisions of organisations, such as the Employment
Equity Act and various other labour laws have a crucial impact
on organisations and the way they operate, forcing them to
change their labour components and investigating alternative
(technological) production methods.
r &WFOUTUIBUPDDVSJOPOFDPVOUSZNBZBŲFDUBOEMFBEUPDIBOHF
in organisations operating in other countries because of the
integration and interdependence of world markets. The financial
crises in the United States of America and elsewhere in the world
had a direct impact on most economies and many organisations in
the world. The two variables that had the most profound impact
on organisations since the late 1990s are advances in information
technology and globalisation (see Chapter 3). Globalisation has
changed the way in which organisations are operating across
national boundaries because of the threats posed by the increase
in competition but also because of the opportunities the expanded
markets could offer. Furthermore, the benefits of international
cooperation agreements such as the European Union, Nepad and
the Commonwealth of Nations, enable organisations to trade
under favourable conditions in other countries.

LEARNING OBJECTIVE 2 5.2 THE DIMENSIONS OF CHANGE

Discuss the dimensions of
Change in organisations takes many forms. Figure 5.1 depicts four
change.
dimensions of change in the form of a continuum. The process of
change ranges from carefully planned to reactive change; the scope
of change varies from incremental to revolutionary change; the source
of change ranges from top down to bottom up; and the nature of the
pace of change varies from punctuated to continuous change.
PROCESS SCOPE SOURCE PACING

Planned Revolutionary Top down Punctuated
Reactive Incremental Bottom up Continuous
Figure 5.1: The dimensions of change

Source: Adapted from: Ancona, D., Kochen, T.A., Scully, M., Van Maanen, J. & Westney, D.E.
2005. Managing for the future: organizational behavior and processes. 3rd edition. Cincinnati,
OH: South-Western College, p M8–16.
5.2.1 Planned change versus reactive change

planned change
Managers initiate and implement planned change8 to solve problems,
change that is planned and to adapt to changes in the environment, to improve performance or to
implemented by managers to prepare the organisation for future changes.
adapt to or prepare for change Reactive change takes place in the course of events or when
in the environment external forces inflict change on organisations. Organisations react to
these changes in order to minimise the negative effects of change, limit
reactive change disruption, maintain the status quo or improve on the current situation.
takes place when organisations
react to change in their 5.2.2 Revolutionary change versus incremental
environments change9
revolutionary change Revolutionary change involves major, radical, strategic,
involves major, radical, strategic, transformational and rapid change. Changes such as downsizing, re-
transformational and rapid engineering and restructuring may change the characteristics of the
change organisation and are transformational in nature.
Incremental change is a process whereby individual and other
incremental change parts of the organisation deal incrementally with one problem at a time.
a process whereby individual
In response to pressures in the internal and external environments, the
and other parts of the
organisation transforms over time. The underlying idea is that change
organisation deal incrementally
will take place through consecutive, limited and negotiated shifts in
with one problem at a time
systems, processes or structures.

change
incremental change
punctuated change
continuous change
time
Figure 5.2: Incremental change, punctuated change and continuous

change
5.2.3 Punctuated change versus continuous

change10
Punctuated change implies that organisations evolve through punctuated change
relatively long periods of stability (equilibrium periods), but these are an organisation evolves through
interrupted by relatively short bursts of fundamental change. These relatively long periods of stability
revolutionary periods disrupt activity patterns and create the basis for interrupted by relatively short
new equilibrium periods. The triggers for change usually include changes bursts of fundamental change
in the internal or external environment, for example, new technologies,
process redesign, or industry deregulation.
Continuous change entails a pattern of uninterrupted adjustments continuous change
in work processes and social practices driven by organisational instability a pattern of uninterrupted
and cumulative reactions to daily events. For organisations in industries adjustments in work processes
with short product cycles in highly competitive markets, the ability to and social practices driven by
change rapidly and continuously is a core competency, entrenched in organisational instability and
their culture and comprises a crucial capability for survival. cumulative reactions to daily
events
5.3 RESISTANCE TO CHANGE LEARNING OBJECTIVE 3

Explain why organisations and
5.3.1 Organisational barriers to change individuals resist change.
Change initiatives in organisations often encounter some form of
resistance. One barrier to change is organisational inertia (inactivity). organisational inertia
Organisations resist change because the forces for and against change organisations resist change
are equally strong and therefore the organisation remains in the same because the forces for and
position. against change are equally
Another organisational barrier to change is the unforeseen strong and therefore the
consequences11 of implementing change initiatives because of the organisation remains in the
interdependencies in organisations. Change in one part of the same position
organisation may lead to (sometimes unwanted) change in other parts
of the organisation.
5.3.2 Individual resistance to change

The general view is that the natural human aversion to change results
in the resistance of people to change. However, a contrary view is that
people may resist change initiatives because managers impose it on
them rather than involve them to improve their own work experience
by implementing the change initiatives. We shall discuss this and other

methods to overcome resistance to change elsewhere in this chapter.
People in organisations may resist change for a number of reasons12:
r 1FSDFJWFEUISFBUUPJOEJWJEVBMPSHSPVQJOUFSFTUT5IFQFSDFQUJPO
that they may have to give up something because of a change
initiative may cause people to resist change. In Chapter 20
(Workforce motivation), we explain that individual behaviour
is mostly motivated by self-interest and in the chapter on
organisational power and politics (Chapter 7), we discuss how
individuals will use their power to protect their own interests and
the interests of the groups to which they belong. If an individual
or group of individuals perceive that a change initiative may pose a
threat to their interests, they will resist the change.
r .JTVOEFSTUBOEJOHBOEMBDLPG USVTU8IFONBOBHFNFOUGBJM
to convey the implications, benefits and disadvantages of
change initiatives to employees, it may cause misunderstanding,
confusion, rumours and eventually resistance to change. Similarly,
if employees do not trust the management of the organisations
where they work, attempts to implement change may be met with
resistance from the employees.
r -PXUPMFSBODFGPSDIBOHF5IFIVNBOGFBSPGUIFVOLOPXONBZ
cause resistance to change. People fear that they will not be able
to learn a new skill, understand and operate a new information
system or change their behaviour to meet the challenges of a new
job. They may feel that they cannot change soon enough and are
emotionally unable to change. Kotter and Schlesinger13 remarked
that if changes are significant and the individual’s tolerance for
change is low, the person will resist the change even if he or she is
not sure why. In addition, a person may be reluctant to admit that
a previous decision or action was wrong, or succumb to pressure
from peers to resist change.
r &UIJDBMDPOWJDUJPOT3FTJTUBODFUPDIBOHFNBZFNBOBUFGSPNBDMBTI
between an individual’s ethical convictions and the nature of the
change.
LEARNING OBJECTIVE 4 5.4 OVERCOMING RESISTANCE TO CHANGE

Provide advice to managers on Managers could deal with their employees’ resistance to change in a
how to overcome resistance to number of ways. Managers should understand the various methods at
change. their disposal to address resistance to change initiatives. Different factors
cause different forms of resistance, as explained in the previous section.
This requires that managers use the correct method when dealing with
the resistance in the most effective manner.
5.4.1 Methods to deal with resistance to change

r &EVDBUJPOBOEDPNNVOJDBUJPO8IFOUIFDBVTFPGSFTJTUBODFJT
a lack of information, or the wrong information, education and
communication regarding the change initiative can be an effective
way to overcome the resistance. Precise communication of the

extent and consequences of a change initiative can eliminate

the barriers of misinformation regarding the logic and need for
change. Education can take many forms, including focus groups,
information sessions, one-to-one discussions, documents posted
on the intranet, or e-mails.
r 1BSUJDJQBUJPOBOEJOWPMWFNFOU0OFPGUIFNPTUFŲFDUJWFXBZT
to get buy-in and commitment for a change initiative is to allow
the people whom the change initiative will affect to participate in
the design and implementation of the initiative. The downside of
this method is that it may not obtain the optimum solution and it
could be time consuming, therefore managers need to manage the
process carefully.
r 'BDJMJUBUJPOBOETVQQPSU5IJTNFUIPEJTFŲFDUJWFXIFOGFBSBOE
anxiety is the cause of resistance to change and involves facilitating
individuals and offering them support such as training, time off
work or emotional support. The condition for using this method is
that the managers should be prepared to invest time, money and
patience to deal with the resistance and they should be prepared
to accept failure despite their best efforts.
r /FHPUJBUJPOBOEBHSFFNFOU.BOBHFSTSFTPSUUPOFHPUJBUJPOBOE
agreement when someone stands to lose something because of
the change initiative, but has enough power to resist the change.
This entails the offering of incentives or negotiating a deal with
the person. As we explain in Chapter 7, the aim of negotiation is
that the parties reach an agreement that is mutually acceptable,
but managers should be careful to avoid agreements that violate
their organisation’s ethical code of conduct by thinking that the
‘end justifies the means’, as such thinking can lead to undesirable
consequences.
r .BOJQVMBUJPOBOEDPPQUBUJPO.BOJQVMBUJPOBTBNFUIPEUP
overcome resistance involves the ‘selective use of information and
the conscious structuring of events’15. The purpose of co-opting
an individual or the leader of the group by giving him or her a role
in the design or implementation of a change initiative is, in this
context, not to obtain the participation of the individual, but rather
to secure his or her endorsement of the initiative. The problem
that could occur with using this method is that the resistance will
increase if the individual or group leader perceives that his or her
co-optation happened under false pretences.
r &YQMJDJUBOEJNQMJDJUDPFSDJPO.BOBHFSTVTFUIJTNFUIPEXIFO
time is of the essence for the change. It involves managers
forcing people to accept change by threatening them and by using
their power (see Chapter 7) to withhold promotion, rewards,
retrenchment and so on. This is a risky method and may not
achieve the desired outcome or even have the opposite effect.

5.4.2 The situational factors that influence the

strategic choices of managers when planning a
change effort16
When they design and implement change, managers make certain
strategic choices and they encounter various forms of resistance to the
anticipated change efforts. To this end, a number of situational factors
could influence such choices. The variables are the:
r BOUJDJQBUFETUSFOHUIPG UIFSFTJTUBODFUPDIBOHF
r QPTJUJPOPG UIFDIBOHFJOJUJBUPSJOUFSNTPG QPXFSXIFODPNQBSFE
to the resistors
r BOUJDJQBUFEOFFEPG UIFDIBOHFJOJUJBUPSPSJOJUJBUPSTGPSJOGPSNBUJPO
and commitment from others to help design and implement the
change effort
r TUBLFTJOWPMWFEJOUIFJNQMFNFOUBUJPOPGBDIBOHFFŲPSUJOUFSNT
of the potential short-term risks to the performance of the
organisation and its survival.
5BCMFTIPXTXIJDIPQUJPOTBSFBWBJMBCMFGPSNBOBHFST
Table 5.1: The situational factors that inƃuence choices when designing and implementing a change effort
Situational Anticipated strength of Position of change Need for information Potential for risks
factors resistance initiator vis-à-vis and commitment from to short-term
resistors in terms of others by the change organisational
power initiator/s performance and
survival
Available
options Weak Strong Weak Strong Little Lots Little Great
Pace of rapid slow slow rapid rapid slow rapid slow
the change
process
Extent to clear plan not a clear not clearly clear plan clear plan not clearly clear plan not clearly
which the plan pre- pre- pre-
change is planned planned planned
planned
Involvement little lots lots little little lots little lots
of others
Dealing with attempt to reduce reduce attempt to attempt to reduce attempt to reduce
resistance overcome any resistance resistance overcome overcome resistance overcome resistance
resistance – to a to a any any to a any to a
fait accompli minimum minimum resistance resistance minimum resistance minimum
– fait – fait
accompli accompli
Source: Adapted from Kotter, J.P. & Schlesinger, L.A. 1979. Choosing strategies for change. Harvard Business Review, March–April,
p 112.

5.5 APPROACHES TO CHANGE LEARNING OBJECTIVE 5

Discuss the approaches to
One of the major theories of planned change is Kurt Lewin’s three-step
managing change.
change model, which focuses on implementing planned change. The
model entails three steps: unfreezing, moving (or change) and refreezing.
5.5.1 Lewin’s change model

Lewin’s model provides a general framework for understanding
organisational change and researchers have used, modified and
elaborated upon the model since Lewin published his model17.
4UFQ Unfreezing. Lewin asserted that the basis of stability of human
behaviour is a RVBTJTUBUJPOBSZFRVJMJCSJVN, which is the inability Suasistationary eSuilibrium
of organisations or groups to change in step with the environment in an equilibrium supported by a
which they operate. The more successful an organisation or group field of driving and restraining
has been in the past, the greater the inertia to change will be. Pick n forces causing inertia
Pay, for example, was highly successful for 40 years before large-scale
change in the food retail environment forced it to embark on a major
change programme. Lewin argued that, in order for an organisation
to change, the forces of inertia (equilibrium) need to be destabilised
(‘unfreeze’) before the old behaviour will be unlearned and discarded.
4UFQChange. This step requires individuals and groups to move
towards a more acceptable set of behaviours. It involves interventions
to bring about change in behaviour, values and attitudes through
changes in processes, systems and structures.
4UFQRefreeze. The last step, ‘refreezing’ seeks to establish a new
quasi-equilibrium to ensure that the new behaviours do not regress
to the previous behaviours. Refreezing often requires changes in
organisational culture, norms, policies and practices.
5.5.2 Kotter’s Eight Step Process of successful

change
John Kotter is a renowned expert in the management of change. He
developed the Eight Step Process18 emphasising that it is a change process
and not a checklist. He emphasised that successful change of any scale
should go through the steps in the correct sequence without omitting
any one of the steps. Kotter and Holger Rathgeber19 also wrote the
popular bestseller Our iceberg is melting – a fable about a penguin colony
in Antarctica. They used the Eight Step Process to vividly illustrate how
organisations could manage change initiatives effectively.
Kotter identified eight errors, which in his opinion, cause
organisations to fail in their change efforts20. The errors include allowing
too much complacency, failing to create an effective guiding team to lead
change, underestimating the power of vision and not communicating it
sufficiently, failing to remove the obstacles that block the new vision,
failing to celebrate short-term wins, declaring victory too soon and
failing to change the culture to support the new vision.

The consequences of these errors are serious, because organisations

fail to implement new strategies effectively because of the mistakes they
make. Kotter identified several strategies and linked the failure of some
organisations to implement the strategies successfully to the negative
consequences of the errors they make, for example:
r BDRVJTJUJPOTmGBJMUPQSPEVDFFYQFDUFETZOFSHJFT
r SFFOHJOFFSJOHmUJNFBOEDPTUTPWFSSVOT
r EPXOTJ[JOHmDPTUTOPUVOEFSDPOUSPM
r RVBMJUZQSPHSBNNFTmEPOPUEFMJWFSBOUJDJQBUFESFTVMUT
Kotter’s Eight Step Process for successful change includes the following
steps21:
4UFQ Create a sense of urgency. Create urgency in others by
stressing the need for change and explain to them that it is essential to
act immediately. This step also involves examining the market and macro
environments to identify threats and opportunities.
4UFQ Form a guiding team. It is essential to form a guiding team
to lead change. This team should have enough power to lead the
change and should be able to work together in a cohesive manner. The
team should have ‘leadership skills, credibility, communication ability,
authority, analytical skills and a sense of urgency’22.
4UFQCreate a change vision and strategy. Create a desirable picture
of the future. Clarify how the future will differ from the past and explain
the steps towards making such a future a reality. Develop strategies to
make the vision a reality.
4UFQ Communicate the vision. Ensure that others understand and
accept the vision and strategy. The guiding team should set the example
for teaching new behaviours.
4UFQ Empower others to act. It is crucial to remove any barriers
in order to empower those who want to embrace the change such as
changing systems and processes. This step also involves encouraging risk
taking (if appropriate) and encouraging people to offer innovative ideas
and perform activities to achieve the new vision.
4UFQProduce short-term wins. Plan and create visible performance
improvements. Recognise and reward those employees who make the
improvements.
4UFQ Consolidate improvements and produce more change. Do
not give up and maintain the pace and the strength of the change
initiative until the vision is a reality. Use the credibility earned through
implementing the previous steps to change more systems, structures
and policies that do not comply with the new vision. Hire, promote and
develop employees to implement the vision. Initiate new projects and
themes to reinforce the new vision.
4UFQCreate a new culture. Work to maintain the new behaviours
until they become ‘the way we do things here’. Communicate the
relatedness of new behaviours and organisational success. Develop a
process of leadership development and succession.

5.6 AREAS OF ORGANISATIONAL CHANGE LEARNING OBJECTIVE 6

Identify the areas of
In this chapter, we have dealt with many aspects of organisational
organisational change.
change, but the question arises where in the organisation these changes
take place. In general, organisations affect change in four areas, namely
in strategy, structure, technology and people. As explained elsewhere in
the chapter, organisations are open systems and when they implement
change in one part of their organisations, in general it will affect the
other parts of the organisations and cause change there as well. We
examine the four areas of change more closely23.
r 4USBUFHJDDIBOHF4USBUFHJDQMBOOJOHAJTUIFQSPDFTTPGQSPBDUJWFMZ
aligning the organisation’s resources (internal environment) with
threats and opportunities caused by changes in the external
environment’24.
Furthermore, a change in strategy inevitably results in change
in other areas of the organisation. In Chapter 11, we discuss the
process of strategic planning and explain how the top managers
of an organisation formulate strategies to compete with other
organisations in the same industry through their competitive
advantage to use opportunities and avoid threats in their market
and macro-environments. Pick n Pay’s strategy, for example, was
to regain their lost market share in the food retailing industry. The
strategy involved a restructuring process, implementing a new
information system and reaching an agreement with the labour
union representing the organisation’s labour force.
r $IBOHFTJOPSHBOJTBUJPOTUSVDUVSFBOEEFTJHO$IBOHFJOUIF
structure of an organisation may involve a complete restructuring
of the organisation, or focus on the grouping of functions
(departmentalisation), the linking mechanisms that coordinate the
activities of individuals and groups in an organisation (cooperation
mechanisms), or the alignment of the design with organisational
systems and processes, such as incentive schemes and training
programmes. In Chapter 15, we discuss organisation structure and
design and in Chapter 3, we explain that organisations are opting
for flatter and more flexible structures to cope with large-scale
change in their environments. Pick n Pay, for example, opted for
a centralised structure to replace its fragmented decentralised
structure and reaped the benefits of lower costs and a more
efficient structure.
r $IBOHFJOUFDIOPMPHZ$IBOHFTJOUIJTBSFBPGUIFPSHBOJTBUJPO
might involve changes in the use of information technology, for
example, Pick n Pay replaced the company’s old technology
platform (an in-house developed system) with a SAP fully
integrated system providing improved in-store disciplines, more
efficient business processes and more timely information thus
enabling better and faster decision-making across the organisation.
Other forms of change in the technological area include switching
to new technologically advanced equipment and changing work
processes or work sequences because of the availability of new
technology. For an organisation wishing to improve the quality

of its products, the implementation of new control systems may

improve the quality of an organisation’s products and thus its
completive position.
r $IBOHJOHQFPQMF1FPQMFBSFUIFNPTUJNQPSUBOUSFTPVSDFPGBO
organisation as they are the activators of the other resources.
In other words, people activate the financial, physical and
informational resources of organisations by organising finance,
operating the information system or operating the equipment.
Changes in the human resources of an organisation may involve
initiatives to change the abilities and skills of employees by
providing training programmes. Changing the values and attitudes
of organisational members may be difficult as we explain in
Chapter 17, but organisations can implement initiatives to align
individual values and attitudes with the espoused values of the
organisation. Organisations can attempt to change the perceptions
and expectations of organisational members by, for example,
being transparent about their remuneration and incentive systems
and educating employees about the rationale behind their
compensation packages. Lastly, organisations may implement
programmes to improve the performance of their employees by,
for example, incentive schemes linked to performance.
LEARNING OBJECTIVE 7 5.7 MANAGING WORK STRESS

Discuss the nature of stress. Change is stressful and managers and other employees working in
contemporary organisations have to deal with constant change in their
work environments and in their lives outside the office. In this final
section of the chapter on organisational change, we focus on the effects
of change and its consequence, namely stress, on the human resources
and specifically the managers of contemporary organisations.
The right amount of stress could enhance job performance and
personal welfare, but too much stress reduces both satisfaction and
performance. Since the work individuals perform connects with their
identity, stress in the workplace inevitably spills over into their private
MJWFT5IFPWFSBMMSFTVMUJTBDPNQMJDBUFEBOEJOUFSDPOOFDUFEXPSLMJGF
existence where one component of life directly influences the other.
For some people the price of professional success is high with
distressing consequences such as divorce, estranged children, ulcers or
coronary heart disease. Yet, others maintain effectiveness and lead a full
and satisfactory life outside the office. What is the difference?
Research indicates that the explanation lies in the quality of stress
that spills over from one sphere of an individual’s life into the other and
the extent to which the person has a sensitivity valve capable of shutting
off the pressures of work while at home and vice versa.
Furthermore, the phase of a person’s career also plays an important
role because people tend to cope with the conflicts that are inherent
in their lifestyles by concentrating predominately on one of them in
each phase. In general, people in their twenties concentrate on their
careers; by their late thirties spouse and family come to the fore, and in
their forties and beyond they take one of two paths: either they have
an integrated professional and private life or they are patching up peace

between those factions.
5.7.1 The nature of stress

‘Stress’ is a term derived from science and is used to describe an
excessive detrimental overloading of an object. For example, a steel
object will have a certain strain capacity and under stress, when the
strain exceeds a certain level, a rupture or a fracture will occur. The
same concept emerged in medical terminology at the beginning of the
twentieth century referring to the overloading of the human body.
Physicians related the stress concept to balance in the body. For
example, when extreme coldness or great excitement activates the
sympathetic nervous system and the endocrine system, an individual
endures stress.
The endocrinologist Selye26 adapted this theory to describe the
human body’s response to emotions, such as fear and anger, as stress.
Selye was interested in the common features relating to the response
of the body to any demand placed upon it. These features constituted
what Selye termed the General Adaptation Syndrome, or GAS27, the
syndrome by which the body manifests stress. The GAS consists of the
following three phases:
r First phase: An alarm response. The non-specific response of
the body to an environmental demand or stressor such as a germ,
an overload on a group of muscles, a loud noise, extreme heat
or cold, or conflict at work and involves the body’s endocrine
system. The pituitary, a cherry-sized organ resting on the base of
the brain, signals the alarm stage of the body by sending a chemical
messenger in the form of a hormone ACTH to the adrenals.
During this stage, the body is, in a sense, in retreat, experiencing
a temporary, minor loss of efficiency until it can rally its forces of
resistance.
r Second phase: A resistance phase. The adrenals, in response
to ACTH, signal the second stage of the GAS, the resistance
stage, by secreting its own hormones, adrenaline and noradrenalin,
collectively called ‘catecholamines’. These enter the bloodstream
and trigger a succession of changes in the body chemistry, such
as the level of fatty acids in the blood and the blood’s clotting
chemistry and alter the digestive process. During the resistance
phase, these processes eventually have the effect of enabling the
organism to neutralise, isolate or minimise the damage to the
integrity of the organism as a whole; the body seems to adapt to
the demand.
r Third phase: Exhaustion or recovery. Selye believed that any
organ has, since birth, only a fixed, limited amount of adaptation
energy. Every stress response of the body uses some of this
precious asset. Whatever is used, the body cannot replace. Thus,
the resistance phase of the GAS cannot continue indefinitely.

When subjected to environmental stressors of sufficient strength

for a sufficiently long time, the adaptive energies of the organism
deplete and exhaustion or collapse follows. The exhaustion may
take the form of depression, bed rest, or some other temporary
lapse. This appears to allow the body to transfer some of its fixed
store of adaptation energy from long-term reserves to a short-
term supply. The body, however, cannot replace this transfer, and
if the process continues, eventually the entire stock of adaptation
energy drops to nothing and life ends.
STRESSOR
Pituitary send ACTH

Life ends
to adrenals
Adaptation energy ALARM

depleted
Environmental Body in retreat

stressors present for
prolonged period
Adrenals secrete
EXHAUSTION catecholamine
RECOVERY – return RESISTANCE

to normal
Body chemistry
neuralises/isolates/
minimises damage
Figure 5.3: The nature of stress
5.7.2 Emotional stressors28

A series of Selye’s experiments has a more direct bearing on
organisations. When he held a rat so it could only struggle without a
chance to escape, Selye found that although he did not injure the rat,

it had the same physiological responses (the GAS). Selye concluded

that strong emotions such as anger or frustration activated the stress
response of the adrenals. An organisational example is a manager
who lashes out at a subordinate. The words, tone of voice and facial
expressions of the manager provide cues that evoke strong emotional
responses in the subordinate such as anger, fear or anxiety, which
triggers the body’s stress response. The body’s stress response enables
it to fight or run, but neither response is appropriate in this context.
The quickened pulse, increased sugar and fat levels in the blood,
quickened clotting time of the blood and the constriction of the blood
vessels do no good, but are actually a waste of the body’s fixed store
of adaptation energy.
5.7.3 Eustress versus distress and performance

A certain amount of stress is essential to well-being. Selye remarked that
‘complete freedom from stress only comes with death’29. In fact, most
people perform well when they endure an optimum amount of stress.
Selye referred to the optimal amount and type of stress as eustress. eustress
When people experience eustress, it results in positive outcomes for the optimum amount and type
themselves and the organisation. The right amount of adrenalin may of stress and is a positive force
enhance problem-solving abilities and creativity because the right in our lives
amount of adrenalin and other hormones appear in the blood and guide
the individual towards maximum performance.
However, even a positive form of stress, if experienced over a
prolonged period, can have negative consequences. It often results in
disease as it breaks down the body’s mental and physical systems and
weakens and deters performance30. Figure 5.4 illustrates the relationship
between stress and job performance.
High
Job Eustress
performance
Low High (Distress)

Level of stress
Figure 5.4: The relationship between stress and job performance

Source: Schemerhorn, J.R., Hunt, J.G. & Osborne, R.N. 1985. Managing organizational
behaviour. New York: John Willey & Sons, p 652.
5.7.4 Stress and health

Excessive stress can lead to health problems such as heart attack, stroke,
hypertension, ulcers, drug, alcohol or tobacco dependency, muscle
aches and many other diseases. The symptoms of stress are multiple

and varied and can be categorised into three areas that chronic stress
affects: the body, the emotions and thoughts, as Figure 5.5 illustrates.
THOUGHTS …
r lacM of concentration EMOTIONS …
r daydreaming Feelings Relationships
r suicidal tendencies r irritable r withdrawn
r low selfesteem r depressed r Ƃght with friends
r helplessness r uptight r Ƃght with colleagues
r doubting future r tired r Ƃght with spouse
r loser mentality r rundown r feeling alienated
r chronic anger r insensitive
r urge to cry
r urge to run
BODY … r feels alone

r feels helpless
Physical Behaviour r anxiety
r diseases of the heart r eat too much
r diseases of the stomach r eat too little
r diseases of the sMin r smoMing
r sweaty palms r drinMing
r di\\iness r drugs
r nightmares r sleep more/less
r hyperventilation r increase/decrease in sex
r startled by small sounds r lethargic
r accident prone
r impulsive behaviour
r irritable
Figure 5.5: Areas affected by chronic stress

Source: Adapted from Scott, D. 1985. Managing stress: a workbook designed for a seminar
held by Whitehead Morris (Pty) Ltd, October 1985.
LEARNING OBJECTIVE 8 5.7.5 The sources of managerial stress

Identify the sources of The cost of managerial stress is twofold. A highly stressed individual
managerial stress. cannot work effectively. Managers especially cannot work productively
under excessive stress. They have lots of interaction with people
and their work often requires creative and intensive capacity, which
diminishes when individuals experience excessive stress. Furthermore,
highly stressed managers hinder organisational efforts to achieve goals.

The second cost of stress manifests in unhappy personal lives. Stress

causes a reduction in the quality of interpersonal relationships with family
and friends. Stressed people are tired, and uninterested in interpersonal
relationships, hobbies and sporting activities.
The sources of managerial stress are job overload, role ambiguity,
role conflict, job fit, too much responsibility, bad relationships at
work, career development and career disappointments, organisational
structure, organisational culture, an inability to change and life changes.
r +PCPWFSMPBEDBOUBLFUXPGPSNT"OJOEJWJEVBMDPVMEIBWFUPP
much work to do, or a promotion could lead to job overload if
the organisation promotes an individual to a level above his or her
competence. Both types of job overload could produce symptoms
of psychological and physical stress.
r 3PMFDPOŴJDUFYJTUTXIFOBOJOEJWJEVBMJOBQBSUJDVMBSXPSLSPMF
experiences conflicting job demands, or must do things he or she
does not want to do, or does not consider them as part of his
or her job description. We discuss job conflict in more detail in
Chapter 18.
r +PCųU31 is one of the major causes of negative emotional spill-over
from managers’ professional lives into their private lives. A perfect
fit between an individual and his or her job occurs when the
person feels competent, enjoys his or her work and feels that his
or her work and moral values coincide. If these feelings are absent,
managers experience stress and tension.
r .BOBHFSTSFMBUJPOTIJQTBUXPSLTUFNGSPNGPVSEJSFDUJPOTGSPN
superiors, juniors, peers and people outside the organisation32.
Managers must bring all four components into balance to enable
them to deal with the stress inherent in managerial work. If these
relationships are out of balance, managers will experience stress.
r 5IFUXPNBKPSDMVTUFSTPGQPUFOUJBMTUSFTTPSTBSFBMBDLPG KPC
security, emanating from fear of retrenchment or fear of being
forced into early retirement; and status incongruity, which includes
under or over-promotion or having to deal with the frustration at
having reached one’s career ceiling.
r 0SHBOJTBUJPOBMTUSVDUVSFBOEDVMUVSFDBOUISFBUFOBOJOEJWJEVBMT
freedom, autonomy and identity and could cause stress. Little or
no participation in decision-making, no sense of belonging, a lack
of effective consultation and communication, excessive restrictions
on behaviour and office politics are potential sources of stress33.
r 1FPQMFXPSLJOHJODPOUFNQPSBSZPSHBOJTBUJPOTNVTUDPQFXJUI
much more change in their lives than previous generations. Toffler34
points out that as the rate of change increases, people who cannot
adjust to new jobs, a mobile lifestyle and impermanent working
conditions will experience stress. Managers, who must often
perform new and varied tasks, experience a higher proportion of
risk on this dimension of stress than other occupational groups.
r 5IFNBOZDIBOHFTQFPQMFIBWFUPEFBMXJUIJOUIFJSFWFSZEBZMJWFT
ranging from the death of a family member to moving house or

going on holiday, result in stress, which could influence a manager’s

effectiveness at work.
5.7.6 Managing stress

The most resilient individuals are those who obtain a life balanced by
participating in activities in each segment of the circle. Well-balanced
people who engage in cultural, physical, spiritual, family, social and
intellectual activities in addition to work, are more productive and less
stressed than workaholics who live only to work35.
Stress is unavoidable, but good habits should help to keep the
damage to a minimum. These include breathing deeply, taking holidays,
socialising, exercising regularly, eating plenty of fruit and vegetables,
developing a regular sleeping routine and doing what one loves36. In
addition37, improving one’s work habits, developing positive self-talk
and demanding less than perfection from oneself, are techniques to help
people cope with stress.

ChaPter 5 Managing organisational change and individual stress
CHAPTER SUMMARY
1. Identify and discuss the forces of change.
Internal forces for change:
• a change in the strategic direction of an organisation
• poor performance
• pressure from stakeholders to grow
• workforce problems
• the availability of new technology
• changes in the top management of organisations
• pressure to change
• a lack of innovation.
External forces for change:
• changes in market environment
• new technology
• economic forces
• social forces
• ecological and physical forces
• political forces
• globalisation.
2. Discuss the dimensions of change.

• Planned change is the response of organisations to anticipated changes in their environments.
• Reactive change takes place when organisations react to changes in the environment to
minimise the negative effects of the change, limit disruption, maintain the status quo or
improve on the current situation.
• Revolutionary change involves major, radical, strategic, transformational and rapid change.
• Incremental change is a process whereby individuals and other parts of the organisation deal
incrementally with one problem at a time in response to pressures in the internal and external
environments.
• Punctuated equilibrium change implies that organisations evolve through relatively long
periods of stability (equilibrium periods) maintaining their basic activity patterns, interrupted
by relatively short bursts of fundamental change.
• Continuous change entails a pattern of uninterrupted adjustments in work processes
and social practices, driven by organisational instability and cumulative reactions to daily
eventualities.
3. Explain why organisations and individuals resist change.

Organisational barriers to change:

• organisational inertia
• unforeseen consequences of implementing change initiatives.
Contemporary management prinCiples 111
Part II: Management in a changing environment
Individual barriers to change:

• Perceived threat to individual or group interests occur because people have the perception
that they may have to give up something and therefore they resist change.
• Misunderstanding and lack of trust become barriers to change when management fails to
convey the implications, benefits and disadvantages of change initiatives to employees and
if employees do not trust the management of the organisations where they work.
• Low tolerance for change pertains to the human fear of the unknown, which may cause
resistance to change.
• Ethical convictions may be a cause of resistance to change when a clash exists between an
individual’s ethical convictions and the nature of the change.
4. Provide advice to managers on how to overcome resistance to change.

• education and communication
• participation and involvement
• facilitation and support
• negotiation and agreement
• manipulation and co-optation
• explicit and implicit coercion.
5. Discuss the approaches to managing change.

Lewin’s change model:
• Step 1: Unfreezing
• Step 2: Change
• Step 3: Refreeze.
Kotter’s Eight Step Process of successful change:
• Step 1: Create a sense of urgency
• Step 2: Form a guiding team
• Step 3: Create a change vision and strategy
• Step 4: Communicate the vision
• Step 5: Empower others to act
• Step 6: Produce short-term wins
• Step 7: Consolidate improvements and produce more change
• Step 8: Create a new culture.
6. Identify the areas of change.

• strategic change
• changes in organisation structure and design
• change in technology
• changing people.
112 Contemporary management prinCiples
ChaPter 5 Managing organisational change and individual stress
7. Discuss the nature of stress.

• First phase: An alarm response
• Second phase: A resistance phase
• Third phase: Exhaustion or recovery.
8. Identify the sources of managerial stress.

• job overload
• role conflict
• job fit
• relationships at work
• job security and status incongruity
• organisational structure and culture
• coping with change
• life changes.
KEY TERMS
alarm phase low tolerance for change
change manipulation and co-optation
change in technology misunderstanding and lack of trust
change process negotiation and agreement
changes in organisation structure and design organisational culture
changing people organisational structure
continuous change pace of change
coping with change participation and involvement
distress perceived threat to individual or group
education and communication interests
emotional stressors planned change
ethical convictions punctuated equilibrium change
eustress reactive change
exhaustion phase recovery phase
explicit and implicit coercion refreezing
external forces for change relationships at work
facilitation and support resistance phase
general adaptation syndrome (gas) revolutionary change
incremental change role conflict
internal forces for change scope of change
job fit source of change

job overload strategic change
job security unfreezing
life changes
REVIEW QUESTIONS
1. Consider the opening case study on Pick n Pay and describe the internal and external variables that
forced the retailer to implement a change programme.
2. Discuss the circumstances under which each of the methods that managers could use to overcome
resistance to their change initiatives would be appropriate to use and mention why each of the
methods may fail.
3. Discuss the situational factors that influence the strategic choices of managers when planning a
change effort.
4. Discuss Lewin’s change model.
5. Explain why organisations fail to implement new strategies effectively because of the specific errors
they make when preparing for and implementing change interventions.
6. Consider the sources of managerial stress and discuss those that apply to you and your work
environment.
END NOTES
1 (i) Adapted from Thomas, S. 2011. The big rejig. Financial Mail, 26 August, pp 32–36. (ii) Thomas, S. 2013. Pick n Pay:
Burst packet. Financial Mail, 3 May, pp 48–4.
2 Gareth Ackerman as quoted in Financial Mail, 26 August 2013, pp 32–33.
3 Nick Badminton as quoted in Financial Mail, 26 August 2013, p 32.
4 Raymond Ackerman as quoted in Financial Mail, 26 August 2013, p 35.
5 Palmer, I., Dunford, R. & Akin, G. 2009. Managing organizational change. 2nd edition. Singapore: McGraw-Hill,
pp 65–68.
6 Ibid., p 67.
7 Smith, D. 2010. Exploring innovation. 2nd edition. Berkshire: McGraw-Hill, p 6.
8 Cummings T.G. & Worley, C.G. 2001. Essentials of organization development & change. Ohio, Cincinnati: South-
Western College Publication, p 17.
9 Burnes, B. 2009, Managing change. 5th edition. Edinburgh: Pearson Education Limited, p 351.
10 Ibid.
11 Ancona, op. cit., pp. M8–6 to M8–7.
12 Kotter, J.P. & Schlesinger, L.A. 1979. Choosing strategies for change. Harvard Business Review, March–April,
pp 106–114.
13 Ibid., p 109.
14 Ibid., p 111.
15 Ibid., p 110.
16 Ibid., pp 112–113.
17 Lewin, K. 1947. Frontiers in group dynamics: concept, method, and reality in social science; social equilibria and
social change. Human Relations, (1)5: 5–41.
18 Kotter, J. 1996. Leading change. Boston: Harvard Business School Press.
19 Kotter, J. & Rathgeber, H. 2006. Our iceberg is melting, changing and succeeding under any conditions. Oxford:
Macmillan Press, pp 130–131.
20 Kotter op. cit., 1996, p 16.
21 (i) Kotter, J.P. 1995. Leading change: why transformation efforts fail. Harvard Business Review, March–April, p 61.
(ii) Kotter and Rathgeber, 2006, pp 130–131.
22 Kotter and Rathgeber, op. cit.
23 Griffen, R.W. 2011. Management principles and practices. 10th edition. China: South Westerm Cengage Learning,
pp 551–556.

6PLW3-&URQMH*G-%UHYLV7 9UED0-Management Principles: a contemporary edition for Africa.

WKHGLWLRQ&DSH7RZQ-XWD3XEOLVKHUVS
%UHYLV7 9UED0-Management Principles: a contemporary edition for SAPS.&DSH7RZQ-XWD3XEOLVKHUV
6HO\H+The stress of life in New York0F*UDZ+LOO,Q6FRWW'0DQDJLQJVWUHVVDZRUNERRNGHVLJQHG
IRUDVHPLQDUKHOGE\:KLWHKHDG0RUULV3W\/WG2FWREHU
%DVHGRQDGLVFXVVLRQRI*$6,Q2UJDQ': +DPQHU&:Organisational behavior: an applied
psychological approach.7H[DV3ODQR%XVLQHVV3XEOLFDWLRQV,QF
,ELGS
6HO\H+Stress without distress. 3KLODGHOSKLD/LSSHQFRWWS
6FKHPHUKRUQ-5+XQW-* 2VERUQH51Managing organizational behaviour.1HZ<RUN-RKQ:LOH\ 6RQV
S
%DUWRORPÒ) (YDQV3$0XVWVXFFHVVFRVWVRPXFK"Harvard Business Review0DUFK$SULOSSŋ
0RUULV-0DQDJHULDOVWUHVVDQGWKHŁFURVVRIUHODWLRQVKLSVłManagerial stress. (GLWHGE\&RZOHU' /HJJH.
&DPEULJH8QLYHUVLW\3ULQWLQJ+RXVH
0DUVKDOO- &RRSHU*/Executives under pressure./RQGRQ0DFPLOODQ3UHVV
7RIĠHU$Future Shock. 1HZ<RUN5DQGRP+RXVH
:KHWWHQ'$ &DPHURQ.6Developing Management SkillsWKHGLWLRQ8SSHU6DGGOH5LYHU3UHQWLFH+DOO
S
Time)HEUXDU\
'X%ULQ$Management essentialsWKHGLWLRQ6RXWK:HVWHUQ&HQJDJH/HDUQLQJS

Chapter 6
Corporate culture
OPENING CASE
Mari Vrba
OPENING CASE
Boeing1 ethical scandals and bitter infighting had adversely

0WFSWJFX influenced the company’s performance. ‘If we can
Boeing has been the leading manufacturer of get the values lined up with performance, then
commercial jetliners for more than 40 years. In this is an absolutely unbeatable company’5, said
1997, Boeing merged with McDonnell Douglas McNerney.
Corp. The distinct cultures of the two companies However, for all of Boeing’s internal problems,
never integrated and the differences caused rivalries McNerney still inherited a company that was
and infighting. flourishing because the aerospace industry started
In 2006, Boeing appointed a new CEO Mr WI to recover during 2005. Its first new aircraft in ten
McNerney. Boeing was at an all-time low, wracked years highlighted Boeing’s success: the lightweight
by a series of serious ethical scandals, including the 787 Dreamliner, which carries 220 passengers
jailing of Boeing’s former Chief Financial Officer and and burns 20 per cent less fuel than similar-sized
the judicial finding that Boeing had abused attorney- airplanes.
client privilege. Scandals involving various forms of
misconduct in various locations and in nearly every 5IF%SFBNMJOFS
division at Boeing, led McNerney to conclude that Touted as the aircraft of the future – a revolutionary
the renowned company had a ‘poisonous culture’2. plane that would use new technology to bring
Having spent his first six months as CEO in a aircraft design into the twenty-first century – the
sense-making exercise of the company, McNerney Dreamliner is made of ‘carbon-fibre reinforced
came to believe that the ‘internal rivalry caused plastic composite and Boeing replaced pneumatic
by the merger was at the root of the company’s and hydraulic systems with electric systems’. Boeing
ethical scandals and it prevented managers delivered the first Dreamliner planes to Nippon
from cutting costs and sharing good ideas’3. His Airways in 2011. However, the aircrafts were years
remedies to change the Boeing culture included late and billions of dollars over budget.
exerting effective central leadership over Boeing’s Although Boeing could have expected teething
three divisions, changing the way executives were problems with the new technology, a series of
paid and encouraging managers to use the huge serious problems plagued the Dreamliner aircrafts.
manufacturer’s cost-cutting competitive advantage Towards the beginning of 2013, Boeing faced a
to the full. More importantly, he encouraged huge challenge as regulators around the world
managers to ‘talk more openly about Boeing’s grounded all fifty Dreamliner aeroplanes after
severe ethical lapses’4. McNerney believed that battery fires occurred in two of them. Ray LaHood,
the company could do better. He believed that the the U.S. Transportation Secretary, declared that the
CHAPTER 6 Corporate culture
Dreamliner would not fly again in the United States a development strategy that was supposed to be
of America until regulators are sure of its safety6. cheaper and quicker than the traditional approach
– outsourcing. Boeing did not outsource just the
8IBUXFOUXSPOH manufacturing of parts but also the engineering,
The main reason cited for the serious problems and the manufacture of entire sections of the
the Dreamliner aircraft encountered, was Boeing’s plane. Boeing built less than forty per cent of the
decision to increase the percentage of parts it plane9.
sourced from outside contractors on a massive The finance people loved the outsourcing
scale, which in turn emanated from the clashing strategy since it meant that Boeing had to put
sub-culture of engineers and finance people at up less money. However, the strategy presented
Boeing. a problem for the engineers; they did not like it
To understand why Boeing embarked on because it meant that they lost control of the
a strategy of outsourcing the manufacturing manufacturing process, as they had to work with
of crucial aircraft parts, one needs to revisit approximately fifty ‘strategic partners’10. Boeing
the merger between Boeing and McDonnell had far less control than it would have if more of
Douglas. Technically, Boeing bought McDonnell the operation had been in-house. The outsourcing
Douglas but, as a noted industry analyst remarked parts led to three years of delays as parts did not
to the New Yorker, ‘McDonnell Douglas in effect fit together, shims used to bridge small parts were
acquired Boeing with Boeing’s money’7. McDonnell not attached properly and Boeing had to rework
Douglas executives became key players in the the tails of many of the planes extensively. In an
merged company and the McDonnell Douglas attempt to remedy the situation, Boeing took over
culture, averse to risk and passionate for cost some of their suppliers, in order to resume control
cutting, weakened Boeing’s historical commitment over the supply of the parts for the aircraft11.
to making big investments in new products. The The case study highlights the strong influence
analyst added that after the merger, there was of organisational culture in the success or failure of
an internal rivalry between the engineers and the strategies such as a merger and the development
finance and sales people. The finance and sales of a major new product. The two rival sub-culture
people increasingly marginalised the engineers8. at Boeing, after the merger with McDonnell
Under these conditions, getting the company Douglas Corporation, may have contributed to
to commit to a major project like the Dreamliner the implementation of a strategy that led to the
was difficult. According to the New Yorker, the temporary grounding of fifty Boeing aircraft.
Dreamliner’s supporters at Boeing came up with
LEARNING OBJECTIVES
The purpose of the chapter is to examine organisational culture.The objective of studying this chapter
is to enable you to:
1. Describe the concept of culture.
. DeƂne organisational culture.
3. Explain the levels of culture.
4. Differentiate between the various types of cultures in organisations.
5. Discuss the elements of culture.
6. Compare the different types of culture.
7. Explain how organisations change their culture.

LEARNING OBJECTIVE 1 6.1 THE CONCEPT OF CULTURE

Describe the concept of culture. The common understanding of the word ‘culture’ has connotations with
proper behaviour and good education. Indeed, the only definition of
culture cited in an early version of the (South African) Oxford Pocket
Dictionary is that it is ‘a refined understanding of the arts and other
human intellectual achievement’12. The implication of this definition is
that, for example, a person who can distinguish between the paintings
of two sixteenth century artists and who is able to comment on their
artistic styles, ‘has culture’!
However, from a social sciences perspective, the word ‘culture’ has
a far broader meaning. Social scientists see culture as a fundamental
aspect of life. According to them, all people ‘have culture’ and the only
requirement for ‘being cultured’ is to be human13. In Webster’s Third
New International Dictionary one of the definitions of culture is:
‘the total pattern of human behaviour and its products embodied
in thought, speech, action and artefacts and dependent on man’s
capacity for learning and transmitting knowledge to succeeding
generations through the use of tools, language and systems of
abstract thought’14.
Many studies, dating back from as early as the 1930s until today, focused
on the distinctive cultures of organisations, which are considered to be
communities with their own cultures. According to Morgan:
‘Organizations are mini-societies that have their own distinctive culture
and sub-culture. … [S]uch patterns of belief or shared meaning,
fragmented or integrated, and supported by various operating
norms and rituals can exert a decisive influence on the overall ability
of the organization to deal with the challenges that it faces’15.
History plays a crucial part in the culture of societies, and as ‘mini-

societies’, history shapes the cultures of organisations. To a large extent,
the current culture of an organisation is the heritage of its history. An
analysis of key historical events that shaped the direction, successes or
failures of an organisation, the environmental challenges that affected
the organisation and the ways in which the organisation responded to
threats and opportunities provide clues of how the current culture of
the organisation developed16.
How people speak about the history of an organisation also relates to
the organisational culture. People in an organisation are ‘meaning makers,
identity carriers, moral actors, users of symbols and storytellers’17 and
their narratives form part of the shared assumptions of organisational
members, based on the organisation’s own history.
LEARNING OBJECTIVE 2 6.2 ORGANISATIONAL CULTURE

DeƂne organisational culture. The roots of the conceptual formulation of organisational culture stem
from diverse fields, such as anthropology, sociology and the work of
many management scientists, of which the work of Edgar H Schein
is prominent18. Many of the subsequent definitions of organisational
culture derive from his definition of the concept:
‘Organizational culture is the pattern of basic assumptions, that a

group has invented, discovered or developed in learning to cope
with its problems of external adaptation and internal integration,
and that have worked well enough to be considered to be valid,
and, therefore, to be taught to new members as the correct way to
perceive, think, and feel in relation to those problems’19.
According to Schein, external adaptation tasks20 include developing external adaptation tasks
consensus on: developing consensus on the
r UIFNJTTJPO GVODUJPOTBOEUBTLTPGUIFPSHBOJTBUJPOXJUIJOUIF mission, functions and tasks,
context of its environment the goals and resources of
r UIFHPBMTPGUIFPSHBOJTBUJPO the organisation, the criteria
r UIFSFTPVSDFTUIFPSHBOJTBUJPOVTFTUPBDDPNQMJTIJUTHPBMT for measuring results and the
r UIFDSJUFSJBUIBUJTVTFEUPNFBTVSFSFTVMUT corrective actions (strategies)
r UIFDPSSFDUJWFBDUJPOT TUSBUFHJFT
VTFEJGHPBMTBSFOPUNFU used if goals are not met
Schein further explained the meaning of internal integration tasks21 internal integration tasks
as developing consensus on: include the language and
r UIFDPNNPOMBOHVBHFBOEDPODFQUVBMTZTUFN JODMVEJOHDPODFQUT conceptual system, group
of time and space boundaries and criteria for
r UIFHSPVQCPVOEBSJFTBOEDSJUFSJBGPSJODMVTJPO inclusion, allocating status,
r UIFDSJUFSJBGPSBMMPDBUJOHTUBUVT QPXFSBOEBVUIPSJUZ power and authority, intimacy,
r UIFDSJUFSJBGPSJOUJNBDZ GSJFOETIJQBOEMPWF friendship and love, allocating
rewards and punishments and
r DSJUFSJBGPSBMMPDBUJOHSFXBSETBOEQVOJTINFOUT
the concepts for managing
r UIFDPODFQUTGPSNBOBHJOHUIFAVONBOBHFBCMF OBNFMZJEFPMPHZ
ideology and religion
and religion.
Drawing from the work of Schein and other researchers, various

theorists attempted to offer more simplified definitions of the concept
of organisational culture. The definition of Achua and Lussier is typical
of the numerous definitions of corporate culture found in management
textbooks: according to them, culture is ‘the aggregate of beliefs, norms,
attitudes, assumptions and ways of doing things that members of an
organisation share and teach to new members’22.
Burnes23 summarises the central ideas of a variety of definitions by
stating that organisational culture:
r EFųOFTIPXPSHBOJTBUJPOBMNFNCFSTTIPVMECFIBWFJOBHJWFO
context
r JTJODMVTJWFPGBMMPSHBOJTBUJPOBMNFNCFST
r TFUTUIFZBSETUJDLGPSFYQFDUFEOPSNTPGCFIBWJPVSBHBJOTUXIJDI
individual organisational members judge their own actions and also
by which others judge their actions
r MFHJUJNJTFTDFSUBJOGPSNTPG BDUJPOBOEQSPIJCJUTPUIFSGPSNTPG
action.
Consider the opening case in terms of the definitions of organisational

culture. Boeing’s culture was a significant factor in the scandals that
plagued the company in the late 1990s and early 2000s. The new CEO,

Mr WI McNerney, described the culture of the company as ‘poisonous’

and blamed the clashing cultures of the two merged companies,
McDonnell Douglas Corporation and Boeing, as the main contributing
factor to the development of the culture of ‘rivalry and infighting’ that
developed. It seems as if this culture affected the functioning of the
entire organisation and resulted in Boeing being at an all-time low point
by the time McNerney took the helm at the company.
According to a KPMG study of 700 deals over a value’24. Interviews of over 100 senior executives
two-year period, ‘83 per cent of all mergers and involved in these 700 deals revealed that the
acquisitions failed to produce any benefit for the overwhelming cause for failure involved people and
shareholders and over half actually destroyed cultural differences25.
LEARNING OBJECTIVE 3 6.3 THE LEVELS OF CULTURE

Explain the levels of culture. The literature on organisational culture often illustrates Schein’s view of
organisational culture by using the metaphor of the organisation as an
iceberg floating in the ocean to illustrate the levels of culture. According
to Schein, when one observes an organisation’s culture, it has three
distinct levels26.
artefacts The first level (the tip of the iceberg) comprises artefacts – what
one feels and observes when entering an organisation. Artefacts are
visible aspects of the
visible, but not always understandable. Artefacts include visible aspects
organisation
of the organisation, from the dress code, the manner in which people
communicate with one another and the physical layout of the premises
to the emotional intensity, feel and smell of the place. It also includes the
permanent archives of company records, statements of philosophy and
annual reports27.
values An organisation will often publish their values in their annual
the goals, ideals, norms, statement or on their websites28. Values are the goals, ideals, norms,
standards, moral principles standards, moral principles and other premises which the organisation
and other premises which chooses to promote. Boeing, for example, currently uses words such as
the organisation chooses to integrity, quality, people working together and good corporate citizenship
promote on their website to describe their values29. Norms are the unwritten
rules of behaviour in an organisation. Examples of norms include ‘do
not argue with your manager’, or ‘on Friday afternoons we do not work
too hard’. Most employees are able to identify the norms of their work
groups when they have time to consider it. In our metaphor, the part of
the iceberg just below the water surface represents this level.
The core of the culture at an organisation (represented by the
bulk of the iceberg far below the surface of the water) can only be
distinguised by observing behaviour carefully, noting differences,
contradictions or occurrences that remain unexplained and by trying to
prompt from organisational insiders their underlying assumptions. These
taken-for-granted assumptions often have historical roots, but over time, they become
assumptions taken-for-granted assumptions. An example of this phenomenon
form the core of an is ‘strategic drift’30, which is the tendency of organisations to develop
organisation’s culture and often strategies incrementally based on historical and cultural influences, but
have historical roots failing to keep pace with changes in the environment. They keep to the

familiar strategies, which have worked in the past (taken-for-granted

assumptions) and only make incremental changes to the same strategies
to meet environmental challenges. By focusing on erstwhile unique
capabilities, which may not fit new circumstances, an organisation may
become inflexible and unable to change to face current challenges.
To illustrate the concepts of artefacts, values and assumptions and the
way in which they manifest in a specific culture at any given organisation,
Schein31 cited two examples of organisations that both claim to be ‘one
big family’, but with very different cultures.
Table 6.1 illustrates how the culture differs at two organisations in the
same sector.
Table 6.1: The organisational culture at two organisations
ORGANISATION A ORGANISATION B
A ten-year old rapidly growing South African A Ƃfty-year old South African university
private business school
Artefacts r open ofƂce landscape r individual ofƂces closed doors
r high degree of inforOality r forOal dress code
r high degree of positive conƃict resulting froO r high degree of forOality
different perspectives r Oany status syObols people are
r total lacM of status syObols addressed by their titles
r sense of high energy r politeness in Oeetings adhering strictly to
r strong identiƂcation with the organisation the agenda and using forOal language
– lecturers are involved and expressing r lecturers iOpleOent decisions Oade by
exciteOent about the developOent of an OanageOent
innovative curriculuO
Values and r dynaOic cutting-edge educational offerings r traditional approach to tuition and learning
beliefs r innovation and creativity r worMing according to the nsysteOo that
stood the test of tiOe
AssuOptions r individual lecturers are the source of r good ideas are derived froO professors
innovation – Lunior staff are expected to follow liMe
r individual lecturers Oust challenge one ngoodo soldiers
another in order to Ƃnd the best solution r individual research is encouraged
r collaborative research is encouraged r staff are OeObers of nfaOilyo –
r staff are OeObers of a nbig faOilyo – loud authoritarian and paternalistic systeO
bicMering positive creative of eliciting loyalty and coOpliance in
r highly coOpetitive – Oust be able to coOpete exchange for econoOic security
against other private business schools r worM within a bureaucratic systeO
Source: Adapted from Schein, E.H. 1990. Organizational culture. American Psychologist,
45(2): 113–114.
The two examples clearly differentiate between the two ‘big family’
organisations in terms of their artefacts and values, but especially
between the entrenched, taken-for-granted assumptions that determine
their unique cultures.
These examples emphasise the taken-for-granted assumptions as
the core of the culture of an organisation and comprise aspects of
organisational life that people find difficult to identify and explain, but
they represent the ‘collective experience of organisational members
in dealing with the problems of external adaptation and internal
integration’32.
LEARNING OBJECTIVE 4 6.4 THE DIFFERENT CULTURES EVIDENT IN A

Differentiate between the BUSINESS ORGANISATION
various types of cultures in
organisations. Against the background of the levels of culture in organisations, it is
necessary to investigate the variables that influence the development of
organisational culture at a given organisation. Organisations do not have
a single, uniform organisational culture because various internal and
external variables influence the development of organisational culture,
such as national and regional cultures, industry cultures and various sub-
cultures within organisations.
National and regional cultures

In the globalised world of today, organisations operate across national
national and regional borders in various different countries. National and regional
cultures cultures have an influence on the culture of organisations at their
differ in terms of attitudes plants, factories, offices or sites as they operate in different countries.
towards work, authority and National and regional cultures differ in terms of attitudes towards work,
equality and are influenced by authority and equality. Variables that influence the development of a
history, religion and even climate national culture include history, religion and even climate33.
Table 6.2: Hofstede’s dimensions of national culture
National culture
Explanation of the dimension
dimension
r the degree to which the less powerful OeObers of a society accept and expect that
Power distance (PDI)
power is distributed unequally
Individualism (‘Me’):
r a preference for a non-cohesive social fraOeworM in which individuals are expected
IndividualisO (I) to taMe care of theOselves and their iOOediate faOilies only
versus Collectivism (‘We’):
%ollectivisO (IDV) r a preference for a cohesive fraOeworM in society in which individuals have the
expectation that relatives or OeObers of a particular in-group will taMe care of
theO in exchange for absolute loyalty
Masculinity
r a preference in society for achieveOent heroisO assertiveness and Oaterial
Masculinity reward for success
versus r the society is Oore coOpetitive
(eOininity (MAS) Femininity
r a preference for cooperation Oodesty caring for the weaM and quality of life
r the society is Oore consensus-oriented
Continued on the next page

National culture
Explanation of the dimension
dimension
Uncertainty avoidance
r the degree to which the OeObers of a society feel uncoOfortable with uncertainty
and aObiguity
Uncertainty
r strong UAI societies Oaintain rigid codes of belief and behaviour and are intolerant
Avoidance (UAI)
of unorthodox behaviour and ideas
r weaM UAI societies Oaintain a Oore relaxed attitude in which practice counts Oore
than principles
Short-term orientation societies
r have a strong concern with establishing the absolute ntrutho
.ong-terO r are norOative in their thinMing
versus r exhibit great respect for traditions
Short-terO orientation r have a relatively sOall propensity to save for the future
(LTO) r a focus on achieving quicM results
(this diOension deals Long-term orientation societies
with societyos search for r believe that ntrutho depends on the situation context and tiOe
virtue) r are able to adapt traditions when conditions change
r have a strong propensity to save and invest
r thriftiness and perseverance in achieving results
Indulgence
r a society that allows relatively free gratiƂcation of basic and natural huOan drives
Indulgence
related to enjoying life and having fun
versus
Restraint
Restraint (IVR)
r a society that suppresses gratiƂcation of needs and regulates it by Oeans of strict
social norOs
Adapted from: The Hofstede Centre. [Online] Available from: http://geert-hofstede.com/

organisational-culture-dimensions.html. Accessed on 3 March 2013.
Other factors that influence national culture are the standards, values
and expectations of workers. The research of Geert Hofstede made a
significant contribution to our understanding of the differences between
national cultures. He identified six dimensions of national culture, listed
in Table 6.2, according to which the national culture in one country may
differ from the national culture in another country34.
The research of Hofstede suggests that cultural differences between
nations seem to appear on the deepest level, on the level of the values of
a society, which is hard to change. The culture of the country and region
where an organisation operates seem to influence its organisational
culture.
Another variable that influences an organisation’s culture is the
industry in which it operates.
The industry culture

Shared assumptions based on the technological and social histories of
its industry influence the organisational culture of a given organisation.
An organisational field35 is a community of organisations that interact

frequently with one another, such as an industry or a sector. Organisations
operating in the same organisational field are ‘entrenched in a social
system of expectations, taken-for-granted ways of doing things, status
and legitimacy, which exert a powerful influence on organisations and
actors in organisations. The environment is a source of beliefs and
values, rules of the game, interpretations and mindsets, fads and fashions
shared across organisations that occupy the same social space’36.
Organisations working in the private sector, for example, tend to have
different cultures than organisations operating in the public sector. The
organisational culture of companies such as Boeing, operating in the
aviation industry, will differ in many ways from that of organisations in
the agricultural industry; one reason for this is that their organisational
fields are different.
Organisational sub-cultures
Within organisations, there is no uniform, single culture. According
to Morgan37, many of the major cultural differences and similarities
in organisations are occupational rather than national. The likenesses
and differences associated with being a factory worker, a government
official, a banker, a store assistant, an accountant or an engineer are
as significant as those associated with national identity. Occupational
groups within organisations may develop strong sub-cultures based on
the work they do. At universities, for example, different sub-cultures
often exist amongst the administrative and academic groups, based on
differences stemming from their occupations.
Sub-cultures may also form when groups are geographically isolated
from the rest of the organisation. One can imagine that the sub-culture
of an oil company at the oilrigs at sea is different from the culture at the
headquarters of the same company in a major city.
Professional or functional sub-cultures form in organisations and
can create problems for the effective functioning of an organisation.
In the opening case study, we saw how the clashing cultures between
the engineers and the sales and finance people at Boeing might have
contributed to the temporary grounding of the Dreamliner aircraft,
presumably causing great financial losses to the company.
LEARNING OBJECTIVE 5 6.5 THE ELEMENTS OF CULTURE

Discuss the elements of Employees learn culture in many ways.
culture.
Symbols
symbol A symbol represents an idea, a process or a physical entity. The
represents an idea, a process, purpose of a symbol is to communicate meaning. For example, wearing
or a physical entity a pink ribbon is a symbolic action that communicates support and an
awareness of breast cancer. A company logo can convey a specific
message about the company, such as quality products (for example the
well-known Mercedes Benz logo), good service (the Avis logo and red
colour), status (the Rolls Royce emblem) or value for money (Pick n Pay
logo and blue and white colours).
The interpretation of symbols is at the core of organisational culture.

Organisations use material symbols (for example layout of offices,
furniture or buildings) and ideological symbols (values and norms) to
convey meaning. Symbols convey certain messages such as status (who
is important), or what kind of behaviour is acceptable. Organisational
members create symbols for specific purposes, and thus people and
groups inside and outside the organisation must understand the intents
of the originator or originators of symbols.
Stories
Stories about the organisation often reflect the core beliefs and stories
assumptions held by organisational members. How stories about an often reflect the core beliefs
organisation are told to newcomers relates to the specific strengths, and assumptions held by
weaknesses, successes, and failures of the organisation and it often organisational members
reflects the prevailing culture. Furthermore, the way in which narrators
describe ‘idols’ and ‘rogues’ and the norms and values attributed to
them serve to convey elements of the organisational culture, such as
risk taking or risk aversion. Another topic of stories often relate to
legendary founders who had a significant impact on the organisation and
its culture. Such stories serve to reinforce the culture at an organisation
(see the example in the box on the next page).
Peters and Waterman38, authors of the best-selling management
book In search of excellence, recalled that when they did their research
on excellent companies, the dominant use of the story, slogan and
legend were evident as people tried to explain the features of their
organisations. The authors found that the excellent companies were rich
tapestries of anecdote, myth and fairy tale. (Fairy tales because most
people who told the stories did not know, have not met or seen the
‘legends’ they were describing with such conviction.)
Language
Language is a strong conveyor of organisational culture and includes language
the unique terms for offices, people, suppliers, rituals and so on. Only a strong conveyor of
members of the organisation understand these terms and newcomers organisational culture because
are often overwhelmed when confronted by organisation-specific organisational members create
abbreviations and terminology. However, once they are familiar with the unique terms for offices, people,
organisational language, language becomes a binding factor and unites suppliers, rituals and so on
members of a specific culture or sub-culture39.
Metaphors are often used to describe an organisational culture
concisely, for example, scandals involving various forms of misconduct
in various locations and in nearly every division at Boeing prompted the
new CEO McNerney to conclude that the renowned company had a
‘poisonous’40 culture.
Rituals
Organisational members assimilate the culture of the organisation by
observing which rituals play key roles in the organisation and what
rituals
behaviour the rituals encourage or discourage. A ritual is a set of
actions, performed mainly for their symbolic value. In organisations, sets of actions, performed
rituals often underpin the central values of the organisation. An example mainly for their symbolic value
of a ritual is the graduation ceremony at a university where one of the

most senior members at the university confers degrees to students who
have successfully completed their degrees. The ceremony serves to
reinforce the academic values of the university and many of the actions
that take place during the ceremony have historical roots and symbolic
meaning, such as the academic procession, the specific music and the
‘tapping on the head’ action delivered to each graduate by the presiding
figurehead representing the university.
The Brown Earth Company: A mini case study to illustrate the elements of
organisational culture
An adventurer named Tiny Brown, whose exploits evident in, for example, the names of the conference
in Africa were legendary, established the Brown room (the Acacia Room) and the cafeteria (The
Earth Company in 1950. Older employees at Brown Baobab) [language]. The interaction between senior
Earth like to tell stories to new employees about managers and employees is informal but respectful
Tiny’s many African adventures. People at Brown [the way we do things]. The company is planning to
Earth Company still identify with Tiny’s colourful launch an innovative new product that will require
personality, his respect for nature and his active substantial changes in the production and marketing
involvement in nature conservation [stories reinforce departments of Brown Earth Company. In line with
culture]. Every year on arbour day, all the employees the changes the company wants to implement, its
participate enthusiastically in a tree-planting event name will change to Green Planet Company. The
[ritual]. Many of the company’s products are new corporate colour will be green and a new
‘green’ and sustainable and the company’s strong logo, depicting a green ‘tree of life’ will appear on all
identification with indigenous fauna and flora is packaging and company stationery [symbols].
LEARNING OBJECTIVE 6 6.6 TYPES OF CULTURE

Compare the different types of Various experts on organisational culture classify the types of culture
culture. found in organisations differently. The best-known, and perhaps the
most enduring, category of organisational culture is offered by Charles
Handy41 who typifies culture in terms of the norms, values and beliefs
that reflect in different structures and systems of an organisation. Deal
and Kennedy42 link culture to the risk and feedback characteristics of
the specific market in which the organisation functions. Quinn and
McGrath43 use various variables, such as leadership style, authority,
and the goal and risk orientation of employees to identify four types of
culture. Jones, Dunphy, Fishman, Larne and Canter44 categorised culture
based on the influence of culture on the behaviour of individuals and
groups in the organisation. Table 6.3 on the next page summarises these
organisational culture typologies. It highlights the ideas of a few experts
on categorising organisational culture, many others are not included in
this discussion. The categories are all very different from one another,
highlighting the difficulty of describing and categorising organisational
culture. In addition, in a globalised world, the categories summarised in
the table are Western culture-bound45 because they pertain mainly to
organisations in the developed Western world and do not necessarily
provide a framework to describe the cultures in, for example, Japanese,
Chinese, Middle-Eastern or African organisations.

Table 6.3: Organisational culture typologies
Charles Handy (1993) Deal and Kennedy (2000) Quinn and McGrath Jones et al (2006)
revised by Trompenaars (1985)
and Prud’homme (2004)
Sets of values and norms Links to external IdentiƂed four types of Attempts to group types
and beliefs – reƃected in environment (market) of culture of culture by how they
different structures and the organisation impact on the behaviour of
systems individuals and groups in
an organisation
r The power culture a r The tough guy macho r The Market rational r %onstructive cultures
single person or group culture high risk decision-making and members are encouraged
dominates rapid feedback (police goal-centred employees to interact with others
r The role culture work department sports and r The Adhocracy and approach tasks in
by logic and rationality entertainment) risk-orientated and ways that will help them
r The task culture project r The work hardplay hard charismatic leaders meet their higher-order
work associated with culture low risk quick and value-driven satisfaction needs
matrix-type structures feedback on actions organisations r PassiveDefensive
r The person culture (sales organisations) r The %lan participation cultures members believe
servicing the needs r $et-your-company consensus and concern that they must interact
of the participating culture risks are high for others with others in ways that
members such as and feedback on actions r The *ierarchy will not threaten their own
advocateso chambers and decisions is slow hierarchical rule-based security
doctorso medical centres (companies investing authority that values r AggressiveDefensive
heavily in projects that stability and risk cultures members are
take a long time) avoidance expected to approach
r The process culture low tasks in vigorous ways in
risk and slow feedback order to protect their own
on actions and decisions status and security
(public and government
organisations)
Source: Adapted from Burnes, B. 2009, Managing change. 5th edition. Edinburgh: Pearson Education Limited, p 114 and Senior B. &
Swailes, S. 2010, Organizational change. 4th edition. Edinburgh: Pearson Education Limited, pp 143–146.
Peters and Waterman (In search of excellence) on the importance of culture

‘Without exception, the dominance and coherence strong cultures, too, but dysfunctional ones. They are
of culture proved [in the companies the authors usually focused on internal politics, rather than on
researched] to be an essential quality of excellent the customer, or they focus on ‘the numbers’ rather
companies. Moreover, the stronger the culture and than on the product and the people who make and
the more it was directed towards the marketplace, sell it. The top companies, on the other hand, always
the less need was there for policy manuals, seem to recognize what the companies that only set
organization charts, or detailed procedures and rules. financial targets don’t know or don’t deem important.
In these companies, people way down the line know The excellent companies seem to understand that
what they are supposed to do in most situations every man seeks meaning (not just the top fifty who
because the handful of guiding values is crystal clear. are ‘in the bonus pool)’46.
… [P]oorer-performing companies often have

LEARNING OBJECTIVE 7 6.7 CHANGING ORGANISATIONAL CULTURE

Explain how organisations Changing the culture of an organisation is difficult because culture
change their culture. develops over a long time. Thus, cultural change interventions often focus
on the surface elements of culture such as norms and artefacts, because
they are easier to change than values and basic assumptions. However,
as we have seen in the discussion on the levels of culture, the core of
an organisation’s culture is at the level of entrenched assumptions. The
definition of culture by Schein (see Section 6.2) informs us that culture
enables organisational members to ‘cope with problems of external
adaptation and internal integration’47. Employees may resist attempts to
change the culture as their basic assumptions provide them with defence
mechanisms that have worked in the past to deal with difficult internal
and external situations.
However, it may become crucial for an organisation to change its
culture in order to remain competitive or even to survive. A major event
that had a serious impact on the organisation can trigger the need to
change the culture of an organisation. For example, in the aftermath
of the collapse of Enron and the demise of the accounting firm Arthur
Anderson (see Chapter 8), the four major accounting firms worked hard
to change their cultures to become more risk averse. Likewise, after
the financial crisis in 2008, financial institutions worldwide attempted to
change their cultures to fit the austerity measures imposed on them.
Furthermore, mergers and acquisitions often result in changed cultures
and organisations have to manage these changes. The well-documented
merger between Absa and Barclays Bank is a case in point. The culture
at the merged organisation had to change to reflect changes in the
management, the balance of power and the processes and systems of
the organisation.
The opening case on Boeing illustrates how culture may become a
liability for an organisation and why it may be crucial for the organisation
to change its culture. In addition to a culture that may have become a
liability, an organisation may also need to change its culture because it
does not ‘fit’ with the size or the structure of the organisation, or it is
out of step with a changing environment.
The discussion of culture in this chapter underscores that
organisational culture is an abstract concept and that different
organisations face different sets of variables affecting the fit between
their cultures and their environments, such as key historical influences
that shaped their cultures, national and regional cultures, industry
cultures, the sub-culture present in a given organisation and many other
factors. Because of these differences, experts offer general and not
specific guidelines for organisations to follow to change their cultures.
The authors of an often-quoted book on organisational development
and change, Cummings and Worley48 offer the following practical advice
to serve as guidelines for cultural change:
r 'PSNVMBUFBDMFBSTUSBUFHJDWJTJPOUPDBQUVSFUIFFTTFODFPGUIF
new strategy and the shared values and behaviours that underpin
the strategy. This vision should guide the purpose and direction of
the intended culture change.

r 5PQNBOBHFNFOUTIPVMEEFNPOTUSBUFųSNDPNNJUNFOUUPUIF
FTQPVTFEWBMVFTBOEUIFOFFEGPSDVMUVSFDIBOHFBOEUIFZTIPVME
SFJOGPSDFUIFJSDPNNJUNFOUJOXPSEBOEEFFE
r .PEFMDVMUVSFDIBOHFBUUIFIJHIFTUMFWFMXJUITFOJPSFYFDVUJWFT
DPNNJUUFEUPDPNNVOJDBUFUIFOFXDVMUVSFUISPVHIUIFJSPXO
BDUJPOT5IFJSCFIBWJPVSTTIPVMETZNCPMJTFUIFEFTJSFEWBMVFTBOE
CFIBWJPVSTDPOHSVFOUXJUIUIFOFXDVMUVSF
r .PEJGZUIFPSHBOJTBUJPOUPTVQQPSUPSHBOJTBUJPOBMDIBOHFBT
DVMUVSBMDIBOHFOPSNBMMZFOUBJMTNPEJųDBUJPOTJOPSHBOJTBUJPOBM
TUSVDUVSF IVNBOSFTPVSDFTTZTUFNT JOGPSNBUJPOBOEDPOUSPM
TZTUFNTBOENBOBHFNFOUTUZMFT*OBEEJUJPOUPUIFTFDIBOHFTCFJOH
OFDFTTBSZUPTVQQPSUUIFOFXDVMUVSF UIFZNBZTFSWFUPPSJFOUBUF
UIFFNQMPZFFTCFIBWJPVSUPUIFOFXDVMUVSF
r 4FMFDUJOHBOETPDJBMJTJOHOFXDPNFSTBOEUFSNJOBUJOHEFWJBOUT
DIBOHFPSHBOJTBUJPOBMNFNCFSTIJQUPųUUIFOFXDVMUVSF5IF
DBSFGVMTFMFDUJPOPG UIFASJHIUQFPQMF FŲFDUJWFTPDJBMJTJOH
QSPHSBNNFTBOEUFSNJOBUJOHUIFTFSWJDFTPG QFPQMFXIPEPOPUųU
UIFDVMUVSFBSFFŲFDUJWFNFUIPETUPFTUBCMJTIBOFXDVMUVSF5IJTJT
QBSUJDVMBSMZSFMFWBOUGPSLFZMFBEFSTIJQQPTJUJPOTXIFSFQFPQMFBSF
JOQPTJUJPOTXIFSFUIFZDBOJOŴVFODFPUIFST
5IJT DPODMVEFT PVS EJTDVTTJPO PO PSHBOJTBUJPOBM DVMUVSF XIJDI

DPNNFODFE XJUI BO FYQMBOBUJPO PG UIF UFSNT DVMUVSF PSHBOJTBUJPOBM
DVMUVSF OBUJPOBMBOESFHJPOBMDVMUVSFT JOEVTUSZDVMUVSFBOETVCDVMUVSF
JO PSHBOJTBUJPOT 8F JOWFTUJHBUFE UIF MFWFMT FMFNFOUT BOE UZQFT PG
PSHBOJTBUJPOBMDVMUVSFBOEUIFDIBQUFSDPODMVEFEXJUIBEJTDVTTJPOPO
XIZJUJTTPEJŵDVMUUPDIBOHFUIFDVMUVSFPG BOPSHBOJTBUJPOBOETPNF
BEWJDFPOHVJEFMJOFTUPDIBOHFPSHBOJTBUJPOBMDVMUVSF

CHAPTER SUMMARY
1. Describe the concept of culture.
Culture is the total pattern of human behaviour and its products personified in thought, speech,
action and artefacts, and is dependent on man’s capacity for learning and transmitting knowledge
to succeeding generations using tools, language and systems of abstract thought.
2. Define organisational culture.

(See Edgar H Schein’s definition in Section 6.2.)
One of the shorter definitions of organisational culture is that it comprises the aggregate
of beliefs, norms, attitudes, assumptions and ways of doing things that members of an
organisation share and teach to new members.
The central ideas of a variety of definitions of organisational culture:
• defines how organisational members should behave in a given context
• is inclusive of all organisational members
• sets the yardstick for expected norms of behaviour against which individual organisational
members judge their own actions and also by which others judge their actions
• legitimises certain forms of action and prohibits other forms of action.
3. Explain the levels of culture.

One can distinguish between three levels of organisational culture, namely the first level
comprising artefacts, the second level comprising values, including the goals, ideals, norms,
standards and moral principles and lastly, basic assumptions. (See Section 6.3.)
4. Differentiate between the various types of cultures in organisations.

The different types of culture evident in organisations derive from national and regional cultures,
industry cultures and include various sub-cultures.
• National and regional cultures differ in terms of attitudes towards work, authority and equality.
Variables that influence the development of a national culture include history, religion and
even climate.
• Industry cultures form within an ‘organisational field’, which is a community of organisations
that interact frequently with one another. Organisations operating in the same organisational
field function in a social system of expectations, taken-for-granted ways of doing things,
status and legitimacy, which exert a powerful influence on organisations and actors in them.
• Within organisations, there is no uniform, single culture. Sub-cultures form based on
occupational shared assumptions and sub-group histories. Many of the major cultural
differences and similarities in organisations are occupational. Occupational groups within
organisations may develop strong sub-cultures based on the work they do. Sub-cultures
may also form when groups are geographically isolated from the rest of the organisation.
Professional or functional sub-cultures form in organisations and can create problems for the
effective functioning of an organisation.
5. Discuss the elements of culture.

• A symbol is something that represents an idea, a process, or a physical entity. The purpose
of a symbol is to communicate meaning and organisations use specific symbols to convey
meaning.
Chapter 6 Corporate culture
• Stories about the organisation often reflect the core beliefs and assumptions held by
organisational members. How the stories told to newcomers relate to the specific strengths,
weaknesses, successes, and failures of the organisation, often reflect the prevailing culture.
• Language is a strong conveyor of organisational culture because organisational members
create unique terms to refer to various items and aspects of the organisation and only
members of the organisation understand these terms. Newcomers are often overwhelmed
when confronted by organisation-specific abbreviations and terminology.
• A ritual is a set of actions, performed mainly for their symbolic value. In organisations, rituals
often underpin the central values of the organisation. Organisational members assimilate
the culture of the organisation by observing which rituals play key roles in the organisation
and what behaviour the rituals encourage or discourage.
6. Compare the different types of culture.

Various experts on organisational culture classify the types of culture found in organisations
differently. In this chapter, a few of them were discussed:
• Charles Handy typifies culture in terms of the norms, values and beliefs that reflect in
different structures and systems of an organisation.
• Deal and Kennedy link culture to the risk and feedback characteristics of the specific market
in which the organisation functions.
• Quinn and McGrath use various variables, such as leadership style, authority, and the goal
and risk orientation of employees to identify four types of culture.
• Jones, Dunphy, Fishman, Larne and Canter categorised culture based on the influence of
culture on the behaviour of individuals and groups in the organisation.
7. Explain how organisations change culture:

• formulate a clear strategic vision
• firm commitment of top management to the espoused values and the need for culture
change
• model culture change at the highest level
• modify the organisation to support organisational change
• select and socialise newcomers and terminate deviants.
KEY TERMS
artefacts organisational field
assumptions organisational sub-culture
culture rituals
industry culture strategic drift

language stories
national and regional cultures symbols
organisational culture values
REVIEW QUESTIONS
1. Consider the opening case study on Boeing. Use the levels of organisational culture to analyse why
culture played such a big role in the misfortunes of Boeing.
2. Discuss the elements of organisational culture and use South African business examples from the
business media to illustrate these elements.
3. National and regional cultures influence the organisational culture of organisations. One of the
major characteristics of South African organisations is the diversity of their employees. In your view,
what influence does the national culture in South Africa likely have on the organisational culture of
international organisations operating in South Africa?
4. Do an internet search on the Absa and Barclay’s Bank merger. Write an essay describing how the
merger between this British organisation and the South African Absa influenced the culture at the
merged organisation.
END NOTES
1 Adapted from: (i) Holmes, S. 2006. Cleaning up Boeing. Business Week, 12 March 2012. [Online] Available from: http://
www.businessweek.com/stories/2006-03-12/cleaning-up-boeing. Accessed on 22 February 2013. (ii) Surowiecki, J.
2013. Requiem for a Dreamliner? New Yorker, February 4, 2013. [Online] Available from: http://www.newyorker.com/
talk/financial/2013/02/04/130204ta_talk_surowiecki#ixzz2LK6vzWvP. Accessed on 22 February 2013.
2 Holmes, op. cit.
3 Ibid.
4 Ibid.
5 Ibid.
6 Surowiecki, op. cit.
7 Aboulafia, R. cited by Surowiecki, op. cit.
8 Ibid.
9 Ibid.
10 Ibid.
11 Boeing 787 Dreamliner Grounded. Guardian, 18 January 2013. [Online] Available from: http://www.guardian.co.uk/
business/2013/jan/18/boeing-787-dreamliner-grounded. Accessed on 22 February 2013.
12 The South African Pocket Oxford Dictionary. 1987. Cape Town: Oxford University Press, p 181.
13 Ferrar, G.P. 1994. The cultural dimensions of international business. 2nd edition. NJ: Englewood Cliffs: Prentice-Hall,
p16. In Business Leadership and culture: national management styles in the global economy. Bjerke, B., p 4.
14 Webster’s Third New International Dictionary. 1993. Cologne: Könemann Verlagsgesellschaft MBH, p 552.
15 Morgan, G. 1997. Images of organization. 2nd edition. London: Sage.
16 Johnson, G., Whittington, R. & Scholes, K. 2011. Exploring strategy: text and cases. 9th edition. Financial Times.
Prentice Hall, p 184.
17 Ancona, D., Kochen, T.A., Scully, M., Van Maanen, J. & Westney, D.E. 2005. Managing for the future: organizational
behavior and processes. 3rd edition. Cincinnati, OH: South-Western College, p M2–57.
18 Achua, C. & Lussier, R.N. 2013. Effective Leadership. 5th edition. Canada: South Western, Gengage Learning, p 338.
19 Schein, E.H. 1990. Organizational culture. American Psychologist, 45(2): 111.
20 Ibid., p 113.
21 Ibid.
22 Achua & Lussier, op. cit., p 338.
23 Burnes. B. 2009. Managing change. 5th edition. Edinburgh: Pearson Education Limited, p 200.
24 Gitelson,G., Bing, J.W. & Laroche, L. The Impact of Culture on Mergers & Acquisitions P.E. [Online] Available from:
http://www.itapintl.com/facultyandresources/articlelibrarymain/the-impact-of-culture-on-mergers-a-acquisitions.html.
Accessed on 22 February 2013.
25 Ibid.

6FKHLQRSFLWSSŋ
$QFRQDHWDORSFLWS0ŋ
,ELG
%RHLQJ$ERXWXV>2QOLQH@$YDLODEOHIURPKWWSZZZERHLQJFRPDERXWXVFXOWXUHLQGH[KWPOYDOXHV$FFHVVHGRQ
0DUFK
-RKQVRQRSFLWS
6FKHLQRSFLWSSŋ
$QFRQDHWDORSFLWS0ŋ
-RKQVRQHWDORSFLWS
7KH+RIVWHGH&HQWUH>2QOLQH@$YDLODEOHIURPKWWSJHHUWKRIVWHGHFRPGLPHQVLRQVKWPOKWWSLPXQLYLHDFDW
ğOHDGPLQXVHUBXSORDGSURMBZLQGVSHUJHU.)..I.&RXQWU\&XOWXUHSGI$FFHVVHGRQ0DUFK
-RKQVRQHWDORSFLWS
$QFRQDHWDORSFLW0ŋ
0RUJDQRSFLWS
3HWHUV7- :DWHUPDQ5+-UIn search of excellence1HZ<RUN+DUSHU 5RZS
5REELQV63 -XGJH7$Organizational Behavior.WKHGLWLRQ1-8SSHU6DGGOH5LYHU3HDUVRQ(GXFDWLRQ
S
+ROPHVRSFLW
+DQG\&8QGHUVWDQGLQJRUJDQL]DWLRQVUGHGLWLRQ3HQJXLQ+DUPRQGVZRUWK,QOrganizational change. (GLWHG
E\ 6HQLRU% 6ZDLOHV6WKHGLWLRQ(GLQEXUJK3HDUVRQ(GXFDWLRQ/LPLWHGS
'HDO7 .HQQHG\$&XOWXUH$QHZORRNWKURXJKROGOHQVHVJournal of Applied Behavioural Science
ŋ,QOrganizational change.(GLWHGE\ 6HQLRU%DQG6ZDLOHV6WKHGLWLRQ(GLQEXUJK3HDUVRQ(GXFDWLRQ
/LPLWHGS
4XLQQ5( 0F*UDWK057KHWUDQVIRUPDWLRQRIRUJDQL]DWLRQDOFXOWXUHDFRPSHWLQJYDOXHVSHUVSHFWLYH,Q
Managing change(GLWHGE\%XUQHV%WKHGLWLRQ(GLQEXUJK3HDUVRQ(GXFDWLRQ/LPLWHGS
-RQHV4'XQSK\')LVKPDQ5/DUQH0 &DQWHU&,QManaging change(GLWHGE\%XUQHV%WKHGLWLRQ
(GLQEXUJK3HDUVRQ(GXFDWLRQ/LPLWHGS
/RZH60RRUH) &DUU$13DUDGLJPDSSLQJVWXGLHVRIFXOWXUHDQGRUJDQL]DWLRQInternational Journal of
Cross Cultural Management
3HWHUV7- :DWHUPDQ5+In search of excellence.1HZ<RUN+DUSHU 5RZSSŋ
6FKHLQRSFLWS
&XPPLQJV7* :RUOH\&*Organization development and change.WKHGLWLRQ&DQDGD6RXWK:HVWHUQ
*HQJDJH/HDUQLQJSSŋ

Chapter 7
2QYGTRQNKVKEUEQPƃKEV
resolution and negotiation
OPENING CASE
Mari Vrba
OPENING CASE
Power games 1BUFSTPOKPJOTUIFDPNQBOZ

0WFSWJFX Paterson had an outstanding résumé. He graduated
On a cold day in December, in an impersonal from top universities and then joined a prestigious
conference room in an airport, John Paterson law firm where he became a formidable litigator.
met with three sombre directors representing the At the age of 40, he became general counsel at a
board of one of the world’s largest manufacturing top USA company where he rapidly climbed the
companies. They called the company’s CEO for a corporate ladder. The manufacturing company
highly controversial purpose: he had to convince took notice and recruited him for the position of
them that he should remain the CEO of the general counsel, overseeing the more than 300
company. The directors listened as the CEO, company’s lawyers worldwide.
formally a successful trial lawyer, argued his case. The
board members sought answers as to why a revolt 5IFFY$&0XIPTUBZFEPOGPSNPSFUIBO
had erupted against Paterson among his executive BEFDBEF
leadership team. As the meeting progressed, it The executive who led the company during a
was obvious that Paterson was losing his case. A decade of phenomenal growth – while it grew into
day later, the company released an announcement a giant in its industry – was Josh Brown, a quiet
stating that the 55-year-old CEO had retired from man who did not like conflict and helped to shape
the company, with immediate effect. a corporate culture that discouraged open conflict.
However, in his own way, Brown had a strong ability
5IFDBTU to build alliances and to influence people.
r +PTI#SPXO BGPSNFS$&0XIPDPVMEOPU When he reached the mandatory retirement
relinquish his power and quietly schemed to age of 64, Brown stepped down as CEO. He had
undermine his two successors. handpicked his colleague and friend Mark Lewis as
r +VEJUI+BDLTPO UIFIVNBOSFTPVSDFTDIJFGXIP his successor. Although Brown had to relinquish his
divided and ruled. position as CEO, he remained a visible presence
and strong influence in the company for more than
r +FŲ1BUFSTPO UIF$&0XIPTFMFBEFSTIJQTUZMF a decade, eventually outlasting both his successors.
resulted in a revolt. The company contracted him as a consultant and
r 5IFNFNCFSTPG 1BUFSTPOTFYFDVUJWF he had his own office and secretary at the company
leadership team whose loyalty he had lost. headquarters. He received the title of Chairman
Emeritus and thus retained his seat on the company
CHAPTER 7 Power, politics, conflict resolution and negotiation
board. (Note: Any governance expert would and meticulously with a single purpose: to become
regard such an arrangement as a potential source the next CEO.
of conflict.) When the time came for Lewis to go, the board
The company had reached its peak after a met to decide who would succeed him. Prior to
decade of remarkable growth and, although not their meeting the board received two anonymous
evident at the time, it faced a period of decline. letters from ‘senior staff members’ warning them
The company’s pipeline of new products could not against appointing Paterson, citing reasons such as
support the growth the company had promised micromanagement, constant reorganisation, and
investors. Lewis, the new CEO, responded to a muddled decision-making process. The board
these challenges by acquiring another massive dismissed the warnings and selected Paterson as
manufacturing company. As the huge and ballooned the new CEO.
company started to falter, Lewis seemed to spend
more and more time away from headquarters, The company falters
instead heading up industry trade groups, funding When Paterson took the helm as CEO, the
an institute in Africa to fight Aids and writing a company was still generating billions in profits but
book about reforming health care. its business model was failing and its share price
The ex-CEO Josh Brown seemed willing and was falling. Paterson had worthy goals, such as
able to fill the resultant power void. He was a promising to transform almost every aspect of the
regular at the company’s headquarters, where he business in order to modernise the company and
often joined his former colleagues for lunch in the to develop new products.
cafeteria. Brown was always willing to listen and to However, the company and its CEO faced many
participate quietly in conversations. Although not challenges. For example, when Paterson took over
overly evident, his influence was substantial. The from his predecessor, there were two major new
perception at the company headquarters was that products in the pipeline – but rolling them out would
he knew the company inside out and people held end in disaster. Paterson had to retract a promising
his opinion in high esteem. new product and consumers rejected another new
As the company slowed down, infighting at product because of its awkward design. In response
headquarters erupted. Lewis became convinced to the serious problems it faced, the company,
that Brown was undermining him and he attempted under the leadership of Paterson, embarked on a
to end his consulting contract, a move that Brown huge downsizing exercise and 20 per cent of the
could defend because of the support he enjoyed workforce was retrenched. Ironically, even as he
from the board. Brown and Lewis became bitter was making massive cuts, Paterson also made new
enemies. acquisitions, first a handful of smaller purchases
In anticipation of his eminent retirement, Lewis then acquiring another massive manufacturing
identified two veteran company ‘stars’ as possible company. In addition, the company’s R&D model
candidates to succeed him. There was also a third was not working – bigger did not prove to be
candidate: Paterson. He had been at the company better when it came to producing new products –
for three years and was a newcomer to the and Paterson instigated a messy R&D restructuring.
manufacturing industry. However, Paterson held
a trump card namely Brown, who supported him Enter Judith Jackson
and helped him to outmanoeuvre both rivals. Paterson was struggling to find answers in a
The race for a new CEO divided the company complex industry where his own experience was
into three camps. Each contender regularly met limited. His leadership team changed constantly.
with a group of supporters to formulate their Veterans departed and a prominent new appointee
campaign strategy and defence strategies. resigned suddenly citing personal reasons for her
Paterson conducted his campaign aggressively resignation. Paterson did not seem to trust the

old hands at the company and often turned to One incident set the process of Paterson’s
outsiders, especially consultants, to advise him. The departure in motion. The HR director had recently
only exception in this regard was Judith Jackson, the received the results of a survey of Jackson’s direct
head of human resources (HR) who would become reports, which she sent to Jackson. The survey
Paterson’s most trusted confidant and accrue much revealed that a third of the managers reporting
power in her own right. to Jackson rated her performance out of 5 in key
When Jackson took over the company’s areas as 1 or 2. Jackson sent her response to all
human resources group, two years after Paterson’s participants by e-mail expressing how sad and
appointment as CEO, the company was preparing embarrassed she was with the outcome of the
for massive retrenchments and Jackson’s job was survey. She added that she was also sad for them
crucial. Although she immediately downsized the because it was obvious that they worked in an
bloated HR group, Jackson did not seem overly environment that made them very unhappy.
concerned about the details of how the reorganised Someone forwarded Jackson’s e-mail to both
group would actually function. It was impossible Paterson and to the board, with an anonymous but
for her staff to arrange a meeting with her and detailed cover note identifying Jackson’s leadership
her preferred style of communication was to send as the real issue. The writer urged the board to do
e-mails. Jackson’s primary focus was on the CEO. a thorough investigation into the matter, conducted
She became Paterson’s shield and representative; by an independent party because Jackson’s deputies
she controlled access to him and was the messenger feared retaliation.
of his blunt directives. Paterson indulged her. The board appointed a lawyer to investigate
Jackson was overheard using derogative terms to Jackson and the HR group. After interviewing all
refer to senior executives, such as ‘not an A player’, of Jackson’s direct managers, the lawyer did not
‘too ambitious’ and ‘a baby’ in his presence. find anything illegal, but he concluded that HR
Life at the top of the company became was thoroughly ‘dysfunctional’, and fragmented
increasingly stressful. Paterson increased pressure by ‘inept management’. In his view, this was a
on his deputies by demanding immediate responses ‘simple case of incompetence’. After receiving
to all his requests, without distinguishing between this report, Paterson accepted the resignation of
urgent matters and routine ones. Vacations became his controversial HR chief, but he sweetened her
a vague memory for most of the senior executives. departure with a generous severance package.
There were incidents where Paterson berated his The problems associated with the company’s
deputies; on occasion, he could reduce senior staff HR chief focused the board’s attention on the CEO
members to tears. His decision-making style was himself. How could he ignore the trouble Jackson
erratic as he drilled down to the smallest details was causing? His confidant’s issues had escalated
only to overturn approved decisions. into a crisis for Paterson.
The company’s board resolved to conduct a
The executive leadership team falls apart survey among the members of Paterson’s executive
The main reason for Paterson’s departure from team. Paterson sensed what was going on and
the company was that members of his executive he made his own calls to assess support for him.
leadership team were no longer loyal to him. One Tellingly, Brown, his long-time ally, did not return
reason for the alienation was the influence of Judith his calls.
Jackson over Paterson. She had his support, she was The results of the survey indicated that not one
powerful and people inside the company feared executive supported Paterson fully. All expressed
her. Paterson seemed blind to her shortcomings, the view that the situation was indefensible. A few
which created a split in the executive leadership of the executives expressed the view that the CEO
team. One executive summed it up by saying that needed to resign. The directors agreed to summon
Paterson and Jackson were in one camp and the Paterson for a private meeting.
rest of them in another.

LEARNING OBJECTIVES
6Je purpose of tJis cJapter is to inXestigate tJe concepts of power interest inƃuence and political
action in conteOporar[ organisations. 9e also eZaOine conƃict resolution tecJniSues and tJe
negotiation process. The objective of studying this chapter is to enable you to:
. &eƂne and discuss power and organisational sources of power.
2. Explain the relationship between power and interest.
. &iscuss how people use inƃuence tactics and political action to protect their interests.
. Explain the various sources of organisational conƃict and identify the conƃict OanageOent
strategies.
5. Provide guidelines on how to apply the two phases of the negotiation process: planning and the
actual process.
7.1 POWER LEARNING OBJECTIVE 1

The case study offers rare insight into the inner workings of a ‘real’ &GƂPGCPFFKUEWUURQYGT
organisation and narrates the specific sequence of events during a and organisational sources of
stressful period in its history. It brings into sharp focus the use and abuse power.
of power by senior executives of the organisation to satisfy their own
personal needs.
Bear in mind that many examples from the same organisation during
the same period, would probably illustrate how executives and senior
managers used their power to achieve various goals of the organisation
effectively. This is because managers use their power to get things done
in the organisation on a day-to-day basis. They also need power to
secure scarce resources and to bring about change. A renowned expert
on the subject, Jeffrey Pfeffer notes:
‘Any new strategy worth implementing has some controversy
surrounding it and someone with a counter agenda fighting it.
When push comes to shove, you need more than logic to carry the
day. You need power’2.
7.1.1 Defining power

The question of what constitutes QPXFS has received much research RQYGT
interest. In the literature, definitions of power abound, as evident from the potential to influence
the following definitions: behaviour, to change the
‘[t]he medium through which conflicts of interest are resolved … cause of events, to overcome
influences who gets what, when and how’3 – Morgan. resistance, and to get people
‘[t]he potential ability to influence behavior, to change the course to do things they would not
of events, to overcome resistance, and to get people to do things they otherwise do
would not otherwise do’4 – Pfeffer.
‘[t]he ability of individuals or groups to persuade, induce or coerce
others into following certain courses of action’… [I]t is rooted in control
over or access to resources of a wide variety5 – Johnson, Whittington
and Scholes.
‘[t]he ability to get one’s way in a social situation’6 – French & Bell.

The different definitions of power capture the key terms associated with
power: interest, influence and ‘to get people to do what they would not
otherwise do’. Despite the slightly ‘dark’ connotations of the words that
appear in the definitions of power, the use of power in organisations has
a positive as well as a negative ‘face’. McClelland7 is one theorist who
distinguishes between personal power (an individual who has a ‘me’
orientation) and social power (an individual who has a ‘we’ orientation).
People with a personal power orientation may use power for their own
purposes and to protect their own interests, in other words, they may
use their power to pursue their own goals, as illustrated succinctly by
the opening case study. French and Bell comment that ‘the negative
face of power is characterised by a primitive, unsocialised need to have
dominance over submissive others’8.
McClelland9 describes the ‘good face’ of power (social power) as
characterised by an individual’s concern for group goals, for helping the
group to formulate goals and providing the means to attain the goals
by empowering people to work hard to achieve the goals. Senior and
Swailes describe positive power as deriving from a ‘more socialized need
to initiate, influence and lead and to recognize other people’s needs to
achieve their own goals as well as those of the organization’10.
Despite the conflicting views of power, it is clear that power and
people using their power are unavoidable occurrences in contemporary
organisations.
Machiavellian behaviour in organisations

At the end of his career as a diplomat, Niccoló The term Machiavellian is often used in modern
Machiavelli compiled his masterpiece The Prince organisations to refer to colleagues who have a high
in 1513. It was a study of power and politics and need for power (see the chapter on motivation)
a manual of ruthlessness for any ambitious ruler. and believe that the end justifies the means. A
Today his ideas are as relevant as five centuries ago recently published book, How to thrive in a world of
when Machiavelli wrote the book in conflict-ridden lying, backstabbing and dirty tricks (published in 2013
Italy. His book influenced major historical figures by Vermillion) deals with Machiavellian behaviour in
such as Napoleon and Frederick the Great. The organisations. The author, Oliver James, views the
Prince has become a foundation of modern political Machiavellian type in organisations as a ‘game player’
thought and made Machiavelli’s name synonymous … ‘[T]hey are often very compulsive and only feel
with manipulative scheming11. comfortable if there is some kind of game going on
where they can play and try to win’12.
7.1.2 The sources of power

In the next section we investigate why some people in organisations
have power and others are powerless.
French and Raven (1959)

French and Raven13 identified five sources of organisational power
in 1959 that are still relevant today and cited in most discussions on
the topic in management literature. The five sources derive from an
individual’s hierarchical position, the ability to reward others or to
punish others, charisma and expertise – and are either personal or

formal sources of power14.
Formal power
Organisations confer GPSNBM QPXFS on individuals in terms of their HQTOCNRQYGT
positions in the organisational hierarchy. formal power includes
r -FHJUJNBUF QPXFS 1FPQMF HBJO MFHJUJNBUF QPXFS CFDBVTF PG UIFJS legitimate, reward and coercive
formal positions in organisations, which allow them to make power
decisions pertaining to resource allocation, information flows,
performance evaluations, task alignment and conflict resolution.
r 3FXBSE QPXFS 3FXBSE QPXFS SFTUT XJUI BO JOEJWJEVBM TVDI BT B
manager in an organisation who has the ability to give rewards to
reward or reinforce desirable behaviour. In an organisational context,
managers can use many ‘currencies’ to reward subordinates, such as
salary increases, promotions, interesting assignments, admission to
‘in’ groups, access to crucial information, feedback and praise, to
mention but a few. The flipside of this power source is that the
recipients of the rewards must perceive the rewards as being of
value to them. As we will see later on in Chapter 20 on workforce
motivation, a reward is a motivator only if the recipient values the
reward15.
r $PFSDJWF QPXFS "O JOEJWJEVBM XIP DBO PŲFS PS SFTUSJDU CFOFųUT
or inflict punishment or control the behaviour of another person
has coercive power. This type of power is often associated with
the negative face of power. Fear is the basis of coercive power
because the person with power has the ability to inflict punishment
or take action with adverse consequences for the other person. In
an organisational context, managers can retrench people, withhold
rewards such as promotions or directly or indirectly threaten
subordinates with punishing actions.
Personal power
1FSTPOBMQPXFS stems from the unique characteristics of an individual, RGTUQPCNRQYGT
with or without formal power based on hierarchical position. includes referent and expert
r 3FGFSFOU QPXFS 3FGFSFOU QPXFS SFGFST UP UIF QPXFS PG BO power
individual because of his or her personal characteristics or charisma.
People will follow and obey such an individual because they like and
respect him or her and they accept that the person has power. In an
organisational context the manager who depends on referent power
must be ‘attractive’ to subordinates in the sense that they would
want to identify with the manager, regardless of the other bases of
power (legitimate power or power of reward) the manager may
possess. (We discuss charisma in Chapter 1.)
r &YQFSU QPXFS &YQFSU QPXFS SFGFST UP BO JOEJWJEVBMT QPXFS UIBU
stems from the possession of scarce and valued expertise. Expertise
is a source of power if it is the perception in the organisation that the
individual possesses knowledge and understanding pertaining to a
specific defined area. For example, the only professor at a university

with expert knowledge of the latest ground-breaking treatment for

cancer may possess expert power. It is important that the recipients
of a person’s expert power must perceive the person with expert
power as credible, trustworthy and relevant16. Credibility means
that the person has the right credentials in terms of knowledge and
experience and must be able to show concrete evidence of this. In
our example, the professor may prove her credibility by referring
to the number of research articles she has published in accredited
international medical journals, earning the respect of her colleagues.
Trustworthiness means that the person with expert power must
be honest and forthright. Finally, the knowledge or expertise of the
person must have relevance in the context of his or her expertise.
The professor in our example will have expert power as far as a
specific cancer treatment is concerned, but not in respect of the
latest breakthrough in nuclear science research.
Morgan (1997)
In addition to the sources mentioned above, Morgan17, in his influential
book Images of organization (1997), argues that power influences
‘who gets what, when and how’ in organisations. In his view, power in
organisations stems from a number of sources and we discuss these
sources briefly in the following sections.
r 'PSNBM BVUIPSJUZ 'PSNBM BVUIPSJUZ JT B GPSN PG MFHJUJNBUF QPXFS
first described by the sociologist Max Weber18 (see Chapter 1) and
still referred to by management theorists. Weber was interested
in answering the question of why individuals in organisations obey
commands. Weber made a distinction between power (the ability to
force people to obey) and authority (where the recipients of orders
obey them voluntarily). He distinguished between three types of
legitimised (socially acceptable) authority: charismatic, traditional
and rational-legal authority. Weber used the Greek term ‘charisma’
(gift of grace) to describe the individual personality attributes of
people with charismatic authority, which define their right in the
eyes of others to act on their behalf. In modern organisations,
there are many examples of charismatic leaders who accrue great
power based on their personal characteristics. Traditional authority
rests on a belief in long standing traditions and the legitimacy of the
authority of people who occupy a traditionally sanctioned position
of authority. In a modern organisation, for example, when the son
or daughter of the founding member of a family business takes
over the reigns when their parent retires they acquire traditional
authority. Individuals with rational-legal or bureaucratic authority
gain their authority through their position in the organisation, such as
a manager or a CEO (same as legitimate power). Authority attained
through any of the three types serves as a form of power as long as
the recipients respect and accept the nature of that authority: if they
do not, the person will not have power.
r $POUSPM PG TDBSDF SFTPVSDFT 0SHBOJTBUJPOT USBOTGPSN UIFJS
resources into the products they produce or the services they
render. Organisations are thus dependent – for their success and
survival – on the resources they need and on the suppliers of these

resources. Those in the organisation who control and allocate
resources such as financial, human, physical and informational
resources (see Chapter 2), accrue power. The scarcer the resources
and the more dependent an individual or a group in the organisation
is on its availability, the more resource power the individuals or
groups who control the resources accumulate.
r 0SHBOJTBUJPOBM TUSVDUVSF 5IF DIPJDF BOE VTF PG PSHBOJTBUJPOBM
structure may be the outcome of a political process rather than the
application of rational analysis and decision-making. Managers have
significant scope when it comes to choices regarding organisational
design, which they can exercise when deciding about aspects such
as differentiation or integration, centralisation or decentralisation
and departmentalisation. These choices may entail hidden
agendas related to the power autonomy and interdependence of
departments and individuals. Viewed from a political perspective,
such decisions may become products of political action, which may
enhance the power positions of the decision-makers.
r $POUSPMPG EFDJTJPOQSPDFTTFT5IFBCJMJUZPG BOJOEJWJEVBMUPDPOUSPM
the outcomes of organisational decision-making processes can build
power. Such outcomes include:
r QSFNJTFT UIF DPOUSPM PG EFDJTJPO BHFOEBT XIJDI NBZ JOWPMWF
preventing or promoting the appearance of a specific decision
on the agenda)
r QSPDFTTFT BTQFDUTPG EFDJTJPONBLJOHTVDIBTIPXUIFEFDJTJPO
will be made, who will make the decision and when the decision
will be made)
r TIBQJOH JTTVFT BOE PCKFDUJWFT CZ QSFQBSJOH UIF SFQPSU BOE
contributing to the discussion underpinning the decision).
r $POUSPM PG LOPXMFEHF BOE JOGPSNBUJPO *OEJWJEVBMT XIP DPOUSPM
the knowledge and information that define the reality of decision-
making processes, accrue power. Many principles of organising, such
as the chain of command, division of work and the coordinating of
sections and departments, enable individuals to control information
flows, open and close channels of communication, filter, analyse and
summarise information before disseminating it and consequently
modelling information to suit their own views on issues and to
advance their own interests.
r $POUSPM PG CPVOEBSJFT #Z DPOUSPMMJOH PSHBOJTBUJPOBM CPVOEBSJFT
which form the interface between the different elements of the
organisation internally (boundaries between different groups)
and externally (boundaries between the organisation and its
environment, including suppliers, customers, intermediaries and
competitors), a person can accumulate considerable power. An
individual with control of boundaries may be able to access crucial
information regarding eminent changes and be in a position to plan
to avoid or facilitate changes. People in leadership positions, project
coordinators and organisational liaison officers can gain power by
controlling organisational boundaries.

r The ability to cope with uncertainty. The ability to cope with

environmental or operational uncertainty provides an individual,
group or sub-unit with power because of the interdependencies that
exists in organisations. Environmental uncertainties refer to issues
such as the availability of resources, while operational uncertainties
may include issues such as the breakdown of essential machinery,
the closing of a plant and so on. Interdependencies, changes and
uncertainties in one part of the organisation create uncertainty
in other parts of the organisation (refer to Chapter 1 where we
discuss the systems theory). The ability of an individual or a group
to anticipate, plan for and control uncertainties, could be a source
of power for them. People with this power base may attempt to
preserve it by ensuring that the uncertainty lingers, or even by
controlling situations to make them seem more uncertain than they
actually are.
r $POUSPM PG UFDIOPMPHZ 5IF JOUSPEVDUJPO PG OFX UFDIOPMPHZ GPS
example, the use of new machinery for the production of core
products, the introduction of new computer hard- or software,
or the implementation of a new information system, can affect
the balance of power in organisations and can become the source
of conflict. Individuals or groups who have expert knowledge of
the new technology accumulate power. The control of technology
relates to a crucial organisational objective, namely to increase
productivity. Individuals or groups who control technology can
manipulate this power by influencing productivity either directly or
indirectly.
r *OGPSNBMJOUFSQFSTPOBMBMMJBODFTBOEOFUXPSLT5IFTFBSFFNFSHJOH
sources of power, as we discussed elsewhere in the chapter.
r $POUSPM PG DPVOUFS PSHBOJTBUJPOT *OUFSBDUJPO BOE MJBJTPO XJUI
significant counter organisations, such as labour unions or lobby
groups, enhances the personal power of those who deal with such
groups on behalf of the organisation.
r 4ZNCPMJTN BOE UIF NBOBHFNFOU PG NFBOJOH 4PNF PSHBOJTBUJPOBM
leaders are effective users of cultural tools as discussed in Chapter 6
$PSQPSBUFDVMUVSF
4VDIMFBEFSTBSFBCMFUPVTFTZNCPMT SJUVBMT
and stories to help others make sense of events in an organisation.
In so doing, the leader wields symbolic power because he or she
influences the way others think about and act regarding specific
situations.
r (FOEFS BOE UIF NBOBHFNFOU PG HFOEFS SFMBUJPOT 5IF HFOEFS
balance in many organisations is changing as more women go
through the ‘glass ceiling’ that previously prevented them from
PDDVQZJOHQPTJUJPOTPG QPXFS*O4PVUI"GSJDB MFHJTMBUJPOSFMBUJOHUP
equal opportunities in the workplace makes provision for women
and other previously disadvantaged people to have access to top
positions in organisations, thus enabling them to accumulate power.
r 5IF EFFQ TUSVDUVSF PG QPXFS %FFQ TUSVDUVSFT VOEFSQJO QPXFS
relations and may prevent individuals from using the power they

accrue. An analogy for deep structure19 is the ‘design of the playing

field and the rules of the game’ at organisations. Deep structure
is the set of major choices a system (in this case, an organisation)
has made of basic parts into which its units will be organised and
the basic patterns of activity that will maintain its existence. For
example, a manager may have access to various sources of power,
but could be unable to draw on and use those sources of power
because deep structural factors prevent him or her from using the
power. Deep structures are very stable because the trail of choices
made by a system (an organisation) rules out many options at the
same time as it rules in mutually contingent options. Deep structure
includes factors such as economics, race and social class relations
and determines the roles we occupy in organisations and thus the
type of power we accrue.
r 5IF QPXFS POF BMSFBEZ IBT 1FPQMF XJUI QPXFS VTF JU UP BDRVJSF
more power, so the power one already has is a source of power.
Social networks as a source of power

Recently, a new source of power is emerging in organisations, stemming
GSPN FNQMPZFFT TPDJBM OFUXPSLT 1FPQMF JO PSHBOJTBUJPOT XJUIPVU
any formal or personal power, are accumulating power based on the
TUSFOHUI PG UIFJS TPDJBM OFUXPSLT 5IF LFZ GBDUPST UIBU EFUFSNJOF UIF
power an individual can obtain from his or her social network includes
the following20:
r 5IF TJ[F PG BO JOEJWJEVBMT OFUXPSL JO PUIFS XPSET UIF OVNCFS
of people in the network influences the strength of a network.
An individual with a substantial number of contacts in his or her
social network within an organisation will be privy to much more
information when compared to a person with a small or no social
network.
r 5IFQPTJUJPOJOBQFSTPOTOFUXPSLJTBTUSPOHJOEJDBUPSPG IJTPSIFS
QPXFS5IFOVNCFSPG DPOUBDUTCFUXFFOBOJOEJWJEVBMBOEUIFQFPQMF
in the organisation who make the significant decisions determines
the power obtained by the person. Consider the example of the
secretary of the CEO, who has no formal or personal power, but
because she has access to information intended for top managers,
she becomes a powerful person and (maybe unethically) her
network of friends may benefit from the information she accesses.
In the opening case study, we have seen how the director of human
resources became a very powerful person due to her close working
relationship with the CEO.
r 5IF EJWFSTJUZ PG DPOUBDUT JO BO JOEJWJEVBMT OFUXPSL EFųOFT IPX
much power an individual can gain from his or her social network. An
individual whose network includes people in different departments
and positions in the organisation, has more power than a person
whose network only includes people who work in one’s own
department.

LEARNING OBJECTIVE 2 7.2 INTERESTS

Explain the relationship What people want and what is at stake for them is the essence of the
between power and interest. political perspective of organisations. In organisations, individuals will
try to protect their own and their group or teams’ interests, and if
they have power, they will use it to defend their interests. Employees
interests have individual JOUFSFTUT as well as collective interests. Their own self-
interest is the primary motivator of people’s behaviour (see Chapter
people have individual and
20 on workforce motivation). For example, individuals may look at a
collective interests
change intervention and consider how the change may affect their own
position relative to, for example, better remuneration, advancement in
the organisation or perhaps obtaining more power and influence. The
opening case study articulated the manoeuvres Judith Jackson and Josh
Brown had made to protect their own interests.
Collective interests derive from organisational design, which defines
the ‘boxes’ in the organisation to which organisational members belong
such as demographic areas, functional areas and one’s profession. In
other words, the organisational structure and the positions of power
created by the structure create groups who share and will protect their
collective interests. Organisational members typically belong to more
than one collective interest group and will support or block decisions
that affect their interests in their various groups. The bases for collective
interests include the following21:
r 'BDUPSTTVDIBTBHF HFOEFS FUIOJDJUZBOENBSJUBMTUBUVTEFųOF
demographic groups. An example here may be a group of people
at an organisation approaching the mandatory retirement age of
60. This group of people may have the same interest in extending
the retirement age to 65 and may take political action, such as
sending a petition and negotiating with decision-makers to further
their interests.
r 5IFEJWJTJPOPG MBCPVSJOBOPSHBOJTBUJPOTVDIBTGVMMUJNFPSQBSU
time workers may create different interest groups who will protect
their collective interests in the organisation.
r 5IFHFPHSBQIJDBMBSFBXIFSFQFPQMFXPSLEFųOFTJOUFSFTU
groups – workers at the South African plant of an automobile
manufacturer will probably have different interests to protect
when compared with their counterparts in Europe.
r 1FPQMFXJUIUIFTBNFQSPGFTTJPOTJOPSHBOJTBUJPOT TVDIBT
engineers, accountants, managers and executives share the same
interests and will form interest groups to protect their interests in
the organisation. (Refer to the executive management team in the
opening case study.)
Having distinguished between individual and collective interests, the

question arises of how an individual or a group can persuade other
people or groups to act in a specific way. Interpersonal interaction
involves attempts to influence others and lies at the core of the political
perspective of organisations.

7.3 INFLUENCE TACTICS AND TAKING LEARNING OBJECTIVE 3

POLITICAL ACTION Discuss how people use
inƃuence tactics and political
Influential people have power, but not all people with power have action to protect their interests.
influence22. Influence involves gaining the agreement of others to work
with you to achieve a specific goal. Many powerful people cannot do
that, for a variety of reasons. The opening case study relates how John
Paterson lost the loyalty and support of his executive leadership team
and he had no more influence over them, despite being the CEO with
substantial power at the company.
5IFQPXFSPGJOŴVFODF23
A journalist from the Financial Times asked the giving further evidence that he is not partisan in the
Archbishop of Canterbury how, ‘particularly as such criticism of wrongdoing.’
a young man, he was able to deal with the power of ‘Influence trumps power. Influence usually takes
his position?’ “I have no power, I have influence,” he time to manifest, based as it often is on example –
responded, with humility and insight. but it can begin overnight (as it does for new-found
‘Some powerful people have influence. Many rock stars).’
religious leaders, like the Archbishop of Canterbury Influence cannot be taken away, ‘but it can
have extraordinary influence – far more than elected, certainly be lost in an instant.’ Ask Lance Armstrong,
powerful, world leaders.’ Bernard Madoff or Dominique Strauss-Kahn.
‘Archbishop Desmond Tutu has influence – ‘Influence is usually sustained, but power and
acquired and growing as it does with every act, leadership change hands.’
When does power convert to influence? Suppose person A is the person

with power (the agent) and person B is the target. When B consents to
behave according to the wishes of A, power has converted to influence.
Power involves a reciprocal relationship between the agent and the
target and the characteristics of the recipient may explain the strength of
the agent’s influence over the recipient24. Characteristics of the recipient
such as dependency on the agent; uncertainty regarding the proper way
to behave in a specific situation; personality, including self-esteem and
vulnerability; and intelligence, where highly intelligent people may be
more willing to listen, but more resistant to influence, may determine to
what extend the agent can influence the recipient.
People with power in organisations use specific influence tactics to
obtain compliance. Some of these tactics may seem to be manipulative
or dishonest, but the purpose of this section is not to encourage you as
a student of business management to use an influence tactic with which
you are uncomfortable, but rather to inform you of the tactics that
people in organisations use to influence others.

7.3.1 Influence tactics

Suppose person A (the agent) wants to influence person B (the recipient).
Person A may use the following tactics to influence person B25. Table 7.1
summarises the influence tactics.
Table 7.1: +nƃuence tactics
Tactic Actions of A (the agent)
Pressure Threatening, intimidating B or demanding that he or she complies
Upward appeals Persuading B that higher levels of management approved the request, or appealing
to higher levels of management for assistance in B’s compliance
Exchange Promising s explicitl[ or implicitl[ s that B will receive rewards or tangiDle DeneƂts
if he or she complies, or reminding B of a prior favour that he or she should return
Coalition Seeking the aid of others to persuade B to do something or using the support of
others as an argument to convince B to agree
Ingratiating Using friendliness, humour or ƃatter[ Defore making a request to B

Rational persuasion Using logical arguments and factual evidence to persuade B that a proposal or
request is viable and likely to result in the achievement of objectives
Inspirational appeals Appealing to B’s values and ideals and arousing enthusiasm by making an
emotional request or proposal or by boosting person B’s conƂdence that he or she
can do it
Consultation tactics Seeking B’s participation in making a decision or planning how to implement a
proposed policy, strategy, or change
Source: Adapted from: Yukl, G. & Falbe, C.M. 1990. Influence tactics and objectives in upward, downward, and lateral influence
attempts. Journal of Applied Psychology, 75(2): 132–140.
Contextual factors, especially the hierarchical level of B, should influence

A’s selection of the most effective tactic to use26.
r 3BUJPOBMQFSTVBTJPOJTUIFNPTUFŲFDUJWFUBDUJDUPVTFBDSPTT
organisational levels (upward, downward and lateral).
r 5BDUJDTTVDIBTJOTQJSBUJPOBMBQQFBM QSFTTVSF DPOTVMUBUJPO
ingratiation and exchange is most effective when the intended
influence is downward (to subordinates).
r 8IFOUIFEJSFDUJPOPG UIFJOŴVFODFJTMBUFSBM DPOTVMUBUJPO
ingratiation, exchange and coalition tactics are the most effective.
7.3.2 Taking political action

Morgan27 argues that the idea of rational organisations where
organisational members seek common goals, and where politics
and politicking are considered to be dirty words, prevents us from
recognising that the latter are essential aspects of organisational life.
Indeed, he cites Aristotle in ancient Greece who advocated politics as
a means of reconciling the need for unity in the Greek state. Politics for
Aristotle entailed the process of creating order from diversity to avoid
authoritarian rule. Political science originated from this idea, favouring

politics and the recognition and interaction of competing interests as a

means of creating a non-intimidating form of social order28.
Pfeffer29, an expert on the subject of the use of power and politics
in organisations, argued in a recent Harvard Business Review article
that effective managers know that in order to succeed, they need two
competencies or skills: substantive business acumen (to know what to
do) and organisational or political skills to get it done.
When employees in organisations convert their power into influence
and action, they are engaging in politics. Those with good political skills
can use their bases of power effectively30. We have already described
influence and influence tactics that individuals and groups in organisations
use to get others to help them achieve their goals, which are political
actions; in this section we elaborate further on the concept of politics
and political actions.
1PMJUJDBM CFIBWJPVS in organisations are activities that are not RQlitiEal beJaXiQWr
required as part of an employee’s formal role, but are activities that includes activities that are
are performed to influence or attempt to influence the distribution of not required as part of an
advantages or disadvantages in the organisation31. employee’s formal role, but
Legitimate political behaviour refers to actions that occur on a are performed to attempt to
daily basis in organisational life such as forming alliances or coalitions, influence the distribution of
using one’s networks and so on. Illegitimate political behaviour includes advantages or disadvantages in
extreme and damaging behaviour that infringes the rights of the the organisation
organisation and its members, for example sabotage. Table 7.2
summarises the different political actions that may take place in
organisations.
Table 7.: .egitiOate and illegitiOate political behaviour in organisations

Internal External
r complain to supervisor r lawsuits
r bypassing chain of command
Vertical r creating obstructions
r forming coalitions and alliances r contact with counterpart from another
.egitimate r exchange of favours organisation to gain access to information
.ateral r retaliations and other power sources
r using networks r professional activity outside the
organisation
r sabotage r whistleblowing
media releases on internal
r symbolic protests organisational activities
Vertical r revolts
Illegitimate r riots
r threats r organisational disloyalty
membership to
.ateral other organisations and disloyalty to the
organisation
r defections
moving to a competitor
organisation or starting own business and
taking clients with them
Source: Adapted from Farrell, D. & Petersen, J.C. 1982. Patterns of political behavior in organizations. Academy of Management Review,
7(3): 407.

Any form of major change, such as strategic or structural change, will

inspire various forms of political action from various actors across the
organisation. Mobilising support requires an understanding of interests
and power and using one’s knowledge of it to your advantage to achieve
the desired outcomes. Consider a scenario where an individual manager
is promoting a major change intervention in an organisation and needs
to get buy-in from various other managers before proceeding with the
intervention. The manager can attempt to secure the approval of the
other managers by taking these political actions32.
r 3FDPHOJTFUIFEJŲFSFODFTJOJOUFSFTUTBOEHPBMTPGUIFJOEJWJEVBMT
and groups who oppose the idea and find ways to unite them to
produce advantages to all.
r *EFOUJGZUIFJOEJWJEVBMTBOEHSPVQTXIPNUIFDIBOHFXJMMBŲFDUBOE
map their interest and their sources and bases of power.
r *EFOUJGZQPTTJCMFTVQQPSUFSTBOECMPDLFSTPGUIFDIBOHF
intervention.
r *EFOUJGZUIFQPUFOUJBMTUBLFIPMEFSTBOEUIFFYJTUJOHDPBMJUJPOT
r 5IFOPCUBJOACVZJOJOEFDJTJPONBLJOHBOETIBSFEPXOFSTIJQPG
the decision by finding supporters who will act together to back
the decisions, policies and activities and build coalitions to change
the distribution of power.
r "DUJWFMZDSFBUFBOEVTFOFUXPSLTVQXBSET EPXOXBSETBOE
horizontally.
r /FHPUJBUFTPMVUJPOTBOEPVUDPNFTUPDSFBUFXJOXJOPVUDPNFT
(see the next section on conflict management).
Although power and politics often have negative connotations, many

effective actions in organisations have at the very least a political element.
Critical organisational issues often require individuals (often managers)
to mobilise the support from individuals or groups with the resources to
achieve the desired outcomes.
To obtain outcomes beneficial to all parties, it is essential for managers
to have conflict management and negotiating skills.
LEARNING OBJECTIVE 4 7.4 CONFLICT MANAGEMENT

Explain the various sources
$POŴJDU is a process in which one party perceives that another party
of organisational conƃict
opposes or negatively influences its interests33. Note that in the definition
and identify the conƃict
of conflict, the word ‘perceives’ signifies that the sources of conflict may
management strategies.
be real or imagined, although the subsequent conflict remains the same
EQnƃiEt – people’s perceptions are their realities.
Paradoxically, conflict can be beneficial for the attainment of
a process in which one party
organisational goals, although too much conflict can harm the
perceives that another party
organisation. When there is too little conflict, employees may become
opposes or negatively influences
complacent and lazy, and innovation and creativity may be absent
its interests
because employees do not express fresh ideas and opposing viewpoints
for fear of conflict. On the other hand, too much conflict may lead to
lack of teamwork, political infighting, aggression and even violence. Thus,

conflict can be ‘functional’, meaning it is constructive and through this

conflict the organisation benefits. Dysfunctional conflict is the opposite
and may become destructive. So, when is conflict optimal?
High
Optimum level
Performance QH EQnƃiEt
Low (Functional) High (Dysfunctional)

.eXeN of conƃKcV
Figure 7.1: The relationship between the intensity of conƃict and the level
of organisational performance
7.4.1 The causes of conflict34

There are many causes of conflict in organisations and we categorise
them as interpersonal sources of conflict or sources of conflict emanating
from the interaction between various groups in the organisation.
Interpersonal conflict
r 1FSTPOBM EJŲFSFODFT 1FSTPOBM EJŲFSFODFT CFUXFFO JOEJWJEVBMT
working in the same organisation stem from demographical factors
such as background, race and culture, age, levels of education,
XPSMEWJFXT BOEWBMVFTZTUFNT%JŲFSFODFTDBVTFECZUIFTFGBDUPST
give rise to interpersonal conflict.
r $PNNVOJDBUJPO CSFBLEPXO 1PPS DPNNVOJDBUJPO BOE NJT
information result in individuals or groups having the wrong
perceptions of other individuals and groups in the organisation.
This source of conflict can be resolved quickly if it was caused by
B OPOJOUFOUJPOBM NJTVOEFSTUBOEJOH )PXFWFS XIFO JOEJWJEVBMT
withhold information intentionally as part of a political action, it
can jeopardise trust between them and lead to continuing conflict.
The opening case study relates how the human resources manager
DSFBUFEBCBSSJFSJOUIFDPNNVOJDBUJPOCFUXFFOUIF$&0BOEPUIFS
executives, which led to immense conflict and eventually cost him
his job.
r 3PMF JODPNQBUJCJMJUZ .BOBHFST IBWF EJŲFSFOU GVODUJPOT BOE SPMFT
that are interdependent in contemporary organisations. This
interdependency may lead to conflict, as the roles of the managers
may be incompatible. The marketing manager at an organisation
may promise a valued customer the delivery of a specified
number of products, while, due to labour and other constraints,
the production manager may not be able to supply the products.
Their role incompatibility may thus lead to conflict between the two
managers.
r &OWJSPONFOUBM TUSFTTPST 5IF JOUFSOBM BOE FYUFSOBM FOWJSPONFOUT

of an organisation can lead to interpersonal conflicts. In highly
competitive industries, the raised stress levels of employees inside
organisations may lead to conflict between individuals. The internal
environment of an organisation can be stressful for many reasons,
such as a looming downsizing intervention, shrinking resources
resulting from demotions and many other factors that may create
dysfunctional conflict between employees. Organisations such as
management consulting firms and accounting firms may have high
interpersonal conflict levels as tired employees do their best to
meet non-negotiable deadlines.
r $PNQFUJOH GPS UIF TBNF QPTJUJPOT "OPUIFS TPVSDF PG QFSTPOBM
conflict is the organisational reality that individuals compete for
the same scarce positions in the organisation. For example, most
organisations have one CEO and one manager for each of their
divisions, departments and sections. Individuals compete with
one another to secure the positions they desire, but organisations
are becoming flatter (fewer levels of management) and fewer
opportunities exist to ‘climb the corporate ladder’ leading to intense
competition for the positions that become available, sometimes
resulting in bitter conflict.
Intergroup behaviour and conflict

r $PNQFUJUJPO GPS TDBSDF SFTPVSDFT $PNQFUJUJPO GPS TDBSDF
resources is at the centre of a political perspective on organisations.
Divisions, departments, sections and teams compete for the same
resources (financial, human, information and physical) and they and
their managers have to succeed in the ensuing political battles and
conflicts to secure their rightful portion of resources.
r 5BTL JOUFSEFQFOEFODF 5BTL JOUFSEFQFOEFODF CFUXFFO HSPVQT
where the output of one group becomes the input of another
group, may lead to intergroup conflict, especially where substantial
differences exist between them in terms of goals, priorities and
staff. For example, the goal of the R&D team at an organisation
is to develop an innovative new product using their diverse and
complementary skills to complete the project. The R&D team has
to cope with many setbacks during the development phase of the
product and may not be able to deliver the blueprint on time. But the
members of the production department face their own problems:
they have to keep to time and budget limits in order to deliver a
profitable product. Obviously, this scenario has the potential to
become a major source of conflict between the two groups.
r +VSJTEJDUJPOBM BNCJHVJUZ $POŴJDU FNFSHFT XIFO HSPVQ CPVOEBSJFT
and responsibilities are not well defined. When group tasks and
responsibilities are unclear, groups may disagree about which group
has responsibility for specific tasks and a claim on resources. On the
other hand, when there is a clear delimitation of boundaries the
potential for serious conflict diminishes.

r 1PXFS BOE TUBUVT EJŲFSFODFT 1PXFS BOE TUBUVT EJŲFSFODFT PDDVS

XIFOHSPVQTIBWFBMPXTUBUVTJOUIFPSHBOJTBUJPO BOEXIFSFHSPVQ
NFNCFSTNJHIUSFTFOUUIFJSMPXTUBUVTBOESFTJTUPUIFSHSPVQTXJUI
IJHIFSTUBUVTXIPBUUFNQUUPJOŴVFODFUIFN5IVT HSPVQNFNCFST
NJHIU DBVTF DPOŴJDU UP JODSFBTF UIF QPXFS BOE JOŴVFODF PG UIFJS
HSPVQTJOPSHBOJTBUJPOT
r (PBMEJŲFSFODFT(SPVQTNBZQVSTVFDPOŴJDUJOHHPBMT XIJDINBZ
MFBEUPJOUSBHSPVQDPOŴJDU(PBMEJŲFSFODFTCFUXFFOHSPVQTPGUFO
PDDVSJOPSHBOJTBUJPOT
7.4.2 Managing organisational conflict

5IF PGUFODJUFE OPSNBUJWF BOE EFTDSJQUJWF NPEFM PG 5IPNBT35 GPS
NBOBHJOH DPOŴJDU JT CBTFE PO UXP EJNFOTJPOT 5IF UXP EJNFOTJPOT
SFŴFDUEJŲFSFOUDPOŴJDUNBOBHFNFOUTUZMFTJOUFSNTPG UIFEFHSFFPG
BTTFSUJWFOFTTXIFOGPMMPXJOHPOFTJOUFSFTU BOEUIFMFWFMPG XJMMJOHOFTT
UP BDDPNNPEBUF UIF DPODFSOT PG PUIFST 'JHVSF JMMVTUSBUFT UIF
DPOTFRVFOU DPOųHVSBUJPOT PG DPOŴJDU NBOBHFNFOU TUSBUFHJFT UIBU
NBOBHFSTDBOVTFUPSFTPMWFDPOŴJDU
Assertive Competition Collaboration
Focus on self Compromise
Unassertive Avoidance Accommodation

Uncooperative Cooperative
Focus on others
Figure 7.2: /anaging conƃict

Source: Adapted from Thomas, K.W. 1976. Conflict and conflict management. In
Organisational behaviour Brooks, I. (ed.) 2009. 4th edition. London: Pearson Education
Limited, p 252.
5IF ųWF DPOŴJDU NBOBHFNFOU TUSBUFHJFT SFTVMUJOH GSPN UIF UXP

NBOBHFNFOUTUZMFEJNFOTJPOTBSFUIFGPMMPXJOH
"WPJEBODFPOFPSCPUIQBSUJFTDIPPTFUPBWPJEPSTVQQSFTTUIF
DPOŴJDU
"DDPNNPEBUJPOPOFQBSUZDIPPTFTUPGPDVTPOUIFPUIFSQBSUZT
OFFETUPTVQQSFTTPSSFTPMWFUIFDPOŴJDUPSUPTFFLTPNFGPSNPG
NBJOUBJOJOHUIFTUBUVTRVP
$PNQSPNJTFCPUIQBSUJFTHJWFVQTPNFUIJOHBOEUIFQBSUJFTSFBDI
BDPOTFOTVTEFDJTJPO
$PNQFUJUJPOUIFGPDVTPG POFPSCPUIQBSUJFTJTPOUIFJSPXO
JOUFSFTUT SFTVMUJOHJOEZTGVODUJPOBMDPOŴJDUBOEBXJOMPTFSFTVMU

5. Collaboration: differences are met and addressed, resulting in a

win-win solution for the parties.
Various contingency variables influence the selection and use of a conflict

management strategy such as the time available, how critical the issue
is, the preferred style of the various parties involved in the conflict, the
circumstances under which the conflict takes place and the presence or
lack of commitment, motivation and information36.
In reaching an agreement, two or more parties need to negotiate
with each other. Negotiating skills are essential for managers to have
when they engage in political action or try to resolve conflict.
LEARNING OBJECTIVE 5 7.5 NEGOTIATION

Provide guidelines on how to /FHPUJBUJOH is a process in which two or more parties are in conflict
apply the two phases of the and attempt to reach an agreement37. During the negotiating process,
negotiation process: planning conflicting parties frequently use power and influence tactics and resort
and the actual process. to political action. Negotiating takes place if there is no fixed outcome
to a problem. Thus, negotiation involves a process of communication
negQtiating between parties to reach a lasting agreement that supports shared
a process in which two or interests, despite vast differences, by establishing common ground and
more parties are in conflict and creating alternatives.
attempt to reach agreement Collective bargaining between the management of an organisation
and the labour union representing its employees is a familiar scenario
that calls for two parties to negotiate a mutually acceptable outcome.
The survival of the organisation is important to both parties but
management may argue that wage increases will negatively affect the
financial results of the organisation and thus the shareholders, whereas
the labour union may assert that the welfare of the employees should
be the first priority of the organisation and not the shareholders. As the
survival of the organisation depends on the input of both parties, they
need to negotiate an acceptable outcome.
7.5.1 The negotiating process

Negotiation need not be a process in which one party’s loss is the other
party’s gain, but rather a process of helping each other get what they
want. Learning how to negotiate is an essential skill for managers to
obtain in order to protect their individual and collective interests. A
typical negotiation process comprises two phases: the planning phase
and the actual negotiation process38.
7.5.2 The planning phase

In the following sections, we provide guidelines to a potential negotiator
who enters into a negotiation process with another party on how to
reach a negotiated agreement.
r 3FTFBSDIUIFPUIFSQBSUZ5IJTTUFQJOWPMWFTHBUIFSJOHJOGPSNBUJPO
about the other party. It may involve getting more information about
the personality or personalities that will participate in the process

and the goals they want to achieve by negotiating. This step may
include fostering a working relationship with the other party prior
to the beginning of the negotiation process.
r 4FU PCKFDUJWFT 6TF UIF JOGPSNBUJPO PCUBJOFE JO UIF ųSTU TUFQ UP
formulate the goals you aim to achieve through the negotiation
process. Formulate three objectives during this planning phase. The
objectives should relate to:
r BOPQFOJOHUBSHFU XIJDIXJMMCFIJHIFSUIBOXIBUZPVFYQFDU
to get
r BGBJSBOEBDIJFWBCMFUBSHFU XIJDIJTUIFSFBMPCKFDUJWFZPV
want to achieve
r BOFYJUUBSHFU XIJDITFUTUIFMJNJUGPSUIFXPSTUPVUDPNFUIBU
you are prepared to entertain before walking away from the
negotiations.
Bear in mind that the other party will also set the same kinds of
objectives, so you should try to anticipate what your opponents’
three targets are.
r %FWFMPQ PQUJPOT BOE USBEFPŲT /FHPUJBUJPO JT B QSPDFTT PG HJWF
and take, so it is necessary for you to plan what you are prepared
to give up and what the other party will be prepared to accept as a
trade-off.
r "OUJDJQBUFUIFJTTVFTUIBUUIFPUIFSQBSUZNJHIUSBJTFBOEQSFQBSF
answers. Before entering into negotiation, a negotiator must be fully
prepared to answer any questions the other party or parties may
ask. It is necessary to anticipate all possible questions that may come
up and it is essential to have a good understanding of all the issues at
hand. In addition, one needs to prepare the questions you want to
ask the other party.
7.5.3 The negotiation phase

4UFQFocus on the issues, not on the individual or individuals.
During the actual negotiation process, a negotiator should try to create
a good impression. The other party should perceive their opponent as
being honest and trustworthy. If a negotiator creates the impression
of being a bully, being dishonest, or patronising, the chances of
reaching an agreement are likely to diminish. The golden rule in any
conflict situation also applies in the negotiation process: concentrate
on the issue, not on the person. Effective negotiators avoid personal
comments and name-calling at all costs. A negotiator’s aim should
be to establish a congenial atmosphere to conclude the negotiations
successfully.
4UFQAllow the other party to make the first offer. By allowing the
other party to make the first offer, a negotiator can gain an advantage
or even close the agreement if the opening offer is equal to or more
than the target objective. However, if the opening offer is lower than
your target objective, one has to negotiate for a better agreement. If
the other party insists on you making the first offer, fend them off by,
for example, encouraging them to make their best offer and assuring

them that you will consider their offer. If the parties cannot agree
during this step, the process proceeds to the next step.
4UFQMake sense of the other party’s needs. During the planning
process prior to the negotiation, you anticipated and prepared
answers to the crucial issues on the table. Now you have to listen to
the other party, ask questions and be prepared to make concessions
to meet their needs or maybe come to the realisation that it will be
impossible to come to an agreement. The other party may also want
to ask questions during this stage of the negotiations, offering you the
opportunity to stake your claims.
4UFQDo not rush into agreement and ask for something in return.
One should not give up easily; try to get the best possible deal from
the negotiations by asking for something in return for everything
you have to give up, by referring back to the trade-offs that you
have planned. Sometimes it may be better to walk away without an
agreement than to get a poor agreement. It is essential not to appear
as being desperate, but rather as a bargaining party who has other
options available. Beware of intimidation and stick to your three
objectives if it is at all possible.
The negotiation process may conclude with an agreement that
satisfies the objectives of all the parties around the negotiating table,
which is the best outcome possible. However, sometimes the outcome
is less favourable, ending in a stalemate or one or both parties agree to
postpone the negotiations. Sometimes it may be wise to postpone an
agreement and to take the pressure off the party that wants to delay the
outcome and to review what transpired during the negotiating process
before re-entering or abandoning the negotiations. Yet another outcome
is that the parties do not reach an agreement. How a manager responds
to such failure is important because those who will do better the next
time learn from their mistakes and continue to work on their political,
influence, conflict management and negotiation skills.

ChaPter 7 Power, politics, conflict resolution and negotiation
CHAPTER SUMMARY
1. Define and discuss power and organisational sources of power.
Power is the potential to influence behaviour, to change the course of events, to overcome
resistance, and to get people to do things they would not otherwise do. The different
definitions of power capture the key terms associated with power: interest, influence and ‘to
get people to do what they would not otherwise do’.
The sources of power can be categorised into formal power and personal power.
Formal power includes:
• legitimate power because of an individual’s formal position in an organisation
• reward power rests with an individual, such as a manager in an organisation who has the
ability to give rewards to reward or reinforce desirable behaviour
• coercive power is when an individual can offer or restrict benefits or inflict punishment or
control the behaviour of another person.
Personal power includes:
• referent power
• expert power.
Other sources of power include:
• formal authority
• control of scarce resources
• organisational structure
• control of decision processes
• control of knowledge and information
• control of boundaries
• the ability to cope with uncertainty
• control of technology
• interpersonal alliances, networks, and control in informal organisations
• control of counter organisations
• symbolism and the management of meaning
• gender and the management of gender relations
• the deep structure of power
• the power one already has.
2. Explain the relationship between power and interest.

People have individual and collective interests and they will use their power to protect their
interests.
3. Discuss how people use influence tactics and political action to protect their interests.
Power is a prerequisite for influence. Influential people have power, but not all people with
power have influence. Influence involves gaining the agreement of others to work with you
to achieve a specific goal. Many powerful people cannot do that, for a variety of reasons.
Power converts to influence when person B (the target) consents to behave according to the
wishes of person A (the agent). Power involves a reciprocal relationship between the agent
and the target and the characteristics of the recipient may explain the strength of the agent’s
influence over the recipient.
Influence tactics include:
• pressure
• upward appeals
• exchange
• coalition
• ingratiating behaviour
• rational persuasion
• inspirational appeals
• consultation tactics.
4. Explain the various sources of organisational conflict and identify the conflict
management strategies.
Interpersonal conflict:
• Personal differences between individuals working in the same organisation stem from their
backgrounds and cultures, levels of education, worldviews, and value systems and give rise
to interpersonal conflict.
• Poor communication and misinformation result in an individual having the wrong perceptions
of another individual in the organisation.
• Managers have different functions and roles that are interdependent in contemporary
organisations, which may lead to conflict, as their roles may be incompatible.
• The internal and external environments of an organisation can lead to interpersonal conflicts.
• Individuals compete for the same scare positions in the organisation leading to intense
competition and conflict.
Intergroup behaviour and conflict:
• Competition for scarce resources (financial, human, information and physical) is a major
source of conflict.
• Task interdependence between groups, where the output of one group becomes the input
of another group, may lead to intergroup conflict.
• Conflict emerges when group boundaries and responsibilities are not well defined.
• Power and status differences occur when one group has a disputable influence over the
other.
• People may pursue conflicting goals, which may lead to conflict. Goal differences are
natural in organisations.
The five conflict management strategies resulting from the two management style dimensions
entail:
• avoidance
• accommodation
• compromise
• competition
• collaboration.
ChaPter 7 Power, politics, conflict resolution and negotiation
5. Provide guidelines on how to apply the two phases of the negotiation process: planning
and the actual negotiating process.
The planning phase:
• research the other party
• develop options and trade-offs
• anticipate the issues that the other party might raise and prepare answers.
The negotiation phase:
Step 1: Focus on the issues, not on the individual or individuals.
Step 2: Allow the other party to make the first offer.
Step 3: Make sense of the other party’s needs.
Step 4: Do not rush into agreement and ask for something in return.
KEY TERMS
charisma interests
coalitions legitimate power
coercive power machiavellian
collective interest negotiation
conflict organisational politics
conflict resolution personal power
consultation tactics political action
exchange power
expert power pressure
formal power rational persuasion
individual interest referent power
influence reward power
ingratiating upward appeals
inspirational appeals
REVIEW QUESTIONS
1. the following questions pertain to the opening case study:
1.1 identify the sources of power of the three ‘cast members’.
1.2 Use evidence from the case study to discuss the concept of influence.
1.3 Describe how people used influence tactics to protect their interests.
1.4 identify and discuss the political actions that the executive leadership team used to protect their
collective interest.
2. What political actions could you take before a meeting, where your innovative idea is on the agenda,
to ensure the highest level of buy-in for the idea at the meeting?
END NOTES
1 Adapted from: Elkind, P., Reingold, J. & Burks, D. Inside a palace coup. Fortune, 15 August 2011. Available [Online]
from: http://features.blogs.fortune.cnn.com/2011/07/28/. Accessed on 12 April 2013.
2 Pfeffer, J. 2010. Power play, Harvard Business Review, July–August, p 87.
3 Morgan, G. 1997. Images of organization. Thousand Oakes: Sage, p 170.
4 Pfeffer, J. 1992. Managing with power: politics and influence in organizations. Boston: Harvard Business Press, p 30.
5 Johnson, G., Whittington, R. & Scholes, K. 2011. Exploring strategy: text and cases. 9th edition. Financial Times.
Prentice Hall, p 160.
6 French, W.L. & Bell, C.H. 199. Organization development; behavioural science interventions for organization
improvement. 5th edition. Englewood Cliffs, NJ: Prentice Hall, p .
7 Luthans, F. 2011. Organizational behaviour. 12th edition. New York: McGraw-Hill International Edition, p 322.
8 French & Bell, op. cit., p 280.
9 Luthans, op. cit., p 322.
10 Senior, B. & Swailes, S. 2010. Organizational change. 4th edition. Essex: Prentice Hall, p 208.
11 Machiavelli, N. 2009. The prince. Richmond, Surrey: Oneworld Classics Limited, translated by J.C. Nichols. 2009.
12 Fagan, G. & Bolger, K. 2013. Cunning colleagues and dirty tactics. Pretoria News, 17 April: 14.
13 (i) French, J.R.P. & Raven, B.H. 1959. The bases of social power. In Senior and Swailes, 2010, p 181. (ii) Luthans, 2010,
pp 314–318.
14 Robbins, S.P. & Judge, T.A. 2009. Organizational behavior. 13th edition. NJ: Upper Saddle River: Pearson Education,
p 486.
16 Ibid.
17 Morgan, op. cit., pp 170–199.
18 Pugh, D.S., Hickson, D.J. & Hinings, C.R. 1996. Great writers on organizations. Cornwall: Ashgate.
19 Gersick, C.J.G. 1991. Revolutionary change theories: a multilevel exploration of the punctuated equilibrium paradigm.
Academy of Management Review: 19(1).
20 Ancona, D., Kochen, T.A., Scully, M., Van Maanen, J. & Lewisney, D.E. 2005. Managing for the future: organizational
behavior & processes. 3rd edition. Cincinnati: South-Western College, pp M2-38–40.
21 Ibid., pp M2-34–M2-36.
22 Whetton, D.A. & Cameron, K.S. Developing management skills. 7th edition. NJ: Upper Saddle River: Prentice-Hall,
p 302.
23 Excerps from: Barnes, M. 2013. On staying one jump ahead of the competition. Business Day, 27 May. [Online]
Available from: http://www.bdlive.co.za/opinion/columnists/2013/05/27/on-staying-one-jump-ahead-of-the-
competition. Accessed on 31 May 2013.
25 Yukl, G. & Falbe, C.M. 1990. Tactics and objectives in upward, downward, and lateral influence attempts. Journal
of Applied Psychology, 75( 2): 132–140. Available [Online] from: Albanyhttp://www.communicationcache.com/
uploads/1/0/8/8/10887248/influence_tactics_and_objectives_in_upward_downward_and_lateral_influence_attempts.
pdfInfluence. Accessed on 24 April 2013.
26 Adapted from: Yukl, G. & Falbe, C.M. 1990. Influence tactics and objectives in upward, downward, and lateral influence
attempts. Journal of Applied Psychology, 75(2): 132–140.
27 Morgan, op. cit., p 154.
28 Ibid., p 155.
29 Ibid., p 92.
30 Robbins & Judge, op. cit., p 495.
31 Ibid.
32 Ancona et al, op. cit., pp. M2-41–M2-45.
33 Buelens, M., Sinding, K., Waldstrøm, C., Kreitner, R. & Kinicki, A. 2011. Organisational behaviour. 4th edition. Berkshire:
McGraw-Hill Higher Education, p 374.
34 Luthans, op. cit., pp 292–293.
35 Brooks, I. 2009. Organisational behaviour. 4th edition. Essex: Pearson Education Ltd, p 252.
36 Thomas, K. W. 1976. Conflict and conflict management. In Organisational behaviour. Edited by Brooks, I. 2009.
4th edition. London: Pearson Education Limited, p 252.
37 Lussier, op. cit., p 164.
38 Ibid., pp 166–169.

Chapter 8
Business ethics, corporate
social responsibility and
corporate governance
Minka Woermann
OPENING CASE
Enron company, but by 1988 the deregulation of the

The Enron case signifies a historical marker: energy markets in the United States had taken
whereas business ethics received little attention place and the company had redefined itself as an
in the period prior to the Enron debacle, this energy broker. Enron rapidly expanded its market
case (along with other similar cases, including and operations and Fortune magazine named Enron
WorldCom) ushered in a new era of business America’s most innovative company for six years
ethics management and regulation. The Enron running between 1996 and 2001. Enron was also
case remains instructive, and as such continues to on Fortune’s ‘100 best companies to work for’ list
receive attention in the business ethics literature. in 2000. By October 2001, however, the cracks
In a 2012 media roundup on Enron, Edward started showing and credit agencies downgraded
Freeman, academic director of the Business Ethics Enron’s credit rating because it had drawn the bulk
Roundtable Institute for Corporate Ethics, described of its available credit. The Security and Exchange
Enron’s enduring significance as follows: Commission (SEC) started a formal investigation
of Enron and Arthur Anderson (Enron’s auditing
‘Enron remains an iconic scandal. It defines what
firm). Enron was subpoenaed and filed for
is wrong with our current narrative about business.
bankruptcy in December 2001. Enron shares,
When business focuses only on shareholder value,
which were priced at $81.39 in January 2001, were
executive compensation and narrow views of self-
worthless by the end of the year. In 2002, Arthur
interest, value creation just cannot be sustained.
Anderson voluntarily surrendered its licence to
Every viable business creates value for customers,
practise as certified public accountants.
employees, suppliers, communities, as well as
investors. Enron is a symbol for companies that
have not paid attention to this fact, and still stands Key figures3
as a warning’1. The former chairman and CEO of Enron was
This chapter therefore opens with a short Kenneth Lay. He was briefly replaced by his deputy,
overview of the problems that plagued Enron, Jeffery Skilling, who served as CEO of Enron for
and the ethical lessons that we can draw from this six months before mysteriously resigning in August
case2. 2001. Lay then returned to the helm until the
court-appointed creditors committee requested
his resignation in January 2002. Lay was initially
Overview
credited with Enron’s success, but both he and
Enron was founded in 1985 as an energy delivery
Skilling played a big role in the company’s downfall. be able to set things right. In a company in which
Another key figure was Andrew Fastow, Enron’s one was encouraged to show profits at all costs,
Chief Financial Officer and the mastermind behind such behaviour also represented the path of least
Enron’s fraudulent accounting schemes, which resistance.
were used to disguise Enron’s debt and liabilities.
Ethical analysis: culture matters more
The aftermath4 than codes
Skilling, Lay and Fastow were brought to trial One of the most perplexing aspects of the Enron
in 2006, and all three men were found guilty on case is that Enron looked like an excellent company,
charges of conspiracy and fraud. Lay died of a heart and was awarded both for its business success and
attack in July 2006 before his sentencing. Fastow its ethicality. Enron had all the necessary business
took a plea bargain, and cooperated with the state ethics tools in place and presented itself as a
to build a criminal case against Enron in exchange socially responsible corporate citizen. Yet, despite
for a lighter prison sentence (six years). Skilling, the presence of cultural artefacts such as a code
who was found guilty of 19 of the 28 counts against of conduct and a corporate social responsibility
him, was sentenced to 24 years and four months in (CSR) policy, unethical and illegal activities
prison. He appealed the conviction, but the appeal were condoned and even encouraged. Enron
court affirmed the conviction in 2008. therefore had a ‘deep’ culture that systematically
gave precedence to profit over ethics. Enron’s
What went wrong? leadership – in part – shaped this culture.
According to Edgar Schein5, leadership is essential
The company, which fared exceptionally well during
in creating, maintaining, or changing a company’s
the mid to late 1990s, was faced with a growth crisis
culture, and some dimensions of leadership that
by the end of the decade. Enron executives wished
impact significantly on a company’s culture include
to continue the company’s explosive growth, even
attention, role modelling, allocation of rewards,
though they knew that it was not possible. In order
the criteria for selection and dismissal, and the
to avoid a negative earnings outlook and retain
handling of crisis situations.
investor confidence and their credit rating, Enron
executives employed increasingly questionable Leaders act as role models for their employees
accounting practices and crafted a deceiving web of and employees tend to also focus attention on
partnerships. These partnerships were referred to those aspects that are seen as important by leaders.
as special purpose entities (SPEs). Profits generated Enron’s leaders were poor moral role models for
by these entities were moved to the official Enron employees, because their attention was focused
balance statement; whereas the debts on the solely on profit, power, greed and influence. In
official balance statement were transferred to the fact, Fastow twice suspended the company’s code
SPEs, in order to artificially inflate the bottom line. of conduct so that he could personally benefit
These SPEs were presented as partnerships, but from the partnerships, which prompted business
in practice, they were subsidiaries. The reason for journalist Michael Miller6 to say that ‘Enron’s ethics
this misrepresentation is that partnerships are not code reads like fiction’. In the absence of moral
audited, making it possible for Enron to hide its leadership, Enron’s code and CSR policy became
financial situation from investors. Moreover, many a form of window dressing ethics (in other words,
of the recorded profits had not yet been generated. Enron used ethical artefacts to disguise their rotten
Booking anticipated earnings and shuffling around corporate culture).
debts were seen as timing issues rather than ethical Not only did leadership set a bad example,
issues. Enron employees were overly-confident but their philosophy of ‘profit at all costs’ was
and believed that over the long term they would strengthened by the rewards or incentives structure

CHAPTER 8 Business ethics, corporate social responsibility and corporate governance
and their labour policies. As regards incentives, Anderson responded to the crisis by shredding
top performing employees were rewarded a significant number of Enron-related documents
with extravagant bonuses such as luxury sports that could implicate them. Enron and Arthur
cars, and executives routinely played favourites. Anderson therefore did not react to the crisis in
Those who did not perform adequately were an ethically accountable manner, which further
retrenched or redeployed. Employee reviews contributed to the harm done to shareholders
took place in a public forum, and the bottom and stakeholders.
performers were publicly humiliated by being
sent to the retrenchment/redeployment office, Conclusion
which was dubbed ‘the office of shame’. Lay The Enron case proves that, in the first instance,
and Skilling had a reputation for hiring only the business ethics is about being guided by a set of
best and the brightest employees, who showed values. At the media round-up on the significance
a willingness to transgress rules, and who were of Enron today, Andrew Wick7, academic advisor
focused on greed and instantaneous gratification. for the Business Roundtable Institute for Corporate
The reward, selection and dismissal processes at Ethics, argued that although money and success
Enron promoted greed, selfishness and jealousy are important, corporate goals and norms should
within the company. be embedded in a larger values framework,
When the crisis finally came to light, the because without these values, it will only be a
leaders’ values were clearly revealed. Instead matter of time before the company steers off
of admitting to the imminent downfall of the course. Business ethics artefacts such as codes
company, executives denied problems, shifted and CSR policies can support and reinforce a
blame to others and fired scapegoats, and sold off company’s values, but at the end of the day, good
their Enron shares whilst encouraging employees ethics is about good people making the decisions,
to continue investing in the company. Arthur and not about well-written codes or CSR policies.
LEARNING OBJECTIVES
The purpose of this chapter is to provide an overview of ethics, corporate social responsibility and
governance. The objective of studying this chapter is to enable you to:
1. Describe the interplay between business ethics, corporate social responsibility and corporate
governance.
. DeƂne Oorality, ethics and business ethics at the hand of eZaOples.
. 'Zplain the three diOensions of ethical analysis relevant to business ethics.
. DeƂne the three Oost coOOon approaches to norOative ethics.
. DeƂne and Ootivate the case for the narrow and broad view of corporate social responsibility.
. Discuss conteOporary approaches to corporate social responsibility.
. %oOpare the statutory with the voluntary approach to corporate governance.
. DeƂne and discuss the three value diOensions that forO the basis for the -ing +++ 4eport.

LEARNING OBJECTIVE 1 8.1 THE COMPONENTS OF ETHICAL BUSINESS

Describe the interplay between Brian Moriarty, another director of the Business Roundtable Institute for
business ethics, corporate Corporate Ethics argues that:
social responsibility and
‘Enron continues to be part of the conversation because it
corporate governance.
demonstrated the broader impact of corporate malfeasance on
stakeholders beyond just investors… Fortunately, the opposite is
also true – corporate exemplary behaviour also has impacts beyond
just a strong stock price. Robust, strong and ethical corporations
– the majority of companies today – are the leading engines of
employment and economic support in the communities in which
they operate’8.
As is clear from the above citation, ethical business is currently viewed

as integral to achieving business success and fostering sustainable
business practices. A large part of ethical business practices concern
the management of stakeholder relations, where stakeholders are
defined as those groups who affect or are affected by the corporation’s
activities. Indeed, South Africa’s new Companies Act (Act 71 of 2008)
requires that state-owned and public businesses institute social and
ethics committees, in order to ensure that stakeholder and societal
interests are addressed. Deon Rossouw, executive director of the
Ethics Institute of South Africa (Ethics SA), stated in a media release that
this new legislation ‘is a welcome recognition of the fact that social and
ethical responsibility is integral to good governance – and ultimately
a lever of business success’9. However, Rossouw also argued that
the legislation falls short of the ideal, since the emphasis is solely on
business responsibility towards society, social transformation, and the
promotion of employees’ rights in the workplace. What is lacking is
a focus on the importance of ‘a strong, ingrained ethical foundation’,
which forms the basis of good corporate governance, defined as ‘the
system by which companies are directed and controlled’10. The King
Report on Governance for South Africa (King III) supplements this lack
in the Companies Act, and advocates a more comprehensive approach
to addressing business responsibilities, as is clear from principle 1.3,
which states that: ‘The board should ensure that the company’s ethics
are managed effectively’11. Rossouw advises ‘companies to look beyond
the letter of the law and to integrate the ethics management component
governance of ethics
into the committee’s mandate, as proposed in King III’12. In other words,
Ethics SA advocates a holistic approach to business ethics management,
concerns the management in which attention is given to managing both the company’s impact on
of stakeholder relations and stakeholders and society (the governance of ethics13) and to the
of a corporation’s social development and promotion of an ethical organisational culture (the
responsibilities ethics of governance14).
ethics of governance An important lesson gleaned from the Enron case is that a values-
driven culture is essential for effective business ethics management.
concerns the development,
Without such a culture, policies, programmes and ethics committees
promotion and direction of an
are unlikely to be effective, especially since socially responsible decisions
organisation’s ethical culture
often require moral judgements that fall beyond the scope of prescribed
laws and procedures. Indeed, in the worst case scenario, these business

ethics tools may even be employed as a form of window-dressing

ethics, as was the case in Enron. However, when employed in a values-
driven culture, legislation and ethical artefacts can help to strengthen
a company’s ethical culture, and can constitute an important source
of ethical guidance for employees. Therefore, effective corporate corporate governance
governance is about using business ethics tools to support company entails directing and controlling
values, and to direct and control companies in a manner that promotes a company’s operations and
an ethical culture, as well as compliance to legislation and best practices relationships in an effective and
in the responsible management of stakeholder and societal interests. ethical manner
Sound governance practices also hold business benefits, and
McKinsey research cited in King II indicates:
‘that 84 per cent of global institutional investors would pay a
premium for the shares in a well governed company over one
considered poorly governed but with a comparable financial record.
This premium is highest in emerging markets or markets perceived
to have poor governance practices’15.
Good governance practices are therefore also good for business,
and in order to develop a grasp of what constitutes successful and
ethical business practices, it is important to explore the related themes
of business ethics and CSR in more detail, as well as to develop our
understanding of corporate governance systems.
8.2 BUSINESS ETHICS LEARNING OBJECTIVE 2

DeƂne Oorality, ethics and
8.2.1 Morality, ethics and business ethics
business ethics at the hand of
Morality refers to a person or group’s standards for determining right eZaOples.
and wrong, good and bad, and what deserves respect and what does
not, whereas ethics refers to the evaluation of these moral standards16.
In other words, ethics constitutes a type of meta-activity, in which we
try to analyse our moral beliefs objectively and critically, in order to
determine whether they are based on sound or unsound principles.
From birth onwards, we internalise moral principles through a process
of socialisation and enculturalisation. Legal, educational, religious and
familial institutions are thus important sources of morality. However,
since humans govern these institutions, they are vulnerable to human
failure and prejudice, and may reflect ethically unsound principles. For
example, during apartheid, the social institutions of the day reflected
unsound beliefs regarding the inferiority of certain races. Ethical scrutiny
is therefore vital, since beliefs that reflect unsound principles may cause
a lot of harm to others.
As with the definition of ethics, business ethics also concerns the business ethics
evaluation of the standards that we employ to distinguish between right
evaluation of the standards
and wrong, good and bad, and what deserves respect and what does
that we employ to distinguish
not, but within the specific context of business operations17. Most, if not
between right and wrong, good
all, business decisions have a moral dimension, and business ethics – as a
and bad, and what deserves
field of study – investigates this moral dimension of business operations.
respect and what does not,
Examples of typical themes in business ethics include the ethical issues
within the specific context of
related to the manufacturing and marketing of products, financial
business operations
disclosure, employer-employee relations, stakeholder management,

externalities, loyalty and whistle-blowing. Although it is beyond our scope

to examine all these themes in detail, it is important to note that the
ethical issues arising from these themes are often quite complex. Issues
such as competing obligations to stakeholders, uncertain consequences
arising from business operations, and changing legal and governance
requirements can present a challenge to the ethical management of
companies. Moreover, managers are often not even aware of the ethical
dimensions of business decisions; since, as Trevino and Brown18 note:
‘Rarely do decisions come with waving red flags that say, “Hey, I am an
ethical issue. Think about me in moral terms!”’ In this regard, the study
of business ethics can help us to better identify, analyse and propose
solutions for the ethical challenges that we face in the everyday practice
of business, in order to ensure that companies are managed ethically.
LEARNING OBJECTIVE 3 There are three dimensions of ethical analysis that are especially
important areas of study in business ethics. These dimensions are the
'Zplain the three diOensions
normative dimension, which is focused on the normative foundations
of ethical analysis relevant to
and justifications for individual and group behaviour; the organisational
business ethics.
dimension, which is defined by the tacit and explicit norms and rules that
characterise a company’s culture, and that direct individual behaviour;
and the macro ethical dimension in which institutions that constrain and
shape our business practices are investigated. These three dimensions
are investigated in more detail below.
LEARNING OBJECTIVE 4 8.2.2 Normative ethical theories and moral decision-

DeƂne the three Oost coOOon making
approaches to norOative An important dimension of business ethics concerns the normative
ethics. foundation of, and justification for, our individual and group decisions. In
normative ethical theory
this regard, knowledge of influential normative ethical theories can
help us in our decision-making. These theories, which are introduced
defines and systematises the
in moral philosophy, define the principles that we should employ
principles that we employ when
when making moral judgements. Different normative ethical theories
making moral decisions and
prescribe different principles for morally correct action, but the three
judgements
most common approaches to normative ethics are consequentialism
(where the morality of an action is judged according to the positive
homo economicus model
long-term consequences that the action holds); deontology (where the
humans are rational beings who
morality of an action is judged according to the action’s adherence to a
seek to maximise both monetary
rule or set of rules); and virtue ethics (where the morality of an action is
and non-monetary utility
the outcome of the moral agent’s virtuous nature).
Enron’s executives and employees were guided interests, they eventually caused their own downfall.
by egoism in their decisions and actions. Egoism is Although egoism informs the homo economicus
a consequentialist approach, in which an action is model of human nature, as employed by Adam
deemed morally right if it promotes the long-term Smith19 in his theory on the ‘invisible hand of the
interests of an individual or organisational agent. market’ it is not, however, viewed as a theoretically
Enron’s philosophy of ‘profit at all costs’ shows that sound position. The reasons for this are that egoism
they were only interested in enriching themselves, is not a reliable basis for distinguishing between right
even if it was at the expense of others. The irony, and wrong because it does not limit self-interest, it
however, is that in focusing solely on their own does not promote cooperation (since everyone only

acts in self-interest), and it ignores blatantly wrong (ie concern for the well-being of others) often
actions20. Although at times we are guided by self- informs our judgements and decisions.
interest, human nature is complex, and altruism
Normative
ethical
approaches
Consequentialism Deontology Virtue ethics
Morality = Morality = action’s

Morality = character
consequences of adherence to a set
of a good person
an action of rules
Consequences
for whom?
Egoism Utilitarianism Altruism
Morality =
Morality = Morality =
interests of
self-interest interests of others
everyone involved
Figure 8.1: Normative ethical approaches
Although it is beyond the scope of this chapter to treat these three

approaches in any detail, it is important to note that that which is
deemed as ethically acceptable, is contingent on the specific normative
theory that one adheres to. In order to illustrate this point, consider the
example of a manager who has to decide whether to continue with a
multinational company’s operations in a corrupt context. She may decide
to base her decision on utilitarianism, which is also a consequentialist
approach. However, unlike egoism, the morally appropriate action
under utilitarianism is the one that holds the most positive long-term
consequences for the majority of people affected by a specific action.
Using utilitarianism, the manager may reason that the benefits arising
from the company’s passive compliance with a corrupt regime are
greater than the benefits that will result from ceasing operations, since
a number of primary stakeholders such as employees, suppliers and

consumers are directly dependent on the company for their livelihoods,

and will suffer greatly if the company closes office. Therefore, according
to utilitarianism, the moral course of action in this specific instance may
well be to continue with operations, even though the rights of a number
of people may be indirectly harmed by this decision.
In contrast, if the manager were to argue according to a deontological
approach – which informs human rights-based approaches to ethics
– continuing with operations would be deemed immoral. Passive
compliance with a corrupt regime contributes to the infringement of
citizens’ fundamental rights and freedoms (which, in the case of human
rights-based approaches, constitute the set of rules that should inform
moral action). Therefore, no matter how many good consequences
result from the company’s enduring operations, these operations can
never be morally justified from a deontological human rights-based
approach.
If the manager acted according to virtue ethics, she would have to
ask herself: ‘What would a good person do in this situation?’ There is
no one answer to this question, but a virtuous person would try to
determine the right grounds for a moral course of action. Such a person
could, for example, argue that one should try to reduce or prevent
harm to stakeholders, whilst campaigning for the fundamental rights
and freedoms of the country’s citizens. According to this argument, a
virtuous manager may recommend that the company continue with its
operations for the time being, but that the company should also use its
economic clout to pressurise government to act democratically.
The fact that competing normative ethical theories lead to conflicting
outcomes proves that, although useful in guiding our moral decision-
making, these theories cannot dictate right action. In other words,
normative ethical theories should not be applied as moral recipes.
Rather, individual interpretation, judgement and evaluation should
always inform the decision-making process.
8.2.3 Contextual and systemic influences

Moral standards (and the ethical evaluation of these standards) pertain
to the beliefs held by individuals or groups of individuals; however, the
contexts in which decisions are enacted also affect our perceptions of
appropriate or inappropriate behaviour. We tend to reserve ethical
judgement for individual or group decisions, and although this is an
important task, both the internal and external operating environments
should also be subjected to ethical scrutiny.
With regard to the internal operating environment, organisational
goals, incentive structures and the behavioural example of leaders
contribute to the tacit and explicit norms and rules that define
organisational culture organisational culture, which in turn directs individual behaviour.
the tacit and explicit As is clear from the Enron case, these contextual factors are critical in
organisational norms and rules determining what is viewed as appropriate behaviour within a particular
that direct individual behaviour organisational setting. Corporate goals (such as profitability) are often
not moral in nature and may even be immoral (as was the case with
Enron’s ‘profit-at-all-costs’ orientation). Moreover, organisational

members are encouraged to conform to these goals and norms, and

many organisations do not promote critical thought, or may even punish
those who speak out against morally dubious organisational practices.
(For example, Enron’s whistle-blower, Sherron Watkins, stated that
she was not comfortable confronting Skilling or Lay with her concerns,
as she believed that ‘[t]o do so… would have been a job-terminating
move’21.) In such contexts specifically, ethical scrutiny is essential, since
without a critical attitude we risk being complicit in unethical, and even
illegal, corporate actions.
With regard to the external operating environment, macro-
institutions determine the appropriate ‘rules of the game’ that direct
business activities. These rules change over time, and are themselves
subject to ethical scrutiny. This task falls under the domain of macro- macro-ethics
ethics which is defined as the study and evaluation of the social, the study and evaluation of
economic, political, environmental and cultural systems (and the the social, economic, political,
interrelations between these systems), which enable and constrain environmental and cultural
business activities, and which shape our practices. In order to illustrate systems (and the interrelations
the importance of macro-ethical analyses, consider the example of the between these systems), which
2008 financial crisis. Although greedy individuals certainly carry some enable and constrain business
blame, the crisis is largely attributed to unsound economic policies and activities, and which shape our
loose regulations. practices
When asked about the similarities between Enron and the financial
crisis, Andrew Wick22 responds that in both instances we see ‘systemic
failures [and] lots of stakeholders and firms that participated or turned
a blind eye’. He however argues that one of the big differences between
Enron and the market participants who contributed to the financial crisis
is that ‘these [Enron] folk knew what they were doing’. In contrast,
‘some firms that contributed to the financial crisis had no idea what they
were doing or the risks they were taking – whether from ignorance,
hubris, or failure to understand a highly complex system (or all three)’.
The complexities that business managers face today are greater
than ever before, and often it is difficult to know what the responsible
course of action is. However, at the very least, business (especially big
business), should recognise that, because they wield immense economic
influence, they have to take responsibility for the influence that they
exert on the external operating environment. Turning a blind eye and
pleading ignorance cannot serve as an excuse. In this regard, one could
argue that market players are also responsible for the financial crisis to
the degree that they defined systemic risk outside of their sphere of
influence and responsibility, and uncritically enforced unsound policies
and regulations.
From the above, it should be clear that business ethics involves three
levels or dimensions of ethical evaluation, namely an analysis of individual
or group decisions and actions, an analysis of the tacit and explicit rules
and norms that constitutes a company’s culture, and an analysis of the
institutions that define the rules of the game in which business operates.
All three dimensions are crucial for understanding the nature of business
decisions and actions, since these decisions and actions are the outcome
of individual, group, cultural and systemic considerations.

LEARNING OBJECTIVE 5 8.3 CORPORATE SOCIAL RESPONSIBILITY

DeƂne and motivate the case Ethical business is constituted by a solid values-based foundation (which,
for the narrow and broad as gleaned from the above, is influenced by individual, contextual and
view of corporate social systemic factors), and by the effective and ethical management of
responsibility. corporate responsibilities to stakeholders and society. In this section, we
shall investigate the scope of business responsibilities, as well as explore
contemporary approaches to managing CSR.
8.3.1 The narrow view of CSR

In the narrowest sense, a corporation’s responsibilities are limited to
making profits for its shareholders. The conservative economist, Milton
Friedman, is the main advocate of this view of CSR, and he gives a
detailed defence of his position in his book entitled, Capitalism and
Freedom (1962). Herein, Friedman argues that:
‘There is one and only one social responsibility of business – to use
its resources and engage in activities designed to increase its profits
as long as it stays with the rules of the game, which is to say, engage
in open and free competition, without deception or fraud’23.
Friedman gives an economic, rather than a moral, justification for the

‘rules of the game’. Without adherence to elementary moral rules to
rule out deception, force or fraud, the market cannot function properly,
which, in turn, diminishes the efficiency of the economic system.
Anything that interferes with the market mechanism should therefore
be prohibited, and for Friedman this includes the acceptance of more
social responsibilities by business. In this regard, Friedman explicitly
argues that:
‘Few trends could so thoroughly undermine the very foundations
of our free society as the acceptance by corporate officials of a
social responsibility other than to make as much money for their
stockholders as possible’24.
Apart from hampering the market mechanism, Friedman also argues that
if corporate executives were to accept more social responsibilities, they
would, in effect, violate the promissory relation. According to Friedman,
promissory relation this promissory relation exists between executives (or managers)
and shareholders (or owners) and amounts to the agreement that
the agreement that executives
executives will act in the economic interests of shareholders. Extending
will act in the economic interest
CSR obligations diverts business from its proper goal (i.e. making profits
of shareholders
for shareholders) and, in effect, turns business into an arm of the state
(because business is now fulfilling government’s duties). Not only does
CSR undermine business, but Friedman also argues that it is unethical.
This is because, in accepting social responsibilities and using shareholder
money to achieve these social objectives, executives effectively impose
a ‘tax’ on shareholders. However, unlike government officials, executives
are not democratically elected, and therefore do not have the right to
make decisions regarding the allocation of funds for social objectives.
Although Friedman’s argument is still considered significant,
many shareholders today believe that sound ethical practices and the
responsible management of stakeholders is good for business, and thus
view an extended notion of CSR as consistent with their long-term

interests. Furthermore, the diversification of corporate equity holding
patterns resulted in a shift in the meaning of shareholder interests, and
today it is widely believed to be in the interest of shareholders to spread
social expenditure across companies25. Apart from the potential gains
that may arise from good CSR practices and the changing nature of
shareholding patterns, many would argue that business also has a moral
duty to accept a broader view of CSR.
8.3.2 The broad view of CSR

The proponents of the broad view of CSR argue that, at the very least,
business has a negative duty to refrain from harming society. Business
transactions often result in externalities, which are the unintended
positive or negative consequences that an economic transaction
between two parties can have on a third party26. An example of a
negative externality is industrial pollution, since often communities have
to bear the costs of pollution, but are not a recognised party in the
transaction between consumers and the polluting company. In such a
situation, fairness demands that the responsible business or industry
either absorbs the costs (by, for example, installing filters to lessen the
pollution) or compensates the community for damages. The problem
of negative externalities therefore constitutes the first good reason
for extending the scope of CSR beyond profit making. However, many
feel that CSR should be even further extended to also include positive
duties, understood as business’ responsibilities to actively and directly
contribute to the welfare of society, either through core business or
through philanthropic activities.
A second argument for extending our view of CSR can be made
with reference to the social contract. The social contract expresses social contract
the implicit relation between business and society, whereby society the implicit agreement whereby
grants business the ‘licence to operate’ through public consent, in the society grants business the
expectation that business will address certain societal needs. Thomas ‘licence to operate’ through
Donaldson27 explains the motivation behind the social contract as public consent, in the
follows: expectation that business will
‘Corporations considered as productive organizations exist address certain societal needs
to enhance the welfare of society through the satisfaction of
consumer and worker interests, in a way which relies on exploiting
corporations’ special advantages and minimizing disadvantages.’
The exact content of the social contract is contingent on the specific

context in which businesses operate. Whereas in Friedman’s day,
economic returns and sound business practices might have constituted
the main terms of the social contract, Melvin Anschen28 already noted
in 1970 that soon ‘it will no longer be acceptable for corporations to
manage their affairs solely in terms of the traditional internal cost of
doing business, while thrusting external costs on the public.’
A third justification for the broader view of CSR concerns
businesses’ economic influence. Keith Davis29, a contemporary of
Anschen, argued in 1975 that businesses’ social responsibility arises from
social power. Today, business (especially big multinational companies)
wields enormous socio-economic power, and the influence that these

companies have in the world should not be underestimated. Indeed, in
many cases, the annual revenue of multinational corporations exceeds
the gross domestic product (GDP) of a number of countries. For
example, for the fiscal year 2010, Wal-Mart30 reported revenue of $421
849 billion, Exxon Mobil’s31 revenue was $370 125 billion, and Royal
Dutch Shell’s32 revenue was $368 056 billion. In contrast, South Africa’s
GDP for the year 2010 was $525 806 billion, and according to the
International Monetary Fund (IMF)33, South Africa ranks as the world’s
25th largest economy. From the IMF’s list of the 183 economies, 155
reported a lower 2010 GDP than Wal-Mart’s 2010 revenue. This fact
alone serves as a strong justification for the broader view of CSR, since
corporations cannot ignore the effects that they have on society, nor the
responsibilities that they have towards society.
A fourth justification for extending CSR concerns businesses’
responsibility towards stakeholders. Stakeholder theory is viewed as an
important way in which to flesh out and materialise the broad notion
of CSR. Narrowly defined, stakeholders constitute those groups that
are vital to the success and the survival of the organisation and include
employees, managers, suppliers, consumers and shareholders; whereas
in broad terms, stakeholders are defined as any group who affects or is
affected by the organisation and can include the government, society and
competitors. The father of stakeholder theory, Edward Freeman, argues
that the goal of business is to create value for its stakeholders, and that,
in order to do so, one should integrate ‘business and ethics within a
complex set of stakeholder relationships rather than treating ethics as
stakeholder theory a side constraint on making profits’34. The challenge in stakeholder
theory is to manage conflicting claims and minimise trade-offs between
a theory of the moral
stakeholders. This will only be possible if companies recognise that
management of organisational
they have a responsibility towards stakeholders, and not only towards
stakeholders
shareholders. Indeed, Freeman argues that strengthening business
relations with stakeholders is essential for restoring the public’s trust in
business, and in this regard, he states that:
‘We need to focus on the value that businesses create for its
customers, suppliers, employees, communities, and its financiers.
Government needs to lift up examples of companies like Whole
Foods, Google, and others who have put value creation for
stakeholders ahead of a narrow view of profits. Great companies
have great purposes, and we need to realize that and demand it of
our business’35.
The harm inflicted on both shareholders and other stakeholders by

unethical practices, and the collapse of big companies such as Enron, is
proof of the importance of good CSR practices. Companies must realise
that they not only have a fiduciary duty towards their shareholders, but
that their operations often have a profound impact on society. Business
should not be viewed in isolation from the environments in which they
are embedded. We are all interconnected in numerous and complex
ways and responsible business demands that we look beyond our own
interests and try to account for the nature, and degree, to which our
business practices affect others.
BROADER VIEW NARROW VIEW

Advocate: Keith Advocate: Milton
Davis; Melvin
CSR Friedman
Anschen; Thomas ,ustiƂcation:
Donaldson; Edward POSITIVE Promissory relation
Freeman RESPONSIBILITIES Shareholder value
,ustiƂcation: Social creation
contract (Anschen; NEGATIVE Stakeholders:
Donaldson) Social RESPONSIBILITIES Owners, managers
power (Davis)
CSR paradigm:
Stakeholder value Shareholder model
creation (Freeman) PROFIT
Stakeholders:
Owners, managers,
employees, nFirst do no harmo
customers, suppliers,
eZternalities
communities,
environment Actively contributing to
CSR paradigm: the common good
Stakeholder model
Figure 8.2: Corporate social responsibility – two views
8.3.3 Approaches to CSR36

Not only are there different views regarding the scope of, and justification LEARNING OBJECTIVE 6
for, CSR, but differences also prevail with regard to how CSR should be Discuss contemporary
operationalised, especially when CSR obligations are extended beyond approaches to corporate social
the profit motive. Since first being coined in 1953, the concept of CSR responsibility.
has gradually converged with corporate performance, and, as Ming-
Dong Paul Lee notes, this trend has worked in both directions:
‘On the one hand, the concept of CSR has expanded to envelop
both economic and social interests on macro-political as well as
organizational levels. On the other hand, the concept of corporate
performance also broadened to cover economic as well as social
interests on institutional as well as organizational levels’37.
The effects of this trend are particularly evident in terms of the content
of CSR practices. Whereas in the past, corporate philanthropy was
most often associated with good CSR practices, today core business
or competencies are increasingly being harnessed for developmental
impact. This shift signifies a greater integration of CSR with business
practices. In the voluntarism-model, core business continues to deliver
shareholder value, whereas philanthropy or isolated CSR-practices
deliver stakeholder value. In the core-business model, companies seek
to deliver both shareholder and stakeholder value through corporate
activities.
Caroline Ashley38 notes that initiatives to adapt core business for

developmental impact have only started developing in the last ten years,
and include concepts such as ‘Bottom of the Pyramid’ (BOP) (where
companies market and develop products for billions of poor consumers,
in order to make profits whilst reducing poverty); ‘Creative Capitalism’
(which was coined by Bill Gates, and which refers to capitalism that works
by generating profits whilst solving social inequalities); ‘Social Business’
(in which profitable business reinvests in companies that seek to help the
poor); ‘Ethical Trade’ (which is concerned with decent labour standards);
and, ‘Inclusive Business’ (which has fewer ethical connotations than CSR
and embraces wider concepts, such as marketing for the poor).
In Kenya, UK tour operator involvement

helped secure government backing for
Standard Chartered Bank’s professional staff an initiative to secure fair returns for
contribute their time to community programmes Masai villagers
Staff and
Convening
expertise
power
A Sri Lanka beer company used
its plant to produce clean water for Virgin supports
Oxfam to distribute after the entrepreneurial
tsunami incubation in
Physical
resources Entrepreneurial South Africa,
Core aiming to
talent
competencies share
its own
expertise
Google Earth uses its cutting
edge technology to help Technology
Amazonian Indians monitor Distribution
and convey forest destruction networks Mexico’s
largest banking
Access to company delivers its
consumers products to retailers
British Airways has raised £25 million for UNICEF since accompanied by micro-
1994 by providing customers with opportunities to credit loan advisors who make a
donate currency presentation to retailers while the
driver unloads the products
Figure 8.3: Harnessing core competencies

Source: Ashley, C. 2009. Harnessing core business for development impact, background note,
Overseas Development Institute (ODI), February 2009.
Ashley39 argues that the core business approach extends traditional

CSR practices, but also excludes certain traditional CSR elements,
and therefore overlaps, but is not synonymous with, what is generally
considered as CSR. The main argument for the core business approach
is that, unlike certain CSR practices, it is not an add-on but integral to
business. In addition, although traditional CSR practices are often only
associated with the fulfilment of negative duties, the core business
approach moves beyond problem mitigation to embrace and develop
opportunities for the previously excluded. In practice, however, Ashley

argues that the clear distinction between CSR and the core business
approach is problematised, in that this approach often incorporates
standards of responsible business practices, which are key to CSR; the
core business approach is viewed as one type of CSR practice; and, to
initiate projects related to core business often requires the expertise of
staff in the CSR department, who have experience with developmental
projects beyond mere operational deliverables. In the future, we are
likely to see an increasing emphasis on the core business approach as a
means for companies to meet their CSR obligations.
8.4 CORPORATE GOVERNANCE

Combining sound business ethics practices (the ethics of governance)
with the effective management of CSR obligations (the governance
of ethics) is, as stated in Section 8.1, indicative of good corporate
governance practices. It is argued that ‘[c]orporate governance provides
the basis to protect shareholders, to treat stakeholders fairly, and ensure
transparency and accountability for managers’40. According to the World
Bank41, corporate governance should be based on four pillars, namely
responsibility, accountability, fairness and transparency (the ‘RAFT’
values). How these values are promoted in practice is contingent on
the specific governance framework that is adhered to. Broadly-speaking,
there are two approaches for formalising good governance, namely the
statutory and voluntary approaches to corporate governance.
‘Good corporate governance increases the integrity service delivery

and effectiveness of the private sector and helps r OFFEGPSTZTUFNTUPQSFWFOUBOEEFUFS
markets to operate more effectively. This matters for corruption in developing countries
many reasons, including:
r UIFEFSFHVMBUJPOBOEJOUFHSBUJPOPGDBQJUBM
r BWPJEBODFPGCVTJOFTTTDBOEBMT XIJDIEBNBHF
markets
USVTUJOCVTJOFTT
r SFDPHOJUJPOPGUIFJNQPSUBODFPGIBSOFTTJOH
r WBMVFQMBDFEPOHPPEDPSQPSBUFHPWFSOBODFCZ
EPNFTUJDTBWJOHTGPSFDPOPNJDHSPXUI
institutional investors
r UIFSJTLPGųOBODJBMDSJTJTBOEDPOUBHJPO’42.
r HSPXJOHJOWPMWFNFOUPGUIFQSJWBUFTFDUPSJO
8.4.1 The statutory approach to corporate LEARNING OBJECTIVE 7

governance Compare the statutory with
One of the most significant developments following from the Enron the voluntary approach to
case and other similar cases of corporate accounting fraud at the time corporate governance.
was the passing of the Sarbanes-Oxley Act of 2002 (SOX), which
is the United States’ corporate governance report. Ira Millstein, a
prominent figure in the corporate governance debate, argues that
SOX constitutes an attempt to institutionalise best practice through
legislation. In Millstein’s43 words: ‘Sarbanes-Oxley simply turned
what you should do into what you must do’. Millstein further argues

that SOX reversed the paradigm of lax governance by placing ‘total

responsibility for good corporate behaviour and good fiscal reporting
back with the board of directors’. This is because SOX requires that
chief executives and chief financial officers personally sign off on their
companies’ financial statements.
The statutory approach, which is sometimes referred to as the
comply or else model comply or else model, is a quantitative box-ticking approach to
the legislative approach to corporate governance, and complying with the requirements is a
corporate governance, in which prerequisite. This model has been criticised for being too draconian, and
compliance with requirements is has been likened to ‘using a sledgehammer to kill an ant’44. Furthermore,
a prerequisite complying with Sarbanes-Oxley can be a very time-consuming and
costly exercise, and many companies have shifted their listings to more
relaxed jurisdictions. It is stated in the King III Report that ‘[t]he total
cost to the American economy of complying with SOX is considered
to amount to more than the total write-off of Enron, WorldCom
and Tyco combined’45. Nonetheless, many are of the opinion that
strict regulations are essential for restoring public trust and promoting
responsible business. Journalist Jesse Eisinger46 argues that SOX has led
to a decrease in the size and number of accounting scandals, and to an
improvement in the oversight of the accounting industry.
In the United States, the trend to legislate governance is on the
increase and in July 2010 the Dodd-Frank Wallstreet Reform and
Consumer Protection Act was enacted. This law – which aims to
regulate the financial industry, break up companies that are ‘too big
to fail’, and strengthen whistle-blower protection47 – is described by
Eisinger as ‘more sweeping, more pilloried and more complicated’ than
SOX. Whereas many feel that such an act is necessary to prevent a crisis
similar to that of 2008, others say that the act is far too draconian.
8.4.2 The voluntary approach to corporate

governance
In contrast to the statutory approach, the voluntary approach is
followed in both the United Kingdom and South Africa. The voluntary
approach is a qualitative, principle-based approach, which means that
good governance practices are recommended, but companies can
choose whether to comply with the principles or not. Judge Mervin King,
chairman of the committee responsible for South Africa’s King Report
on Governance for South Africa (King III), argues that a principle-based
approach to corporate governance is superior to a rule-based approach
because it promotes intellectual honesty. In this regard, he states that:
‘[y]ou can have all the bloody rules in the world, but you cannot
legislate honesty. And, I’ll tell you, as a corporate lawyer, I’ve found
it’s much easier to get around a rule than a principle’48.
According to the voluntary model, a company has a choice to comply

with the governance recommendation or principles. If the company
chooses not to comply, the board must motivate their decision to
shareholders. As stated in the UK Corporate Governance Code of
201049, companies must explain why ‘they believe that their existing

arrangements ensure proper accountability and underpin board

effectiveness.’ For this reason, the voluntary approach is often referred
to as the comply or explain approach. The King I and King II comply or explain approach
Reports were based on the ‘comply or explain’ approach, but the ‘apply a voluntary approach to
or explain’ approach is followed in the King III Report. This approach, corporate governance, in which
which was also adopted in the Netherlands Code, is motivated in the directors can choose whether to
King III Report as follows: comply with the principles and
‘The ‘comply or explain’ approach could denote a mindless response guidelines that are advocated,
to the King Code and its recommendations whereas the ‘apply or as long as their explanation for
explain’ regime shows an appreciation for the fact that it is often non-compliance meets with
not a case of whether to comply or not, but rather to consider how shareholder approval
the principles and recommendations can be applied’50.
The apply or explain approach thus better encapsulates the principle- apply or explain approach
based approach (which, as stated above, is based on intellectual honesty) a voluntary approach to
and signifies a shift from mindless compliance to mindful application. This corporate governance, which is
approach to corporate governance is similar to the ‘comply or explain’ similar to the ‘comply or explain’
model, but it demands a more serious engagement with, and application model, but which demands
of, the recommended principles and guidelines. a more serious engagement
The voluntary approach, however, has also been criticised, because – with, and application of, the
although it aims to promote intellectual honesty – it cannot guarantee recommended principles and
ethical behaviour. Furthermore, because corporate governance is not guidelines
legislated, the prosecution rate under this model is also low. In South
Africa, the Companies Act legislates many of the recommendations made
in the King III Report (especially as concerns the duties and responsibilities
of directors). Although critics argue that the Companies Act makes
the King III Report redundant, a more fruitful approach is to view the
King III Report as ‘a valuable guide to directors and other office bearers
to ensure compliance with the provisions of the Companies Act’51.
Regardless of whether one supports a statutory or voluntary
approach to corporate governance, it is important to remember that
good governance is about sound business practices. Charles Elson,
another expert in the field of corporate governance, summarises this
point as follows: ‘Good governance isn’t really innovative – it’s just going
back to basics. It’s going back to the fact that the key to business is that
operations drive accounting, not the other way round’52.
8.5 THE KING REPORT ON GOVERNANCE FOR LEARNING OBJECTIVE 8

SOUTH AFRICA DeƂne and discuss the three
value dimensions that form the
The King III Report (henceforth referred to as the Report), became
basis for the King III 4eport.
effective on 1 March 2010. The Report (which is accompanied by a
comprehensive Code) applies to ‘entities incorporated in and resident
in South Africa’53, and spells out the framework for governance
compliance. In the introduction to the Report, it is stated that ‘[t]he
philosophy of the Report revolves around leadership, sustainability and
corporate citizenship’54, and in this final section, these value dimensions
of the Report will be briefly investigated.

8.5.1 Corporate citizenship

According to Malcolm McIntosh55, an international figure working in the
field of corporate citizenship, the term ‘corporate citizenship’ implies
a concern for the social, environmental and economic performance
of companies; and a concern for the role, scope and purpose of
companies. In the Report, it is explicitly stated that responsible
corporate citizenship corporate citizenship involves ‘social, environmental and economic
a concern for the social, issues’56 (the so-called ‘people, planet and profit’ issues). Companies
environmental and economic are accordingly encouraged to report on all three these dimensions,
performance of companies; and and not only on their financial bottom-line. Corporate citizenship also
a concern for the role, scope necessitates that companies acknowledge, and take responsibility for,
and purpose of companies their status and role in society. In the Report it is stated that the concept
of corporate citizenship ‘flows from the fact that the company is a
person and should operate in a sustainable manner’57. Companies are
defined as ‘social entities with both rights and responsibilities, and as
such, the Bill of Rights applies to them in a manner that goes beyond
mere financial considerations’58. The Report therefore endorses a view
of companies as both legal and moral entities; and, in this regard, it is
argued that companies have ‘social and moral standing in societies, with
all the responsibilities attached to that status’59; and, that ‘[r]esponsible
corporate citizenship implies an ethical relationship between the
company and the society in which it operates’60.
The argument put forward in the Report in support of treating
companies as responsible corporate citizens seems to be that, because
companies are powerful public actors, they have a responsibility to
respect the rights of natural citizens in society61. In practice, corporate
citizenship therefore operates as a synonym for CSR. How these
responsibilities are enacted is dependent on the unique operating
context; which, as stated in the Report, means that ‘[t]here is no
uniform or universally applicable approach to responsible citizenship
programmes… each company should develop its own policies to define
and guide its activities’62.
The Report places responsibility for the ethical and effective
governance of the company on the board of directors, and it is explicitly
stated that ‘[t]he board should ensure that the company is and is seen
to be a responsible corporate citizen’63. In order to achieve this end,
the board has two over-arching responsibilities: ‘first it is responsible
for determining the company’s strategic direction (and, consequently, its
ultimate performance); and second, it is responsible for the control of
the company’64.
8.5.2 Ethical leadership

In order for the board to exercise its responsibilities successfully and
ethical leadership ensure that the company is a good corporate citizen, strong ethical
directing and controlling leadership is needed. Ethical leadership is where a company is directed
a company in a way that and controlled in a way that promotes good corporate governance. As
promotes good corporate stated in the Report: ‘Good corporate governance is essentially about
governance effective, responsible leadership’65. According to the Report66, this
involves building sustainable business; reflecting on the role of business
in society; doing business ethically (which also implies valuing personal
and institutional ethical fitness, and practising corporate statesmanship);

not compromising the natural environment or intergenerational welfare;
and, embracing a shared future with all the company’s stakeholders.
As advocated in the Report, the board should accept the following
additional responsibilities, in order to achieve the above-mentioned
goals67:
r %JSFDUBOEDPOUSPMUIFDPNQBOZJOBNBOOFSUIBUQSPNPUFTHPPE
corporate governance practices.
r &OTVSFUIBUNBOBHFNFOUDVMUJWBUFTBDVMUVSFPGFUIJDBMDPOEVDUBOE
sets the values to which the company will adhere.
r &OTVSFUIBUJOUFHSJUZQFSNFBUFTBMMBTQFDUTPGUIFDPNQBOZBOEJUT
operations.
r "MJHOUIFCPBSETBOENBOBHFNFOUTDPOEVDUXJUIUIFDPNQBOZT
values.
r $POTJEFSUIFMFHJUJNBUFJOUFSFTUTBOEFYQFDUBUJPOTPGUIF
company’s stakeholders in the board’s deliberations, decisions and
actions.
Board members should set the example for ethical conduct in an

organisation, but are also responsible for promoting an ethical
organisational culture and looking after stakeholder interests. As such,
boards play an important leadership role.
8.5.3 Sustainability
In the Report, it is stated that ‘[a] key challenge for leadership is to
make sustainability issues mainstream. Strategy, risk, performance sustainability
and sustainability have become inseparable’68. Sustainability issues are
the long-term maintenance
presently at the forefront of the global agenda, and the significance of
of systems according to
sustainable action is described in the Report as follows:
environmental, economic and
‘Sustainability is the primary moral and economic imperative of social considerations
the 21st century. It is one of the most important sources of both
opportunities and risks for business. Nature, society, and business
are interconnected in complex ways that should be understood by
decision-makers. Most importantly, current incremental changes
towards sustainability are not sufficient – we need a fundamental shift
in the way companies and directors act and organise themselves’69.
At a very basic level, sustainability is concerned with systems maintenance,

which means that our actions should not impact on a system in ways that
threaten its long-term viability. In other words, sustainability shows a
concern for intergenerational equity, in that present actions should not
hamper the ability of future generations to satisfy their needs. Although
the term has its roots in environmental management and analysis,
the sustainability concept has been extended to include social and
economic aspects. The reason for this is that it is impossible to consider
environmental sustainability ‘without also considering the relevant
communities and their activities’70. Another reason for the extension
of the term is that, if sustainability implies a concern for the equity of
future generations, then, logically, it should also imply a concern for
current generations. In taking the above into consideration, Andrew
Crane and Dirk Matten71 offer the following definition of sustainability:

‘Sustainability refers to the long-term maintenance of systems according
to environmental, economic and social considerations.’
Environmental sustainability concerns ‘the effective management of
physical resources so that they are conserved for the future’72. Biosystems
and natural resources are finite, and are negatively impacted by a number
of human activities, including industrialisation, the continued use of non-
renewable resources, and the use of damaging environmental pollutants.
Not only do these activities threaten the sustainability of biosystems,
but they also pose a threat for economic sustainability. In South Africa
specifically, environmentally-sustainable operations have become
imperative. In this regard, the former Minister of Environmental Affairs
and Tourism in South Africa, Martinus van Schalkwyk, is referenced in
the Report as stating that ‘if South Africa continued with business as
usual, greenhouse gas emissions would quadruple by 2050 and, in the
process, South Africa would become an international pariah’73.
As explained by Crane and Matten74, economic sustainability ‘initially
emerged from economic growth models that assessed the limits
imposed by the carrying capacity of the earth’. This led to a focus on the
impact that our activities have on future generations, and an attempt to
mitigate this impact. In terms of business ethics, economic sustainability
can be narrowly interpreted as a concern for the long-term economic
performance of a company, or more broadly interpreted as a ‘company’s
attitude towards and impact upon the economic framework in which it is
embedded’75. This broader view of economic sustainability is supported
in the Report, and is underscored by the focus on both corporate
citizenship and integrated reporting (in which market capitalisation is
defined in terms of a company’s economic, as opposed to book, value)76.
The youngest, but arguably most influential, sustainability
development is social sustainability. The debate on social sustainability
– which gained prominence in the 1990s – ‘marked a significant shift in
the way that notions of sustainability were conceptualized’77. According
to Crane and Matten78, the key issue in this debate is social justice,
particularly the implications for justice resulting from income disparities,
the gap between richer and poorer countries, and the under-provision
and deterioration of basic services in many countries across the world.
In South Africa particularly, social transformation remains imperative to
achieving social sustainability, and in the Report it is specifically argued
that ‘[s]ocial transformation and redress from apartheid… should be
integrated within the broader transition to sustainability… in a strategic
and coherent manner [which] will give rise to greater opportunities,
efficiencies, and benefits, for both the company and society’79.
It is also argued in the Report that the ‘[i]nclusivity of stakeholders
is essential to achieving sustainability and the legitimate interests and
expectations of stakeholders must be taken into account in decision-
making and strategy’80. In this regard, it is interesting to note that mention
is made in the Report of the unique African philosophy of Ubuntu, as
a way of respecting the fundamental dignity and rights of stakeholders.
Ubuntu, which is captured in the expression ‘uMuntu ngumuntu

Chapter 8 Business ethics, corporate social responsibility and corporate governance
ngabantu’, ‘I am because you are; you are because we are’, promotes

‘mutual support and respect, interdependence, unity, collective work
and responsibility’81, and can become an important framework for
promoting corporate citizenship and sustainability in South Africa.
Apart from focusing on corporate citizenship, ethical leadership,
sustainability, stakeholder governance and integrated reporting, the King
III Report also describes the board’s responsibilities in terms of internal
audits and audit committees, risk governance, information technology
governance, and compliance. As previously mentioned, the Report is
an important supplement to the Companies Act, and a useful guide for
Directors to ensure compliance with the Companies Act.
CHAPTER SUMMARY
1. Describe the interplay between business ethics, CSR and corporate governance.
• CSR pertains to the responsible management of stakeholder and societal interests, whereas
business ethics concerns the institutionalisation of a values-driven corporate culture.
• Corporate governance combines CSR management (the governance of ethics) and business
ethics management (the ethics of governance), in order to promote the ethical and effective
direction and control of a company’s operations and relationships.
2. Define morality, ethics and business ethics at the hand of examples.

• Morality refers to a person’s or group’s standards pertaining to right and wrong, good and
bad, and what deserves respect and what does not (for example, it is commonly believed that
it is morally wrong to lie).
• Ethics refers to an evaluation of moral standards (for example, apartheid beliefs pertaining to
the superiority of one race over another are unsound and therefore ethically wrong).
• Business ethics refers to the evaluation of moral standards in the context of business
operations (for example, a business ethical issue concerns the degree of loyalty that one
should have towards your company).
3. Explain the three dimensions of ethical analysis relevant to business ethics.

• The first dimension concerns the normative foundation of, and justification for, individual and
group decisions.
• The second dimension concerns the tacit and explicit norms and rules that define a company’s
culture, and that direct individual behaviour.
• The third dimension concerns the social, economic, political, environmental and cultural
systems, which enable and constrain business activities, and which shape our practices.
4. Define the three most common approaches to normative ethics.

• According to consequentialism, the morality of an action is either judged according to the
positive long-term consequences that an action holds for oneself (egoism) or for everyone
affected by the situation (utilitarianism).
• According to deontology, the morality of an action is judged according to the action’s
adherence to a set of rules, for example a list of commonly accepted human rights.
• According to virtue ethics, the morality of an action is the outcome of the moral agent’s
virtuous nature.
5. Define and motivate the case for the narrow and broad view of corporate social
responsibility.
• The narrow view of CSR states that the only responsibility of business is to make profit, as
long as it stays within the rules of the game.
• The narrow view is justified on the basis of the superiority of an unrestricted market, the nature
of the promissory relation, and the proper separation and legitimisation of government and
business responsibilities.
• The broad view of CSR states that business has both a negative duty to refrain from harming
society, and a positive duty to contribute actively to the welfare of society.
• The broad view is justified on the basis of the costs of negative externalities, the social
contract (which exists between business and society), the size and power of business, and
the importance of managing stakeholder relationships.
6. Discuss contemporary approaches to corporate social responsibility.

Whereas philanthropic activities characterise traditional CSR, the core business approach
(which links corporate performance and social interests) is gaining traction. Examples of this
approach include bottom of the pyramid, creative capitalism, social business, ethical trade and
inclusive business.
7. Compare the statutory with the voluntary approach to corporate governance.

• The statutory approach to corporate governance is quantitative and rule-based, and complying
with requirements is a prerequisite. An example of this approach, which is also referred to as
the ‘comply or else’ model, is the Sarbanes-Oxley Act of 2002.
• The voluntary approach to corporate governance is qualitative and principle-based. Directors
can choose whether to implement the principles or not, and if they decide not to, they must
motivate their reasons to the shareholders. This approach characterises both the ‘comply or
explain’ model (adopted in the UK Corporate Governance Code of 2010) and the ‘apply or
explain’ model (adopted in the King III Report and the Netherlands Code).
8. Define and discuss the three value dimensions that form the basis for the King III Report.
• The three dimensions are corporate citizenship, ethical leadership and sustainability.
• Corporate citizenship is a concept that draws attention to the social, economic and
environmental performance of companies; as well as to the role, scope and purpose of
companies. The term is often used synonymously with CSR.
• The King III Report advocates triple-bottom line reporting, and argues that companies have
responsibilities beyond financial considerations. According to the King III Report, companies
have moral and social standing in societies, and the board is responsible for ensuring that the
company acts as a responsible corporate citizen.

• Ethical leadership has to do with directing and controlling a company in a way that promotes
good corporate governance.
• The King III Report lists the board’s additional responsibilities as cultivating an ethical culture,
ensuring that the company operates with integrity, ensuring that leaders’ and managers’
conduct are aligned with company values, and considering stakeholders in decisions and
actions.
Chapter 8 Business ethics, corporate social responsibility and corporate governance
• Sustainability refers to the long-term maintenance of systems according to environmental,

economic and social considerations.
• In the King III Report, sustainability is defined as the moral and economic imperative of the
twenty-first century. The Report emphasises the importance of environmental sustainability
(which, in South Africa, is threatened by high levels of greenhouse gas emissions); economic
sustainability (which, according to the King III Report, means that market capitalisation
should be defined in terms of a company’s economic, as opposed to book, value); and,
social sustainability (which, according to the King III Report, means addressing stakeholder
issues and issues pertaining to social transformation).
KEY TERMS
apply or explain model the governance of ethics
business ethics homo economicus model
Companies Act King III Report (2010)
comply or else model macro-ethics
comply or explain model Milton Friedman
consequentialism morality
core business for developmental impact negative duty
corporate citizenship normative ethical theory
corporate governance organisational culture
corporate social responsibility (CSR) positive duty
deontology promissory relation
Dodd-Frank Act Sarbanes-Oxley Act (2002)
Enron social contract
ethical leadership stakeholder theory
ethics sustainability
the ethics of governance virtue ethics
REVIEW QUESTIONS
1. Using the Enron case, explain why good governance cannot only be a matter of ethical artefacts.
2. Why is it necessary to subject our moral standards and beliefs to ethical scrutiny?
3. Why should ethical analyses be extended beyond the examination and justification of individual and
group decisions?
4. Would prosecuting the only doctor at a rural hospital for stealing supplies be morally justifiable?
Motivate your answer from a utilitarian, deontological human rights-based and virtue ethics
perspective.
5. Critically compare the narrow and broad view of corporate social responsibility, and form an opinion
as to which approach is more suited to our current business context.

6. Discuss contemporary approaches to corporate social responsibility.
7. What are the differences between the statutory and voluntary approaches to corporate governance?
8. Discuss the concept of sustainability and motivate why sustainability is a moral and economic
imperative of the twenty-first century.
END NOTES
%XVLQHVV5RXQGWDEOH,QVWLWXWHIRU&RUSRUDWH(WKLFV>2QOLQH@Ł(QURQ\HDUVODWHUŋPHGLDURXQGXSŋEXVLQHVVHWKLFV
H[SHUWTXRWHVł-DQXDU\$YDLODEOHKWWSZZZGDUGHQYLUJLQLDHGXFRUSRUDWHHWKLFV(QURQBPHGLDBURXQGXSB
KWP$FFHVVHGRQ0DUFK
8QOHVVRWKHUZLVHLQGLFDWHGWKLVFDVHVWXG\LVDGDSWHGIURP6LPV5 %ULQNPDQQ-(QURQHWKLFVRUFXOWXUH
PDWWHUVPRUHWKDQFRGHV Journal of Business Ethics, ŋ
%%&1HZV:RUOG(GLWLRQ>2QOLQH@(QURQ.H\ğJXUHV$YDLODEOHKWWSQHZVEEFFRXNKLEXVLQHVVVWP
$FFHVVHGRQ0DUFK
1HZ<RUN7LPHV>2QOLQH@,QWHUDFWLYHWLPHOLQHWKHULVHDQGIDOORI(QURQ$YDLODEOHKWWSZZZQ\WLPHVFRPUHI
EXVLQHVVB(1521B*5$3+,&KWPO$FFHVVHGRQ0DUFK
6FKHLQ(Organizational Culture and Leadership. 6DQ)UDQFLVFR-RVVH\%DVV
0LOOHU0(QURQłVHWKLFVFRGHUHDGVOLNHğFWLRQColumbus Business First, $SULO>2QOLQH@$YDLODEOHKWWS
ZZZEL]MRXUQDOVFRPFROXPEXVVWRULHVHGLWRULDOKWPO"SDJH DOO$FFHVVHGRQ0DUFK
%XVLQHVV5RXQGWDEOH,QVWLWXWHIRU&RUSRUDWH(WKLFVRSFLW
,ELG
(WKLFV,QVWLWXWHRI6RXWK$IULFDSocial and ethics committees: look beyond the letter of the law to maximize business
benefits0HGLDUHOHDVHYLDHPDLO)HEUXDU\RSFLW
&DGEXU\$The Code of Best Practice. Report of the Committee on the Financial Aspects of Corporate
Governance*HHDQG&R/WG
,QVWLWXWHRI'LUHFWRUV ,R'King Report on Governance for South Africa (King III) Institute of Directors.
0DUFK3ULQFLSOH
(WKLFV,QVWLWXWHRI6RXWK$IULFDRSFLW
5RVVRXZ*-7KHHWKLFVRIFRUSRUDWHJRYHUQDQFH&UXFLDOGLVWLQFWLRQVIRUJOREDOFRPSDULVRQVInternational
Journal of Law and Management,ŋ
(WKLFV,QVWLWXWHRI6RXWK$IULFDRSFLW
,ELG
6KDZ: %DUU\9 Moral Issues in Business. WKHGLWLRQ. %HOPRQW&$:DGVZRUWK7KRPVRQ/HDUQLQJ
,ELG
7UHYLQR/. %URZQ0(0DQDJLQJWREHHWKLFDOGHEXQNLQJğYHEXVLQHVVHWKLFVP\WKVAcademy of

Management Executive, ŋ
6PLWK$ The Wealth of Nations. 1HZ<RUN0RGHUQ/LEUDU\
6KDZ %DUU\RSFLW
6LPV %ULQNPDQQRSFLW

Business Roundtable Institute for Corporate EthicsRSFLW
)ULHGPDQ0 Capitalism and Freedom. &KLFDJR8QLYHUVLW\RI&KLFDJR3UHVVS
,ELG
/HH0'3$UHYLHZRIWKHWKHRULHVRIFRUSRUDWHVRFLDOUHVSRQVLELOLW\bLWVHYROXWLRQDU\SDWKDQGWKHURDGDKHDG
International Journal of Management Reviewsŋ
6KDZ %DUU\
'RQDOGVRQ7&RQVWUXFWLQJDVRFLDOFRQWUDFWIRUEXVLQHVV,QBusiness Ethics: A Philosophical ReaderHG

7,:KLWHŋ1HZ<RUN0DF0LOODQ3XEOLVKLQJ&RPSDQ\SSŋ
$QVFKHQ0&KDQJLQJWKHVRFLDOFRQWUDFWDUROHIRUEXVLQHVVColumbia Journal of World Business
ŋ
'DYLV.)LYHSURSRVLWLRQVIRUVRFLDOUHVSRQVLELOLW\Business Horizons -XQHŋ

:DOPDUW$QQXDO5HSRUW>2QOLQH@$YDLODEOHKWWSZDOPDUWVWRUHVFRPVLWHVDQQXDOUHSRUWğQDQFLDOV
:DOPDUWBB$QQXDOB5HSRUWSGI$FFHVVHGRQ)HEUXDU\
([[RQ0RELO6XPPDU\$QQXDO5HSRUW>2QOLQH@$YDLODEOHKWWSZZZH[[RQPRELOFRP&RUSRUDWH)LOHVQHZVBSXEVB
VDUBSGI$FFHVVHGRQ)HEUXDU\
5R\DO'XWFK6KHOO$QQXDO5HSRUW>2QOLQH@$YDLODEOHKWWSZZZVWDWLFVKHOOFRPVWDWLFLQYHVWRUGRZQORDGV
ğQDQFLDOBLQIRUPDWLRQUHSRUWVVKHOOBBDQQXDOBUHSRUWBIBSGI$FFHVVHGRQ)HEUXDU\
,QWHUQDWLRQDO0RQHWDU\)XQG,0):RUOG(FRQRPLF2XWORRN'DWDEDVH>2QOLQH@$YDLODEOHIURPKWWSZZZLPIRUJ
H[WHUQDOSXEVIWZHRZHRGDWDLQGH[DVS[$FFHVVHGRQ)HEUXDU\
)UHHPDQ5(0DQDJLQJIRUVWDNHKROGHUV,QEthical Issues in Business: a Philosophical ApproachHGV
7'RQDOGVRQDQG3+:HUKDQHŋ1HZ-HUVH\3HDUVRQ3UHQWLFH+DOOS
%XVLQHVV5RXQGWDEOH,QVWLWXWHIRU&RUSRUDWH(WKLFVRSFLW
7KLVVHFWLRQLVWDNHQIURP:RHUPDQQ0On the (Im)Possibility of Business Ethics: Critical Complexity,

Deconstruction, and Implications for Understanding the Ethics of Business.'RUGUHFKW6SULQJHUSSŋ
/HHS
$VKOH\&%DFNJURXQGQRWHKDUQHVVLQJFRUHEXVLQHVVIRUGHYHORSPHQWLPSDFW2YHUVHDV'HYHORSPHQW,QVWLWXWH
)HEUXDU\$YDLODEOHKWWSZZZRGLRUJXNUHVRXUFHVGRFVSGI$FFHVVHGRQ0DUFK
,ELG
7KHEnterprise Development Impact Assessment Information Service(',$6>2QOLQH@Ł+RZWRSURPRWHJRRGJRYHUQ
DQFHł$YDLODEOHKWWSZZZVHGPDQFKHVWHUDFXNUHVHDUFKLDUFHGLDLVSGI+RZWR3URPRWH*RRG&RUSRUDWH*RYHUQDQFH
SGI$FFHVVHGRQ0DUFK
Global Corporate Governance Forum >2QOLQH@Ł$FRUSRUDWHJRYHUQDQFHPRGHOEXLOGLQJUHVSRQVLEOHERDUGVDQGVXVWDLQ

DEOHEXVLQHVVHVłPrivate Sector Opinion,QWHUQDWLRQDO)LQDQFH&RUSRUDWLRQ:RUOG%DQN*URXS$YDLODEOHKWWS
ZZZZGVZRUOGEDQNRUJH[WHUQDOGHIDXOW:'6&RQWHQW6HUYHU:'63,%B
5HQGHUHG3')%5,*&*)%R[%38%/,&SGI$FFHVVHGRQ0DUFK
The Enterprise Development Impact Assessment Information Service(',$6
%LVRX[7:KDWLVJRRGJRYHUQDQFH" BizEd,0DUFK$SULOŋRSFLW
:LOPRW-7KHZRUOGRIFRUSRUDWHJRYHUQDQFHLVIRUFHQHFHVVDU\"Financial Mail,-XO\S
,R'LQWURSDUD
(LVLQJHU-7KH62;ZLQKRZğQDQFLDOUHJXODWLRQFDQZRUN Propublica)HEUXDU\$YDLODEOHKWWSZZZ

SURSXEOLFDRUJWKHWUDGHLWHPWKHVR[ZLQKRZğQDQFLDOUHJXODWLRQFDQZRUN$FFHVVHGRQ0DUFK
TechTarget>2QOLQH@Ł'RGG)UDQN$FWł$YDLODEOHKWWSVHDUFKğQDQFLDOVHFXULW\WHFKWDUJHWFRPGHğQLWLRQ'RGG)UDQN
$FW"YJQH[WIPW SULQW$FFHVVHGRQ0DUFK
%LVRX[RSFLWS
Financial Reporting Council>2QOLQH@Ł7KH8.&RUSRUDWH*RYHUQDQFH&RGHł-XQH$YDLODEOHKWWSZZZIUFRUJ
XNGRFXPHQWVSDJHPDQDJHUFRUSRUDWHBJRYHUQDQFHXNFRUSJRYFRGHMXQHSGI$FFHVVHGRQ
0DUFK3UHIDFHSDUD
,R'LQWURSDUD
Deloitte >2QOLQH@Ł&RPSOLDQFHZLWK.LQJ,,,DQGWKH&RPSDQLHV$FWł$YDLODEOHKWWSZZZGHORLWWHFRPYLHZHQB=$]D
VHUYLFHVDXGLWGHORLWWHDXGLWNLQJLLLGGHHD9JQ9&0EEID5&5'KWP$FFHVVHGRQ
0DUFK
%LVRX[RSFLW
,R'LQWURSDUD
,R'LQWURSDUD
0F,QWRVK07KHHFRORJ\RIFRUSRUDWHFLWL]HQVKLSUDLVLQJWKHODGGHUWRWKHPRRQ"The Journal of Corporate
Citizinshipŋ
,R'LQWURSDUD
,R'LQWURSDUD
,R'FKDSSDUD

,R'FKDSSDUD
,R'FKDSSDUD
0DWWHQ'&UDQH$ &KDSSOH:%HKLQGWKHPDVNUHYHDOLQJWKHWUXHIDFHRIFRUSRUDWHFLWL]HQVKLSJournal
of Business Ethics, ŋŋ
,R'FKDSSDUD
,R'SULQFLSOH
,R'FKDSSDUD
,R'FKDSSDUD
,R'FKDSSDUDŋ
,R'FKDSSDUDŋ
,R'FKDSSDUD
,R'LQWURSDUD
&UDQH$ 0DWWHQ'Business Ethics: A European Perspective. Managing Corporate Citizenship and
Sustainability in the Age of Globalisation2[IRUG2[IRUG8QLYHUVLW\3UHVVS
&UDQH 0DWWHQS
,ELG
,R'LQWURSDUDRSFLW
&UDQH 0DWWHQS
,ELG
,R'LQWURSDUD
&UDQH 0DWWHQS
&UDQH 0DWWHQ
,R'LQWURSDUD
,R'LQWURSDUD
,R'FKDSSDUD

Chapter 9
Workforce diversity
OPENING CASE
Hellicy Ngambi
OPENING CASE
Nike Inc.
Imagine working in an environment where Strategic values
everyone thinks the same, acts the same, maybe According to Nike’s human resources management
even looks the same. Nobody and nothing gets policy, diversity and inclusion is what drives
challenged and the status quo is maintained in creativity and innovation in the company. It takes
absolute peace and tranquillity. Appointments every one of over 30 000 employees working at
at such an organisation can be seen as cloning. the top of their ability, for Nike to reach its highest
Thankfully we have Nike Inc. as an example to use potential. The company realises that outstanding
as an opening case to this chapter where none of teams are composed of diverse people, with
this holds true. diverse opinions, diverse backgrounds, diversity
of perspective and diverse skills sets.
History In order to achieve their mission, Nike has put
Nike Inc. was founded in 1954 by Bill Bowerman various strategies into action:
and Phil Knight. Initially, it was named Blue Ribbon r $VMUJWBUFEJWFSTJUZBOEJODMVTJPOUPEFWFMPQ
Sports. Their business inspiration was to provide world-class, high performing teams.
sportsmen with high quality shoes, which started r *HOJUFDIBOHFBOEJOTQJSFDSJUJDBM
from selling shoes from the trunk of a car after conversations around diversity, inclusion and
sporting events. In 1978, Blue Ribbon ended its innovation.
relationships with its prime supplier Onitsuka r $SFBUFWFOVFTBOEFOWJSPONFOUTGPSPQFO
Tiger and officially became Nike Inc. In 1980, dialogue, diverse opinions and a multitude of
Nike gained 50 per cent of the market share. perspectives.
Today, the company is the world’s largest athletic
footwear and apparel supplier. Nike has a huge
global presence, employing 30 000 employees Defining diversity at Nike Inc.
representing many parts of the globe with the The central idea of managing diversity is that
mission ‘To bring inspiration and innovation organisational improvement is achieved through
to every athlete in the world’. The company recognising, valuing, promoting and utilising
harnesses diversity and inclusion to inspire ideas diversity where diversity refers to all sorts of
and ignite innovation. differences between individuals.
At Nike, diversity is categorised into two types: r 4VQQMJFSEJWFSTJUZ/JLFTDPNNJUNFOUUP

r PCTFSWBCMFEJŲFSFODFTMJLFOBUJPOBMJUZPSBHF diversity extends beyond its employee
r VOEFSMZJOHEJŲFSFODFTMJLFWBMVFTBOETFYVBM base to the work that they undertake with
orientation. their suppliers. Their supplier diversity
programme supports purchases from women
Nike Inc. benefits from diversity and minority business owners. For three
consecutive years, the company has been
Nike has enjoyed great benefits from having a
rated by diversitybusiness.com as America’s
strategy and policies governing the management of
top organisation for multicultural business
diversity, such as:
opportunities.
r 4USBUFHJDCFOFųU5IFEFWFMPQNFOUBOE
implementation of the Nike diversity Nike’s success in developing and maintaining a
principles not only affected the company’s diverse workforce under a single platform can be
turnover and market share, but also the ascribed to the fact that it was driven from the
overall reputation of the organisation. top of the organisation, embraced as a strategic
r $SFBUFDPNQFUJUJWFBEWBOUBHF/JLFIBTB value and intent, deployment of mature and
strong belief that diversity creates competitive well-structured diversity training at management
advantage, both in attracting, developing and and workforce level, and finally the establishment
leveraging diverse talent inside the company and employment of a Vice President of Diversity,
as well as building strong brand relationships focusing on engaging employees, providing business
with diverse consumers world-wide. This has consultation, and developing innovative tools,
led to the appointment of the company’s first models and designs.
Vice President of Diversity in 2006. The global The opening case illustrates the management of
diversity and inclusion team that was formed diversity at Nike Inc., as a mechanism to improve
shortly afterwards focused on engaging the company’s effectiveness. This is also the
employees, providing business consultation focus of this chapter, which aims at equipping the
and developing innovative tools, models and learner with knowledge to create an environment
designs. that allows all workers to contribute optimally
r (SFBUFSBEBQUBCJMJUZBOEŴFYJCJMJUZ3FTJTUBODF to organisational goals and experience personal
to change is reduced, and the company’s growth. This includes allowing all employees to have
workforce readily embrace broader believes access to jobs as well as facilitating fair and positive
and ideas. treatment in the workplace. Skills and competencies
r (BJOJOHBOELFFQJOHHSFBUFSNBSLFUTIBSF" are introduced to develop employees so that they
diversified company receives the benefits of are comfortable working with others from a wide
a diverse market and thus also a greater than variety of ethnic, racial, religious, and various other
normal market share. backgrounds.

CHAPTER 9 Workforce diversity
LEARNING OBJECTIVES
The purpose of this chapter is to provide an overview of diversity in the workplace. The objective of
studying this chapter is to enable you to:
. &eƂne and eZplain the various dimensions of diversity.
2. Provide reasons for the increased focus on managing workforce diversity.
. 'Zplain the need for diversity management in 5outh #frica.
4. Recommend strategies for managing diversity.
. 5uggest ways to perform diversity training in an organisation.
9. 1 DIMENSIONS OF DIVERSITY LEARNING OBJECTIVE 1

&GƂPGCPFGZRNCKPVJGXCTKQWU
9.1.1 The realities of diversity
dimensions of diversity.
We South Africans refer to ourselves as the ‘rainbow nation’ because our
nation includes people of many different races, languages and religions.
While we all share the important dimensions of the human species,
biological and environmental differences separate and distinguish us
as individuals and groups. This vast array of differences constitutes a
spectrum of human diversity and causes us to perceive and interpret
similar situations differently.
One of the most fundamental aspects of managing people with
different life experiences is the fact that they may interpret reality very
differently. By the time people enter organisations, the way they perceive
and respond to the world around them will largely have been determined
by the environment in which they were brought up. One’s family, friends,
type of school attended, as well as the culture in which one was brought
up, shape one’s cognition and influence one’s perceptual bias.
One of the major challenges facing South African organisations
is workforce diversity. Working with people whose values, attitudes,
beliefs, perceptions, languages, and customs are very different from
one’s own can make for costly misunderstanding, miscommunication,
misperception, misinterpretation, and misevaluation.
Many countries in the world can be described as radically pluralist
societies. Such societies comprise practically every conceivable kind
of human plurality; their populations are extremely heterogeneous in
terms of race, ethnicity, culture, language, sexual orientation, religion,
conceptions of good or bad, etc. Safeguarding such a society from
the potentially destructive conflicts that arise so easily in radically
pluralist or diverse societies is a complex task2. South African society
can at best be described as a radically pluralist society, therefore
the potential for destructive conflicts exists if the design of its social
institutions does not ensure fairness to all its members3. Table 9.1
on the next page illustrates ethnic, gender, employment and linguistic
diversity in South Africa.

Table 9.1: South African demographics
Estimates for South Africa by population group and gender, 2010
Male Female Total

Population Per cent Per cent Per cent
group Number of total Number of total Number of total
population population population
African 19 314 500 79.4 20 368 100 79.4 39 682 600 79.4
Coloured 2 124 900 8.7 2 299 200 9.0 4 424 100 8.8
Indian/Asian 646 600 2.7 653 300 2.5 1 299 900 2.6
White 2 243 000 9.2 2 341 700 9.3 4 584 700 9.2
Total 24 329 000 100 25 662 300 100 49 991 300 100
Source: www.statssa.gov.za
South Africa is a nation in the midst of a profound transformation.

Diversity in South Africa is all the more dynamic and complicated as
the result of a history of legislated race separation. South Africa is
experiencing demands by black people and women for inclusivity in
decision-making and in the sharing of wealth in the workplace. Under
the former apartheid system, South African organisations operated in an
environment of protectionism propped up by government support. The
best jobs were reserved for white employees. There was, therefore,
limited workforce diversity to be managed. In 1994, apartheid ended
with the adoption of a new constitution and South Africa redefined itself
as a democratic, non-racial society. More recently, Parliament passed
the Employment Equity Act, which seems to have spurred greater
debate on the issue of transforming the country’s business organisations
towards true diversity.
Table 9.2: Employment representation by occupational level, race and gender (percentages)
Operational level Male Female Other
nationals
A C I W A C I W M F
Top management 12.9 2.9 5.0 58.4 5.9 1.0 1.1 9.8 2.8 0.03
Senior management 12.6 4.3 5.8 50.0 5.5 1.8 2.4 15.2 1.9 0.4
Professionall[ SualiƂed eZperienced specialists 15.5 5.3 5.6 38.7 8.6 3.2 3.1 18.5 1.0 0.4
middle management
Skilled, technical, junior management 30.5 7.2 4.0 20.3 13.6 5.6 2.7 15.3 0.8 0.1
Semi-skilled 44.3 6.7 2.1 3.7 22.6 8.1 2.3 6.2 4.2 0.1
Unskilled 55.5 6.0 0.8 0.8 25.4 5.8 0.5 0.3 4.8 0.1
Non-permanent employees 39.6 6.0 4.0 4.7 31.8 5.6 1.8 5.7 0.6 0.1
Source: Department of Labour. Commission for Employment Equity Report 2007/2008, pp 7–10.

Despite the new constitution and government legislation mandating

employment equity, most South African organisations remain white
male-dominated, as indicated in Table 9.2. White men still occupy the
bulk of empowered and well-paid management positions.
The above might provide an explanation for the pressure that
organisations are receiving from the South African government to address
the imbalances. In certain cases, this pressure has created resentment
and dysfunctional conflict, which pose unique diversity challenges for
South Africa. The implication of this is that managing diversity in South
Africa is not only the right or profitable thing to do, as for example in the
USA, but is also a necessity for survival.
9.2 MISCONCEPTIONS OF DIVERSITY

Because of all the early misconceptions about diversity, it would
probably be easier to understand what diversity is by first ascertaining
what it is not.
9.2.1 Diversity is not culture

A crucial mistake many people make in defining diversity is to equate it
with culture. They think diversity training means teaching people about
‘what Asians are like’, ‘characteristics of blacks’, or ‘what women want’.
While this approach may appear sound on the surface, it is inherently
flawed because all it does is reinforce stereotypes. That is what we
are trying to overcome by valuing diversity in our organisations. This
approach reinforces an ‘us versus them’ mentality. It focuses only on
the ways we are different, without including the ways in which we are
alike. It is exclusive, not inclusive. Valuing diversity extends far beyond
culture to include all the primary and secondary dimensions illustrated
in Figure 9.1.
SECONDARY DIMENSIONS
education
marital religious
status beliefs
PRIMARY DIMENSIONS
age
gender
ethnicity
parental military
status Person experi-
physical sexual
orientation ence
ability
race
work geographic
background location
income
Figure 9.1: Dimensions of diversity

Source: Smit, P.J., Cronje G.E., Brevis T. & Vrba M.J. 2011. Management Principles: A contemporary edition for Africa.
5th edition. Cape Town: Juta Publishing. CONTEMPORARY MANAGEMENT PRINCIPLES 189
Figure 9.1 explains how we are all similar and different in a wide variety
of dimensions. The primary dimensions include variables such as race,
age, ethnicity, physical qualities, gender, and sexual orientation. These
are variables that people cannot change. The secondary dimensions of
diversity are not as fixed, and they include variables such as education,
religious beliefs, and work background, to name but a few. Thus culture
is only one of the dimensions of diversity. By recognising that diversity is
a phenomenon that applies to everyone, we can realise that it is a quality
that we can all value and support.
9.2.2 Diversity is neither equal employment

opportunities nor affirmative action
People tend to assume that diversity is just a repackaging of equal
employment opportunities (EEO) and affirmative action (AA), which are
mainly about ‘quota filling’. This is a detrimental and divisive view. While
EEO and AA are necessary steps and have their place in correcting past
imbalances, they are distinctly different from valuing diversity as shown
in Table 9.3.
Both EEO and AA are laws that are imposed on people and create an
adversarial environment. Also, there is the belief that these two concepts
mean that less qualified people should be given jobs, instead of more
qualified, ‘traditional’ employees. The insinuation is that we have to help
the designated classes of people because they are not really qualified
enough to succeed on their own merits. This only adds to the conflict,
reinforces stereotypes, and destroys the very same people it is meant
to serve by having them promoted to levels of incompetence if not
accompanied with appropriate training and development to empower
them to do their jobs.
Table 9.3: The major differences between EEO/AA and diversity
EEO/AA Diversity
government initiated voluntary (organisation driven)
legally driven productivity driven
quantitative qualitative
problem focused opportunity focused
assumes assimilation assumes integration
internally focused internally and externally focused
reactive proactive
Source: Cascio, W.F. 2003. Managing human resources. Boston: Irwin, p 121.
As shown in Figure 9.2 on the next page, unless management responds

effectively to these reactions, the organisations will continue to
experience a decline in productivity, increased retrenchments, and
unemployment, which would result in a poor economy.

AfƂrmative action in a slump economy
Reaction of previously Reaction of previously

disadvantaged workers privileged workers
Organisational/management response
If not managed properly If managed properly
$itterness, antagonistic fear, anger, Shared will to survive, valuing of

guilt and aggression. differentness.
.eads to decline in productivity, increase .eads to productive, supportive,
in retrenchment and unemployment. transparent and effective organisations.
*ence, poor economy. *ence, prosperous economy.
Figure 9.2: AfƂrmative action in a slump economy

Source: Smit, P.J., Cronje G.E., Brevis T. & Vrba M.J. 2011. Management Principles: A
contemporary edition for Africa. 5th edition. Cape Town: Juta Publishing.
Valuing diversity, on the other hand, affirms that people’s differences are
seen as an asset rather than a burden to be tolerated. In valuing diversity,
we acknowledge that we may have preconceived ideas that can blind us
from seeing the value that non-traditional employees bring. Only the
most qualified candidate is given the job; but we have to transcend our
biases about what is ‘most qualified’. An organisation that emphasises
quota filling as part of its diversity effort will undermine the true intent of
valuing diversity; instead emphasis should be put on accelerated training
and development of the previously disadvantaged groups to equip them
with competences, which will enable them to do the job effectively.
9.2.3 Diversity is not an absence of standards

People sometimes believe that valuing diversity means, ‘anything goes’
– that we give up our standards for hiring and promoting people. In fact,
diversity is the very opposite. Because we are removing our preconceived
ideas about who is qualified for a job, we must create better definitions
of actual job requirements. For true equality to happen, there needs to
be less emphasis on race, gender, and other differences, and an increased
focus on a person’s capabilities, and system adjustments that support
diversity. Only this approach will create a process that is naturally equal
for everyone.
9.2.4 Diversity is not a vendetta against white males

To some, diversity symbolises a more enlightened society, a reflection
of our future as global citizens. To others, it breeds resentment. These
two extreme views are at the heart of the issue of diversity – and are
the reasons why efforts to promote diversity so often fail. Although well
intentioned, a focus on only culture, race, and gender, which ignores
ability and competence – and which blames the white male for past
injustices – only intensifies the division between groups, instead of
bringing them together to create a more productive workplace.
Understandably, the historical, homogeneous group of white male
workers created the South African workplace on the bases of their
own similar backgrounds, styles, perspectives, values, and beliefs. But
the changes in the international and national management environment
regarding diversity have forced organisations to change, and now even
the needs of the original homogeneous group have changed.
Unfortunately, the people who created the system are often labelled
‘the bad guys’ when the system needs updating. In effect, positioning
diversity so that one group must take continuous blame for the past
makes the ultimate goal – greater unity – impossible. While it is important
to acknowledge the past wrongs, it is critical to look to the future by
addressing the past imbalances without blaming one group.
9.3 WHAT IS DIVERSITY?

Now that we’ve explored the misconceptions about diversity and what
it is not, let us look at what it is.
9.3.1 Diversity is about demographics

Major demographic changes have occurred in South Africa during the
past decade. We have moved from a situation in which the law regulated
where people could live, what kind of work they could do, and with
whom they could socialise, to a situation where the human rights of
people are protected by a modern constitution. These changes have
had a major impact on the way organisations function, on whom they
employ, and with whom they do business. In the opening case we saw
Nike Inc.’s success in developing and maintaining a diverse workforce as
a diverse group of suppliers – all playing a major role in the success of
the company.
9.3.2 Diversity is about profitability

While affirmative action focuses on eliminating discrimination or righting
past wrongs, valuing diversity is a bottom-line issue about increasing
productivity and profitability. In fact, valuing diversity is one of the few
social issues in which the business community is actually leading the
way. Why? Because it is profitable, it fosters teamwork, and it helps
organisations identify and meet the needs of their customers and
consumers. The organisations that have understood and used their
understanding of diversity innovatively have found that they have
a competitive advantage in the marketplace. Nike Inc. has a strong
belief that diversity creates competitive advantage, both in attracting,

developing and leveraging diverse talent inside the company as well as
building strong brand relationships with diverse consumers worldwide.
9.3.3 Diversity is about values

Having said that diversity is a business issue, we must also affirm that
it relates to people’s values. Although people are sometimes more
comfortable in keeping this an impersonal issue, diversity has to do with
human rights, civil rights, and deeply-held beliefs. It forces people to
question years of social conditioning to which they have been subjected
since birth. For some people, diversity is even related to their religious
beliefs. How do we balance people’s rights to their personal values with
the organisation’s right to create a productive workplace? We do so
delicately, tactfully, respectfully, and also firmly, openly, and persistently.
We admit that valuing diversity is a personal decision; we focus on
diversity as a business decision. Diversity and inclusion are cornerstones
of Nike Inc.’s strategic values, and it is what drives creativity and
innovation in the company.
9.3.4 Diversity is about behaviour

Regardless of our personal beliefs, our organisations expect us to work
in the most productive manner possible, and valuing diversity is much
more productive than not valuing it. At Nike Inc., observable differences
like nationality and age, as well as underlying differences like values and
sexual orientation, are recognised, valued, promoted and utilised.
9.3.5 Diversity is a long-term process

Diversity is a large-scale change effort that extends far beyond training,
and must therefore be viewed as a long-term process. Organisations
that make a long-term commitment to a comprehensive strategy, which
includes training, will not be disappointed and will be able to see lasting
benefits.
It should not be seen as a problem but rather a mixture of people
with different group identities within the same social system. It is an
opportunity.5
Diversity is everyone’s responsibility and not just that of the human
resource department. It is not just about race and gender, nor the
previously disadvantaged groups in the workplace. It is about internal
customers (employees) and external customers (prospective clients).
Diversity is not exclusive but inclusive – it is about all of us. It is about
creating a culture where each individual can thrive and contribute to the
organisation. Diversity is not another fad. If you look at your workforce
today and compare it to five or ten years ago and then try to imagine
it five or ten years into the future, you will see that diversity is not a
fad. Do the same analyses for your customer base. The changes we see
happening now will continue for the foreseeable future. At Nike Inc.,
diversity is a strategic value, focusing on the long-term vision and mission
of the company.

9.4 WHAT IS WORKFORCE DIVERSITY?

Many people in South African organisations are experiencing difficulty
in meeting the challenge of adapting to people who are different from
themselves. The term used to describe this challenge is ‘workforce
diversity’ which means that organisations are becoming more
heterogeneous in terms of gender, race, ethnicity, ability, age, and other
aspects of differentness, as shown in Tables 9.1 and 9.2 on page 188 and
Figure 9.1 on page 189.
9.4.1 Diversity defined

FiXerUiV[ %JWFSTJUZ is defined as the mosaic of people who bring a variety of
backgrounds, styles, perspectives, values, and beliefs as assets to the
the mosaic of people who bring
groups and organisations with whom they interact. This definition has
a variety of backgrounds, styles,
three notable points. First, it describes diversity as a mosaic, which
perspectives, values, and beliefs
is different from the traditional idea that diversity is a melting pot. A
as assets to the groups and
mosaic enables people to retain their individuality while contributing to
organisations with whom they
a collectively larger picture. Second, this definition of diversity applies to
interact
and includes everyone; it is not exclusionary. According to this definition,
we are all diverse. Finally, this definition describes diversity as an asset,
as something desirable and beneficial. We may be different, but being
different is not wrong.
9.4.2 The platinum rule

A key component of ‘what diversity is’ revolves around the use of the
RlaViPuO rule QMBUJOVNSVMF, which is an extension of the well-known HPMEFOSVMF.
treat others as they want to be While the golden rule is to treat people as you want to be treated, the
treated platinum rule goes further and says: ‘Treat others as they want to be
treated’.
gQlFeP rule
The platinum rule is the cornerstone of diversity behaviour, as
treat people as you want to be
presented in this chapter because it demonstrates respecting and
treated
honouring our differences by assuming others may want to be treated
differently from us. It also implies that we need to ask others what
they want, and tell others what we want. Using the platinum rule takes
diversity beyond culture, and ensures that everyone is included and
everyone wins.
9.4.3 General dimensions of diversity

The world-wide shift in demographics, changing immigration patterns,
and social change are all factors that affect the work environment. In
the USA, for example, the population, and therefore the workforce, is
growing more slowly than at any time since the 1930s, the average age
of the population is rising, more women are entering the workforce,
and immigrants will represent the largest share of the increase in
the workforce5. South Africa is exposed to similar variables that impact
on the productivity of the workforce, transforming it into a diverse
workforce that necessitates the management of diversity. A brief
overview of the following general dimensions of diversity will help
explain the need for its management:

r HFOEFSJTTVFT
r BHF
r NBSJUBMTUBUVT
r QIZTJDBMBCJMJUZ
r MBOHVBHF
Gender issues
Women are entering the labour market in increasing numbers every
year. This means that organisations must deal with issues such as work-
family conflicts, childcare, dual-career couples, and sexual harassment.
Seven out of ten women in the labour force have children. This means
that organisations should take some responsibility for childcare. One
issue surrounding gender as a dimension of diversity is the ‘glass ceiling’
syndrome, which refers to the difficulty women have in advancing
themselves. Only a handful of women reach top management positions
in organisations. In the USA it is estimated that men hold 97 per cent of
the top positions. In South Africa, as shown in Table 9.2 on page 188,
men hold 87 per cent of the top positions.
Age
In the USA, the supply of younger workers is dwindling, with the result
that older workers represent a significant component of the labour
force. This is the same in South Africa in respect of whites, but in the
case of young black workers the number of entrants is at an all-time
high. Both older and younger workers present management with
challenges. Older workers are more cautious, less likely to take risks,
and less open to change, though their experience makes them high
performers. Young entrants into the South African labour force often
present challenges in the fields of communication and management
training.
Marital status
Marital status is a variable that adds to the complexity of diversity in
organisations, with the increase, for instance, of single-parent families.
The challenge for management is to recognise these differences and use
them as strengths.
Physical ability
People with disabilities are also subject to stereotyping, prejudice, and
discrimination. These people prefer managers to focus on abilities,
rather than on disabilities.
Language
Having eleven official languages in South Africa poses a great challenge
to organisations. Sensitivity needs to be shown in the choice and the
use of language policy within organisations. Managers should have the
knowledge and skills to deal with the general dimensions of diversity as
discussed above. However, especially in the South African context, they

need to know in particular, how to manage the cultural dimension of

diversity.
LEARNING OBJECTIVE 2 9.5 REASONS FOR THE INCREASED FOCUS ON

Provide reasons for the MANAGING WORKFORCE DIVERSITY
increased focus on managing
workforce diversity. Why do South African organisations such as Microsoft South Africa
currently spend vast amounts of money on programmes to sensitise
their workforce to diversity issues? While many of the issues surrounding
diversity have been around for some time, many organisations have
adopted a renewed concern as new trends in the workforce are surfacing.
As we have also seen in the opening case, organisations worldwide are
becoming increasingly diverse along many different dimensions, including
cultural diversity. Several different factors account for these trends and
changes. A brief overview of each factor will put the renewed focus on
diversity in perspective.
The single biggest challenge surrounding the issue of diversity and
multicultural management is the changing composition of the labour
force. Changing demographics in the labour force, together with
legislation on affirmative action in some countries, are major forces
contributing to increased diversity. In South Africa the female component
of the workforce is increasing. Women currently make up nearly half of
the labour force in South Africa, and the trend is likely to continue. It is
particularly among black women that this trend is occurring.6
.JDSPTPGU4PVUI"GSJDB
Microsoft South Africa7 has been nominated and It has an enormous range of applications and tools
voted numerous times by the National Research which businesses can build into custom-made
Foundation as one of South Africa’s top companies solutions. It competes in industries from mining
to work for. Microsoft is a subsidiary of the world’s and manufacturing to retail and banks. Microsoft
largest software company which was started has huge resources for research, development,
by Bill Gates and Paul Allen back in the 1970s. expansion, and internal staff programmes. The
The South African office was opened in 1992. company culture in the South African office is one
Microsoft produces software that is suitable for that has a strong sense of community spirit and
large and small businesses, project managers, embraces diversity.
schools, gamers, cellular devices, media, and more.
Another factor contributing to increased diversity in organisations is the

globalisation of business and the use of ICTs which can bring a diverse
group of people together in a virtual environment. More and more
organisations are entering the international marketplace, including South
African organisations which are moving into Africa and the rest of the
world. Many multinational corporations today have more employees
outside of their home base country than within it. Apple, for example,
though based in the USA, has most of its hardware manufactured
elsewhere by the workforce in those countries. This improves the
awareness of diversity and ability to value differences. Ford, for example,
today employs less than half its total workforce on US soil.

This brief overview of the issues of diversity in international management

confirms the importance of examining the influence of culture on
management. South African business can now freely do business with
the rest of the world, including the rest of Africa. This means that
managers must develop new skills and awareness to handle the unique
challenges of global diversity: cross-cultural understanding, the ability to
build networks, and the understanding of geopolitical forces.
Most, if not all, South African organisations operating in a period
of sweeping transformation should implement strategies to deal with
diversity issues, since valuing workforce diversity has a positive impact
on productivity.
IBM
IBM8 had a long history of progressive management Hispanics; white men; Native Americans; people
when it came to civil rights and equal opportunity with disabilities; and women. He asked the task
employment. IBM wasn’t taking full advantage of a forces to research four questions: What does your
diverse market for talent, nor was it maximising the constituency need to feel welcome and valued at
potential of its diverse customer and employee base. IBM? What can the corporation do, in partnership
So in 1995, Louis V Gerstner launched a diversity with your group, to maximise your constituency’s
task force initiative to uncover and understand productivity? What can the corporation do to
differences among people within the organisation influence your constituency’s buying decisions so that
and find ways to appeal to an even broader set of IBM is seen as a preferred solution provider? And
employees and customers. Gerstner established a with which external organisations should IBM form
task force for each of eight constituencies: Asians; relationships to better understand the needs of
blacks; the gay, lesbian, bisexual, and transgendered your constituency? The answers to these questions
community; became the basis for IBM’s diversity strategy.
9.6 THE NEED FOR DIVERSITY MANAGEMENT LEARNING OBJECTIVE 3

IN SOUTH AFRICA Explain the need for diversity
management in South Africa.
In addition to the reasons for the present world-wide interest in diversity
and multicultural management, are the complexities of the South African
situation. South Africa has already been described as a radically pluralist
society where race and ethnicity are the most visible dimensions of its
diversity. Many cultural differences exist between ethnic groups such
as Euro-Africans, coloureds, Asian-Africans, and black Africans. There
are also differences within each group. Each of these groups share a
common history, while at the same time maintaining a uniqueness.
9.6.1 Imbalances in the South African business

world
The imbalances between the different ethnic groups in South Africa
result in managerial and economic imbalances. We can identify three
categories of management problems relating to the South African
workplace that create an urgent need for research and education in this
regard.

1. The first issue that relates to the imbalances in South African

organisations, and which forms an integral part of any policy or
strategy on diversity management, is the question of affirmative
action. This is an employment policy that aims to ensure that South
African institutions reflect the character of the country as a whole.
Many business organisations are developing policies to correct this
imbalance.
2. The second management issue is the question of economic
empowerment. Pressure for the transfer of economic power is
evident. The government is being blamed for not doing enough to
make black economic empowerment possible. Organisations such
as the African Federated Chamber of Commerce (NAFCOC),
the Black Management Forum (BMF), and some labour unions
proposed the 3-4-5-6 policy whereby 30 per cent of directors,
40 per cent of senior management, 50 per cent of middle
management, and 60 per cent of the workers of all businesses
should have been black by the year 20009. The capital base of
black organisations could provide only a fraction of what would
be needed for substantial economic empowerment. The stokvel
movement could provide only about R1 billion for this purpose.
More and more black consumers are, however, buying insurance
policies not only from the black-controlled insurance corporations
such as African Life and Metropolitan Life, but also from the mutual
insurance giants Sanlam and Old Mutual. Change in the control
of these giants could change the ownership of the economy
overnight10. The other question surrounding the transformation
of economic power has been whether black people have the
entrepreneurial and managerial expertise to make such an urgent
transformation feasible.
3. The third management issue in the debate on managerial and
economic transformation in South Africa is the quest for a
new management philosophy. Activated by the affirmative and
empowerment movements, and supported by a rich diversity of
articles, books, and conference papers, this issue is challenging the
theoretical foundations of South Africa’s Euro-American-Asian
management theories, approaches, and practices. Based on the
premise that the environment of organisations in developing
countries is different from that of Western and Asian industrialised
countries, management theories and practices from the developed-
country context may have only limited applicability in the context
of a developing country such as South Africa and a developing
continent such as Africa.
The above discussion on the reasons for the present focus on the
management of diversity – including a brief overview of the complex
South African situation – shows how imperative it is for South African
managers to implement diversity management.

9.6.2 The benefits of diversity management

Organisations in South Africa have generally not been highly successful
in managing women and cultural diversity in the workplace. Proof of this
is the fact that women and black people in South Africa are clustered at
the lower management levels. This indicates that they are not progressing
and that their full potential is not being utilised. Managing the issues of
diversity and multiculturalism is crucial to organisational success.
When organisations such as Microsoft decided to invest in diversity
management training programmes for their managers and employees,
top management expected certain benefits from this investment. Table
9.4 on the next page lists six arguments that support the belief that
managing diversity can improve organisational performance.
Organisations which manage diversity and multiculturalism will have
a competitive edge in the market, because they create higher morale
and better relationships in the workplace. Research has shown that
diverse groups tend to be more creative than homogeneous groups.
The presence of cultural and gender diversity in a group leads to freer
discussion and reduces the risk of ‘groupthink’. Moreover, the simple
act of learning about other cultural practices enables organisations to
expand their thinking in other fields as well. South African organisations
can certainly expand their thinking on the advantages of diversity
management.
9.7 MANAGING DIVERSITY LEARNING OBJECTIVE 4

Managing diversity is different from valuing diversity because it addresses Recommend strategies for
the organisational processes that can reinforce – or hinder – the ability managing diversity.
to create an environment that values diversity. These organisational
processes include hiring, promotion, communication, and power
allocation in organisations.
In the past, most organisations used what is called the ‘melting
pot’ approach to managing diversity in the workplace. This assumes
that people who are different would somehow automatically want to
assimilate. Now organisations have realised that employees do not set
aside their cultural values and lifestyle preferences when they come to
work. The challenge for a manager is to create a work environment
in which different lifestyles, family needs, and work styles are
accommodated. The melting pot assumption is being replaced by the
mosaic approach, which recognises and values differences. In the next
sections we shall look briefly at some of the approaches to managing
diversity in organisations. Managing diversity can yield enormous results
in innovation, new ideas and improved productivity11.
All of the arguments for the management of diversity, have been
illustrated in the Nike Inc. opening case.

Table 9.4: The beneƂts of managing diversity
Six arguments for managing diversity

Cost As organisations become more diverse, the cost of a poor job in integrating workers
argument will increase. Those who handle this well will create cost advantages over those who
don’t.
Resource Organisations develop favourable reputations as prospective employers for women
acquisition and previously disadvantaged groups. Those with the best reputations for managing
argument diversity will win the competition for the best personnel. As the labour pool shrinks
and changes composition, this edge will become increasingly important.
Marketing For multinational organisations, the insight and cultural sensitivity that members with
argument roots in other countries bring to the marketing effort should improve these efforts
in important ways. The same rationale applies to marketing to sub-populations with
domestic operations.
Creativity Diversity of perspectives and less emphasis on conformity to norms of the past
argument (characterising the modern approach to management of diversity) should improve the
level of creativity.
Problem-solving Heterogeneity in decision-making and problem-solving groups potentially produces
argument better decisions through a wider range of perspectives and more thorough critical
analysis of issues.
System An implication of the multicultural model for managing diversity is that the system
ƃexibility will become less determinant, less standardised, and therefore more ƃuid. The
argument increased ƃuidity should create greater ƃexibility to react to environmental changes
(reactions should be faster and at lower cost).
Source: Noe, R.A., Hollenbeck, J.R., Gerhart, B. & Wright, P.M. 2000. Human resource management. New York: McGraw-Hill, p 23.
9.7.1 Approaches to managing diversity

The idea that diversity should be managed originated in the 1960s, and
since then the following three approaches have been identified:
The golden rule approach

According to this approach, it is best to treat everyone in the same
way: ‘Treat others as you want to be treated’. Good intentions of not
treating other people badly inspired this theory. However, people from
the dominant culture – who have the good intentions – assume that they
should treat people according to their own standards and consequently
individual differences are ignored.
The ‘right the wrongs’ approach

This approach takes the form of affirmative action. ‘We don’t have
enough of the previously disadvantaged people, such as black people
and women – we’d better hire some, to make up for all these years
of negligence’. This approach creates a backlash, because ‘traditional’
employees feel that they will be overlooked so that ‘a quota can be
filled’. It creates an ‘us versus them’ mentality, which is unproductive.

The ‘value of differences’ approach

This approach recognises differences and acknowledges that they exist,
but does not require people to be assimilated into the dominant culture.
It allows for the individual mosaic of people to create the aggregate
picture of an organisation.
When you join an organisation and become an employee, you carry
your ‘differentness’ with you. When you are faced with a situation
that involves managing others different from yourself, your reaction or
solutions will depend on how much you know, understand, and value
the ‘differentness’ of others.
Managing diversity is a management orientation that is not limited to
one department or to a specific management level of the organisation.
It is an overall approach, which seeks the commitment of the whole
organisation if any success is to be achieved. There is also no one
particular policy which necessarily guarantees the required results.
Organisations differ in the ways in which they implement a policy of
diversity management, as Table 9.5 illustrates. This table shows the
range of diversity management policies which organisations implement.
Research in South Africa indicates that alternative work schedules
like flexitime, job sharing, and the compressed work week could be
used to respond to diverse needs of the workforce. Flexitime increases
employee autonomy and responsibility, in choosing the schedule that
meets individual needs. Job sharing meets the needs of those employees
who cannot work on a full-time basis, but require a permanent career
job. The compressed work week is a week of four ten-hour days, which
allows employees more leisure and private time12.
6OEFSTUBOEUIFAEJŲFSFOUOFTT
Vusi, one of your employees, comes to you with a Vusi is a black African, therefore it could well be that
request to take off three days’ work to attend his one of the dead fathers was his biological father,
father’s funeral. You recall that he had exactly the while the other one was his father’s brother. All the
same request the previous year and took two days brothers of a father are regarded as fathers to his
off to attend his father’s funeral. offspring, and all the sisters of a mother are called
1. What is your initial reaction? ‘mother’ by her children. If you are not aware of this
2. What do you say to Vusi? custom, you could immediately assume that Vusi is a
liar and therefore untrustworthy. Such an assumption
When managing a diverse workforce you encounter could destroy your working relationship and
challenges with regard to all the different dimensions therefore have an adverse effect on an employee’s
of diversity. In Vusi’s case your assumptions, and performance. This example indicates that we need
hence your decision on the matter, will depend on to understand each other’s ‘differentness’ to be able
your cultural background and that of the employee. to manage diversity effectively.

Table 9.: The organisational diversity continuum
No diversity efforts:
r non-compliance with afƂrmative action policies
r belief in a monoculture organisation
r no policies on managerial and economic empowerment
Diversity efforts based on:

r compliance with afƂrmative action
r inconsistent enforcement of diversity policies
r very little is done in the area of managerial and economic empowerment
r no organisational support with respect to education and diversity training
r inconsistent or poor managerial commitment
Broad-based diversity efforts based on:

r effective implementation of afƂrmative action policies
r managerial commitment to managerial and economic empowerment s
r culture of enabling employees
r ongoing education and diversity training programmes
r managerial commitment tied to organisational rewards
r organisational assessment of diversity policies to create an organisational
r culture that supports diversity
Source: Adapted from Certo, S.C. 1992. Modern management. Boston: Allyn & Bacon,
p 586.
9.7.2 Diversity paradigms: strategies for diversity

management
In the last few years in America, managing diversity has become an
increasingly significant research and organisational issue. Yet, the meaning
of managing diversity has remained elusive13. However, Thomas and
Ely have recently developed a theoretical paradigm of three different
perspectives on how organisations perceive the task of managing
diversity14. They classify the perspectives as discrimination and fairness,
access and legitimacy, and learning and effectiveness.
They found that, while most organisations in the USA have applied
the first two perspectives, very few organisations were using the third
perspective. Ely and Thomas suggest that it is only the third perspective
that will enable organisations to benefit adequately from managing
diversity15. Table 9.6 on the next page shows the focus of diversity efforts,
human resources practices, effectiveness measures, and strengths and
weaknesses of each of the three paradigms.
In South Africa, with the legacy of apartheid still entrenched in the
minds of leadership, management, and workers, most organisations are
‘trapped’ in the first paradigm of managing diversity. The emphasis is on
the discrimination-and-fairness perspective or what can be termed as

‘righting the wrongs’. The legal mandate, as expressed in the Employment

Equity Act, has led to conflict and dissension since virtually every
organisation in South Africa is under pressure to transform its worker
and leadership profiles rapidly. Diversity initiatives implemented in South
Africa and other countries indicate that organisations have a long way to
go before they can apply the learning-effectiveness paradigm. In these
countries diversity efforts are still centred on the first two paradigms
where diversity initiatives are not linked to productivity.
Table 9.: Diversity paradigms
Discrimination – fairness Access – legitimacy Learning – effectiveness

Focus Creating equal opportunity, Match internal Incorporate diversity
assuring fair treatment, employee demographics into the heart and
and compliance with equal to customer and fabric of the mission,
opportunity laws. marketplace served. work, and culture of the
organisation.
Human resource Recruitment of women and Recruitment of Redesigned and
practices previously disadvantaged employees from diverse transformed to enhance
groups (PD)s). Mentoring groups to match external performance of all
and career development for demands. employees.
women and PDGs.
Effectiveness Recruitment numbers. Niche markets captured. All employees feel
Retention rates of women and Degree of diversity respected, valued, and
PDGs. among employees. included.
Weaknesses – Does not capitalise on Does not affect All employees respected,
Strengths diversity of all employees. mainstream of company valued, and included.
'mphasis on assimilation. business diversity
conƂned to speciƂc
market segments.
Source: Adapted from: Thomas, D.A. & Ely, R.J. 1996. Marketing differences matter: A
new paradigm for managing diversity. Harvard Business Review. (September–October),
pp 79–90.
9.7.3 The most and least frequently implemented

initiatives
Research conducted in the UK, Ireland, the USA, and South Africa in a
management of diversity study reveals that emphasis is put on selection,
induction, and communication initiatives in all countries except the USA,
which emphasises flexibility and the individual. These three countries
are also similar in terms of least frequently implemented initiatives. In
particular, training staff and managers in diversity, and adopting a strategy
approach to managing diversity, are low priorities for their organisations.
Mentoring schemes for staff are low on the list of priorities for all four
of the countries. Literature on diversity frequently presents mentoring
in relation to diversity, yet the results of this survey suggest that it is not
being implemented16.

9.7.4 The most and least successful initiatives

For the UK and Ireland, the most successful initiatives relate to objective
and fair processes (as in terms of selection, induction, and open criteria),
and to creating a culture that empowers. For North America, the most
successful initiatives relate to flexibility and an individual focus. However,
for South Africa the most successful initiatives relate to fair process (as
in terms of selection), but they then focus on flexibility (as in benefits or
uniforms)17.
There is considerable overlap across all four countries with regard
to those initiatives that are viewed as least successful. There is a
common difficulty regarding decision-making within organisations from
all four countries. In addition, for South Africa, the UK, and North
America, there is concern regarding the success of ‘open criteria’. This
is interesting, as the survey suggests that open criteria are frequently
being implemented, but not succeeding. This leads us to question the
commitment of organisations to the success of appraisal training. South
African organisations are also struggling with defining diversity as a
business goal and with strategies for managing diversity. It is interesting
that, in South Africa, developing a diversity policy and publicising the
organisation as a diversity-oriented organisation is very low on the list.
In addition, the main focus of South African organisations is compliance
with new legislation18.
What managers need to keep in mind while conducting the first
diversity initiative:
r &YQFDUSFTJTUBODFmTPNFFNQMPZFFT TVDIBTXIJUFNBMFT NBZ
initially become offended.
r #FXJMMJOHUPUBLFTPNFIFBU
r 6OEFSTUBOEUIBUUIFDVMUVSFXJMMOPUDIBOHFPWFSOJHIU
r #FDBVUJPVTXIFOGPSNJOHQBSUOFSTIJQTXJUIBEWPDBDZHSPVQT
r #FSFBEZGPSTVSQSJTFTXIFOZPVTUBSUQSPCJOHSFBMJTTVFT
r #FBDDPVOUBCMFGPSXIBUZPVTBZZPVBSFHPJOHUPEPmNBOZ
people are watching to see what happens.
LEARNING OBJECTIVE 5 9.8 DIVERSITY TRAINING

Suggest ways to perform The above discussion on the complex dimensions of diversity, explains
diversity training in an why organisations worldwide focus on the management of diversity.
organisation. The following reasons can be singled out as to why organisations are
designing and implementing diversity training and development initiatives:
r 5IFSFJTBOJODSFBTJOHMZEJWFSTFDVTUPNFSQPQVMBUJPO
r 5IFSFJTBOJODSFBTJOHMZEJWFSTFFNQMPZFFQPQVMBUJPO
r *UJTJNQPSUBOUUPSFUBJOUPQUBMFOU
r *UJTOFDFTTBSZUPNJOJNJTFUIFSJTLPGMJUJHBUJPO
r *UJTUIFSJHIUUIJOHUPEPBOEJTBOBTQFDUPGDPSQPSBUFTPDJBM
responsibility.
r *UGPTUFSTMFBSOJOHBOEFŲFDUJWFOFTTJOPSHBOJTBUJPOT

Many South African organisations are grappling with transformation.

Although the challenges posed by the diversity of the workforce have
been the focus of researchers and writers on the subject, they have met
with mixed reactions from South African practitioners. Some organisations
simply ignore the situation and treat their diverse workforce as if it were
homogeneous. The results are usually reflected in poor performance of
individuals as well as the organisation. They urgently need to implement
policies and strategies to deal with both the cultural and the non-cultural
dimensions of diversity. We shall now briefly consider how management
should approach these two categories of diversity.
9.8.1 Approaches to diversity training

Diversity training is specifically designed to better enable members of an
organisation to function in a diverse and multi-cultural workforce.
In order for managers to respond to the challenges of working with
diverse populations, they must recognise the difficulties that employees
may have in coping with diversity. These difficulties include resistance to
change, racism, and a lack of knowledge about other groups, as well as
prejudices, biases, and stereotypes. Some employees lack the motivation
to understand cultural differences, often because of the lack of reward
for doing so. Diversity training should therefore focus on:
r QSPHSBNNFTEFTJHOFEUPSBJTFQBSUJDJQBOUTDPOTDJPVTOFTTBOE
awareness about differences in values, attitudes, patterns of
behaviour, and communication that may exist across cultures
r QSPHSBNNFTEFTJHOFEUPEFWFMPQOFXTLJMMTBOEDPNQFUFODJFT
including communication competence19.
&YQPTVSFUPPUIFSQFPQMFTDVMUVSFGPSNTBTJHOJųDBOUTUFQJOBOZDVMUVSBM
awareness training.
9.8.2 Management support

Training employees in the issues and attitudes involved in valuing
diversity must be complemented from the top by managerial example
and support through:
r BEFDMBSBUJPOPGDPNNJUNFOUUPEJWFSTJUZJOUIFNJTTJPOTUBUFNFOU
r BOPSHBOJTBUJPOBMDMJNBUFUIBUTVQQPSUTEJWFSTJUZ
r NBOBHFSTXIPIBWFEJWFSTJUZTLJMMTBOEDPNQFUFODF
r BXBSFOFTTSBJTJOH
r QFFSTVQQPSUJOUIFXPSLQMBDF
r PQFODPNNVOJDBUJPOCFUXFFOTVCPSEJOBUFTBOENBOBHFSTBCPVU
diversity issues
r SFDPHOJUJPOGPSFNQMPZFFEFWFMPQNFOUPGEJWFSTJUZTLJMMTBOE
competencies
r SFDPHOJUJPOGPSFNQMPZFFDPOUSJCVUJPOTUPFOIBODJOHEJWFSTJUZHPBMT
r PSHBOJTBUJPOBMSFXBSETGPSNBOBHFSTJNQMFNFOUBUJPOPG
organisational diversity goals.

Diversity training and managerial support from the top can do much to
create cultural synergy and to contribute to higher productivity. To this
end, diversity training needs to have a new focus that facilitates positive
and productive working relationships.
9.8.3 Summary of spheres of activity for diversity

management
Successful diversity management depends on the commitment of the
whole organisation. Many spheres of management activity are involved
in preparing an organisation to accommodate diversity.
Once a vision for a diverse workplace has been formulated,
management can analyse and assess the current culture (prevailing value
system, cultural inclusion, differences, and systems such as recruitment,
training, and promotion) within the organisation, as indicated by the
various spheres of management activity in Figure 9.3.
Mindsets about Organisation culture HR management

diversity systems (bias-free?)
r valuing differences
r problem or r recruitment
opportunity! r prevailing value
r training and
r challenge met or system development
barely addressed! r cultural inclusion r performance appraisal
r level of majority
culture buyin r compensation and
(resistance or beneƂts
support)! r promotion
Cultural differences Greater career

r promoting knowledge involvement of women
and acceptance r dualcareer families
r taking advantage of MANAGEMENT r sexual harassment
the opportunities that OF
r worksfamily conƃict
diversity provides DIVERSITY
Education problems Heterogeneity in race/ethnicity/nationality

r improve state schools r effects on cohesiveness, communication,
morale
r educate management on
r effects of group identity on interaction (eg
valuing differences stereotyping)
r prejudice (racism, ethnocentrism)
Figure 9.3: The spheres of activity for managing diversity

contemporary edition for Africa. 5th edition. Cape Town: Juta Publishers.

This assessment is followed by a willingness (by the leadership cadre of

management) to change whatever systems and ways of thinking need to
be modified. Throughout this process people need top management’s
support in dealing with the many challenges and conflicts they will face.
Training and support (in the form of delegated power and rewards)
are important for the people in pioneering roles. Once management
accepts the need for a strategy to develop a truly diverse workplace,
three major steps are involved in implementing such a major change:
1. Building a corporate culture that values diversity.
2. Changing structures, policies, and systems to support diversity.
3. Providing diversity awareness and cultural competency training.
For each of these efforts to succeed, top management’s support is

critical, as is holding all managerial ranks accountable for increasing
diversity.
The implementation of these steps to bring about the necessary
change that will ensure inclusive diversity in the organisation is anchored
in the four basic management functions of planning, organising, leading,
and controlling. Planning applies to management’s role in developing
strategies to promote diversity, while organising, leading, and controlling
apply to the implementation phases as we have discussed them in
previous chapters.

CHAPTER SUMMARY
1. Define and distinguish diversity from what it is not.
Many misconceptions about diversity exist. First, we explain what it is not:
• diversity is not culture
• diversity is neither equal employment opportunities nor affirmative action
• diversity is not an absence of standards
• diversity is not a vendetta against white males.
Then we explain what diversity is:
• Diversity is about demographics
• diversity is about values
• diversity is about behaviour
• diversity is a long-term process.
Workforce diversity is then defined as the mosaic of people who bring a variety of
backgrounds, styles, perspectives, values and beliefs as assets to the groups and
organisations with whom they interact.
A key component of what diversity is revolves around the use of the platinum rule, an
extension of the golden rule. While the golden rule is ‘to treat people as you want to be
treated’, the platinum rule goes further and says ‘treat others as they want to be treated’.
2. Provide reasons for the increased focus on managing workforce diversity

• changing composition of the labour force
• legislation on affirmative action
• globalisation of business
• cultural diversity improves the quality of the workforce.
3. Explain the need for diversity management in South Africa

The following contributes to the need for diversity management in South Africa:
• imbalances in the South African business world
• diversity management has major benefits.
4. Recommend strategies for managing diversity

Various approaches to managing diversity exist, namely:
• the golden rule approach
• the ‘right the wrongs’ approach
• the ‘value the differences’ approach.
Four strategies for managing diversity are:
• focus strategy
• human resource practice strategy

• effectiveness strategy
• weaknesses/strengths strategy.
ChaPter 9 Workforce diversity
5. Suggest ways to perform diversity training in an organisation.

An organisation can implement various approaches to diversity training, for instance:
• programmes designed to raise participants’ consciousness and awareness about
differences in values, attitudes, patterns of behaviour, and communication that may exist
across cultures
• programmes designed to develop new skills and competencies, including communication
competence. Training in diversity should always be complemented by top management
support.
KEY TERMS
dimensions of diversity management support
diversity platinum rule
diversity continuum ‘right the wrongs’ rule
diversity paradigms value the differences rule
diversity training workforce diversity
golden rule
REVIEW QUESTIONS
1. explain the misconceptions about diversity.
2. explain what diversity is.
3. explain the general dimensions of diversity.
4. provide reasons for the increased focus on the management of workforce diversity.
5. explain the benefits of diversity management.
6. Distinguish between the various approaches to managing diversity.
7. propose various strategies for diversity management in organisations.
8. explain the concept of ‘diversity training’ and propose approaches to diversity training.
END NOTES
1 Anon. No date. [Online] Available at: http://nikeinc.com/pages/diversity-inclusion. Accessed on 30 June 2013.
2 Lötter, H. 1993. Pluralism, liberal values, and consensus: Like dancing with wolves? Acta Academia, 25(4): 13–29.
3 Lotter, op. cit., p 14.
4 Nkomo, S.M. & Cox, T. 1996. Diverse identities in organisations In Handbook of organisation studies. Clegg, S., Hardy,
C. & Nord, W. (eds). London: Sage Publications, pp 338–356.
5 Certo, S.C. 1994. Modern management: Diversity, quality, ethics and the global environment. Boston: Allyn & Bacon,
p 578.
6 Bureau of Market Research. 1993. Report no 199. Pretoria: Unisa.
7 Anon. No date. [Online] Available at: http://www.topemployers.co.za/BESTEmployers20122013.aspx. Accessed on
1 July 2013.
8 Anon. No date. [Online] Available at: http://harvardbusinessonline.hbsp. harvard.edu/b01/en/common/item_detail.

jhtml?id=R0409G.
9 Finansies en Tegniek, 19 May 1995, p 11.
10 Ibid.
11 Gentile, M. 2003. Managing across difference. Harvard Business CD.
12 Ngambi, H.C. 2001. Job-sharing: An alternative to lay-offs and unemployment in South Africa. South African Journal of
Labour Relations. 25(1): 2.
13 Nkomo & Cox, op. cit., pp 338–356.
14 Thomas, D.A. & Ely, R.J. 1996. Making differences matter: A new paradigm for managing diversity. Harvard Business
Review, (September–October), pp 79–90.
15 Ely, R.J. & Thomas, D.A. 2001. Cultural diversity at work: The effects of diversity perspectives on work group processes
and outcomes. Administrative Science Quarterly, 46: 229–273.
16 Martins, N. 1999. Managing Diversity in South Africa: How do we compare? People Dynamics, (August): 30–33.
17 Ibid.
18 Ibid.
19 Certo, op. cit., p 591.

PART III
Planning
Chapter 10
Principles of planning
Tersia Brevis
PART III: Planning
OPENING CASE
The Global Positioning System (GPS)1 Many GPS receivers also show derived information,
One of the world’s most innovative advancements for example direction and speed, calculated from
in navigation technology is the Global Positioning position changes; time transfer, traffic signal timing
Systems (or GPS). The GPS is a space-based global and synchronisation of cellular phone base stations.
navigation satellite system (GNSS). The GNSS Although the GPS was originally a military
provides location and time information which can project, it is considered a dual-use technology,
be accessed in all weather, anywhere on earth (or meaning that the GPS has significant military and
even near the earth). The only requirement for civilian applications. Examples of civilian applications
access to location and time information is that there of the GPS are the following:
should be an unobstructed line of sight to four or r $MPDLTZODISPOJTBUJPO5IFBDDVSBDZPGUIF
more GPS satellites. GPS time signals is second only to the atomic
The design of the GPS originated in the early clock upon which they are based.
1940s with similar ground-based navigation systems r $FMMVMBSUFMFQIPOZ5IF(14DBOCFVTFEUP
that were used in World War II. The GPS project was facilitate inter-cellular handoff and support
developed in 1973 to overcome the limitations of IZCSJE(14DFMMVMBSQPTJUJPOEFUFDUJPOGPS
previous navigation systems. The GPS was created mobile emergency calls.
and realised by the United States Department r &NFSHFODZTFSWJDFT7BSJPVTFNFSHFODZ
of Defence. It is maintained by the United States services depend on the GPS for timing and
government. The GPS became fully operational in location capabilities.
1994 and is freely accessible by anyone with a GPS
r (FPGFODJOH5IF(14DBOCFVTFEJOQFSTPO
receiver.
pet and vehicle tracking systems to locate a
The GPS has three basic components: absolute person, pet or vehicle. Devices are attached to
location, relative movement, and time transfer. the person, pet or vehicle and the application
A GPS receiver calculates its absolute location then provides continuous tracking. Mobile or
or position by precisely timing the signals sent by internet updates are given should the person,
GPS satellites high above the Earth. Each satellite pet or vehicle leave a designated area.
transmits messages, on a continuous basis, that
includes the following: r (14UPVST5IF(14MPDBUJPOEFUFSNJOFTXIBU
content to display, for example, information
r UIFUJNFUIFNFTTBHFXBTUSBOTNJUUFE
about an approaching community service,
r UIFQSFDJTFPSCJUBMJOGPSNBUJPO school or medical facility.
r UIFHFOFSBMTZTUFNIFBMUIBOESPVHIPSCJUTPG
r .BQNBLJOH$BSUPHSBQIFSTVTFUIF(14
all GPS satellites.
extensively in map-making.
r 4VSWFZJOH4VSWFZPSTVTFBCTPMVUFMPDBUJPOT
The receiver uses the messages it receives in order
provided by the GPS to draw maps and
to determine the transit time of each message. It
determine property boundaries.
then computes the distance to each satellite. These
distances, together with the satellites’ locations are r 'MFFUUSBDLJOH(14UFDIOPMPHZJTVTFE
used to determine the absolute position or location extensively to identify, locate and maintain
of the receiver. This position is then displayed on contact reports with fleet vehicles in real-time.
the GPS, for example by a moving map display.

CHAPTER 10 Principles of planning
LEARNING OBJECTIVES
The purpose of this chapter is to provide an overview of planning as a management function. The
1. Explain the nature and importance of planning.
. &emonstrate an understanding of the beneƂts and costs associated with planning.
3. Differentiate between the various types of plan.
4. Explain the barriers to effective planning.
5. Explain ways to overcome barriers to effective planning.
10.1 THE NATURE AND IMPORTANCE OF LEARNING OBJECTIVE 1

PLANNING Explain the nature and
importance of planning.
All managers, regardless of their skills, the levels at which they are
involved or their field of specialisation, engage in certain interrelated
activities or functions to achieve the goals and objectives of the
organisation. These interrelated functions were identified in Chapter 2
as planning, organising, leading and controlling.
The GPS allows a motor car driver to specify a planned destination,
determine a road map to follow in order to arrive at the planned
destination and to determine the time it will take to reach the destination.
Having this information, the motor car driver can then determine how
much petrol will be needed for the trip, whether he or she needs to
sleep over, and to calculate the costs involved in undertaking the trip.
In the same fashion, the management of an organisation needs to
determine the destination or future for their organisation, determine the
best possible way to reach its destination, and determine the resources
that the organisation will need to reach their destination. This is called
planning.
Planning essentially has three components which require closer
examination:
r EFUFSNJOFUIFPSHBOJTBUJPOBMWJTJPO NJTTJPOBOEHPBMT
r JEFOUJGZXBZTPGSFBDIJOHUIFHPBMT
r ųOEUIFSFTPVSDFTOFFEFEGPSUIFUBTLXJUIJOBDPNQMFY
environment.
10.1.1 Determine the organisational vision, mission

and goals
The organisational vision
For an organisation to be lead to success in the future, an inspiring vision vision
is needed. This is a statement of what the organisation wants to become a statement of what the
and where it wants to be in the future. It needs to be one that every organisation wants to become
individual in the organisation, as well as all stakeholders, shares and is and where it wants to be in
excited about. The vision should be an anchor for decision-making in future
the organisation. The vision statement is the end, not the means to the
end. For example, a university providing tertiary education (the means)

PART III: Planning
should see their business as cultivating mindful and soulful graduates (the
end). When formulating a vision statement, the means should not be
confused with the end. The success of a vision statement depends largely
on how well it is shared. Inputs from all stakeholders should be gathered
to ensure buy-in from all individuals and sections in the organisation.
The mission statement

The vision statement of an organisation reflects the perfect future, the
dream that the organisation has for itself. Similar to a real dream, a vision
statement does not necessarily need to be realistic in terms of what
the organisation can or cannot become. The vision statement translated
mission statement into reality is a mission statement and aligns the organisation with its
vision in terms of its products and/or services, market and technology.
aligns the organisation with its
A well-written mission statement does the following things for an
vision in terms of its products
organisation2:
and/or services, market and
1. A mission statement defines the organisation for key stakeholders
technology
in terms of its product and/or services, market and technology.
2. It outlines how the vision is to be accomplished.
3. A mission statement establishes key priorities for the organisation.
In other words, the mission statement enables an organisation
to identify key performance areas – those areas critical to the
attainment of organisational goals and objectives.
4. A mission statement states a common goal and fosters a sense of
togetherness.
5. It creates a philosophical anchor for all organisational activities.
6. It generates enthusiasm, buy-in and a ‘can do’ attitude amongst all
stakeholders.
7. A mission statement empowers present and future members
of the organisation to believe that every individual is the key to
success.
In addition to the key components of a mission statement mentioned

above (product and/or service, market and technology), a mission can
also set out the philosophy of the organisation in terms of its values,
ethics and beliefs.
Goal setting
Just as a car driver enters a planned destination in his or her GPS, an
organisation also needs to specify its destination (or goals). Goals are
the targets that an organisation drives toward. Although some theorists
goals/objectives distinguish between goals and objectives, managers typically use the
commitment to achieve a terms interchangeably. Goals/objectives are a commitment to achieve a
measurable result within a given measurable result within a given timeframe.
timeframe It is important for managers to be able to formulate good objectives,
to be aware of their importance and to understand how objectives
combine to form a means-ends chain.
What makes a good objective?

When using a GPS, a car driver should be specific in terms of the planned
destination. GPS coordinates, or the exact country, town, street and
street number can be used for this purpose.
A GPS receiver calculates its position by precisely small clock error multiplied by the speed of light
timing the signals sent by GPS satellites high above (this is also the speed at which satellite signals
the Earth. Three satellites might seem enough move) results in a large positional error. For this
to determine position, since space has three reason, GPS receivers use four or more satellites
dimensions and a position close to the Earth’s to determine the receiver’s location and time. A
position can be assumed. However, even a very GPS therefore computes time very accurately.
In terms of an organisation, many experts agree that a good objective

should, as far as possible, be expressed in quantitative, measurable,
concrete or specific terms, in the form of a written statement of
desired results to be achieved within a given period of time. A good
objective should state what is to be accomplished and when it is to be
accomplished.
A good objective will meet the following criteria:

1. Objectives should be expressed in quantitative terms. This means
that objectives should be measurable so that it can be evaluated or
quantified objectively.
2. Objectives should be expressed in specific terms. Objectives
should indicate what they are related to.
3. Objectives should state desired results. This means that objectives
should focus on the key performance areas of the organisation –
those areas that are crucial in the accomplishment of organisational
goals.
4. Objectives should be attainable. Objectives should be realistic, but
also provide a challenge for management and all employees.
5. Objectives should be acceptable. People tend to pursue goals
that are consistent with their preferences and perceptions.
The collaboration of managers at all levels of an organisation is
therefore important in goal formulation.
6. Objectives should state results to be achieved within a given time
period. The timeframe for accomplishing objectives should be
clearly stated.
7. Objectives should be congruent with one another. Congruency
means that the attainment of one goal should not preclude the
attainment of another goal. Incongruent objectives often lead to
friction, uncertainty and conflict.
8. Objectives should be flexible. Business organisations function in
a turbulent and dynamic environment, which makes it necessary
to allow for objectives to be modified. Flexibility means that
organisations should adapt their objectives when the conditions on
which the objectives were based, change.

PART III: Planning
Prioritising goals and objectives

An important principle to consider when determining organisational
goals, is the ranking of goals, objectives or activities in order of
importance. Priorities play a special role in the planning process. By
listing long-term organisational objectives in order of their priority, top
management prepares to make later decisions regarding the allocation
of resources. Resources need to be channeled into more important
endeavors and away from other areas in proportion to the relative
priority of the areas. The establishment of priorities is a key factor in
managerial and organisational effectiveness. Strategic priorities give
external and internal stakeholders answers to the questions such as ‘Why
does the organisation exist?’ and ‘How should it act and react during a
crisis?’. Various techniques can be used to prioritise organisational goals
and objectives. Two of the most widely-used techniques are the A-B-C
QSJPSJUZTZTUFNBOEUIFQSJODJQMF
#$% RTioTit[ s[stem According to the "#$ QSJPSJUZ TZTUFN, objectives can be
A-B-C priority system groups grouped into three categories, namely the A-group, B-group and
objectives in three categories C-group. The A-group objectives, called the ‘must-do’ objectives are
according to its priority those objectives that are critical to the successful performance of the
organisation. The B-group, called the ‘should-do’ objectives, is necessary
for improved performance. Lastly, the C-group objectives are called the
‘nice-to-do’ objectives, which are desirable for improved performance,
but not critical to survival or improved performance.
"OPUIFSQSPWFOQSJPSJUZTFUUJOHUFDIOJRVFJTUIFQSJODJQMF BMTP
2aTeto RTinciRle known as the 1BSFUPQSJODJQMF or analysis which states that a minority
a minority of causes, inputs of causes tends to produce the majority of rewards. Care needs to be
or effort tend to produce the UBLFO OPU UP JOUFSQSFU UIF GPSNVMB UPP MJUFSBMMZ m JU JT POMZ BO
majority of results, outputs or approximation. Managers can leverage their time by focusing on the few
rewards people, resources, opportunities and strengths with the greatest impact.
5IF'PSE.PUPS$PNQBOZ3
Ford Motor Company was founded in 1903 by .JTTJPO4UBUFNFOU
Henry Ford in Detroit, Michigan. Not only did Ford ‘We are a global family with a proud heritage,
revolutionise the development of the automobile passionately committed to providing personal
as a product, he was also the visionary behind the mobility for people around the world. We anticipate
idea of mass production. Ford’s ability to make consumer needs and deliver outstanding products
automobiles affordable for the masses is cited as a and services that improve people’s lives.’
driving force behind both the automobile industry
and the creation of a middle class in America. 7BMVFT
‘People working together as a lean, global enterprise
7JTJPO for automotive leadership, as measured by
‘To become the world’s leading consumer company customer, employee, dealer, investor, supplier, union/
for automotive products and services.’ council, and community satisfaction.’
Identify ways of reaching goals

A GPS enables a car driver to determine the shortest or fastest possible
route to a planned destination. Management also needs to identify ways
of reaching an organisation’s goals. This is often referred to as ‘the ends-
means chain of objectives’. The setting of objectives is a top-to-bottom

process – top management sets broader organisational objectives with
longer time horizons than lower levels of management. This downward
flow of objectives creates a means-ends chain. The accomplishment of
organisational goals, as formulated by top management, is a bottom-up
approach. Working from bottom to top, lower management objectives
provide the means for achieving middle-level objectives (ends) that, in
turn, provide the means for achieving top-level objectives (ends). The
ends-means chain of objectives is illustrated in Figure 10.1.
Ends-means chain of objectives

Means-ends chain of objectives
Top-level
management
Middle-level management
Lower-level management
Figure 10.1: The ends-means chain of objectives
The organisational hierarchy in Figure 10.1 has been simplified and

narrowed down to three managerial levels for illustrative purposes.
There may be more managerial layers involved between top and middle
levels of management as well as between middle and lower levels of
management.
The determination of the best possible route to a planned destination,
allows a car driver to determine what resources are needed for the trip.
For example, what type of vehicle is needed (in some instances an off-
road vehicle will be needed to access dirt roads or unpaved paths), how
much petrol will be needed, and the total costs involved in the journey.
In terms of an organisation, planning is not complete without finding the
resources needed to attain organisational goals and objectives. Time;
talent; financial, information and physical resources are needed to attain
goals. Because of the scarcity of all resources, managers should realise
the importance of finding all needed resources. The prioritisation of goals
and objectives that we have discussed earlier can assist management
in finding the most crucial resources for the realisation of the most
important goals and objectives.
Planning takes place in a complex environment

Managerial planning takes place in a complex, turbulent environment.
Virtually all organisations face a rapidly changing environment and
should adapt to these changes. The management environment is
PART III: Planning
discussed in detail in Chapter 4 (The composition of the management

environment). In a rapidly changing environment, managers can benefit
contingenc[ Rlanning from a DPOUJOHFODZQMBOOJOHapproach which is where multiple plans
develop multiple plans based are developed based on different environmental conditions.
on different environmental Contingency planning requires flexibility. There are at least two
conditions variations of how this can be achieved4. One variation is the development
of two or more plans (the idea of ‘plan B’) each of which is based on a
different set of strategic or operating conditions that could occur. Which
plan is implemented is determined by the specific circumstances that
come to pass. For example, an organisation may plan to begin production
at a new plant facility in June 2020, but managers should develop a
contingency plan that ensures uninterrupted production in the event
that the plant opening is being delayed for some reason (for example
a labour strike). A second variation of contingency planning rests on
the skill and ability of people in the organisation to think strategically
and flexibly. This means that people must be informed continuously and
understand the important trends, causes and effects, and interactions
of the conditions in both the external and internal environments of the
organisation. This skill is called having ‘prepared minds’ by some. This
does not rule out having ‘plan B’, rather it probably includes having a
second plan.
Because planning affects all downstream management functions, it has
been called the primary management function. Planning enables humans
to achieve great things by envisioning a pathway from concept to reality.
1MBOOJOHFOBCMFTPSHBOJTBUJPOTUPEFMJWFSOFFETBUJTGZJOHQSPEVDUTBOE
or services to its customers, create jobs, and contribute to the wealth of
the community. Planning done properly also enables organisations to be
sustainable over the long term.
Planning is a never-ending process because of constant change,
uncertainty, new competition, unexpected problems and emerging
opportunities. In the next section, we will focus on the benefits and
costs of planning in an organisation.
LEARNING OBJECTIVE 2 10.2 THE BENEFITS AND COSTS ASSOCIATED

Demonstrate an understanding WITH PLANNING
of the beneƂts and costs
associated with planning. It has often been said that ‘organisations that fail to plan are planning
to fail’. However, most experienced managers recognise that there are
benefits as well as costs associated with planning.
10.2.1 The benefits of planning

Ideally, planning leads to superior performance for the organisation.
Planning done properly will lead to a sustainable organisation. From
a general perspective, planning offers the following benefits to the
organisation:
r 1MBOOJOHQSPWJEFTEJSFDUJPOBOEIFMQTNBOBHFSTBTXFMMBTOPO
managers to focus on forward thinking. When all organisational
members know where the organisation is going and what they
must contribute to attain the objectives, they can begin to

coordinate their activities and cooperation and teamwork are

fostered. Managers are also compelled to think ahead and to
consider resource needs and potential opportunities or threats
that the organisation may face in the future.
r 1MBOOJOHMFBETUPBQBSUJDJQBUPSZXPSLFOWJSPONFOU0SHBOJTBUJPOBM
plans should be developed and implemented by a wide range of
organisational members. This will lead to a more participative
working environment, where organisational members are more
likely to ‘buy in’ to a plan that they have helped develop.
r 1MBOOJOHSFEVDFTUIFJNQBDUPG DIBOHF*OBDIBPUJDFOWJSPONFOU
planning enables managers to anticipate change and to develop
appropriate responses. Planning also clarifies the consequences of
the actions managers might take in response to change.
r 1MBOOJOHSFEVDFTUIFPWFSMBQQJOHBOEEVQMJDBUJPOPGBDUJWJUJFT
When means and ends are clear, the overlapping and duplication
of activities and wasteful activities become obvious.
r 1MBOOJOHTFUTUIFTUBOEBSETCZXIJDIUPGBDJMJUBUFDPOUSPM
In planning, objectives are set and plans are formulated to
achieve objectives. In the controlling function of management,
performance is compared against the established objectives. If
significant deviations occur, corrective steps can be taken. Without
planning, control cannot take place – thus, a cyclical relationship
between planning and control exists. This is illustrated in
Figure 10.2.
Planning Planning
&etermine objectives
Formulate Rlans
%arr[ Rlans out
#cJieve results
%omRare results YitJ objectives
6aMe corrective action

Control Control
Figure 10.: The cyclical relationship between planning and control
5IF JOJUJBM QMBOOJOHDPOUSPM DZDMF CFHJOT XJUI UIF EFUFSNJOBUJPO PG

objectives, after which plans are formulated to achieve objectives. Plans
are then carried out and results are achieved. The control process then
PART III: Planning
begins when results are compared with objectives. Corrective action

is necessary whenever final results deviate from objectives. Corrective
BDUJPO UIFO TFSWFT BT BO JOQVU UP UIF OFYU QMBOOJOHDPOUSPM DZDMF BOE
contributes to improved future plans. The control process will be
discussed in more detail in Chapter 21 (Principles of control).
10.2.2 The costs associated with planning

Despite the benefits of planning, it also involves some costs:
r 1MBOOJOHNBZDSFBUFSJHJEJUZ3BUIFSUIBOSFNBJOJOHŴFYJCMFJOB
changing environment, managers and their subordinates may
continue to do what is required in order to achieve the original
objectives.
r .BOBHFNFOUUJNF*G EPOFQSPQFSMZ UIFQMBOOJOHQSPDFTTSFRVJSFT
a substantial amount of managerial time, energy and financial costs.
r 'PSNBMQMBOTDBOOPUSFQMBDFJOUVJUJPOBOEDSFBUJWJUZ5IFGPSNBM
planning process can easily be reduced to a programmed routine,
replacing intuition and creativity in the organisation. This can spell
disaster for an organisation.
r %FMBZJOEFDJTJPONBLJOH*OTPNFJOTUBODFT QMBOOJOHDBOEJSFDU
the focus towards evaluating, rather than doing. This can delay
the organisation’s response to changes in its external and internal
environment, such as changes in industry, the marketplace or
internal operations.
Despite the costs that can be associated with planning, no organisation

can afford not to plan for its future. Our attention now turns to the
various types of plans that an organisation can formulate.
LEARNING OBJECTIVE 3 10.3 TYPES OF PLAN

Differentiate between the Plans can be described in terms of their breadth, timeframe, specificity
various types of plan. and frequency of use. When described in terms of their breadth,
strategic, tactical and operational plans can be distinguished. Plans
described in terms of their timeframe refer to long-term, intermediate
and short-term plans. When plans are described in terms of their
TQFDJųDJUZ EJSFDUJPOBM QMBOT BOEPS TQFDJųD QMBOT DBO CF VTFE -BTUMZ
when the frequency of use is the basis, single-use plans, standing plans
and individual plans can be identified.
10.3.1 Strategic, tactical and operational plans

strategic Rlans 4USBUFHJD QMBOT apply to the entire organisation. A strategic plan
establish the organisation’s establishes the organisation’s overall long-term objectives, it seeks to
overall long-term objectives, position the organisation in terms of the environment and it drives the
seek to position the organisation organisation towards attaining its broad, overall goals.
in terms of the environment and Top-level managers develop strategic plans. Planning at strategic level
drive the organisation towards includes:
attaining overall goals r DSFBUJOHBWJTJPOPG UIFPSHBOJTBUJPO
r USBOTMBUJOHUIFWJTJPOJOUPBSFBMJTUJDNJTTJPOTUBUFNFOU
r USBOTMBUJOHUIFNJTTJPOTUBUFNFOUJOUPNFBTVSBCMFMPOHUFSNHPBMT
r DIPPTJOHBTUSBUFHZPSDPNCJOBUJPOPGTUSBUFHJFTUPBUUBJOUIF
vision, mission and long-term goals.
Strategic plans have the following characteristics:

r 5IFZIBWFBOFYUFOEFEUJNFGSBNF VTVBMMZNPSFUIBOųWFZFBST
However, the timeframe depends on the type of industry and may
be longer or shorter than five years.
r 5IFZGPDVTPOUIFFOUJSFPSHBOJTBUJPO
r 5IFZMPPLBUSFDPODJMJOHUIFPSHBOJTBUJPOTTUSFOHUITBOE
weaknesses with threats and opportunities in the external
environment.
r 5IFZGPDVTPODSFBUJOHBOENBJOUBJOJOHBDPNQFUJUJWFBEWBOUBHFGPS
the organisation.
r 5IFZUBLFTZOFSHZJOUPDPOTJEFSBUJPOBOEBJNBUDPPSEJOBUJOHUIF
efforts of departments and individuals to contribute towards the
attainment of the overall goals and objectives of the organisation.
Strategic plans filter down in the organisation to form the basis for
tactical plans. 5BDUJDBMQMBOT specify the details of how the medium- tactical Rlans
term objectives of the organisation are to be achieved. The focus of specify the details of how the
tactical plans could be on the functional areas in an organisation, such medium-term objectives are to
as marketing, finance, operations, human resources and so on. Tactical be achieved
plans are more specific than strategic plans. Tactical plans should take
synergy into consideration, in other words, they should contribute to
the attainment of the organisation’s overall goals. Middle- and first-line
managers usually develop tactical plans.
0QFSBUJPOBMQMBOTfocus on carrying out tactical plans to achieve oRerational Rlans
operational goals and are developed by middle-level and lower-level focus on carrying out tactical
managers. Operational plans are narrowly focused and have relatively plans to achieve operational
short time horizons (monthly, weekly, day-to-day). Lower-level goals
managers normally formulate operational plans.
10.3.2 Long-term, medium-term and short-term

plans
-POHUFSN QMBOT are developed by top management and are longterm Rlans
developed to achieve the overall goals of the organisation. The time developed to achieve the overall
span for strategic planning varies from one organisation to the next. In goals of the organisation
the case of an aircraft manufacturer, long term could be 20 years. For
an organisation in the information technology industry, long term could
be 12 months.
*OUFSNFEJBUFPSNFEJVNUFSNQMBOT are carried out by middle intermeFiate or meFium
management for the various functional departments in an organisation term Rlans
and are developed to realise the tactical goals derived from the overall developed to realise the tactical
goals. goals derived from overall goals
4IPSUUFSNQMBOT are normally plans that cover less than one year.
They are developed by lower management and are concerned with the sJortterm Rlans
day-to-day activities of an organisation and the allocation of resources developed to achieve
to particular individuals in accordance with particular projects, budgets operational goals
and so on.

PART III: Planning
10.3.3 Specific and directional plans

Plans are classified as specific when they have clearly defined objectives
and leave no room for misinterpretation. Directional plans, on the other
hand, are flexible and set out general guidelines.
Table 10.1 summarises the key differences between plans in terms of
their breadth, timeframe and specificity.
Table 10.1: The various kinds of plan in terms of breadth, timeframe and speciƂcity
Breadth Timeframe 5peciƂcit[
Strategic plans
Seek to position the organisation in terms of the environment long term broad
and drive the organisation towards attaining its broad, overall
goals.
Tactical plans
Focus on the functional areas in an organisation and deal with intermediate more speciƂc than
people and action to implement strategic plans. strategic plans
Operational plans
Focus on smaller segments of the functional areas in an short term narrowly focused
organisation and carrying out tactical plans to achieve
operational goals.
10.3.4 Single-use, standing and individual plans

single-use plans
There are three basic forms of operational plans, namely single-use,
used once to meet the need of standing and individual plans.
a particular or unique situation Examples of single-use plans are programmes, projects and
budgets used once to meet the need of a particular or unique situation.
programme A programme is a type of single-use plan that describes a set of
describes a set of activities activities designed to accomplish a specific objective over a period of
designed to accomplish a time. Such plans outline the major steps and specific actions necessary to
specific objective over a period implement the activities prescribed by the programme. The timing and
of time sequencing of the efforts of individuals and units are articulated in the
plan. For example, an organisation can implement a diversity programme
designed to recruit and hire a more diverse workforce as well as to
educate employees on issues related to diverse work environments.
SAP is the world’s leading provider of business and develop a diverse portfolio of skills, race and
software. One of the biggest challenges facing gender to SAP South Africa. Their approach is ‘to
SAP South Africa, is that of skills. SAP South find them and farm them’5.
Africa developed a programme to attract, retain
projects A programme can consist of different projects. These are the efforts
of individuals or work groups toward the achievement of specific, well-
the efforts of individuals or work
defined goals. A programme manager manages a portfolio of projects
groups toward the achievement
and is responsible for the programme meeting its deadlines. Projects
of specific, well-defined goals
are less comprehensive and narrower in focus than programmes and
usually have predetermined target dates for completion.
SAP South Africa has identified various projects to with supporting career expos. The company also
ensure a diverse portfolio of skills, race and gender institutionalised a graduate programme to create an
in the company. For example, they are striving to additional avenue for broadening the talent pool, and
create product awareness at school level through has created more than 120 jobs. The company has
its First Lego League programme which attracts also introduced more than 12 000 e-learning courses
pupils between the ages of nine and 16 years, so that which can be completed on-line with the aid of
potential employees have an affinity for the brand webcam or teleconferencing, or with the support of
from a young age. In addition, SAP is actively involved learning circles6.
A CVEHFU is a numerical plan for allocating resources to specific activities. buFget

Budgets can be used to plan the allocation of human, physical and numerical plan for allocating
information resources. SAP South Africa would undoubtedly establish resources to specific activities
a budget to support the implementation of the programme to ensure a
diverse portfolio of skills, race and gender in the company.
4UBOEJOH QMBOT provide guidance for repeatedly performed stanFing plan
actions in an organisation. They are on-going and designed to deal with provide guidance for repeatedly
organisational issues or problems that occur frequently. Examples of performed actions in the
standing plans are policies, procedures and rules. organisation
1PMJDJFT provide general actions to be followed in order to achieve an
objective. Human resources departments maintain policies concerning polic[
sick leave, vacation leave and benefit options. Purchasing and supply provide general guidelines to be
chain departments establish policies for procurement and inventory followed when making decisions
management. A university’s administration has policies about admittance
to certain academic programmes, exemptions and so on. These policies
all provide a framework for decision-making that guides the decision
maker in evaluating specific circumstances surrounding each individual
case. It is important to note that policies do not state specifically what
the decision should or will be. Rather, they state the boundaries of the
EFDJTJPOBOEPSXIBUNVTUCFDPOTJEFSFEJOUIFEFDJTJPO
1SPDFEVSFT are sequences of actions to be followed in order to proceFure
achieve an objective. They are more specific and action oriented than sequences of actions to be
policies. Procedures are designed to give explicit instructions on how to followed in order to achieve an
complete a recurring task. For example, a human resources department objective
may have a procedure for filing benefit claims or applying for vacation
leave. Production departments establish procedures for identifying
and evaluating suppliers and ordering supplies, operating the inventory
management system and identifying and implementing specific quality
control criteria.
3VMFT provide detailed and specific regulations for actions and state rule
exactly what should and what should not be done. A rule is the strictest provide detailed and specific
type of standing plan found in organisations. They are not intended regulations for actions
to serve as guidelines for making decisions. For example, a human
resources management department may have rules governing the
number of sick days an employee may take with full pay, the months
in which vacation leave can be scheduled, and the length of time an
organisational member must be employed before qualifying for benefits.
The production department may have rules governing the percentage
of supplies that can be purchased from a single supplier, the method in

PART III: Planning
which inventory must be accounted for, and the way in which products
of sub-standard quality must be handled.
Increasingly, organisations are looking for ways to translate broader
organisational goals and plans to the level of individual employees. One
management b[ objectives approach of doing so is NBOBHFNFOUCZPCKFDUJWFT .#0
.

/$1 MBO is a special planning process on individual level of an organisation.
a process in which managers It is a process in which managers and their subordinates jointly set
and their subordinates jointly objectives for the individual employee, derived from broader
set objectives for the individual organisational goals, and periodically evaluate the performance and
employee, derived from reward them according to the results. Individual objectives and plans
broader organisational goals, are derived from broader organisational goals and plans (remember
and periodically evaluate the the words goals and objectives are used interchangeably). The MBO
performance and reward them approach to planning helps managers balance conflicting demands by
according to the results focusing the attention of the manager and the subordinate on the tasks
to be completed and the performance to be achieved at an individual
level. MBO mainly involves the following steps:
4UFQ Setting individual objectives and plans. The manager and
subordinate jointly set objectives and plans for the individual. The
organisation’s vision, mission, long-term goals and plans should guide
them in setting these objectives.
4UFQIdentify criteria for assessing work performance. Once a set of
mutually agreeable objectives has been determined, criteria for assessing
the work performance of the individual are determined.
4UFQ Individual employees formulate and implement action plans.
Next, employees formulate and implement the action plans that are
necessary to achieve their individual goals and review their progress
with their managers on an intermittent basis.
4UFQCompare the performance of employee with goals. During this
step of the MBO process, the actual performance of the employees
is compared with the objectives established at the beginning of the
planning period.
4UFQReward performance. Performance rewards should be based
on the extent to which the objectives have been achieved.
4UFQPreparation of next period’s objectives by the employee. Once
the MBO cycle is complete, employees begin formulating goals to drive
the next MBO-planning period. The MBO process is self-renewing in
nature.
The MBO process can provide three primary benefits7:

r .#0QSPWJEFTBGPVOEBUJPOGPSBNPSFJOUFHSBUFEBOETZTUFN
orientated approach to planning. The implementation of an MBO
programme forces managers to examine how the activities of each
individual in a group contribute to the achievement of the overall
goals of the group. As the MBO programme works its way up the
organisational hierarchy, it provides a system-wide coordinating
mechanism. The importance of coordination will be discussed in
more detail in Chapter 15 (Principles of organising).
r 5IF.#0BQQSPBDISFRVJSFTGSFRVFOUDPNNVOJDBUJPOCFUXFFO
employees and their managers because they need to agree
on the objectives and plans for the employee. More frequent
communication often serves to build stronger relationships

between managers and their employees.
r -BTUMZ .#0TZTUFNTNBZMFBEUPBNPSFQBSUJDJQBUPSZXPSLJOH
environment. Employees may have a better understanding of
where they fit into the broader organisation. They may also feel
they have a voice and can provide input into how their jobs should
be designed and what their performance targets should be.
At the same time, however, a number of potential disadvantages may

GPMMPXGSPNUIFJNQMFNFOUBUJPOPG UIF.#0QSPDFTT
r .#0TZTUFNTSFRVJSFBTJHOJųDBOUDPNNJUNFOUPOUIFQBSUPG
the manager and may divert attention away from other important
managerial activities.
r .#0TZTUFNTOPSNBMMZSFRVJSFFYDFTTJWFQBQFSXPSLUIBU
complicates the administrative process within the organisation.
r 4PNFQFPQMFBSHVFUIBU.#0TZTUFNTGPDVTPOTIPSUUFSNHPBMT
rather than on issues that are relevant to the long-term survival
and success of the organisation.
r -BTUMZ JOTPNFDBTFT HPBMTNBZCFEJŵDVMUUPFTUBCMJTIBOEQVUJOUP
operation.
*OHFOFSBM UIF.#0DBOCFBOFŲFDUJWFQMBOOJOHUPPMBOECFOFųDJBMUP
management when used selectively.
MTN is using a form of MBO quite effectively in make the necessary investment, financially and
the company. Managers sit down with individuals to otherwise, to make sure that the individual’s
discuss their individual goals. The goals and career development is auctioned to the benefit of the
path of the individual are confirmed collaboratively company and the individual.
and once all parties are in agreement, MTN will
For managers to formulate realistic operational plans, they need clear

guidance from strategic and tactical plans. Only if the different kinds of
plan are understood will lower-level managers be able to derive their
sections’ plans from plans at a higher level. This is called the hierarchy of
plans and is illustrated in Figure 10.3.
Strategic
plans
Tactical plans
Operational plans
Individual plans
Figure 10.3: The hierarchy of organisational plans

PART III: Planning
Although most managers will admit that they need to plan, many would
also admit that they do much less planning than they should. This
situation is a result of a number of barriers to effective planning.
LEARNING OBJECTIVE 4 10.4 BARRIERS TO EFFECTIVE PLANNING

Explain the barriers to effective Why do managers sometimes do less planning (or less effective planning)
planning. than they should? Managers fail to plan effectively because of four main
reasons.
10.4.1 Planning is time consuming

Managers often feel as though they face a continuous stream of problems
from the time that they arrive at work, until the time they leave. Through
better planning and the implementation of policies, procedures, rules
and the like, managers can develop operational systems that are more
effective and less problematic and demanding of their time.
10.4.2 Resistance to change

Almost by definition, planning involves changing one or more aspects
in an organisation to enable it to adapt to a turbulent and ever-
changing environment. Organisational changes may be required in one
or more elements of the organisation, for example the organisational
structure, the reward system, the standard operating procedures, office
administration and so on. In planning for implementing change, managers
almost inevitably encounter resistance from subordinates. Managers
themselves may also be resistant to change. Given the importance
of focusing on quality, continuous improvement and a total quality
approach, resistance to change can have very detrimental results for the
organisation over the long term.
10.4.3 Environmental complexity and volatility

Complex environments make it very difficult to implement planning
processes and to develop plans. However, organisations that operate
in rapidly changing and complex environments often find that planning
provides a mechanism for coping with such conditions.
10.4.4 Reluctance to establish goals

Managers may not always understand the principles for and importance
of formulating goals. They may also have a lack of confidence in their
own ability and the ability of their subordinates to formulate effective
goals. Furthermore, managers may also experience a fear of failure – by
not setting goals for their units or departments, managers cannot be
accused of not attaining their goals.
The barriers to effective planning almost seem insurmountable.
However, there are guidelines that managers can use to overcome these
barriers.

10.5 OVERCOMING BARRIERS TO EFFECTIVE LEARNING OBJECTIVE 5

PLANNING Explain ways to overcome
barriers to effective planning.
Achieving success through planning requires the participation of a broad
range of organisational members. Managers should therefore develop
and maintain a culture that enables planning and reward those who plan
effectively. The following guidelines can help managers in this process.
10.5.1 Planning should start at the top

Planning should start at the top management of an organisation.
Without long-term planning for the organisation as a whole, middle
managers will not be able to plan for their departments for the medium
and short term. Without planning executed by middle managers, lower
managers will not be able to plan for the sections for the short term.
Top management’s sincere involvement sets the scene for subsequent
planning at middle and lower levels of management.
Top management should develop an organisational culture that
encourages strategic and results-oriented thinking – this will lead to more
effective planning. Employees should be provided with training necessary
to develop strategic thinking skills and even be given the opportunity to
practice those skills in their work environment. Furthermore, individuals
can also be rewarded for thinking strategically when developing their
plans.
The following history describing the fate of LeisureNet illustrates
the importance of the commitment of top management to the planning
process in an organisation.
%&"5)0'"#64*/&448
For a few weeks in September and October 2000, to December 1999 showed a group which turned
Peter Flack was interim chief executive of the ill-fated over in excess of R1bn and which made in excess
LeisureNet. He had been called in as a turnaround of R100m after tax. As a rough rule of thumb, we
specialist. He found that the company had deteriorated have always said, ‘show us a company which produces
so far and so fast that all that could be done for it was after-tax profits equal to 10 per cent of gross revenue
to close it. LeisureNet was a large business, but the and we will show you a healthy business’.
lessons Flack draws from the LeisureNet failure need The company operated 85 Health & Racquet
to be learned by every entrepreneur and manager. This Clubs in South Africa and employed some 4 500
is his account of one of South Africa’s most spectacular people who provided an excellent service to nearly
corporate failures. one million members. In addition, the company had
Every organisation, whether it be a club, church, recently expanded offshore and had built 22 H&R
company or country, requires four basic ingredients Clubs in Australia, Britain, Germany and Spain, with a
for it to be successful. They are leadership, a strategic number in the process of construction.
plan, a management team capable of implementing On the surface, LeisureNet was a company with
the strategy, and an action plan which breaks the strong leadership, a clear strategy and an obviously
strategic plan down into measureable bite-size bits. competent management team.
This is the basis against which a business is measured. At the first board meeting that we attended,
LeisureNet, a successful and profitable company, accusations were levelled at executive and non-
invited one of the directors of Coronation FRM to sit executive directors alike and it appeared as if the
on their board. A brief look at the results for the year board had become dysfunctional. The previous joint

PART III: Planning
CEOs of LeisureNet had been transferred recently of directors of LeisureNet. Instead of the various
to Healthland International Limited (again as joint disciplines inherent in a company being represented
chief executive) and the young managing director of on the board of directors, for example finance,
the South African operations had been approached information systems, human resources and the line
to take the job as CEO of LeisureNet. However, he operations, the board consisted of two former joint
had not accepted the position and the terms of his CEOs, the MD of the local operations and a host of
appointment had not been finalised. So clearly there non-executive directors.
was a question of leadership. The previous leaders Although the management information system
had sold almost all their interests in LeisureNet and was home grown and, in many instances, required
had been awarded a substantial and meaningful a duplication of effort, the accounting system, sales
stake, free of charge, in Healthland International system, marketing and human resources procedure
Limited. were well thought out. In moving offshore, the
Part of the conflict at board level was due to business there had adopted the best of the local
the fact the LeisureNet had been used to fund, staff operating systems, acquired a standard management
and train employees of Healthland. The H&R Club information system and had recruited the most
business had been pillaged to establish Healthland’s senior of the local managers. The glaring omission,
operations and all available cash had been invested however, related to the position of chief financial
in Healthland and little, if any, in the H&R Club officer and the treasury and cash management
business. Some R370m of this available cash had functions for this massively cash hungry growth
come from selling shares. The result was a lack of business in a state of rapid development. Ultimately,
maintenance and refurbishment at H&R Clubs. this gap in the management structure caused the
On closer examination, there was no strategic downfall of Healthland. Finally, there was no action
plan. A strategy, which is not reduced to writing, is a plan of any kind.
hope, wish or prayer but not a plan. A strategic plan The group, with the notable exception of the
requires that its participants go through a procedure H&R Club business, did not meet, let alone pass, any
which, at the very least, identifies and analyses the of the standards required by the four components
various internal and external issues which affect the for any successful business, namely leadership,
business. strategic planning, management and action planning.
The lack of a coherent strategic plan in There were two other glaring omissions in the
LeisureNet can be seen from the fact that over the field of corporate communications and corporate
last five years the company has, in addition to the governance.
health and fitness business, embarked on a food The group could have been saved had it been
business, golfing business, an education business, possible to raise sufficient money to complete the
a casino bid, a gymnasium equipment supplier, a building of the Healthland clubs under construction,
restaurant and the six member IMAX theatre chain. or if the sale of these offshore clubs could have
Despite the fact that LeisureNet owned only half the been concluded in a way which would have released
equity of the IMAX group, the company guaranteed LeisureNet from its obligations to the Healthland
100 per cent of the leases of the purpose built group. In the end, both attempts failed. Both these
facilities housing the theatres and which extended failures can be traced back to fundamental flaws
over 13–20 years. in the issues of leadership, strategy, and corporate
Structure follows strategy and the lack of strategy communications.
manifested itself in the composition of the board
10.5.2 Involve employees in decision-making and

planning processes
The role that line and functional managers play in the planning process
cannot be overemphasised. They are responsible for executing plans
formulated by higher levels of management and their involvement in
the planning process should be obvious. People are generally more

committed to plans that they helped to shape. Therefore, employees at

all levels of an organisational hierarchy should be involved in planning.
For example, managers should seek information from employees and
keep them informed about expectations. Managers should also solicit
the opinions and views of their employees when formulating plans
and they should encourage individual members of the organisation
to communicate about the planning efforts of their sections and the
organisation.
Managers should also take advantage of diverse views and
perspectives of employees – it may lead to a broader assessment and
evaluation of organisational problems and opportunities. Organisations
that encourage a wide range of different ideas and views and have
learned to manage diverse groups are more likely to produce plans that
are comprehensive and fully developed. It is imperative to learn how to
manage diverse work groups. This issue is dealt with in detail in Chapter
9 (Workforce diversity).
10.5.3 Communicate throughout the planning

process
Communication plays a vital role in the effectiveness of planning.
Planning initiated at the top should be communicated to all other levels
in the organisation. Managers and all other employees should have a
clear understanding of the overall organisational strategy, functional
strategies and individual strategies, and how they are interrelated.
10.5.4 Plans should not be cast in stone

Any change or changes in the management environment, may lead to the
revision of plans. Also, in a turbulent environment contingency planning
may be very useful. Contingency planning was defined previously as the
development of two or more plans based on different environmental
conditions.
This chapter addressed planning as the first managerial function that
an organisation needs to address. Without proper planning, management
cannot proceed to any of the other managerial functions.

Part III: Planning
CHAPTER SUMMARY
1. Explain the nature and importance of planning.
Planning can be defined as the managerial function that determines the organisational vision,
mission and goals, identifies ways of attaining the goals and finds the resources needed
for the task within a complex environment. Planning done properly enables an organisation
to create need-satisfying products and/or services to its customers, to create jobs and to
contribute to the wealth and living standard of the community.
2. Demonstrate an understanding of the benefits and costs associated with planning.

Planning:
• provides direction and helps managers as well as non-managers to focus on forward
thinking
• leads to a participatory work environment
• reduces the impact of change
• reduces the overlapping and duplication of activities
• sets the standard to facilitate control.
The costs associated with planning are:
• planning may create rigidity
• management time
• formal plans cannot replace intuition and creativity
• delay in decision-making.
3. Differentiate between the various types of plan.

Planning can be described in terms of i. breadth; ii. timeframe; iii. specificity; and iv.
frequency of use. When described in terms of its breadth, we can distinguish between
strategic, tactical and operational plans. If we describe plans in terms of its timeframe, long-
term, intermediate (or medium-term), and short-term plans can be distinguished. When plans
are described in terms of their specificity, directional plans and/or specific plans can be
used. Based on the frequency of use, single-use plans, standing plans and individual plans
can be distinguished.
4. Explain the barriers to effective planning.

Effective planning in organisations is often hindered by:
• its time consuming nature
• a resistance to change
• environmental complexity and volatility
• reluctance to establish goals.
5. Explain ways to overcome barriers to effective planning.

Managers can follow various guidelines to enhance the planning process in their
organisations by:
• realising that planning starts at the top
ChaPter 10 Principles of planning
• involving employees in decision-making and in the planning process

• communicating throughout the planning process
• ensuring flexibility.
KEY TERMS
a-B-C priority system policy
budget priorities
contingency planning procedure
directional plan programme
environmental complexity and volatility project
goals rule
individual plan short-term plan
long-term plan single-use plan
management by objectives specific plan
medium-term plan standing plan
mission strategic plan
objectives tactical plan
operational plan values
pareto principle vision
planning
REVIEW QUESTIONS
1. explain the nature of planning in contemporary organisations.
2. Defend the importance of effective planning in an organisation.
3. Compare the benefits and costs that can be associated with planning.
4. Differentiate between the various types of plans, based on their breadth.
5. explain the various types of plans based on their timeframe.
6. identify and discuss the various types of plans based on their specificity.
7. Use ‘frequency of use’ to distinguish between the various types of plans.
8. ‘managers fail to plan effectively because of mainly four reasons.’ Discuss this statement.
9. explain how managers can overcome the barriers to effective planning in an organisation.
PART III: Planning
END NOTES
KWWSHQZLNLSHGLDRUJZLNL*OREDOB3RVLWLRQLQJB6\VWHP$FFHVVHGRQ6HSWHPEHU
$GDSWHGIURP.UHLWQHU5Principles of management.WKHGLWLRQ$UL]RQD&HQJDJH/HDUQLQJSSŋ
KWWSZZZIXQGLQJXQLYHUVHFRPFRPSDQ\KLVWRULHV)RUG0RWRU&RPSDQ\KLVWRU\KWPO
*RRGPDQ6+)DQGW300LFKOLWVFK-) /HZLV36Management challenges for tomorrow’s leaders.
0DVRQ7KRPVRQ6RXWK:HVWHUQSSŋ
%HVWHPSOR\HUV6RXWK$IULFDS
%HVWHPSOR\HUV6RXWK$IULFDSSŋ
*RRGPDQHWDORSFLWSSŋ
$GDSWHGIURP)ODFN3'HDWKRID%XVLQHVVSucceed Magazine-XQH-XO\

Chapter 11
Strategic management
Tersia Brevis
OPENING CASE
Jack Welch at General Electric (GE)1 as long as they followed the GE ethic of constant
General Electric (GE) traces its beginnings to change and striving to do better. He ran GE
Thomas A Edison, who established Edison Electric like a small dynamic business able to change as
Light Company in 1878. In 1892, a merger of opportunities arose or when a business became
Edison General Electric Company and Thomson- unprofitable. Soon after his appointment as CEO,
Houston Electric Company created General Welch realised that it had cost GE more to make
Electric Company and the company’s stock began a television than it cost to buy a Japanese-made
trading on the New York Stock Exchange. In 1894, set. GE was in a business that had no technological
Edison sold all his shares in the company, remaining advantage and where entry barriers were low.
a consultant to General Electric. Foreign competitors could quickly and easily enter
Jack Welch joined GE in 1960 as a chemical their market. In 1981, Welch began his crusade
engineer in the company’s Plastics division in to eliminate the company’s weak links before
Pittsfield, Massachusetts. He was elected the they could drag down the entire organisation. His
company’s youngest Vice President in 1972. In goal was a radical restructuring of the company
1979, he became GE’s Vice Chairman. In December that would get rid of problem products and
1980, he succeeded Reginald H Jones, and in focus on profitable businesses immune to foreign
April 1981 he became the eighth Chairman and competition, particularly in the financial, high-tech,
CEO. He served in that position until he retired in and service sectors. His biggest challenge was
September 2001. During his 20 years of leadership to change a company, which the outside world
in this position, radical changes took place at GE thought was perfect, to face the realities of global
and Welch increased the value of the company competition in the 1980s and 1990s. He launched
from $13 billion to several hundred billion. In 1980, his controversial restructuring by ordering GE
the year before Welch became CEO, GE recorded managers to fix, sell or close down businesses
revenues of roughly $26.8 billion; in 2000, the year that were not first or second in their markets.
before he left, they were nearly $130 billion. The In all, GE made 1 700 acquisitions and divested
company went from a market value of $14 billion 408 businesses while Welch was CEO. The most
to one of more than $410 billion at the time of prominent milestones for GE during the Jack
his retirement, making it the most valuable and Welch era are briefly discussed below.
largest company in the world, up from America’s The GE Credit Corporation, founded in
tenth largest (based on market capitalisation) in 1943, doubled its assets between 1979 and 1984,
1981. Under his leadership, GE was listed as the primarily due to its expansion into new markets
world’s most respected company in 1998 and such as the leasing and selling of heavy industrial
2002 (shortly after his retirement). products, inventories, real estate and insurance.
As CEO of GE, Mr Welch’s management Furthermore, the leasing operations provided by
skills became almost legendary. He had little time the GE Credit Corporation, provided the parent
for bureaucracy and archaic ways of conducting company with tax shelters from accelerated
business. In his time, he gave managers free reign depreciation on equipment developed by GE and
PART III: Planning
then leased by the credit corporation. restructuring of its existing operations with the aim
During the 1980s, factory automation became a to become more competitive in all of its business.
major activity at GE. Apart from many acquisitions For example, GE reduced its engineering workforce
in this period, GE entered into an agreement with from 10 000 to 4 000, resulting in a reduction of
Japan’s Hitachi, Ltd. to manufacture and market nearly 50 per cent of its overall Aircraft Engine
Hitachi’s industrial robots in the United States. The Group payroll. Its restructuring activities paid off in
company also spent $300 million to robotise its the form of excellent profit margins in many of its
locomotive plant in Pennsylvania. The company’s major product divisions.
aircraft engine business also participated in an air In the late 1990s, GE reached a number of
force plant modernisation programme and GE later milestones. In 1996, the company celebrated its
manufactured the engines for the controversial hundredth year as part of the Dow Jones Industrial
B-1B bomber. Index – GE was the only company remaining from
In 1986, GE made several extremely important the Index’s original list. In the same year, NBC
purchases, the biggest of which was the $6.4 billion joined with Microsoft Corporation in launching
purchase of the Radio Corporation of America MSNBC, a 24-hour cable television news channel
(RCA). RCA’s National Broadcasting Company and internet news service. Overall revenues
(NBC) was at the time the leading US television exceeded the $100 billion mark for the first time
network and it brought GE into the broadcasting in 1998. The company also grew tremendously
business in full force. The purchase enabled GE by means of further acquisitions centered on two
to shift from manufacturing into service and growth initiatives: services and globalisation. In
high technology. During this time GE divested 1999 magazine recognised Jack Welch’s success as
itself of RCA’s David Sarnoff Research Center Manager of the Century. Under Welch’s leadership,
because GE’s laboratories made it redundant. In the company also adopted ‘six sigma’, a quality
1987, GE also sold its own and RCA’s television control and improvement initiative pioneered
manufacturing business to the French company by Motorola, Inc. and AlliedSignal Inc. The aim
Thomson in exchange for Thomson’s medical of the programme was to cut costs by reducing
diagnostics business. errors or defects. GE claimed that six sigma was
In 1986, the company broadened its financial yielding $1 billion in annual savings by 1998. During
services division by the purchase of the Employers this time, the company continued restructuring
Reinsurance Corporation (a financial services their business. Redundant facilities were closed
company), an 80 per cent interest in Kidder and production was shifted to cheaper labour
Peabody and Company (an investment banking markets. During 1999, GE adopted a fourth growth
firm). GE owned 100 per cent of the latter by initiative, namely e-business (the other three were
1990, but the unit was liquidated in 1994 due to its globalisation, services, and six sigma). Like many
poor financial performance. other companies, GE reacted cautiously when
During the early 1990s, GE’s operations the internet began its late 1990s explosion. Once
were divided into three business groupings, Welch was convinced of the internet’s potential,
namely technology, service and manufacturing. Its he quickly adopted e-commerce as a key to the
manufacturing operations were traditionally the company’s future growth.
core of the company. During this time period, During the late 1999s, Welch announced his
however, manufacturing accounted for roughly planned retirement. At the time, GE was one of
one-third of the company’s earnings. However, the world’s fastest growing and most profitable
GE still continued to invest more than $1 billion companies with a market capitalisation of $505
annually into the research and development of billion, second to only Microsoft Corporation.
manufactured goods. Much of this investment was He eventually retired in September 2001, leaving
directed towards energy conservation, for example behind an advanced technology, services and
more efficient light bulbs, jet engines and electrical financial company, taking on the world’s biggest
power transmission methods. challenges and dedicated to innovation in energy,
During 1992, the company continued the health, transportation and infrastructure.

CHAPTER 11 Strategic management
LEARNING OBJECTIVES
The purpose of this chapter is to provide an overview of the strategic management process. The
. Differentiate between the terms nstrategyo and nstrategic managemento.
2. Discuss the various phases in the strategic management process.
11.1 STRATEGY AND STRATEGIC LEARNING OBJECTIVE 1

MANAGEMENT Differentiate between the
terOU nUtrateI[o anF nUtrateIiE
11.1.1 Strategy OanaIeOento
All organisations, large or small, profit-seeking or not-for-profit, private
and public sector, have a purpose, a reason for its existence. The
purpose of an organisation may or may not be articulated in the form
of a vision and mission statement. In the preceding chapter, we have
explained the vision as a statement of what the organisation wants to
become and where it wants to be in future. The mission statement aligns
UIFPSHBOJTBUJPOXJUIJUTWJTJPOJOUFSNTPG JUTQSPEVDUTBOEPSTFSWJDFT
market and technology. 4USBUFHJFT relate to the pursuit of this purpose. UVTCVGI[
Strategies must be created and implemented. Strategies are relevant for helps to explain the things that
the organisation as a whole, for the individual businesses (or strategic managers and organisations do
business units), the various functions that comprise the organisation in order to fulfill the purpose of
(such as the marketing, finance, operations and supply chain functions) the organisation
and for the individual in the organisation.
Organisations succeed when their strategies are appropriate for the
circumstances. In other words, there must be a fit between organisational
strategies and the circumstances in its external and internal environment.
Jack Welch is a legendary leader and strategist. In our opening case we
saw how Welch, as CEO of General Electric, aligned organisational
strategies with the vision and mission of the organisation and the
circumstances in the company’s managerial environment. Mr Welch ran
GE like a small dynamic business able to change as opportunities arose
or when a business became unprofitable. He launched his controversial
restructuring by ordering GE managers to fix, sell or close down
businesses that were not first or second in their markets. As a result,
GE made 1 700 acquisitions and divested 408 businesses while Welch
was CEO.
Strategies should also be feasible in respect of organisational
resources, skills and capabilities. In Chapter 2, we identified various
resources (or inputs), skills and capabilities that an organisation needs in
order to attain its goals and objectives. Resources, skills and capabilities
are scarce, and it is therefore important to formulate strategies that are
feasible in terms of the scarcity of these inputs. Managers should also
ensure that organisational strategies are desirable to all stakeholders.
Stakeholders are those individuals and groups, internally as well
as externally, who have a stake in or an influence over the business.
Organisations fail when their strategies do not meet the expectations

PART III: Planning
of stakeholders or when the organisation does not produce outcomes

that are desirable. To succeed and to ensure sustainability, organisations
must compete effectively and outperform their rivals in a dynamic and
turbulent environment. Managers should formulate ‘winning strategies’
to compete effectively and to outperform rivals.
11.1.2 A winning strategy

What is a winning strategy? A winning strategy is a strategy that2:
r MJOLTBOPSHBOJTBUJPOTJOUFSOBMTUSFOHUITBOEXFBLOFTTFTXJUI
opportunities and threats from its external environment
r CVJMETBTVTUBJOBCMFDPNQFUJUJWFBEWBOUBHFGPSUIFPSHBOJTBUJPO
A competitive advantage can be defined as the ability of an
organisation to add more value for its customers than its rivals, and
thereby attain a position of relative advantage. The real challenge
for a winning strategy is to sustain any advantage once achieved
r DPOUJOVPVTMZTFFLTXBZTUPJNQSPWFPSHBOJTBUJPOBMQFSGPSNBODF
Performance refers to aspects such as profits, job creation,
organisational goals and objectives and so on
r NFFUTUIFFYQFDUBUJPOTPG FYUFSOBMBOEJOUFSOBMTUBLFIPMEFST
r BMJHOTJUTFMG XJUIFOWJSPONFOUBMSFRVJSFNFOUTJOBHMPCBMDPOUFYU
11.1.3 Strategic management

UVTCVGIKEOCPCIGOGPV First, TUSBUFHJD NBOBHFNFOU is about the strategy itself, the
entails strategic analysis, establishment of a clear direction for the organisation and for every
strategy formulation, strategy CVTJOFTT QSPEVDU BOEPS TFSWJDF BOE JOEJWJEVBM JO UIF PSHBOJTBUJPO
implementation and strategic This is called the strategic analysis phase in the strategic management
control process. Second, strategic management also entails the creation of a
means of getting to the required end, called strategy formulation. This
requires the creation of strong competitive positions. Third, strategic
management requires excellence in the implementation of strategies in
order to yield performance. This is referred to as strategy implementation
in the strategic management process. Strategic management is also
about strategic change. Creativity and innovation are needed to ensure
that the organisation is responsive to pressures for change and that
strategies are improved and renewed. Current and past successes are
no guarantee of success in the future. Organisations need to adapt and
change in a dynamic environment. Lastly, strategic management entails
strategic control. Strategic control is necessary in order to determine
the organisation’s success in attaining its vision, mission, objectives and
goals. The results of a comparison between actual results and intended
or planned outcomes, may lead to strategic change.
A clear vision and mission statement and a winning strategy can
provide an organisation with enormous success, as illustrated by the
Vanguard Group example on the next page.

Vanguard Group3
By the turn of the twenty-first century, the Vanguard operated into a fund-distribution company mutually
Group had become the largest mutual fund family owned by shareholders. The Vanguard company was
in the world. The reason for their success lies in the based on the principle of a reduction in overhead
vision, winning strategy and steadfastness of John C costs, management fees and commissions and service
Bogle, the founder and now retired chairman. to customers. This strategy led to an enormous
As a student in 1950, Bogle was intrigued by the success for the company. Twenty-five years after
management of mutual funds. At that time, all mutual its launch, the Vanguard company had more than
funds were sold with sales commissions, often eight $92 billion in assets and had beat 86 per cent of all
per cent of the amount invested, which was taken actively managed stock funds in 1998 and an even
off the top as a front-end load. This meant that if higher percentage over the past decade.
you invested R1 000, only R920 would be earning Bogle followed a low-cost investment strategy,
you money (the R80 goes towards management fees with the focus on customer service. He believed
and commissions). In addition, these funds also had in funds being bought and not sold; thus reducing
high yearly overheads or expense ratios and spent a commissions to salespeople and brokers. He also
lot on advertising costs. Bogle wondered why funds believed in word-of-mouth and spent the minimum
could not be bought without salespeople or brokers on advertising costs. The results gain by this strategy
and their steep commissions, and whether growth are evident – the Vanguard Group of Investment
could not be maximised by keeping overhead costs Companies’ equity and bond funds dominated Best
down. Buys, which are the yearly selected few funds that
These ideas lead to the launch of Bogle’s own analysts judge to ‘invest wisely, spend frugally, and
company, the Vanguard Group of Investment you get what you paid for’, and that have performed
Companies in 1974. Bogle’s company changed the best in shareholder returns over both up and down
entire structure under which mutual funds were markets.
11.2 THE STRATEGIC MANAGEMENT PROCESS LEARNING OBJECTIVE 2

The management of the strategic process is usually built around four Discuss the various phases
important phases, where each phase consists of a number of steps. in the strategic management
The first phase of the strategic management process (strategic analysis) process.
answers the question ‘What is the current position of the organisation?’
It involves the development of a vision, a mission statement and an
analysis of the management environment. The second phase (strategy
formulation) answers the question ‘Where does the organisation
want to be?’ It involves setting goals and objectives and formulating
corporate and business strategies. Phase 3 (strategy implementation)
answers the question ‘How can the organisation get to where it wants
to be?’ It involves formulating functional strategies and institutionalising
them. Lastly, Phase 4 (strategic control) answers the question ‘How
will the organisation know when it has arrived?’ It involves an analysis
of results, comparison with the objectives and goals of the organisation
and corrective action.
It is important to note that the strategic management process is not
simply linear from Phases 1 to 4 which then ends. Managers need to
return to prior steps and make changes as an on-going process. Each of
these steps will now be discussed in more detail.

PART III: Planning
UVTCVGIKECPCN[UKU 11.2.1 Strategic analysis

the determination of the current Figure 11.1 illustrates the phases of the TUSBUFHJDBOBMZTJT process.
position of the organisation by
formulating a vision, mission
and analysis of the management
environment
(QTOWNCVG r +nternal environmental

&GXGNQRC VJGOKUUKQP #PCN[UGVJG analysis
XKUKQP UVCVGOGPV GPXKTQPOGPV r 'Zternal environmental
analysis
(KIWTG 5trategic analysis
In order to analyse the current position of the organisation, a vision

and a mission statement need to be formulated. An analysis of the
organisation’s internal and external environments is also conducted
during this phase. Although the vision and mission have been discussed
in Chapter 10, a more detailed explanation of these terms is provided
below.
Develop a vision
The first step in the strategic management process is the development
XKUKQP of a clear WJTJPO, which requires managers to think about ways to
a statement of what the carry their organisations into the future. For top managers to lead the
organisation wants to become organisation to success in the future, an inspiring vision is required that
and where it wants to be in everybody in the organisation – internal as well as external stakeholders
future – shares in and is excited about. Effective visions push organisations and
individuals working in the organisation to look outside themselves to
see not what or where they are now, but where and what they can be in
future. The vision should provide a clear sense of what the organisation
hopes to become – an anchor for decision-making in the organisation.
A clear vision statement:
r QPSUSBZTUIFESFBNUIBUUIFPSHBOJTBUJPOIBTGPSUIFGVUVSF
r QSPNPUFTDIBOHFXJUIJOUIFPSHBOJTBUJPO
r GPSNTUIFCBTJTGPSQMBOOJOHBOEEFDJTJPONBLJOH
r QSPWJEFTBCBTJTGPSTUSBUFHJDDPOUSPM
r NPUJWBUFTJOEJWJEVBMTBOEGBDJMJUBUFTUIFSFDSVJUNFOUPGUBMFOU
r IBTQPTJUJWFDPOTFRVFODFTGPSUIFPSHBOJTBUJPO JUTJOUFSOBMBOE
external stakeholders.

When top management effectively communicates the organisation’s

vision statement, there is a significantly higher level of motivation, job
satisfaction, commitment, loyalty, pride, clarity of the organisation’s
values and productivity.
Develop a mission statement

An organisation’s mission is its reason for being or its reason for
existence. The vision statement of an organisation guides the formulation
of the mission; the mission in turn provides strategic direction for
organisational members. Although NJTTJPO TUBUFNFOUT can vary OKUUKQPUVCVGOGPV
among organisations, every mission statement should answer at least reflects an organisation’s reason
the following critical questions: for being (it has three core
r 8IBUJTPVSCVTJOFTT XIBUJTPVSQSJNBSZQSPEVDUTBOEPS components: products and/or
services that we offer to our market)? services, market and technology
r 8IPBSFPVSDMJFOUT XIPJTPVSQSJNBSZUBSHFUNBSLFUNBSLFUT
of the organisation)
r )PXXJMMXFQSPWJEFUIJTQSPEVDUPSTFSWJDF XIBUUFDIOPMPHZXJMM
be used to provide the primary products and services)?
The answers to these three questions should clearly set the organisation
apart from similar organisations.
In addition to the three core components of a mission statement
discussed above, organisations should also address the following
components, or state them in an addendum to the mission statement:
r 5IFPSHBOJTBUJPOTDPODFSOGPSųOBODJBMTPVOEOFTTJOUFSNTPG
survival, growth, market share and profit. Financial soundness is
an important factor in terms of the sustainability and long-term
survival of the organisation.
r 5IFWBMVFT FUIJDTBOECFMJFGTPG UIFPSHBOJTBUJPO7BMVFT FUIJDTBOE
beliefs form the basis of the way in which business is conducted, or
should be conducted, in the organisation.
r 5IFTPDJBMSFTQPOTJCJMJUZPG UIFPSHBOJTBUJPO0SHBOJTBUJPOTIBWF
social obligations above and beyond making profit. Organisations
are also expected to obey the law, be ethical in their conduct and
be a good global corporate citizen. Social responsibility is discussed
in more detail in Chapter 8 (Business ethics, corporate social
responsibility and corporate governance).
r 5IFQVCMJDJNBHFPG UIFPSHBOJTBUJPO5IFNJTTJPOTUBUFNFOUDBO
include the image that the organisation wants to portray to its
stakeholders.
r 5IFPSHBOJTBUJPOTDPODFSOGPSBMMTUBLFIPMEFST5IFNJTTJPO
statement should clearly underline the organisation’s concern for
its external and internal stakeholders.
r )PXUIFPSHBOJTBUJPOJTEJŲFSFOUGSPN PSCFUUFSUIBO JUT
competitors. This refers to the competitive advantage of the
organisation.

PART III: Planning
The components listed on the previous page are also referred to as the
QTICPKUCVKQPCNRJKNQUQRJ[ PSHBOJTBUJPOBMQIJMPTPQIZ. The philosophy of International Business
the organisation’s concern Machines Corporation (IBM), as expressed by their current chairman,
for financial soundness, the president and CEO, Samuel J Palmisano, is given below. The Computing-
values, ethics, beliefs of the Tabulating-Recording Company (CTR) was created on June 16, 1911,
organisation, social responsibility by the merger of three nineteenth century companies (the Tabulating
of the organisation, public Machine Company, the International Time Recording Company and
image of the organisation, the Computing Scale Company of America). CTR was the precursor
organisation’s concern for to IBM. In 1914, Thomas J Watson Sr. joined CTR and played a major
all stakeholders and the role in transforming the company over the following two decades into
competitive advantage of the a growing leader of innovation and technology and a prototype for the
organisation newly emergent multinational corporation. In 1924 the company’s name
changed to International Business Machines Corporation (IBM). IBM is a
pioneer in the information technology industry. The company produces
innovative IT solutions to meet modern business needs4.
0VSWBMVFTBUXPSLPOCFJOHBO*#.FS5
We’ve been spending a great deal of time thinking, dialog free-flowing and candid. And I don’t think
debating and determining the fundamentals of this what resulted – broad, enthusiastic, grass-roots
company. It has been important to do so. When consensus – could have been obtained in any other
IBMers have been crystal clear and united about our way. In the end, IBMers determined that our actions
strategies and purpose, it’s amazing what we’ve been will be driven by these values:
able to create and accomplish. When we’ve been r %FEJDBUJPOUPFWFSZDMJFOUTTVDDFTT
uncertain, conflicted or hesitant, we’ve squandered r *OOPWBUJPOUIBUNBUUFST GPSPVSDPNQBOZBOEGPS
opportunities and even made blunders that would the world.
have sunk smaller companies. r 5SVTUBOEQFSTPOBMSFTQPOTJCJMJUZJOBMM
It may not surprise you, then, that last year we relationships.
examined IBM’s core values for the first time since
the company’s founding. In this time of great change, I must tell you, this process has been very meaningful
we needed to affirm IBM’s reason for being, what to me. We are getting back in touch with what IBM
sets the company apart and what should drive our has always been about – and always will be about
actions as individual IBMers. – in a very concrete way. And I feel that I’ve been
Importantly, we needed to find a way to engage handed something every CEO craves: a mandate,
everyone in the company and get them to speak for exactly the right kinds of transformation, from an
up on these important issues. Given the realities of entire workforce.
a smart, global, and independent-minded, twenty- Where will this lead? It is a work in progress, and
first century workforce like ours, I don’t believe many of the implications remain to be discovered.
something as vital and personal as values could be What I can tell you is that we are rolling up our
dictated from the top. So, for 72 hours last summer, sleeves to bring IBM’s values to life in our policies,
we invited all 319 000 IBMers around the world to procedures and daily operations. I’ve already
engage in an open ‘values jam’ on our global intranet. touched on a number of things relating to clients
IBMers by the tens of thousands weighed in. They and innovation, but our values of trust and personal
were thoughtful and passionate about the company responsibility are being managed just as seriously
they want to be a part of. They were also brutally – from changes in how we measure and reward
honest. Some of what they wrote was painful to performance, to how we equip and support IBMers’
read, because they pointed out all the bureaucratic community volunteerism. Our values underpin our
and dysfunctional things that get in the way of relationships with investors, as well.
serving clients, working as a team or implementing In late February, the board of directors approved
new ideas. But we were resolute in keeping the sweeping changes in executive compensation. They

include innovative programs that ensure investors and to act based on values – values they themselves
first receive meaningful returns – a 10 per cent shaped.
increase in the stock price – before IBM’s top 300 To me, it’s also just common sense. In today’s
executives can realise a penny of profit from their world, where everyone is so interconnected and
stock option grants. Putting that into perspective, interdependent, it is simply essential that we work
IBM’s market value would have to increase by $17 for each other’s success. If we’re going to solve the
billion before executives saw any benefit from this biggest, thorniest and most widespread problems
year’s option awards. In addition, these executives in business and society, we have to innovate in ways
will be able to acquire market-priced stock options that truly matter. And we have to do all this by taking
only if they first invest their own money in IBM stock. personal responsibility for all of our relationships –
We believe these programs are unprecedented, with clients, colleagues, partners, investors and the
certainly in our industry and perhaps in business. public at large. This is IBM’s mission as an enterprise,
Clearly, leading by values is very different from and a goal toward which we hope to work with
some kinds of leadership demonstrated in the past many others, in our industry and beyond.
by business. It is empowering, and I think that’s much Samuel J. Palmisano; Chairman, President and Chief
healthier. Rather than burden our people with Executive Officer
excessive controls, we trust them to make decisions
The statement above from IBM’s chairman, president and CEO,

addresses most of the ingredients of a philosophy as we have discussed
it theoretically:
r *#.TDPODFSOGPSųOBODJBMTPVOEOFTT*#.IBTCFFODSZTUBMDMFBS
and united about their strategies and purpose, including their
concern for financial success in the industry.
r 5IFWBMVFT FUIJDTBOECFMJFGTPG *#.*#.CSJOHTUIFJSWBMVFTUPMJGF
in their policies, procedures and daily operations.
r 5IFTPDJBMSFTQPOTJCJMJUZPG *#.*#.IBTTPDJBMPCMJHBUJPOTBCPWF
and beyond making profit and management equips and supports
community volunteerism of their employees.
r 5IFQVCMJDJNBHFPG*#.5IFDPNQBOZJTEFEJDBUFEUPFWFSZ
client’s success.
r *#.TDPODFSOGPSBMMTUBLFIPMEFST*#.CVJMETPOBUSVTUJOH
relationship between management and subordinates. Rather
than burden their people with excessive controls, they trust
them to make decisions and to act based on values – values they
themselves shaped. IBM values good relationships with investors.
They implemented innovative programs that ensure that their
investors first receive meaningful returns before IBM’s top 300
executives can realise profit from their stock option grants. In
addition, these executives will be able to acquire market-priced
stock options only if they first invest their own money in IBM
stock.
r )PX*#.JTEJŲFSFOUGSPN PSCFUUFSUIBO JUTDPNQFUJUPST*#.IBT
a strong focus on innovation and their concern for all stakeholders
places them in a good competitive position.

PART III: Planning
A mission statement should be used as a strategic tool in an organisation.

Figure 11.2 illustrates how this should be done.
Formulate the vision
Formulate the mission statement
Identify the key performance areas
Ensure buy-in from all stakeholders
Base individuals’ performance agreements

on key performance areas
Figure 11.2: The mission statement as a strategic tool

Smit, P.J., Cronjé, G.J. de J, Brevis, T., Vrba, M.J. 2007. Management Principles: A
Contemporary Edition for Africa. Cape Town: Juta Publishers, p 90.
First, top management should formulate the organisation’s vision and

mission statement. In a modern managerial environment, executive
managers (such as Mr Palmisamo from IBM), are rethinking their role
in the formulation of an organisation’s mission and philosophy. In some
instances, the involvement of subordinates in the formulation of mission
statements can be very fruitful. Second, management should formulate
key performance areas (KPAs) for the organisation as a whole. Third,
organisations should seek buy-in from all stakeholders. Fourth, the KPAs
should be cascaded down all the way to the performance appraisal level
of each individual in the organisation. Finally, if each individual achieves
his or her goals, the organisation will achieve its overall goals.
Analyse the environment

To create value, an organisation’s mission should be congruent with its
internal capabilities and its external environment. Therefore, the internal

as well as the external environment should be analysed. The purpose

of the internal environmental analysis is to identify assets, resources,
skills and processes that represent either strengths or weaknesses of
the organisation.
Strengths can be defined as aspects of the organisation’s operations strength
that represent a potential competitive advantage, while weaknesses aspects of organisational
can be defined as areas that are in need of change or improvement. operations that represent a
Key areas to be assessed in the internal environmental analysis are: potential competitive edge
r UIFQSPEVDUTBOEPSTFSWJDFTPŲFSFEUPUIFNBSLFU
weakness
r UIFNBSLFUJOHFYQFSUJTFPG UIFPSHBOJTBUJPO
area of organisational operations
r BMMUIFBDUJWJUJFTPG UIFPSHBOJTBUJPOSFMBUFEUPJUTPQFSBUJPOT that are in need of change or
r UIFIVNBOSFTPVSDFTPG UIFPSHBOJTBUJPO improvement
r UIFPSHBOJTBUJPOTųOBODJBMQFSGPSNBODF
These areas are evaluated in terms of the extent to which they support
the competitive advantage sought by the organisation. Managers will
then use this information to formulate strategies that capitalise on the
organisation’s strengths and remedy its weaknesses.
The purpose of the external environmental analysis is to identify
opportunities and threats in the organisation’s external environment.
Opportunities can be described as those environmental variables opportunities
on which the organisation can capitalise and improve its competitive environmental variables that
position. can improve an organisation’s
Threats are conditions that jeopardise the organisation’s ability competitive position
to survive and be successful in the long term. In Chapter 4, several
external environmental variables were discussed. These forces should threats
be analysed to identify threats and opportunities. environmental variables that
The analysis of the internal and external environments will indicate to hinder an organisation to survive
management whether the mission statement is realistic. This will lead to or be successful
the second phase of the strategic process, namely strategy formulation.
11.2.2 Strategy formulation

Figure 11.3 illustrates the phases of the strategy formulation process.
Strategy formulation involves setting long-term goals for the
organisation and then formulating corporate and business strategies that
will lead to the realisation and the long-term goals.
Formulate
Set r )eneric strategy
corporate
long-term
and business r )rand strategy
goals
strategies
Figure 11.3: Strategy formulation

PART III: Planning
Set long-term goals

In the previous chapters, the terms ‘goals’ and ‘objectives’ were used
interchangeably. However, in this chapter we make a clear distinction
between these two concepts. Goals state general targets to be
accomplished.
Objectives, on the other hand, state what is to be accomplished in
singular, specific and measurable terms with a target date. Goals are
often translated into objectives. Goals and objectives should flow from
the organisation’s mission statement to address strategic issues and
problems identified through the strategic analysis phase. Successful
strategic management requires a commitment to a defined set of
strategic objectives by management.
Kaplan and Norton have developed a tool that can be used to
ensure that the organisation is achieving its mission. They suggest that
organisations focus their efforts and activities on a limited number of
specific, critical performance measures which reflect stakeholders’ key
success factors. In this way, organisations can concentrate on those
issues which are essential for long-term success, sustainability and
balanced score card (BSC) competitiveness. Kaplan and Norton used the term balanced score
card to describe a framework of four groups of performance measures,
measurement of organisational
and argue that organisations should select critical measures for each of
performance in four areas of
these areas. Examples of possible measures of each of these are given
equal importance, namely
below6:
financial performance, customer
service, internal business r 'JOBODJBMQFSTQFDUJWF5IFųOBODJBMQFSTQFDUJWFBOTXFSTUIF
performance and learning and question ‘Is the organisation’s performance resulting in increased
growth performance shareholder value?’ The financial performance of an organisation
is normally evident from its key financial statements, such as the
income statement, balance sheet, and cash flow statement. The
income statement of an organisation is often referred to as the
‘profit and loss statement’ that shows the organisation’s income,
expenses and net profit for a specific financial period, usually one
year. A ‘balance sheet’ provides a snapshot of an organisation’s
financial position at a certain point in time, showing its assets,
liabilities and equity. An organisation’s ‘cash flow statement’
reflects the amounts of cash moving in and out the organisation.
By themselves, none of these financial statements portray the full
financial picture of an organisation. The income statement, balance
sheet and cash flow statement must be used together when
assessing an organisation’s financial performance. In addition, an
organisation can use its financial statements to calculate financial
ratios such as return on capital employed, economic value added
and so on. In our opening case, we saw the positive effect of
choosing and implementing a winning strategy on the financial
performance of General Electric under the leadership of Jack
Welch.
r $VTUPNFSQFSTQFDUJWF5IFDVTUPNFSQFSTQFDUJWFBOTXFST
the question ‘Is the organisation’s performance resulting in an
JODSFBTJOHTIBSFPG DVTUPNFSTQFOEJOH $VTUPNFSTBSFJNQPSUBOU
stakeholders of an organisation. One measure of customer service
is customer satisfaction, which is often used by organisations. It is
also important for organisations to monitor customer defections,

that is, by identifying which customers are leaving the organisation
and measuring the rate at which they are leaving.
r *OUFSOBMQFSTQFDUJWF5IJTQFSTQFDUJWFPGUIFCBMBODFETDPSFDBSE
answers the question ‘Are the internal processes effectively aligned
to drive and deliver improved performance?’ It focuses on the
processes, decisions, and actions that managers and workers make
within the organisation that add value to the organisation. The
internal perspective of the balanced scorecard typically focuses
on quality. Quality can be measured in various ways, for example
producing a product or service with unsurpassed performance and
features, offering a product with excellent quality for the price or
offering a product that conforms to customers’ expectations.
r -FBSOJOHBOEHSPXUIQFSTQFDUJWF5IFMBTUQFSTQFDUJWFPGUIF
balanced scorecard addresses the question ‘Does the organisation
have the necessary human capital, technology and culture to drive
the strategy?’ Thus, the learning and growth perspective involves
continuous improvement in products and services, continuous
learning, and continuous designing and redesigning of processes by
which products and services are created.
All four dimensions of the scorecard are of equal importance, and

results relate to one another through the systems effect. The BSC is
discussed in more detail in Chapter 21 (Principles of control).
Formulating corporate and business strategies

After the vision and mission have been formulated, the situation analysis
has been completed and strategic goals and objectives have been set,
corporate and business strategies should be developed.
Generic strategies
When choosing a strategy, 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 ‘HFOFSJDTUSBUFHZ’. generic strateg[
Michael Porter, a well-known Harvard professor, identified generic core idea about how the
strategies that can be used to describe the strategy of most organisations. organisation can best compete
Porter originally identified three generic strategies, namely: in the marketplace
r DPTUMFBEFSTIJQstrategy cost leadership
r EJŲFSFOUJBUJPOTUSBUFHZ the first generic strategy, which
r BGPDVTTUSBUFHZ attempts to maximise sales of
the organisation by minimising
An overall cost leadership strategy attempts to maximise sales of the costs per unit
organisation 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 increases and unit costs
decrease. This is called a ‘learning curve’ or ‘experience curve’. Second,
an organisation can expand the size of its operations. As the size of
the operations increases, the total costs per unit decrease because the
fixed costs (for example the costs pertaining to buildings, machinery,
PART III: Planning
equipment and others) are shared by a larger number of products.

This is referred to as ‘economies of scale’. An example of this is the
reduction in the price of pocket calculators over the years as a result of
economies of scale.
differentiation
Differentiation is the second generic strategy, which distinguishes
an organisation’s products or services from those of its competitors.
the second generic strategy, The rationale for differentiation is that the organisation can charge
which distinguishes an higher prices (and make more profit per unit) for a product that
organisation’s products or customers perceive to be different from similar products offered by
services from those of its rivals. Differentiation may be in terms of quality, production process,
competitors design, reputation or any number of other attributes.
The third generic strategy is to focus on a specific product line
focus or a segment of the market that gives an organisation a competitive
edge. Initially the focus strategy was anchored in focused low-cost and
the third generic strategy, which
focused differentiation strategies. Porter suggested that organisations
attempts to focus on a specific
had to choose either low cost or differentiation; to attempt both would
product line or a segment of the
cause an organisation to achieve neither and be ‘stuck in the middle’.
market that gives an organisation
The three generic strategies developed by Porter are usually thought
a competitive edge
of as separate strategies now, in other words, an organisation needs to
choose between the following generic strategies:
r DPTUMFBEFSTIJQTUSBUFHZ
r EJŲFSFOUJBUJPOTUSBUFHZ
r GPDVTFEMPXDPTUTUSBUFHZ
r GPDVTFEEJŲFSFOUJBUJPOTUSBUFHZ
Over time, many industries have changed, requiring organisations to

accomplish the benefits of both low cost and differentiation strategies.
Some organisations have actually used the low-cost approach as a way
to differentiate themselves from competitors. A best-cost provider
strategy usually refers to strategy that combines the advantages of both
low cost and differentiation7.
Once an organisation has chosen a generic strategy – or core idea –
it should decide on a more specific grand strategy for each business.
These are referred to as grand or overall corporate-level strategies.
Grand strategy
A grand strategy can be described as the overall corporate-level strategy
of growth and decline. Figure 11.4 depicts the choice of corporate
growth strategies.
r concentration growth
r market development
Corporate r product development
growth r innovation
strategy r integration
r diversiƂcation
r corporate combination
Figure 11.4: %orporate growth strategies

$PSQPSBUFHSPXUITUSBUFHZ
With a DPSQPSBUF HSPXUI TUSBUFHZ, the organisation makes corporate growth strategy
aggressive attempts to increase its size through increased sales. In our the organisation makes
opening case, we saw how Jack Welch implemented various corporate aggressive attempts to increase
growth strategies, increasing the value of General Electric from its size through increased sales
$13 billion to several hundred billion during his 20 years of leadership.
At his retirement, GE was the most valuable and largest company in the
world, up from America’s tenth largest (based on market capitalisation)
in 1981. The successful implementation of various growth strategies led
GE to be listed as the world’s most respected company in 1998 and
2002.
The organisation that wants to grow has seven major options, namely
concentration, market development, product development, innovation,
integration, diversification and corporate combinations.
r $PODFOUSBUJPOHSPXUITUSBUFHZ8JUIBDPODFOUSBUJPOHSPXUI
strategy, the organisation grows aggressively in its existing line(s)
of business. In other words, the organisation continues to be in the
same line of business as far as products, markets and technology
are concerned.
r .BSLFUEFWFMPQNFOUTUSBUFHZ"NBSLFUEFWFMPQNFOUTUSBUFHZ
is closely related to a concentration growth strategy. It involves
selling present products (using present technology) in new markets
by opening new outlets or attracting other market segments.
r 1SPEVDUEFWFMPQNFOUTUSBUFHZ"QSPEVDUEFWFMPQNFOUTUSBUFHZ
involves a substantial change in existing products or additions to
present products. These products are sold in existing markets by
using the existing technology.
r *OOPWBUJPOTUSBUFHZ"OJOOPWBUJPOTUSBUFHZSFGFSTUPUIF
development of new products, services or technologies that
completely replace the existing products, services or technologies
in an industry. Organisations choosing this strategy continually
search for original or novel ideas.
r *OUFHSBUJPOTUSBUFHZ8JUIBOJOUFHSBUJPOTUSBUFHZ UIFPSHBOJTBUJPO
enters a forward, backward or horizontal line or business.
‘Forward integration’ occurs when an organisation enters a line
of business closer to the final customer. In other words, when an
organisation takes control of aspects related to its distribution,
transport or selling. ‘Backward integration’ occurs when the
organisation enters a line of business further away from the final
customer to get increased control over its supply sources. In
other words, the organisation produces what it previously bought
in. ‘Horizontal integration’ refers to the acquisition or merger
of organisations at the same stage in the supply chain. Such
organisations may be direct competitors or they may focus on
different market segments.
r %JWFSTJųDBUJPOTUSBUFHZ8JUIBEJWFSTJųDBUJPOTUSBUFHZ UIF
organisation can go into a related or unrelated line of business.
‘Related diversification’ is also called ‘concentric diversification’,
and it involves the addition of related business in terms of product,
PART III: Planning
market and technology. ‘Unrelated diversification’ is also called

‘conglomerate diversification’. It involves the addition of unrelated
business in terms of product, market and technology.
r $PSQPSBUFDPNCJOBUJPO"OPSHBOJTBUJPODBOBMTPDIPPTFUP
grow by means of a corporate combination, which includes
mergers, acquisitions, takeovers, joint ventures and strategic
alliances. A ‘merger’ occurs when two organisations form one
new organisation by pooling all their resources. In a merger, the
two organisations simply agree to come together as one new
organisation. An ‘acquisition’ occurs when one organisation buys
all or part of another organisation for either cash or equity in
the parent organisation. One business becomes part of another
existing business. When management of the target business rejects
the purchasing company’s offer, the purchasing company can make
a bid to the target company shareholders to acquire the company
through a ‘takeover’. In the case of a takeover, the acquisition is
hostile. A ‘joint venture’ is created when two or more businesses
join resources to form a separate new business in which they share
ownership. Equity positions are usually taken by participants. A
‘strategic alliance’ is an agreement between organisations but does
not necessarily involve shared ownership.
4USBUFHZJOBDUJPOBU(FOFSBM&MFDUSJD8
In our opening case, we saw General Electric the biggest of which was the $6.4 billion
implementing numerous corporate growth strategies purchase of the Radio Corporation of America
successfully while Jack Welch was CEO, for example: (RCA), which brought GE into the broadcasting
r 5IFDPNQBOZNBEFBDRVJTJUJPOT business in full force. This purchase is an example
r 5IF(&$SFEJU$PSQPSBUJPOFYQBOEFECZNFBOT of implementing a diversification strategy which
of market development and doubled its assets enabled GE to shift from manufacturing into
between 1979 and 1984. The company entered service and high technology.
into new markets such as the leasing and selling r %VSJOHUIFT (&FOUFSFEJOUPBOBHSFFNFOU
of heavy industrial products, inventories, real with Japan’s Hitachi Ltd. to manufacture and
estate and insurance. market Hitachi’s industrial robots in the United
r *O (&NBEFTFWFSBMJNQPSUBOUQVSDIBTFT States.
corporate decline strategy Corporate decline strategy

A corporate growth strategy is not the only or always the most
appropriate strategies to follow
appropriate strategy to follow. A DPSQPSBUFEFDMJOFTUSBUFHZ is an
when an organisation needs to
appropriate strategy to follow when an organisation needs to regroup
regroup its activities to improve
its activities to improve efficiency after a period of fast growth, where
efficiency after a period of
long-term growth and profit opportunities are unavailable, where other
fast growth, where long-term
opportunities are more attractive or where there is a period of economic
growth and profit opportunities
uncertainty. At General Electric, the successful implementation of
are unavailable, where other
appropriate decline strategies at the right time, also contributed to the
opportunities are more attractive
enormous success of the company.
or where there is a period of
economic uncertainty

r turnaround
Corporate
r divestiture
decline
r harvesting
strategy
r liSuidation
Figure 11.5: Corporate decline strategies
We can distinguish between various corporate decline strategies, of

which the most prominent ones are turnaround, divestiture, harvesting
and liquidation strategies.
r "UVSOBSPVOETUSBUFHZGPDVTFTPOFMJNJOBUJOHJOFŵDJFODJFTJOBO
PSHBOJTBUJPO5VSOBSPVOE PSSFDPWFSZ
BQQMJFTUPBOPSHBOJTBUJPO
PSBCVTJOFTTVOJUUIBUIBTUIFQPUFOUJBMUPCFFŵDJFOU CVUIBT
TVŲFSFETFUCBDLJOSFDFOUUJNFT"UVSOBSPVOETUSBUFHZJTBJNFE
BUSFTUPSJOHQSPEVDUJWJUZ RVBMJUZBOEDPNQFUJUJWFOFTTPG UIF
PSHBOJTBUJPOPSCVTJOFTTVOJU CZNFBOTPGDPTUDVUUJOHBOEPS
UIFSFEVDUJPOJOOPODPSFBTTFUT"UVSOBSPVOETUSBUFHZNBZUIVT
JOWPMWFBSFEVDUJPOJOTUBŲ BVUPNBUJPO MFBTJOHSBUIFSUIBOCVZJOH
assets, and so on.
r "EJWFTUJUVSFTUSBUFHZJOWPMWFTUIFTBMFPG BCVTJOFTTPSBNBKPS
component of the business to achieve a permanent change in the
TDPQFPG PQFSBUJPOT5IFJOUFOUJPOJTUPGPDVTPONPSFFŵDJFOU
divisions or business units of the organisation.
r "MTPUFSNFEABTTFUSFEVDUJPO BIBSWFTUJOHTUSBUFHZSFGFSTUPBO
PSHBOJTBUJPOUIBUEJTQPTFTPGBTVCTJEJBSZPODFJUIBTNBYJNJTFE
SFUVSOGSPNJUXJUIUIFBJNUPNBYJNJTFDBTIŴPXJOUIFTIPSUSVO
regardless of the long-term effect.
r -JRVJEBUJPOJTUIFBQQSPQSJBUFTUSBUFHZUPGPMMPXXIFOOPGVUVSF
GPSUIFPSHBOJTBUJPO PSBQBSUPG JU JTFOWJTBHFE-JRVJEBUJPOJTUIF
VMUJNBUFFYJUTUSBUFHZ XIFSFUIFFOUJSFPSHBOJTBUJPOJTTPMEPŲ
FJUIFSBTBXIPMFPSJOQBSUTPG JU-JRVJEBUJPONBZCFWPMVOUBSZPS
JOUIFDBTFPGCBOLSVQUDZ XIFSFUIFPSHBOJTBUJPODBOOPMPOHFS
QBZJUTEFCUT
NBZCFEJSFDUFECZUIFDPVSU*OPUIFSJOTUBODFT UIF
MJRVJEBUJPOJTQSPNQUFECZNBOBHFNFOU TJNQMZXBOUJOHUPIBSWFTU
it and move on.
General Electric’s restructuring process

Our opening case provides numerous examples of businesses immune to foreign competition,
the successful implementation of corporate decline particularly in the financial, high-tech and service
strategies. Jack Welch’s primary goal was a radical sectors. He launched his controversial restructuring
restructuring of the company that would get rid process by ordering GE managers to fix, sell or
of problem products and to focus on profitable close down businesses that were not first or second

PART III: Planning
in their markets. As a result, GE divested 408 liquidated in 1994 due to its poor financial
businesses under his reign. The most prominent of performance.
these were: r %VSJOH (&SFEVDFEJUTFOHJOFFSJOH
r *O (&EJWFTUFEJUTFMGPGUIF3BEJP workforce from 10 000 to 4 000, resulting
Corporation of America’s (RCA) David Sarnoff in a reduction of nearly 50 per cent of its
Research Center because GE’s laboratories overall Aircraft Engine Group payroll. These
made it redundant. restructuring activities contributed to excellent
r %VSJOH (&TPMEJUTPXOBOE3$"T profit margins in many of its major product
television manufacturing business to the French divisions.
company Thomson. r #ZXFTBXGVSUIFSSFTUSVDUVSJOHBDUJWJUJFT
r *O (&CPVHIUBOQFSDFOUJOUFSFTUJO when redundant facilities were closed and
Kidder Peabody and Company, of which they production shifted to cheaper labour markets.
owned 100 per cent by 1990. This unit was
Select a corporate strategy

An organisation now needs to select a corporate strategy or a
combination of corporate strategies to implement. Various techniques
are available for this purpose. Of the most widely used techniques are
the SWOT analysis, the business portfolio analysis, the product portfolio
analysis and the Boston Consulting Group (BCG) growth-share matrix.
The first phase of the strategic management process (earlier defined
as the strategic analysis phase), involves an analysis of the organisation’s
environment and we have named the SWOT analysis. An organisation’s
resources (which constitute its strengths and weaknesses) should
match the demands from its external environment (manifested in a set
of opportunities and threats) as effectively and efficiently as possible.
Over time, both the internal and external environments can change,
leaving the challenge to management to keep this match in dynamic and
turbulent times.
business portfolio analysis The CVTJOFTTQPSUGPMJPBOBMZTJTcan be described as a technique
the process of determining for determining which line or lines of business the organisation will
which line or lines of business be in and how it will allocate resources among them. A business line,
the organisation will be in and also referred to as a ‘strategic business unit’ (or SBU), is a distinct
how it will allocate resources business with its own customers and is managed independently of other
among them businesses within the organisation.
Figure 11.6 on the next page illustrates the Boston Consulting Group
(BCG) growth-share matrix. In the #PTUPO $POTVMUJOH (SPVQ
Boston Consulting )roup
#$(
HSPXUITIBSF NBUSJY, each of the organisation’s strategic
growth-share matriZ
business units is plotted on a matrix according to its relative market
a technique used to plot an growth rate and relative market share.
organisation’s strategic business
The relative market growth rate of a SBU is plotted on the vertical
units (or SBUs) according to its
axis and it represents the annual growth rate of the market in which
relative market growth rate and
the organisation operates and competes. The relative market share of a
relative market share
SBU (on the horizontal axis of the matrix) indicates the market share in
relation to the largest competitor in the market.

High STARS QUESTION MARKS
SELECT FEW
REMAINDER
DIVESTED
Market growth rate
Net users of
resources
Net suppliers of
resources
DOGS
CASH COWS
HARVESTED/LIQUIDATED
Low
High Relative competitive position (market share) Low
Figure 11.6: The Boston Consulting Group growth-share matrix
The growth-share matrix is divided into four quadrants, where each

quadrant represents a particular type of business:
r 4UBSTBSFUIPTFTUSBUFHJDCVTJOFTTVOJUTXJUIBSFMBUJWFIJHINBSLFU
TIBSFBOEBSFMBUJWFIJHINBSLFUHSPXUISBUF4#6TJOUIJTRVBESBOU
BSFUIFNBSLFUMFBEFSTJOHSPXUINBSLFUT*OWFTUNFOUJOUIFTF
4#6TJTTUJMMSFRVJSFEJOPSEFSUPNBJOUBJOUIFJSHSPXUISBUFBOEUP
LFFQUIFJSMFBEFSTIJQQPTJUJPO
r 2VFTUJPONBSLTBSF4#6TXJUIBMPXSFMBUJWFNBSLFUTIBSFBOE
BIJHISFMBUJWFNBSLFUHSPXUISBUF5IFTF4#6TDPNQFUFJO
IJHIHSPXUINBSLFUT CVUUIFJSSFMBUJWFNBSLFUTIBSFJTMPX)JHI
JOWFTUNFOUJTOPSNBMMZSFRVJSFEGPSRVFTUJPONBSLTJOPSEFSUP
EFWFMPQUIFVOJUBOEJUTSFMBUJWFQPTJUJPOJOUIFNBSLFU
r $BTIDPXTBSF4#6TXJUIBIJHINBSLFUTIBSFBOEBMPXNBSLFU
HSPXUISBUF$BTIDPXTBSFUIFXFMMFTUBCMJTIFENBSLFUMFBEFST
"TNBSLFUHSPXUITMPXTEPXO UIFSFJTMFTTOFFEGPSBIJHI
JOWFTUNFOUJOUIFTF4#6T$POTFRVFOUMZ UIFTF4#6TXJMMCF
UIFNPTUQSPųUBCMFVOJUTJOBQPSUGPMJPPG 4#6T$BTIDPXTBSF
OPSNBMMZVTFEUPGVOEUIF4#6TJOUIFPUIFSUISFFRVBESBOUT
r %PHTBSF4#6TXJUIBMPXNBSLFUTIBSFBOEBMPXNBSLFUHSPXUI
SBUF%PHTTIPVMECFXJUIESBXOGSPNUIFNBSLFUXIFOUIFZ
CFDPNFMPTTNBLFST

PART III: Planning
SBUs falling into the various quadrants of the BCG matrix, call for
various strategies, for example9:
r $BTIDPXmANJMLUIF4#6TDBUFHPSJTFEBTDBTIDPXTBOESFEFQMPZ
UIFDBTIŴPX
r %PHmMJRVJEBUFPSEJWFTUBOESFEFQMPZUIFSFTPVSDFTPSQSPDFFET
GSPNMJRVJEBUJPOPSEJWFTUJUVSF
r 4UBSmTUSFOHUIFOUIF4#6TDPNQFUJUJWFQPTJUJPOJOBHSPXUI
JOEVTUSZ
r 2VFTUJPONBSLmNBLFBQQSPQSJBUFJOWFTUNFOUJO4#6TJOPSEFSUP
TFDVSFBOEJNQSPWFJUTDPNQFUJUJWFQPTJUJPO
An organisation in a single line of business cannot conduct a business

QPSUGPMJP BOBMZTJT )PXFWFS TVDI BO PSHBOJTBUJPO TIPVME QFSGPSN B
product portfolio analysis product portfolio analysis GPSXIJDIUIF#$(HSPXUITIBSFNBUSJY
the process of determining DBOBMTPCFVTFE5IFQSPEVDUQPSUGPMJPBOBMZTJTDBOCFEFTDSJCFEBTB
which product line or lines of UFDIOJRVF GPS EFUFSNJOJOH XIJDI QSPEVDU MJOF PS MJOFT PG CVTJOFTT UIF
business the organisation will PSHBOJTBUJPOXJMMCFJOBOEIPXJUXJMMBMMPDBUFSFTPVSDFTBNPOHUIFN
be in and how it will allocate 0ODF DPSQPSBUFMFWFM TUSBUFHJFT IBWF CFFO GPSNVMBUFE CVTJOFTT
resources among them MFWFMTUSBUFHJFTOFFEUPCFEFWFMPQFEGPSFBDICVTJOFTTVOJU
11.2.3 Strategy implementation

5IF GPSNVMBUJPO PG TUSBUFHZ BT EJŵDVMU BT JU NJHIU TFFN JT POMZ IBMG
strategy implementation UIFCBUUMFXPO8JUIPVUFŲFDUJWFstrategy implementation, all the
formulate medium- and short- HPPEJOUFOUJPOTPG UIFPSHBOJTBUJPOXJMMOPUCFSFBMJTFE5PJNQMFNFOU
term goals and objectives and strategies, functional departments need to set goals and objectives
institutionalise strategy EFSJWFE GSPN MPOHUFSN HPBMT BOE MPOHUFSN PCKFDUJWFT
GPS UIF
NFEJVNBOETIPSUUFSN*O$IBQUFSXFEJTDVTTFEUIFGPSNVMBUJPOPG
PSHBOJTBUJPOBMPCKFDUJWFTBOEUIFDSJUFSJBUIBUAHPPEPCKFDUJWFTTIPVME
NFFU8FBMTPEJTDVTTFEUIF.BOBHFNFOUCZ0CKFDUJWFTBQQSPBDIUIBU
DBO CF VTFE UP FOTVSF FNQMPZFF QBSUJDJQBUJPO JO UIF GPSNVMBUJPO PG
PCKFDUJWFT
Once goals and objectives have been formulated for the medium
term, strategies for the medium and short term also need to be
GPSNVMBUFEBOEJNQMFNFOUFEGPSBDIJFWJOHUIFCVTJOFTTMFWFMHPBMTBOE
PCKFDUJWFT 'JHVSF JMMVTUSBUFT UIF TUSBUFHZ JNQMFNFOUBUJPO QIBTF
'VODUJPOBMTUSBUFHJFTJODMVEFUIFTUSBUFHJFTGPSUIFNBSLFUJOH PQFSBUJPOT
IVNBOSFTPVSDFT ųOBODFBOEPUIFSGVODUJPOBMEFQBSUNFOUT
Set Formulate r strategic leadership

functional medium- and Institutionalise
r organisational culture
goals and short-term strategies
objectives strategies through: r organisational
architecture
Figure 11.7: Strategy implementation

Secondly, the strategy should be institutionalised within the

organisation.
Institutionalising a strategy means that every member, work group,
department and division of the organisation subscribes to and supports
the organisation’s strategy with its plan and actions. There must be a
fit between the organisational strategy and its strategic leadership,
organisational culture and organisational architecture, if the strategy is
to be institutionalised.
4USBUFHJDMFBEFSTIJQis often stated as the key driver of strategy strategic leadership
implementation. In Chapter 2, leadership was defined as directing the leading the entire organisation
human resources of the organisation and motivating them in such
a way that their actions are aligned with previously formulated goals
and plans. Strategic leadership requires managers to understand the
entire organisation and the environment within which they operate.
Furthermore, strategic leaders should use their understanding of the
environment to create strategic change through other people in order
to position their organisation in the environment for organisational
stability over the short term and organisational sustainability over the
long term10. Effective strategic leadership involves tasks such as:
r TFUUJOHUIFEJSFDUJPOGPSUIFPSHBOJTBUJPOBTBXIPMF
r QSPWJEJOHMFBEFSTIJQUPESJWFUIFPSHBOJTBUJPOBMTUSBUFHZPS
combination of strategies
r QSPWJEJOHUIFOFDFTTBSZIVNBOSFTPVSDFTGPSFŲFDUJWFTUSBUFHZ
implementation
r NBOBHJOHTPDJBMDBQJUBM
r CVJMEJOHBOEVUJMJTJOHDPSFDPNQFUFODJFTBOETUSFOHUITPGUIF
organisation
r DSFBUJOHBOBMJHONFOUCFUXFFOPSHBOJTBUJPOBMWJTJPO NJTTJPO HPBMT
and strategies
r MFBEJOHBOENBOBHJOHDIBOHFFŲFDUJWFMZ
0SHBOJTBUJPOBMDVMUVSF needs to be aligned with the vision, mission organisational culture

and strategy of the organisation in order to realise organisational goals the values, beliefs, norms and
and objectives. Organisational culture can be described as the values, attitudes that bind people
beliefs, norms and attitudes that bind people together and help them together and help them make
make sense of the systems within an organisation. The beliefs, values sense of the systems within an
and norms tell people ‘what is to be done’ and ‘how it is to be done’. organisation
Organisational culture determines how people act in an organisation,
the way people relate to each other, to customers, to shareholders
and to their business partners. Some of the most obvious displays of
organisational culture are rituals, ceremonies, language, metaphors,
symbols, stories and sagas. In an organisation with a strong culture, shared
values and believes create a setting in which people are committed to
one another and to the overriding vision, mission and strategic goals of
the organisation11.

PART III: Planning
Organisational architecture
organisational architecture Organisational architecture can be defined as the integrated
an integrated model of how the strategic response which draws together the key dimensions of the
organisation is doing business organisation. These dimensions are for example, the organisational
structure, its leadership, culture, policies and strategies. Organisational
architecture’s purpose is to guide strategic formulation, the alignment
of strategies with the vision, mission and goals of the organisation and
the effective implementation of strategies. Organisational architecture
provides a model of the organisation’s way of doing business. An
organisational architecture should:
r CFDPOUBJOFEJOBGPSNBMEPDVNFOU MFOEJOHDMBSJUZUPXIBUUIF
organisation is about
r SFGFSUPUIFLFZTUSBUFHJDESJWFSTPGUIFPSHBOJTBUJPO
r SFMBUFFBDILFZBTQFDUPG UIFPSHBOJTBUJPOBMBSDIJUFDUVSFUPUIF
organisation itself, thus creating a blueprint which is unique and
specific to the organisation
r CFDPMMFDUJWFMZBHSFFEVQPOCZBMMDPOTUJUVFODJFTJOUIFPSHBOJTBUJPO
in order to attain maximum strategic impact
r CFDPNNVOJDBUFEBTXJEFMZBTQPTTJCMF
11.2.4 Strategic control
r organisational
performance
Strategic
r productivity
control
r management
effectiveness
Figure 11.8: Strategic control
strategic control The last phase of the strategic process is strategic control, which
involves monitoring the involves monitoring the implementation of the strategic plan and
implementation of the strategic ensuring quality and total effectiveness in terms of organisational
plan and ensuring quality and performance, productivity and management effectiveness. This
total effectiveness in terms of is illustrated in Figure 11.8. An effective strategic control process
organisational performance, identifies problems and signals to the organisation that a change may
productivity and management be needed. The chief concern when examining an organisation’s total
effectiveness effectiveness is determining the extent to which it attains its mission and
goals. This is often referred to as an organisation’s total effectiveness.
The productivity of an organisation, as a strategic control instrument,
refers to an economic measure of efficiency that summarises what is
produced (output) relative to what resources the organisation used
(input) to produce the output. Lastly, management effectiveness refers
to a management audit of an organisation’s main success factors, such

as profitability, the organisational structure, research and development,

financial policy, and market share. These factors should be measured on
a regular basis, providing feedback to management that can be used as
input for the next cycle of strategic planning. The strategic management
process is therefore an on-going process, with the output of strategic
control used as an input for the following strategic management process.
The formulation and implementation of successful strategies is a
complex managerial task, which is affected by numerous factors and
variables. This chapter identified a logical process for conducting the
strategic management process, which is summarised in Figure 11.9.
r develop a r set long-term r set functional r organisa-

vision goals goals and tional
r formulate the r formulate objectives performance
corporate and Strategy r formulate
Strategic mission Strategy Strategic r productivity
business implemen- medium- and
analysis statement formulation control
strategies tation short-term r management
r analyse the r select corporate strategies effectiveness
environment and business r institutionalise
level strategies strategies
Outputs of the control phase serve as input to the next strategic management process
Figure 11.: Summary of strategic management process

Part III: Planning
CHAPTER SUMMARY
1. Differentiate between the terms ‘strategy’ and ‘strategic management’.
• A strategy is a means to an end.
• Strategic management is a process that entails various phases, namely strategic analysis,
strategy formulation, strategy implementation and strategic control.
2. Discuss the various phases in the strategic management process.

• Strategic analysis. Determine the current position of the organisation by formulating a vision,
mission statement and analysing the external and internal environment of the organisation.
• Strategy formulation. Involves the setting of long-term goals and objectives and the selection
of corporate and business strategies. A generic strategy is the core idea about how the
organisation can best compete in the marketplace. Porter identified generic strategies,
namely cost leadership strategy, differentiation strategy, focused low cost strategy and a
focused differentiation strategy. After the identification of a generic strategy, the organisation
needs to select a grand strategy. A grand strategy is the overall corporate-level strategy of
growth and decline. With a corporate growth strategy, the organisation makes aggressive
attempts to increase its size through increased sales by implementing one, or a combination
of more than one of the following strategies: concentration growth, market development,
product development, innovation, integration, diversification or corporate combination. A
corporate decline strategy is the appropriate strategy to follow when the organisation needs
to regroup its activities to improve efficiency. Corporate decline strategies can be categorised
as turnaround, divestiture and liquidation strategies. Various techniques are available to assist
management in the selection of a corporate strategy or a combination of corporate strategies,
namely the SWOT analysis, the business portfolio analysis, the product portfolio analysis
and the Boston Consulting Group growth-share matrix. Once corporate-level strategies are
formulated, business-level strategies need to be developed for each business unit.
• Strategy implementation. Involves the formulation of medium- and short-term goals and the
institutionalisation of the strategy, where the latter refers to strategic leadership, organisational
culture and organisational architecture.
• Strategic control. This phase involves the determination of the total effectiveness, productivity
and management effectiveness of the organisation.
KEY TERMS
acquisition divestiture
Boston Consulting group growth-share matrix environmental analysis
business portfolio analysis focus strategy
concentration growth strategy generic strategy
corporate combination goal

corporate decline strategy grand strategy
corporate growth strategy harvesting
cost leadership strategy innovation strategy
differentiation strategy integration strategy
diversification strategy liquidation
management effectiveness strategic control

market development strategy strategic leadership
merger strategic management
mission strategy
objective strategy formulation
opportunity strategy implementation
organisational architecture strength
organisational culture takeover
overall effectiveness threat
product development strategy turnaround
product portfolio matrix vision
productivity weakness
strategic analysis winning strategy
strategic business unit
REVIEW QUESTIONS
1. Differentiate between the terms ‘strategy’ and ‘strategic management’.
2. Identify the characteristics of a winning strategy.
3. Define ‘strategic analysis’ and discuss the various steps involved in it.
4. Explain the term ‘strategy formulation’.
5. Differentiate between the terms ‘goal’ and ‘objective’.
6. Discuss the various generic strategies developed by Michael Porter.
7. Define the term ‘grand strategy’.
8. Explain the various corporate growth strategies that an organisation can follow.
9. Discuss the various corporate decline strategies that an organisation can implement.
10. Various techniques are available to assist management in the selection of a corporate strategy or a
selection of strategies. Discuss these techniques.
11. Explain the various steps to follow when institutionalising organisational strategies.
12. Discuss strategic control.
END NOTES
1 Adapted from (i) [Online] Available: http://www.fundinguniverse.com/company-histories/General-Electric-Company-
History.html. Accessed on 19 October 2011. (ii) Anonymous. Strategic direction; Jul/Aug 2002, 18(8):4–7.
(iii) http://www.answers.com/topic/jack-welch. Accessed on 19 October 2011.
2 Louw, L. & Venter, P. 2006. Strategic Management: Winning in the Southern African workplace. Cape Town: Oxford
University Press, p 35.
3 Hartley, R.F. 2011. Management mistakes and successes. 10th edition. Cleveland: Wiley, pp 179–189.
4 [Online] Available: http://www-03.ibm.com/ibm/history/interactive/ibm_ohe_pdf_13.pdf. Accessed on 11 April 2011.
5 [Online] Available: http://www.ibm.com/ibm/values/us. Accessed on 1 January 2011.
6 (i) Kaplan, R. & Norton, D. 2004. The strategy map: guide to aligning intangible assets. Strategy and leadership,
32(5):10–17. (ii) Williams, C. 2011. Principles of management. 6th edition. South-Western Cengage Learning, pp
507–519. (iii) Louw, L. & Venter P. 2006. Strategic Management: Winning in the Southern African workplace. Cape Town:
Oxford University Press, p 437.

PART III: Planning
7 Goodman, S.H., Fandt, P.M., Michlitsch, J.F. & Lewis, P.S. 2007. Management: Challenges for tomorrow’s leaders.
Mason: Thomson South-Western, p 93.
8 (i) [Online] Available: http://www.fundinguniverse.com/company-histories/General-Electric -Company-History.html.
Accessed on 19 October 2011. (ii) Anonymous. Strategic direction; Jul/Aug 2002; 18(8):4–7. (iii) [Online] Available:
http://www.answers.com/topic/jack-welch. Accessed on 19 October 2011.
9 Thompson, J. & Martin, F. 2005. Strategic management. 5th edition. London: Thomson, p 322.
10 Louw et al, op. cit., p 355.
11 Goodman et al, op. cit., pp 230–235.

Chapter 12
Decision-making
Tersia Brevis
OPENING CASE
OPENING CASE
Disney’s Euro Disneyland venture1 Finally, they decided on Paris, France for various
The Walt Disney Company (Disney) is known reasons.
around the world for bringing decades of France had a large population with a spectacular
entertainment, fun and fantasy to families through transportation network. The very successful Tokyo
amusement parks, television series and numerous Disneyland was located in a cold-weather climate
classic live-action and animated motion pictures. and virtually the same latitude as Paris. For this
The founder of the company, Walt Disney, was reason, Disney executives assumed they would
born in 1901 in Chicago and raised in a humble, be able to operate in similar weather conditions
middle-class family. Together with Ub Iwerks, in Paris.
Walt Disney formed Iwerks-Disney Commercial The French government sold Disney the 4 400-
Artists in 1919, and in 1923 Walt created Disney acre site at a fraction of its market value in a
Bros. Studios with his brother Roy. In 1955, the region called Marne-la-VallŽe. Marne-la-VallŽe is
first theme park was opened by the company in located in an ideal geographical location since it is
Anaheim, California. In 1966, Walt Disney died 32 kilometers due east of the centre of Paris, and
of lung cancer. Shortly after Walt’s death, his halfway between the two international airports
brother Roy issued a statement pledging that Orly and Roissy-Charles-de-Gaulle. Disney assum-
Walt Disney’s philosophy and genius would be ed that Paris would offer Euro Disneyland a wealth
carried on by his employees – a pledge that was of potential guests and employees.
fulfilled. In 1971, Walt Disney World opened near
Orlando, Florida. In 1983, Disney was one of many The agreement
American organisations to expand on foreign soil
In the agreement between Disney and the
by opening Tokyo Disney. This theme park was
French government, the latter promised Disney
an instant success. In fact, Disney’s executives
favourable loan terms, an extended railway system
believed that they had learned so much about
from Paris to the theme park, two additional
opening a theme park in another country, and
interchanges linking Euro Disney with a main
since Tokyo Disneyland was an instant success,
highway and a special station for high-speed trains
they immediately began to search for a site for a
at the theme park. Disney agreed to offer new
fourth park. Disney decided on Paris, France and
jobs and contracts to local suppliers. In a region
opened Euro Disney (later named Disneyland
that suffered from a high unemployment rate,
Paris) in 1992.
Disney executives believed that they could provide
economic benefits to the region.
Why Paris? Once the decision had been taken to open
To find a site for their fourth theme park, Disney Euro Disney in Paris, Disney executives had to
considered Europe where Disney films historically integrate American risk management techniques
had done better than in the United States. From into a French environment. They needed to cope
1983 until 1987, Disney searched for sites in the with language barriers and an unfamiliar French
United Kingdom, France, Germany, Spain and Italy. legal framework.
PART III: Planning
0QFOJOHEBZ arrived early in the morning, spent the day at the

Euro Disney opened its doors on April 12, 1992, park, checked into the hotel late night, and then
with the hope of attracting eleven million guests checked out early the next morning. Since so many
per year, more than twice the number that visits guests checked in and out, additional computer
the Eiffel Tower. Half were expected to be French. stations had to be installed at the hotels to decrease
Disney’s dream of achieving at least the same the time the guests stood in lines.
success that they had in Japan did not become a Human resources estimates were made and
reality. Why? Disney needed to recruit, hire, train and house
12 000 cast members 12 months before the
The problems opening of the park. This is a challenge for any
Euro Disney reported a loss of $905 million in company, but even more complex for Disney,
their first year in operation and by December whose cast members become more like members
1993, they had accumulated a loss of $1.03 billion. of a theatre troupe. Language and cultural barriers
Various factors can be attributed to their poor complicated the process even further.
financial performance. First and foremost, Disney Miscalculations in terms of per capita spending
was overly ambitious in their estimated sales and are probably the biggest detrimental factor to Euro
profit figures. Strategic and financial miscalculations Disney’s poor financial performance. Disney had
were made and they relied on debt during a period assumed that guests visiting Euro Disneyland would
when European interest rates were beginning spend large amounts of money as they did in the
to increase. Disney also miscalculated European US and Tokyo. Actual spending was 12 per cent
habits which impacted negatively on their sales and less than predicted. Further, European’s per capita
profit figures. Disney also displayed no regard for income is lower than the Japanese, and they are
bottom-line construction cost – over expenditure likely to spread their money over long vacations,
also impacted negatively on sales and profit figures. not four-day spending sprees.
Labour costs were also underestimated – Disney The total construction cost of Euro Disney
Executives estimated that labour costs would be was $4 billion, of which $2.9 billion was borrowed
13 per cent of revenue. In 1992, the actual figure at high interest rates. Thus, from the offset, the
was 24 per cent and in 1993 it increased to 40 per project was highly leveraged. Euro Disney made
cent, contributing even further to Euro Disney’s a huge mistake not considering the views of the
debt. Furthermore, Euro Disney opened during French when developing their marketing strategies.
a European economic recession, where the real The Walt Disney Company agrees there may
estate market collapsed. have been marketing mistakes, but they blame
Operational problems were also experienced. the mistakes on a lack of data on how Europeans
For example, Euro Disney had difficulty in allocating would react to the ‘Disney Magic’. Investors, on
staff effectively and efficiently, problems were the other hand, believe that they are the victims
experienced with bus drivers in terms of the size of Euro Disney since the Walt Disney Company
of the designated space for buses and insufficient communicated its difficulties poorly.
restroom facilities for bus drivers. To add to the Paris winters also contributed to the financial
operational problem is the difference in employee difficulties of Euro Disney. Lastly, the Magic
acceptance of conditions of employment. In Kingdom concept, successful in California and
Orlando, cast members are accustomed to and Tokyo, is apparently not compelling enough for
have learned to accept being sent home if they are Europe.
not needed. However, French cast members feel
irritated by and have a very difficult time accepting The future
flexible time schedules. Lastly, operational errors The park’s future will be shaped by many outside
were also made by Disney that involved the influences over time, requiring Disney executives
computer stations at the hotels. Disney executives to learn from past mistakes and closely monitor
estimated that guests would stay at the park for the main events that will impact on its future
several days but this did not happen. Many guests performance and success.

CHAPTER 12 Decision-making
LEARNING OBJECTIVES
The purpose of this chapter is to provide an overview of creative problem solving and managerial
decision-making. The objective of studying this chapter is to enable you to:
1. Contextualise decision-making in terms of the management process.
2. Explain the relationship between problems, problem-solving and decision-making.
3. Compare the different types of managerial decisions.
4. Compare the various decision-making conditions.
5. Explain the various decision-making models.
6. Discuss group decision-making.
. 5uggest techniSues for improving group decision-making.
8. Recommend tools for decision-making under the various decision-making conditions.
12.1 DECISION-MAKING AND THE LEARNING OBJECTIVE 1

MANAGEMENT PROCESS Contextualise decision-making
in terms of the management
Managers at all levels of an organisation are constantly faced with
process.
problems, opportunities and threats and they need to evaluate
alternative courses of action to deal with them. In other words, they
need to make decisions. This chapter explores creative problem-solving
and managerial decision-making as well as models and techniques that
can assist managers in these processes.
All managers, regardless of their skills or the 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 to be addressed and decisions that need to be made. When
planning, a manager must make decisions about goals and when, where
and how they will be realised. When controlling, the manager may
notice that these goals have not been realised. Thus a problem exists
that needs to be solved and the manager needs to decide on the most
appropriate corrective action to take. When organising, managers must
make decisions that involve the creation of an organisational structure
and the deployment of resources that will enable the organisation to
attain its goals. When leading, a manager must decide how to influence
and direct the behaviour of subordinates so that they will work willingly
to pursue the goals of the organisation. Decision-making is therefore
a central aspect of all four fundamental management functions. When
managers perform these functions with skilled decision-making, they will
have fewer problems to solve2.
FGEKUKQPOCMKPIUMKNNU
Regardless of its goals, the organisation’s long-term survival depends
on its managers’ ability to solve problems and make decisions. It the ability of managers to make
depends on theirEFDJTJPONBLJOHTLJMMT. The decision-making skills better decisions than their
of managers refers to their ability to make better decisions than their competitors, make decisions
competitors, to make these decisions faster than their competitors and faster than competitors and
have the ability to implement their decisions effectively and efficiently. implement decisions effectively
and efficiently
A decision implies that managers are faced with a threat, a problem
or an opportunity. Various courses of action are proposed and analysed,
PART III: Planning
and a choice is made that is likely to move the organisation in the

direction of its mission and goals. In making a choice, a manager comes
to a conclusion and selects a particular course of action that he or she
feels might enhance the success of the organisation.
In our opening case, the Walt Disney Company saw an opportunity
to open a fourth theme park in Europe, mainly based on their successes
in the US and Japan. Disney executives needed to take extremely
important decisions with vast consequences. First, they needed to
decide on the most appropriate location for the park. They also needed
to decide on the agreement entered into and between the Walt Disney
Company and the French government. Important decisions also needed
to be made in terms of the management of risk in a foreign country and
projections needed to be made in terms of the financial performance of
the European theme park. Environmental influences needed to be taken
into account. The success of the new venture depended mostly on the
effectiveness of the decisions taken by executives and top management
of the Walt Disney Company.
Certain principles can be applied to help managers, such as the
management of the Walt Disney Company, when they are faced with
a problem or opportunity and need to make a major decision. These
principles will be addressed later in this chapter. First, we need to make
a distinction between problems, problem-solving and decision-making.
LEARNING OBJECTIVE 2 12.2 THE RELATIONSHIP BETWEEN PROBLEMS,

Explain the relationship PROBLEM-SOLVING AND DECISION-MAKING
between problems, problem-
Managers at all managerial levels are responsible for setting goals.
solving and decision-making.
Whenever these goals are not being met, a QSPCMFN exists. In other
words, a problem exists whenever managers perceive a difference
RTQDNGO
between what has actually happened and what they planned to happen.
whenever managers perceive 1SPCMFNTPMWJOH is the process of taking corrective action that will
a difference between what has solve a problem and it realigns the organisation with its goals. %FDJTJPO
actually happened and what NBLJOH is the process of selecting an alternative course of action that
they planned to happen will solve a problem. Managers need to make a decision whenever
RTQDNGOUQNXKPI they are faced with a problem. Although certain problems cannot be
solved and others do not deserve the time it would take to solve them,
the process of taking corrective
managers are responsible for achieving the goals of the organisation.
action that will solve a problem
Therefore, they need to attempt to solve most problems. This can be
FGEKUKQPOCMKPI done by applying a decision-making model, which is discussed in Section
a process of selecting an 12.5.
alternative course of action that
will solve a problem 12.3 TYPES OF MANAGERIAL DECISIONS
Although managers in large organisations, government offices, hospitals
LEARNING OBJECTIVE 3 and schools may be separated by background, lifestyle and distance,
Compare the different types of they must all make decisions involving several options and outcomes.
managerial decisions. These decisions vary in terms of their content and uniqueness. In
general, the decisions made by managers are either programmed or
non-programmed. Rather than being distinct categories, these types of
decisions represent a continuum, with highly programmed decisions at
one end and highly non-programmed decisions at the other.
12.3.1 Programmed decisions

The managers of most organisations face large numbers of repetitive programmed decisions
and routine programmed decisions in their daily operations. These programmed decisions are
decisions do not have to be investigated anew each time they occur as repetitive and routine
there are usually definite methods for obtaining a solution. Such decisions
should be made without spending unnecessary time and effort on them.
Examples of programmed decisions include the processing of payroll
vouchers in an organisation, the processing of graduation candidates at
a university, and processing the admission of athletes to a sports club.
Managers can usually handle programmed decisions by means of
policies, standard operating procedures and rules. These enable the
decision-maker to eliminate the process of identifying and evaluating
options and making a new choice each time a decision is required.
While programmed decisions do, to some extent, limit the flexibility of
managers, they free the decision-maker to devote attention to other,
more important decisions.
12.3.2 Non-programmed decisions

Decisions are non-programmed to the extent that they are novel and
unstructured. Non-programmed decisions have never occurred non-programmed decisions
before, they are complex and elusive, and there is no established non-programmed decisions are
method for dealing with them. Managers at all levels of an organisation novel, unstructured and have
make non-programmed decisions. Non-programmed decisions made not occurred before
by lower management in an organisation will include firing an employee
or changing the workflow procedures in a section. Decisions such as
these are complex to make and require the use of creative problem-
solving. Techniques to encourage creative problem-solving are discussed
in Section 12.7.
In our opening case, a number of problems were identified that
caused a barrier to Disney’s dream of achieving the same degree of
success in Europe as they had in Japan. Miscalculations in terms of per
capita spending in Europe are stated as the biggest detrimental factor to
Euro Disney’s performance. Furthermore, a huge amount of capital was
borrowed at high interest rates, the views of the French were not taken
into consideration when marketing strategies were developed, Disney
displayed no regard for bottom-line construction cost, labour costs
were underestimated and operational problems were experienced.
These are examples of non-programmed decisions taken by Disney’s
executives in an uncertain environment. Disney’s Euro Disneyland
venture illustrates the complexity of the management environment and
the difficulty that top management often face when taking decisions in
such an environment.
LEARNING OBJECTIVE 4
12.4 DECISION-MAKING CONDITIONS Compare the various decision-
By identifying the type of decision (programmed or non-programmed), making conditions.
as well as the conditions under which it will be made, managers should be
in a position to make better decisions. Decision-making conditions decision-making conditions
such as certainty, risk and uncertainty are depicted in Figure 12.1 on the
next page. certainty, risk and uncertainty

PART III: Planning
Certainty Risk Uncertainty
Figure 12.1: Decision-making conditions

12.4.1 Certainty
certainty A decision is made under conditions of certainty when the available
available options and the options and the benefits and costs associated with each option are
benefits and costs associated known. No element of change intervenes between the option and its
with each option are known outcome. Under conditions of certainty, managers are simply faced
with identifying the consequences of available options and selecting
the outcome with the greatest potential benefit. As we may expect,
managers rarely make decisions under conditions of certainty, because
the future is rarely known with perfect reliability. The purchase of a
government treasury bill, however, is made under at least near certainty.
Barring the fall of the government, R1 000 invested in a treasury bill for
one year at ten per cent will yield R100 in interest. Similarly, knowing
that income taxes are due on 15 April, a financial manager can also make
decisions under conditions of near certainty.
12.4.2 Risk
risk Decisions under conditions of risk are perhaps most common when
when managers make decisions the outcomes of alternatives are not known in advance, but a probability
under conditions of risk, the can be assigned to each. Probability falls into two categories: objective
outcomes of alternatives are and subjective. Objective probability is based on historical evidence. It
not known in advance, but a refers to the likelihood that a particular state of things will occur, based
probability can be assigned to on hard facts and figures. Managers cannot be sure that certain events
each will occur, but, by examining past records, they can determine the likely
outcome of an event. The probability of obtaining either heads or tails
on the toss of a fair coin is 50 per cent: the coin is equally likely to land
face up or face down. Thus, there is a condition of risk. In many cases,
historical evidence is not available, so a manager must rely on a personal
estimate and belief, or subjective probability, of the situation outcome.
uncertainty
12.4.3 Uncertainty
A decision is made under conditions of uncertainty when there is a
when managers make decisions
lack of information, the outcomes of alternatives are unpredictable and
under conditions of uncertainty,
probabilities cannot be determined. Decisions made under conditions
the outcomes of alternatives are
of uncertainty are unquestionably the most difficult. In such situations, a
unpredictable and probabilities
cannot be determined

manager has no knowledge on which to base an estimate of the likelihood

of various outcomes. No historical data are available from which to
infer probabilities, or the circumstances are so novel and complex that
it is impossible to make comparative judgements. Although managerial
intelligence and competence are widely available, the ability to deal with
uncertainty is rare3. Perhaps the most common occasions for decisions
to be made under conditions of uncertainty are those involving the
introduction of new technology or new markets, as in the case of the
Walt Disney Company. In such instances, management has to rely on its
‘gut feelings’.
Many factors may be sources of uncertainty and high risk for
organisations and its management. These factors may fall into seven
categories, namely4:
r FDPOPNJDSFDFTTJPOT TUPDLNBSLFUDSBTIFT IPTUJMFUBLFPWFST
r physical industrial accidents, supply breakdowns, product failure
r personnel strikes, workplace violence
r criminal theft of money and goods, product tampering
r theft of information, tampering with company records, cyber
attacks
r reputation rumour mongering, defamation
r natural disasters: fires, floods, earthquakes.
The Walt Disney Company mainly used historical evidence of their

existing parks in making decisions in terms of the envisaged European
park. Disney’s executives believe they should learn from past mistakes
and not to repeat them. Tokyo Disneyland presented them with one
past mistake to learn from. When a Japanese company first proposed
this park to Disney, Disney opted for the security of royalty payments in
lieu of the risks of ownership. In 1992, Tokyo Disneyland earned more
than $200 million during the worst recession in modern Japanese history.
That same year, the entire Walt Disney Company earned only $299
million. From this one misstep, Disney has possibly sacrificed billions
of dollars in profits to date. Thus in France, Disney bought far more
land than it needed to eventually build 700 000 square meters of office
space, a 750 000 square meter corporate park, 2 500 individual homes, a
95 000 square meter shopping mall, 2 400 apartments and 3 000 time
share apartments. Euro Disney planned to develop the land and then
sell it to prospective buyers, making a huge profit. Unfortunately, this
revenue generating plan never materialised due to the collapse of the
real estate market. This example may lead us to the conclusion that the
more successful a company, the greater the need to ensure objectivity in
new venture calculations. Success can in some cases breed a false sense
of security, especially when a whole new operating environment can
radically change the game, as Disney unfortunately discovered5.
Table 12.1 on the next page summarises decision-making conditions
and the various levels of certainty.

PART III: Planning
Table 12.1: Summary of decision-making conditions and levels of certainty
Certainty Risk Uncertainty
Decision-maker has complete Decision-maker has some certainty Decision-maker has complete
certainty uncertainty
#XailaDle options anF the DeneƂts Outcome of each alternative is not Outcome of each alternative is
or costs of each are known known in advance unpredictable
No element of change intervenes Probability can be assigned to each Probability cannot be assigned to
between the option and its outcome alternative outcome each alternative outcome
Decision is a sure thing Decision is a ‘gamble’ Decision requires ‘guts’
LEARNING OBJECTIVE 5 12.5 DECISION-MAKING MODELS

Explain the various decision- After looking at the type of decision and the conditions under which
making models. the decision has to be made, managers also need to consider the two
primary decision-making models: the rational model and the bounded-
rationality model. In the case of the rational model, the decision-maker
optimising should select the best possible solution. This is known as optimising.
In the case of the bounded-rationality model, the decision-maker uses
decision-maker selects the best
satisficing and selects the first possible solution to a problem that
possible solution to a problem
meets the minimal criteria.
Managers need to know which model to use, and when. They
satisƂcing
should optimise – apply the rational model – when they are making
decision-maker selects the first non-programmed, high-risk decisions (caused by the factors identified in
possible solution to a problem Section 12.4.3) in conditions of uncertainty. This process is explained in
that meets the minimal criteria the section below. When managers are making programmed low-risk,
or certain decisions, they should select the first option that meets the
minimal criteria, in other words, they should satisfice.
12.5.1 The decision-making process

The decision-making process describes a set of phases that individual
decision-makers or decision-making teams should follow in order to
increase the probability that their decisions will be optimal. Optimal
decisions will lead to maximum achievement of goals and objectives.
In most decision-making situations, managers go through a number
of stages that help them think through the problem and develop
alternative solutions. Figure 12.2 on the next page summarises each
stage in the normal progression that leads to an optimal decision. Note
that these steps are more applicable to non-programmed decisions than
to programmed decisions. Problems that occur infrequently with a great
deal of uncertainty require the manager to utilise the entire process. In
contrast, problems that occur frequently with a great deal of certainty
are often handled by policies, standard operating procedures, and rules,
making it unnecessary to develop and evaluate alternatives each time
these situations arise.

5tage 1: Recognise classiHy and deƂne tJe problem or opportunity
5tage 2: 5et goals and criteria
5tage : )enerate creatiXe alternatiXe courses oH action
5tage : 'Xaluate alternatiXe courses oH action
5tage : 5elect tJe best option
5tage : +mplement tJe cJosen option
5tage : Conduct HolloY-up eXaluation
Figure 12.2: The decision-making process
Stage 1: Recognise, classify and define the problem or opportunity.

5IFųSTUTUBHFJOEFDJTJPONBLJOHJTSFDPHOJTJOHUIBUUIFSFJTBQSPCMFN
threat or an opportunity. The problem or opportunity may be classified
in terms of the type of decision (programmed or non-programmed)
that needs to be made, the decision-making condition (certainty, risk or
uncertainty) and the decision-making model (the rational or bounded-
rationality model) used6. After the problem or opportunity has been
classified, it should be accurately defined. An important part of defining
the problem or opportunity is to distinguish the symptoms from the cause
of the problem. For example, a conscientious worker who suddenly
starts arriving late for work should not be defined as an ‘absenteeism
situation’. Being late is a symptom of the problem, not the cause. The
cause could be illness, personal problems, transport problems, or
something else entirely. Management should recognise and look into the
cause. If the situation is incorrectly classified or defined, any decisions
made will be directed towards solving the wrong problem. A lack of
motivation is not always the cause of poor work performance. Poor
work performance may be a symptom of poor training, of a mismatch
between the organisation’s culture and the values of its employees, or
of outdated equipment, and so on.
Stage 2: Set goals and criteria. Generally, in programmed decisions,
Stages 2 to 5 need not be followed as criteria have been set for these
decisions. However, in the case of non-programmed decisions, no goals
or criteria have been set. The manager will be responsible for this task.
He or she can make an individual decision or involve a group in decision-
making (group decision-making and the techniques associated with it,
will be discussed in Sections 12.6 and 12.7).

PART III: Planning
The foundation of the decision-making process lies in the organisational

goals that give it purpose, direction and continuity. A given goal represents
an end point towards which management directs its decision-making.
Several recent studies place the setting of well-defined goals at the top
of the list of chief executives’ responsibilities7. A goal should state what
the decision should accomplish.
Stage 3: Generate creative alternative courses of action. Once a
problem or an opportunity has been recognised and goals and criteria
have been set, the next stage is to identify various courses of action
to deal with the situation. Bear in mind that it is impossible to identify
all available options. However, a systematic effort should be made to
identify as many courses of action as possible.
Innovation and creativity play a major part in generating various
courses of action. Using groups to generate solutions could enhance this
process. The availability of information (see Chapter 13) and technology
should also be considered. South African managers are fortunate in that
they can tap into the creativity of a diverse workforce.
The number of available options identified is limited by certain
constraints – mainly time and the cost associated with the decision.
Rarely do managers have enough time or money to identify, let alone
evaluate, an unlimited number of options. Indeed, there may be times
when doing something immediately may be more important than taking
a different course of action at a later date. Managers often need to
balance time and expense against identifying additional options. During
this stage managers need to decide whether they want to consider all
options and optimise their decision (rational model) or search only until
a satisficing option (bounded rationality) has been reached.
Stage 4: Evaluate alternative courses of action. Once various
courses of action have been identified, the next step is to evaluate the
options. Each option should be evaluated in terms of its strengths and
weaknesses, advantages and disadvantages, benefits and costs. Because
each option is likely to have both positive and negative features, most
evaluations involve balancing anticipated consequences. The evaluation
of options may either be intuitive or follow a more scientific approach.
Some of these approaches are discussed in Section 12.8.
Stage 5: Select the best option. In the previous two stages, options
were identified and evaluated. The next stage is to select the best option.
The success rate of the average manager in selecting the best option is
rarely more than 50 per cent: this is only slightly better than deciding on
the toss of a coin8. Therefore, this step requires a manager to evaluate
each option carefully against the goals and criteria set during the second
stage, with a view to ranking the options in order of priority. In practice,
selecting an option is often subjective: the manager’s experience, values,
internal politics, and so on influence this choice.
Stage 6: Implement the chosen option. Once an option has been
selected, appropriate steps should be taken to ensure that it is
properly implemented. A decision is only an abstraction and needs to
be put into action. It is possible for a good decision to be damaged by
poor implementation, while a poor decision may be helped by good

implementation. Therefore, implementation may be just as important as

the activity of selecting an option.
Decisions should be explained in such a way that all the relevant
parties understand them. Those concerned should understand not only
the logic behind a decision, but also what they are supposed to do. A
suitable organisational structure, good leadership, a strong organisational
culture, and a fair reward system will enhance the implementation of
decisions.
Stage 7: Conduct follow-up evaluation. Once a decision has been set
in motion, evaluation is necessary to provide feedback on its outcome.
Adjustments are invariably needed to ensure that actual results compare
favourably with planned results – as determined in Stage 2 of the
decision-making process.
The process of evaluation closes the feedback loop shown in Figure
12.2. The soundness of a decision may be evaluated against planned
results. If necessary, modifications can be made and further options
identified and evaluated. This should be seen as an opportunity for
acquiring new knowledge in order to improve future decisions.
12.6 GROUP DECISION-MAKING LEARNING OBJECTIVE 6

Stages 2 and 3 of the decision-making process, namely the setting of Discuss group decision-making.
goals and criteria and the generation of creative alternative courses of
action, rely heavily on creativity and innovation. Group decision-making
can enhance this process, especially in the case of non-programmed
decisions where there is usually a great deal of uncertainty about the
outcome. The complexity of many of these decision-making situations
requires specialised knowledge in a number of fields.
Whether groups make better decisions than individuals working alone
has been the topic of extensive discussion. Groups are subject to social
factors when making decisions. These factors include social conformity,
levels of communication skill, dominance by a specific group member,
and so on. While groups often make better decisions than those made
by the average group member, their decisions consistently fall short of
the quality of decisions made by the best individual member. Group
decision-making, therefore, has certain advantages and disadvantages.
Advantages of group decision-making are the following:
r (SPVQNFNCFSTDPOUSJCVUFBWBSJFUZPGTLJMMTBOETQFDJBMJTFE
knowledge that can be used to define and solve a problem or
recognise an opportunity. This will lead to an improvement in the
quality of decisions taken.
r Group members may have multiple and conflicting views, which
can be taken into account in order to improve the quality of
decisions.
r The different beliefs and values of group members can be
transmitted and aligned.

PART III: Planning
r Group decision-making may lead to improved commitment

to decisions by organisational members, since they will have
participated in the decision-making process.
r Participation in problem-solving and decision-making will improve
the morale and motivation of employees.
r Allowing participation in problem-solving and decision-making may
contribute to people’s ability to work effectively and efficiently in
groups and teams.
On the other hand, group decision-making also has some potential

disadvantages:
r Group decision-making may be more time-consuming than
individual decision-making.
r Groups are more likely to choose the first possible option or
solution to a problem that meets the minimal criteria. Individuals
tend to put more effort into the decision-making process and work
towards the best possible solution to a problem.
r One group member, or a sub-group, may dominate the group’s
decision-making process and nullify the group decision.
r Group decision-making may inhibit creativity and lead to
conformity and ‘groupthink’.
We now go on to examine techniques for improving group decision-

making.
LEARNING OBJECTIVE 7 12.7 TECHNIQUES FOR IMPROVING GROUP

Suggest teSniSues for DECISION-MAKING
improving group decision-
In order to overcome the disadvantages and to capitalise on the
making.
advantages of group decision-making, techniques have been suggested
to make group decision-making more creative. We shall discuss four of
these techniques, namely brainstorming, the nominal group technique,
the Delphi technique, and group-decision support systems (GDSS).
These techniques are illustrated in Figure 12.3 on the next page. It
indicates where the different techniques are mainly used. However, the
techniques can be used at any managerial level.

Top management
Delphi technique
Middle management
nominal group
technique
Lower management
brainstorming
Figure 12.3: Techniques for improving group decision-making
12.7.1 Brainstorming
One of the problems of decision-making groups is that group norms
develop over time, and group members tend to conform to dominant
group opinions. As a result, the creativity of a decision-making
group declines after having peaked early in the forming of the group.
Brainstorming 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. This
prohibition should encourage contributions from members who are
particularly shy, have divergent ideas, or have low status within the
group. During idea generation, group members are encouraged to build
on, but not criticise, ideas produced by others. This cross-fertilisation
is assumed to produce a synergistic effect. The objective is to generate
as many ideas as possible in the belief that the more ideas that are
conceived, the greater will be the likelihood of one outstanding idea
emerging. The following rules govern brainstorming sessions:
r $SJUJDJTNJTQSPIJCJUFE5IFQSJNBSZQVSQPTFPGCSBJOTUPSNJOHJT
to generate as many possible solutions to a problem as possible.
Judgement of the creative or imaginative solutions to organisational
problems should be withheld until all the solutions have been
generated.
r No ‘Yes, but ...’ comments are allowed.
r Imaginative solutions are welcome. The wilder and more ‘far-
fetched’ the solution, the better.

PART III: Planning
r Quantity is important. The greater the number of solutions, the

greater the likelihood that there will be an outstanding solution to
the problem.
r 5IFDPNCJOBUJPOPG WBSJPVTTPMVUJPOTUPBQSPCMFNBOEUIF
improvement of the suggested solutions, are encouraged.
Brainstorming sessions usually last from 30 minutes to an hour. A

one-hour session can generate up to 150 ideas. Typically, most of the
ideas will be impractical, but a few will merit serious consideration.
Brainstorming has been used effectively in the fields of advertising,
new product development and by organisations following an innovative
strategy.
It is important to note that brainstorming is merely a process
for generating ideas. The next two techniques go further by offering
methods of actually arriving at a preferred solution.
12.7.2 Nominal group technique

This 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 physically
present, as in a traditional committee meeting, but members operate
independently. A problem is usually presented, with the following steps
taking place:
r Seven to ten members meet as a group. Before any discussion
takes place, each member independently writes down his or her
ideas on the problem.
r The group leader systematically gathers information from all
participants. Each member presents one idea to the group. No
discussion takes place until all the ideas have been recorded.
r The ideas are clarified through a guided discussion.
r The group leader then instructs participants to vote on their
preferred solutions.
r Each member silently and independently ranks the ideas.
r The process may conclude with an acceptable solution.
The nominal group technique is appropriate for situations in which

groups may be affected by a dominant person, conformity or ‘group
think’ because it minimises these effects.
12.7.3 Delphi technique

Decisions often have to be made by experts in different geographical
areas. In this case neither brainstorming nor the nominal group technique
can be used, as both techniques require the presence of participants.
The Delphi technique is a process of decision-making that does not
require the physical presence of the participants.

Origin of the Delphi technique

This technique gets its name from Delphi, a place ancient world came to Delphi to consult with Apollo
that was famous in ancient times as the seat of the through his priestesses, whom they believed could
most important temple of the Greek god Apollo. foretell the future.
Kings and other powerful rulers from all over the
The Delphi technique involves using a series of confidential

questionnaires to refine a solution. In this technique the group’s
members never meet face to face. The following steps characterise the
Delphi technique:
r The problem is identified and members are asked to provide
potential solutions through a series of carefully designed
questionnaires.
r Each member anonymously and independently completes the first
questionnaire.
r The results of the first questionnaire are compiled at a central
location, transcribed and reproduced.
r Each member then receives a copy of the results.
r After viewing the results, members are again asked for their
solutions. The results typically trigger new solutions or cause
changes in the original position.
r The last two steps are repeated as often as necessary until
consensus is reached.
Brainstorming, the nominal group technique, and the Delphi technique

should not be seen as competing choices, but as complementary
techniques.
12.7.4 Group-decision support systems

Group-decision support system (GDSS) is a generic term that refers to
various kinds of computer-supported group decision-making systems.
Most of the GDSSs can be used to support face-to-face groups as well
as groups that communicate through electronic media.
When the process of brainstorming is supported by sophisticated
computers, it is called ‘electronic brainstorming’. In an electronic
brainstorming session, the participants have at their disposal networked
workstations. Instead of contributing their ideas in a round-robin fashion,
they simply type in their suggestions. These ideas are disseminated to
the other group members without an identifying mark. Thus anonymity
is preserved and the group members can respond more freely than in a
conventional brainstorming session.
This technique blends the nominal group-technique with sophisticated
computer technology. Group members sit around a horseshoe-shaped
table, empty except for a series of computer terminals. Issues are

PART III: Planning
presented to participants and they type their responses onto a computer

screen. Individual comments, as well as aggregate votes, are displayed on
a projection screen in the room. Electronic meetings can be as much as
55 per cent faster than traditional face-to-face meetings.
In real-time Delphi, a computer conference is substituted for the
mail questionnaires of the conventional Delphi. This allows participants
to respond immediately to the comments anonymously entered by the
other members of the group. In this way the time required to complete
the Delphi is much reduced.
In deciding which of the techniques to use for improving group
decision-making, management should consider issues such as time and
money costs, the potential for interpersonal conflict and commitment to
the solution. In general, it can be said that top management commonly
uses the Delphi technique for a specific decision. Brainstorming and the
nominal group techniques are frequently used at middle- and lower-
management where work groups are involved.
LEARNING OBJECTIVE 8 12.8 TOOLS FOR DECISION-MAKING UNDER

Recommend tools for decision- VARIOUS DECISION-MAKING CONDITIONS
making under the various
decision-making conditions. Various tools are available to assist managers in performing Stages 4 (the
evaluation of alternative courses of action) and 5 (the selection of the
best option) of the decision-making process. In this section we discuss
quantitative tools for decision-making, the Kepner-Fourie method and
the cost-benefit analysis.
12.8.1 Quantitative tools for decision-making

Many of these techniques have their origin in the quantitative
management school (discussed in Chapter 1) and propagate the use of
mathematical relations in solving management problems.
Our objective in this section is to make you aware of these
techniques, not to make you a mathematician. For the same reason, we
use the dominant model in this chapter as a guide, that is, the conditions
of decision-making – certainty, risk and uncertainty. Figure 12.4 on the
next page will serve as the point of reference for our discussion in this
section.

Top management
r conditions of uncertainty
r simulation
r capital budgeting
Middle management
r conditions of risk
r break-even analysis
r decision tree
r pay-off matrix
r probability analysis
Lower management
r conditions of near certainty
r queuing theory
r linear programming
Figure 12.4: Quantitative tools for decision-making

Decision-making tools in conditions of certainty

r -JOFBSQSPHSBNNJOH0G BMMUIFRVBOUJUBUJWFUPPMTJEFOUJųFE MJOFBS
QSPHSBNNJOHJTQFSIBQTUIFNPTUGSFRVFOUMZBOEFYUFOTJWFMZVTFE
*UJTBRVBOUJUBUJWFUPPMGPSPQUJNBMMZBMMPDBUJOHTDBSDFSFTPVSDFT
BNPOHDPNQFUJOHVTFTUPNBYJNJTFCFOFųUTPSNJOJNJTFMPTTFT
5IFSFTPVSDFTJORVFTUJPONBZCFIVNBO ųOBODJBM QIZTJDBMPS
JOGPSNBUJPOBM
5IFTPDBMMFEAUSBWFMMJOHTBMFTNBOQSPCMFNJTBDMBTTJDMJOFBS
QSPHSBNNJOHBQQMJDBUJPO5IFQSPCMFNJTUPEFUFSNJOFUIF
TIPSUFTUPSMFBTUDPTUMZSPVUFGPSBTBMFTQFSTPOUPUSBWFMJOPSEFS
UPWJTJUBTFUMJTUPG DJUJFT5IFTBMFTQFSTPONVTUWJTJUFBDIDJUZPOMZ
PODF OFWFSSFUSBDFBOZTUFQT BOESFUVSOUPUIFTUBSUJOHDJUZ-JOFBS
QSPHSBNNJOHJTDBQBCMFPG EFUFSNJOJOHUIFTIPSUFTUPSMFBTUDPTUMZ
SPVUFUPGPMMPX
r 2VFVJOHUIFPSZ2VFVJOHUIFPSZJTBRVBOUJUBUJWFUPPMGPSBOBMZTJOH
UIFDPTUTPG XBJUJOHJORVFVFT5IFPCKFDUJWFPG RVFVJOHUIFPSZ
JTUPBDIJFWFBOPQUJNBMCBMBODFCFUXFFOUIFDPTUPG JODSFBTJOH
TFSWJDFBOEUIFBNPVOUPG UJNFJOEJWJEVBMT NBDIJOFTPSNBUFSJBMT
NVTUXBJUGPSTFSWJDF
/PUPOMZBSFUIFSFDPTUTBTTPDJBUFEXJUIBMMPXJOHBXBJUJOH
RVFVFUIFSFBSFBMTPDPTUTBTTPDJBUFEXJUIJODSFBTJOHTFSWJDF
UPQSFWFOUTVDIRVFVFT5IFQSPCMFNJTUPEFUFSNJOFUIFCFTU

PART III: Planning
balance between the cost of upgrading service and the amount of

time users of a service must wait in line. In such situations, queuing
theory can be used to identify an optimal solution for maximising
service while minimising costs.
Decision-making tools in conditions of risk and

uncertainty
In this section, probability analysis, the pay-off matrix, the decision tree,
break-even analysis, capital budgeting and simulation are discussed as
possible decision-making tools in conditions of risk and uncertainty.
r 1SPCBCJMJUZBOBMZTJT5IFUFSNAQSPCBCJMJUZSFGFSTUPUIFFTUJNBUFE
likelihood, expressed as a percentage, that an outcome will occur.
There are two complementary approaches to using probability
analysis, namely pay-off matrices and decision trees. Both are
among the most helpful quantitative tools available to a manager.
r 1BZPŲ NBUSJY5IFQBZPŲ NBUSJYJTBUFDIOJRVFGPSJOEJDBUJOH
possible pay-offs, or returns, from pursuing different courses of
action. Each option is pursued under different states of nature, or
circumstances beyond the control of the decision-maker.
r %FDJTJPOUSFF"EFDJTJPOUSFFJTBHSBQIJDJMMVTUSBUJPOPGUIFWBSJPVT
solutions available to solve a problem. It is designed to estimate the
outcome of a series of decisions. As the sequence of the major
decision is drawn, the resulting diagram resembles a tree with
branches.
r #SFBLFWFOBOBMZTJT"OPUIFSUFDIOJRVFUIBUDBOCFVTFEUP
evaluate alternative courses of action, and to select the best
option, is the break-even analysis. This technique involves the
calculation of the volume of sales that will result in a profit. It
requires a forecast of the sales volume and the cost of production.
The break-even point is then calculated as the level of sales where
no profit or loss results.
r $BQJUBMCVEHFUJOH$BQJUBMCVEHFUJOHJTBUFDIOJRVFUIBUDBOCF
used to evaluate alternative investments. It involves a process by
which each alternative investment is analysed in financial terms
and placed on the capital budget. Various methods exist to analyse
investments in financial terms. For example, the payback period
can be used to calculate the years it will take to recover the initial
cash invested. The alternative that offers the shortest payback
period (in years, months, etc) is then preferred. Another method
computes the average rate of return of each investment and
selects the investment with the highest average rate of return.
A more sophisticated technique is the net present value of an
investment, which is the present value of the future benefits less
the cost. It is the difference between what is to be received, in
current worth, and what will be paid for it.

r 4JNVMBUJPO4JNVMBUJPOJTBRVBOUJUBUJWFUPPMGPSJNJUBUJOHBTFUPG
SFBMDPOEJUJPOTTPUIBUUIFMJLFMZPVUDPNFTPG WBSJPVTDPVSTFTPG
BDUJPODBOCFDPNQBSFE5IFTFNFUIPETJOWPMWFDPOTUSVDUJOH
BOEUFTUJOHBNPEFMPG BSFBMXPSMEQIFOPNFOPO*OCVTJOFTT
TJNVMBUJPODBOCFVTFEXJUINBUIFNBUJDBMNPEFMTUPQSFEJDUUIF
QPTTJCMFPVUDPNFTPG JOWFTUNFOUBOEQSJDJOHEFDJTJPOT QSPQPTFE
JOWFOUPSZDPOUSPMTZTUFNT BTTFNCMZMJOFTDIFEVMJOHSPVUJOFT
WBSJPVTEFTJHOTQFDJųDBUJPOT BOEWBSJPVTDPNQFUJUJWFTUSBUFHJFT
0SHBOJTBUJPOTBSFNBLJOHJODSFBTJOHVTFPG DPNQVUFSTUPSVO
CVTJOFTTTJNVMBUJPOT5IJTFOBCMFTNBOBHFSTUPTBWFUJNFBOE
NPOFZBOELFFQTUIFNCFUUFSJOGPSNFE BMMPXJOHUIFNUPNBLF
CFUUFSEFDJTJPOT
12.8.2 The Kepner-Fourie method

*O UIF QSFWJPVT TFDUJPO XF FYQMBJOFE PCKFDUJWF RVBOUJUBUJWF UPPMT GPS
EFDJTJPONBLJOH 5IF ,FQOFS'PVSJF NFUIPE DPNCJOFT UIF PCKFDUJWF
RVBOUJUBUJWF BQQSPBDI XJUI TPNF TVCKFDUJWJUZ 5IF TVCKFDUJWJUZ DPNFT
GSPNEFUFSNJOJOHANVTUBOEAXBOUDSJUFSJBBOEBTTJHOJOHWBMVFXFJHIUT
UP UIFN *U JT B NFUIPE GPS DPNQBSJOH BMUFSOBUJWFT VTJOH UIF DSJUFSJB
TFMFDUFEJO4UBHFPG UIFEFDJTJPONBLJOHNPEFM
5IFGPMMPXJOHFYBNQMFJMMVTUSBUFTUIFVTFPG UIFNFUIPE-FUTTUBUF
UIBU PVS PCKFDUJWF JT UP CVZ B IPVTF XIJDI DBO CF PDDVQJFE JO UXP
NPOUITUJNF5IJTJTPCWJPVTMZBOPOQSPHSBNNFEEFDJTJPO5BCMF
TIPXTUIFVTFPG UIFNFUIPEUPEFDJEFXIJDIIPVTFUPCVZ
Table 12.2: Method to decide which house to buy using the Kepner-Fourie
method
‘Must criteria’ House 1 House 2 House 3 House 4
Cost under R500 000 Yes Yes No Yes
Available within two months Yes Yes Yes No
‘Want criteria’ Meets criteria
Importance* House 1 House 2
WS** WS**
4 bedrooms 8x 5 = 40 10 = 80
2 bathrooms 7x 5 = 35 10 = 70
Double garage 10 x 9 = 90 9 = 90
Near schools 9x 10 = 90 6 = 54
Security 10 x 10 = 100 8 = 80
Pool 5x 6 = 30 9 = 45
Total weighted score 385 419
*Indicates the quantity of importance – on a scale of 10 (high) to 1 (low) assigned to each

‘want’ criterion as a weight.
**Indicates the weighted score awarded to each alternative.
Source: Smit, P.J., Cronje G.E., Brevis T. & Vrba M.J. 2011. Management Principles: A contemporary edition for Africa. 5th edition.
Cape Town: Juta Publishers.

PART III: Planning
Step 1: Compare each alternative to the ‘must’ criteria listed in

Column 1. Eliminate any alternative that does not meet the ‘must’
criteria. Houses 3 and 4 do not meet all the ‘must’ criteria and are
eliminated.
Step 2: Rate each ‘want’ criterion (Column 1) on a scale of 1 to 10
(10 being most important). Note that the same number may be used
more than once (10, for example).
Step 3: Assign a value of 1 to 10 (10 being the highest) to how well
each alternative meets all the ‘want’ criteria. These values are shown
in the vertical columns labelled House 1 and House 2, and they can be
compared for each house. Again, factors can have equal weights, for
example 5.
Step 4: Compute the weighted scores (WS) for each alternative by
multiplying (horizontally) the importance value by the ‘meets criteria’
value for each house. Next, add these weighted scores vertically to
obtain the total weighted score for each house.
Step 5: Select the alternative with the highest total weighted score as
the solution to the problem. House 2 should be selected because it has
the highest weighted score.
12.8.3 Cost-benefit analysis

The quantitative tools for decision-making make maximum use of
objective mathematical approaches to compare alternatives. The
Kepner-Fourie method combines the objective quantitative approach
with some subjectivity. However, managers may be faced with situations
when the benefit received for the cost is uncertain, making these
methods unusable. In such situations, the cost-benefit analysis can be
used. It compares the costs and benefits of each alternative course of
action using subjective intuition and judgement. This method makes the
minimum use of mathematics to make the decision. The advantages
(which can be considered the benefits) and disadvantages (which can be
considered the cost) are identified for each alternative.

ChaPter 12 Decision-making
CHAPTER SUMMARY
While performing the fundamental functions of management (planning, organising, leading
and control) managers are faced with opportunities and threats that need to be addressed
and problems to be solved.
2. Explain the relationship between problems, problem-solving and decision-making.

• Problems exist whenever managers perceive a difference between what has actually
happened and what they planned to happen.
• Problem-solving is the process of taking corrective action.
• Decision-making can be defined as the process of choosing between various courses of
action.
3. Compare the different types of managerial decisions.

Decision-making can be classified by its relative uniqueness.
• Programmed decisions are decisions that are made by habit or policy and involve simple,
common, frequently occurring problems.
• Non-programmed decisions deal with unusual or novel problems and require creative
thinking.
4. Compare the various decision-making conditions.

Managers usually make decisions under conditions of certainty, risk or uncertainty.
• Under conditions of certainty, all available options and the benefits and costs associated
with each are known.
• 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.
• A decision is made under conditions of uncertainty when the available options, the probability
of their occurrence, or their potential benefits or costs are unknown.
5. Explain the various decision-making models.

When using the rational decision-making model, the decision-maker selects the best possible
solution to a problem. The model involves seven stages:
Stage 1: Recognise, classify and define the problem or opportunity
Stage 2: Set goals and criteria
Stage 3: Generate creative alternative courses of action
Stage 4: Evaluate alternative courses of action
Stage 5: Select the best option
Stage 6: Implement the chosen option

Stage 7: Conduct follow-up evaluation
In the case of the bounded-rationality model, the decision-maker selects the first option that
meets the minimal criteria.
Part III: Planning
6. Describe group decision-making.

Group decision-making can enhance creativity in the decision-making process, although
there are advantages and disadvantages associated with it.
7. Suggest techniques for improving group decision-making.

To overcome the disadvantages and to capitalise on the advantages of group decision-
making, we have presented various ways of making this process more creative. The
techniques discussed are:
• brainstorming
• the nominal group technique
• the Delphi technique
• group-decision support systems.
8. Recommend tools for decision-making under the various decision-making conditions.

Tools for decision-making under various decision-making conditions can be categorised
as quantitative tools for decision-making, the Kepner-Fourie method and the cost-benefit
analysis. Quantitative tools can further be categorised as decision-making tools under
conditions of certainty, risk and uncertainty. Decision-making tools in conditions of certainty
are linear programming and queuing theory. Decision-making tools under conditions of
risk and uncertainty, are profitability analysis, the pay-off matrix, decision tree, break-even
analysis, capital budgeting and simulation.
KEY TERMS
bounded-rationality decision-making model nominal group technique
brainstorming non-programmed decisions
break-even analysis pay-off matrix
capital budgeting probability analysis
certainty problem solving
cost-benefit analysis problems
decision-making programmed decisions
decision tree queuing theory
Delphi technique rational decision-making model
group decision-making risk
group decision support systems simulation
Kepner-Fourie method uncertainty
linear programming
REVIEW QUESTIONS
2. Define the terms ‘problems’, ‘problem solving’ and ‘decision-making’ and explain the relationship to
each other.
3. Compare the different types of managerial decisions and the various decision-making conditions.
4. Compare the various decision-making models.
5. Explain the meaning of group decision-making and refer to the advantages and disadvantages
associated with it.
6. Suggest various techniques that decision-makers can use to improve group decision-making in
organisations.
7. Recommend tools for decision-making by referring to specific tools under various decision-making
conditions.
END NOTES
L7KH:DOW'LVQH\&RPSDQ\>2QOLQH@$YDLODEOHKWWSZZZIXQGLQJXQLYHUVHFRPFRPSDQ\KLVWRULHV7KH:DOW'LVQH\
&RPSDQ\&RPSDQ\+LVWRU\KWPO$FFHVVHGRQ1RYHPEHULL%XUJR\QH/>2QOLQH@$YDLODEOHKWWSZZZRLWF
FRP'LVQH\3DULV(QJOLVK/\Q(XUR'LVQH\KWPO$FFHVVHGRQ1RYHPEHULLL6SHQFHU(3(XUR'LVQH\
:KDW+DSSHQHG":KDWQH[W"Journal of International Marketingŋ
/XVVLHU51Management Fundamentals: Concepts, Applications, Skill Development.&LQFLQQDWL6RXWK:HVWHUQ
&ROOHJH3XEOLVKLQJS
0F/DXJKOLQ',6WUHQJWKHQLQJH[HFXWLYHGHFLVLRQPDNLQJHuman Resource Management. ŋ
+HOOULHJHO'-DFNVRQ6( 6ORFXP-:Management: A Competency-based ApproachWKHGLWLRQ
$XVWUDOLD7KRPVRQS
6SHQFHU(3(XUR'LVQH\:KDW+DSSHQHG":KDWQH[W"Journal of International Marketing
+DUULVRQ() 3HOOHWLHU0$7KHHVVHQFHRIPDQDJHPHQWGHFLVLRQManagement Decision
+DUULVRQ() 3HOOHWLHU0$5HYLVLWLQJVWUDWHJLFGHFLVLRQVXFFHVVManagement Decision
,ELG

Chapter 13
Information management
Tersia Brevis
OPENING CASE
Steve Jobs: The man who created our College, Oregon. He dropped out after only one
world1 semester.
The name Steve Jobs is synonymous with the
Macintosh-computer, iMac, iTunes, iPod, iPhone, The Apple Company
iPad and Toy Story, to name only a few. When he On April 1, 1976, Steve Jobs and Steve Wozniak
died in October 2011, he left behind an information founded the Apple Inc. Company. From the Jobses’
technology world – a world in which he was a great garage, they produced the Apple I. The Apple II,
role player. one of the first commercial lines of personal
Steve Paul Jobs was born in 1955 in San computers, was engineered by Steve Wozniak. He
Francisco and adopted at birth by Paul Reinhold designed a computer terminal, with a keyboard and
Jobs and his wife Clara. Steve Jobs knew from monitor that had the ability to connect to a distant
a very early age that he was adopted. In his computer. Using a microprocessor, Wozniak could
conversations with Walter Isaacson, author of his put some of the capacity of the minicomputer
exclusive biography Steve Jobs, he recalled sitting inside the terminal itself, so it could become a
on the lawn of his house when he was six or seven small stand-alone computer and desktop. Jobs was
years old, telling the girl who lived across the street responsible for the aesthetic design and marketing
that he was adopted. ‘So does that mean your real of this personal computer, which they launched
parents didn’t want you?’ she asked. ‘Lightning bolts in April 1977 at the West Coast Computer Faire.
went off in my head’, Jobs explained. ‘I remember Apple got three hundred orders at the show. It
running into the house, crying. And my parents was also at this show that Jobs met a Japanese
said, “No, you have to understand. We specifically textile maker, Mizushima Satoshi, who became
picked you out.”’ Abandoned. Chosen. Special. Apple’s first dealer in Japan. During the same time
These three words became part of who Steve Jobs Jobs and Wozniak moved their company from the
was and how he regarded himself. And indeed he Jobses’ garage into a rental office. An independent
had a special life, with many high- and lowlights. developer hired by the Apple company came up
The most prominent of these are discussed below. with the first spreadsheet and personal finance
Jobs attended Monta Loma Elementary, programme for personal computers, called VisiCalc.
Mountain View, Cupertino Junior High and For some time, it was only available on the Apple
Homestead High School in California. He II personal computer. This made the Apple II into
frequently attended after-school lectures at the something that business and individuals could justify
Hewlett Packard Company and was later hired buying. For the next sixteen years, various models
by the company. Here, he worked with Steve of the Apple II was marketed, selling close to six
Wozniak as a summer employee. Jobs graduated million machines. More than any other machine,
in 1972 from high school and enrolled at Reed it launched the personal computer industry. Steve
CHAPTER 13 Information management
Wozniak deserves the credit for the design of its time, the Apple company diversified, introduced
circuit board and related operating software, but and improved upon other digital appliances. For
Steve Jobs was the one who integrated the circuit example, they introduced the iPod portable music
board into a friendly package, from the power player, iTunes digital music software, and the
supply to its sleek case. Steve Jobs also created the iTunes Store. In 2007, the company even entered
company that sprung up around Steve Wozniak’s the cellular phone business with the introduction
machine. of the iPhone, a multi-touch display cell phone,
During the early 1980s, Jobs played a huge which also included the features of an iPod and,
role in recognising the commercial potential of with its own mobile browser, revolutionised the
the Xerox PARC’s mouse-driven graphical user mobile browsing scene.
interface. This led to the creation of the Apple Lisa.
One year later, an employee of Apple, Jef Raskin, Pixar and Disney
created the legendary Macintosh computer, which In 1986, Steve Jobs bought The Graphics Group,
was launched in 1984. After losing a power struggle which was later renamed Pixar, from Lucasfilm’s
with the board of directors in 1985, Jobs left computer graphics division. Toy Story, the first
Apple and almost immediately founded NeXT, a film produced by the new partnership and in which
computer platform development company. NeXT Jobs was credited as executive producer, brought
specialised in the higher-education and business fame to the studio when it was released in 1995.
markets. Over the next 15 years, Pixar produced box-office
hits, such as A Bug’s Life, Toy Story 2, Monsters,
The NeXT company Inc., Finding Nemo, The Incredibles, Ratatouille,
NeXT workstations were first released in 1990. WALL-E, Up and Toy Story 3.
The NeXT workstation was known for its In 2006, the Disney Company announced their
technical strengths, of which the most important decision to purchase the Pixar company, making
was its object-oriented software development Steve Jobs The Walt Disney Company’s largest
system. It was on a NeXT computer that Tim single shareholder with seven percent of the
Berners-Lee invented the World Wide Web. company’s shares.
The NeXT workstation was followed by the
release of a second generation, characterised by Losing a visionary and creative genius
an innovative multimedia e-mail system, having In 2003, Jobs was diagnosed with a pancreas
the ability to share voice, image, graphics, and neuroendocrine tumor. Initially, the disease was
video in e-mail for the first time. This machine treated. By 2009, his health further deteriorated
allowed interpersonal computing to revolutionise and he was diagnosed with a hormone imbalance.
human communications and group work. In He underwent a liver transplant, taking medical
1993, the company transitioned fully to software leave for most of 2011. In August the same year,
EFWFMPQNFOU BOE SFMFBTFE /F9545&1*OUFM he resigned as CEO of the Apple company. Hours
In 1993, the company reported its first profit of after his resignation was announced, Apple shares
$1.03 million. In 1996, WebObjects, a framework dropped by five per cent and the Walt Disney
for Web application development, was released. company’s shares dropped by 1.5 per cent in after-
hours trading.
Back to the Apple company When Steve Jobs died of respiratory arrest
In 1997, the NeXT company was acquired by Apple related to the tumor on October 5, 2011, the
Inc., bringing Steve Jobs back to the company he world lost an amazing human being.
co-founded almost 20 years before. In 1997, Jobs
was interim CEO of the company and from 2000
until his resignation in 2011, he was CEO. During this

PART III: Planning
LEARNING OBJECTIVES
The purpose of the chapter is to provide an overview of information management in an organisation.
The objective of studying this chapter is to enable you to:
1. Contextualise information management in terms of the decision-making process.
2. Explain the importance of managing information for sustaining competitive advantage.
3. Explain the basic functioning of an information system.
4. Identify the characteristics and costs of useful information.
5. Explain the organisation of information systems in modern organisations.
6. Classify information systems in terms of their use in operational and managerial support.
7. Develop a generic information system for managers.
LEARNING OBJECTIVE 1 13.1 INFORMATION MANAGEMENT AND THE

Contextualise information DECISION-MAKING PROCESS
management in terms of the
decision-making process. In our opening case, we highlighted the contribution of Steve Jobs to the
modern computer and the role that he played in modern information
technology. His contributions are a far cry from the earliest data-
processing devices which included fingers, stones and sticks for counting,
knots on a string, scratches on a rock, or notches in a stick. The
Babylonians wrote on clay tablets 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. Pebbles or rods laid out on a lined
or grooved board were early forms of the abacus and were used for
thousands of years in many civilisations. Many people’s contributions
were necessary over the following centuries before practical, working
data-processing machines were developed2.
Today information is available at all times, and in every conceivable
format to almost everybody. This chapter deals with the ways of
managing information for use in the decision-making process, which was
described in detail in the previous chapter.
In the late 1940s, Herbert A Simon popularised 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 particular 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, presented and protected. 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. In our opening case, the enormous contribution of people
such as Steve Jobs, Steve Wozniak and Tim Berners-Lee to information
technology has been highlighted. This information technology (IT)
revolution has significantly affected employees, managers and their
organisations. It has created opportunities as well as challenges for
millions of organisations and individuals. The challenges facing managers
are extremely high – managers need to learn to maximise the advantages
offered by IT, while avoiding the many pitfalls associated with it.
The purpose of this chapter is to introduce and provide an overview
of information management. As managers, we need to understand
the uses of information systems in today’s business environment. We
discuss the fundamental concepts of information systems, identify
the characteristics of useful information and examine ways in which
information systems can support managerial activities. The many kinds
of information systems available are classified and described. To conclude
the chapter, we discuss the development of a generic information system
that can be used by most types of organisation.
In Chapter 4, 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. This process is illustrated in Figure 13.1.
Figure 13.1: The relationship between an organisation’s information system and decision-making

PART III: Planning
The environment in which management must operate today is becoming

increasingly complex. Managerial problems are also more complex and
this is likely to continue into the future. First, the number of available
options is much greater today than ever before, thanks to technological
and communication system improvements. 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 throughout
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-error approach to decision-making. Managers need
to become more sophisticated – they must learn how to manage the
information for a sustainable competitive advantage.
LEARNING OBJECTIVE 2 13.2 MANAGING INFORMATION FOR

Explain the importance SUSTAINING COMPETITIVE ADVANTAGE
of managing information
for sustaining competitive
Competitive advantage can be defined as the ability of an
advantage.
organisation to provide greater value to customers than its competitors.
A sustainable competitive advantage occurs when other organisations
tried unsuccessfully to duplicate an organisation’s competitive
competitive advantage advantage. In an ever-changing environment, information is as important
the ability to provide greater as capital for the sustainable success, competitive advantage and long-
value to customers than one’s term survival of the organisation. It takes capital, entrepreneurial skills,
competitors (in the longer information and various other resources to start an organisation, but the
term, this kind of competitive organisation will not be able to survive and grow without information.
advantage is called sustainable In general, organisations need to address three questions in order to
competitive advantage) sustain a competitive advantage through information technology3. First,
does the use of information technology create value for the organisation
by lowering costs or providing a better product or service? Should the
use of information technology not add value to the organisation, then
investing in it would put the organisation in a competitive disadvantage
relative to organisations that choose information technologies that will
add value.
Second, is the information technology the same or different across
competing organisations? If all organisations have access to the same
information technology and make use of it in the same way, then no
organisation will have an advantage over another.
Third, is it difficult for another organisation to create or acquire the
information technology used by the organisation? If so, the organisation
has succeeded in establishing sustainable competitive advantage over its
competitors through the management of information technology. If not,
the competitive advantage will only be temporary.
The key to establishing a sustainable competitive advantage is not in
having faster computers, more memory or more capacity but in using
and managing information technology to continuously improve and
support the core business and functions of the organisation.

13.3 THE BASIC FUNCTIONING OF AN LEARNING OBJECTIVE 3

INFORMATION SYSTEM Explain the basic functioning of
an information system.
13.3.1 A definition of an information system
data
We tend to use the terms data and information interchangeably,
although there is a definite distinction between the two concepts. Data raw, unanalysed numbers and
refers to raw, unanalysed numbers and facts about events or conditions facts about events or conditions
from which information is drawn. Management information is from which information is drawn
information that is timely, accurate and relevant to a particular situation.
It enables management to establish what should be done in a specific management information
situation. A system comprises sub-systems that form a whole. These information that is timely,
sub-systems are linked and interact in such a way that they achieve a accurate and relevant to a
goal. An information system is defined as the people, procedures and particular situation
other resources used to collect, transform and disseminate information
in an organisation. An information system accepts data resources as
information system
input and processes them into information products as output.
people, procedures and other
resources that collect, transform
13.3.2 The basic components of an information and disseminate information in
system an organisation
An information system uses hardware, software and human resources
to perform the basic activities of input, processing, output, feedback,
control and storage. This is illustrated in Figure 13.2.
Human resources
Control
Software resources
Hardware resources
Storage
Procedures
Figure 13.2: An information system model

5th edition. Cape Town: Juta Publishers.

PART III: Planning
Information systems receive data as input. An information system

needs to process this data by organising and analysing it in a meaningful
way to provide information as output to managers. The information,
and not the data, should enable management to make decisions. This
information must then be stored. Storage refers to the activity by which
data and information are retained for subsequent use. Magnetic tape
cartridges, computer disks, or other means of storage can be used for
this purpose. Finally, an information system provides feedback on its
activities in order to determine whether the system meets established
performance standards.
Information systems include certain resources that contribute to
their information-processing activities. The four main categories of
JardYare resources IBSEXBSFSFTPVSDFT in a computer system are:
a broad term referring to the r *OQVUEFWJDFT TVDIBTLFZCPBSET PQUJDBMTDBOOJOHEFWJDFT BOE
physical components of a magnetic ink character readers, which allow one to communicate
computer system with one’s computer.
r 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.
r Output devices, for example, printers, audio devices and display
screens.
r Auxiliary storage, for example, magnetic disks and tape cartridges
and optical disks.
softYare resources 4PGUXBSFSFTPVSDFT include:

programs or detailed r System software, which manages the operations of a computer.
instructions that operate r Application software, which performs specific data-processing or
computers text-processing functions, such as a word-processing package or a
payroll programme.
r Procedures that entail the operating instructions for users of an
information system.
Juman resources )VNBO SFTPVSDFT are required to operate an information system

required to operate an which include specialists and end-users – people who develop and
information system, including operate information systems, such as systems analysts, programmers
specialists and end-users and computer operators. End-users are people who use the information
produced by a system. Managers, for example, are end-users of
information.
5IF,OPXMFEHF"HF4
The Knowledge Age is at hand, and with it, new r %JTDPOOFDUFEmQFPQMFVTFMPDBMPŶJOFXPSE
worldwide demands for the creation of a learning processing and possibly one or two other
society. Learning societies now need to learn with productivity applications if these are available.
information and communication technologies. r /PWJDFTmUIFBCPWFTUBHFQMVTPOMJOF
As people progress in their use of information research, uploading and downloading of online
and communication technology for learning, they information, online completion of documents
normally go through some common stages: and transactions and simple online games.

r &BSMZNBKPSJUZmUIFBCPWFTUBHFQMVTDSFBUJOH r *OOPWBUPSTmUIFBCPWFTUBHFQMVTCFJOHBDUJWFJO
and publishing documents and web pages, global learning community projects, learning with
interacting and sharing ideas online, participating mentors, sharing journals, blogs and portfolios
in standards-based online learning activities, and of projects and work, creating and sharing
collaborative interactions, forums, groups and databases and data-based websites.
communities. r .BWFSJDLTmUIFBCPWFTUBHFQMVTDSFBUJOHPOMJOF
r &BSMZBEPQUFSTmUIFBCPWFTUBHFQMVTDSFBUJOH tools and environments for others to create
collaborating and sharing in online projects learning games and simulations, to collaboratively
including group multimedia productions and build complex interactive media productions,
websites, collaborating with asynchronous and and to build highly interactive communities of
synchronous tools, taking facilitated courses learners that can work together on learning
and seminars and use online simulations and projects and knowledge-building activities.
multiplayer games.
LEARNING OBJECTIVE 4
13.4 CHARACTERISTICS AND COSTS OF
Identify the characteristics and
USEFUL INFORMATION costs of useful information.
Information must have certain benefits over raw data to be considered
a value-added resource to the organisation. There are certain cJaracteristics of usefuN
characteristics that information should have in order to be useful and of information
value to the organisation: useful information is information
r Quality (accuracy). Information is of high quality if it portrays of high quality, that is relevant,
reality accurately. The more accurate the information, the higher of sufficient quantity and timely
its quality.
r 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.
r Quantity (sufficiency). Managers and employees often complain
about an information overload. Quantity is the sufficient amount
of information available when users need it – more is not always
better.
r Timeliness (currency). Timeliness means the information is
received 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.
*OGPSNBUJPOUFDIOPMPHZJOBDUJPO5
Portsmouth is a scenic city on the Southern coast of weatherproof computer terminal to find out when
England. It attracts nearly 6.5 million visitors per year, the next bus will arrive and what route that bus is
mainly because of its historic role as the home of taking. Passengers can also access their electronic
the British Royal Navy. In order to manage the crush mail, use trip planning software to determine which
of visitors, the city relies on 320 buses which are all bus routes to take, or swipe their credit card to
equipped with computers and quad-division multiple purchase bus tickets. The success of the system
access radio communication. Buses are networked. depends on the accuracy, relevance, quantity and
Passengers who are waiting at bus stops can access a timeliness of the information.

PART III: Planning
The four characteristics of useful information are interrelated and are

essential to the provision of information that serves as a value-added
costs of useful information managerial resource. However, the costs of useful information
useful information involves include:
acquisition, processing, storage, r Acquisition costs. The costs of obtaining data and/or information
retrieval and communication that the organisation does not have.
costs r Processing costs. The costs attached to receiving raw, unanalysed
data and processing it into usable information. Likewise, an
organisation may also receive information, but not in the correct
format or combination that will be helpful in decision-making
processes. In such a case processing costs will also be involved.
r Storage costs. The costs of physical or electronic storage
(archiving) of the information for later retrieval and use.
r Retrieval costs. Data and information will not be usable if it cannot
be retrieved. Retrieval costs refer to the cost of accessing already-
stored and processed data and information.
r Communication costs. Data and information often need to be
communicated to different decision-makers in the organisation.
Communication costs are those costs involved in transmitting data
and information from one place to the other.
In the next section, we examine how organisations organise information

systems so that they can provide managerial end-users with information
that is accurate, relevant, sufficient and current.
LEARNING OBJECTIVE 5 13.5 ORGANISING INFORMATION SYSTEMS

Explain the organisation of An organisation’s corporate or grand strategy feeds down, through
information systems in modern divisional or business unit strategies, into a number of functional
organisations. strategies, such as the marketing strategy, the financial strategy and
also the information systems (IS) strategy. Most organisations organise
information systems in such a way that it has similar status to other
functions of the organisation6. Figure 13.3 on the next page illustrates
the hierarchy of an organisation’s strategies.
As one of an organisation’s functional strategies, IS strategy 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 into more detailed strategy elements. For example, IT
strategy can be developed into a hardware and software strategy; the
manual systems strategy can be developed into a planning and staffing
strategy and the communications strategy can be developed into a data
and voice strategy. In this way, the IS strategy is viewed as an element of
a system of strategies. In many organisations, the IT function operates
as a business within a business, supporting all the other functional units
in a variety of ways. Table 13.1 on the next page provides examples of
some functional units and the IT applications that typically support them.
Senior IS managers and most IS functions have both line and staff
responsibilities. Because of this shared responsibility, IS is a hybrid
organisation in most firms. The next section focuses on the classification
of IS in terms of their use in operations and management support
activities.
Corporate
strategy
Divisional or business
unit strategies
Functional strategies
Figure 13.3: Hierarchy of an organisation’s strategies

5th edition. Cape Town: Juta Publishers.
Table 13.1: 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 recordMeeping and Ƃnancial planning
Administration ofƂce systems and personnel records
Source: Frenzel, C.W. & Frenzel, J.C. 2004. Management of Information Technologies. Canada: Course Technology, p 10.
13.6 CLASSIFICATION OF INFORMATION LEARNING OBJECTIVE 6

SYSTEMS Classify information systems in
terms of their use in operational
ISs perform operational and managerial support roles in organisations. and managerial support.
Figure 13.4 provides a conceptual classification of ISs.
Figure 13.4: The classiƂcation of information systems

PART III: Planning
13.6.1 Operations IS
operations information Operations information systems process data generated by and
system used in business operations. The major categories of these systems and
supports business operations by the roles they play are:
processing data generated by 1. Transaction processing systems. Organisations use transaction-
and used in business operations processing systems (TPSs) 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.
2. Process control systems. 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
reorder system. Reordering from their bottling partners then
becomes a programmed decision. Decision rules outline the
actions to be taken when the IS is confronted with a certain set of
events. Information systems in which decisions adjusting a physical
production process are automatically made by computers are
called ‘process control systems’ (PCSs).
3. Office-automation systems. Office-automation systems
(OASs) 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,
organisations can use word-processing systems. 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 otherwise have to cover to attend
meetings.
13.6.2 Management information systems (MIS)

management information The term management information systems has several popular
system (MIS) meanings. Many writers use the term as a synonym for information
a management information
systems. In this text we use MIS to describe a broad class of IS, the goal
system supports the
of which is to provide information on and support for decision-making
decision-making needs at
by managers.
the operational, tactical and At the operational level, decisions are mainly structured, and MIS
strategic levels of management process transactions as they occur in order to update internal records
and provide reports and documents. At the tactical level, decisions are
semi-structured, and middle-level 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-level managers also access data from external sources to

support their own planning and control activities. At the strategic level,
decisions are unstructured. Top-level management needs information
from internal and external sources in order 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-level
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 computerise than
internal information. Top-level management also needs information
on interest rates, possible changes in tax laws, the latest technological
breakthroughs, substitute products and other variables.
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,
indicated in Figure 13.4 on page 291. These are information-reporting
systems, decision-support systems and executive information systems.
Information-reporting systems (IRS)

Information-reporting systems provide managerial end-users information reporting
with the information reports they need for making decisions. These system (IRS)
systems access databases on internal operations containing information provides managerial end-users
previously processed by transaction-processing systems. Data on with information reports they
the external environment is obtained from external sources. The IRS need for making decisions
processes provide end-users with information reports they need for
making decisions.
Decision-support systems (DSS)

Decision-support systems are a natural progression from decision-support system
transaction-processing systems and information-reporting systems. (DSS)
They are computer-based ISs that provide interactive information provides interactive information
support to managers during the decision-making process. Decision- support to managers in the
support systems use: decision-making process
r BOBMZUJDBMNPEFMT
r TQFDJBMJTFEEBUBCBTFT
r UIFEFDJTJPONBLFSTPXOJOTJHIUTBOEKVEHFNFOU
r BOJOUFSBDUJWF DPNQVUFSCBTFENPEFMMJOHQSPDFTTUPTVQQPSU
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 requests
for information posed as a series of ‘what-if ’ questions. When using a
DSS, managers are exploring possible options and receiving tentative
information based on different sets of assumptions.

PART III: Planning
Executive information systems (EIS)

eZecutive information &YFDVUJWF JOGPSNBUJPO TZTUFNT are management information
system (EIS) systems that are tailored to the strategic information needs of top
a management information management. The function of computer-based executive information
system that supports business systems is to provide top-level management with immediate and easy
operations by processing data access to information on the organisation’s critical success factors – that
generated by and used in is, the factors critical to accomplishing the organisation’s strategic goals.
business operations
13.6.3 Other classifications of information systems
There are several major categories of information systems that provide
unique or broader classifications compared to those just mentioned.
These are information systems 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 ISs,
the internet, the extranet, 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 aware of
the alternatives, the chances 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 unstructured the situation, the more specialised
eZpert system and expensive the advice is. An FYQFSUTZTUFN is a branch of applied
an attempt to mimic human artificial intelligence (AI). Expert systems are an attempt to mimic human
experts consisting of a decision- FYQFSUT *U JT B EFDJTJPONBLJOH BOEPS QSPCMFNTPMWJOH QBDLBHF PG
making and/or problem-solving computer hardware and software that can reach a level of performance
package of computer hardware comparable to – or even exceeding that of – a human expert in some
and software that can reach specialised and narrow area. The logic behind expert systems is simple.
a level of performance Expertise is transferred from the human being to the computer. This
comparable to – or even knowledge is then stored in the computer and users call on the computer
exceeding that of – a human for specific advice as needed. The computer can make inferences and
expert in some specialised and arrive at a specific conclusion. Then, like a human consultant, it advises
narrow area non-experts and explains the logic behind the advice.
Expert systems are used today in thousands of organisations and
they support many tasks. Their capabilities can provide organisations
with improved productivity levels and increased competitive advantages.
&YQFSUTZTUFNJOBDUJPO7
In 2004, the Mayo Clinic and IBM announced a broad and new devices to access information to transform
collaboration to accelerate advances in patient care how patients and physicians interact, leading to
and research with an aggressive set of technology more individualised medical care. Under the
initiatives. The collaboration between the clinic collaboration, the Mayo Clinic was the first medical
and IBM focuses on new techniques to harness institution to tap into the power of IBM’s Blue Gene
patient data in order to improve diagnoses, deep supercomputer.
computing power to model diseases to find cures,

Business function IS
#VTJOFTTGVODUJPO*4T support the functions of accounting, finance, business function IS
human resource management, administration, purchasing, marketing, an information system directly
and operations management. Such ISs are needed by all business supporting the business
functions. For example, marketing managers need information on sales functions in an organisation
performance and trends – provided by marketing ISs; financial managers
need information on financing costs and investment returns – provided
by financial ISs.
The internet
Information on the JOUFSOFU is potentially available to almost everyone internet
in the world. It offers almost unlimited communication opportunities. web of thousands of
The internet can be defined as a web of thousands of international international corporate,
corporate, educational and research knowledge and information bases educational and research
in the public domain that allows any person or institution with access knowledge and information
to a network point and a computer to view, extract and utilise the bases in the public domain
information. One drawback in communication through the internet is that allows any person or
the limited privacy of information sent over it. As a result, finding methods institution with access to a
to make information secure is a high priority of both researchers and network point and a computer
users8. to view, extract and utilise the
Internet access usually provides four primary capabilities: information
r &MFDUSPOJDNBJM FNBJM
FOBCMFTVTFSTUPTFOE SFDFJWFBOEGPSXBSE
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.
r 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 were directly
connected.
r 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.
r World Wide Web (or ‘the Web’) is a set of standards and
protocols that enables 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 site9.
As Web-based systems began to flourish, businesses gained efficiency by

integrating the individual systems 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 sales people and help manage many other important activities10.

PART III: Planning
5IFOJOFUIFNFTPGEJHJUBMDJUJ[FOTIJQ
Due to the increased use of information technology 5. Digital etiquette. Digital etiquette refers to
by all people all over the globe, our society has appropriate electronic conduct. Technology
become an electronic society. An electronic society users should be responsible digital citizens in the
needs to demonstrate digital citizenship, which can new society.
be defined as the norms of appropriate, responsible
6. Digital law. Digital law deals with the ethics of
behaviour in the use of technology. Digital citizenship
technology within a society. Ethical use manifests
is based on nine themes:
itself in the form of abiding by the laws of
1. Digital access. Technology users need to be
society. Technology users need to know that
aware of and support electronic access for
causing damage to other people’s work, hacking
all in order to create a foundation for digital
into other’s information, downloading illegal
citizenship. All people should have fair access to
music, plagiarising, creating destructive worms,
technology, no matter who or where they are.
viruses or creating Trojan Horses, sending spam
2. Digital commerce. Users of technology need to or stealing anyone’s identity or property are
be aware that a large share of market economy unethical.
is being done electronically. Legitimate and
7. Digital rights and responsibilities. There is a basic
legal exchanges are occurring, but the buyer
set of rights extended to every digital citizen.
and the seller need to be aware of the issues
They have the right to privacy, free speech
associated with it. Unfortunately, goods and
and so on. However, with these rights come
services which are in conflict with the laws and
responsibilities. Users must help define how
morals of some countries are also surfacing,
the technology is to be used in an appropriate
such as illegal downloading, pornography and
manner. In a digital society, these two areas must
gambling. Technology users should learn how to
work together for everyone to be productive.
be effective and responsible consumers in a new
digital economy. 8. Digital health and wellness. Eye safety, repetitive
stress syndrome and sound ergonomic practices
3. Digital communication. Digital communication
are issues that need to be addressed in a
options, such as e-mail, cellular phones and
new technological world. Beyond the physical
instant messaging, enable people to keep in
issues, psychological issues are also becoming
constant communication with anyone else.
increasingly important, such as internet addiction.
Everyone has the opportunity to communicate
Technology users should protect themselves
and collaborate with anyone from anywhere and
through education and training.
at anytime. Technology users need to be able to
make appropriate decisions when faced with so 9. Digital security (self-protection). As in any
many different digital communication options. other society, there will also be people who
steal, deface or disrupt other people in a digital
4. Digital literacy. People in a digital economy
community. Technology users are responsible
need to learn about technology and the use of
for their own digital security. Virus protection,
technology. They must also have the ability to
backups of data and surge control of equipment
learn anything, anytime and anywhere. As new
are examples of self-protection.
technologies develop, people need to learn how
to use that technology quickly and appropriately.

The extranet
The FYUSBOFU is a wide area network that links an organisation’s eZtranet
employees, suppliers, customers and other key stakeholders a wide area network that links
electronically. Unlike the internet, the general public does not have an organisation’s employees,
access to an extranet. Its purpose is to provide vast, reliable, secure suppliers, customers and other
and low-cost computer-to-computer communication for a wide variety key stakeholders electronically
of applications, such as sales, marketing, product development and
employee communications.
The intranet
The JOUSBOFU is a semi-private internal network where access is limited intranet
to an organisation’s employees. The intranet uses the infrastructure
a semi-private internal network
and standards of the internet and the Web. It enables managers and
where access is limited to an
employees to communicate with one another and to access internal
organisation’s employees
information and databases for which they have been cleared, through
their desktop or laptop computers. Access to sensitive information,
such as employee salaries and performance appraisals, can be restricted
to particular authorised employees12.
Electronic commerce
&MFDUSPOJD DPNNFSDF FDPNNFSDF
can be defined as the electronic commerce
process of buying and selling goods and services electronically by means (e-commerce)
of computerised business transactions13. The internet has emerged as the process of buying and
the dominant technology for conducting e-commerce. Almost on a selling goods and services
daily basis we read in newspapers of some new organisation that will electronically by means of
sell its products or services online. Three types of e-commerce exist, computerised business
namely business-to-consumer, business-to-business and consumer-to- transactions
consumer. Business-to-consumer (B2C) e-commerce involves selling
products and services to customers over the internet. Although this may
be the most visible expression of e-commerce to the public, the fastest-
growing area of e-commerce is business-to-business (B2B) e-commerce,
which refers to electronic transactions between organisations. Many B2B
transactions take place over the internet. Lastly, consumer-to-consumer
(C2C) e-commerce is made possible when an internet-based business
acts as an intermediary between and among consumers. An example is
web-based auctions where consumers can buy and sell directly between
one another, often handling the entire transaction via the Web.
Figure 13.5 on the next page summarises the relationship between
management information systems and the various levels of management.
Top-level management mainly uses executive information systems
and expert systems in their decision-making and problem-solving
processes. Middle-level management will probably use decision support
systems and business function information management systems, while
lower levels of management will mainly need information reporting
systems, the internet, extranet, intranet and e-commerce. Lastly, on
operational levels, office-automation systems, transaction processing
systems and process control systems will be used to a larger extend
than other types of information systems.

PART III: Planning
Management Operations
Other
information information
classifications
systems systems
Top-level executive expert

management information systems
systems
decision business
Middle-level support function
management systems systems
internet,
information- extranet,
Lower-level reporting
management intranet,
systems e-commerce
office automation systems

Business operations transaction-processing
systems
process control systems
Figure 13.5: The relationship between management information systems

and levels of management
LEARNING OBJECTIVE 7 13.7 DEVELOPING AN INFORMATION SYSTEM

Develop a generic information Most managers are not IS specialists. However, they are IS users in
system for managers. line and staff departments, such as accounting, operations, marketing,
purchasing and so forth. Their performance will, in part, depend on the
quality of the IS support available. It is therefore imperative for end-
users to have a say in the development efforts of IS specialists in order
to ensure that the system meets their information requirements.
An IS 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. In this way, a systems development life cycle emerges, as

illustrated in Figure 13.6. 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.
Figure 13.6: Information system development life cycle

13.7.1 Systems investigation

The first step in the IS development life cycle is systems investigation systems investigation
which involves the determination of the nature and scope of the need determine the nature and scope
for information. If the need is incorrectly or incompletely defined, the of the need for information
entire process could address the wrong issues. Management has to
define these needs clearly so that the systems specialist knows which
systems to use 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 formalised in a written report and submitted to management for
approval before development begins.
13.7.2 Systems analysis

Systems analysis involves many of the activities used when a systems analysis
feasibility study is conducted but it is a more in-depth study of end- an in-depth study of end-user
user requirements. The first step in systems analysis involves a study requirements
of the information requirements of an organisation and its end-users.
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, 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’s specific information requirements as well as the information-

PART III: Planning
processing capabilities required for each system activity to meet these

information needs.
13.7.3 Systems design

Whereas systems analysis describes what a system should do to meet
systems design the information requirements of end-users, TZTUFNTEFTJHOspecifies
specifies how an information how a system will accomplish this goal. The systems specialist plays
system will meet the information the major role because the area now being focused on is seldom one
requirements of end-users in which management plays an active part. 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 the system, its procedures, and the flow
of information graphically. Physical design 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 the types of
hardware, software and human resources needed. Once the proposed
system has been designed, it is implemented.
13.7.4 Systems implementation, maintenance and

security
systems implementation The TZTUFNT JNQMFNFOUBUJPO phase involves acquiring hardware
acquiring hardware and and software, developing software, test programmes and procedures,
software, developing developing documentation and carrying out installation activities. It also
software, testing programs involves the training of end-users and operations personnel.
and procedures, developing 4ZTUFNT NBJOUFOBODF involves monitoring, evaluating and
documentation and carrying out modifying or enhancing a system once it is up and running. It includes
installation activities a post audit, which establishes whether a system satisfies the system
specifications and how efficiently the system investigation activities were
conducted.
systems maintenance
4ZTUFNT TFDVSJUZ is the protection of all resources related to
monitor, evaluate, modify or
information systems in an organisation and is an issue that must be
enhance a system once it is up
addressed in the design and implementation stages. The goals of systems
and running
security are to:
r SFEVDFUIFSJTLPG JOGPSNBUJPOTZTUFNTDFBTJOHPQFSBUJPOT
systems security
r NBJOUBJOEBUBBOEJOGPSNBUJPODPOųEFOUJBMJUZ
the protection of all resources
related to information systems in r FOTVSFJOUFHSJUZBOEUIFSFMJBCJMJUZPGEBUB
an organisation r FOTVSFUIFVOJOUFSSVQUFEBWBJMBCJMJUZPGEBUBBOEJOGPSNBUJPO
resources and online operations
r FOTVSFDPNQMJBODFXJUIQPMJDJFTBOEMBXTQFSUBJOJOHUPTFDVSJUZBOE
privacy.

1BTTXPSEEPTBOEEPOUT14
Any person with access to sensitive and/or 3. Use eight or more characters and include
confidential information has the responsibility unique characters such as &*%$. The longer
to protect these data and information from the password and the more unique characters
unauthorised access. One way of protecting used, the more difficult it is to guess.
data and information, is by using passwords. The 4. Remember your password and do not write
following rules can be helpful in maintaining a strong it down on a sticky note attached to your
password system. computer.
1. In creating a password, do not use any public
5. Change passwords every six weeks.
information such as a part of your name,
address, or date of birth. 6. Do not reuse old passwords.
2. Password software using ‘dictionary attacks’ is
freely available, therefore do not use complete
words that can easily be guessed.

Part III: Planning
CHAPTER SUMMARY
1. Contextualise information management in terms of the decision-making process.
Computer-based ISs play a vital role in the operations, management and strategic success of
organisations. Information systems transform data obtained from an organisation’s external
and internal environments into information that can be used in decision-making.
2. Explain the importance of managing information for sustaining competitive advantage.

Competitive advantage is the ability of an organisation to provide greater value to customers
than its competitors. A sustainable competitive advantage occurs when other organisations
tried unsuccessfully to duplicate an organisation’s competitive advantage. Organisations need
to address three questions in order to sustain a competitive advantage through information
technology. First, does the use of information technology create value for the organisation by
lowering costs or providing a better product or service? Second, is the information technology
the same or different across competing organisations? Third, is it difficult for another
organisation to create or acquire the information technology used by the organisation?

An IS uses the resources of hardware, software and people to perform input, processing,
output, storage and control activities that transform data resources into information products.
Data is first collected for processing (input), then manipulated or converted into information
(processing), stored for future use (storage), or communicated to the ultimate user (output),
according to the correct processing procedures (control).
4. Identify the characteristics and costs of useful information.

Useful information has the following characteristics:
• accurate
• relevant
• sufficient
• timely.
The costs of useful information are:
• acquisition costs
• processing costs
• storage costs
• retrieval costs
• communication costs.
5. Explain the organisation of information systems in modern organisations.

Most organisations organise information systems in such a way that it has similar status than
other functions in the organisation.
ChaPter 13 Information management
6. Classify information systems in terms of their use in operational and managerial support.
Conceptually, an IS can be classified as either an operations or a management IS. Operations
ISs process data that is generated by and used in business operations. The major categories
of such systems are transaction-processing systems, process control systems, and office-
automation systems.
Management information systems constitute a broad class of ISs, the function of which is
to provide information and support decision-making by managers. The types of management
IS needed to support a variety of managerial end-user responsibilities include information-
reporting systems, decision-support systems and executive ISs.
Several major categories of IS provide unique or broader classifications than operations
ISs and management ISs. Examples are expert systems, business function ISs, the internet,
the extranet, the intranet and e-commerce.
7. Develop a generic information system for managers.

An IS is usually conceived, designed and implemented through a systematic development
process comprising the following steps: systems investigation, systems analysis, systems
design, systems implementation, maintenance and security.
KEY TERMS
business-to-business e-commerce information
business-to-consumer e-commerce information reporting system (irs)
business unit strategy information system (is)
competitive advantage information systems strategy
consumer-to-consumer e-commerce internet
corporate strategy intranet
data management information system (mis)
decision support system (Dss) operations information system
digital citizenship software
electronic commerce (e-commerce) systems analysis
electronic mail (e-mail) systems design
executive information system (eis) systems implementation
expert system (es) systems investigation
extranet sustainable competitive advantage
file transfer protocol (Ftp) telnet
functional strategy World Wide Web
hardware
PART III: Planning
REVIEW QUESTIONS
1. Explain the link between information management and the decision-making process.
2. Explain the importance of managing information in sustaining competitive advantage.
4. Identify the most important characteristics and costs of useful information.
5. Explain how information systems can be organised in modern organisations.
6. Classify information systems in terms of their use in operational support.
7. Classify information systems in terms of their use in managerial support.
8. Explain other information systems that cannot be classified as either operations or management
information systems.
9. Explain the steps to be followed in the development of an information system.
END NOTES
L,VDDFVRQ:Steve Jobs/LWWOH%URZQ6LPRQ 6FKXVWHULL>2QOLQH@$YDLODEOHKWWSZZZDSSOHFRP
VWHYHMREVLLLKWWSHQZLNLSHGLDRUJZLNL6WHYH-REV
2ł%ULHQ-$Introduction to Information Systems in Business Management.WKHGLWLRQ+RPHZRRG,UZLQS
:LOOLDPV&ManagementWKHGLWLRQ0DVRQ6RXWK:HVWHUQS
7ULOOLQJ%Towards learning societies and the global challenges for learning with ICT.
:LOOLDPV&Principles of management.WKHGLWLRQ&LQFLQQDWL6RXWK:HVWHUQ&HQJDJH/HDUQLQJS
)UHQ]HO&: )UHQ]HO-&Management of Information Technology&DQDGD&RXUVH7HFKQRORJ\S
>2QOLQH@$YDLODEOHKWWSZZZLEPFRPLEPKLVWRU\KLVWRU\KLVWRU\BLQWURKWPO$FFHVVHGRQ0DUFK
)UHQ]HOHWDORSFLWS
+HOOULHJHO'-DFNVRQ6( 6ORFXP-:Management: A Competency-based ApproachWKHGLWLRQ
&LQFLQQDWL6RXWK:HVWHUQ&ROOHJH3XEOLVKLQJSSŋ
+HOOULHJHOHWDORSFLWS
>2QOLQH@$YDLODEOHKWWSZZZGLJLWDOFLWL]HQVKLSQHW1LQHB(OHPHQWVKWPO$FFHVVHGRQ-XO\
)UHQ]HOHWDORSFLWS
+HOOULHJHOHWDORSFLWS
:LOOLDPVRSFLWS

Chapter 14
Project management
Louis Botha
OPENING CASE
The opening case is based on a fictitious international company, Management@ZA.
Management@ZA systems at each site with training for a local support

Management@ZA with Managing Director Bheki team who will work with the visiting integration
Sindane, is an international financial services specialist in order to familiarise themselves with the
company that is well established in South Africa system. The visiting integration specialist will lead
with major offices in eleven South African cities. the local team in setting up all desktops as well as
The mother company, Management@Inc with coordinating initial user training.
CEO Luke Hands, has acquired a decentralised The integration team will procure and
customer relationship management system that coordinate a specialist training company that will
requires local integration and desktop setup with develop and facilitate user training. A fixed fee
training in system support. South Africa is one of contract of R15 000 per site for user training has
the last countries to receive the system with the been approved by management.
result that the implementation specifications are The roll-out plans include a project charter,
tried and tested. work breakdown structure, network (PERT)
As in other countries, Management@ZA diagram, bar chart (Gannt chart), stakeholder plan,
has adopted a matrix type organisation with a communication plan, change management plan,
dedicated project office and is managed by the human resources plan, cost management plan,
programme director, Carli Sunshine. The roll- procurement plan, risk management plan and finally
out of the customer relationship management a quality management plan.
system forms part of a decentralised programme The mother company sent a team of consultants
aimed at improving total quality management in to develop and fine-tune the roll-out plans in close
Management@ZA offices internationally. working relation with the local implementation
Jhan Louis is the programme manager appointed team that consists of three integration specialists
at Management@ZA. His sole responsibility is of which one will take responsibility for project
to realise the benefits from the total quality management.
management initiative. The customer relationship The Management@ZA team is given below,
management system roll-out in South Africa will indicating the roles, responsibilities and daily charge
include integration with company information rate of each team member.
Name Role and responsibility Charge rate (daily)

,QEM$WUJ +PVGITCVKQP.GCF5RGEKCNKUV2TQLGEV/CPCIGT R5 000
/GTT[ RKDDQPU +PVGITCVKQP 6GCO /GODGT R3 200
$CTT[ ,GEM[NN +PVGITCVKQP 6GCO /GODGT R3 200
PART III: Planning
The additional resource list of Management@ZA, also indicating roles, responsibilities and charge rates,
is given below.
Name Role and responsibility Charge rate (Total cost)

International team Consult to Integration team R250 000
Local Support team Local System Support and training R50 000 (per site)
All Star training Specialist Training company R15 000 (per site)
This information will be used in the chapter be contemplated that will facilitate the realisation
to illustrate the implementation of a project of organisational goals and objectives. In the
management process. context of planning and delivering on goals and
In Chapter 2, planning was identified as the first objectives, we will explore project management as
fundamental managerial function. In Chapter 10, a management philosophy before considering how
various types of organisational plans were examined, best to take advantage of the tools and techniques
namely strategic, tactical and operational plans. of project management.
Further to this, organisational structures need to
LEARNING OBJECTIVES
The purpose of the chapter is to provide an overview of project management. The objective of
1. Explain the philosophy and meaning of project management.
2. Distinguish between the various perspectives of project management.
3. Identify the key role players in project management.
4. Lead and direct the implementation of the project management process and activities.
LEARNING OBJECTIVE 1 14.1 THE PHILOSOPHY AND MEANING OF

Explain the philosophy PROJECT MANAGEMENT
and meaning of project
management. In broad terms the application of project management as a management
philosophy greatly facilitates the deconstruction of work required to
deliver the organisation’s strategic intent. Work is deconstructed in a
top down process to a level that the organisation is willing and able
to manage. During the deconstruction process, work is categorised
at distinct levels starting at the top managerial level with strategy and,
depending on the size of the organisation strategy, is deconstructed to
portfolios that in turn are deconstructed to programmes, programmes
to projects and projects to activities. Final deconstruction of work to
activity level (lowest level of work depicted in the WBS) allows for
organisational resources and assets to be allocated in order to start the
bottom-up planning process. Estimating the total organisational assets
required to achieve the set objectives can then be calculated.
A prime example of where work is deconstructed from strategy and
which subsequently sets organisational structure is found in the South
CHAPTER 14 Project management
African provincial government. Strategic service delivery requirements

are deconstructed to portfolios which, in this case, happens within the
individual government departments, for example education, health, and
housing. All departments are then made responsible to deliver benefits
from programmes which are aimed at contracted service delivery
objectives that are set at national level. These programmes are achieved
through projects with the required activities planned to a level of detail
sufficient to ensure project success. This structure ultimately facilitates
the allocation and management of the required financial resources that
will ensure the delivery of the strategy as contracted.
In Chapter 10, we defined a programme as a single-use plan that
describes a set of activities designed to accomplish a specific objective
over a specified period of time. A programme therefore consists of
related projects working collectively towards the achievement of a
common goal. A programme manager manages a portfolio of projects
and is responsible for the organisational benefits derived from the
programme, which is in contrast to a project manager whose sole
responsibility is bringing their project in on time, within budget and
meeting set project requirements.
Project management uses knowledge, skills, tools and resources project management
to execute activities and to meet clients’ needs and expectations. In a management tool used to
order to achieve this, a project manager needs to be in full control of plan, organise, implement and
the project schedule, cost and requirements. Product and/or service control activities in order to
quality is achieved as a result of finding a systemic balance between the attain a predefined objective,
interrelated constraints of project schedule, cost and requirements. using knowledge, skills, tools
All sources of risk should be taken into consideration from inception and resources to execute
throughout project execution. Traditionally in project management activities to meet clients’ needs
we speak of the ‘triple constraint’ which is made up of time, cost and and expectations
requirements. The triple constraint has been extended to also include
quality and risk.
Considering the triple constraint the project manager needs to be in
control of at least two of the three constraints at all times, in order to
ensure successful delivery as contracted with the stakeholders. These
constraints also serve to differentiate projects where the emphasis
is placed on a specific constraint. A typical example is where project
feasibility is negated by slim financial margins.
Personal values displayed by the project manager towards time, cost
and requirements will also largely influence team behaviour and attitude
in the achievement of quality project objectives. The influence of specific
professions with disparate and, at times, even opposing values should
also be considered. The project manager might be required to strike a
balance between an engineer who values technology and an accountant
who is cost conscious.
Managing any project entails planning, organising, coordinating
and controlling the associated project activities and resources. These
resources can include but are not limited to the following:
r IVNBOSFTPVSDFT
r money
r equipment
r machinery
PART III: Planning
r information systems
r organisational processes
r time.
The identification of these resources should be done by taking a systems

approach whereby all the elements that will contribute toward ultimately
achieving the set objectives are identified, planned for and contracted.
All the elements of the system need to function optimally for the system
to work effectively. An example of an ineffective system could be where
state of the art technology has been deployed but insufficient training
has left the human resources wanting. This reduces the technology to a
white elephant.
In the event of service delivery issues arising, symptoms of poor
performance identified during performance reviews would lead to
analysis of the system elements in order to determine the actual causes.
An example of this would be where time delays are experienced.
Contributing factors could include skills, team conflict or poor planning
to name a few. The fishbone or Ishikawa diagram, also known as the
Cause and Effect diagram, serves as a good tool in undertaking a Root
Cause Analysis (RCA) to determine possible causes to the problem.
Project management can be used effectively in the following
situations:
r to effect improvements and change
r when a task is complex
r when a task requires the integration of activities across functional
lines
r when more resources are needed than are available
r when the task is a unique one-off task
r to implement a strategy
r in situations with a defined start and finish.
Apart from improvement, change and strategy listed above (which are
business objectives focused on throughout the project management life
cycle), the list addresses characteristics typical of project management.
An alternative to project management would typically be a process which
is continuous by nature such as a production line. Project management
has the following advantages:
r Control is exercised over all the activities of the project, which
leads to higher overall productivity.
r Effective project management may lead to a shorter completion
period for a defined project.
r The costs of each activity of the project can and should be
controlled.
r Effective project management can improve the quality of the
product or service.
r Transparency can be improved when all role players are involved.

Project management is characterised by the level of planning undertaken

prior to project implementation. During the planning phase project-
specific tools such as the Work Breakdown Structure (WBS), PERT PERT
or Network Diagram and the project bar chart plus Key Performance Project Evaluation and
Indicators (KPIs) are developed. These project-specific tools and Review Technique – used for
techniques empower the project manager to effectively monitor estimating the delivery of project
and control all aspects of the project relating to schedule, cost and constraints with improved
requirements during implementation. Project managers that understand certainty
best how to take advantage of these tools and techniques consistently
produce the best results. They are consistent in delivering quality outputs,
bar chart
at reduced costs, in acceptable timeframes but more importantly, with
increased stakeholder and customer satisfaction. a chart displaying scheduled
On completing a project, the project manager should ask the project work on a calendar to
following questions in order to determine the efficiency and/or a generally accepted project
effectiveness of project management: standard
r Were the predetermined objectives attained?
r Was the project completed within the planned period of time?
r Was the project completed within the planned budget?
r Was the final product or service the quality that was planned for?
r Were all sources of risk addressed?
r Is the client happy with the final product or service?
These questions form part of the activities undertaken during project

closure. Negative responses to these questions will call for analysis
and provide opportunities to learn. A major challenge facing project
managers, and one that usually catches them off guard, is the amount
of administration and resulting paperwork generated throughout the
project life cycle. Projects that have been administered well generally
prove to be easy to reconcile with minimal conflict between the project
manager and customer. Well-documented projects serve as benchmarks
for future projects specifically concerning risk management and they also
provide qualitative reflection on project achievements.
Most importantly the project closure process informs the
organisation’s knowledge base for future reference.
14.2 PERSPECTIVES OF PROJECT LEARNING OBJECTIVE 2

MANAGEMENT Distinguish between the
various perspectives of project
Project management has both an internal and an external perspective. management.
14.2.1 Internal perspective of project management

Internal projects are those launched within an organisation to use
scarce resources more effectively, improve existing procedures and
methods, ensure more efficient service and improve the quality of the
final product and/or service. To launch internal projects, the project
manager needs to allocate resources, tasks and responsibilities to an
individual or group in order to complete the task within a certain time.

PART III: Planning
However, the project manager remains primarily responsible for the

successful execution of the project. Although the community should
benefit indirectly from effective project management, internal project
management has no direct benefits to the community. External projects,
KnternaN perUpectKXe on the other hand, affect communities directly. Generally the JOUFSOBM
an inward perspective taken
QFSTQFDUJWFof project management allows the organisation to focus
on the efficiency of systems,
on efficiency in relation to system processes and procedures. Before an
methods and procedures
organisation carries out a certain project, they should ask themselves
employed by the organisation to
the following questions:
deliver quality products and/or r *TUIFPSHBOJTBUJPOŴFYJCMFNBUVSFFOPVHIUPJNQMFNFOUQSPKFDU
services management?
r Will the organisation be able to handle the level of quantity
(project scale) and complexity required by the project(s)?
r Lastly, what are the requirements of the client or community?
These questions should be asked in context of the organisation’s level of

maturity in terms of the existence and adoption of project management
processes and organisational assets. Many organisations adopt the
International Standards Organisation (ISO) standards in documenting
their processes but maturity is found in the adoption and even consistent
exploitation of processes.
The level of project management maturity is further characterised
by the specific organisational structure adopted by organisations in
deploying project management. These structures will be discussed
in more detail in Chapter 15 (Principles of organising). At the lowest
level of maturity project management can be deployed in a traditional
functional organisation that is structured hierarchically. In such a case
the role of the project manager is reduced to one of coordination. This
makes their organisational and negotiation skills critical due to a lack of
authority.
Also discussed in Chapter 15 is the matrix type organisation where
the project manager works across functional boundaries. Although the
project manager’s authority is still an issue due to the allocated project
resources having dual reporting lines, this type of structure serves the
organisation better in terms of implementing more complex projects.
The project manager’s authority could be strengthened by the existence
of a Project Management Office (PMO) especially if the head of the
PMO reports directly to the highest authority in the organisation.
Chapter 15 also looks at projectised organisations which are the
most mature in the range of organisational structures. In this case only
the top structure of the organisation enjoys a sense of permanency,
UIF MPXFS MFWFMPSHBOJTBUJPOBM TUSVDUVSF JT GPSNFE BOE EJTNBOUMFE BT
dictated and required by the projects undertaken.
Internal project management has the following advantages:
r Undivided attention can be given to a specific project by every
person working on the project.

r The initial and final responsibility for successful execution of the

project can be given to an independent division.
r Although authority relations (which will be discussed in more detail
in Chapter 15) can become very complex, the flexibility of such
relations compensates for this, so that end results are still achieved
optimally.
Internal projects can be executed at three different levels within an

organisation, namely at the strategic, tactical and operational levels:
r At the strategic level, top managers consider the external and
internal environment of the organisation and formulate the overall
direction of the organisation with assurance of organisational
efficacy.
r At the tactical level, middle managers translate the direction of
the organisation into initiatives which will later become different
projects.
r At the operational level, line managers play the role of project
managers who are responsible for the actual planning, execution
and control of a project.
14.2.2 External perspective of project management

Any community strives to develop and improve its quality of life. Given
the inequalities between communities in a developing society such as
South Africa, upliftment and development programmes are needed.
Project management can be used to coordinate such development
programmes.
In the context of service delivery programmes (or improvement of
quality of life) in South Africa, projects with anFYUFSOBMQFSTQFDUJWF eZternaN perUpectKXe
cannot be managed in isolation. Different government departments an outward perspective taken to
invariably have to collaborate to ensure the success of these projects. determine the effectiveness of
An example of this would be a project aimed at crime prevention where the organisations’ products and/
various departments like Social Development, Housing and Education or services in the market place
will need to collaborate with Safety and Security in order to ensure that
the system finds itself in balance and meets the strategic objective of the
project.
In a broader context, projects with an external perspective are
undertaken in a competitive environment where the work is acquired
through a bidding process through either quotations or tenders as
dictated by the procurement policy of the organisation. From a
government point of view, an internal project manager could be allocated
to oversee the delivery of this work thereby ensuring the achievement
of quality and stakeholder value.
External and internal projects require competent key role players in
order to be successful.

PART III: Planning
LEARNING OBJECTIVE 3 14.3 KEY ROLE PLAYERS IN PROJECT

Identify the key role players in MANAGEMENT
project management.
In any project, two types of role players can be distinguished, namely
LFZ SPMF QMBZFST and supporting role players. The project team
Me[ roNe pNa[erU consists of a group of people with different, yet complementary skills.
in the project management Key role players in the project management process are the strategic
process these are the strategic manager, the tactical or programme manager, the project sponsor and
manager, the tactical or the operational or project manager. The project management office is
programme manager, the responsible for monitoring programmes and projects. Lastly, the client is
project sponsor and the the person or institution which originated the request and is the owner
operational or project manager of the final product or service of the project.
Figure 14.1 illustrates the organisational structure of the opening
case, Management@ZA.
Management@ZA

$heki 5indane
National Programme OfƂce

Carli 5unshine
Gauteng KZN (ree 5tate Cape

Programme Manager

Jhan Louis
Durban Bloemfontein Worcester
Johannesburg
East London
Pietermaritzburg
Project Manager
Port

Jock Bush Elizabeth
Port
5hepstone
George
Cape Town
Beaufort West
(KgWre Organisational structure of Management@ZA
14.3.1 Strategic manager (programme director)

The strategic manager, together with the managerial team, analyses
the internal and external environments of the organisation. They then
define the strategic direction and priorities of the organisation as a
whole, taking all potential sources of risk into consideration. A healthy
internal environment ensures organisational efficiency which addresses

the speed and cost with which quality outputs are delivered. A strong
focus on the external environment in turn ensures organisational
effectiveness, measured largely by customer satisfaction. Organisational
efficacy finds a balance between the internal and external focus of the
organisation.
14.3.2 Tactical manager (programme manager)

The UBDUJDBMNBOBHFStranslates the strategic priorities and goals (as tactKcaN manager
formulated by the strategic manager) of the organisation into potential manages at the tactical level
programmes, consisting of various projects. The tactical manager assists (middle management) and
the project manager with any issues that occur during the implementation ensures that systems, methods,
of the project. Corrective action must be taken on issues that influence processes and resources are
the project’s progress and successful completion. The tactical manager available and in place to deliver
is then responsible for ensuring that the projects relating to their the organisation’s strategy
programme produce the expected organisational benefits.
14.3.3 Project sponsor

In project management the QSPKFDU TQPOTPS is not necessarily the project UponUor
person holding the purse strings of the project, but rather the person mediates at the strategic
in the project who will remove obstacles encountered by the project level on behalf of the project
team during the entire project life time. The project sponsor normally is manager/team
a well-connected, influential senior person in the organisation with open
communication channels to the top of the organisation.
14.3.4 Operational manager (project manager)

The PQFSBUJPOBMNBOBHFS is responsible for the planning, execution, operatKonaN manager
control and finalisation of the project. He or she compiles a project plan manages at the operational
which states how, when, where and by whom the various tasks will be level (lower management) and
done. The project manager ensures that the project objectives are met ensures that systems, methods,
within the project constraints thereby bringing the projects in on time, processes and resources are
on budget and meeting user requirements with consistent quality. optimally used to deliver tactics
that support the organisation’s
14.3.5 The project team strategy
The QSPKFDUUFBN should comprise people with different skills to assist
the project manager in the planning and implementation of a project. project team
Each member of the team has an individual responsibility aimed towards a cohesive group of
the project’s implementation. Team members with the right skills are professionals working together
allocated to the appropriate activities at the right time. The just-in-time to achieve contracted project
principle is generally followed with resource allocation and when their deliverables
work is completed, they return to the functional environment they came
from. project management oHƂce
an office that forms part of the
14.3.6 The project management office (PMO) organisation’s structure and is
The QSPKFDU NBOBHFNFOU PŵDF is responsible for overall project responsible for the management
quality in the organisation and their responsibilities generally include: and administration of project
r %FWFMPQNFOUBOENBJOUFOBODFPGQSPKFDUNBOBHFNFOUQSPDFTTFT specific systems, processes,
Project management policies, processes and procedures are procedures, methods, tools and
techniques
PART III: Planning
developed, documented and maintained. The PMO further

develops and maintains document templates and ensures the
effective and uniform utilisation of the processes and documents.
r "DRVJTJUJPOBOEVUJMJTBUJPOPG QSPKFDUNBOBHFNFOUTZTUFNTBOE
tools. Project management systems could include a workflow
management system that enables cross-functional collaboration,
planning and scheduling tools, document management including
version control, and a single project database (project repository).
r 1SPKFDUNBOBHFNFOUTLJMMTBOEEFWFMPQNFOU&OTVSFUIF
availability and development of project management skills in
terms of the science, art and industry certification in relation to
work requirements. The PMO will take responsibility for setting
standards whereas the project manager will be responsible for
ensuring that the available skills set on the project will meet project
specific quality requirements.
r 1SPKFDUNBUVSJUZ"TTVSBODFPG PWFSBMMQSPKFDURVBMJUZNBZCFEPOF
by the measurement of processes, procedures, systems and people
used to deliver project objectives against set quality standards
which may be informed by benchmarking.
r 1SPKFDUBENJOJTUSBUJPO.BUVSF1.0TFWPMWFUPCFDPNFUIF
administrative hub for all project-related activities which would
include the management of a knowledge base utilised for
organisational learning. Administration centres around monitoring,
control and reporting on projects as well as programmes. The
PMO also facilitates the change management process adopted for
managing the approval of extensions or scope changes.
14.3.7 The client

cNKent The DMJFOU is the recipient of the project deliverables. The client
recipient of the project originates the request on which the project is planned and this individual
deliverables or organisation is the most important entity in the project management
process.
A project team usually also involves supporting role players, which
may include subject specialists (not necessarily the project manager),
a communications expert and representatives from human resources
management, finance, logistics, information systems and management.
The key role players are responsible for executing the project
management process successfully.
LEARNING OBJECTIVE 4 14.4 THE PROJECT MANAGEMENT PROCESS

Lead and direct the To enable managers to launch or control a project effectively, practical
implementation of the project steps in a logical framework and structure should be followed. The logical
management process and process followed is dictated by the progressive work elaboration where
activities. the output of a tool serves as input to the next tool under development.
Figure 14.2 on the next page illustrates the project management process.

5tep Identify need for the project
5tep Choose the project team and appoint the project manager
5tep Develop a UBDUJDBMQSPKFDUQMBO tactKcaN project pNan

a plan for delivering strategic
project objectives
5tep Develop the RVBMJUZNBOBHFNFOUQMBO
SWaNKt[ management pNan
5tep DeƂne change control procedure a plan describing how project
management quality will be
ensured during the project life
5tep Develop stakeholder plan cycle
5tep Develop communication plan
5tep DeƂne the scope of the project
5tep Develop the project schedule with the following:

The work breakdown structure
WB5
PERT diagram
Bar chart
Human resources plan
Procurement plan
5tep Develop the project budget
5tep Develop key performance indicators
5tep Conduct the risk management plan
5tep Implement the project
5tep Monitor and control project activities
5tep Close project
(KgWre The project management process

PART III: Planning
An important fact to consider at this point is to acknowledge the

difference in the purpose of the project specific tools during planning as
opposed to implementation. These differences are important enough to
state here and revisit again later in the chapter where they are addressed
in more detail.
project charter A project charter is developed during the scoping exercise with
the main purpose of identifying all inclusions as well as exclusions of
project document authorising
the project. The inclusions are used during the planning process as
the project, allocating resources
input to the work breakdown structure (WBS). After completing the
and chartering project work
implementation process the charter is used to verify that the project
outputs met the contractual obligations.
The WBS is used during planning as a means to deconstruct the
contracted work, whether strategy, product or service related. The
deconstruction organises the work in deliverables as required. The final
process in developing the WBS is the allocation of Cost Account Codes
(informed by standard codes as applied by the organisation such as
wages, taxes, fuel, stationery, etc.) to activity levels which then facilitates
the allocation/booking of all expenses to the associated codes during
implementation. The choice of the financial application utilised should
be influenced by its ability to integrate a WBS with its system. As a result,
the WBS then becomes the guideline by which the project accountant
functions. With this level of detail included, the WBS serves to optimise
the project manager’s ability for cost allocation, aggregation, monitoring
and control.
The work is deconstructed to a level that the project manager is
willing and able to manage and control. The standard upheld by project
managers generally dictates that the WBS should rarely be deconstructed
beyond five levels with the lowest level constituting work packages.
The PERT (better known as the network diagram) is derived from
the WBS and an important consideration is to only include activities
from the same level of the WBS in the network diagram. The network
diagram organises activities from left to right in related paths. During the
planning phase the network diagram provides the means to determine
schedule constraints by identifying the critical path (longest path in the
network) and the level of flexibility in the other paths that would indicate
by how much they can be delayed before they become critical. During
project implementation the network diagram serves to allocate activity
priorities as focus areas and allows the observer to identify the knock-on
effect when priorities are not achieved as planned.
The bar chart (also called Gannt Chart) is the project calendar
and portrays activities as bars against a calendar proving a visual effect
over time. If colour is introduced with intelligence to plot performance
progress, the bar chart can be used as a source of information that
indicates resource productivity. A resource allocation calendar may be
combined with the bar chart in order to optimise resource utilisation.
The steps involved in the project management process are outlined
in the next section.

Step 1: Identify the need for a project. The first step in the project
management process is to identify the need for a project. Several
methods can be used, which can be divided into formal and informal
methods. Examples of formal methods are questionnaires, scientific
surveys and opinion polls. Examples of informal methods are debates at
community committees, discussions and observations.
When identifying the need for a project, it is important that any
information should be based on facts and not merely on personal
PQJOJPOT BOEPS BTTVNQUJPOT 5IF JEFOUJųFE OFFET BSF DBQUVSFE JO B
business case that addresses the feasibility and motivates the project.
The stakeholders who will be affected by the end results of the project
must find the project acceptable and they must support it.
Step 2: Choose the project team and appoint a project manager.
Once the project has been approved, the next step is to appoint a
project team. When deciding on the members of the project team,
it is important that they must be knowledgeable in several specialised
areas, depending on the nature of the project. For example, a financial
specialist is necessary to manage and control the budget, a human
resources expert is necessary to manage the people and a public
relations expert is necessary to create a positive and favourable image
amongst all stakeholders. An effective and efficient project manager
is needed to ensure that the project will attain its objectives within
set quality parameters and within the limited budget and time. Project
managers should have the following characteristics:
r the ability to see the project as a whole, its purpose and the
activities needed to attain its purpose
r organisational experience
r experience in leadership, management, teamwork and motivation
r the ability to contact and build relationships with all stakeholders,
such as the community, project members, suppliers and so on
r project management skills with the ability to coordinate the
project’s activities as well as its diverse pool of resources
r effective communication, negotiation and procedural skills
r the ability to delegate and control the activities of the project team
r the ability to manage adversity and applying risk management in the
process.
Step 3: Develop a tactical project plan. In order to attain the purpose
of the project, it should be divided into logical, progressive steps. The
members of the project team must gather information on all aspects
relating to the project. Project planning mainly involves a tactical plan,
stakeholder plan, communication plan, project schedule, a QSPKFDU project bWFget
CVEHFU(a plan for project expenditure) and supporting documentation. the plan for project expenditure
The tactical plan developed for the project serves to contract the
policies and procedures that will be applied to ensure the project
deliverables are met. The plan addresses the leadership and management

PART III: Planning
principles of the project and includes, but is not limited to, policies on
quality, stakeholders, communication, people, finances and risk.
Step 4: Develop the quality management plan. Quality in project
management must, like all other deliverables, be planned for and will not
happen automatically. Quality can be designed into the process by taking
advantage of a number of quality principles. A widely used approach is
Total Quality Management (TQM) which is a people centered approach
and has the objective to satisfy customers, which supports the principles
of project management. TQM was also discussed in Chapter 1. In the
context of project management the main pillars of TQM are:
r 4ZTUFNTBQQSPBDImBTEJTDVTTFEFBSMJFSJOUIJTDIBQUFS BMMUIF
system elements must be identified, and for the system to be
effective all elements should function optimally.
r $VTUPNFSGPDVTmUBLJOHBDVTUPNFSGPDVTJTBQIJMPTPQIZPO
treating people as customers who are internal or external to the
organisation or project. With this philosophy everybody takes
responsibility for the quality of their own work deliverables and in
this way quality is designed into the process.
r 1FPQMFJOWPMWFNFOUmUIFQSPKFDUNBOBHFSUBLFTBGBDJMJUBUJWF
approach to people and ensures their involvement in all aspects of
planning. This approach ensures that people take ownership of the
project objectives and deliverables.
r 1SPDFTTPG DPOUJOVPVTJNQSPWFNFOUmJNQSPWFNFOUJOBMMBTQFDUT
of delivering quality work output can only be achieved through
continuously measuring work output against set objectives. The
BEPQUJPOPG UIF 1BSFUP
QSJODJQMFBTTJTUTJOGPDVTJOHFŲPSUT
on project aspects that largely affect quality.
Step 5: Define the change control procedure. The one certainty
of management, whether engaged in projects or not, is that things
will change. In project management uncertainty prevails in customer
requirements that in turn will impact on cost and schedule. In order to
manage scope changes as well as extensions to the project, a change
control procedure should be adopted that allows for screening and
approval of changes by a change control committee. As discussed earlier
the PMO should manage the approval process with the project manager
taking responsibility in preparing submissions or change requests put
forward to the committee. A well administered change process will
prevent conflict during project close-out and ensure timely reconciliation.
change management pNan Table 14.1 on the next page provides an example of a DIBOHF
NBOBHFNFOUQMBO of the opening case Management@ZA.
a plan describing how
proposed changes to the
project scope will be managed

TabNe Change management plan
Change control procedure

estaDlisJ a cJange control committee
contract cJange control committee memDers
log cJange reSuest
analyse cJange reSuest
prepare motiXation and suDmissions to committee
arrange cJange control committee meeting
attend meeting and maMe suDmissions
compile minutes oH meeting YitJ decisions outlined

distriDute and implement decision on cJange reSuest
close cJange reSuest log
Change control committee

Committee Member Position Contact Role
$JeMi Sindane *ead oH /gt"<A 555-12324 *onorary
Carli SunsJine Programme Director 555-45231 CJairperson
,Jan Louis Programme /anager 555-67687 Recommendation
,ocM $usJ ProLect /anager 555-92345 TaDle suDmissions
Step 6: Develop the TUBLFIPMEFS QMBO. This is a plan describing UtaMehoNFer pNan
how stakeholder relations will be managed during the project life a plan describing how
cycle. Project stakeholders are people with an interest in the project stakeholder relations will be
and who are able to influence the project deliverables in one way or managed during the project life
another. The stakeholders’ attitude toward the project together with cycle
their ranked interest and influence will indicate risks associated with the
particular stakeholder. The needs and associated risk is used to develop
a stakeholder plan to ensure that requirements and needs are ultimately
met with satisfaction.
Table 14.2 on the next page illustrates the stakeholder identification
and requirement analysis for Management@ZA.
Table 14.3 on the next page provides an analysis of stakeholders
for Management@ZA in terms of their interest in the project (high or
low), the influence that they can exercise (high or low) and their attitude
towards the project (for example supportive or indifferent).

PART III: Planning
Table 14.2: 5takeholder identiƂcation and reSuirement analysis
Stakeholder Position Requirements

Luke Hands Head of Mgt@Inc drive international shareholder value
Mgt@Inc Management team of Mgt@Inc country contribution to shareholder interest
Bheki Sindane Head of Mgt@ZA create an environment in South Africa, conducive to
effective and efƂcient delivery of shareholder eZpectations
Mgt@ZA All employees of Mgt@ZA professional Yorking environment Yith Yorld class
employees resources and tools
Carli Programme Director of Mgt@ZA realise maZimum beneƂt from all Management@ZA
Sunshine programmes
Jhan Louis Programme Manager of Mgt@ZA maZimum beneƂt from the CRM system contributing to
responsible for the T3M programme effective customer relations as part of T3M
International Team of visiting consultants set local integration team up for successful
team implementation of the CRM system
Integration SA integration team bring the CRM proLect in on time, Yithin budget and
team meeting customer requirements
Local support Local support team at each SA ofƂce become comfortable and knoYledgeable enough Yith the
team neY CRM system to install and support it
Mgt@ZA IT SA management team of Mgt@ZA understand Yhat Yill be required from it during
team implementation and support in order to contract service
levels
Organised Labour unions representing labour gain mileage for their union Yith their involvement
labour
Table 14.3: 5takeholder analysis
Stakeholder Interest (H/L) Inƃuence (H/L) Attitude

Luke Hands high loY supportive
Mgt@Inc loY loY supportive
Bheki Sindane high loY supportive
Mgt@ZA employees loY high indifferent
Carli Sunshine high loY supportive
Jhan Louis high high supportive
International team high loY supportive
Integration team high high supportive
Local Support team high high supportive
Mgt@ZA IT team loY loY supportive
All Star training high high supportive
Organised labour loY high supportive

The information contained in Table 14.3 (stakeholder analysis) is used

in Table 14.4 to compile a stakeholder matrix with two axes and four
quadrants. On the horizontal axis, stakeholder influence is plotted,
and on the vertical axis, stakeholder interest is plotted. In the top left
quadrant, stakeholders are listed that have a high interest but low
influence on the project. The most appropriate strategy is to keep these
stakeholders satisfied. In the top right quadrant, stakeholders are listed
that have a high interest in and high influence on the project. The best
strategy is to build strong relationships with these stakeholders. The
bottom left quadrant lists the stakeholders with a low interest in and low
influence on the project; they should receive the minimal effort from the
project team. Lastly, the bottom right quadrant lists the stakeholders
with a low interest in and a high influence on the project; they should be
kept informed about the project progress.
Table 14.4: Stakeholder matrix
High interest LoY inƃuence High interest High inƃuence

-eep satisƂed Build strong relationship
Stakeholders Stakeholders
Luke Hands Jhan Louis
Bheki Sindane Integration team
Carli Sunshine Local Support team
International team All Star training
LoY interest LoY inƃuence LoY interest High inƃuence

Minimal effort -eep informed
Stakeholders Stakeholders
Management@Inc Management@ZA employees
Management@ZA IT team Organised labour
The stakeholder matrix in Table 14.4 is used to compile a tactical plan

for each stakeholder group in Table 14.5 on the next page.
Step 7: Develop the communication plan. This is a plan describing a communication plan
communication flow during the project cycle. The project team informed a plan describing
by the stakeholder analysis is able to segment or group stakeholders communication flow during the
according to the influence and interest ranking which allows the team to project life cycle
structure an effective communication plan. A close relationship should
be fostered with stakeholders with a high interest and influence and
conversely stakeholders with a low interest and influence should receive
minimal effort. These aspects of the communication plan may at times
be kept confidential due to sensitivity which may prove career limiting.
Table 14.6 provides the stakeholder protocol requirements for
Management@ZA as per escalation procedure.

PART III: Planning
Table 14.5: Stakeholder tactical plan
Stakeholder group Tactical plan for stakeholder group

(interaction/communication/reporting)
LoY Interest and LoY Inƃuence Create a landing page on the company intranet and post milestone
Minimal effort reports
Establish a Facebook page with an events timeline
Create a general Twitter account for ‘push’ communication to
stakeholders in general
Invite stakeholders to take advantage of these communication
mediums
LoY Interest and High Inƃuence Invite to take advantage of social media channels
Keep informed
Put on mailing list for published newsletter articles
Host a public event and invite keynote speakers
High Interest and LoY Inƃuence Set up a communications forum that meets with this group on a
Keep satisƂed monthly basis
Invite feedback and comments
High Interest and High Inƃuence Set up one-to-one meetings with these stakeholders and contract
Strong relationship to meet requirements
Compile two-weekly status reports
Appoint a relationship manager who will also deliver the status
report
Table 14.6: Stakeholder protocol requirements
Stakeholder Protocol
Luke Hands All communication with Luke Hands to be channelled through Bheki Sindane
Mgt@Inc All communication to functional divisions at Mgt@Inc to be channelled through the
respective programme ofƂces
Bheki Sindane Although Bheki Sindane practices open door policy, it is preferred that communications
directly to Bheki Sindane be channelled through Carli Sunshine
Organised labour Communicate labour relations matters through the ofƂce of the labour union
Table 14.7 on the next page illustrates a project communication plan,

with communication requirements pertaining to each individual, the
communication medium and the frequency of communication.

Table 14.7: The project communication plan
Stakeholder Communication requirement Medium Frequency of

communication
Luke Hands No direct project communication required, only Completion notiƂcation 1

needs notiƂcation that South Africa is online
Mgt@Inc No direct project communication required, only Electronic high-level Ƃnal 1

needs to know that the new system is fully report
functional and integrates with the international
platform
Bheki Periodic high level status report indicating Electronic high-level status 4
Sindane progress per province report
Mgt@ZA Needs to know the beneƂts and impact of the Motivation 1

employees new system
Must be kept up to date with the implementation Project progress via Facebook on demand
of the new system
Carli Needs to be kept abreast of the programme Electronic programme status 3

Sunshine beneƂts realised from all programmes report
Jhan Louis Needs to be kept abreast with on-going project Electronic monthly status 3
progress report
Meeting with project manager 3
International Needs to know how effective the South African Periodic electronic issue and 4
team integration team is coping with the system risk report
implementation
Integration Need to stay In contact with each other as Skype meetings 6 (Mon and
team they progress on the separate paths leading to Fri)
completion Electronic weekly status 3 (Fri)
reports
Local Issues encountered by other local support teams Issue reports – Facebook and daily
Support Twitter
team Daily update on local progress Team meetings daily
Mgt@ZA IT IT issues encountered during implementation Issue report as required

team Needs to stay abreast of provincial progress in Facebook; Twitter as required
order to gear up for IT support on completion of Programme status report 3
the project
All Star Needs to be well informed on local site issues Site training analysis 11 (one per
training Will be required to report on all training site)
undertaken Training report 11 (one per
site)
Organised Needs to know the impact on members during Facebook updates as required
labour implementation

PART III: Planning
project Ucope Step 8: Define the QSPKFDUTDPQF. With the project tactics and the
the boundaries that scope various plans in place, the next task of the project manager and the
project deliverables by defining project team is to define the project so that each member of the team
inclusions and exclusions knows exactly what is expected of him or her. A project charter is
developed to define the project scope and can include the following:
r the beneficiaries of the project
r the purpose and objective of the project
r the scope of the project
r the quality parameters of the project
r any factual information and community approval
r the planned completion date
r the resources required to execute the project
r the available resources of the project
r the estimated costs, for example of material, components,
transport, human resources and so on
r any sources of risk that may be an obstacle to attaining the
purpose of the project within the time and cost constraints
r assumptions made.
Table 14.8 on the next page illustrates the project charter for the
Management@ZA Customer Relationship Management (CRM) project.
project UcheFule Step 9: Develop the QSPKFDU TDIFEVMF. The development of the
project schedule involves several actions. Working from the project
sequence of project activities
charter, the work breakdown structure is developed, followed by the
together with planned durations
network diagram and bar chart. The WBS, network diagram and bar
and time table
chart forms the basis for the development of the human resources and
procurement plans.
The project scope results in the development of the WBS which,
as discussed earlier, has the objective of deconstructing the project
work down to activity level. With the allocation of a code, the accounts
section prepares for the allocation of costs or expenses during project
implementation.
There are two recognised methods of developing a WBS, the first
being the facilitation of a brainstorming session. The activities required
to deliver the work are identified and recorded before they are organised
in groups associated with either deliverables, phases, product or any
other grouping that makes sense. The second (and preferred) method
starts from the project charter, taking the deliverables identified there
and decomposing them to the required level that makes sense. This is
done for Management@ZA and is illustrated in Table 14.9 on page 326.

Table 14.: Project charter
CRM project charter

Project name Mgt@ZA CRM Roll-Out Approval
Project manager Jock Bush Approval
Project customer Bheki Sindane Approval
Project sponsor Carli Sunshine Approval
Project objective To roll out a world-class Customer Relationship Management system for the
eZpeditious delivery of new Management@ZA customer interventions within
18 days of commencement with a budget of R1 400 000
What we expect to deliver System roll-out to eleven major sites
Integrated customer relationship system
CRM policies and procedures
Support team training
Desktopuser training
User guidelines
What we expect NOT to do System modiƂcation
Hardware upgrades
What someone else must do Hardware audit
Form an interest group
What the customer must do Arrange user training
Ensure attendance and participation
Project constraints Short roll-out time
Current tools and processes
Project assumptions Management buy-in
Initial deƂned risks Resource availability
User availability
Management requirements
To be determined Skills assessment
Tools and system assessment

PART III: Planning
Management@ZA CRM
Roll-out
Gauteng KZN Free State Cape
Durban Bloemfontein Worcester

Johannesburg
East London
Pietermaritzburg
Port Elizabeth
Port
Shepstone
George
Cape Town
Beaufort West
Figure 14.3: Work breakdown structure
Project managers utilise scheduling tools such as Microsoft Project

for small-scale projects and Primavera or even Artemis for large-
scale projects. These scheduling tools provide views of the different
perspectives in projects. The trap that many self-taught project managers
fall into is working singularly from the bar chart view without realising that
the project planning process starts sequentially with the project charter,
from which the WBS is developed, followed by the PERT diagram and
finally the bar chart. The Project Evaluation and Review Technique
(PERT) diagram, also called the network diagram, is developed by
arranging the activities from the WBS into related paths by observing
dependencies between activities and sequencing them accordingly.
The arrangement is done between an activity defining the start of the
project and an activity that ultimately defines the closure of the project.
In general the dependency relationship most widely used is called the
finish-start (FS) relationship, whereby the successor can only start if all
predecessors are complete. There are other dependency relationships
but for simplicity we recommend sticking to FS relationships.
Once all the paths through the network have been established, the
process of determining the critical path and the amount of flexibility
through the other paths can begin. The duration of each activity is
estimated and then the critical path is determined by undertaking
a forward and then a backward pass through the network. With the
forward pass the durations of each activity is added to the previous

activity until we are able to determine the completion date of the

project. The backward pass works from the completion date backwards
and the activity durations are subtracted to the point where we arrive at
the same start date we worked from in doing the forward pass.
The forward pass determines the early start and finish dates for each
activity and the backward pass calculates the late finish and late start
dates of each activity. By subtracting the early finish of each activity from
its associated late finish we are able to calculate the float available in the
specific path. A path with zero float is critical and a path that has float is
as flexible as the amount of float would suggest.
Figure 14.4 illustrates the PERT diagram for Management@ZA.
4 6 6 9 9 11
F G H
EL PE GRG
2D 3D 2D
6 8 8 11 11 13
F=2 F=2 F=2 TF=2
free
0 1 1 4 4 9 9 13 ƃoat 13 15
A B C D E
JHB BFN BFW WST CT
1D 3D 5D 4D 2D
0 1 1 4 4 9 9 13 13 15
F=0 F=0 F=0 F=0 F=0
1 4 4 8 8 1
I J K
PMB DBN PS
3D 4D 2D
4 7 7 11 11 13
F=3 F=3 F=3
TF=3
ES EF ES = Early start EF = Early + Duration
Name EF = Early Ƃnish LS = Late Finish s Duration

duration LS = Late start Float = Late Finish s Early Finish
LS LF LF = Late Ƃnish Total Float = LF s ES s Duration
F=X
Figure 14.4: PERT diagram
The bar chart (otherwise called Gantt Chart) is a graphic representation

showing the activities on a calendar, scaled to accommodate the timeline.
Project managers can monitor the progress of the project by comparing
planned progress against actual progress. The activities are represented
by bars on the timeline which are informed by the early start and finish

PART III: Planning
times taken from the network diagram calculation. Where there is float
available the schedule flexibility is indicated by showing the late finish
time.
Once the schedule for the project has been drawn up, the necessary
funds and resources must be allocated to the project. A budget is drawn
up for this purpose.
Table 14.9 illustrates the bar chart, human resources and procurement
calendar for Management@ZA’s CRM Project.
Table 14.9: Bar chart, human resources and procurement calendar – CRM project
Work days
# Activity Name 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
A Johannesburg
B Bloemfontein
C Beaufort West
D Worcester
E Cape Town
F East London
G Port Elizabeth
H George
I Pietermaritzburg
J Durban
K Port Shepstone
Work days
Resource Name 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Jock Bush A B B B C C C C C D D D D E E
Mary Ribbons B B B F F G G G H H E E
Barry Jeckyll l l I J J J J K K E E
JHB Local Team A
BFN Local Team B B B
BFW Local Team C C C C C
WST Local Team D D D D
CT Local Team E E
EL Local Team F F
PE Local Team G G G
GRG Local Team H H
PMB Local Team I I I
DBN Local Team J J J J
PS Local Team K K
All Star Team A A B B B C C C C C D D D D E E
All Star Team B B B B F F G G G H H
All Star Team C I I I J J J J K K
Work days
Procurement Budget 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Training Johannesburg 15000
Training Bloemfontein 15000
Training Beaufort West 15000
Training Worcester 15000
Training Cape Town 15000
Training East London 15000
Training Port Elizabeth 15000
Training George 15000
Training Pietermaritzburg 15000
Training Durban 15000
Training Port Shepstone 15000
Daily Total 15000 30000 0 0 45000 0 15000 0 15000 30000 0 0 0 15000 0

With all activities defined, durations estimated, sequenced according to

defined relationships, and schedule flexibility determined, resources with
the requisite skills can be allocated as called for. The activities as defined
and described in the WBS dictionary will inform the skill sets required,
the skills level and number of skills for each activity. The next step will
be to determine the availability of people with the necessary skill sets
within the organisation and skills sets that might have to be contracted
into the organisation. A skills audit may be conducted when securing
resources that potentially have the requisite skills, which would also be
used to develop a training and skills development plan for meeting the
project quality requirements. Given the activities and having determined
the skills requirement, the project team is able to match people to
activities as scheduled on the bar chart.
Table 14.10 gives the resource management plan for resource management plan
Management@ZA’s CRM Project. a plan describing project
resource management,
allocation and utilisation
Table 14.10: Resource management plan
Activity Duration Integration Integration Local support Support Man Total cost
specialist costs @ costs @ days per site
R5 000 R4000
ppd ppd
1 Meeting JHB 1 day 3 Integration R15 000 3 Support staff R12 000 6 R27 000
specialist
2 Install BFN 3 days 2 Integration R30 000 2 Support staff R24 000 12 R54 000
specialist
3 Install BFW 5 days 1 Integration R25 000 2 Support staff R40 000 15 R65 000
specialist
4 Install WST 4 days 1 Integration R20 000 2 Support staff R32 000 12 R52 000
specialist
5 Meeting CT 2 days 3 Integration R30 000 2 Support staff R16 000 10 R46 000
specialist
6 Install EL 2 days 1 Integration R10 000 2 Support staff R16 000 6 R26 000
specialist
7 Install PE 3 days 1 Integration R15 000 2 Support staff R24 000 9 R39 000
specialist
8 Install GRG 2 days 1 Integration R10 000 2 Support staff R16 000 4 R26 000
specialist
9 Install PMB 3 days 1 Integration R15 000 2 Support staff R24 000 9 R39 000
specialist
10 Install DBN 4 days 1 Integration R20 000 2 Support staff R32 000 12 R52 000
specialist
11 Install PS 2 days 3 Integration R30 000 2 Support staff R16 000 4 R46 000
specialist
TOTAL R220 000 R252 000 99 R472 000

PART III: Planning
The scale of the procurement function in a project could result in

procurement being treated as a project in its own right. Projects that
require sourcing of products, materials or services to be contracted into
the project will need to establish a procurement plan that would address
the policies and procedures around how the project will conduct, control
and close the procurement function. In some cases a decision will need
to be made whether to make or buy products, services or even people.
The procurement plan is informed by the project plan together with
a bill of materials that addresses and quantifies product, material and
service requirements. In essence the procurement plan results in the
generation of work orders through a process that invites and contracts
suppliers. Company procurement policy will dictate the invitation
process in terms of supplier and purchasing relationships with guidelines
in choosing to request information, proposals, quotations or having to
go through a tender process.
The supplier relationship is governed by a contract that seeks to
balance project risk with the contractor’s risk. The type of supplier
contract chosen will be influenced by the project environment and
must seek to facilitate the need to best deliver quality requirements by
exploring cost and price issues.
The end result of the procurement plan is captured in alignment
with the project bar chart by indicating time scales on the delivery of
products, materials or services. In the case of large-scale procurement
where the procurement function is treated as a project, the end result
will be a procurement charter, WBS, network diagram and bar chart.
Management and control of the procurement function is greatly assisted
by the availability of these project tools and techniques.
Step 10: Compiling the project budget. A budget is a plan that deals
with the future allocation and utilisation of various resources with regard
to project activities over a given period. Budgets are typically thought
of in financial terms, but also in terms of the allocation and utilisation
of raw materials, labour, office space, machine hours, computer time
and so on. A budget can be seen as a tool that project managers use
to translate project plans into quantitative terms. Although budgeting
is an important part of planning, it also serves as a control mechanism
for evaluating project activities. A budget exercises control in two ways:
r It sets limits on the amount of resources that can be used in the
project.
r It establishes standards of performance against which future
projects will be compared.
Budgets have the following characteristics:

r They are most frequently stated in monetary terms.
r They cover a specific period (the duration of the project).
r They contain an element of management commitment.
r They are reviewed and approved by an authority higher than the
one that prepared them.

r Once approved (baselined), they can only be changed under

previously specified conditions.
r They are periodically compared with actual performance, and
variances are analysed and must be explained.
Generally, 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
utilisation.
Although budgeting is an important aspect of planning and a useful
control tool, it has its limitations such as the over-emphasis at the expense
of other project constraints. Often one finds that managers focus almost
exclusively on meeting their budgets while neglecting elements such as
satisfaction that is difficult to measure in quantifiable terms.
Table 14.11 gives the DPTUNBOBHFNFOUQMBOof Management@
cost management plan
ZA’s CRM Project.
the plan for costing project
resources
Table 14.11: Cost management plan
Cost plan item Cost plan

Currency Although Management@ZA is an international company and listed as
such on the New ;ork stock eZchange, all foreign ofƂces trade in the
local currency – ZAR
Level of accuracy The allocated budget being R720 400 for accurate reporting purposes is
set at increments of R50 000 on all Ƃnancial graphs and reporting tools
Units of measure The standard unit of measure on all Ƃnancial reporting instruments will
be indicated in units of R1 000
Organisational procedure links
(Cost Account Codes in WBS) The standard code of accounts for cost and eZpenditure allocation
used by Management@ZA internationally will be allocated on the Work
Breakdown Structure (WBS) to facilitate optimal cost collection
Control thresholds Upper and lower control limits are set on a per project basis; for the
purposes of the CRM roll-out a 15 per cent variance initially and 5 per
cent variance at the end of the project will apply These thresholds are
stringent due to the number of times the CRM system has been rolled
out in various countries
Rules of performance measure The CRM roll-out is achieved over a period of 15 working days
working in 11 sites country-wide, and with short timelines at each site
the Ƃnancial measurement policy for this project will not be applied
periodically but at the completion of each site installation Management
reports will however be produced weekly with a Ƃnal report at the end
of the project
Process descriptions The project team will follow the company procurement policy for any
acquisitions made, and the International Financial Reporting Standard
(IFRS) to govern Ƃnancial management

PART III: Planning
Table 14.12 provides the budget for Management@ZA’s CRM Project.
Table 14.12: Budget
Budget item Budget Remarks

Labour and beneƂts R542 800 Estimated labour plus 15 per cent contingency
Overtime R10 900 2 per cent of labour and beneƂts
Reward and recognition R15 000 Flat rate allowed according to company policy
Training R577 200 5 per cent of labour and beneƂts according
to company policy plus R50 000 per site as
prescribed
Materials R165 000 Material budget based on project requirements
Customer relations R18 000 Flat rate based on passed projects
Transport R54 000 1 800 km one way Z 6 trips Z R500 per km
Total R1 382 900 Total project budget
Supporting documentation refers to a manual and information relevant

to the improvement of the project as well as instructions to the project
team members. When a project is launched, supporting documentation
may be needed to assist team members in carrying out activities in each
phase of the project. Supporting documentation is particularly needed
under the following circumstances:
r when team members are inexperienced
r when the project is extremely complex and contains a great deal
of technical detail
r when the project involves high costs
r when particular tasks need to be performed in a specific way
r when team members are in different places and involved in
different project activities
r when the project has a huge impact on the community.
key performance indicators Step 11: Develop key performance indicators. These are charts
charts used for tracking planned used for tracking planned and actual project performance. The checklist
and actual project performance on the next page can be used to ensure that the project manager has
taken all the important steps in managing the project. If the answer is
‘no’ to any of the following questions, it indicates that not all the phases
in project management have been completed yet. The project should
not continue until all the steps have been taken.
Should the answers to all these questions be ‘yes’, the project is
ready for implementation.

%hecklist for project planning before implementation
Questions Yes/No
Have all the project activities been identiƂed!

Is the time schedule of activities correct!
Have responsibilities been assigned to people!
Are the instructions and standards clear to everyone!
Is the project relevant!
Will the plan lead to the realisation of the purpose!

Does the project team have the necessary eZpertise and eZperience!
Does the project address the needs of the community or institution!
Have the correct and sufƂcient resources been identiƂed for the project!
Have costs been estimated for all the activities!
Is there a budget proposal motivating the project!
Is the goal within reach of the project team!
Source: Van der Walt, G. & Du Toit, D.F.P. 2005. Managing for Excellence in the Public Sector.
2nd edition. Cape Town: Juta Publishers, p 319.
Step 12: Develop a SJTL NBOBHFNFOU QMBO. All projects are in risk management plan
existence to manage the uncertainty associated with particular project the plan for managing probable
constraints, schedule, cost, requirements and quality. Organisations project risks
develop methodologies that govern the management of risk, defining
risk identification, quantification, response, monitoring and control.
Risks are identified as a matter of course throughout the project life
cycle and in particular during the planning phases. Initially qualitative
analysis might prove sufficient during initial planning, but the formal risk
process will include a quantitative analysis that should result in a risk
response and contingency plan. Managing actual risks is done during the
project evaluation phase.
Step 13: Implement the project. In a rapidly changing environment, it
is important that the project implementation should follow the planning
phase as soon as possible. During the implementation phase, all the
activities planned are carried out by the responsible people – they give
feedback to the project team, allocate resources and exercise control.
Project managers play a crucial role in project implementation. They
need to:
r coordinate activities
r take the lead
r motivate project team members
r constantly monitor the progress, evaluate deviations and take
corrective action if necessary
r maintain the enthusiasm and motivation of project team members
and the community.

PART III: Planning
Step 14: Monitor and control project activities. Monitoring and

controlling are cross life-cycle activities, done as a matter of course
during the initial stages but more formally during project execution.
Project activities are evaluated throughout the project management
process to ensure that the planned objectives are being achieved.
The progress of the project in terms of time, cost, quality and risk
as predefined in the project plan should be monitored throughout with
consideration to deviations and recommendations for improvement.
Key to this process is the effective team utilisation of the project control
tools such as the WBS, network diagram, bar chart, Key Performance
Indicators and all relevant project reports.
Risk and contingency management is also key to the evaluation
process followed in project management. The risk plan addresses the
process followed in managing risk and where required institution of
contingencies. Project risk factors and associated risks are identified and
probability and impact measures are assigned which are then analysed
and used to decide on a course of action.
Table 14.13 illustrates the risk management plan for Management@
ZA’s CRM project.
Table 14.13: Risk Management Plan

Risk register
ID Risk Prob. Impact Factor Priority Action Accountable
(1–10) (1–10) (P x I) (1–3) (eliminate/ (owner)
mitigate/
deƃect/
accept)
1.0 Due to stringent timelines there 8 4 32 1 Mitigate Jock Bush
is a possibility that the local
support teams might not be
available when needed to work
with the integration specialist
2.0 Due to stringent timelines there 9 3 27 2 Mitigate Jhan Louis
is a possibility that the users at
the local sites might not be able
to attend the user training
3.0 Due to international system 8 2 16 3 Deƃect Jock Bush
alignment local management
requirements might not be fully
met
Tables 14.14 and 14.15 on the next page illustrate the risk
segmentation and risk response plan for Management@ZA.

Table 14.14: Risk segmentation

Risk grouping
PROJECT RISKS: (Project manager – Mitigate/ INSTIT7TIONAL RISK: (Portfolio/Programme –
Deƃect/Accept) Mitigate)
High probability; Low impact: High probability; High impact:
Risk issues: Risk issues:
1.0 Due to stringent timelines there is a possibility that All institutional risks will be managed centrally through
the local support teams might not be available when the project and programme ofƂce, since they affect all
needed to work with the integration specialist. projects in the organisation
2.0 Due to stringent timelines there is a possibility that
the users at the local sites might not be able to attend
the user training
LOW RISKS: (Monitor) DISASTRO7S RISKS: (Disaster Recovery Plan)
Low probability; Low impact: Low probability; High impact:
Risk issues: Risk issues:
3.0 Due to international system alignment local All disaster recovery plans will be managed centrally
management requirements might not be fully met and pertain to the organisation as a whole
Table 14.15: Risk response

Risk response plan P x I > [n]
*ID Risk causes Elimination/Mitigation action Responsible Target date
1.1 Stringent timelines Determine local ƃexibility Jock Bush Before project
Contract alternate dates where required kick-off
1.2 Availability of local Determine and contract availability of local
support teams support teams
2.1 Poor user training Develop self-guided web-based user Jhan Louis Before project
attendance training kick-off
3.1 Management Record local management requirements Jock Bush Project closure
requirements not not met and develop overall management
met in CRM system report for submission to international team
Step 15: Close Project. In finalising project planning the project

deliverables are baselined (contractually agreed upon) between the
project manager, project team and relevant stakeholders. Project
closure revisits the delivery of all contractual work to ensure the
product or service was delivered to the agreed scope and specification.
Administrative duties include audits and reconciliation to check that
all authorised work has been completed, accepted and paid for. Final
project reports are prepared and presented to management.
An advantage of formalising project closure is the contribution that
documented lessons learned (experienced during the project life cycle)
make to the knowledge base of the organisation. A formal meeting
hosted by the project manager reflects on events, project issues and
risks encountered during the project. A discussion reflecting on scope
and/or engineering changes could prove to be a valuable exercise.
The project management process concludes the discussion of the
project management chapter and it is the last of the five chapters
pertaining to PART III: PLANNING.
Part III: Planning
CHAPTER SUMMARY
1. Explain the philosophy and meaning of project management.
Project management can be defined as a management tool used to plan, organise, implement
and control activities in order to attain a predefined objective. Project management uses
knowledge, skills, tools and resources to execute activities to meet clients’ needs and
expectations. The project manager needs to be in control of time, cost, requirements, quality
and risk. Resources that are needed for project execution can include, but are not limited
to, human resources, money, equipment, machinery, information systems, organisational
processes and time.
2. Distinguish between the various perspectives of project management.

Project management has an internal and an external perspective. Internal projects are those
launched within an organisation, to use scarce resources more effectively, improve existing
procedures and methods, ensure more efficient service and improve the quality of the final
product and/or service. External projects strive to develop and improve the quality of life.
Projects with an external perspective are undertaken in a competitive environment where the
work is acquired through a bidding process through either quotations or tenders.
3. Identify the key role players in project management.

• the strategic manager (programme director)
• the tactical manager (programme manager)
• the project sponsor
• the operational manager (project manager)
• the project team
• the project management office
• the client’s needs.
4. Lead and direct the implementation of the project management process and activities. The
project management processes comprises the following steps:
Step 1: Identify the need for the project
Step 2: Choose the project team and appoint the project manager
Step 3: Develop a tactical project plan
Step 4: Develop the quality management plan
Step 5: Define the change control procedure
Step 6: Develop the stakeholder plan
Step 7: Develop the communication plan
Step 8: Define the scope of the project

Step 9: Develop the project schedule
Step 10: Compiling the project budget
ChaPter 14 Project management
Step 11: Develop the project’s key performance indicators

Step 12: Develop the risk management plan
Step 13: Implement the project
Step 14: Monitor and control project activities
Step 15: Close project.
KEY TERMS
budget project management
client project management office
communication plan project manager
cost project resources
documentation project risk management
external projects project schedule
gantt Chart project scope
internal projects project sponsor
operational manager project team
pert quality
procurement plan resource allocation
programme director resource management plan
programme evaluation risk
programme manager schedule
project budget stakeholder plan
project centre strategic manager
project change tactical manager
project charter total quality management
project evaluation triple constraint
project implementation work breakdown structure
PART III: Planning
REVIEW QUESTIONS
1. Define the term ‘project management’.
2. Managing any project entails planning, organising, coordinating and control over the project resources.
Explain these resources.
3. Explain the situations in which project management can be used effectively.
4. Discuss the advantages pertaining to project management.
5. Differentiate between the internal and external perspective of project management.
6. Identify the various role players in project management and explain the responsibilities of every role
player.
7. Explain the steps involved in the project management process.

PART IV
Organising
Chapter 15
Principles of organising
Tersia Brevis
PART IV: Organising
OPENING CASE
South African Airways1 the long range Boeing 747SP, which was especially
acquired to overcome the refusal of many
South African Airways (SAA) is South Africa’s countries prohibiting SAA from using their airspace
national flag carrier and largest airline. Its due to the country’s political environment at the
headquarters are in Airways Park on the grounds time. International condemnation of the apartheid
of the OR Tambo International Airport in regime in South Africa during the 1980s, also
Kempton Park, Gauteng. Currently, SAA flies to 35 posed many difficulties for SAA. For example,
destinations worldwide from its hub at the same the airline itself faced hostility and their local and
airport, using a fleet of 54 aircraft. A brief history, foreign offices were attacked. The US banned all
highlighting major changes and advances impacting flights by South-African owned carriers, including
the structure of the airline is discussed below. SAA. SAA’s flights to Perth and Sydney in Australia
South African Airways was founded on February were stopped.
1, 1934 with the South African government’s With the demise of apartheid in the early
acquisition of Union Airways. Forty staff members, 1990s, SAA was able to restore its services to
one de Havilland DH.60 Gypsy Moth, one de former destinations, introducing services to new
Havilland 80A Puss Moth, three Junkers F.13s and a destinations and expanding to the rest of Africa
leased Junkers F.13 and Junkers A50 were acquired and also to Asia. June 1, 1990 was an important
to form SAA, under the control of the South date for SAA, as South African companies signed
African Railways and Harbours Administration a domestic air travel deregulation act. Flights to
(now Transnet). SAA started charter operations in New York’s JFK International Airport resumed in
the same year. In 1935, the carrier also acquired November 1991 after the US imposed economic
South West African Airways and also expanded sanctions on South Africa in 1986, and South
their fleet of aircrafts. In the same year, SAA African’s planes were able to fly over Egypt and
moved their operations to Rand Airport as it Sudan for the first time. Flights to Milan were
became obvious that Johannesburg would become introduced for the first time and services to
South Africa’s aviation hub. During the next year, Athens were re-introduced. During 1992, the
SAA also took over all Rand-Cape Town services airline entered the Miami market and re-entered
from Imperial Airways and again expanded their Australia flying directly to Perth. During the same
fleet of aircraft. year, code sharing agreements were signed with
The period 1946 to 1952 was a period American Airlines and Air Tanzania. In 1997, the
of extreme growth for the airline. The first airline Alliance was born – a partnership between
intercontinental service was introduced and a spike SAA, Uganda Airlines and Air Tanzania.
in passengers and cargo carried was experienced, In 1991, South African Express (SA Express)
along with SAA’s fleet and staff. Air hostesses were was granted its operating license as regional airline
first introduced in 1946. In 1948, Palmietfontein and began its preparation process. Three years
Airport became SAA’s hub after taking over from later, SA Express, a feeder airline service for SAA
Rand Airport in 1948. That year there were a host began operating, taking over some of SAA’s low-
of changes for the airline in terms of its operations density domestic flights. SAA initially held a 20 per
and services and the introduction of films onboard cent share in SA Express.
its Skymaster aircraft. In 1997, SAA adopted a new image. The
The period 1953 to 1973 is known as the jet springbok emblem was dropped and the old
age in aviation. SAA’s first jet arrived on May 3, national colours of orange, white and blue were
1952 in Palmietfontein after a 24-hour journey, replaced with new livery, based upon the new
with five refueling stops en route. During 1980, national flag, with a sun. The airline’s name on all
SAA acquired 23 brand new Jumbo Jets, including the aircraft was changed to South African, and

CHAPTER 15 Principles of organising
the Afrikaans name Suid-Afrikaanse Lugdiens was Paris was dropped); cutting 30 per cent of the
dropped. The airline also started online ticket airline’s managers as well as other employee
sales and formed an alliance with SA Airlink and retrenchments. The restructuring programme
SA Express. was expected to save SAA R2.7 billion. By June
In March 2004, SAA announced its application 2009, R2.5 billion had been saved.
to join Star Alliance. The alliance accepted The brief history of SAA above highlights
the application in June, with SAA joining as a various changes that impacted directly on
full member in April 2006. SAA was the first the organisation and organisational structure
African airline to join Star Alliance and fulfilled 53 of the airline, starting with the South African
requirements during the joining process. government’s acquisition of Union Airways in
In 2003, media reports appeared of the South 1934. The restructuring of the airline continued
African government’s plan to restructure and in 1935, with the acquisition of South West
overhaul the state-owned enterprise Transnet, African Airways, and in 1935 when SAA took
due to dismal financial performance. The over all Rand-Cape Town services from Imperial
government planned the split of SAA from its Airways. In 1991, SA Express was granted its
parent company Transnet whereby SAA would operating license as regional airline taking over
operate under a separate identity. some of SAA’s low-density domestic flights, a
During May 2007, SAA launched an 18-month decision which also impacted greatly on SAA’s
comprehensive restructuring programme. The organisation. They also entered in code sharing
main purpose of the restructuring programme agreements with American Airlines and Air
was to ensure that the airline became profitable. Tanzania, impacting again on their organisation,
SAA’s business was streamlined and the airline as was the partnership between SAA, Uganda
also re-skilled employees, improved workers’ Airlines and Air Tanzania in 1992 and 1997
morale and management/workers’ relations. respectively. A major restructuring followed
SAA’s business was divided into seven subsidiaries, when the South African government decided
whereby SAA was allowed to concentrate on its to split SAA from its parent company Transnet
core business of passenger and cargo transport; whereby SAA would operate under a separate
rationalising international routes (for example, identity.
LEARNING OBJECTIVES
The purpose of this chapter is to provide an overview of organising as the process that creates a
structure for the organisation which enaDNes aNN eOpNo[ees to worM effectiveN[ and efƂcientN[ towards
the accomplishment of its vision, mission and goals. The objective of studying this chapter is to
enable you to:
1. Differentiate between the terms organising, organisation and organisational structure.
2. Expound on the importance of organising in attaining the goals and objectives of the organisation.
3. Describe the steps to follow in designing an organisational structure.
4. Explain the principles of organising that should be considered in designing an organisational
structure.
5. Explain the term authority.
6. Describe the departmentalisation approach to organisational structure.
7. Propose recommendations regarding the design or redesign of jobs as a motivational factor.
8. Design and provide implementation guidelines for a delegation process.

PART IV: Organising
With its vision, mission, goals and objectives clearly formulated, an

organisation has to decide how to organise its resources optimally.
Each manager and worker has to know exactly what he or she needs
to deliver to ensure that the resources are utilised optimally and that
no unnecessary duplication of activities takes place. For plans to be
implemented, someone in the organisation must perform the necessary
tasks to ensure that the organisation’s goals and objectives are attained.
Management must determine an effective way of dividing the major task
into sub-tasks, combining these and coordinating them.
This chapter deals with the principles and the process of structuring
an organisation in such a way that it is aligned with its plans and goals.
The structuring of the organisation poses a big challenge to managers,
as is so evident in the opening case of this chapter. There is no single
best structure that matches a specific plan or strategy. In trying to find
the most suitable structure for an organisation, management needs to
understand and be guided by the principles of organising.
LEARNING OBJECTIVE 1 15.1 ORGANISING, ORGANISATION AND

Differentiate between the terms ORGANISATIONAL STRUCTURE
organising, organisation and
Before we focus on a detailed discussion of organising, it is important
organisational structure.
to differentiate between the terms ‘organising’, ‘organisation’ and
‘organisational structure’.
organising Organising can be seen as an ongoing and interactive process that
occurs throughout the life of an organisation. It entails the creation
the process of creating a
of a structure for the organisation that will enable all employees to
structure for the organisation
work effectively towards its vision, mission, goals and objectives. The
that will enable its people to
process of organising consists of assigning the tasks necessary to achieve
work effectively towards its
the organisation’s goals to the relevant business units, departments or
vision, mission, goals and
sections, and then providing the necessary coordination to ensure that
objectives
these business units, departments or sections work synergistically. The
end result of the organising process is the creation of an organisation.
organisation In a small organisation or a small department this is relatively simple
the end-result of the organising – it is usually a matter of deciding which tasks need to be done and
process allocating them to various subordinates. In large organisations, such
as SAA, the process of organising becomes very complex. It involves
dividing the work of the organisation; allocating it logically to business
organisational structure units, departments and sections; delegating authority and establishing
the basic framework of coordination, communication and information systems to ensure that
formal relationships between everyone is working together to achieve the goals of the organisation.
responsibilities, tasks, and The task of dividing up the work, allocating responsibility and so on, is
people in the organisation referred to as the ‘design of the organisational structure’.
A typical way of illustrating an organisational structure is by
organisational chart means of an organisational chart. An organisational chart shows,
a graphic representation of among other things, authority and communication relationships between
the way an organisation is put jobs and units. The organisational charts of listed companies are usually
together depicted in their annual reports.

15.2 THE IMPORTANCE OF ORGANISING LEARNING OBJECTIVE 2

Organising is an indispensable function in the management process. Expound on the importance
Plans devised and strategies formulated will never become a reality if of organising in attaining the
human and other resources are not properly deployed and the relevant goals and objectives of an
activities suitably coordinated. Leadership is not possible if lines of organisation.
authority and responsibility are not clear. Likewise, control is out of
the question if people do not know what tasks they are responsible
for. Organising is vital to the attainment of goals and objectives in an
organisation because it contributes to:
r "MMPDBUJPOPG SFTQPOTJCJMJUJFT0SHBOJTJOHMFBETUPBOPSHBOJTBUJPOBM
structure that clearly indicates who is responsible for which tasks.
r "DDPVOUBCJMJUZ"DDPVOUBCJMJUZJNQMJFTUIBUUIFSFTQPOTJCMF
employees will be expected to account for the outcomes, positive
or negative, for that portion of the work directly under their
control. Accountability links results directly to the actions of an
individual, section, department or business unit.
r &TUBCMJTIJOHDMFBSDIBOOFMTPGDPNNVOJDBUJPO5IJTFOTVSFTUIBU
communication is effective and that all information required by
managers and employees at all levels of the organisation effectively
reaches them through the correct channels so that they can
perform their jobs effectively.
r 3FTPVSDFEFQMPZNFOU0SHBOJTJOHIFMQTNBOBHFSTUPEFQMPZ
resources meaningfully, focusing on the essential activities that
need to be performed to attain the organisation’s mission and
goals.
r 4ZOFSHZ5IFQSJODJQMFPGTZOFSHZFOIBODFTUIFFŲFDUJWFOFTTBOE
quality of the work performed.
r %JWJTJPOPG XPSL5IFUPUBMXPSLMPBEJTEJWJEFEJOUPBDUJWJUJFTUPCF
performed by an individual or a group of individuals.
r 4ZTUFNBUJDHSPVQJOH0SHBOJTJOHNFBOTTZTUFNBUJDBMMZHSPVQJOHB
variety of tasks, procedures and resources. This is possible because
the organising process also entails an in-depth analysis of the work
to be done, so each person is aware of their duties.
r %FQBSUNFOUBMJTBUJPO5IFSFMBUFEUBTLTBOEBDUJWJUJFTPGFNQMPZFFT
are grouped together meaningfully in specialised sections,
departments or business units so that experts in various fields can
deal with their specialised tasks.
r $PPSEJOBUJPO5IFPSHBOJTBUJPOBMTUSVDUVSFJTSFTQPOTJCMFGPS
creating a mechanism to coordinate the activities in the entire
organisation.
All the above-mentioned reasons for organising direct the organisation

towards attaining its mission and goals. However, managers should
follow a logical process in designing an organisational structure.

PART IV: Organising
LEARNING OBJECTIVE 3 15.3 DESIGNING AN ORGANISATIONAL

Describe the steps to follow STRUCTURE
in designing an organisational
structure. The point of departure in designing an organisational structure is
the vision, mission, goals and strategy of the organisation that were
formulated during the strategic planning phase (see Chapter 10). The first
stage in the organising process involves outlining the tasks and activities
to be completed in order to achieve the organisational goals. Once
these tasks and activities have been outlined, jobs must be designed and
assigned to employees within the organisation. Job design is discussed in
more detail in Section 15.7. Relationships between individual workers
and work groups should also be defined. The next step in the organising
process is to develop an organisational design that will support the
strategic, tactical and operational plans of the organisation. This entails
grouping the organisational members into work units, developing an
integrating mechanism to coordinate the efforts of diverse work groups
and determining the extent to which decision-making in the organisation
is centralised or decentralised. Finally, a control mechanism should be
put in place to ensure that the chosen organisational structure does
indeed enable the organisation to attain its mission and goals. Figure
15.1 summarises the stages in the organising process.
Vision, mission, goals and

strategies (strategic plan)
Outline tasks and activities
Design jobs and assign to employees

Control mechanism
DeƂne worker relationships
Develop organisational design
Figure 15.1: Steps in designing an organisational structure

The design of an organisational structure should be guided by certain

organising principles to ensure that the structure is sound. These
principles are the focus of the next section.
15.4 PRINCIPLES OF ORGANISING LEARNING OBJECTIVE 4

Managers at all levels of an organisation need to organise human, Explain the principles of
physical, financial and information resources in order to achieve the organising that should be
organisation’s mission and goals. The following principles of organisation considered in designing an
should guide managers in this process: organisational structure.
r VOJUZPG DPNNBOEBOEEJSFDUJPO
r DIBJOPG DPNNBOE
r TQBOPG DPOUSPM
r EJWJTJPOPG XPSL
r TUBOEBSEJTBUJPO
r DPPSEJOBUJPO
r SFTQPOTJCJMJUZ
r BVUIPSJUZ
r BDDPVOUBCJMJUZ
r QPXFS
r EFMFHBUJPO
r EPXOTJ[JOH
r EFMBZFSJOH
These principles are discussed in more detail below.
15.4.1 Unity of command and unity of direction

Reporting to more than one supervisor can be very confusing to
employees as supervisors may focus on different aspects of the work.
The unity of command refers to a situation where each employee
reports to only one supervisor. A lack of unity of command can unity of command
also contribute to a lack of clarity in an organisation – an employee each employee should report to
reporting to more than one supervisor may get conflicting messages only one supervisor
from the various supervisors. Unity of direction is also important in
unity of direction
an organisation. This is achieved when all tasks and activities are directed
towards the same mission, goals and objectives. all tasks and activities should
be directed towards the same
mission and goals
15.4.2 Chain of command
Chain of command is also referred to as the ‘scalar principle’ and chain of command
means that an unbroken chain of command links every employee in an a clear, unbroken chain of
organisation with an employee at a higher level of the organisational command should link every
structure. A chain of command creates a hierarchy, which can be employee with someone at a
illustrated by means of an organisation chart. Every employee in an higher level, all the way to the
organisation should know whom he or she reports to and who, if top of the organisation
anyone, reports to him or her.

PART IV: Organising
15.4.3 Span of control

span of control Span of control is also called ‘span of management’ and it refers
the number of subordinates to the number of subordinates that report to only one manager or
reporting to one manager or supervisor. A manager can deal with a limited number of employees at
supervisor a time. If an unrealistic number of employees report to a manager, the
manager’s task becomes impossible to perform. The fewer employees
supervised, the smaller or narrower the span of control. The more
employees supervised, the greater or wider the span of control. The
span of control is in proportion to the height of the organisation – or its
number of managerial levels. A flat organisation exists when there are
few levels with wide spans of control, whereas a tall organisation exists
when there are many levels with narrow spans of control.
15.4.4 Division of work

A major challenge faced by managers is to determine how the work
should be divided up amongst business units, departments, sections
division of work and even individual employees. The division of work is also called
how the workload is divided
the division of labour. With the division of work, employees have
amongst business units,
specialised jobs. Related jobs can then be grouped together in a section
departments, sections and
or department. Employees generally have specialised jobs in a functional
individual employees in an
area such as accounting, administration, marketing, purchasing or human
organisation
resource management. As managers move up the corporate ladder, they
perform less specialised functions. Two terms related to the division
of work, are ‘differentiation’ and ‘integration’. Differentiation refers to
the need to divide the organisation into various departments, whereas
integration refers to the need to coordinate the activities of the various
departments in an organisation.
15.4.5 Standardisation
standardisation Managers should employ the principle of standardisation when
developing uniform practices
structuring the organisation. The purpose of standardisation is to
that employees need to follow in
develop a certain level of conformity, in the sense that it entails the
doing their jobs
development of uniform practices that employees need to follow in
doing their jobs.
15.4.6 Coordination
Coordination entails integrating all organisational tasks and resources
coordination
to meet the organisation’s strategic, tactical and operational goals.
all business units, departments, In general, the degree of coordination between tasks depends on
sections and individuals their interdependence. Thompson identified three major forms
within the organisation should of interdependence, namely pooled, sequential and reciprocal
work together to accomplish interdependence2:
the strategic, tactical and r Pooled interdependence. In groups that exhibit pooled
operational goals of the interdependence, the units operate with little interaction. The
organisation outputs of the units are pooled at organisational level. Failure of
any single unit could threaten the entire organisation.
r Sequential interdependence. In 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. Sequential
interdependence is typically found in a production-line set-up, such
as the assembly plant of a car manufacturer or the production line
in a steel-manufacturing organisation.
r Reciprocal interdependence. 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. In a hospital, the
units such as intensive care, paediatrics and so on, provide inputs
to surgery. After surgery, patients are sent back to the respective
units. In a restaurant the waiters and chefs are reciprocally
interdependent.
Unity of command and direction, the chain of command, span of

control, division of work and standardisation can be used as coordination
principles. In addition, the following can also be used as means of
coordination3:
r UISPVHIEJSFDUDPOUBDUCFUXFFOQFPQMFXJUIJOBOEBNPOH
departments
r UISPVHIMJBJTPOT XIPXPSLJOPOFEFQBSUNFOUBOEDPPSEJOBUF
information and activities with one or more other departments
r UISPVHIDPNNJUUFFTNBEFVQPG QFPQMFGSPNEJŲFSFOU
departments
r UISPVHIJOUFHSBUPST TVDIBTQSPKFDUNBOBHFST XIPEPOPUXPSL
for a particular department, but who coordinate the activities of a
single or multiple departments to reach an objective
r UISPVHIFNQMPZFFTJOCPVOEBSZSPMFT JODMVEJOHFNQMPZFFTJO
sales, customer service, procurement and public relations, who
coordinate the efforts with people in the external environment of
an organisation.
15.4.7 Responsibility, authority and accountability

These three terms are closely related and are often used interchangeably
by managers and employees. It is, however, important that managers
understand the difference between the concepts when they are involved
in the organising process.
Managers have responsibility – they have an obligation to achieve the
goals and objectives of an organisation by performing certain functions,
tasks and activities. When strategic, tactical and operational goals are set,
the managers responsible for achieving them should be clearly identified.
Authority can be defined as a manager’s right to make decisions,
issue orders and use organisational resources in order to attain goals
and objectives. Authority is discussed in more detail in Section 15.5.
Managers are accountable for everything that happens in their
departments or sections and they need to be evaluated on how well
they have met their responsibilities. Managers can delegate responsibility
and authority, but never their accountability.

PART IV: Organising
15.4.8 Power
power Managers also have power in an organisation. The following kinds of
the ability of an individual to power can be distinguished in organisations:
influence the behaviour of others r -FHJUJNBUFQPXFSJTUIFBVUIPSJUZUIBUUIFPSHBOJTBUJPOHSBOUT
in the organisation to a particular position. The position of managing director gives
more power to its incumbent than does the position of first-line
manager.
r 5IFQPXFSPG SFXBSEJTUIFQPXFSUPHJWFPSXJUIIPMESFXBSET
which can be of a financial or a non-financial nature. The head of
a department, for example, has the power to allocate or withhold
rewards after a performance appraisal has been done.
r $PFSDJWFQPXFSJTUIFQPXFSUPFOGPSDFDPNQMJBODFUISPVHIGFBS
either psychological or physical.
r 3FGFSFOUQPXFSSFMBUFTUPQFSTPOBMQPXFSBOEJTBTPNFXIBU
abstract concept. People follow a person with referent power
simply because they like, respect, or identify with them.
r &YQFSUQPXFSJTCBTFEPOLOPXMFEHFBOEFYQFSUJTF BOEBMFBEFS
who possesses it has special power over those who need their
knowledge.
15.4.9 Delegation
delegation Delegation is when managers assign responsibility and authority to
the process by which managers their subordinates for attaining goals. Responsibility and authority are
assign a portion of their delegated down the chain of command from a person at a higher level in
workload to one or more the organisation to a person at a lower level. Subordinates are given new
subordinates tasks, which may become part of a redesigned job or it may simply be
a one-time assignment. Delegation is discussed in more detail in Section
15.8.
15.4.10 Downsizing and delayering

downsizing Downsizing may be achieved by reducing the number of employees in
one or more departments – leaving the organisational unit intact – or
managerial activity aimed
through eliminating a departmental unit by, for example, outsourcing its
at reducing the size of the
activities. During re-engineering, organisations often eliminate at least
workforce
one layer of middle management. This is delayering. Information
delayering technology allows contemporary senior management to gain online
reducing the number of layers real-time access to operations without consulting many layers of middle
in the vertical management management. This enables the organisation to speed up decision-making.
hierarchy
15.4.11 Flexibility
ƃeZibility Flexibility in employees is vital for the success of an organisation,
the ability to adapt to changing
since there will always be exceptions to the rule. Flexibility refers to an
circumstances
employee’s ability to adapt to changing circumstances, either inside or
outside the organisation or even within the employee himself or herself.
Successful organisations realise that flexibility is important to employees
and to customer satisfaction.

The organising principles discussed in this section should enable managers

to organise all organisational resources in such a way that the mission
and goals of the organisation are achieved. A few of these principles,
mainly authority, departmentalisation, job design and delegation are
discussed in more detail below.
15.5 AUTHORITY LEARNING OBJECTIVE 5

Authority has been defined in the previous section as the right to make Explain the term authority.
decisions, issue orders and use resources. It includes the right to take
action to compel the performance of duties and to punish default or
negligence. In the formal organisational structure, the owners of an
organisation possess the final authority. They may appoint a board of
directors and give them authority to manage their investments in the
organisation. The directors appoint managers who, in turn, give a certain
authority to subordinates – and in this way authority flows down the
hierarchical line. This flow of authority is known as delegation of delegation of authority
authority. formal authority passed
Authority resides in positions rather than in people – managers acquire downwards from above
authority by means of their hierarchical position in the organisation
rather than from their personal characteristics. When a manager steps
down from his position, that authority is relinquished. For managers to
structure an organisation that is well aligned with its mission and goals,
they need to understand the different types of authority. These are
formal and informal authority, line and staff authority, centralised and
decentralised organisational authority and levels of authority.
15.5.1 Formal and informal authority

Formal authority is the sanctioned way of getting things done, formal authority
illustrated by the organisational chart. It refers to the specific relationships the specified relationships
that exist among employees in an organisation. Informal authority is among employees
the unsanctioned way of getting things done. It refers to various patterns
of relationships and forms of communication that evolve as employees informal authority
interact and communicate with one another. the patterns of relationships
The right to make decisions, issue orders and use resources, and communication that evolve
narrow down from top to middle to lower levels of management. as employees interact and
This is referred to as the scope of authority. Due to the scope of communicate
authority, top managers typically have more authority than middle-
level management, whereas middle managers have more authority than scope of authority
first-line managers. Responsibility and authority are delegated and flow the hierarchy that narrows as it
down the organisation, whereas accountability flows up the organisation. flows down the organisation
15.5.2 Line and staff authority

Line managers are those managers in the organisation who are directly
responsible for attaining the organisation’s goals. Line authority refers line authority
to a manager’s responsibility to make decisions and to issue orders to the responsibility to make
employees down the chain of command. It originates at top management decisions and issue orders
level, with the directors, and is delegated to the heads of the different down the chain of command

PART IV: Organising
units, departments, or sections, such as the financial department or the

operations department. It is then delegated further down the hierarchy
to the supervisory levels where the basic activities are carried out.
The King II Report 2002 on Corporate Governance addresses the
issue of conducting business in an ethical and transparent way. Company
secretaries, for instance, are appointed to render services to the
chairperson of the board and the CEO and to advise line management
regarding issues of ethics and governance in the organisation. The
staff authority company secretary therefore has staff authority, in other words, the
the responsibility to advise and responsibility to advise and assist other personnel, based primarily on his
assist other personnel or her expert power. Partners in a law firm or a firm of architects may
appoint managers to run the business side of the firm. The presence
of such staff specialists frees lawyers or architects to practise law or
architecture – their line function. Certain people in staff positions
function only as specialists in an advisory capacity. This means that line
managers may choose whether or not to seek the advice of the specialist.
A typical example is an economist at a bank. He or she advises the line
managers on the prevailing economic variables such as interest rates,
inflation and Reserve Bank policy. The concept of advisory personnel
is certainly not a contemporary development. In the past, kings,
parliamentary governments and dictators also appointed individuals
as their advisers. Conflict often arises between people in line and staff
positions because line managers regard staff managers as a threat to
their authority. Hence staff managers are not consulted and complain
that they are under-utilised. As soon as line managers are obliged to rely
too heavily on the advice of staff managers, they feel that they are too
dependent on the staff managers’ expertise and this may make them feel
threatened. Differences in perception may also cause conflict, especially
if line managers feel that staff managers are infringing on their lines of
authority, have too idealistic a perspective or are usurping the prestige
of the line managers. However, the staff manager’s perception may be
that the other party unnecessarily opposes all new ideas.
In functional authority, staff personnel have the right to issue orders
to line personnel in established areas of responsibility. For example,
the purchasing department assists the sales personnel by keeping
appropriate stock levels. If the purchasing personnel determine that a
specific order quantity is the most economical one, they may issue an
order to a line manager to order that specific quantity. Staff managers
may also have both line and staff authority. This is called ‘dual line
authority’. For example, a labour relations manager advises and assists
all departments in an organisation. However, such a manager may also
have line authority within the HR department and may issue orders (a
line function) to their subordinates.
micro-management With micro-management, the manager normally monitors and
management style whereby assesses every activity performed by subordinates, avoids delegation,
managers closely observe or requires constant and detailed feedback from subordinates and tends to
control the work of subordinates be excessively focused on procedural trivia rather than on overall staff
performance. There are several motivations for micro-management,
which can be categorised as either internal or external factors. Internal

factors include detail-orientedness and insecurity on the part of the

manager and doubts regarding the competence of employees and co-
workers. Internal factors are related to the unique personality of the
individual micromanager. External factors, on the other hand, refer to
the factors pertaining to the organisation itself, such as increased time or
performance pressure, levels of stress experienced in the organisation
and the instability of the managerial position itself.
Micro-management is often a source of employee dissatisfaction and
disengagement, since micro-management suggests to employees that
a manager does not trust their work. Disengaged employees will only
invest the necessary time to earn their payment, but they do not put
forth effort or any creativity in the work to which they are assigned.
Micro-management can also completely eliminate the trust between
employees and employers, prevent opportunities for learning and the
development of interpersonal skills. Furthermore, micro-management
may bring about resentment in both vertical (manager–subordinate) and
horizontal (subordinate–subordinate) relationships, and it may harm
existing teamwork as well as inhibit future teamwork in both vertical
and horizontal relationships. Micro-management is something that can
be prevented and rectified in an organisation. For example, managers
should clearly articulate what they expect from their subordinates
and focus on hiring and placing competent and skilled employees.
Furthermore, employees should be given decision-making powers,
should be encouraged to ask questions and make suggestions. Managers
should also provide subordinates with constructive feedback4.
15.5.3 Centralised and decentralised authority

The major difference between centralised and decentralised authority
is in who makes the important decisions in an organisation. In the case
of centralised authority, important decisions in terms of the success of
the organisation, are made by the executive or top managers. On the
other hand, decentralised authority refers to situations where important
decisions are made by middle and lower levels of management.
Decentralised authority or decentralisation has become very decentralised authority
popular in South African organisations as a method of empowering important decisions are
employees. By decentralising power and authority, a more democratic made by middle and lower
organisation is created in which managers at the lower levels can decide management
on issues such as the allocation of resources in their departments,
differentiated salaries for employees, flexible work hours, and so on. In
centralised authority important decisions are made by top managers. centralised authority
In deciding whether to centralise or decentralise authority, the following important decisions are made
factors should be considered: by top managers
r 5IFFYUFSOBMFOWJSPONFOU5IFNPSFDPNQMFYUIFFOWJSPONFOU
and the greater the uncertainty, the greater the tendency is to
decentralise.
r 5IFIJTUPSZPG UIFPSHBOJTBUJPO0SHBOJTBUJPOTUFOEUPEP
whatever they have done in the past. Hence there will be a
tendency to follow the history of the organisation when it comes
to centralisation or decentralisation.

PART IV: Organising
r 5IFOBUVSFPG UIFEFDJTJPO5IFSJTLJFSUIFEFDJTJPOBOEUIFIJHIFS
the costs involved, the more pressure there will be to centralise
decision-making.
r 5IFTUSBUFHZPG UIFPSHBOJTBUJPO5IFTUSBUFHZPG UIFPSHBOJTBUJPO
determines the types of market, technological development,
and any competition to which the organisation is subject. Alfred
Chandler found that large organisations which obtained new
products through a strategy of research and development
advocated product diversification and therefore used decentralised
structures. Organisations that did business in more predictable
industries became increasingly centralised.
r 5IFTLJMMTPG MPXFSMFWFMNBOBHFST*G MPXFSMFWFMNBOBHFNFOUJT
not in a position to make sound decisions, decision-making in the
organisation will probably be centralised. If lower-level managers
are well qualified, top-level management can make the most of
their skills by decentralising.
r 5IFTJ[FBOEHSPXUISBUFPG UIFPSHBOJTBUJPO*UJTJNQPTTJCMF
to manage a very large organisation without decentralising. The
larger and more complex an organisation is, the greater the need
for decentralisation will be. In an organisation that is growing
rapidly, management will have to bear the burden of an increasing
workload, and therefore be obliged to shift some of the decision-
making authority to lower levels, and thus to decentralise.
Centralisation versus decentralisation in business computing5

The decision to centralise or decentralise not only with centralised computing architectures that
concerns the locus of authority, but managers were affected by the attacks are having a harder
also need to decide on the centralisation or time recovering compared to organisations with
decentralisation of other important activities such decentralised computing. Decentralisation has
as business computing. Organisations favouring enabled them to move their business functions more
the centralised approach to business computing easily to other locations. In theory, organisations
have benefited from a lower cost of ownership, that build some form of decentralised computing
given that centralised computing architectures will carry a higher cost of doing business compared
require fewer information technology staff for to organisations that rely primarily on massive data
support than decentralised architectures do. As a centers. But in the case of a catastrophic event, the
result, decentralised business computing has failed cost now seems minimal compared to the amount
to become the dominant computing architecture of time it would take to recover from an attack that
because it is too expensive and difficult to manage destroyed your computing resources’ location. At
hundreds or even thousands of servers spread the same time, many of those managers affected
across the organisation. In the aftermath of the will take a harder look at decentralising their own
September 11, 2001 attacks in New York, however, business functions to make sure that major elements
the conventional wisdom about what constitutes an of the business are not all concentrated in one single
expense is changing. In today’s global environment location.
centralised operations are a liability. Organisations

Advantages of decentralisation
Decentralisation has the following advantages for an organisation:
r #ZEFDFOUSBMJTJOH UIFXPSLMPBEPGUPQMFWFMNBOBHFNFOUJT
reduced, enabling them to devote more attention to strategies.
r %FDJTJPONBLJOHJNQSPWFTCFDBVTFEFDJTJPOTBSFDMPTFSUPUIFDPSF
of action and time is not wasted by first referring the matter to a
higher authority.
r 5IFSFTIPVMECFJNQSPWFENPSBMFBOEJOJUJBUJWFBUUIFMPXFS
levels of management. These managers feel that they participate
in managing the organisation and are prepared for greater
responsibilities. They should experience a great deal of job
satisfaction.
r %FDFOUSBMJTBUJPOPG EFDJTJPONBLJOHSFOEFSTJUGBTUFSBOENPSF
flexible, which is imperative in a rapidly changing environment.
r %FDFOUSBMJTFEBVUIPSJUZBMTPGPTUFSTBDPNQFUJUJWFDMJNBUFJO
the organisation. Managers are motivated to participate in this
competition because their performance is constantly compared
with that of their colleagues.
Disadvantages of decentralisation
Decentralisation has the following disadvantages for an organisation:
r 5IFSFJTUIFEBOHFSPG MPTTPG DPOUSPM5PPNVDIEFDFOUSBMJTBUJPO
will result in sub-units or departments moving away from the
centres of decision-making.
r 5IFSFJTUIFEBOHFSPG EVQMJDBUJOHUBTLT'PSFYBNQMF UIFSFDPVME
be human resources sections in the decentralised sub-units that
keep personnel records, while these records are also being kept up
to date at head office.
r %FDFOUSBMJTBUJPOPG BVUIPSJUZSFRVJSFTNPSFFYQFOTJWFBOE
more intensive management training and development to enable
managers to execute delegated tasks.
r %FDFOUSBMJTBUJPOBMTPEFNBOETTPQIJTUJDBUFEQMBOOJOHBOESFQPSUJOH
methods. Even if there is delegation, top-level managers are always
accountable for attaining the goals of the organisation, and they
must continually receive feedback on the situation.
The shift towards decentralisation in organisations in South Africa and

abroad does not come without its challenges. More individual authority
at middle and lower management levels requires thorough management
training and development. Managers need to be aware of the impact
that their decisions could have on the survival of the organisation. A
prerequisite for such knowledge in the current turbulent business
environment is continual management training and development.

PART IV: Organising
Organising in action6
Look at a painting. Whether it is a centuries-old a personal vision to life. Colours are transferred
masterpiece like the Mona Lisa or a modern work from their blobs on a palette by personal placement
by the South African artist Portchie, you see colour, on the canvas. The artist structures the work to
texture and shape. Look more closely and you’ll embody an emotion, to tell a story, plant an idea, or
see the artist’s study technique in composing and embody beauty.
organising the work. Artists start off with a blank Managers also organise and deploy resources to
canvas. Then they decide whether the picture will achieve a vision and goals. Today’s managers work
be a landscape, a portrait, an abstract or a still life. for organisations, and they support, and must be
While many different styles, such as Impressionism supported by, the organisation. By organising their
and Cubism, have evolved over the centuries, one resources such as people, technology and knowledge
ideal has held fast: an artist must know the rules of and by marshalling their strengths, managers
composition. Paint is organised on canvas to convey can support the organisation despite economic
emotion – awe, anger, love, comfort or knowledge. downturns or competitive threats to achieve
The artist’s eye organises, but he or she begins by organisational goals. While beauty may not be the
determining the medium and organising materials – manager’s goal, organisational design can be a work
colours, brushes, and lighting – that will best bring of art.
LEARNING OBJECTIVE 6 15.6 THE DEPARTMENTALISATION APPROACH

Describe the TO ORGANISATION STRUCTURE
departmentalisation approach
to organisation structure.
In the earlier sections of this chapter, the principles of organisation are
presented and discussed. Managers need to understand these principles
in order to structure a sound organisation. As described in the opening
case, SAA has been forced to adjust its organisational structure several
times since it was founded in 1934, due to changes in the environment,
changes in their objectives and changed strategies. The South African
government’s decision in 2003 to restructure the state-owned enterprise
Transnet by splitting SAA from its parent company, probably caused the
biggest change in SAA’s structure. In 2007, SAA again launched a major
restructuring programme in order to ensure the airline’s profitability and
sustainability. SAA’s business was divided into seven subsidiaries, which
allowed them to concentrate on their core business of passenger and
cargo transport. Several other restructuring processes made it possible
for SAA to save R2.5 billion by June 2009, indicating the importance of
restructuring programmes such as these. In what follows, we will focus
on departmentalisation as an approach that organisations, such as SAA,
can follow in order to structure and restructure their organisations.
organisational design The term organisational design refers to the arrangement of
positions into work units or departments and the interrelationship
the arrangement of positions
among them within an organisation7. We shall consider organisational
into work units or departments
design by demonstrating the organisational chart and discussing the
and the interrelationship among
major types of departmentalisation. In doing so, we must bear in mind
them within an organisation
that the choice of an organisational structure should always be viewed
against the strategy of the organisation, as we have seen in the SAA case
study.

15.6.1 Organisational chart

As explained earlier in this chapter, an organisational chart is a graphic
representation of the way that an organisation is put together. It shows,
among other things, authority and communication relationships between
jobs and units.
15.6.2 Departmentalisation
The various departments created constitute the organisational structure
as it appears on the organisational chart. To support the chosen
strategy (or the strategic plan), management must decide on the type
of departmentalisation that best supports the strategy. The major departmentalisation
options in terms of departmentalisation are discussed below. the grouping of related activities
into units or departments
Functional departmentalisation
The functional organisational structure, as shown in Figure 15.2, is the
most basic structure. In this form of departmentalisation, the activities
belonging to each management function are grouped together into a
unit or department.
One set of activities, for example, advertising, marketing research
and sales, would belong together under the marketing function. Another
set of activities, for example debtors and creditors, would be grouped
under the financial function.
Functional departmentalisation is often used by organisations functional
with a single product focus. In order to build competitive advantage departmentalisation
in their products or services, such organisations require well-defined
activities belonging to each
skills and areas of specialisation. Dividing tasks into specialist areas
management function are
enables personnel to focus on their area of expertise only. However,
grouped together into a unit or
this structure poses major challenges in terms of coordination of the
department
specialist functions. Specialists may view the organisation solely from
their own perspective. The marketing manager for instance, may see
an opportunity or threat exclusively from a marketing perspective,
whereas the financial manager may approach the same issue from a
purely financial perspective. To overcome potential conflict between the
different departments, the chief executive must ensure that proper co-
ordination mechanisms are in place.
Managing director
Research and Human

Marketing Production Financial
development resources
manager manager manager
manager manager
Figure 15.2: Functional departmentalisation

PART IV: Organising
product departmentalisation Product departmentalisation

all activities concerned with With product departmentalisation, all the specialists associated
the manufacturing of a specific with such products are grouped in product units or departments. The
product or group of products, rationale for this structure is that the marketing, financing and personnel
are grouped together in units or needs involved in the production of, say, diesel engines will differ
departments considerably from those occurring in the manufacture of cigarettes. An
example of product departmentalisation is shown in Figure 15.3.
Tiger Brands
Food brands Spar Healthcare Critical care/

brands hospital
products
Figure 15.3: Product departmentalisation
Product departmentalisation is a logical structure for large organisations

providing a wide range of products or services. The advantages of this
structure are that the specialised knowledge of employees regarding
specific products is used to maximum effect, decisions can be made
quickly within a section, and the performance of each group can easily
be measured separately. The disadvantages are that the managers in one
particular section may concentrate their attention almost exclusively on
their particular products and tend to lose sight of those of the rest of
the organisation. In addition, overall administrative costs could increase,
because each section has to have its own functional specialists, such as
market researchers and financial experts.
Location departmentalisation
location departmentalisation Location departmentalisation is a logical structure for an
work and workers are organisation that manufactures and sells its goods in different
organised into separate units geographical regions. Location departmentalisation refers to a structure
or departments responsible for in which work to be executed and the workers allocated to it, are
carrying out their responsibilities organised into separate units or departments that are responsible for
in particular geographic areas carrying out their responsibilities in different geographic areas. This kind
of structure gives autonomy to the various geographic area managers,
which is necessary to facilitate decision-making and adjustment to local
business environments. This structure is also suitable for a multinational
business because each country in which the multinational operates will
be culturally unique and will have to be approached differently.

SABMiller plc
Managing Chairman: Managing

director: Pilsner director:
Europe Urquell Africa and
International Asia
Figure 15.4: Location departmentalisation
Customer departmentalisation
Customer departmentalisation is appropriate when an customer
organisation concentrates on a particular segment of the market or departmentalisation
group of consumers or, in the case of industrial products, where the work and workers responsible
organisation sells its products only to a limited group of users. for providing products or
Figure 15.5 illustrates customer departmentalisation. services to a certain segment of
the market are grouped together
into a unit or department
CEO
President: President: President: President:

Household Professional Pharma- Industrial
ceutical
Figure 15.5: Customer departmentalisation
Customer departmentalisation has the same advantages and

disadvantages as product departmentalisation. Unlike a functional
structure in which activities are grouped according to knowledge,
skills, experience or training, a structure based on product, location or
customers resembles in some respects a small, privately-owned business.
It is more or less autonomous in its actions, and is accountable for its
own profits or losses. However, unlike an independent small business,
it is still subject to the overall goals and strategies of the organisation as
a whole.

PART IV: Organising
Multiple departmentalisation
Large and complex organisations in particular often find it necessary
to use several of the departmental structures described earlier to
create a hybrid organisation. Any mixture of structures can be used.
multiple departmentalisation The following are among the most common combinations in multiple
a combination of the functional, departmentalisation:
product, location or customer
departmentalisation structures Matrix departmentalisation
matrix departmentalisation With matrix departmentalisation, the employee works for
combines functional and a functional department, such as finance, but is also assigned to
product departmental structures one or more products or projects. The major advantage of matrix
departmentalisation is flexibility – it allows the organisation to organise
temporarily for a project. The major disadvantage is that each employee
reports to two superiors – a functional and a project superior – which
violates the unity of command principle. Coordination can also be
difficult8.
Figure 15.6 illustrates a matrix structure.
CEO
Manager: Manager: Manager:

Finance Marketing Operations
Project
manager 1
Team Team Team
Project
manager 2
Team Team Team
Project
manager 3
Team Team Team
Figure 15.6: Matrix departmentalisation

Divisional departmentalisation
Large, complex and global organisations with related products and
services usually have divisional departmentalisation. In this case, divisional
the organisation is departmentalised in semi-autonomous strategic departmentalisation
business units. Figure 15.7 illustrates divisional departmentalisation. departmentalised in semi-
autonomous strategic business
units
CEO
Product Product
division 2 division 1
Human Manu- Accounting Human Manu- Accounting

resources facturing resources facturing
Figure 15.7: Divisional departmentalisation
With the divisional (or ‘M-form’) structure, any combination of the

other forms of departmentalisation may be used by the organisation
and within its divisions. When the organisation has unrelated diversified
business units, they usually use the conglomerate structure, based on
autonomous profit centers. In this case top management focuses on
portfolio management to buy and sell businesses without great concern
for coordinating the separate divisions.
Network structure
Network structure describes an interrelationship between different network structure
organisations, where the organisation performs core activities itself but organisation performs the core
subcontracts some of the non-core operations to other organisations. activities itself and subcontracts
One of the big challenges for a network organisation is to coordinate some of its non-core operations
its network partners’ activities to ensure that they contribute to the to other organisations
network organisation’s mission and goals. Figure 15.8 on the next page
illustrates a network structure.
New venture units

New venture units use a form of matrix structure, and usually consist new venture units
of groups of employees that volunteer to develop new products or new consist of groups of employees
ventures for an organisation. who volunteer to develop new
When the project is complete, it can be adopted into any of the products or ventures for the
following organisational structures: organisation

PART IV: Organising
Designer Manufacturing
Central hub
Human resources Marketer

agency
Figure 15.8: Network structure
r UIFOFXQSPEVDUTPSWFOUVSFTCFDPNFBQBSUPG USBEJUJPOBM
departmentalisation, such as functional, product, location or
customer departmentalisation, or
r UIFQSPEVDUTBSFEFWFMPQFEJOUPBUPUBMMZOFXEFQBSUNFOU PS
r UIFOFXQSPEVDUTHSPXJOUPEJWJTJPOT
Team approach
Probably the most widespread trend in departmentalisation in recent
years has been the implementation of team concepts. The vertical chain
of command is a powerful means of control, but passing all decisions up
team approach the hierarchy takes too long and keeps responsibility at the top. The team
approach gives managers a way to delegate authority, push responsibility
number of people with
to lower levels and be more flexible and responsive in the competitive
complementary skills and
global environment. The team approach to departmentalisation refers
competencies that hold
to a number of workers, with complementary skills and competencies,
themselves accountable for
who work together and hold themselves accountable and responsible
pursuing a common purpose,
for pursuing a common purpose, achieving performance goals and
achieving performance goals
improving interdependent work processes.
and improving interdependent
work processes Figure 15.9 illustrates the team approach.
CEO
Team 1 Team 2 Team 3
Figure 15.9 The team approach
The virtual network approach

virtual network approach The virtual network approach builds on the features of the network
people who are spread out organisation. It is no longer necessary for the organisation to have all
in remote locations work as its employees, teams, departments and subcontractors in one office or
though they were in one place facility. Information technologies enable the organisation to integrate its
internal employees, teams and departments with its external network
of subcontractors in order to achieve specific goals, even in situations

where people work in remote locations.
The virtual organisation is a streamlined model that fits the rapidly
changing environment. It provides flexibility and efficiency because
partnerships and relationships with other organisations can be formed
or disbanded as needed. However, a disadvantage associated with
the virtual organisation is that the levels of reciprocal and sequential
interdependence are much higher than those of the network organisation.
They tend to be instantaneous – that is, any time and any place – for
the networked employees, teams, departments and subcontractors.
The boundaries of the virtual organisation are also more open than in
a network organisation because of the use of advanced information
technologies that seamlessly knit all partners together. Examples of the
information technologies used to create the virtual organisation are
electronic commerce, extranet and intranet, which were discussed in
Chapter 13.
Remote control9
Remote working is rapidly spreading beyond for employers and employees. For many employees,
its traditional heartland of sales teams and field remote working provides them with flexibility,
engineers. But, what are the benefits of remote greater fulfillment, high levels of job satisfaction and
working and how can managers manage e-workers a better work/life balance. On the downside, remote
effectively? working can cause remote workers to struggle with
Employees and employers can both benefit work/no-work boundaries, so switching off can be an
from remote working. For employers, cost savings issue for employees.
due to remote workers are very attractive (fewer The big unanswered question about remote
desks mean smaller offices and lower overhead working is whether remote workers can wave
costs). Also, there is growing evidence of improved goodbye to promotion. Despite enthusiasm for
productivity and improved job satisfaction for remote working, some managers confess that
remote working staff. Fast, reliable broadband visibility is important, as is being able to coach,
connections, remote security systems and web- mentor and influence decisions. Managers need
accessible applications and network systems have to understand that it is about the output of their
never been cheaper and more available, making the employees and not about presenteeism.
practicalities of remote working easier than ever
15.7 DESIGNING JOBS THAT MOTIVATE LEARNING OBJECTIVE 7

Once the organisational structure is in place, management must consider Propose recommendations
the design of jobs to motivate the incumbents of the different positions regarding the design or
in the structure to contribute towards the organisation’s goals and redesign of jobs as a
objectives. motivational factor.
15.7.1 Job design

Job design is a crucial part of organising as it affects job satisfaction job design
and productivity. It refers to the process of combining the tasks that the process of combining the
each employee is responsible for. Empowering employees to be tasks that each employee is
involved in designing their own jobs motivates them and increases their responsible for

PART IV: Organising
productivity10. This obviously requires employees to have a very clear

understanding of the entire organisation and the way it operates.
15.7.2 Job specialisation

job specialisation Job specialisation is often used in South Africa and Africa in industries
the narrowing down of activities where many of the employees are illiterate or very inexperienced in the
to simple, repetitive routines workings of a business. Job specialisation refers to the narrowing down
of activities to simple, repetitive routines. The term ‘job specialisation’
should not be confused with ‘person specialisation’, where the latter
refers to individuals with specialised training, such as medical specialists,
lawyers, geologists and engineers. When designing jobs, managers
need to consider motivating elements such as job specialisation and job
expansion.
The origin of job specialisation11

Job specialisation originated with the work of Adam could make among them upwards of 48 000 pins
Smith. The famous opening words of his book Wealth in a day ... But if they had all wrought separately and
of nations describe a basic form of specialisation independently, and without any of them having been
in a pin factory and the subsequent increased educated to this peculiar business, they certainly
productivity: could not each of them have made twenty. This
‘One man draws the wire, another straightens it, would have meant that 200 pins at most would have
a third cuts it, a fourth points it, a fifth grids it at the been made instead of 48 000.’
top for receiving the head. Ten persons, therefore,
15.7.3 Job expansion

Job expansion is almost the opposite of job simplification. Jobs can be
expanded through job rotation, job enlargement and job enrichment.
r +PCSPUBUJPOJOWPMWFTQFSGPSNJOHEJŲFSFOUKPCTGPSBTFUQFSJPEPG
time. Many organisations appoint management trainees and then
develop their conceptual skills by rotating them through the various
departments of an organisation.
r +PCFOMBSHFNFOUTUFNTGSPNUIFUIJOLJOHPGJOEVTUSJBMFOHJOFFST
They wanted to increase a job’s scope in order to break the
monotony of a limited routine. A job is enlarged when an
employee carries out a wider range of activities of approximately
the same level of skill, such as a typist whose job is enlarged to
include general administration tasks. The expanded job will be
more interesting because it is more varied.
r +PCFOSJDINFOUJTJNQMFNFOUFECZBEEJOHEFQUIUPUIFKPC*UJT
based on Herzberg’s two-factor theory of motivation, which
is described in detail in Chapter 20. Herzberg argued that
job rotation and job enlargement do not enhance employee
motivation. Instead a worker should be provided with actual
control over the task to make the job more motivating12. Job
enrichment entails increasing both the number of tasks a worker
does and the control the worker has over the job.

The job of a manager is to get the work done through the efforts of
others. It is neither desirable nor is it possible, in many instances, for
managers to perform all the work for which they are held responsible.
In such instances, managers need to rely on their subordinates to
perform various functions and activities on their behalf. The delegation
of responsibilities is discussed in the last section of this chapter.
15.8 DELEGATION LEARNING OBJECTIVE 8

With delegation, authority is also passed on to an employee, who Design and provide
then has the authority to deploy the necessary resources in order to implementation guidelines for a
complete the delegated task. There are different reasons why managers delegation process.
delegate. Delegation is important from the organisation’s perspective
as it promotes succession planning: should the manager retire, resign or delegation
get promoted to a higher level, a subordinate will be able to move into the process whereby managers
the manager’s position more easily. From a manager’s point of view, assign a portion of their total
delegation is used to enable the manager to get more managerial work workload to others
done. Subordinates also benefit from delegation – by participating in
more challenging jobs, they learn to develop their decision-making and
problem-solving skills and in the process improve their managerial skills. It
is important to note that 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
may hold subordinates responsible for a job, but they are still accountable
to their own superiors for the work.
The parity principle stipulates that authority and responsibility parity principle
should be co-equal. According to the parity principle, neither the the parity principle stipulates
manager nor the subordinate should be held responsible for things that authority and responsibility
beyond their control or influence. This means that, when a manager should be co-equal
assigns the responsibility for a task to be performed, he must also give
the subordinate the full authority to perform the task. For example, the
employee who is asked to drive across town and pick up a load of timber
(responsibility) should also be given the right (authority) to request a
vehicle from the vehicle pool to accomplish the task. This principle is
often violated – employees almost always feel they have been assigned
more responsibility than authority to act.
In what follows, we will discuss the principles of effective delegation,
the advantages of delegation, obstacles to effective delegation, strategies
for overcoming obstacles to effective delegation and the delegation
process.
15.8.1 Principles of effective delegation

The delegation process is essential to every manager, for this is
how managers get others to share in the organisation’s drive for
performance. A common failing of less effective managers is that they
try to be responsible for everything. In so doing, they are overloaded
and therefore not very efficient managers. This phenomenon is evident
in South Africa, due to the shortage of suitably qualified managers.
Consequently, subordinates suffer because of the manager’s failure to
delegate and develop them.
PART IV: Organising
Below are some principles that can be used as guidelines to help

managers become more effective at delegating.
r &YQMBJOUIFSFBTPO T
GPSEFMFHBUJOH4VCPSEJOBUFTTIPVME
VOEFSTUBOEUIBUEFMFHBUJPOIBTBEWBOUBHFTGPSUIFNTFMWFT GPSUIF
NBOBHFSBOEGPSUIFPSHBOJTBUJPO
r 4FUDMFBSTUBOEBSETBOEHPBMT&NQMPZFFTTIPVMEQBSUJDJQBUFJOUIF
QSPDFTTPG GPSNVMBUJOHHPBMTGPSUIFEFMFHBUFEUBTLBOETIPVMEBMTP
BHSFFXJUIUIFDSJUFSJBMBJEEPXOGPSNFBTVSJOHUIFJSQFSGPSNBODF
5IJTQBSUJDJQBUJPOXJMMGPTUFSTVDDFTTGVMEFMFHBUJPO
r &OTVSFDMBSJUZPG BVUIPSJUZBOESFTQPOTJCJMJUZ4VCPSEJOBUFTNVTU
VOEFSTUBOEUIFUBTLTBOEBVUIPSJUZBTTJHOFEUPUIFN SFDPHOJTF
UIFJSSFTQPOTJCJMJUZBOECFIFMEBDDPVOUBCMFGPSUIFSFTVMUT
r *OWPMWFTVCPSEJOBUFT.BOBHFSTTIPVMENPUJWBUFTVCPSEJOBUFTCZ
JODMVEJOHUIFNJOUIFEFDJTJPONBLJOHQSPDFTT JOGPSNJOHUIFNPG
UIFJSQSPHSFTT BOEFOBCMJOHUIFNUPJNQSPWFUIFJSLOPXMFEHFPG
BOETLJMMTJOUIFEFMFHBUFEUBTL"OJOGPSNFEFNQMPZFFJTNPSF
MJLFMZUPBDDFQUXFMMEFTJHOBUFEUBTLTBOEQFSGPSNUIFNQSPQFSMZ
r 3FRVFTUUIFDPNQMFUJPOPG UBTLT#ZQSPWJEJOHUIFOFDFTTBSZ
EJSFDUJPOBOEBTTJTUBODF NBOBHFSTDBOTFFUPJUUIBUFNQMPZFFT
DPNQMFUFUIFUBTLTBTTJHOFEUPUIFNBDDPSEJOHUPUIFBHSFFEVQPO
standards and goals.
r 1SPWJEFQFSGPSNBODFUSBJOJOH5IFFŲFDUJWFOFTTPGEFMFHBUJPO
EFQFOETPOUIFXPSLFSTBCJMJUZUPQFSGPSNUBTLT.BOBHFSTTIPVME
DPOUJOVBMMZFWBMVBUFUIFSFTQPOTJCJMJUJFTEFMFHBUFEBOEQSPWJEF
USBJOJOHUPIFMQXPSLFSTPWFSDPNFTIPSUDPNJOHT
r 1SPWJEFGFFECBDLUPUIFTVCPSEJOBUF5JNFMZBOEBDDVSBUF
GFFECBDLTIPVMECFHJWFOUPTVCPSEJOBUFTPOBSFHVMBSCBTJT5IJT
TIPVMEJODMVEFCPUIQPTJUJWFBOEOFHBUJWFGFFECBDLSFHBSEJOH
UIFTVCPSEJOBUFTQFSGPSNBODF5IFXBZGPSXBSETIPVMEBMTPCF
discussed with the subordinate.
15.8.2 The advantages of delegation

8IFOBQQMJFEQSPQFSMZ EFMFHBUJPOIBTTFWFSBMJNQPSUBOUBEWBOUBHFT
r .BOBHFSTXIPUSBJOUIFJSTUBŲUPBDDFQUNPSFSFTQPOTJCJMJUZ
BSFJOBHPPEQPTJUJPOUIFNTFMWFTUPBDDFQUNPSFBVUIPSJUZBOE
SFTQPOTJCJMJUZGSPNIJHIFSMFWFMTPG NBOBHFNFOU
r %FMFHBUJPOFODPVSBHFTFNQMPZFFTUPFYFSDJTFKVEHNFOUBOEBDDFQU
BDDPVOUBCJMJUZ5IJTJNQSPWFTTFMGDPOųEFODFBOEXJMMJOHOFTTUPUBLF
UIFJOJUJBUJWF BOEJTBHSFBUUSBJOJOHNFUIPE
r #FUUFSEFDJTJPOTBSFPGUFOUBLFOCZJOWPMWJOHFNQMPZFFTXIPBSF
ADMPTFSUPUIFBDUJPOBOELOPXNPSFBCPVUUIFQSBDUJDBMFYFDVUJPO
PG UBTLT
r 2VJDLFSEFDJTJPONBLJOHUBLFTQMBDF*GTVCPSEJOBUFTIBWFUIF
OFDFTTBSZBVUIPSJUZ UIFZEPOPUIBWFUPSFGFSUPUPQNBOBHFNFOU
CFGPSFUBLJOHDFSUBJOEFDJTJPOT

15.8.3 Obstacles to effective delegation

When one is given something to do and one knows how to do it
well, there is a natural tendency to do that task rather than to give it
to someone else. However, one of the first things managers need to
learn is to delegate those tasks that they know best. By delegating the
tasks that one knows best, one can move on to other tasks that will
offer further personal growth. Also, it is easy to supervise subordinates
who are doing things of which one has detailed knowledge. There
are a number of personal and psychological barriers that impede the
delegation process for managers. A review of these barriers may be
helpful to managers:
r "NBOBHFSNBZGFBSUIBUIJTPSIFSPXOQFSGPSNBODFFWBMVBUJPO
will suffer if subordinates fail to do a job properly.
r 5IFNBOBHFSNBZGFFMUIBUUIFTVCPSEJOBUFXJMMOPUEPUIFKPC
as well as he or she can do it. This may stem from a lack of
confidence in subordinates and/or the perception that they are not
competent enough to do the job.
r .BOBHFSTBSFPGUFOUPPJOŴFYJCMFPSEJTPSHBOJTFEUPEFMFHBUF
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.
r .BOBHFSTNBZCFSFMVDUBOUUPEFMFHBUFCFDBVTFUIFZGFBSUIFJS
subordinates will do the job better than they can. Subordinates,
on the other hand, sometimes fear that they will fail and thus
expose themselves to disciplinary action. They may try to avoid
work responsibilities and risk, and feel that there are no additional
rewards for completing a task. Sometimes there is confusion about
who is actually responsible for the job.
r .BOBHFSTPGUFOJOIFSJUPSHBOJTBUJPOTUIBUIBWFCFFOEFTJHOFECZ
others. It is possible that the current organisational design may be
an impediment to delegation.
If there are problems in delegation, managers should review all the

elements of the organising function to determine the root cause of such
organisational stumbling blocks. A few organisational impediments to
delegation should be mentioned here. First, delegation is not effective if
authority and responsibility are not clearly defined. If managers do not
know which tasks to delegate and what is expected of them, they will not
be able to delegate decision-making to their subordinates. This situation
requires a clarification of duties from above or from the manager’s
superior. Second, when a manager does not make subordinates
accountable for task performance, it is likely that this responsibility will
be passed on to others, creating additional staff and communication
burdens. Lastly, in the absence of or with poorly developed job
descriptions individuals may not have a good understanding of what
is expected of them. The next section describes strategies that
management can implement in order to overcome obstacles that hinder
effective delegation.

PART IV: Organising
15.8.4 Overcoming obstacles to effective delegation

Most of the impediments to delegation can be minimised by a greater
awareness on the part of the manager that such obstacles exist. One
way of overcoming obstacles to effective delegation is to create a
culture of continuous learning. Managers should realise 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 must deliver, but should
give the subordinate maximum freedom to perform their delegated
tasks. When mistakes are made, the subordinate should be assisted
with finding solutions to problems. Improved communication between
subordinates and managers removes obstacles to delegation. Close
communication will reveal the strengths and weaknesses of employees,
enabling managers to know which tasks can be appropriately delegated
in the knowledge that the job will be done properly. Training helps
subordinates to understand their responsibilities, authority and
accountability. 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 task requirements
and determine to what extent employees are capable of performing the
task they wish to delegate. They should be able to trust their employees
and have faith in their ability to complete the task successfully. When
employees cannot perform the job effectively, the manager’s job is to
teach them how to do it.
15.8.5 The delegation process

We have discussed how essential the delegation process is to the
manager. Similarly, the process is also essential to the growth and well-
being of subordinates. Delegation does not take place automatically – it
is something that a manager must initiate. Conditions are constantly
changing in today’s organisations, so it is important for managers to
review the changing requirements with their subordinate staff. Of
course, in the case of new staff members, more time is required to
ensure that they understand their jobs. Figure 15.10 illustrates the steps
to be followed in the delegation process.
1 2 3 4 5
Decide who
Decide on the
should Provide
tasks to be Delegate Step in
perform the resources
delegated
tasks
6
Feedback
Figure 15.10: The delegation process

Each of the steps in the delegation process is discussed in more detail

below:
1. Decide on the tasks to be delegated. Tasks of a repetitive nature,
or minor chores, can easily be delegated. It is important, however,
to delegate more challenging tasks in order to develop employees
and create self-confidence. Try delegating the tasks that you know
how to do best.
2. Decide who should perform the tasks. In this instance, the time
available, the competency required, and the experience of the
subordinate should be taken into account. You may also want to
rotate certain tasks among employees in order to create a more
flexible workforce.
3. Provide sufficient resources for carrying out the delegated
task. These resources include people, financial, physical (such
as computers) and information resources. Without sufficient
resources, the subordinate cannot perform the task. This is the
nature of authority. All too often the manager delegates the
work to be done, but fails to give the individual control over the
necessary resources to perform the task.
4. Delegate the assignment. The delegating manager should brief the
employee by providing all the relevant information on the task to
be performed, including expected outcomes. He or she will not
normally prescribe the methods to be used in performing the task,
unless they are not known to the subordinate. Open channels
of communication should exist between the manager and the
subordinate regarding the delegated tasks.
5. Be prepared to step in, if necessary. Problems could be
experienced with the execution of a task if resources are
insufficient, or if the subordinate experiences difficulties or lacks
performance skills. Managers should be prepared to assist in cases
where it may be necessary, and the subordinate should be made
aware of this.
6. Establish a feedback system. This is vital because the outcome
of the delegation process is important information that serves as
input for the next delegation process.

Part IV: Organising
CHAPTER SUMMARY
1. Differentiate between the concepts organising, organisation and organisational
structure.
The term ‘organising’ refers to the process of creating a structure for the organisation
that will enable its employees to work effectively towards its vision, mission, goals and
objectives. The end result of the organisation process is referred to as the ‘organisation’. The
basic framework that illustrates the formal relationships between responsibilities, tasks, and
people in the organisation, is referred to as the ‘organisational structure’.
2. Expound on the importance of organising in attaining the goals and objectives of the
organisation.
Reasons why organising is indispensible for the attainment of goals and objectives in an
organisation, include the following:
• leads to an organisational structure that indicates clearly who is responsible for which
tasks
• employees will be expected to account for the outcomes, positive or negative, for that
portion of the work directly under their control
• ensures that communication is effective and that all information required by managers and
employees at all levels of the organisation effectively reaches them
• helps managers deploy resources meaningfully
• enhances the principle of synergy, effectiveness and quality of the work performed
• workload is divided into activities to be performed by an individual or a group of individuals
• means that a variety of tasks, procedures and resources can be grouped systematically
• related tasks and activities of employees are grouped together meaningfully in specialised
sections, departments or business units so that experts in various fields can deal with their
specialised tasks
• organisational structure is responsible for creating a mechanism to coordinate the
activities in the entire organisation.
3. Describe the steps to follow in designing an organisational structure.

These steps are:
1. outline the tasks and activities
2. design jobs and assign them to employees
3. define relationships between individual workers and work groups
4. develop an organisational design
5. implement a control mechanism to ensure that the chosen organisational structure enables
the organisation to attain its mission and goals.
4. Explain the principles of organising that should be considered in designing an

organisational structure.
The following principles play an important role in designing an organisational structure:
• unity of command
Chapter 15 Principles of organising
• chain of command
• span of control
• division of work
• standardisation
• coordination
• responsibility
• authority
• accountability
• power
• delegation
• downsizing
• delayering
• flexibility.
5. Explain the term authority.

Authority is the right to make decisions, issue orders and use resources. The following are
important principles pertaining to authority:
• delegation of authority
• formal authority
• informal authority
• scope of authority
• line authority
• staff authority
• micro-management
• centralised authority
• decentralised authority.
6. Describe the departmentalisation approach to organisational structure.

An organisational structure refers to the arrangement of positions into work units
or departments and the interrelationship among them within an organisation.
Departmentalisation refers to the grouping of related activities into units or departments.
Various options in terms of departmentalisation exist, such as the following:
• functional departmentalisation
• product departmentalisation
• location departmentalisation
• customer departmentalisation
• multiple departmentalisation
• matrix departmentalisation
• divisional departmentalisation
• network structure
Part IV: Organising
• new venture units

• team approach
• virtual network approach.
7. Propose recommendations regarding the design or redesign of jobs as a motivational

factor.
Once the organisational structure is in place, jobs need to be designed to motivate the
incumbents of the various positions in the structure to contribute to the organisation’s
success. The following principles relate to this:
• job design – the process of combining the tasks that each employee is responsible for
• job specialisation – narrowing down of activities to simple, repetitive routines
• job expansion – making jobs less specialised
• job rotation – performing different jobs for a set period of time
• job enlargement – job carries a wider range of activities of approximately the same level of
skill
• job enrichment – the process of increasing the number of tasks and the control over the job.
8. Design and provide implementation guidelines for a delegation process.

Delegation is the process whereby managers assign a portion of their workload to others. The
following principles are important as far as delegation is concerned:
1. Explain the reason(s) for delegating.
2. Set clear standards and goals.
3. Ensure clarity of authority and responsibility.
4. Involve subordinates.
5. Request the completion of tasks.
6. Provide performance training.
7. Provide feedback to the subordinate.
There are numerous advantages and disadvantages associated with delegation. It is important
for a manager to be aware of these, as well as of the various obstacles to effective delegation
and ways or strategies to overcome obstacles. The delegation process, of which the steps
are listed below, provides a framework for managers to assign a portion of their workload
effectively to others:
Step 1: Decide on the tasks to be delegated
Step 2: Decide who should perform the tasks
Step 3: Provide sufficient resources for carrying out the delegated task
Step 4: Delegate the assignment
Step 5: Be prepared to step in if need be

Step 6: Establish a feedback system.
KEY TERMS
accountability organisational chart
authority organisational design
centralisation organisational structure
chain of command organising
coordination pooled interdependence
decentralisation power
delayering product departmentalisation
delegation reciprocal interdependence
departmentalisation responsibility
division of work sequential interdependence
downsizing span of control
high involvement specialisation
job design standardisation
network structures team approach
new venture units unity of command
organisation virtual network organisation
REVIEW QUESTIONS
1. Differentiate between the concepts ‘organising’, ‘organisation’ and ‘organisational structure’.
2. Organising is one of the fundamental functions of management. Explain the reasons for its
importance.
3. To design an organisational structure, managers need to follow a sequence of steps. Describe
these steps.
4. Explain the principles of organising that should be considered when designing an organisational
structure.
5. Discuss the term ‘authority’ and differentiate between the various kinds of authority.
6. Describe the departmentalisation approach to organisational structure. In your answer, you should
refer to the various options in terms of departmentalisation and the circumstances in which each
option is appropriate.
7. Explain how a manager can design jobs to motivate incumbents of the different positions in the
formal organisational structure so that it contributes towards the organisation’s goals and objectives.
8. Provide an explanation of delegation, by referring to the principles pertaining to effective delegation,
the advantages thereof, obstacles associated with effective delegation and the steps involved in the
delegation process.

PART IV: Organising
END NOTES
1 [Online] Available: http://www.flysaa.com/. Accessed on 23 May 2013.
2 Thompson, J.D. 1976 in Organisations and Beyond. Rushing, W.A. & Zald, M.N. (Editors). Lexington, Mass: DC
Heath, p 41.
3 Lussier, R.N. 2012. Management fundamentals. 5th edition. South-Western: Cengage Learning, p 174.
4 Lussier, op. cit., pp 178–179.
5 Vizard, M. 2001. Above the noise: When computing is an organisational liability – after the September 11 attacks,
companies are rethinking decisions to centralise computing. InfoWorld, 23(42): 8.
6 Daft, R.L. 2005. Management. 7th edition. Australia: Thomson, p 347.
7 Lussier, R.N. 2006. Management Fundamentals: Concepts, Applications, Skill Development. 3rd edition. Mason:
Thomson South-Western College Publishing, p 204.
8 Lussier, op. cit., p 183.
9 Kennett, M. 2011. Remote control. Management today. March: 46–47.
10 West, M. & Patterson, M. 1998. Profitable personnel. People Management, 4(1): 28–32.
11 Campbell, R.H., Skinner, A.S. & Todd, W.B. (Editors).1976. Adam Smith: An Inquiry into the Nature and Causes of the
Wealth of Nations. Oxford: Clarendon Press, p 15.
12 Herzberg, F. 1968. Work and the Nature of Man. London: Crosby Lockwood Staples.

Chapter 16
Value chain and e-business
Tersia Brevis
OPENING CASE
The Benetton Group1 towards inventory on delivery. In a drive to lower
The Benetton Group is a global fashion brand production cost, a technique observed in Scotland
based in Treviso, Italy. The name comes from the was introduced to beat raw wool in water for
Benetton family who founded the company in softening it to have a cashmere feel to it. Second
1965. The Group now employs more than 10 000 hand knitting machines were also bought and
people and is represented in 120 countries with refurbished which worked perfectly well.
an annual turnover exceeding 2 billion euro per Benetton further concentrated on expanding
year. The company’s core business is their clothing their production and distribution capabilities. A
lines, namely the United Colors of Benetton, new dyeing technique they patented enabled
Undercolors of Benetton, Sisley and Playlife. them to produce unbleached woollen sweaters
Their products include womenswear, menswear, on demand through 450 subcontractors. A state-
childrenswear and underwear and they have of-the-art warehouse enabled them to efficiently
expanded into perfumes, stationery, eyewear and manage inventory and distribution.
travel bags. The acknowledged reasons contributing to
The Group had its beginning with Giuliana their success lie in their ability to control logistics,
Benetton, one of four siblings, who started knitting industrial flexibility and a progressive marketing
brightly coloured wool sweaters from home. In the approach through direct franchised distribution
late fifties through the early sixties, wool sweaters channels without increasing company overheads.
were not available in many colours. Brother Luciano An independent network of partners takes
recognised his sister’s talents in producing brightly care of wholesaling, coordinated by independent
coloured wool sweaters. With the sale of a bicycle sales representatives and a dedicated team of
and an accordion for 30 000 lire, they purchased a area managers that report directly to Benetton.
secondhand hosiery knitting machine and founded During the sixties and early seventies marketing
the Benetton Group. The other two Benetton focused on the Italian domestic market. By the
siblings (Gilberto and Carlo) were involved from mid-seventies there were some 200 stores in Italy
the start of the business. representing the Benetton brand, most but not all
Giuliana put together a collection of brightly of them named Benetton. In an effort to attract
coloured sweaters which sold immediately to local specific market segments, different brands were
stores in their area. The collection soon expanded established but the Benetton brand grew such that
to 36 pieces. Giuliana soon had to employ some most reverted to Benetton.
young women whom Luciano had to transport to Natural growth saw Benetton expand into
work. Europe in the eighties with representation in France,
Luciano, being an innovative leader, instituted a Switzerland, West Germany, Britain and some East
number of key initiatives that took Benetton from a Block countries. High profile people like Princesses
small family business to a giant company. Sales were Diana and Caroline gave Benetton international
only done through specialised knitwear stores with exposure and contributed to the establishment of
whom Benetton formed close relations. Next, an 2 600 stores in Europe with sales of $350 million
incentive discount was offered for cash payment by 1982 with America and Japan following in 1983.
PART IV: Organising
Production is characterised by upstream vertical their value chain. Order management was fully
integration through the transformation of raw automated through a dedicated computer network.
materials to fabrics and fabric finishing. European In production, knitting machines interfaced with
factories in Scotland, Spain and France were computer-aided-design terminals, with designers
complemented by the establishment of a factory experimenting with patterns and colours before
in North Carolina, USA by 1985, mainly to alleviate sending the final design for machining. Cutting was
import-export challenges. Benetton could be automated through computer-aided-manufacturing
considered vertically de-integrated since the core (CAM) systems. In logistics warehouses were
functions making up the total value chain, function robotised. Point of sale terminals were also fully
independently with external organisations taking integrated to the computer network.
care of styling and design, logistics, distribution and The Benetton Group is not only known for
sales. their global fashion brands, but also made headlines
With two fashion seasons (spring/summer and with the launch of their worldwide communication
autumn/winter ranges), operations matured to campaign in 2011, an invitation to the leaders
a 21 month turnaround time from initial planning and citizens of the world to combat the ‘culture
to agent commissions paid. Order management is of hatred’, when they created the UNHATE
based on demand from Benetton stores, based on Foundation. This campaign was created as the
preliminary pre-season samples. On receipt and Group’s corporate social responsibility strategy and
analysis of orders placed, capacity planning and not as a cosmetic exercise. The Benetton Group
contracting for the season’s production is finalised. seeks to contribute to the creation of a new culture
Although the original Benetton strategy was against hate, to stimulate reflection on how politics,
maintained throughout, their critical success factor faith and ideas, even when they are divergent and
was acknowledged to be their willingness to mutually opposed, must still lead to dialogue and
embrace state-of-the-art technology throughout mediation – truly a noble cause.
LEARNING OBJECTIVES
This chapter focuses on organisational value chains as well as the impact of electronic media and
eDusiness on the efƂcienc[ and effectiveness of the organisation The oDLective of stud[ing this
1. Explain the internal value chain of an organisation.
2. Discuss the optimisation of the value chain.
. Distinguish between the various industryspeciƂc value chains.
4. Explain the term ‘value system’.
. DeƂne the term ‘ebusiness’ and explain the various categories of business models in ebusiness
strategy.
LEARNING OBJECTIVE 1 16.1 THE INTERNAL VALUE CHAIN

Explain the internal value chain Every day, managers solve difficult problems in a changing environment
of an organisation. – they need to deal with power and politics within the organisation;
they need to ensure ethical behaviour in the organisation; manage a
diverse workforce; lead the organisation towards the accomplishment
of its vision and mission statement; ensure organisational maturity and
manage projects successfully. All of these activities have one goal in
common – to ensure a sustainable competitive advantage.
CHAPTER 16 Value chain and e-business
Competitive advantage is the ability to provide greater value to competitive advantage

customers than competitors. It grows from the way that organisations ability to provide greater value to
perform and organise discrete activities. Sustainable competitive customers than competitors
advantage ensures the survival of the organisation over the long term.
An important contributing factor to the long-term survival of an
sustainable competitive
organisation is the value that the organisation is creating for its customers.
advantage
Within any organisation, a variety of functions and activities need to be
performed in order to create value. Michael Porter developed the term the development of a unique
value chain to describe the interconnectedness and interrelatedness of ability to provide greater value
these internal functions and activities. The following examples illustrate to customers which competitors
the interrelatedness of these internal functions and activities: tried unsuccessfully to emulate
and it therefore ensures the
r 5IFUPQNBOBHFNFOUPG UIFPSHBOJTBUJPOGPSNVMBUFTUIFWJTJPO
survival over the long term
and mission statement, determines the long-term goals, identifies
corporate strategies and ensures adequate resources will be made
available to achieve its long-term goals, vision and mission. value chain
r 4VQQMZNBOBHFNFOUPG UIFPSHBOJTBUJPODPPSEJOBUFTUIFVQTUSFBN the internal functions and
supply base, continuously finding the right suppliers and building activities that need to be
relationships with them. performed in order to create
r 5IFPQFSBUJPOTGVODUJPOPG UIFPSHBOJTBUJPOUSBOTGPSNTUIFJOQVUT value for an organisation’s
of the organisation (acquired from various suppliers) into more customer
highly valued products and/or services.
r -PHJTUJDTNPWFTBOETUPSFTNBUFSJBMTBOEIBMGųOJTIFEQSPEVDUT
so that they are available when and where they are needed. On
large scale projects logistics are also made responsible for the safe
movement of people and heavy duty machinery.
r 5IFNBSLFUJOHGVODUJPOPG UIFPSHBOJTBUJPOBTTJTUTJOTFUUJOH
TUSBUFHJDEJSFDUJPOCZBOBMZTJOHNBSLFUUSFOETBOEOFFETCFGPSF
managing the downstream relationships with customers, identifies
customers’ needs and communicates how the organisation can
meet their needs; where, when and at what price through well-
EJSFDUFENBSLFUJOHDBNQBJHOT
r 3FTFBSDIBOEEFWFMPQNFOU 3%
XPSLJOHDMPTFMZXJUIUIF
NBSLFUJOHGVODUJPOJTSFTQPOTJCMFGPSOFXQSPEVDUEFTJHOBOE
QBDLBHJOH

r 5IFIVNBOSFTPVSDFTGVODUJPOPG UIFPSHBOJTBUJPOEFUFSNJOFTUIF
need for human resources in order to attain the organisation’s
vision, mission and goals. It recruits, selects, appoints, develops,
manages and retains the organisation’s employees.
r 5IFBDDPVOUJOHGVODUJPOPG UIFPSHBOJTBUJPONBJOUBJOTCVTJOFTT
SFDPSETUIBUQSPWJEFNBOBHFNFOUBOEPUIFSTUBLFIPMEFST TVDI
as government, shareholders, credit providers and so on) with
information needed to control the finances of the organisation.
r 5IFųOBODJBMGVODUJPOBDRVJSFT BMMPDBUFT NBOBHFTBOEDPOUSPMTUIF
capital required to operate the organisation.
r *OGPSNBUJPOUFDIOPMPHZJTVTFEUISPVHIPVUUIFPSHBOJTBUJPOUP
build and maintain systems needed to capture and communicate
SFMFWBOU UJNFMZBOEBDDVSBUFJOGPSNBUJPOUPBMMEFDJTJPONBLFST
Information systems further empower management and employees
UPNBOBHFQSPDFTTFT XPSLŴPXBOEPSHBOJTBUJPOBMQPMJDJFT

PART IV: Organising
The organisation creates value for their buyers through performing

these activities. The ultimate value that an organisation creates
is measured by the amount that buyers are willing to pay for its
products or services. An organisation is profitable if this value
exceeds the collective cost of performing all the required activities.
To gain competitive advantage over its rivals, an organisation must
either provide comparable buyer value but perform activities more
efficiently that its competitors (in other words, perform activities
at a lower cost than its competitors), or an organisation needs to
perform activities in a unique way that creates greater buyer value
and commands a premium price (this is called differentiation and
XBTEJTDVTTFEJOEFUBJMJO$IBQUFS 4USBUFHJDNBOBHFNFOU

The activities performed in competing in a particular industry are
grouped according to the value chain into two broad classes or
types of organisational activities:
r 1SJNBSZBDUJWJUJFT5IFQSJNBSZBDUJWJUJFTPG UIFWBMVFDIBJOBSF
UIPTFJOWPMWFEJOUIFPOHPJOHQSPEVDUJPO NBSLFUJOH EFMJWFSZBOE
servicing of the product.
r 4FDPOEBSZBDUJWJUJFT5IFTFDPOEBSZBDUJWJUJFTPG UIFWBMVFDIBJO
are those activities involved in providing purchased inputs,
technology, human resources, some combination of technologies,
and draws on the infrastructure of the organisation such as general
management and finance.
Figure 16.1 depicts a typical internal value chain.
Organisation infrastructure
M
Human resource management ar
gi
n
Secondary/ Technology development
Support
activities Procurement
Primary Inbound Operations Outbound Marketing Service

activities logistics logistics & sales
n
gi
ar
M
Figure 16.1: The internal value chain

Source: Adapted from Porter, M.E. 2009. The complete advantages of nations. New York:
The Free Press, p 4.
The optimisation of a value chain is crucial for the overall performance

of the organisation, which is the topic of the next section.

16.2 OPTIMISING THE VALUE CHAIN LEARNING OBJECTIVE 2

The organisational strategy guides the way that the organisation performs Discuss the optimisation of the
organisational activities and its entire value chain. Organisations gain value chain.
competitive advantage from conceiving new ways to conduct these
activities, employing new procedures, new technologies, or different
inputs.
The business environment is changing at a rapid rate. The twentieth
century saw the industrial revolution with the first signs of mechanisation
in manufacturing. During this period, the need or demand for products
far outstripped the availability or supply, with the result that quality
integration was not an issue to be considered. The availability of the
required product was a much bigger consideration and generally how
businesses differentiated themselves. Not much consideration was
given to customer needs or requirements. A typical example was Henry
Ford’s quote or sentiment that the customer could choose any colour
Model T Ford as long as it was black. The reason for this was that black
paint dries much faster than any other paint so, in the interest of mass
production, the Model T Ford only came in black.
With product availability, and the speed with which products go to
their markets being differentiation factors, organisations placed high
emphasis on the efficiency of the primary activities in the value chain.
In the case of Henry Ford and the Model T Ford, the Ford Motor
Company initially exercised what was later called vertical integration. vertical integration
By expanding their value chain backwards to include mining and shipping expansion of the value chain to
of raw steel which were long lead items before vertical integration, the include external components
Ford Motor Company was able to considerably shorten production
time.
Organisations that had exhausted vertical integration and by
implication breakthrough improvement interventions, subsequently
shifted their focus to internal efficiencies of the primary activities in the
value chain. Improvement in production time was achieved by being
internally focused through minimising operational inputs (materials, internally focused
goods, and financial resources), optimising operational outputs (focusing drive organisational efficiency
on existing systems, processes and resources), with little or no capital
investment or expansion (including maintenance) being undertaken.
Care should always be taken in optimising organisational processes and
procedures. An organisation functioning optimally should continuously
validate strategy.
Over time supply and demand balanced out and by the last quarter
of the twentieth century world markets opened up, and commodity
product supply far surpassed demand. Organisations had to find measures
other than availability by which they could differentiate themselves in the
market place, with quality being the obvious choice.
Midway through the twentieth century high earning customers were
attracted by a choice of quality goods at a price premium. In the last
quarter of the twentieth century though, a definite shift occurred with
quality being pushed as a differentiator without a price premium to the
buyer. The quality shift saw price being used as a differentiator. Notable
over this period, new technology and innovation was introduced to the
market through more expensive brands but the time taken for the same
PART IV: Organising
innovation to be introduced to the more generic brands was rapidly

shortening. A prime example of this is the Anti-lock Braking System
(ABS) that was only available in vehicles in the high end luxury car
market but quickly found its way down to the more generic car brands.
Across industries, one will find various specific values chains relating to
that particular industry.
LEARNING OBJECTIVE 3 16.3 INDUSTRY-SPECIFIC VALUE CHAINS

Distinguish between the Value chains are developed for specific industries, based on the
various industryspeciƂc value characteristics of these industries. The airline value chain is depicted in
chains. Figure 16.2, illustrating a case where the generic model for a value chain
as proposed by Porter, is contextualised to a particular airline.
Organisation Assess Government Regulation

Analyse route structure
infrastructure
Develop market forecasting model
M
ar
Hire and train Schedule and Recruit, hire and
Human
gin
personnel supervise crews train market/sales
resource Set wages and - Flight force
work rules - Ground
management
Research ticketing Reassess Develop feedback

and reservations information needs for marketing
Technology
Research meal - Reservations Develop media
development preparation - Operations coverage
- Accounting
Obtain aircraft Purchase meals Buy media
spare parts and Purchase fuel
ground equipment
Procurement Purchase baggage
Obtain airport handling equipment
terminal locations
Purchase
Purchase automated
insurance reservation systems
in
Manage spare Purchase meals Schedule route Determine pricing Ensure
rg
parts inventory strategy on-time

Ma
Purchase fuel Manage

Manage meal reservations Determine strategy
Purchase baggage Offer other
logistics handling equipment Manage down commissions
customer
Purchase time operations Ensure travel service
automated agent relationship
reservation systems Monitor
contribution at
scheduling
Inbound logistics Operations Outbound Marketing &

logistics sales
Figure 16.2: Airline value chain
Other industry typical value chains are found in value chains that are
more process specific such as engineering and design, manufacturing,
marketing, logistics and managing by project. These specific process
views can also be found as a combination of value chains in a system, as
illustrated in Figure 16.3 on the next page.

Prospect Require- Concep- Preliminary Proposal Detail design Implementation

qualiƂcation ment tual design generation Final project and handover
analysis design plan
Figure 16.3: Combination of value chains
The value chain in Figure 16.3 depicts a process view of an organisation

providing engineering solutions to its major customers. The value chain
process is initiated by a customer relationship management division that
identifies and qualifies opportunities within the customer environment.
Qualified opportunities are handed over to an engineering and design
division that takes the opportunity from requirement analysis through
conceptual and preliminary design to the development of a customer
proposal. Checks and balances are built in with stage gates to ensure
quality and exit points, both for the customer as well as the organisation.
The main purpose of such a process is to develop a high quality proposal
with minimum effort and cost. The high cost of detail design is mitigated
by contractually binding the customer after acceptance of the proposal.
On final acceptance of the detail design the solution is implemented
through project management and handed over to the customer or in
some cases to product management.
16.4 THE VALUE SYSTEM LEARNING OBJECTIVE 4

Explain the term ‘value system’.
An organisation is more than the sum of its activities. An organisation’s
value chain is an interdependent system or network of activities,
connected by various linkages. Linkages occur when the way in which
one activity is performed affects the cost or the effectiveness of other
activities. Linkages often create certain trade-offs in performing different
activities that must be optimised. For example, if an organisation
spends a lot of time and money on product design, the best possible
(and thus more expensive) components and a thorough quality control
programme, after-sales costs can be reduced. The organisation needs
to resolve such trade-offs, in accordance with its goals and strategies, in
order to attain competitive advantage.
The linkages between various activities also need to be coordinated.
The on-time delivery of final products requires that operations,
outbound logistics and service activities (such as installation) should
be coordinated. The efficient coordination of activities creates certain
advantages for the organisation, for example:
r 0OUJNFEFMJWFSZJTBDIJFWFEXJUIPVUJOWPMWJOHIJHIPSVOOFDFTTBSZ
inventory costs.
r 5SBOTBDUJPODPTUTBSFSFEVDFE
r *UQSPWJEFTVTFGVMJOGPSNBUJPOGPSDPOUSPMQVSQPTFT

PART IV: Organising
r $PPSEJOBUJPOSFEVDFTUIFDPNCJOFEUJNFSFRVJSFEUPQFSGPSN
activities.
An organisation internal value chain in a particular industry is embedded

value system into a larger stream of activities, called a value system by Michael
a system that includes the
Porter. Suppliers provide input such as raw materials, components,
value chains of the supplier, the
machinery, and purchased services to the organisation’s value chain.
organisation, the distribution
On its way to the eventual consumer, the organisation’s product often
channel and buyer
passes through the value chains of distribution channels or middlemen.
Ultimately, products become purchased inputs to the value chains of
their buyers, who use the products in performing a set of activities of
their own. The value system is illustrated in Figure 16.4.
Distribution
Supplier channel value Buyer
Organisation’s
value chain value
value (distributors
chain chain
chain or retailers)
Figure 16.4: The value system

Source: Adapted from: Porter, M.E. 1990. The competitive advantage of nations. New York:
The Free Press, p 43.
Competitive advantage is a function of how well an organisation can

manage this entire system. Linkages not only connect the internal
activities of an organisation, but they also create interdependencies
between an organisation and its suppliers and distribution channels. An
organisation can create competitive advantage by better optimisation or
coordination of these links outside the organisation.
The value chain and value system allow managers a deeper look at
their own internal activities and the linkages with the activities of their
particular industry, as a source of competitive advantage.
Towards the end of the twentieth century until the start of the
twenty-first century, quality was widely used by organisations as
a market differentiator without a price premium. During this time
quality found maturity in initiatives such as total quality management
52.
ESJWJOHDVTUPNFSTBUJTGBDUJPO FNQMPZNFOUPG KVTUJOUJNF +*5

principles to reduce inventory and the administrative burden of supplier
management, and Six Sigma to minimise defects. These quality initiatives
focus on the value system rather than a discrete value chain.
With quality having found maturity in organisations we are now looking
beyond for sustainable market differentiators to stay competitive. We
find organisations turning to unique and innovative solutions to achieve
market differentiation. The quality achievements to date came mainly
as a result of backward integration. The future focus could be seen as

somewhat of a forward integration with internet marketing pulling the

buyer closer toward the organisation’s value chain with pull strategies
pushing their goods. In the next section, we investigate e-business, an
instrument that can be used by all linkages in the value system to create
competitive advantage.
16.5 E-BUSINESS LEARNING OBJECTIVE 5

Electronic-business (e-business) can be defined as a business DeƂne the term ‘e-business’
method where an intra-connected (intranet) organisation with an and explain the various
online presence is able to interact internally and also make their goods categories of business models
or services available for the purpose of selling, trading, bartering or in e-business strategy.
transacting over the internet. E-business extends to the usage of
an intranet and the internet for greater efficiency in every aspect of e-business
its operations. E-business originated with the electronification of a business method where
business processes and was further stimulated with the establishment an intra-connected (intranet)
of networks such as virtual networks, local area networks, wide area organisation with an online
networks and value added networks. Elements of e-business may presence is able to interact
include but are not limited to business concepts such as e-management, internally and also make their
e-marketing, e-manufacturing, e-procurement, e-banking and e-learning. goods or services available for
It takes advantage of advanced technology such as expert systems, the purpose of selling, trading,
neural networks, portals, workflow management systems, decisions bartering or transacting over the
support systems, management information systems and computer- internet
based simulations.
In the previous sections, we have dealt with the internal value
chain and the optimisation of the value chain to make organisations
operationally more efficient. E-business, in its broadest definition, can
also contribute to greater operational efficiencies. In what follows, we
will identify various categories of business models to be considered in
defining an organisation’s e-business strategy. These categories are the
e-business trading model, the e-business revenue generating model,
the e-business type of shopping model, the e-business advanced
technologies, e-business web management and e-business marketing.
16.5.1 The e-business trading model

A number of models and technologies define selling and trading on the
web. Well-defined and known models are business-to-consumer, business-to-consumer
business-to-business and consumer-to-consumer commerce. selling products and services to
Business-to-consumer e-commerce involves selling products and customers over the internet
services to customers over the internet, whereas business-to-business
e-commerce refers to electronic transactions between various business-to-business
organisations. Consumer-to-consumer e-commerce involves internet- electronic transactions between
based businesses that act as intermediaries between and among organisations
customers. Although business-to-consumer (B2C) may be the most
consumer-to-consumer
visible expression of e-commerce to the public, the fastest-growing area
of e-commerce is business-to-business (B2B) e-commerce. Many B2B internet-based business acts as
transactions take place over the internet. Lastly, consumer-to-consumer an intermediary between and
(C2C) e-commerce is made possible when an internet-based business among consumers
acts as an intermediary between and among consumers. An example is

PART IV: Organising
web-based auctions where consumers can buy and sell directly between
one another, often handling the entire transaction via the web. What
was coined e-business in the early years is fast becoming the norm and
will just be business as usual.
16.5.2 E-business revenue generating model

In order to generate revenue, an organisation can implement one, or
a combination of more than one, of the following seven basic internet
business models:
r $PNNJTTJPOCBTFECVTJOFTTNPEFM5IJTNPEFMJTCBTFEPO
commissions that are charged for brokerage or intermediary
services. The model adds value by providing expertise and/
or access to a wide network of alternatives. Organisations like
eBay make available a platform that shop fronts products and/or
services for sale at a commission fee.
r "EWFSUJTJOHCBTFECVTJOFTTNPEFM#BTFEPOUIJTNPEFM
advertisers pay for web content. The model adds value by
providing free or low-cost content, including customer feedback,
expertise and entertainment programming, to audiences that
range from very broad to highly targeted advertising. In the case
of very broad targeted advertising, advertisements will have a
general content, whereas in the case of highly targeted advertising,
advertisements will have a specialised content.
r .BSLVQCBTFECVTJOFTTNPEFM5IFNBSLVQCBTFECVTJOFTT
model involves selling marked-up merchandise. The model
adds value through selection, distribution efficiencies and the
leveraging of brand image and reputation. This model often uses
entertainment to enhance sales.
r 1SPEVDUJPOCBTFECVTJOFTTNPEFM5IJTNPEFMFOUBJMTTFMMJOH
manufactured goods and custom services. It adds value by
increasing production efficiencies, capturing customer preferences
and improving customer service.
r 3FGFSSBMCBTFECVTJOFTTNPEFM"DDPSEJOHUPUIJTNPEFM GFFT
are charged be referring customers. The model adds value by
enhancing an organisation’s product or service offering, tracking
referrals electronically, and generating demographic data.
Expertise and customer feedback are often included with referral
information.
r 4VCTDSJQUJPOCBTFECVTJOFTTNPEFM5IFTVCTDSJQUJPOCBTFENPEFM
charges fees for unlimited use of the service or content. It adds
value by leveraging strong brand name, providing high quality
information to specialised markets or access to essential services.
r 'FFGPSTFSWJDFCBTFECVTJOFTTNPEFM5IFMBTUCVTJOFTTNPEFM
charges fees for metered services. It adds value by providing
service efficiencies, expertise and practical outsourcing solutions.

16.5.3 E-business type of shopping model

E- or web-based businesses, through taking advantage of technology,
are able to offer personalised, high quality customer service with
breakthrough improvement in the supply chain. A prime example of
this is Volvo, the car manufacturer that allows you to configure and
personalise your choice of Volvo. Although the Volvo website (http://
www.volvocars.com/za/sales-services/sales/Pages/car-configurator.
aspx) offers a showcase for all their models, it also provides information
on dealers, pricing and caring (service) for their Volvo cars. The
information available is typical of the type of business Volvo finds itself
in, but can serve as a platform for making available landing pages for
customised marketing campaigns run through other platforms. A more
detailed discussion on internet marketing will be done later in this
chapter.
When asked what his recipe for success was, a merchandiser replied:
‘Three things, location, location, and location.’ That was possibly true at
the time and in some instances still is, but internet trading has brought a
whole new dimension to retailing and shop fronting. Types of shopping
platforms available in internet retailing include the following:
r 4UPSFGSPOUNPEFM"OJOUFSOFUTUPSFGSPOUXJUIBDBUBMPHVFPG
products and/or services that provides for online shopping,
order taking, payment, shipping and management of customer
data. Amazon.com is a prime example of this type of shopping
experience and has led the way in the online industry for many
years.
r "VDUJPONPEFM"GPSVNXIJDITFMMFSTBOECJEEFSTDBOBDDFTTUIF
seller to post goods for sale at a minimum price and the bidder
to place a bid on and if successful, buy items they have searched
for. The prime example in this case is E-Bay which has been
enormously successful.
r 1PSUBMNPEFM"QPSUBMQSPWJEFTBHBUFXBZUPJOGPSNBUJPOUIBUJT
stored and managed in a particular way. Available internet portals
are defined as either being horizontal or vertical by nature in the
way the information is structured. Horizontal portals aggregate a
broad range of information available on the internet and generally
serve as search engines providing internet search results in a
ranked format. Popular examples of these are Google, Bing, AOL
and MSN. Earlier we mentioned a more detailed discussion in
internet marketing; this discussion will also include search engine
marketing techniques. Vertical portals specialise in providing more
structured or specialised information. The horizontal window on
the portal defines the level of speciality. Yahoo, for example, has a
wider range than a more specialised portal such as WebMD which
provides information in the medical field. Other vertical portals
find their existence in providing communities around specific
demographics such as sites for women or teenagers.

PART IV: Organising
r %ZOBNJDQSJDJOHNPEFM5IFJOUFSOFUIBTIBEBHSFBUJOŴVFODFPO
the way product pricing is managed. An example of this is where
an airline starts discounting prices for flights closer to departure in
order to ensure economy of scale.
r ##FYDIBOHFT##FDPNNFSDFJTXIFSFUXPPSNPSFCVTJOFTTFT
collaborate in buying, selling, trading and distributing products and
services over the internet. ICG Commerce is a site that allows
businesses and consumers to interact and build relationships.
r ##TFSWJDFQSPWJEFST##TFSWJDFQSPWJEFSTQSPWJEFTQFDJBMJUZ
services aimed at making internet transacting easier. Business
solutions may cover any aspect of the organisation’s value chain
and can include (but are not limited to) marketing, logistics and
finance. A prime example of this is a storefront business such as
Amazon, selling their goods internationally or Federal Express who
takes care of international delivery at differentiated rates.
r 0OMJOFUSBEJOH0OMJOFUSBEJOHJTBQSJNFFYBNQMFPGUIFNBUVSJUZ
and availability of information on the internet allowing consumers
to trade stock directly without broker intervention, thus saving on
commissions.
r 0OMJOFMPBOT"TUIFJOUFSOFUCFDPNFTNPSFSFBEJMZBWBJMBCMF
even in developing countries, access to credit and online loans
has become everyday phenomena. E-LOAN, for example, offers
facilities such as credit cards and home mortgages.
r 8FCCBTFESFDSVJUNFOU3FDSVJUNFOUBOEKPCTFBSDIPWFSUIF
internet has become a mature industry in recruitment houses
that operate seamlessly across international borders. Speciality
recruitment such as executive recruiting has become very popular
over the internet.
r 0OMJOFOFXT'FXJOEVTUSJFTIBWFCFFOJNQBDUFEBTSBEJDBMMZBT
the news service industry has by the availability and immediate
access to information on the internet, especially with the advent
of mobile internet services, further compounded by smart mobile
devices (phones and tablets). CNN and Newsweek have been
leading the industry in providing online news content. Most
newspapers these days have an online mobile presence. The
internet has forced printed media to re-evaluate their business
models.
r 0OMJOFUSBWFMCPPLJOHT$PNQFUJUJPOCSPVHIUBCPVUCZUIF
availability of online booking and payment systems in the travel
industry has benefited the consumer. Secondary systems have
developed to help consumers find more affordable flights and
accommodation and this has brought further benefit. Specialised
services brought to a target market group such as business
travelers are indicative of industry maturity with the aim to
differentiate.
r 0OMJOFFOUFSUBJONFOU8JUIJOUFSOFUBDDFTTTQFFETBOEUFDIOPMPHZ
improving, the consumer has a greater ability to download large

volumes of data. The entertainment industry is thus able to sell

music and video content online. Online trading in music and film
has however sparked copyright issues.
r "VUPNPUJWFTJUFT"VUPNPUJWFTJUFTBMMPXVTFSTUPTFBSDIGPSBOE
purchase new and used cars. Online sites make it possible for the
consumer to find the best price on the make, model and condition
of the vehicle. Secondary industries such as car insurance also
benefit the consumer.
r 0OMJOFTFSWJDFQSPWJTJPO0OMJOFUSBEJOHPGJOUFMMFDUVBMDBQJUBM
on a per project basis has been made possible by organisations
hosting available specialised human resources. Merchant projects
or contracts requiring these resources are posted at no cost. Both
parties gain access to find the best resulting fit.
r &MFBSOJOH*OTUSVDUPSMFEDPVSTFTUIBUFEVDBUJPOJOTUJUVUFTBSF
able to turn into web-based distance learning courses are leading
the way to make education more affordable and more accessible
to society. Internal product and service training is made more
effective and efficient through web-based training. External web-
based product training and support have led to better utilisation of
products and services. In some cases it has made the product more
marketable.
r $MJDLBOENPSUBSCVTJOFTT*OTPNFDBTFTUSBEJUJPOBMCSJDLBOE
mortar businesses have successfully integrated an offline offering
XJUIBOPOMJOFPŲFSJOH"QSJNFFYBNQMFJT#BSOFT/PCMF B
bookstore which has integrated its offline and online access to an
inventory for the benefit of its customers.
16.5.4 E-business advanced technologies

Earlier in this section mention was made of advanced technologies such
as expert systems, neural networks, workflow management systems,
decision support systems, management information systems, computer-
based simulations and computer-aided design and manufacturing.
These systems are only effective if the organisation’s information is
accurate and reliable. A challenge faced by many large organisations
is the proliferation of information systems that carry mission critical
information. A problem arises when these systems aren’t able to ‘talk’
to each other. This results in manual handovers between value-adding
sections of the organisation’s value chain. A further challenge which
contributes to the reliability of calculations made on mission critical
information is the amount of information that is required by these
systems to make calculations credible. In an attempt to bridge this gap,
organisations have, in the early years of the information age, invested
in data-warehouses that systems could access for up-to-date reliable
information. These technologies are described in broad terms as:
r &YQFSUTZTUFNT&YQFSUTZTUFNT BMTPEJTDVTTFEJO$IBQUFS

were initially developed to capture the knowledge, skills and
experience of retiring specialists (knowledge engineers) in order
to prevent the total loss of acquired intellectual capital built up

PART IV: Organising
over their career lifetime. An expert system typically constitutes a

knowledge base that captures the expert knowledge, an inference
engine that takes advantage of the knowledge base and reasons
based on rules, logic and knowledge, and lastly a user interface
that allows user interaction. Expert systems have evolved as
linear systems that can be used to minimise inputs and enable the
achievement of an optimal solution in a feasible operational area.
In e-business, expert systems may be used to optimise
operational efficiency, mitigate risk and maximise business benefits.
An early example of an expert system is Mycin which was
developed for the medical fraternity as a decision support system
to validate medical diagnostics. A medical specialist will typically ask
a patient leading questions pertaining to a particular condition and
eventually arrive at a diagnosis. The expert system is not supposed
to replace the specialist but should support and confirm the
specialist’s own diagnosis. Expert systems used in this way, serve
the medical fraternity well as a medium for learning diagnostic
techniques.
r /FVSBMOFUXPSLT/FVSBMOFUXPSLTUIBUIBWFFWPMWFEGSPN
expert systems, but are able to function in a designated non-linear
environment, are able to learn, make correlations, and establish
patterns and behaviour within the designated environment.
Neural networking uses an algorithm that explores a designated
multi-dimensional (non-linear) environment. In learning it searches
and maps local minimums/optimums with the hope of eventually
finding a global minimum/optimum in the designated environment.
The validity of the local and global results within the designated
area depends on the robustness of the algorithm employed. In
the early years developers jealously guarded the composition of
their algorithm (intellectual capital) by encapsulating it in a black
box with the result that the proposed results were not trusted.
Further challenges that hampered the growth and total adoption
of neural networking in all aspects of business engineering came
as a result of the skills complexity required to establish and define
the functional boundaries (feasible area) of the non-linear world
as well as the objective function that seeks/requires an optimal
solution.
Neural networks have been deployed with great success in
managing personalised marketing, by learning consumer patterns
and behaviour. Marketing could be discretely targeted to an
individual (known for their continued support of similar products
or services), and discounts could then be offered to the individual
when launching a new product or service. This type of marketing is
especially effective if the individual is a known early adopter.
r 8PSLŴPX.BOBHFNFOU4ZTUFNT8PSLŴPXNBOBHFNFOUTZTUFNT
(WFMS) govern the method/process by which work flows through
an organisation’s value chain in an automated and seamless fashion.
The maturity and adoption of a WFMS depend on how well the
organisation’s policies, processes, work instructions and business
systems are defined and documented.
Organisations that have followed industry standards such as

those upheld by the International Standards Organisation (ISO) are
able to take good advantage of WFMS deployment. The WFMS
further acts as a work repository, ensuring continuity and a means
of producing repeatable quality results, allowing risk mitigation
and lastly enabling configuration/change management. WFMSs
are able to accommodate the storage, management, updating and
retrieval of business documents such as those produced during
the course of adding value to the products/services produced
by the organisation, for example letters, memos, spreadsheets,
presentations, schedules and reports.
r %FDJTJPOTVQQPSUTZTUFNT %44
%FDJTJPOTVQQPSUTZTUFNT BMTP
discussed in Chapter 13) are systems developed for validating
or supporting specialist or organisational decision-making. In
organisations they could be used for management planning at
strategic, tactical or operational levels. Expert systems are typically
used for decision support, validating current thinking with that
of a past expert. Rule-based DSS have proven to be effective in
approving fast moving commodity orders in the service industry
and managing the risk of fraud. A typical example of this would
be approvals for motor plan service contracts where replacement
parts would only be applicable at a certain mileage.
r .BOBHFNFOUJOGPSNBUJPOTZTUFNT .*4
.*4TXFSFEJTDVTTFEJO
Chapter 13. MISs are used for monitoring, control and reporting
on organisational performance at tactical and strategic level.
Electronic MISs allow management to monitor organisational
mission critical information streams on the fly and if anomalies
arise, they are able to drill down to the source of the problem
or issue. MIS may serve the organisation well in acting as an early
warning system and allow management to take preventative steps
or measures in good time.
r $PNQVUFSCBTFETJNVMBUJPOT$PNQVUFSCBTFETJNVMBUJPOT
have matured to the extent that they are used for rapid skills
development on personal and organisational levels. On a personal
level, skills development through computer-based simulations
allows the organisation to expose learners to a scenario-based
virtual world where learners learn in a safe environment and make
decisions on real life situations until they have achieved a measure
of confidence. At the strategic level organisations may take
advantage of computer-based simulations by building a micro-
world replicating their organisational situation including all policies,
procedures and scientific value-adding techniques. In taking a
systems approach, the organisation’s virtual world could include
external interfaces such as suppliers, partners and customers.
New strategies could be put to the test in the virtual world, results
simulated through running a number of iterations with a number of
variables in order to learn and predict how the virtual world might
react to proposed strategy.
r $PNQVUFSBJEFEEFTJHO $"%
$"%SFGFSTUPUIFVTFPG
computer systems to assist in the creation, modification, analysis
PART IV: Organising
and optimisation of a design. Initially used for representing two-

dimensional technical drawings, the technology rapidly progressed
to allow the user to render three-dimensional representations. The
construction, automotive, shipbuilding and aerospace engineering
industries use CAD extensively. CAD allows the sharing
(communication) of designs in graphical format with the ability to
view the overall appearance of the design.
r $PNQVUFSBJEFENBOVGBDUVSJOH $".
5IJTFOUBJMTUIFVTFPG
software to control machinery or tools used for manufacturing
goods. It allows for faster, more precise manufacturing while
minimising waste. CAM uses the output from computer aided
designs as input.
16.5.5 E-Business web management

With structure following strategy, the obvious point of departure for
all businesses that have completed setting their internet/web-based
strategy, is to develop a web presence (using a website). An important
consideration is the control and management of the website. There are
some important considerations with website development:
r 4FBSDIFOHJOFPQUJNJTBUJPO4FBSDIFOHJOFTTVDIBT(PPHMF
and Bing are used to find information on the internet. Searches
instituted by the consumer searching for goods or services are
classified under organic or paid searches.
An organic search produces all results found by the search
engine and lists them by a specific rank result. Ranking is influenced
by an algorithm employed by the search engine company. All pages
of websites on the internet are ranked on a scale of one to ten
based on a number of criteria, with ten being excellent.
The first criterion considers the design (structure and content)
of the website. The second considers the ability of the website
to attract traffic and retain the attention of the searching party. A
number of other criteria are considered in the algorithm including
links from other websites and portals. Information from a website
with a poor rank result could find itself listed on page 1 000. There
is therefore a high probability that this information will never be
seen by the search party.
r 8FCTJUFNBOBHFNFOU0SHBOJTBUJPOTOFFEUPSFDPHOJTFUIF
importance of a website in keeping them visible as well as the
subliminal message that it sends to the business world and how it
helps keep their content accurate and relevant.
The ability of the organisation to manage and control their
website is critical in their ability to keep their content up to date
and to manage their marketing campaigns.
The bigger the role the organisation’s website plays in their
business model, the closer the website management expertise
should be. This is especially the case for organisations that take
full advantage of social media. Ideally e-business management
expertise should be available in-house.

16.5.6 E-business marketing

The face of marketing has changed dramatically with the advent of
e-business. Social media now play a very big role in the lives of the
next generation. Printed media and general broadcast marketing are
increasingly taking a back seat, with internet marketing coming to the
fore, particularly with the adoption of smart devices and mobile internet
(cellular networks).
An alternative to traditional marketing offered by internet search
engine organisations such as Google, is paid search. The pages listing the
organic search results (ranked results) have margins on the top and right
side of the page reserved for what is referred to as Pay Per Click (PPC)
search results (paid ranking). Organisations embarking on marketing
campaigns bid for add-words linked to their marketing campaign and
develop an advert that if accepted will be listed (again these are ranked)
in the top or right side margins reserved for this purpose. The advert
appears at no cost until the search party is attracted to the advert, clicks
on it and automatically follows the link to a preconfigured landing page
on the advertiser’s website that has been customised to reflect the
marketing campaign. The cost for clicking on the advert is accumulated
in the advertiser’s account held with the search engine company, at the
cost of the accepted bid made for the add word used in the search.
Social media such as Facebook have matured at an incredible rate.
Apart from being available as an electronic public relations platform
that pushes brand recognition, Facebook offers similar marketing
opportunities to organisations much like Google does. Electronic media
such as Google and Facebook allow organisations to structure targeted
marketing campaigns based on consumer profile and geographic location.
Another electronic tool available to marketers is Twitter. Twitter
was initially developed for business purposes, and is well suited to stay
up to date with world happenings. It serves the business world well as
an early warning system for managing risk. Tabloids and newspapers
that have embraced the ever changing world of internet technology will
enhance their shelf life.
Another interesting development to take note of is how the face of
interactive radio broadcasting is integrating with social media. Electronic
analytical tools are now able to test market sentiment and mood, to the
point where positive or negative sentiment can be pinpointed. Marketing
specialists are then able to sway sentiment. Where the sentiment is
positive, they can take advantage of the situation.

Part IV: Organising
CHAPTER SUMMARY
1. Explain the internal value chain of an organisation.
The value chain can be defined as all the functions and activities that need to be performed
in order to create value to an organisation’s customers. Activities are grouped into two broad
types, primary activities (those involved in the ongoing production, marketing, delivery and
servicing of the product) and secondary activities (those involved in providing purchased
inputs, technology, human resources and a combination of technologies).
2. Discuss the optimisation of the value chain.

Organisations should use the value chain as a tool to improve efficiency and effectiveness.
3. Distinguish between the various industry-specific value chains.

Value chains are developed according to specific characteristics of various industries.
Examples are the airline, engineering and manufacturing industries.

The value system can be defined as a system that includes the value chains of the supplier,
the organisation, the distribution channel and buyer.
5. Define the term ‘e-business’ and explain the various categories of business models in
e-business strategy.
E-business can be defined as a business method where an intra-connected organisation with
an online presence is able to interact internally and also make their products and services
available for the purpose of selling, trading, bartering or transacting over the internet.
KEY TERMS
advertising-based business model marketing
auction model mark-up based business model
automotive sites neural networks
B2B exchanges online entertainment
B2B service providers online loans
business-2-business e-commerce online news
business-2-consumer e-commerce online service provision
click-and-mortar business online trading
commission-based business model online travel bookings
computer-aided design operations outbound logistics
computer-aided manufacturing portal model
computer-based simulations primary activities
consumer-2-consumer e-commerce production-based business model
decision support systems referral-based business model
dynamic pricing model sales
e-business search engine optimisation
e-business advanced technologies secondary activities
e-business marketing service
e-business revenue generating model storefront model
e-business trading model subscription-based business model
e-business type of shopping model value chain optimisation
e-learning value system
expert systems web management
fee-for-service-based business model web-based recruitment
inbound logistics website management
internal value chain workflow management systems
management information systems

REVIEW QUESTIONS
1. Define the term ‘internal value chain’.
2. Explain the concept ‘optimisation of the value chain’.
4. Explain the term ‘e-business’.
5. Discuss the various forms of the e-business trading model.
6. Discuss the various forms of the e-business revenue generating model.
7. Identify and explain the various types of e-business shopping models.
8. Explain the various advanced technologies in terms of e-business that an organisation can utilise.
9. Explain the concept ‘web-management’ and identify the most important factors that should be
considered in the control and management of a website.
10. Explain e-marketing.
END NOTES
>2QOLQH@$YDLODEOHKWWSZZZEHQHWWRQJURXSFRP$FFHVVHGRQ-XQH
$GDSWHGIURP3RUWHU0(The competitive advantage of nations. 1HZ<RUN7KH)UHH3UHVV
p 41.
3 Ibid., p 43.

PART V
Leading
Chapter 17
Individual behaviour in
organisations
Hellicy Ngambi
PART V: Leading
OPENING CASE
Warren E Buffett hundreds of articles written about him. In the 2012

Warren Buffett, the enigmatic American billionaire, international bestseller, Quiet, Susan Cain describes
investor, and philanthropist is the primary Warren Buffett, Van Gogh, Albert Einstein, Steven
shareholder, chairman and CEO of Berkshire Spielberg and JK Rowling, to name but a few, as
Hathaway. Berkshire Hathaway Inc. is an American introverts. She explains that the introvert/extrovert
multinational conglomerate holding company of a divide is the most fundamental dimension of
number of subsidiary companies, headquartered personality and that society undervalues introverts.
in Omaha, Nebraska, United States. Berkshire According to Cain, ‘Our lives are shaped as
Hathaway averaged an annual growth in book value profoundly by personality as by gender or race’5.
of 19.7 per cent to its shareholders for the last 48 The author explains that the single most important
years (compared to 9.4 per cent from S&P 500 aspect of personality is where a person falls on the
with dividends included for the same period), while introvert/extrovert continuum. Whether a person
employing large amounts of capital, and minimal is an introvert or extrovert determines how he or
debt1. Berkshire Hathaway stock produced a total she acts and makes decisions in many areas of life,
return of 76 per cent from 2000–2010 versus a ranging from the choice of friends and spouses,
negative 11.3 per cent return for the S&P 5002. how the person deals with conflict and career
choices, to how likely the person is to commit
Buffett is among the world’s wealthiest people.
adultery or place big bets on the stock market. ‘It’s
In 2012, Time named him one of the most influential
reflected in our brain pathways, neurotransmitters
people in the world. He is a man of simple tastes
and remote corners of our nervous system’6.
and frugal habits. He lives in the same house in the
central Dundee neighbourhood of Omaha that he Cain describes the personality characteristics
bought in 1958. His only indulgence is a private of Warren Buffet in one of the many interesting
jet, which he at first named ‘The Indefensible’. His stories she offers throughout the book to illustrate
wife, who has become a frequent flier, called the the ‘power’ of introverts. Warren Buffet is an
new plane ‘The Richly Deserved’ and in response, introvert who is very charming and humorous, but
Buffett renamed his jet ‘The Indispensable’3. he often shuts himself inside his office for hours at
a time. He uses his attributes as an introvert such
In 2006, Buffett announced his intention to give
as ‘intellectual persistence, prudent thinking, and
away his fortune to charity, with 83 per cent of
the ability to see and act on warning signs’ to make
it going to the Bill & Melinda Gates Foundation.
billions for himself and the shareholders in his
He pledged the equivalent of about 10 million
company. Cain relates how Buffett takes pride in
Berkshire Hathaway Class B shares to the Bill &
his record of accomplishment, but also in following
Melinda Gates Foundation, (worth US$30.7 billion
his intuition (‘inner scorecard’). He also divides the
in June 20064) making it the largest charitable
world in two types: those who follow their own
donation in history. The foundation will receive
instinct and those who follow the herd7.
5 per cent of the total donation on an annualised
basis each July, beginning in 2006. The Myers-Briggs Personality Indicator (MBPI),
which we will discuss briefly in this chapter,
Nicknames for Buffett include the ‘Wizard
identifies a person’s personality preferences in four
of Omaha’, ‘Oracle of Omaha’, or the ‘Sage of
main areas:
Omaha’ because investors all over the world
admire and try to emanate his ‘value investing’ r &YUSPWFSTJPOWT*OUSPWFSTJPO
philosophy. r 4FOTJOHWT*OUVJUJPO
Buffett’s personality and his personal r 5IJOLJOHWT'FFMJOH
characteristics are often discussed and analysed r +VEHJOHWT1FSDFJWJOH
in the many (approximately 50) books and
For each of these dimensions, the MBTI

CHAPTER 17 Individual behaviour in organisations
identifies a person as tending toward one end analysing the personality of one of the most
or the other of each dimension. Many websites fascinating and enigmatic personalities of our
devoted to identifying the personality profile time, a few quotes from Warren Buffett10 himself
of famous people by using the MBTI agree that provide a glimpse of this unique man’s personality
Warren Buffet is an ISTJ personality, which tends (and good sense of humour):
to be Introverted, Sensing, Thinking and Judging8. ‘There is no formula to figure [value] out. You
A typical popular analysis of this personality is, have to know the business [and the company]
‘ISTJ personalities are excellent managers of has to be run by honest and able people.’
facts and details. They thrive in hierarchical ‘When investing on the stock exchange what
structures and value consistency and you need is the temperament to control the
common sense. Although they appreciate urges that get other people into trouble.’
hard workers, they can be impatient for ‘I’ve reluctantly discarded the notion of my
results, and they tend not to value innovation continuing to manage [my stock] portfolio
as much as execution. Many consider Warren after my death – abandoning my hope to give
Buffett to be an archetypal ISTJ because of his new meaning to the term “thinking outside
conservative approach to investing’9. the box”’.
While experts and website contributors enjoy
LEARNING OBJECTIVES
The purpose of this chapter is to provide a general view of individuals in organisations, ranging
from individual qualities, behaviour and individual output. The objective of studying this chapter is to
enable you to:
. &eƂne personality, describe why and how personality is measured and eZplain the factors that
determine an individual’s personality.
2. Identify the key traits of the Big Five personality model.
. &eƂne the following concepts:
- locus of control
- self-monitoring
- *olland’s classiƂcation of personalities
- self-efƂcacy
- the Myers-Briggs psychometric test
and how they can inƃuence individual behaviour in the work place.
4. Describe perceptions and the perceptual process and the distortions that can be brought about as
a result thereof.
5. Discuss emotional intelligence and the pillars of emotional intelligence.
. DeƂne personal values and discuss 5chwart\’s value constructs.
7. Discuss attitude, components of attitude and the means of developing a positive attitude.
. Illustrate and describe the M#45 model of behaviour.
9. Identify and discuss the three components that play a role in individual output, namely talent,
creativity and performance.

PART V: Leading
LEARNING OBJECTIVE 1 17.1 INDIVIDUAL PERSONALITIES

DeƂne personality, describe To attain organisational goals, organisations need individuals to
why and how personality is activate other organisational resources, such as financial, physical and
measured and eZplain the informational resources. Thus, managers need to understand and
factors that determine an manage the behaviour of their vital human resources, as employees are
individual’s personality. major contributors to the success or failure of their organisations.
In this chapter, we examine how an understanding of individual
differences could help managers predict and explain employees’
performance and job satisfaction, and their role in the attainment of
organisational goals.
The opening case study describes the characteristics of the enigmatic
American billionaire, Mr Warren Buffet. He is a fascinating and successful
individual and his personality has been analysed in many books and
articles. While very few individuals elicit such an overwhelming interest
in their personal attributes, we are all different and interesting, because
diverse and unique varieties of internal and external variables influence
our individual characteristics and behaviour. In an organisational
context, the unique backgrounds, experiences, characteristics, needs
and perceptions of individuals determine their behaviour and influence
their job performance and relationships with peers, managers and
subordinates.
Individual qualities that determine behaviour include the personality,
perceptions, emotions, values and attitudes of an individual. Figure 17.1
illustrates the relationship between individual qualities, behaviour and
outputs.
1. Individual qualities
r personality 3. Output 2. Behaviour
r perceptions
r talent M#45 model of
r emotions
behavior
r values r creativity
r attitudes
Figure 17.1: Conceptual approach to individuals in the organisation

17.1.1 Personality
Personality is the combination of traits that essentially determines how personality
an individual perceives, evaluates and reacts to his or her environment11. the dynamic organisation
As shown in Figure 17.2, it is a function of genetics and environmental within individuals of those
factors such as family background, social groups, cultural factors, psychological systems that
education, and so on – in other words, personality is the product of
determine the individual’s
both ‘nature’ and ‘nuture’12.
unique adjustments to his or
her environment
5ociety
2ersonal
eZperiences Culture
attitudes
)enetic Individual
Family
hereditary personality
Internal 'Zternal
factors factors
Figure 17.2: Major factors inƃuencing personality
17.1.2 Workplace personality testing

Organisations often use personality testing to identify, select, appoint
and promote employees who are perceived to perform satisfactorily
and will “fit in” with the organisation’s culture. Research13, 14, 15 confirms
that personality testing can, to a certain extent, predict the potential job
performance of an individual. The advantages of workplace personality
testing include the following16:
r 3FEVDJOHSJTL*G VTFEEVSJOHUIFIJSJOHQSPDFTT FNQMPZFSTBSF
better able to find employees that will fit seamlessly into their
organisation. Employers can also reduce the chance of hiring a

PART V: Leading
poor performer, a potentially dangerous or a criminally inclined

employee.
r &MJNJOBUJOHCJBT7BMJE SFMJBCMFQFSTPOBMJUZUFTUTDBOCFPCKFDUJWF
eliminating any personal bias toward test-takers. Similarly, they
are less subjective than using traditional interviews and reference
checks only.
r %JNJOJTIJOHUVSOPWFS TBWJOHNPOFZ*UIBTCFFOGPVOEUIBU
personality testing has an effect on the bottom line of an
organisation. Using workplace personality screening measures can
also reduce turnover rate by up to 50 per cent and can also save
on time and money associated with recruitment and training of an
employee who is later let go owing to poor performance or fit.
r "UUSBDUJOHOFXHFOFSBUJPOT1FSTPOBMJUZUFTUJOHPŲFSTHSFBUCFOFųUT
in attracting new generations to the workplace, especially those
candidates who are very self-aware and self-involved.
r 'PTUFSJOHMFBEFST.BOZPSHBOJTBUJPOTBSFHPJOHCFZPOEVTJOH
personality testing for hiring purposes only, stretching their use into
the realm of leadership. These tests can also be utilised to assess
leadership readiness, as well as to help structure their leadership
programmes in the workplace. Some of the key personality traits
that need to be observed in the workplace are explored in the
next section.
LEARNING OBJECTIVE 2 17.2 THE BIG FIVE PERSONALITY DIMENSIONS

Identify the key traits of the Big #BSSJDL BOE .PVOU17 identified five basic dimensions of personality
Five personality model. that underpin most of the variations of personality. The dimensions
are openness, conscientiousness, extroversion, agreeableness and
neuroticism. We discuss each dimension below.
r 0QFOOFTTUPFYQFSJFODF5IJTEJNFOTJPOHFOFSBMMZSFGFSTUPQFPQMF
who have broad interests and are willing to take risks. Traits
such as sensitivity, flexibility, creativity, broad-mindedness and
imagination are usually found in these individuals.
r $POTDJFOUJPVTOFTT5IJTJTBNFBTVSFPGSFMJBCJMJUZBOEJTEJTQMBZFE
by those individuals who are careful, organised, dependable and
SFTQPOTJCMF*UJTBMTPBTTPDJBUFEXJUIUIFHSFBUFSXJMMUPBDIJFWF
and perform, perseverance, working hard and it is the dimension
that is most closely linked to job performance.
r &YUSPWFSTJPO5IJTUSBJUSFGFSTUPUIFUFOEFODZUPCFHSFHBSJPVT
sociable, outgoing, talkative and assertive. However, it is crucial
to note that introverts do not necessarily lack social skills, but are
more likely to direct their interest to ideas than to social events.
r "HSFFBCMFOFTT"OBHSFFBCMFQFSTPOJTEFTDSJCFEBTTPNFPOF
who gets along easily with people and it includes traits like being
cooperative, warm, trusting and empathic.
r /FVSPUJDJTN/FVSPUJDJTNUBQTBOJOEJWJEVBMTBCJMJUZUPIBOEMF
job-related stress, and results in high levels of anxiety, hostility and
EFQSFTTJPO1FPQMFXJUIFNPUJPOBMTUBCJMJUZIBWFUIFUFOEFODZUP

experience more positive feelings, are calm, self-confident, secure

and relaxed.
The five personality dimensions affect work-related behavioural outputs

and play a crucial role in enabling individuals to develop the skills and
competencies they need to perform well. The five dimensions influence
the behaviour of individuals in organisations and subsequently have
a positive or negative influence on the performance of organisations
as well. Table 17.1 summarises the effect of the Big Five personality
dimensions on organisational behaviour.
Table 17.1: Model of how the Big Five Traits inƃuence organisational
behaviour
Big Five Traits Why they are relevant What they affect
Openness Increased learning 6raining perHorOance
More creative Enhanced leadership
More ƃeZiDle and aWtonoOoWs # greater adaptaDilit[ to change
%onscientioWsness Greater effort and persistence *igher perforOance
More drive and discipline Enhanced leadership
Better organisation and planning Greater longevit[
EZtroversion Better interpersonal skills *igher perforOance
Greater social doOinance Enhanced leadership
More eOotionall[ eZpressive *igher LoD and life satisfaction
#greeaDleness Better liked *igher perforOance
More coOpliant and conforOing .oYer levels of deviant DehavioWr
0eWroticisO
eOotional staDilit[ Less negative thinking and fewer *igher LoD and life satisfaction
negative eOotions Lower stress levels
Less h[pervigilant
Source: Adapted from Robbins, S.P. & Judge, T.A. 2010. Essentials of organizational
behaviour, 10th edition, Prentice Hall, New Jersey, p 43.
17.3 CONCEPTS ABOUT PERSONALITY LEARNING OBJECTIVE 3

AND WORK DeƂne the following
concepts: locus of control,
*O BEEJUJPO UP UIF ųWF QFSTPOBMJUZ EJNFOTJPOT XF EJTDVTTFE JO UIF self-monitoring, *olland’s
previous section, four specific personality traits help managers to explain classiƂcation of personalities,
and understand individual behaviour that link to job performance in self-efƂcacy, the Myers-Briggs
organisations. psychometric test and how
r -PDVTPG DPOUSPM-PDVTPG DPOUSPMSFGFSTUPBOJOEJWJEVBMT they can inƃuence individual
generalised perception about the amount of control people behaviour in the work place.
have over their own lives. On the one hand, those individuals
who believe that their behaviour is guided by fate, luck, or other
external circumstances are commonly referred to as ‘externals’.
On the other hand, those individuals who believe that their
behaviour is guided by their personal decisions and efforts are
referred to as ‘internals’.
PART V: Leading
r 4FMGNPOJUPSJOH5IJTJTBQFSTPOBMJUZUSBJUUIBUSFGFSTUPABO
individual’s level of sensitivity to the expressive behaviour of
others and the ability to adapt appropriately to these situational
cues’18. It is reported that people who display high levels of
self-monitoring tend to be better at interpersonal communications,
social networking and leading teams or others.
r )PMMBOETDMBTTJųDBUJPOPG TJYJOEJWJEVBMQFSTPOBMJUJFTBDDPSEJOH
to their appropriate work environment. Holland19 proposes that
some personalities are appropriate for certain occupations. These
categories are realistic, investigative, artistic, social, enterprising
and conventional. For example, a conventional personality type
will be dependable, disciplined, orderly, practical and efficient.
This individual will do work that involves systematic manipulation
of data and information, and is most likely to be an accountant, a
banker or an administrator (for more details see McShane & von
Glinow19). However, in practice this is not always the case because
individuals are unique and behave differently based on diverse
factors. Sometimes the same person can respond differently to the
same stimuli in different situations.
r 4FMGFŵDBDZ4FMGFŵDBDZSFMBUFTUPUIFCFMJFGJOPOFTDBQBCJMJUJFT
to organise and execute the course of action required to manage
prospective situations, writes Bandura20. Individuals with a
high degree of self-efficacy firmly believe in their performance
capabilities. Self-efficacy includes three dimensions, namely
magnitude, strength and generality.
- Magnitude refers to the complexity and level of task difficulty
that individuals believe they can attain.
- Strength refers to whether the belief regarding magnitude is
strong or weak.
- Generality indicates how generalised across different situations
the belief in capability is.
Cherry21 highlights that people with a strong sense of self-efficacy:

r WJFXDIBMMFOHJOHQSPCMFNTBTUBTLTUPCFNBTUFSFE
r EFWFMPQEFFQFSJOUFSFTUJOUIFBDUJWJUJFTJOXIJDIUIFZQBSUJDJQBUF
r GPSNBTUSPOHFSTFOTFPG DPNNJUNFOUUPUIFJSJOUFSFTUBOE
activities
r SFDPWFSRVJDLMZGSPNTFUCBDLTBOEEJTBQQPJOUNFOUT
There is a consensus that beliefs regarding self-efficacy are learned.

There are four major sources of self-efficacy. These are as follows:
1. Mastery experience – performing a task successfully strengthens
our sense of self-efficacy. However, failing to adequately deal with
a task can undermine and weaken self-efficacy.
2. Social modelling – witnessing other people successfully completing
a task or a challenge is another source; it raises observers’ belief
that they too possess the requisite capability to perform the task.

3. Social persuasion – it emphasises the notion that people can

be persuaded to believe they have the skills and capabilities to
succeed. Getting verbal encouragement from others helps people
overcome self-doubt and instead focus on giving their best to the
task at hand.
4. Psychological responses – our own emotions and responses to
situations also play a role in self-efficacy. Moods, emotional states,
physical reactions and stress levels can all impact on how a person
feels about his/her personal abilities in a particular situation.
Another tool utilised by organisations to determine personality type is

the Myers-Briggs Type Indicator (MBTI).
The Myers-Briggs Type Indicator (MBTI)

The MBTI is a personality inventory designed to identify individuals’ MBTI
preferences for processing and perceiving information. According to the a personality inventory designed
MBTI, there are four basic preference dimensions in which people differ. to identify individuals’ cognitive
These are discussed below: processes and is concerned
r &YUSPWFSTJPO &
m*OUSPWFSTJPO *
QFPQMFBSFFJUIFSFYUFSOBMMZ with individual preference of life
PSJOUFSOBMMZFOFSHJTFE&YUSPWFSUTBSFFOFSHJTFECZFYUFSOBM style, to be energised, gather
stimuli; mainly by interacting with people. Introverts are internally information and make decisions
energised through reflection and quiet time.
r 4FOTJOH 4
m*OUVJUJPO /
5IJTTDBMFJTDPODFSOFEXJUIQFPQMFT
preference to obtain information. Sensing people use all their
OBUVSBMTFOTFTBOEJOUVJUJWFQFPQMFVTFBTJYUITFOTF
r 5IJOLJOH 5
m'FFMJOH '
5IJTTDBMFJTDPODFSOFEXJUIUIFCBTJT
PG EFDJTJPONBLJOH5IJOLJOHQFPQMFFYDMVEFUIFJNQBDUUIBUUIF
decision has on people and base their decision on facts and logic
SFBTPOJOH'FFMJOHQFPQMF POUIFPUIFSIBOE DPOTJEFSQFPQMFųSTU
before fact and logic.
r 1FSDFJWJOH 1
m+VEHJOH +
5IJTTDBMFDPODFSOTMJGFTUZMF1FSDFJWJOH
QFPQMFBSFTQPOUBOFPVTBOEŴFYJCMF XIFSFBTKVEHJOHQFPQMFBSF
structured and orderly.
5IFTFDMBTTJųDBUJPOTUPHFUIFSEFTDSJCFQFSTPOBMJUZUZQFT1FSTPOBMJUJFT
are not the only determinants of the performance of individuals in
organisations; individuals carry around within themselves perceptions
and self-perceptions which affect their output.
17.4 PERCEPTIONS LEARNING OBJECTIVE 4

Perception JT EFųOFE CZ $BMMBIBO 'MFFOPS BOE ,OVETPO as the
22 Describe perceptions, the
cognitive process by which individuals organise, select and interpret their perceptual process and the
sensory impressions to make sense of their surrounding environment. distortions that can be brought
The behaviour of an individual can be based on what the perception about by these.
of reality is, not on reality itself, and this perception of reality, whether perception
true or not, can be a reality in people’s minds. The perceptual process
has three components, namely; the sensory stimulus, the perceptual the way individuals make sense
QSPDFTTBOEUIFSFTQPOTF5IJTQSPDFTTJTJMMVTUSBUFEJO'JHVSFPO of their surrounding environment
UIFOFYUQBHF or situation

PART V: Leading
Results/response
r thoughts
Sensory stimuli
r ideas/opinions
r visionary organise selecting interpreting
r auditory
Figure 17.3: The interpretation of individuals’ perceptual process
Perceptions are influenced by three factors, which explains why

individuals may look at the same situation but interpret it differently:
r 1FSDFJWFS1FSTPOBMFYQFSJFODFT BUUJUVEFTBOENBZCFQFSTPOBMJUZ
influence an individual to interpret the situation the way they do.
For example, if you expect employees to be lazy and politicians to
be corruptible you are most likely to treat them as such.
r 5BSHFU5IFGFBUVSFTPG UIFUBSHFUUIBUUIFJOEJWJEVBMTPCTFSWFNBZ
affect what they perceive. For instance; unattractive, attractive and
loud people are more likely to be easily noticed. However, because
we usually do not look at the target in isolation, the target’s
relationship to its background also influences the way we perceive
things.
r 4JUVBUJPO5IJTSFGFSTUPUIFDPOUFYUJOXIJDIXFMPPLBUPCKFDUT
and events. The situation around objects may include things like
time, location or any of the situational aspects. For example,
you may not notice the young colleague at a full nightclub Friday
evening, ‘dressed to kill’. Yet the same person so attired for your
Monday morning leadership seminar would certainly catch your
eye. Neither you (the perceiver) nor the colleague (the target)
has changed between Friday and Monday, but the situation has
changed.
17.4.1 Perceptual grouping

Individuals also tend to categorise and group stimuli in a manner that will
make sense to them. The cognitive process of individuals is to identify
common or related patterns. This is a way of organising sensations
and is applied to people, objects, or events. This gives us the laws of
perceptual grouping, and they are presented in Figure 17.4 on the next
page.

6he law of ƂgWre and 6he tendenc[ to groWp stiOWli into ƂgWres
groWnd and DackgroWnds
#ll things Deing eSWal stiOWli that are near

6he law of proZiOit[
each other tend to De groWped together
6he tendenc[ to coOplete a ƂgWre so that it

6he law of closWre
portra[s an overall forO
6he tendenc[ to groWp sensations of siOilar

6he law of siOilarit[
coloWr shape or forO
6he tendenc[ to groWp stiOWli that forOs

6he law of s[OOetr[
s[OOetrical patterns together
Figure 17.4: Perceptual groupings
Unfortunately, in the process of perceiving, grouping and making sense,

there is always a potential for distortions and inaccuracies. Such prejudice
is as a result of inaccurate stereotyping, self-fulfilling prophecy, selective
attention, the halo effect and projection bias.
r "OZDIBSBDUFSJTUJDUIBUNBLFTBOJOEJWJEVBM BOPCKFDUPSBOFWFOU
stand out, will enhance the probability that people will see it.
Selective perception allows people to ‘speed-read’ things but not
without the risk of drawing an inaccurate picture.
r 4UFSFPUZQJOHJTBNFBOTPG GPSNJOHBOJNQSFTTJPOCZVTJOHBMJTU
of features assumed to be held by the group to which the person
belongs; an example may be that of assuming that women are
generally soft hence they cannot make it as leaders.
r 1SPKFDUJPOCJBTJTUIFUFOEFODZUPBUUSJCVUFBOJOEJWJEVBMTPXO
characteristics and feelings to others, that is; seeing yourself in
others. For instance, if you like working by yourself then you
assume that others do not like to work in teams.
r 4FMGGVMųMMJOHQSPQIFDZPDDVSTXIFOPVSFYQFDUBUJPOTBCPVU
another person cause that person to act in a way that is consistent
with those expectations.
r )BMPFŲFDUPDDVSTXIFOBOJOEJWJEVBMBMMPXTPOFJNQPSUBOUPS
noticeable feature of another person to influence the judgement
about the person in other areas.
17.5 EMOTIONAL INTELLIGENCE LEARNING OBJECTIVE 5

Discuss emotional intelligence
Emotional intelligence is a state of being self-aware, self-regulated,
and the pillars of emotional
motivated, empathetic and social and it affects individual performance.
intelligence.
Individuals are emotional beings, and this is one of the fundamental
aspects that bring people together in the workplace. According to emotional intelligence
Goleman 23,24, emotionally intelligent people are self-aware, that is, they being self-aware, self-regulated,
know themselves and believe in their potential. They recognise how their motivated, empathic and social

PART V: Leading
feelings affect them, other people and their job performance. They control
their feelings and impulses and are self-regulated. This means that they
are reasonable and able to create an environment of trust and fairness.
Self-regulated people possess integrity. This is not only a personal virtue
but also an organisational strength. People with emotional intelligence
are motivated or driven beyond their own and other’s expectations.
They have empathy, which means that they thoughtfully consider others’
feelings along with other factors, in the process of making intelligent
decisions. They also possess social skills, which means that they are adept
at managing teams, are expert persuaders and excellent collaborators.
Basically, emotionally intelligent people possess self-management
skills and the ability to manage relationships with others. Research by
Goleman, Ashkanasy, et al25 and Quebbeman26 suggests that emotional
intelligence may contribute to the difference between the success or
failure of individuals in organisations.
Cooper and Sawaf27 identify four pillars of emotional intelligence:
emotional literacy, emotional fitness, emotional depth and emotional
alchemy. They show how emotional intelligence can lead to building
lasting relationships, which is fundamental to good leadership. The
practical application of the pillars includes the following28:
r &NPUJPOBMMJUFSBDZJTUIFųSTUQJMMBSBOEJUJOWPMWFTUIFLOPXMFEHF
and understanding of one’s own emotions and how they function.
There are strong indications to suggest that most individuals
especially in leadership positions are emotionally illiterate. It is
quite common to see leaders, managers and workers express
outbursts of anger in public places without considering the effect
such emotions would have on themselves and others.
r &NPUJPOBMųUOFTTJTUIFTFDPOEQJMMBSBOEJOWPMWFTUSVTUXPSUIJOFTT
emotional hardiness and flexibility. South African studies on
trust29,30 reveal a lack of trust among South Africans and low
tolerance for diversity indicating a lack of emotional hardiness
and flexibility. This implies that there is an extent of emotional
unfitness among South Africans. In conflict situations, especially
between employees and management, it is very difficult to reach an
agreement and a win-lose stance usually prevails.
r 5IFUIJSEQJMMBSJTFNPUJPOBMEFQUI XIJDIJOWPMWFTFNPUJPOBM
growth and intensity. There seems to be emotional shallowness in
most organisations and governments across the globe. One of the
manifestations of emotional shallowness is the disregard for the
will of people. Many leaders will cling to power at the expense of
the people they lead.
r 5IFGPVSUIQJMMBSJTFNPUJPOBMBMDIFNZ XIJDIJOWPMWFTVTJOH
emotions to discover creative opportunities (creativity is dealt with
later in the chapter). Creativity in organisations may be hampered
by the mistrust that prevails between followers and leaders.
Leaders and followers equally cannot leverage their intuitive
intelligence – the ability to just know that something will be a
breakthrough.

Emotions act as a buffer between personalities and perception. It is

important to bring about constructive response emotions and emotional
intelligence to act as a cushion between the two. Another element that
has an influence on individual’s qualities is values.
17.6 VALUES LEARNING OBJECTIVE 6

'JTIFS BOE -PWFMM define values as core ideas about how people
31 DeƂne values and discuss the
should live and the ends they should seek. Russel defines values as the 5chwart\ values.
underlying thoughts that stimulate human behaviour. The role of values
in organisations is to elicit behavioural alternatives, and in choosing these values
alternatives the individuals develop a particular personal behaviour principles and standards
system. Values affect the moral reasoning of individuals by influencing that influence an individual’s
judgements about ethical and unethical behaviour32. Schwartz et al33 behaviour and morality
reduced dozens of personal values into ten broader domains of values
and categorised these values into four clusters, as illustrated in Figure
17.5 and Table 17.2 on the next page.
Openness to 5elf-
change 5elf- transcendence
direction Universalism
5timulation
Benevolence
Hedonism
Conformity
Tradition
5timulation
5ecurity
5elf- Power
enhancement Conservative
Figure 17.5: 5chwart\’s 8alue CircumƃeZ
Source: Adapted from Schwartz, S.H., Melech, G., Lehmann, A., Burgess, S., Harris, M. And Owens, V.
2001. Extending the cross-cultural validity of the theory of basic human values with a different method of
measurement. Journal of Cross-Cultural Psychology, 32(5): 522.

PART V: Leading
Table 17.2: DeƂnitions of 8alue Constructs

Schwartz Values
Power: 5ocial statWs and prestige control or doOinance over people and resoWrces
*e likes to De in charge and
tell others what to do *e wants people to do what he sa[s
Achievement: 2ersonal sWccess throWgh deOonstrating coOpetence according to social standards
Being ver[
sWccessfWl is iOportant to hiO *e likes to stand oWt and to iOpress other people
Hedonism: 2leasWre and sensWoWs gratiƂcation for oneself
*e reall[ wants to enLo[ life *aving a good tiOe is
ver[ iOportant to hiO
Stimulation: EZciteOent novelt[ and challenge in life
*e looks for adventWres and likes to take risks *e wants to
have an eZciting life
Self-direction: Independent thoWght and actionchoosing creating eZploring
*e thinks itos iOportant to De
interested in things *e is cWrioWs and tries to Wnderstand ever[thing
Universalism: 7nderstanding appreciation tolerance and protection for the welfare of all people and natWre
*e
thinks it is iOportant that ever[ person in the world shoWld De treated eSWall[ *e wants LWstice for ever[Dod[ even
for people he doesnot know
Benevolence: 2reservation and enhanceOent of the welfare of people with whoO one is in freSWent personal
contact
*e alwa[s wants to help the people who are close to hiO Itos ver[ iOportant to hiO to care for the people
he knows and likes
Tradition: 4espect coOOitOent and acceptance of the cWstoOs and ideas that traditional cWltWre or religion
provide the self
*e thinks it is iOportant to do things the wa[ he learned froO his faOil[ *e wants to follow their
cWstoOs and traditions
Conformity: 4estraint of actions inclinations and iOpWlses likel[ to Wpset or harO others or that violate social
eZpectations or norOs
*e Delieves that people shoWld do what the[ore told *e thinks people shoWld follow rWles
at all tiOes even when no one is watching
Security: 5afet[ harOon[ and staDilit[ of societ[ of relationships and of self
6he safet[ of his coWntr[ is ver[
iOportant to hiO *e wants his coWntr[ to De safe froO its eneOies
Source: Adapted from Schwartz, S.H., Melech, G., Lehmann, A., Burgess, S., Harris, M. & Owens, V. 2001. Extending the cross-cultural
validity of the theory of basic human values with a different method of measurement. Journal of Cross-Cultural Psychology, 32(5): 522.
Research by England BOE -FF34 concluded that there is supporting

evidence to suggest that:
r 5IFSFJTBSFBTPOBCMZTUSPOHSFMBUJPOTIJQCFUXFFOMFWFMTPGTVDDFTT
by individuals and their personal values.
r *UXBTQSPWFOUIBUWBMVFQBUUFSOTBSFQSFEJDUJWFPGJOEJWJEVBMT
success and this could even be utilised in selection and placement
decisions.
r *UXBTBMTPTIPXOUIBUNPSFTVDDFTTGVMJOEJWJEVBMTBQQFBSUP
favour pragmatic, dynamic, achievement-oriented values, while
less successful individuals prefer more static and passive values,
this particular finding further suggests that values and application
thereof, change depending on the context.
Values of individuals can be integrated into their character and to a

certain extent relate to one’s attitude.

17.7 ATTITUDES LEARNING OBJECTIVE 7

Discuss attitude, components
McShane and Von Glinow35 define attitudes ‘as the cluster of beliefs, of attitude and the means of
assessed feelings, and behavioural intentions towards people, an event developing positive attitudes.
or an object’. As shown in Figure 17.6, Robbins and Judge highlight
that attitudes are evaluative statements; they are either favourable or attitudes
unfavourable. Attitudes have three components: cognition, affect and the cluster of beliefs, assessed
behaviour (see Figure 17.6 below). These could be negative or positive. feelings, and behavioural
intentions towards people, an
event or an object
Cognitive = evaluation
My supervisor gave a promotion to a co-
Cognition, affect and behaviour are closely related
worker who deserved it less than me.

My supervisor is unfair.
Negative attitude
Affective = feeling
toward co-worker
I dislike my supervisor, or even my co-
and supervisor
worker who probably back-stabbed me.
Behavioural = action
I am looking for another job; I have
complained about my supervisor to other
people; I will not give any support to my
supervisor.
Figure 17.6: The three components of attitude

Source: Adapted from Robbins, S.P. & Judge, T.A. 2010. Essentials of organizational
behaviour. 10th edition. New Jersey: Prentice Hall.
The cognitive component of attitudes is based on what one believes cognitive component
to be true. An evaluation of a situation can be based on a variety of based on the perceptions,
elements that an individual has previously been exposed to – either beliefs and past experiences of
with the supervisor or the co-worker. This may include an unhealthy an individual
relationship with either the co-worker or the supervisor. This then
influences the individual’s feelings.
The affective component is the emotive part of attitude which is affective component
learned. A person’s feelings represent their positive or not so positive the emotive part of attitude
evaluations of the situation at hand. An individual’s feelings will also be which is learned
determined by their level of emotional maturity, and to a lesser extent,
the seriousness of the case in hand.

PART V: Leading
behavioural component The behavioural component represents the action part of the
attitude and it refers to the tendency of an individual to act in a certain
a tendency to act in a certain
way – either positively or negatively, which may affect the individual’s
way
relationships with others in the organisation. The following guidelines
may be helpful for an individual to develop a positive attitude:
r %SFBNJOH%SFBNZPVSPXOEFTUJOZ LOPXXIBUZPVXBOUUP
achieve and focus on that. Continue to be focused on the course
and by all means avoid the negative energy from those who always
discourage you from reaching your dreams.
r %FTJSF)BWFUIFEFTJSFUPBDIJFWFNPSFBOEOPUCFTBUJTųFEXJUI
mediocrity; have a passion for doing better.
r %FEJDBUJPO#FVUUFSMZDPNNJUUFEBOEMPZBMUPXIBUZPVXBOUUP
achieve being mindful of values to guide you so that you don’t start
to take short-cuts that will derail you.
r %FWPUJPO:PVIBWFUPCFBUUBDIFEUPZPVSDBVTFXJUIFOUIVTJBTN
or zeal and eagerness that is unstoppable. People may work against
you and offend you, but don’t fix your eyes on them, don’t take
offence, forgive and move on.
r %BSJOH)BWFBEWFOUVSPVTDPVSBHFUPUBLFSJTLTXJUIPVUGFBSPG
failure. New innovations and excellence result from such bold
steps.
r %FUFSNJOBUJPO8JOOFSTOFWFSRVJUBOERVJUUFSTOFWFSXJO"TMPOH
as you are alive, you will face disappointments including from and
about people you love the most. Shake off the disappointments
UIBUZPVGBDF-JGFEPFTOPUSFBMMZPXFZPVBOZUIJOHCVUZPVPXFJU
to yourself to move on.
r %JTDJQMJOF'JOBMMZ ZPVDBOOPUTVDDFFEJOMJGFXJUIPVUNFOUBM NPSBM
and physical control. You can’t do things how and where you
QMFBTFBOEFYQFDUUPTVDDFFE-JOLFEUPEJTDJQMJOFJTBOBUUJUVEFPG
integrity.
LEARNING OBJECTIVE 8 17.8 MARS MODEL OF INDIVIDUAL BEHAVIOUR

Illustrate and describe the AND RESULTS
M#45 model of behaviour.
The MARS model is a useful tool for understanding the drivers of
individual behaviour and results. In this model, four factors are identified
which influence the employee’s behaviour, namely: motivation, ability,
role perception and situational factors. These four factors lead to
improved (or poorer) results (see Figure 17.7 on the next page).
The values of personality, perceptions, emotions and attitudes, stress,
skills and competencies and interpersonal communication, impact on
the ability and motivation of individuals’ performance in organisations.

Role perception
Values
Motivation
Personality
Perceptions
Behaviour and
Emotions and results
attitudes
Stress
Ability
Skills and
competencies
Situational
factors
Figure 17.7: MARS Model of individual behaviour and results

Source: Adapted from McShane & Von Glinow. 2005. Organisational behaviour: Emerging
realities for the workplace revolution. New York: McGraw Hill International.
17.8.1 Ability
Ability forms an important part of an individual’s behaviour and
performance. Ability refers to both natural talents and learned capabilities
in order to complete a task at hand. Natural talents help an individual
learn specific tasks more speedily and enable them to perform these
tasks better. On the other hand learned capabilities refer to individual’s
skills and competencies. Heffernan and Flood36 note that the role of an
individual’s competencies in an organisation’s performance cannot be
overlooked. They conclude that organisations that adopt and develop
certain competencies become more superior performers compared to
their competitors. Competencies are regarded by Wolmarans (in Meyer
and Boninelli) as the capability developed in an individual reflecting an
integration of knowledge and skills which can be understood, applied
and transferred to different contexts, in other words, they tend to be
generic in nature37. Individuals’ ability, motivation and opportunities
influence their skills and competencies38. Skills and competencies enable
individuals to be aware of areas of individual development, whilst
excelling in those areas in which the individuals are fully developed.

PART V: Leading
17.8.2 Motivation
Motivation represents the forces within an individual that affect the
direction, intensity and persistence of voluntary behaviour. Chapter 20
deals in detail with the subject of motivation and how motivation leads
to improved workplace performance.
17.8.3 Role perception

Individuals who feel involved in their jobs, are equally motivated and
possess the requisite competencies to execute their duties; they usually
comprehend the specific tasks assigned to them, the relative importance
of the tasks and the preferred behaviour to accomplish the tasks.This is
referred to as clear role perception. One of the ways to improve role
perception is to provide clear job descriptions, ongoing mentoring and
coaching to employees, and frequent feedback.
17.8.4 Situational factors

Situational factors include all those issues beyond the individual’s
immediate control, which may either facilitate or constrain the behaviour
and attainment of results in an organisation. These factors can either
form within the organisation or outside the organisation. They can be
work-related or personal.
17.8.5 Opportunity
Opportunity plays a significant role in modelling behaviour. Opportunity
can be viewed as a combination of favourable conditions and resources
that enable an individual to utilise the capabilities acquired in an attempt
to improve one’s job performance. Opportunities play a huge role in
the developmental process of individuals and also in performance of
organisations. By providing opportunities for individuals, organisations
assist in the development process of individuals and ultimately their
organisational performance39 in the following ways:
r A&OBCMJOHJOEJWJEVBMTUPJEFOUJGZNPSFEFWFMPQNFOUBMHBQTJOUIFJS
own careers.
r &TUBCMJTIJOHUIFNBHOJUVEFPG UIFTFEFWFMPQNFOUBMHBQTBOEUIF
potential consequences if these gaps are not attended to.
r "MMPXJOHJOEJWJEVBMTUPIBWFBiIBOETPOuBQQSPBDI XIJDIJTBTUFQ
towards developing tacit knowledge and institutional memory.
r &OTVSJOHUIFBMJHONFOUBOEJOUFSBDUJPOCFUXFFOUIFJOEJWJEVBM
characteristics and a particular opportunity’.
In the end, what is of interest to organisations is results and performance,

a concept we regard as behavioural outputs.

17.9 INDIVIDUAL OUTPUT LEARNING OBJECTIVE 9

Individuals are the cornerstone and the machinery behind the success Identify and discuss the
and the performance of an organisation. The competitiveness and three components that play
sustainability of organisations can be linked to its talent, creativity and a role in individual output,
performance. These concepts are driven by individual qualities and namely, talent, creativity and
competences; this is illustrated as a framework in Figure 17.8. Factors performance.
like talent, creativity and performance are vital for output.
INDIVIDUALS QUALITIES COMPETENCIES OUTPUT
aspirations determine individual source

dreams ‘can-do’ competiveness
individuality sustainability
needs skills
qualities identity
Figure 17.8: The relationship between qualities, competencies and

outputs
Source: Adapted from Nthoesane, M.G., Ngambi, H.C. & Mlonzi, V. Strategic Leadership
Fundamentals: Identifying and knowing the pillars of leading competitively in Africa. Saarbucken,
Germany: VDM Verlag Dr. Muller GmbH & Co. KG.
17.9.1 Talent
In the South African context, characterised by a dire shortage of skills, it
is vital for organisations to manage talent, which represents an essential
competence organisational leaders should possess. Figure 17.9 on the
next page illustrates a framework for achieving sustainable competitive
advantage by managing talent in organisations. We describe the three
critical factors underpinning the management of individual talent in more
detail below40.
The need for talent management

Managing talent enables organisations to assess, attain, develop, and align
individual talent with business strategy. The need for managing talent in
organisations is based on the following fundamental assumptions:
r 5BMFOUBOEQFPQMFBSFFOBCMFSTGPSDPNQFUJUJWFOFTTJOBOZ
organisation.
r 5IFRVBMJUZPG XPSLGPSDFJTUIFMBTUJOHDPNQFUJUJWFEJŲFSFOUJBUPSPG
the organisation.
r 1FSGPSNBODFJTESJWFOCZXPSLGPSDFUISPVHIJOEJWJEVBMUBMFOU
Managing talent requires leadership commitment and pro-activeness.

Accordingly the leadership of the organisation needs to able to identify
the drivers of managing talent in their organisation.

PART V: Leading
Organisational sustainability and competitive edge
Value-adding competencies and attributes
)ap identiƂcaion Capacity building

skills provision Managing talent
Induction and development
Retain and reward talent

Recruit and select talent
Mentoring and coaching

Motivation and attitude
Institutional objectives
Resources provision
Skills gap analysis
Leadership
The need for talent

Drivers of talent Principles of talent
management
Figure 17.9: Talent management framework in organisations

Source: Adapted from Ngambi, H.C. 2011b. Managing talent as the source of competitive
advantage in organisations. Human Capital Review, September 2011. [Online] Available at:
www.humancapitalreview.org.
Drivers of talent management

Individual talent drives organisational performance. Wellins, Smith
and Erker41 propose drivers that fuel the management of talent in
organisations. These are:
r 5IFSFJTBEFNPOTUSBUFESFMBUJPOTIJQCFUXFFOCFUUFSUBMFOUBOE
better business performance.
r 5BMFOUJTBSBQJEMZJODSFBTJOHTPVSDFPGWBMVFDSFBUJPO
r 5IFDPOUFYUJOXIJDIXFEPCVTJOFTTJTNPSFDPNQMFYBOE
dynamic.
r &NQMPZFFFYQFDUBUJPOTBSFBMTPDIBOHJOH
r 8PSLGPSDFEFNPHSBQIJDTBSFFWPMWJOHBOEUIJTJTQBSUJDVMBSMZ
evident in the South African context.
r 0SHBOJTBUJPOTXBHFBOFXAXBSGPSUBMFOUUIFTFEBZT
These drivers are clearly not exhaustive, however, they highlight some
of the fundamental drivers that organisations need to be aware of in
order to prioritise their talent management.

Principles of talent management

In managing individual talent, organisations need to put in place policies
for talent management, based on a set of talent management principles.
Managing talent ensures the organisation’s creativity for enhanced
organisational performance.
17.9.2 Creativity
Organisations need to invest in innovative and creative individuals to
remain competitive. Creativity enables organisation to stay focused to
its set strategies. In the twenty-first century, where organisations and
nations aspire to be leaders in the knowledge economy, it is critical
to invest in strategies that ensure that individuals are creative in
organisations. Wozniak42 lists the following as the source of creativity
boosters in individuals:
r 4VJUBCMFTUBUFPG NJOE/VSUVSFZPVSNFOUBMIFBMUI HFUFOPVHI
sleep, avoid stress, learn about the neurophysiology of the mental
effort, and work on understanding your own mental state to
optimise the conditions and the timing of creative effort.
r 4VJUBCMFFOWJSPONFOU$SFBUFBOFOWJSPONFOUGPSZPVSTFMGUIBU
will allow a creative process to be activated, like switching off the
phone and the radio and being at a comfortable temperature.
r 5JNF'PDVTPOZPVSHPBMBOELFFQPOMFBSOJOHBOEUIJOLJOH/FWFS
lose sight of personal and organisational goals.
r .PUJWBUJPO5IJTUSBJUJTIBSEUPEFWFMPQBOEJTEFUBJMFEJO$IBQUFS
20.
r $VSJPTJUZ-JGFMPOHMFBSOJOHJTBsine qua non of creativity. The more
you learn the more curious you become. What is irrelevant and
trivial to most may become a fascinating aspect of the universe for
you. An average person curses a rock he stumbles against. A great
scientist can pick up a rock and write a dissertation about it.
r ,OPXMFEHF,OPXMFEHFJTUIFTPGUXBSFPGZPVSDSFBUJWFFOHJOF
The more knowledge you throw at a problem, the more new
ideas and strategies you will be able to generate. The lack of
knowledge leads to many organisations perishing and nations
losing an opportunity to excel. It is through knowledge that the
inquiring mind of individuals is stimulated, because they always
aspire to know more than what is already known. Many inventions
and breakthroughs have been as a result of someone being
uncomfortable with the current knowledge and aspiring to unfold
more of what is lying in the surface.
17.9.3 Performance
Individual qualities and behavioural aspects determine performance.
Individual and team performances are the building blocks of organisational
performance. Research by Pot43 indicates that among other things,
innovation, creativity and improved quality of life lead to enhanced
organisational performance. Bonitz (in Pot) identifies ten performance

PART V: Leading
effects as assessed by management. Looking at these effects it is possible

to find in each of them the role that individual behaviour and qualities
play. These are listed below.
r PQUJNJTFEIFBMUIQSPUFDUJPO
r MFTTDPNQFOTBUJPOGPSTJDLQFPQMF
r DPOTVMUBUJPOSFMFWBOUGPSQSBDUJDF
r QSPEVDUJWJUZJODSFBTF
r QSPDFTTPQUJNJTBUJPO
r SFEVDFEBCTFOUFFJTN
r JODSFBTFEDVTUPNFSTBUJTGBDUJPO
r SFEVDFEGBJMVSFSBUF
r RVBMJUZBOEJOOPWBUJPO
r CFUUFSQPTJUJPOPOUIFMBCPVSNBSLFU
Kohlbacher and Gruenwald44 indicate that even though process

performance is found to be vital in ensuring that organisations maintain
their competitive advantage, this will however not happen if the
process owners, who are individuals in organisations, are not given
necessary attention. The study recognises the importance of individuals
in maintaining a sustained success. Halachmi45 argued that in order to
improve productivity and output of individuals it is necessary not only
to expect performance but to be able to measure performance. The
author, Halachmi, provides a list as to why it is necessary to measure
performance, and these include:
If you cannot:
r NFBTVSFJUZPVEPOPUVOEFSTUBOEJU
r VOEFSTUBOEJUZPVDBOOPUDPOUSPMJU
r DPOUSPMJUZPVDBOOPUJNQSPWFJU
r DPOWJODFUIFNUIBUZPVJOUFOEUPNFBTVSFJU UIFZXJMMOPUEPJUJG
they know you will measure it, they will get it done
r NFBTVSFSFTVMUT ZPVDBOOPUUFMMTVDDFTTGSPNGBJMVSF
r TFFTVDDFTT ZPVDBOOPUSFXBSEJU
r SFXBSETVDDFTT ZPVBSFQSPCBCMZSFXBSEJOHGBJMVSF
r SFDPHOJTFTVDDFTTZPVNBZOPUCFBCMFUPTVTUBJOJU
r TFFTVDDFTTGBJMVSF ZPVDBOOPUMFBSOGSPNJU
r SFDPHOJTFGBJMVSF ZPVXJMMSFQFBUPMENJTUBLFTBOELFFQXBTUJOH
resources
r SFMBUFSFTVMUTUPDPOTVNFESFTPVSDFTZPVEPOPULOPXXIBUJTUIF
real cost
r CFDFSUBJOBCPVUUIFBDUVBMDPTU ZPVDBOOPUUFMMXIFUIFSPSOPU
you should do it or outsource it
r UFMMUIFGVMMSFBMDPTUZPVDBOOPUHFUUIFCFTUWBMVFGPSNPOFZ
when contracting out
r EFNPOTUSBUFSFTVMUT ZPVNBZVOEFSNJOFZPVSBCJMJUZUP
communicate with important stakeholders to mobilise necessary
support because you provide value for money
r EPDVNFOUUIBUUIFCVTJOFTTQSPDFTT NBUFSJBMPSQFPQMFZPVVTF

Chapter 17 Individual behaviour in organisations
are the most suitable for achieving the sought after results your
performance will be questioned
• show that in comparison to the past or to another provider you
are on a par or doing even better, there may be questions about
your accountability
• access the data about who is happy/unhappy with your
performance and why, you may change when you should not or,
even worse, stay a course that seems to be right but in fact is
wrong.
The discussions above have one thing in common, and that is that
performance as a measure of output weighs heavily on individuals.
Therefore, organisational performance is a function of individual
performance.
CHAPTER SUMMARY
1. Define personality, describe why and how personality is measured and explain the factors
that determine an individual’s personality.
• Personality is defined as the dynamic organisation within individuals of those psychological
systems that determine the individual’s unique adjustments to his or her environment.
• Personality testing and personality trait assessment are means to measure personality. The
advantages of administering a workplace personality assessment within your organisation
include reduction of hiring risks, elimination of bias during interview and referring processes,
diminishing turnover and saving costs, attracting new generations and fostering leadership.
• One’s personality can be a result of many and varying factors, including personal experiences,
genetic make-up, socialisation and family.
2. Identify the key traits of the Big Five personality model.

• The Big Five personality dimensions are represented as the OCEAN acronym, and are;
openness, conscientiousness, extroversion, agreeability and neuroticism.
3. Define these personality traits; locus of control, self-monitoring, Holland’s personalities,

self-efficacy, and MBIT and state how they can influence individual behaviour in the work
place.
• Locus of control refers to an individual’s generalised perception about the amount of control
people have over their own lives.
• Self-monitoring is described as ‘an individual’s level of sensitivity to the expressive behaviour
of others and the ability to adapt appropriately to these situational cues’.
• Holland’s theory classifies individual personalities and work environment into six categories.
The theory proposes that some personalities are appropriate for certain occupations. These
categories are realistic, investigative, artistic, social, enterprising and conventional.
• Self-efficacy relates to the belief in one’s capabilities to organise and execute the course of
action required to manage prospective situations.
Part V: Leading
• MBTI is a personality inventory designed to identify individual’s preferences for processing

and perceiving information. According to the MBTI, there are four basic preference
dimensions in which people differ, and these are: extroversion-introversion, sensing-
intuition, thinking-feeling and judging-perceiving.
4. Describe perceptions and the perceptual process and the distortions that can be brought
about by perceptions.
• Perception is defined as the cognitive process by which individuals organise, select and
interpret their sensory impressions to make sense of their surrounding environment.
• The perceptual process has three components, namely; the sensory stimulus, the perceptual
process and the response.
• In the process of perceiving, grouping and making sense there is always a potential for
distortions and inaccuracies, such prejudice resulting from inaccurate stereotyping, self-
fulfilling prophecy, selective attention, the halo effect and projection bias.
5. Discuss emotional intelligence and the pillars of emotional intelligence.

• Individuals are emotional beings, and this is one of the fundamental aspects that bring
people together in the workplace.
• Emotional intelligence is the possession of self-management skills and the ability to manage
relationships with others.
• There are four pillars of emotional intelligence namely, emotional literacy, emotional fitness,
emotional depth and emotional alchemy.
6. Define values and discuss the Schwartz values.

• Values are defined as the core ideas about how people should live and the ends they
should seek.
• Schwartz et al reduced dozens of personal values into ten broader domains of values and
categorised these values into four clusters.
• These four clusters are openness to change, self-transcendence, self-enhancement and
conservation.
7. Discuss attitude, components of attitude and the Ds of developing positive attitudes.

• Attitudes are defined as clusters of beliefs, assessed feelings, and behavioural intentions
towards people, an event or an object.
• Attitudes have three components: cognition, affect and behaviour
• Ngambi presents seven elements in the form of seven Ds of developing and maintaining a
positive attitude: dreaming, desire, dedication, devotion, daring, determination, discipline.
8. Diagram and describe the MARS model of behaviour.

• MARS model is a tool for understanding the drivers of individual behaviour and results
in organisations; the model has four factors that influence the employee’s behaviour that
leads to improved (or poor) results.
• The four factors are: motivation, ability, role perception and situational factors.
Chapter 17 Individual behaviour in organisations
9. Identify and discuss the three components that play a role in individual output, namely,
talent, creativity and performance.
• Individuals are the cornerstone and the machinery behind the success and the performance
of an organisation. The competitiveness and sustainability of organisations can be linked to
its talent, creativity and performance.
• Managing talent in organisations is a complex competence of the organisational leadership
and usually goes through various stages in an attempt to achieve a competitive edge.
• Organisations need to invest in innovative and creative individuals to remain competitive,
creativity enables organisations to stay focused on its set strategies.
• Individual qualities and behavioural aspects determine performance. Individual and team
performances are the building blocks of organisational performance.
KEY TERMS
attitude perceptions
Big Five Personality traits perceptual groupings
creativity performance
emotional intelligence Schwartz’s Value Circumflex
Holland’s six types personalities self-efficacy
locus of control self-monitoring
MARS Model of behaviour talent
Myers-Briggs Type Indicator values
opportunity
REVIEW QUESTIONS
1. What are the similarities and differences between the Big Five personality traits (OCEAN) and the
Myers-Briggs Type Indicator (MBTI)?
2. What is your understanding of the perceptual grouping and how does this apply in practice?
3. Provide the practical application of the understanding of the emotional intelligence pillars.
4. Discuss the Schwartz Values.
5. Provide both a positive and negative scenarios of attitudes; display all the components of attitudes.
6. How does the MARS model explain the notion that behaviour affects results in organisations?
7. Explain your understanding of the talent management framework.
PART V: Leading
END NOTES
1 Warren Buffett. Chairman’s letter. Berkshire Hathaway 2012. Annual Report. p 3. [Online] Available: http://www.
berkshirehathaway.com/2012ar/2012ar.pdf. Accessed on 9 July 2013.
2 Wikipedia: Berkshire Hathaway. [Online] Available at: http://en.wikipedia.org/wiki/Berkshire_Hathaway. Accessed on
9 July 2013.
3 Bianco. A. No date. The Warren Buffett You Don’t Know. [Online] Available: http://www.businessweek.com/1999/99_27/
b3636001.htm. Accessed 9 July 2013.
4 Wikipedia, Warren Buffett. Gates: Buffett gift may help cure worst diseases. MSNBC. June 26, 2006. [Online] Available
from: http://en.wikipedia.org/wiki/Warren_Buffett. Accessed on 9 July 2013.
5 Cain, S. 2012. Quiet. Penguin Group, pp 2–3.
6 Ibid.
7 Ibid., pp 176–177.
8 Cherry, K. A Profile of the ISTJ Personality Type. [Online] Available: http://psychology.about.com/od/trait-theories-
personality/a/istj.htm.
9 Geering, D. 2007. Playing against type. [Online] Available: http://upstart.bizjournals.com/careers/Features/2007/11/26/
Myers-Briggs-Personality-Types.html?page=all.
10 ISTJ. [Online] Available: http://www.celebritytypes.com/istj.php. Accessed on 9 July 2013.
11 Lussier, R.N. 2000. Management fundamentals. Ohio: South-Western College Publishing, p 291.
12 Ivancevich, J.M., Konopaske, R. & Matteson, M.T. 2008. Organisational behaviour and management. 8th edition. New
York: McGraw Hill International.
13 Anova Communications Group 2008, October, 30-last update. Improving performance using psychometric testing.
[Online] Available: www.anovacoms.com. Accessed on 13 September 2010.
14 Robie, C., Brown, D.J. & Bly, P.R. 2008. Relationship between major personality traits and managerial performance:
Moderating effects of derailing traits. International Journal of Management, 25 (1): 131–139.
15 Tyler, G.P. & Newcombe, P.A. 2006. Relationship between work performance and personality traits in Hong Kong
settings. International Journal of Selection and Assessment, 14(1): 37–50.
16 4 Imprint Blue Papers. No date. Workplace Personalities. [Online] Available at: http://info.4imprint.com/wp-content/
uploads/Blue%20Paper_Workplace%20Personalities.pdf. Accessed on 10 November 2011.
17 Barrick, M.R. & Mount, M.K. 2005. Yes, personality matters: Moving on to more important matters. Human Performance,
18(4): 359–372.
18 Nadkarni, S. & Herrmann, P. 2010. CEO Personality, Strategic Flexibility, and Firm Performance: the Case of the Indian
Business Process Outsourcing Industry. Academy of Management Journal, 53(5): 1050–1073.
19 Holland in McShane & Von Glinow. 2005. Organisational behaviour: Emerging realities for the workplace revolution. New
York: McGraw Hill International.
20 Bandura, A. 1995. Self-Efficacy in Changing Societies. Cambridge: Cambridge University Press.
21 Cherry, K. No date. What is Self-Efficacy. [Online] Available: psychology.about.com/b/.../what-is-self-efficacy.htm.
Accessed on 4 November 2010.
22 Callahan, R.E. & Fleenor, C.P. & Knudson, H.R. 1986. Understanding organisational behaviour: A Managerial viewpoint.
Columbus, Ohio: Charles E. Merrill Publishing Co.
23 Goleman, D. 1995. Emotional Intelligence. New York: Bantam Books.
24 Goleman, D. 1998. What makes a leader? Harvard Business Review, 76(6): 92–101.
25 Ashkanasy, N.M. & Daus, C.S. 2002. Emotion in the workplace: the new challenge for managers. Academy of
Management Executive, 16(1): 72–82.
26 Quebbeman, A.J. & Rozell, E.J. 2002. Emotional intelligence and dispositional affectivity as moderators of workplace
aggression: the impact on behavior choice. Human Resource Management Review, 12(1): 125–143.
27 Cooper, R.K. & Sawaf, A. 1997. Executive EQ: Emotion intelligence in Leadership and Organization. New York: Grosset/
Putnam.
28 Ngambi, H.C. 2011a. RARE Total leadership: leading with the head, heart and hands. Cape Town: Juta Publishers.
29 Bennett, J. 2002. Two-thirds of SA employees say they’re unhappy. Sunday Times, Business Times 3 Careers. April 7: 1.

1JDPEL+7he role of emotional intelligence in transforming South African organisations. International Economic
and Management Conference9DQGHUELMOSDUNS
)LVKHU& /RYHOO$. Business Ethics and Values.3UHQWLFH+DOO
5XVVHO5)7KHUROHRIYDOXHVLQVHUYDQWOHDGHUVKLSLeadership and Organization Development Journal
ŋ
6FKZDUW]6+0HOHFK*/HKPDQQ$%XUJHVV6+DUULV0 2ZHQV9([WHQGLQJWKHFURVVFXOWXUDO
YDOLGLW\RIWKHWKHRU\RIEDVLFKXPDQYDOXHVZLWKDGLIIHUHQWPHWKRGRIPHDVXUHPHQWJournal of Cross-Cultural
Psychologyŋ
(QJODQG* /HH57KHUHODWLRQVKLSEHWZHHQPDQDJHULDOYDOXHVDQGPDQDJHULDOVXFFHVVLQWKH8QLWHG6WDWHV
-DSDQ,QGLDDQG$XVWUDOLDJournal of Applied Psychologyŋ
0F6KDQH6/ YRQ*OLQRZ0$Organisational behaviour: essentials.1HZ<RUN0F*UDZ+LOO,QWHUQDWLRQDO
+HIIHUQDQ00 )ORRG3&$QH[SORUDWLRQRIWKHUHODWLRQVKLSVEHWZHHQWKHDGRSWLRQRIPDQDJHULDO
FRPSHWHQFLHVRUJDQLVDWLRQDOFKDUDFWHULVWLFVKXPDQUHVRXUFHVVRSKLVWLFDWLRQDQGSHUIRUPDQFHLQ,ULVKRUJDQLVDWLRQV
Journal of European Industrial Trainingŋ
:ROPDUDQV6(PRWLRQDOFRPSHWHQFLHVRIWKHIXWXUH,Q Conversations in Leadership: South African Perspectives.
(GLWHGE\0H\HU71 %RQLQHOOL,-RKDQQHVEXUJ.QRZOHGJH5HVRXUFHV3XEOLVKLQJ
1WKRHVDQH0*1JDPEL+& 0ORQ]L9Strategic Leadership Fundamentals: Identifying and knowing the pillars of
leading competitively in Africa.6DDUEXFNHQ*HUPDQ\9'09HUODJ'U0XOOHU*PE+ &R.*
,ELG
1JDPEL+&E0DQDJLQJWDOHQWDVWKHVRXUFHRIFRPSHWLWLYHDGYDQWDJHLQRUJDQLVDWLRQVHuman Capital Review,
6HSWHPEHU>2QOLQH@$YDLODEOHZZZKXPDQFDSLWDOUHYLHZRUJ
:HOOLQV566PLWK$% (UNHU61LQHEHVWSUDFWLFHVIRUHIIHFWLYHWDOHQWPDQDJHPHQWZKLWHSDSHU3LWWVEXUJ
3$'HYHORSPHQW'LPHQVLRQDO,QWHUQDWLRQDO3UHVV
:R]QLDN3The roots of creativity and genius>2QOLQH@$YDLODEOHKWWSZZZVXSHUPHPRFRPDUWLFOHVJHQLXV
KWP&UHDWLYHHQYLURQPHQW$FFHVVHGRQ1RYHPEHU
3RW):RUNSODFHLQQRYDWLRQIRUEHWWHUMREVDQGSHUIRUPDQFH International Journal of Productivity and
Performance Managementŋ
.RKOEDFKHU0 *UXHQZDOG63URFHVVRZQHUVKLSSURFHVVSHUIRUPDQFHPHDVXUHPHQWDQGğUPSHUIRUPDQFH
International Journal of Productivity and Performance Managementŋ
+DODFKPL$3HUIRUPDQFHPHDVXUHPHQWLVRQO\RQHZD\RIPDQDJLQJSHUIRUPDQFHInternational Journal of
Productivity and Performance Managementŋ

Chapter 18
Work groups and teams
.BSJ7SCB
OPENING CASE
The BT Global Challenge Round the NPSFDBQBCMFBOECFHBOUPDIBMMFOHFUIFTLJQQFSPO
World Yacht Race1 IJTBQQPJOUNFOUBOESPMFBTMFBEFS%JTTBUJTGBDUJPO
0O4FQUFNCFS UXFMWFZBDIUTFNCBSLFE XJUI UIF JOJUJBMMZ FTUBCMJTIFE SVMFT BOE QSPDFEVSFT
PO UIF AXPSMET UPVHIFTU ZBDIU SBDF EFQBSUJOH XBTTVSGBDJOH$SFXNFNCFSTKVHHMFEGPSQPTJUJPO
GSPN 4PVUIBNQUPO JO UIF 6OJUFE ,JOHEPN 8JUI BOEUPMFSBODFXBTMJNJUFE5IFTLJQQFSTTUJMMNBEF
B QSPGFTTJPOBM TLJQQFS BOE B OPWJDF DSFX PG NPTUPG UIFEFDJTJPOT CVUUIFDSFXNFNCFSTXFSF
TFWFOUFFO NFO BOE XPNFO GSPN BMM PDDVQBUJPOT TMPXMZ CFHJOOJOH UP VOEFSTUBOE UIBU UIFSF XFSF
FBDI UFBN TFU PVU UP DPNQMFUF UIF NJMF EJŲFSFODFT JO TUZMF NPUJWBUJPO OFFE GPS DIBOHF
SBDF BSPVOE UIF HMPCF 5IF DSFXT TUPQQFE BU TJY BOEEJWFSTJUZ5IFZEJTDVTTFEGFFMJOHTBOEEFBMUXJUI
QPSUT #PTUPO #VFOPT "JSFT 8FMMJOHUPO 4ZEOFZ QFSTPOBM DPOŴJDU 5SBVNBUJD FODPVOUFST CFUXFFO
$BQF5PXO -B3PDIFMMFBOEUIFZBSSJWFECBDLJO DSFXNFNCFSTPDDVSSFESFHVMBSMZ
4PVUIBNQUPOJO+VOF Norming VTJOHFNPUJPOT
*U XBT B IJHIMZ DPNQFUJUJWF SBDF XJUI BMM UIF %VSJOHUIFOPSNJOHTUBHF UFBNTXFSFDPOTPMJEBUJOH
UFBNT TBJMJOH JEFOUJDBM ZBDIUT 5IF FOWJSPONFOU BOEDPOųEFODFXBTCVJMEJOH$SFXNFNCFSTTIBSFE
XBT IPTUJMF BOE TBJMJOH DPOEJUJPOT VODFSUBJO BOE JEFBTBOEXFSFXJMMJOHUPDIBOHFJGPUIFSTTVHHFTUFE
TPNFUJNFTUSFBDIFSPVT5IFTLJQQFSTXIPMFEUIFJS CFUUFS XBZT UP EP UIJOHT 5IFZ GPMMPXFE B NPSF
UFBNT UP CFDPNF IJHIQFSGPSNBODF UFBNT XFSF TZTUFNBUJD BQQSPBDI BOE UFBN NFNCFST BHSFFE
UIFXJOOFST5IFDPNQJMFSTPG BDBTFTUVEZPOUIF VQPO QSPDFEVSFT 5IFZ TIBSFE SFTQPOTJCJMJUZ BOE
SBDFJOUFSWJFXFEUIFDSFXNFNCFSTPG UIFWBSJPVT B DPPQFSBUJWF BQQSPBDI UP EFDJTJPONBLJOH
UFBNTBOESFDPSEFEUIFFYQFSJFODFT QFSDFQUJPOT EFWFMPQFE5FBNNFNCFSTXFSFEFWFMPQJOHUSVTU
BOEFNPUJPOTUIFZFYQFSJFODFEEVSJOHUIFWBSJPVT BOECFHBOUPTPMWFQSPCMFNTUPHFUIFS5IFTLJQQFS
TUBHFTPGUIFEFWFMPQNFOUPG UIFJSUFBNTGSPNUIF PG POF PG UIF CFTU QFSGPSNJOH CPBUT TUBSUFE UP
ųSTUTUBHFPG GPSNJOHUPUIFMBTUTUBHFPG BEKPVSOJOH TIBSF QPXFS BT UIF UFBN XBT TUBSUJOH UP NBOBHF
5IFTFXFSFTPNFPG UIFSFTQPOTFTGSPNUIFUFBNT itself.
EVSJOHFBDITUBHFPG UIFJSUFBNTEFWFMPQNFOU
Performing NBOBHJOHFNPUJPOT
Forming JEFOUJGZJOHFNPUJPOT
5IF QFSGPSNJOH TUBHF TJHOBMMFE UIF UFBNT TUSPOH
$SFXNFNCFST XFSF NPUJWBUFE BOE EBVOUFE CZ DPNNJUNFOUUPUIFUBTLBOEUPFBDIPUIFS5IFSF
UIF FOPSNJUZ PG UIF DIBMMFOHF BIFBE 5IFZ XFSF XBTBGFFMJOHPG XFMMCFJOH BOEUIFZQVUTFMGJOUFSFTU
VOTVSFPGUIFNTFMWFTBOEUIFJSPXOUFDIOJDBMBCJMJUZ BTJEF 0QFOOFTT IPOFTUZ BOE FŲFDUJWF DPOŴJDU
BOEUIFSFXBTGFBSBCPVUUIFTUSVDUVSFPG UIFCPBUT IBOEMJOH DIBSBDUFSJTFE UIJT TUBHF $SFXNFNCFST
BOEUIFJSBCJMJUZUPXJUITUBOEUIFQSFTTVSFTPG UIF managed their emotions and focused on
TPVUIFSO PDFBO 5IFSF XBT BOYJFUZ BCPVU DPQJOH QFSGPSNBODF NBLJOH UIF CFTU PG EFDJTJPOT BOE
JOUIFEBOHFSPVTDPOEJUJPOT"MPUPG TFMGJOUFSFTU DPOUJOVBMMZTUSJWFEUPJNQSPWF
NBSLFE UIJT TUBHF PG UFBN EFWFMPQNFOU PO UIF
Adjourning
CPBUT
"TUIFSBDFOFBSFEDPNQMFUJPO UIFDSFXNFNCFST
Storming VOEFSTUBOEJOHFNPUJPOT
PG UIF WBSJPVT UFBNT OFFEFE UP QBTT UISPVHI B
"U UIJT TUBHF UIF DSFXNFNCFST XFSF CFDPNJOH ANPVSOJOH QIBTF 0O TPNF ZBDIUT UIF TLJQQFST
CHAPTER 18 Work groups and teams
XFSFQSPBDUJWFJOEFBMJOHXJUIUIFFOEPG UIFSBDF AXF DBO XJO 5FBNT UIBU BHSFFE PO SFBMJTUJD BOE
BOEBMSFBEZTUBSUFEEJTDVTTJOHUIFGVUVSFJO4ZEOFZ BDIJFWBCMF HPBMT CFGPSF UIF SBDF QSFWFOUFE NBOZ
.BOZ TQFOU UIF MPOH MFH GSPN $BQF 5PXO UP -B QSPCMFNTBTUIFSBDFQSPHSFTTFE5IFUFBNTXIP
3PDIFMMFIFMQJOHDSFXNFNCFSTUPDPNFUPUFSNT GPSNVMBUFE VOSFBMJTUJD HPBMT CFDBNF EFNPUJWBUFE
XJUIUIFJSGFFMJOHT0OBGFXZBDIUT DSFXNFNCFST XIFO UIFZ IBE UP BEKVTU UIFJS HPBMT EVSJOH UIF
OFWFSPQFOMZEJTDVTTFEUIFTVCKFDU course of the race.
/PU BMM UIF DSFXT XFSF UIJT TVDDFTTGVM BOE "OPUIFS TVDDFTT GBDUPS DIBSBDUFSJTJOH UIF
TPNFUFBNTOFWFSEFWFMPQFEJOUPIJHIQFSGPSNJOH XJOOJOHUFBNTJOUIFSBDFXBTUIBUUIFZHBWFFBDI
UFBNTTPNFDSFXTOFWFSSFBDIFEUIFQFSGPSNJOH PUIFS GFFECBDL JO BO PQFO BOE DPOTUSVDUJWF XBZ
TUBHFBOETPNFOFWFSMFGUUIFTUPSNJOHTUBHF 5IF TLJQQFST XIP XFSF QSFQBSFE UP BDDFQU BOE
" DSVDJBM MFTTPO GSPN UIF QSFWJPVT
#5 QSPWJEF DPOTUSVDUJWF GFFECBDL FOIBODFE UIFJS
(MPCBM$IBMMFOHF3PVOEUIF8PSME:BDIU3BDFXBT FNPUJPOBM JOUFMMJHFODF CFIBWJPVS JO BTQFDUT TVDI
UIBU TUSVDUVSFE UFBN EFWFMPQNFOU CFGPSF B SBDF BT TFMGBXBSFOFTT BOE FNPUJPOBM ŴFYJCJMJUZ XIJDI
JT WFSZ WBMVBCMF .PTU UFBNT QBSUJDJQBUJOH JO UIF SFTVMUFEJOBDIBOHFJOCFIBWJPVSBOEQFSGPSNBODF
SBDFFOHBHFEJOQSFSBDFUFBNCVJMEJOH PG UIFUFBNBTBXIPMF
5IFZBMTPHFOFSBUFEUIFJSWBMVFTZTUFNTBOEHPBMT 5IF NPTU FŲFDUJWF UFBNT PO UIF ZBDIUT
BTUIFTFXFSFBOFTTFOUJBMQBSUPG UIFUFBNTFBSMZ QBSUJDJQBUJOH JO UIF SBDF EFWFMPQFE DVMUVSFT
EFWFMPQNFOU 0OF UFBN BEPQUFE UIF TMPHBO DIBSBDUFSJTFE CZ GPDVTFE BDUJWJUZ DSFBUJWJUZ PQFO
A%BSF JG XF NVTU VOEFSQJOOFE CZ UIF WBMVFT PG communication and integration.
NBJOUBJOJOH GPDVT IBWJOH GVO CFJOH IPOFTU BOE
LEARNING OBJECTIVES
6JGRWTRQUGQHVJKUEJCRVGTKUVQGZRNCKPVJGEQPEGRVQHITQWRUKPIGPGTCNCPFYQTMVGCOU
URGEKƂECNN[CUCPKPVGITCNRCTVQHUWEEGUUHWNEQPVGORQTCT[QTICPKUCVKQPU6JGQDLGEVKXGQHUVWF[KPI
VJKUEJCRVGTKUVQGPCDNG[QWVQ
&KUVKPIWKUJDGVYGGPITQWRUCPFVGCOUKPCPQTICPKUCVKQP
'ZRNCKPYJ[RGQRNGLQKPITQWRU
&KHHGTGPVKCVGDGVYGGPVJGXCTKQWUV[RGUQHITQWRKPQTICPKUCVKQPU
&GUETKDGVJGUVCIGUQHITQWRFGXGNQROGPV
&KUEWUUVJGXCTKCDNGUVJCVKPƃWGPEGITQWRDGJCXKQWT
&GUETKDGVJGEJCTCEVGTKUVKEUQHCYQTMVGCO
'ZRNCKPYJ[CPFWPFGTYJCVEKTEWOUVCPEGUQTICPKUCVKQPUEQWNFWUGVGCOUGHHGEVKXGN[
&KHHGTGPVKCVGDGVYGGPRTQDNGOUQNXKPIUGNHOCPCIGFETQUUHWPEVKQPCNCPFXKTVWCNVGCOU
'ZRNCKPJQYQTICPKUCVKQPUEQWNFFGXGNQRKPFKXKFWCNUKPVQVGCOOGODGTU
18.1 GROUPS AND TEAMS LEARNING OBJECTIVE 1

*O FWFSZEBZ MBOHVBHF XF TPNFUJNFT VTF UIF XPSET HSPVQ BOE UFBN &KUVKPIWKUJDGVYGGPITQWRU
JOUFSDIBOHFBCMZ CVU SFDFOU NBOBHFNFOU MJUFSBUVSF NBLFT B EFųOJUF and teams in an organisation.
EJTUJODUJPOCFUXFFOUIFN"HSPVQSFGFSTUPUXPPSNPSFJOEJWJEVBMT
JOUFSBDUJOHBOEJOUFSEFQFOEFOU XIPDPNFUPHFUIFSUPBDIJFWFQBSUJDVMBS
goals2"UFBNJTBTQFDJBMLJOEPG HSPVQ BOEUVSOJOHHSPVQTJOUPUFBNTJT
BQSPDFTTUIBUSFRVJSFTTQFDJBMNBOBHFNFOUTLJMMT5IFDSFXTEFTDSJCFE
JOUIFPQFOJOHDBTFTUVEZXFSFUFBNT
PART V: Leading
LEARNING OBJECTIVE 2 18.2 REASONS WHY PEOPLE JOIN GROUPS

'ZRNain YJ[ ReoRNe Loin groWRs. 1FPQMFKPJOHSPVQTUPTBUJTGZUIFJSOFFET5IFGPMMPXJOHBSFTPNFPG UIF
OFFETUIBUBSFTBUJTųFECZKPJOJOHBHSPVQ
r (SPVQTPŲFSTFDVSJUZUPQFPQMF#ZKPJOJOHBHSPVQ BOJOEJWJEVBM
DBOSFEVDFUIFJOTFDVSJUZPG TUBOEJOHBMPOF#ZCFJOHQBSUPG B
group people feel stronger, less threatened, and they suffer less
TFMGEPVCU
r "OJOEJWJEVBMDBOBDIJFWFBDFSUBJOTUBUVTCZKPJOJOHBHSPVQUIBU
PUIFSTWJFXBTJNQPSUBOUCFDBVTFUIFHSPVQQSPWJEFTSFDPHOJUJPO
BOETUBUVTGPSJUTNFNCFST#FMPOHJOHUPUIFUPQNBOBHFNFOU
group has a certain status.
r 4FMGFTUFFNJTUIFXBZUIBUQFPQMFGFFMBCPVUUIFNTFMWFT
*OEJWJEVBMTDBOJODSFBTFUIFJSTFMGFTUFFNJGUIFZBSFBDDFQUFEJOUPB
IJHIMZWBMVFEHSPVQ
r +PJOJOHHSPVQTDBOTBUJTGZUIFTPDJBM PSBŵMJBUJPO
OFFETPG
QFPQMF(SPVQTBSFTPDJBMTZTUFNTXJUINBOZPQQPSUVOJUJFTGPS
JOUFSQFSTPOBMSFMBUJPOTUPTBUJTGZUIFTPDJBMOFFETPG NFNCFST
r (SPVQTSFQSFTFOUQPXFSCFDBVTFHSPVQBDUJPODBOBDIJFWFXIBU
JOEJWJEVBMTPGUFODBOOPUBDIJFWFCZUIFNTFMWFT*OEJWJEVBMTNBZ
BMTPBMJHOUIFNTFMWFTXJUIPUIFSTGPSQSPUFDUJPOGSPNVOSFBTPOBCMF
EFNBOETCZNBOBHFNFOUPSPUIFSHSPVQT*OGPSNBMHSPVQTPŲFS
QFPQMFXJUIBIJHIOFFEGPSQPXFSUIFPQQPSUVOJUZUPJOŴVFODF
PUIFST XJUIPVUUIFDPOTUSBJOUTPG UIFPSHBOJTBUJPOTGPSNBM
hierarchy.
r 1FPQMFBMTPKPJOHSPVQTUPBDIJFWFHPBMTUIBUUIFZDBOOPUBDIJFWF
BMPOF*OHSPVQT UIFUBMFOUT LOPXMFEHF BOEQPXFSPG WBSJPVT
QFPQMFBSFQPPMFEUPBUUBJOHPBMT 4FF$IBQUFSGPSBEJTDVTTJPO
PG IVNBOOFFET
LEARNING OBJECTIVE 3 18.3 TYPES OF ORGANISATIONAL GROUP

&iHHerentiate DetYeen XarioWs .PTUQFPQMFXPSLJOHJOPSHBOJTBUJPOTCFMPOHUPWBSJPVTHSPVQTBUUIF
t[Res oH groWR in organisations. TBNFUJNFmTPNFBUXPSL TPNFJOUIFDPNNVOJUZ BOETPNFJOUIF
GBNJMZ *O PSHBOJTBUJPOT IPXFWFS XF EJTUJOHVJTI CFUXFFO UXP NBJO
DBUFHPSJFT PG HSPVQ OBNFMZ JOGPSNBM BOE GPSNBM HSPVQT 'JHVSF
POUIFOFYUQBHFEFQJDUTUIFTFUXPDBUFHPSJFT BOEUIFTQFDJųDUZQFTPG
HSPVQXJUIJOUIFN
18.3.1 Informal groups

informal group "O informal group is an interest group or friendship group that is
OPUQBSUPG UIFPSHBOJTBUJPOBMIJFSBSDIZBOEPOFUIBUEFWFMPQTPVUPG
an interest groups or friendship
UIFEBZUPEBZBDUJWJUJFTBOEJOUFSBDUJPOTPG QFPQMFXPSLJOHJOUIFTBNF
group that is not part of the
organisation. The goals of informal groups are not necessarily the same
organisational hierarchy
as those of the organisation, although the formal organisation often has a
DPOTJEFSBCMFJOŴVFODFPOUIFGPSNBUJPOPG JOGPSNBMHSPVQT"UUIFTBNF
UJNF UIFJOGPSNBMHSPVQDBOIBWFBTJHOJųDBOUJOŴVFODFPOUIFGPSNBM
PSHBOJTBUJPO

Interest groups
Informal
Friendship groups
Categories and
types of group
Command groups
Formal
Task groups
Figure 18.1: The main categories and types of group

Interest group
The emphasis in the interest group is on the needs of the group itself.
The reason for its existence is the shared interests of the members.
Examples of interest groups in a manufacturing organisation may be
older workers campaigning for better pension benefits, or a group of
environmentalists taking a stand on the air pollution caused by the smoke
emitted into the air by the organisation’s factory. Such interest groups
may exist for only a short time until the goal is either accomplished or
abandoned. Other interest groups may last for a relatively long period
on a continuing basis.
Friendship group
The friendship group can range from a social club that organises social
events for the members of a department, to a few people playing cards
together during their lunch break. The main reason for its existence is
that its members have social needs to satisfy, or have things in common
to share with colleagues, such as similar hobbies, an interest in sport,
and so on.
18.3.2 Formal groups

The second category of group in an organisation is the formal group, formal groups
or work group. The formal group is created to accomplish specific tasks
accomplish specific tasks and
and to achieve the company’s goals. The organisation’s structure defines
achieve the organisational goals
formal groups, where work assignments are allocated to specific work
groups, such as the academic departments in a college or a university.
work group
Work group a unit of two or more people
A work group is a unit of two or more people who interact primarily who interact primarily to
to share information and to make decisions that will help each group share information and to
member perform within his or her own area of responsibility3. The make decisions that will help
work group has the following characteristics4: each group member perform
within his or her own area of
r UIFTLJMMTPG HSPVQNFNCFSTBSFSBOEPNBOEWBSJFE
responsibility
r UIFSFJTBTUSPOHMFBEFS TVDIBTBNBOBHFS
PART V: Leading
r JOEJWJEVBMNFNCFSTBSFBDDPVOUBCMFBOESFXBSEFEGPSUIFJSPXO
QFSGPSNBODF
r UIFHSPVQQFSGPSNBODFJTUIFTVNPG BMMUIFJOEJWJEVBMHSPVQ
NFNCFSTQFSGPSNBODFT
5IFSFBSFUXPUZQFTPG GPSNBMXPSLHSPVQDPNNBOEHSPVQTBOEUBTL
HSPVQT5
Command group
" GPSNBM PSHBOPHSBN BOE BO PCWJPVT MJOF PG BVUIPSJUZ DIBSBDUFSJTF
DPNNBOE HSPVQT " DPNNBOE HSPVQ DPNQSJTFT B NBOBHFS BOE UIF
TVCPSEJOBUFTXIPSFQPSUEJSFDUMZUPIJNPSIFS
Task group
" UBTL HSPVQ JT BMTP PSHBOJTBUJPOBMMZ EFUFSNJOFE *U TJHOJųFT QFPQMF
XPSLJOH UPHFUIFS UP DPNQMFUF B TQFDJųD UBTL BOE JU DBO DSPTT UIF
IJFSBSDIJDBM CPVOEBSJFT PG BO PSHBOJTBUJPO " UBTL HSPVQ GPSNFE UP
JOWFTUJHBUFBOBQQSPQSJBUFSFXBSETZTUFNGPSBVOJWFSTJUZNBZDPOUBJO
TPNFTUBŲNFNCFSTSFQSFTFOUJOHUIFWBSJPVTMBCPVSVOJPOTBOEPUIFST
SFQSFTFOUJOH UIF BDBEFNJD BOE BENJOJTUSBUJWF EFQBSUNFOUT BT XFMM BT
IVNBO SFTPVSDFT NBOBHFNFOU FYQFSUT 8JUI UIF DPNQMFUJPO PG UIF
QSPKFDU UIFHSPVQEJTCBOET
LEARNING OBJECTIVE 4 18.4 STAGES IN GROUP AND TEAM

Describe the stages of group DEVELOPMENT
development.
/FXMZGPSNFEPSDIBOHFEHSPVQTPSUFBNTHPUISPVHIDFSUBJOstages
stages of group of group development .BOBHFST TIPVME CF BCMF UP JEFOUJGZ UIF
development HSPVQTEFWFMPQNFOUTUBHFJOPSEFSUPNBOBHFUIFHSPVQTVDDFTTGVMMZ
groups develop in five stages .BOBHFSTDBOOPUFYQFDUBOFXMZGPSNFEHSPVQUPQFSGPSNBUUIFMFWFM
before they are fully functional PG BOFTUBCMJTIFEHSPVQJOXIJDINFNCFSTLOPXPOFBOPUIFSBOELOPX
and the management challenges UIFHSPVQTTUSFOHUITBOEXFBLOFTTFT
for every stage are different 'JHVSFJMMVTUSBUFTUIFųWFJEFOUJųBCMFTUBHFTPG EFWFMPQNFOUUIBU
HSPVQTBOEUFBNTUZQJDBMMZVOEFSHPEVSJOHUIFJSMJGFDZDMFT
Forming Storming Norming Performing Adjourning
Figure 18.2: Stages in the development of groups

Source: Tuckman, B.W. 1965. Developmental sequence in small groups. Pscychological
Bulletin. 63: 384–391.

%FQFOEJOH VQPO B HSPVQT QBSUJDVMBS TUBHF BU BOZ HJWFO UJNF UIF
challenges to the operations of the organisation and its management
NBZ CF RVJUF EJŲFSFOU 5IF PQFOJOH DBTF TUVEZ EFTDSJCFT IPX UIF
UFBNNFNCFSTPGUIFWBSJPVTZBDIUTUIBUDPNQFUFEJOUIF#5(MPCBM
$IBMMFOHF3PVOEUIF8PSME:BDIU3BDFXFOUUISPVHIUIFWBSJPVTTUBHFT
PGHSPVQEFWFMPQNFOU BOEIPXFWFSZTUBHFQPTFEEJŲFSFOUDIBMMFOHFT
UPUIFUFBNTBOEUIFJSMFBEFST5IFųWFTUBHFTJOUIFEFWFMPQNFOUPG
groups are:
Forming
%VSJOH UIJT TUBHF B TFU PG JOEJWJEVBMT JT OPU ZFU B HSPVQ BOE UIFSF JT
NVDIVODFSUBJOUZBCPVUUIFHSPVQTQVSQPTF MFBEFSTIJQ BOETUSVDUVSF
*OEJWJEVBMT NBZ BTL B OVNCFS PG RVFTUJPOT BT UIFZ CFHJO UP JEFOUJGZ
XJUIPUIFSNFNCFSTBOEXJUIUIFHSPVQJUTFMG VTVBMMZGPDVTJOHPOUIF
BEWBOUBHFTBOEEJTBEWBOUBHFTHSPVQNFNCFSTIJQIPMETGPSUIFN5IFZ
XBOUUPųOEPVUXIBULJOEPG CFIBWJPVSUIFHSPVQXPVMEFYQFDUPG UIFN
BOEUIFZXBOUUPEFUFSNJOFUIFUBTLTPG UIFHSPVQ(SPVQNFNCFSTBSF
BMTPJOUFSFTUFEJOEFųOJOHHSPVQSVMFT
Storming
5IF TUPSNJOH TUBHF PG HSPVQ EFWFMPQNFOU JT PGUFO DIBSBDUFSJTFE
CZ DPOŴJDUT BOE EJTBHSFFNFOUT *U JT B QFSJPE PG UFOTJPO BOE SBJTFE
FNPUJPOT BNPOH UIF HSPVQ NFNCFST 5IFZ BDDFQU UIF FYJTUFODF PG
UIFHSPVQ CVUUIFZBSFSFMVDUBOUUPBDDFQUUIFSFTUSJDUJPOTJNQPTFEPO
UIFJSJOEJWJEVBMJUZCZUIFHSPVQ.FNCFSTCFDPNFNPSFBTTFSUJWFBOE
PQJOJPOBUFE BOE DPOŴJDU NBZ EFWFMPQ PWFS MFBEFSTIJQ QPTJUJPOT BOE
BVUIPSJUZ BTJOEJWJEVBMTBUUFNQUUPJOŴVFODFUIFHSPVQBOEUPBDIJFWF
UIFJSEFTJSFETUBUVTQPTJUJPO.BOBHFNFOUBOEPUIFSTUBLFIPMEFSTNBZ
DSFBUFUFOTJPOJOUIFHSPVQCZJNQPTJOHUIFJSQSFNBUVSFFYQFDUBUJPOT
PGQFSGPSNBODFPOUIFN(SPVQNFNCFSTBSFOPUZFUGVODUJPOJOHBTB
DPIFTJWFHSPVQ QFSGPSNBODFJTSFMBUJWFMZMPX BOENFNCFSTEPOPUMFOE
TVQQPSUUPPOFBOPUIFS(SPVQMFBEFSTTIPVMEGPDVTPOHSPVQHPBMTBOE
QFSGPSNBODF JNQSPWFNFOU EVSJOH UIJT TUBHF UP FOTVSF UIBU UIF HSPVQ
NPWFTPVUPG UIJTQIBTF
Norming
5IF OPSNJOH TUBHF PG HSPVQ EFWFMPQNFOU JT UIF QPJOU BU XIJDI UIF
HSPVQ CFHJOT UP GVODUJPO BT B DPIFTJWF VOJU " TFOTJUJWF CBMBODJOH PG
GPSDFT SFQMBDFT UIF DPOŴJDU PG UIF TUPSNJOH QIBTF BT HSPVQ NFNCFST
EJTDPVSBHF NJOPSJUZ WJFXQPJOUT BOE UFOEFODJFT UP EFWJBUF GSPN UIPTF
PGUIFHSPVQ(SPVQNFNCFSTFOKPZBQSFMJNJOBSZTFOTFPG DMPTFOFTT
and consequently try to protect the group from disintegration. This may
CFDPNFBQSPCMFNBTTPNFNFNCFSTNBZGPDVTTPMFMZPOUIFTVSWJWBM
PG UIF HSPVQ SBUIFS UIBO BDIJFWJOH JUT HPBMT .FNCFST NBZ QFSDFJWF
UIJTTUBHFUPCFPOFPG VMUJNBUFNBUVSJUZBOENBOBHFSTTIPVMENBOBHF
this sense of premature accomplishment carefully. The managers of
UIF HSPVQ BOE JUT NFNCFST TIPVME SFBMJTF UIBU UIFZ OFFE UP BEWBODF
UP B IJHIFS MFWFM PG HSPVQ EFWFMPQNFOU JO PSEFS UP CFDPNF B IJHI
performance group.

PART V: Leading
Performing
5IFQFSGPSNJOHTUBHFPG HSPVQEFWFMPQNFOUNBSLTUIFFNFSHFODFPG
BNBUVSF PSHBOJTFE BOEXFMMGVODUJPOJOHHSPVQ5IFDBSFGVMJOUFHSBUJPO
JO UIF QSFWJPVT TUBHF EFWFMPQT GVMMZ EVSJOH UIJT QFSJPE BOE UIF HSPVQ
DBODPNQMFUFDPNQMFYUBTLTBOETPMWFEJTBHSFFNFOUTUIBUNBZBSJTFJO
BNBUVSFXBZ(SPVQTUSVDUVSFJTTUBCMF NFNCFSTTVQQPSUHSPVQHPBMT
BOEUIFZBSFTBUJTųFE5IFQSJNBSZDIBMMFOHFTBTTPDJBUFEXJUIUIJTTUBHF
BSFUIBUUIFHSPVQTIPVMEOPUCFDPNFDPNQMBDFOU CVUDPOUJOVFUPXPSL
POJOUSBHSPVQSFMBUJPOTIJQTBOEUPJNQSPWFPOUIFJSQFSGPSNBODF(SPVQ
NFNCFSTTIPVMEOPXCFBCMFUPBEBQUTVDDFTTGVMMZUPPQQPSUVOJUJFTBOE
EFNBOETUIBUEFWFMPQPWFSUJNF
Adjourning
"XFMMJOUFHSBUFEHSPVQJTBCMFUPEJTCBOE JGSFRVJSFE XIFOJUTXPSLJT
BDDPNQMJTIFE)JHIUBTLQFSGPSNBODFJTOPMPOHFSBUPQQSJPSJUZGPSUIF
HSPVQ*OTUFBE UIFGPDVTJTPODPNQMFUJOHBDUJWJUJFT5IFBEKPVSOJOHTUBHF
PGHSPVQEFWFMPQNFOUJTFTQFDJBMMZJNQPSUBOUGPSUIFNBOZUFNQPSBSZ
HSPVQTUIBUBSFCFDPNJOHJODSFBTJOHMZDPNNPOJOUIFOFXXPSLQMBDF
JODMVEJOH QSPCMFNTPMWJOH UFBNT UBTL GPSDFT BOE TP PO .FNCFST
PG UIFTF HSPVQT NVTU CF BCMF UP DPOWFOF RVJDLMZ EP UIFJS KPCT PO B
UJHIU TDIFEVMF BOE UIFO BEKPVSO PGUFO UP SFDPOWFOF BU B MBUFS TUBHF
JG OFDFTTBSZ 5IF XJMMJOHOFTT PG NFNCFST UP EJTCBOE XIFO UIFZ IBWF
DPNQMFUFEUIFJSXPSLBOEUPCFQSFQBSFEUPXPSLUPHFUIFSPOGVUVSF
QSPKFDUTJTBOJNQPSUBOUMPOHUFSNUFTUPG HSPVQTVDDFTT
5IFųWFTUBHFNPEFMJOEJDBUFTIPXHSPVQTEFWFMPQGSPNUIFGPSNJOH
TUBHFUPGVMMZGVODUJPOBMHSPVQT(SPVQTHFOFSBMMZCFDPNFNPSFFŲFDUJWF
BTUIFZQSPHSFTTUISPVHIUIFųSTUGPVSTUBHFT CVUJUJTJNQPSUBOUUPOPUF
UIBUVOEFSDFSUBJODPOEJUJPOTUIJTNJHIUOPUCFUIFDBTF(SPVQTEPOPU
BMXBZT NPWF DMFBSMZ GSPN POF TUBHF UP UIF OFYU TPNFUJNFT B HSPVQ
FYQFSJFODFTWBSJPVTTUBHFTBUUIFTBNFUJNF"HSPVQNBZ VOEFSDFSUBJO
DJSDVNTUBODFT TUPSNBOEQFSGPSNBUUIFTBNFUJNF(SPVQTNBZFWFO
SFHSFTT UP QSFWJPVT TUBHFT VOEFS DFSUBJO DJSDVNTUBODFT TVDI BT XIFO
OFXNFNCFSTKPJOUIFHSPVQ
LEARNING OBJECTIVE 5 18.5 VARIABLES THAT INFLUENCE GROUP AND

Discuss the different variables TEAM BEHAVIOUR
that inƃuence group behaviour.
The purpose of this chapter is to enhance your understanding of groups
BOE UFBNT JO PSHBOJTBUJPOT BOE UP FYBNJOF XBZT UP JODSFBTF UIFJS
FŲFDUJWFOFTT 5IF (SPVQ #FIBWJPVS .PEFM QSFEJDUT IPX GBDUPST TVDI
BT PSHBOJTBUJPOBM DPOUFYU HSPVQ NFNCFS SFTPVSDFT HSPVQ TUSVDUVSF
BOE HSPVQ QSPDFTTFT JOŴVFODF UIF EFWFMPQNFOU BOE FŲFDUJWFOFTT PG
HSPVQTBOEUFBNTJOPSHBOJTBUJPOT'JHVSFPOUIFOFYUQBHFTIPXT
BNPEFMJODMVEJOHUIFEJŲFSFOUWBSJBCMFTUIBUJOUFSBDUBOEJOŴVFODFUIF
FŲFDUJWFOFTTPG XPSLHSPVQTJOPSHBOJTBUJPOT
*O UIF GPMMPXJOH TFDUJPOT XF TIBMM FYBNJOF UIF EJŲFSFOU WBSJBCMFT
EFQJDUFEJOUIF(SPVQ#FIBWJPVS.PEFMUIBUJOŴVFODFHSPVQCFIBWJPVS
in organisations.

ORGANISATIONAL CONTEXT
Group member Group Group

Group task
resources structure processes
Group performance
Figure 18.3: The Group Behaviour Model

Source: Robbins, S.P. & Judge, T.A. 2009. Organisational Behaviour. 13th edition. Upper
Saddle River: Prentice Hall, p 318.
18.5.1 Organisational context

In order to understand how groups function, managers need to
understand the organisational context of the groups in their organisations.
A group is a sub-system of a larger organisational system and thus the
organisational context influences a group’s behaviour. The variables in
the organisational context that influence the functioning of a group are
many and varied and we discuss eight crucial ones.
Goals and strategies

Strategic goals define the goals that groups in organisations have to
attain within a specific timeframe. Groups have to compete for the same
scarce resources available in the organisation to attain the same strategic
goals. A consequence of this reality is that groups have to interact
with one another to obtain resources and they are dependent on one
another to attain organisational goals. The typical interaction between
the production and the marketing departments of an organisation
illustrates the crucial interdependence of groups in organisations as they
strive to attain the goals of the organisation jointly. For example, the
marketing department wants to sell as many products as possible at the
lowest cost, the production department has to keep to its budgeted cost
and time limitations and cannot always provide the correct number of
products at the lowest price as required by the marketing department.
Such interaction can create conflict (see Chapter 7), but also illustrates
the interdependence of groups in organisations when it comes to goal
attainment.
Authority structures
Authority structures determine a work group’s placement in the
organisation’s hierarchy, the formal leader of the group, and formal
relationships between various groups in the organisation. We discuss
authority structures in Chapter 15.
Policies, procedures, rules, and regulations

Groups are required to follow the policies, procedures, rules, and
regulations that govern the operations and functioning of their
PART V: Leading
PSHBOJTBUJPOT *G UIFTF JOIJCJU DSFBUJWJUZ BOE JOOPWBUJPO JU XJMM IBWF B

OFHBUJWFJOŴVFODFPOHSPVQQFSGPSNBODF0OUIFPUIFSIBOE TFOTJCMF
policies, procedures, rules, and regulations can speed up group
EFWFMPQNFOUBOEQSFWFOUFYDFTTJWFDPOŴJDU
Organisational resources
5IFBWBJMBCJMJUZPSUIFMBDLPG SFTPVSDFT TVDIBTTVJUBCMZTLJMMFEQFPQMF
ųOBODF SBX NBUFSJBMT FRVJQNFOU BOE JOGPSNBUJPO JOŴVFODF UIF
QFSGPSNBODF PG HSPVQT CFDBVTF UIFZ OFFE UIF OFDFTTBSZ SFTPVSDFT
UP DPNQMFUF UIFJS UBTLT TVDDFTTGVMMZ 3FTPVSDF BWBJMBCJMJUZ GVSUIFSNPSF
BŲFDUTBHSPVQTJOUFSBDUJPOXJUIPUIFSHSPVQTCFDBVTFUIFZBMMIBWFB
DMBJNUPUIFSFTPVSDFTUIFZOFFEUPBDIJFWFPSHBOJTBUJPOBMHPBMT5IVT
HSPVQTIBWFUPOFHPUJBUFXJUIPOFBOPUIFSUPHFUUIFJSGBJSTIBSFPG UIF
SFTPVSDFT XIJDIJODSFBTFTUIFQPUFOUJBMGPSDPOŴJDU5IFJOUFOTJUZPG UIF
DPOŴJDUEFQFOETPOUIFTDBSDJUZPG UIFSFTPVSDFT IPXNBOZHSPVQTBSF
DPNQFUJOHGPSUIFTBNFSFTPVSDFTBOEUIFSFMBUJWFQPXFSQPTJUJPOTPG
UIFWBSJPVTHSPVQT8FEJTDVTTUIFTFWBSJBCMFTJO$IBQUFS
Personnel selection process

The human resources departments of organisations select and appoint
TUBŲ NFNCFST BDDPSEJOH UP TQFDJųD DSJUFSJB XIJDI JO UVSO BŲFDUT UIF
DPNQPTJUJPO PG PSHBOJTBUJPOBM HSPVQT JO BSFBT TVDI BT NFNCFST
QFSTPOBMJUZ UZQFT MFWFM PG NPUJWBUJPO BOE DSFBUJWJUZ CVU BMTP UIF
GVODUJPOJOH BOE FŲFDUJWFOFTT PG UIPTF HSPVQT 5IF SFTFBSDIFST XIP
SFDPSEFEUIFJOUFSBDUJPOPG UFBNTPOUIFZBDIUTTBJMJOHUIF#5(MPCBM
$IBMMFOHF3PVOEUIF8PSME:BDIU3BDF7 GPVOEFWJEFODFUPTVHHFTUUIBU
POFQFSTPOTCFIBWJPVSDPVMEDIBOHFUIFEZOBNJDTPG BOFOUJSFDSFX
5IFZPCTFSWFEBGFXDSFXNFNCFSTPG WBSJPVTZBDIUTUIBUEJEOPUAųU
JOUPPSFYQFSJFODFEQSPCMFNTJOUFHSBUJOHXJUIUIFJSUFBNT0OFTLJQQFS
IBEUPEFBMXJUIBDSFXNFNCFSXIPTFCFIBWJPVSIBETVDIBOBEWFSTF
effect on the dynamics of the team that it affected its performance
OFHBUJWFMZ 0O BOPUIFS ZBDIU UIF TLJQQFS IBE UP TQFOE WBMVBCMF UJNF
BOEFOFSHZUSZJOHUPSFTPMWFUIFDPOŴJDUDBVTFECZPOFUFBNNFNCFS
Performance management system

The performance management systems that organisations implement
JOŴVFODFUIFCFIBWJPVSPG NFNCFSTJOHSPVQTBOEUFBNT1FSGPSNBODF
FWBMVBUJPOBOESFXBSETZTUFNTGPDVTPOFJUIFSJOEJWJEVBMQFSGPSNBODF
BOESFXBSEPSDPMMFDUJWFQFSGPSNBODFBOEBXBSE5IFDIPTFOTZTUFN
SFJOGPSDFTTQFDJųDCFIBWJPVSBOEDPVMEFODPVSBHFPSEJTDPVSBHFHSPVQ
QFSGPSNBODF"DSVDJBMQSFSFRVJTJUFGPSUIFFŲFDUJWFGVODUJPOJOHPG XPSL
UFBNTJTUIBUPSHBOJTBUJPOTTIPVMEFWBMVBUFBOESFXBSEUFBNNFNCFST
DPMMFDUJWFMZ
Organisational culture
5IFEPNJOBOUPSHBOJTBUJPOBMDVMUVSFEFųOFTXIBUBDDFQUBCMFCFIBWJPVS
GPSJOEJWJEVBMTBOEHSPVQTFOUBJMBOEDPOTFRVFOUMZBŲFDUTUIFJSCFIBWJPVS
and performance. We discuss organisational and corporate culture in
$IBQUFS

Physical work setting

5IF QIZTJDBM MBZPVU PG UIF XPSLTQBDF DBO DSFBUF CBSSJFST UP PS
PQQPSUVOJUJFT GPS JOUFSBDUJPO XJUIJO HSPVQT EFQFOEJOH PO UIF OBUVSF
PGUIFHSPVQBOEJUTUBTL5IFHSFBUFSUIFQSPYJNJUZPG HSPVQNFNCFST
UIFNPSFUIFZXJMMJOUFSBDU*OGPSNBMHSPVQTBSFNPSFMJLFMZUPEFWFMPQ
JG HSPVQNFNCFSTXPSLJODMPTFQSPYJNJUZUPPOFBOPUIFS5IFQIZTJDBM
XPSL TFUUJOH BMTP JOŴVFODFT UIF JOUFSBDUJPO CFUXFFO HSPVQT m JG
NFNCFSTPGEJŲFSFOUHSPVQTPDDVQZPŵDFTDMPTFUPPOFBOPUIFS UIFSF
JTBHSFBUFSDIBODFPG JOGPSNBMJOUFSBDUJPOCFUXFFOUIFN.BOBHFSTDBO
NBOJQVMBUF UIF QBUUFSO PG HSPVQ JOUFSBDUJPO CZ UIF XBZ UIFZ BMMPDBUF
PŵDFTUPJOEJWJEVBMTBOEHSPVQTJOUIFPSHBOJTBUJPO
18.5.2 Group member resources group member resources

'PS B HSPVQ UP QFSGPSN FŲFDUJWFMZ JUT NFNCFST OFFE TQFDJųD include technical knowledge and
JOUFSQFSTPOBM TLJMMT TVDI BT DPOŴJDU NBOBHJOH QSPCMFNTPMWJOH BOE skills as well as interpersonal
DPNNVOJDBUJPOTLJMMT skills
18.5.3 Group structure

&BDIHSPVQIBTBTUSVDUVSFUIBUEFųOFTUIFQPTJUJPOTPG JOEJWJEVBMHSPVQ
NFNCFST BOE UIF QPTJUJPO BOE GVODUJPOJOH PG UIF FOUJSF HSPVQ 5IF
GPMMPXJOH TFWFO WBSJBCMFT EFųOF UIF group structure, and often the group structure
FŲFDUJWFOFTTPG HSPVQT the positions and status of
individual group members form
Leadership a group’s structure
-FBEFSTIJQJTBDSJUJDBMGBDUPSJOUIFTVDDFTTPG BHSPVQ*OCPUIGPSNBM
BOEJOGPSNBMHSPVQT BMFBEFSHJWFTEJSFDUJPOBOEDSFBUFTBOFOWJSPONFOU
XIFSFXPSLFSTDBOCFNPUJWBUFEUPBDIJFWFUIFHPBMTPG UIFHSPVQBOE
UIF PSHBOJTBUJPO TFF $IBQUFS
5XP BTQFDUT PG UFBN MFBEFSTIJQ
BSFXPSUIOPUJOHIFSF'JSTU UFBNTPGUFOTIBSFMFBEFSTIJQ BOETFDPOE
MFBEFST DPVME PCTUSVDU QFSGPSNBODF XIFO UIFZ JOUFSGFSF XJUI TFMG
managing teams8. We discuss these aspects later.
Roles
&BDI NFNCFS JO B HSPVQ GVMųMT B SPMF BOE FBDI SPMF DBSSJFT B role
expectation XIJDIJTUIFXBZUIBUPUIFSTCFMJFWFBQFSTPOTIPVMEBDUJO
BHJWFOTJUVBUJPO*OBEEJUJPO FBDIHSPVQNFNCFSIBTIJTPSIFSPXO
WJFX PS role perception PG IPXIFPSTIFJTTVQQPTFEUPBDUJOBHJWFO
situation9.
$POTJEFSUIFFYBNQMFPG BNBOBHFSPG BQSJWBUFIPTQJUBM. Others
FYQFDUIJNUPBDUBTUIFIPTQJUBMTNBOBHFSXIPNVTUTFFUPJUUIBUUIF
IPTQJUBMBTBXIPMFBDIJFWFTJUTHPBMT0OFPG UIFHPBMTJTUIFSFBMJTBUJPO
PG HPPE SFUVSOT GPS UIF TIBSFIPMEFST PO UIFJS JOWFTUNFOU 5IJT JT IJT
FYQFDUFESPMF)PXFWFS IJTPXOSPMFQFSDFQUJPOJTUIBU JOBEEJUJPOUP
IJTFYQFDUFENBOBHFSJBMSPMF IFNVTUBMTPFOTVSFUIBUUIFOVSTFTBSF
TBUJTųFEJOUIFJSKPCTCFDBVTFUIFZBSFSBQJEMZMFBWJOHUIFQSPGFTTJPO BOE
UIFIPTQJUBM

"QBSU GSPN UIFJS SFHVMBS SPMF FYQFDUBUJPOT BOE SPMF QFSDFQUJPOT
JOEJWJEVBMTBMTPGVMųMEJŲFSFOUSPMFTTJNVMUBOFPVTMZ CFDBVTFUIFZCFMPOH
PART V: Leading
to different groups. The manager in our example fulfils different roles:

in addition to his role as manager, he may also be a member of the
hospital’s ethics committee, and may belong to the hospital’s jogging
club. Fulfilling different roles in various groups can result in incompatibility
between roles. In our example, the manager’s running mate has to appear
in front of the ethics committee, of which he is a member. This can result
in the manager experiencing role conflict. Personal role conflict occurs
when the requirements of a role contradict the basic values, attitudes,
and needs of an individual in a particular position. The manager may
experience personal role conflict because a decision taken by the ethics
committee goes against his values and professional integrity as a doctor.
Intra-role conflict occurs when people have different expectations of
the same role. It becomes impossible for the person enacting the role to
satisfy all the expectations. The manager may expect the head matron
to discipline all nurses who arrive late for work, without exception.
However, the nurses expect her to take into consideration the unreliable
bus and train service from their homes to the hospital.
Inter-role conflict may result when a person has to perform a multiplicity
of roles. Sometimes an individual has to simultaneously fulfil many roles,
which may have conflicting expectations. The manager may expect the
head matron to work every second weekend, but her son may want
her to watch his soccer matches on Saturday mornings. Clearly, the
expectations of her roles as head matron and as mother are in conflict.
Norms
Over time, and because of the interaction between group members,
group norms develop. The strongest norms relate to behaviour that
the group members consider as being the most significant. Norms can
be formal, in the form of prescribed behaviour, or informal because of
the interaction between group members. An example of a formal norm
is, ‘In this editorial section, each translator must translate at least eight
pages a day’. An informal norm could be, ‘We all eat lunch together
on a Friday afternoon’. A group attaches different values to different
norms, for example, they will expect members to observe certain
norms while they consider others as being marginal; although members
are not expected to conform to them, the group regards them as
important. Norms may also be negative. One of the norms in the sales
department of the organisation may be to do as little as possible since
other departments are doing virtually nothing. Norms may be written,
communicated verbally, or even be shared unconsciously by members
of the group.
Not every member of the group accepts its norms to the same
extent. When a member rejects the group’s important norms, he or she
may experience a great deal of pressure to conform, since significant
nonconformity threatens the group’s standards, stability, and survival.
Such pressure can be very strong.
Conformity takes two forms: compliance, which means that an
individual changes his or her behaviour, but does not personally agree

XJUI UIF HSPVQT OPSNT BOE internalisation, referring to a change in

CFIBWJPVSBOEUPQFSTPOBMBDDFQUBODFPG UIFHSPVQTOPSNT5IFEFHSFF
UPXIJDIHSPVQNFNCFSTDPOGPSNUPHSPVQOPSNTJOŴVFODFUIFTVDDFTT
PG UIFHSPVQJOUIFBDIJFWFNFOUPGJUTHPBMT
Status
8IZ EPFT UIF NBSLFUJOH EJSFDUPS IBWF NPSF TUBUVT UIBO UIF TBMFT
NBOBHFS XIP SFQPSUT EJSFDUMZ UP IFS "MUFSOBUJWFMZ XIZ EPFT UIF
NBOBHFS HFU IJT PXO QBSLJOH CBZ XIFSFBT UIF PUIFS NFNCFST JO IJT
EFQBSUNFOUIBWFUPDPNQFUFGPSQBSLJOHTQBDFJOBDPNNVOBMQBSLJOH
BSFBXJUIBMJNJUFEOVNCFSPGQBSLJOHCBZT 5IFTFUXPFYBNQMFTCPUI
SFMBUF UP UIF QFSDFJWFE SBOLJOH PG POF JOEJWJEVBM BHBJOTU BOPUIFS11 *O
UJNF GBDUPST TVDI BT LOPXMFEHF BHHSFTTJPO QPXFS BOE TFOJPSJUZ
EFUFSNJOFUIFTUBUVTPG FBDIJOEJWJEVBMNFNCFSJOBHSPVQ.FNCFST
PGBHSPVQFWBMVBUFUIFQPTJUJPOPG FBDIQFSTPOJOUIFHSPVQJOUFSNT
of status and importance, among other things, and so a group hierarchy
EFWFMPQT5IFQPTJUJPOPG BQFSTPOJOUIFGPSNBMPSHBOJTBUJPOEFUFSNJOFT
IJT PS IFS TUBUVT JO GPSNBM HSPVQT XIJMF BOZUIJOH UIBU JT BQQSPQSJBUF
EFUFSNJOFTTUBUVTJOJOGPSNBMHSPVQT'PSFYBNQMF UIFQFSTPOXIPDBO
DPNNVOJDBUFNPTUFBTJMZXJUINBOBHFNFOUNBZIBWFIJHIFSTUBUVTJOB
TQFDJųDHSPVQUIBOUIFPUIFSHSPVQNFNCFST*ODFSUBJODBTFT BQFSTPO
FOKPZTBQBSUJDVMBSTUBUVTJOUIFHSPVQCFDBVTFPG IJTZFBSTPG FYQFSJFODF
BOEIFXJMMIBWFUIFNPTUTUBUVTJOUIBUQBSUJDVMBSHSPVQ5IJTBDRVJSFE
TUBUVTNBZIBWFOPDPOOFDUJPOXIBUTPFWFSXJUIGPSNBMTUBUVT
5IF HSPVQ BT B XIPMF BMTP IBT JUT TUBUVT JO BO PSHBOJTBUJPO BOE B
OVNCFSPG UIJOHT TVDIBTUIFMFWFMPG UIFPSHBOJTBUJPOXIFSFUIFHSPVQ
ųOET JUTFMG JUT HFOFSBM QFSGPSNBODF BOE JUT XPSL SFŴFDU UIJT BOE UIF
BNPVOUPG QPXFSWFTUFEJOJU5PQNBOBHFNFOUJOBOPSHBOJTBUJPOIBT
a higher status than the group of middle managers and the rector at an
VOJWFSTJUZ IBT IJHIFS TUBUVT UIBO UIF EJŲFSFOU GBDVMUJFT UIBU DPOTUJUVUF
UIF VOJWFSTJUZ *O HFOFSBM HSPVQ TUBUVT SFMBUFT QPTJUJWFMZ UP HSPVQ
DPIFTJWFOFTT XIJDIXFDPOTJEFSOFYU
JOUIFTFOTFUIBUUIFIJHIFSUIF
HSPVQTTUBUVTJOUIFPSHBOJTBUJPO UIFNPSFDPIFTJWFJUUFOETUPCF
Cohesiveness
$PIFTJWFOFTT SFGFST UP HSPVQ TPMJEBSJUZ m UIF XBZ B HSPVQ TUBOET
UPHFUIFS BT B VOJU SBUIFS UIBO BT JOEJWJEVBMT JO B HSPVQ (SPVQ
DPIFTJWFOFTTEFWFMPQTCFDBVTFPG UIFBUUSBDUJPOUIBUUIFHSPVQIPMET
GPSUIFJOEJWJEVBM BOEUIJTBUUSBDUJPOSFMBUFTUPUIFJOEJWJEVBMTOFFET12.
8F NVTU VOEFSTUBOE UIBU HSPVQ DPIFTJWFOFTT EPFT OPU BMXBZT IBWF
QPTJUJWFSFTVMUTGPSBOPSHBOJTBUJPO5IFQIFOPNFOPOPG AHSPVQUIJOL
XIJDIXFEJTDVTTMBUFS NBZPDDVSJOHSPVQTXJUITUSPOHDPIFTJWFOFTT
BOEUIJTNBZNFBOUIBUUIFHSPVQTEFTJSFGPSDPIFTJWFOFTTQSFWFOUTJU
GSPNHFOFSBUJOHJOOPWBUJWFTPMVUJPOTUPQSPCMFNT
)PXEPNBOBHFSTFODPVSBHFPSEJTDPVSBHFHSPVQDPIFTJWFOFTT *O
PSEFSUPFODPVSBHFHSPVQDPIFTJWFOFTT NBOBHFSTDBO
r LFFQHSPVQTBTTNBMMBTQPTTJCMF
r FODPVSBHFJOEJWJEVBMTUPJEFOUJGZXJUIUIFHPBMTPGUIFHSPVQ
r TUJNVMBUFDPNQFUJUJPOXJUIPUIFSHSPVQT

PART V: Leading
r JODMVEFQFPQMFXIPBSFTJNJMBS CFBSJOHJONJOE IPXFWFS UIBU

EJWFSTFHSPVQTVTVBMMZNBLFCFUUFSEFDJTJPOT

r FOTVSFUIBUPOFPSBGFXHSPVQNFNCFSTEPOPUEPNJOBUFUIF
group
r NPUJWBUFUIFHSPVQUPCFDPNFTVDDFTTGVM
5PEJTDPVSBHFHSPVQDPIFTJWFOFTT NBOBHFSTTIPVMEEPUIFPQQPTJUFPG
UIFBCPWF
Size
4NBMMFS HSPVQT BSF VTVBMMZ NPSF QSPEVDUJWF UIBO HSPVQT XJUI NPSF
NFNCFST BMUIPVHIUIFMBUUFSBSFCFUUFSBUQSPCMFNTPMWJOH.BYJNJMJFO
3JOHFMNBOO13 B'SFODIFOHJOFFS GPVOEUIBUXIFOHSPVQNFNCFSTXPSL
UPHFUIFS PO B UBTL TVDI BT QVMMJOH B SPQF UIFZ FYFSU TJHOJųDBOUMZ MFTT
FŲPSUUIBOXIFOUIFZEPUIFUBTLBMPOF3JOHFMNBOOBMTPEJTDPWFSFEUIBU
XIFONPSFQFPQMFKPJOBHSPVQ UIFHSPVQPGUFOCFDPNFTJODSFBTJOHMZ
JOFŵDJFOU XIJDI EJTQSPWFT UIF QSFNJTF UIBU HSPVQ FŲPSU BOE UFBN
QBSUJDJQBUJPOXJMMBMXBZTSFTVMUJONPSFFŲPSUCZHSPVQNFNCFST5IVT
BDDPSEJOHUPUIFTPDBMMFE3JOHFMNBOOFŲFDU PSATPDJBMMPBųOH
HSPVQ
TJ[FJTJOWFSTFMZSFMBUFEUPJOEJWJEVBMQSPEVDUJWJUZ XIJDINFBOTUIBUUIF
MBSHFSUIFHSPVQ UIFXFBLFSUIFJOEJWJEVBMFŲPSUJTMJLFMZUPCF
Diversity
(FOFSBMMZ EJWFSTFHSPVQTXJUIBWBSJFUZPG TLJMMTBOELOPXMFEHFUFOEUP
CFNPSFFŲFDUJWFUIBOIPNPHFOFPVTHSPVQT"MUIPVHIEJWFSTJUZDSFBUFE
CZSBDJBMBOEOBUJPOBMEJŲFSFODFTJOUFSGFSFTXJUIHSPVQQSPDFTTFTJOUIF
TIPSUUFSN JUDPOUSJCVUFTQPTJUJWFMZUPHSPVQFŲFDUJWFOFTTJOUIFMPOH
UFSN TFF$IBQUFS

18.5.4 Group processes

group processes 5IFFŲFDUJWFOFTTPG group processesJOŴVFODFTUIFQFSGPSNBODFPG
include group decision- HSPVQT(SPVQQSPDFTTFTJODMVEFHSPVQEFDJTJPONBLJOH DPNNVOJDBUJPO
making, communication, QPXFSEZOBNJDTBOEDPOŴJDUJOUFSBDUJPO
power dynamics, and conflict
interaction Group decision-making
8FEJTDVTTUIFHSPVQEFDJTJPONBLJOHQSPDFTTUIPSPVHIMZJO$IBQUFS
IPXFWFS JO UIF DPOUFYU PG HSPVQ QSPDFTTFT UXP JOUFSFTUJOH
DPOTFRVFODFTPG UIFHSPVQEFDJTJPONBLJOHQSPDFTT OBNFMZHSPVQUIJOL
BOEHSPVQTIJGU XBSSBOUGVSUIFSJOWFTUJHBUJPO
GroupthinkPDDVSTXIFOJOEJWJEVBMHSPVQNFNCFSTEPOPUFYQSFTT
UIFJSPXOSFBMJTUJDBTTFTTNFOUPG BEFDJTJPOJODBTFTXIFSFUIFHSPVQT
DPOTFOTVTEJŲFSTGSPNUIFJSPXO14*OPOFGBNPVTTUVEZ UIFSFTFBSDIFS
JOTUSVDUFEųWFPVUPG TJYQFPQMFJOBHSPVQUPHJWFUIFXSPOHBOTXFSUP
BTJNQMFQSPCMFN8IFOUIFųSTUųWFHSPVQNFNCFSTHBWFUIFAXSPOH
BOTXFS UIF TJYUI QFSTPO HBWF UIF TBNF PCWJPVTMZ XSPOH BOTXFS )F
TJNQMZEJEOPUXBOUUPCFEJŲFSFOUGSPNUIFSFTU
Groupshift PDDVST XIFO HSPVQ NFNCFST UBLF HSPVQ EFDJTJPOT
UIBU DBSSZ FJUIFS NPSF SJTL NPSF BEWFOUVSPVT
PS MFTT SJTL NPSF

DPOTFSWBUJWF
UIBO UIF EFDJTJPO UIBU JOEJWJEVBM NFNCFST XPVME NBLF
PO UIFJS PXO 5IJT IBQQFOT CFDBVTF UIF EJTDVTTJPO PG BO JEFB CZ B
HSPVQNBZMFBEUPBTJHOJųDBOUEFQBSUVSFGSPNUIFPSJHJOBMQPJOUPG WJFX
BOE UIF EFDJTJPO UBLFO SFŴFDUT UIF EPNJOBOU EFDJTJPONBLJOH OPSN
UIBUIBTEFWFMPQFEEVSJOHUIFHSPVQTEJTDVTTJPO5IFEPNJOBOUOPSN
XJMM EFUFSNJOF XIFUIFS UIF TIJGU JT UPXBSET HSFBUFS DBVUJPO PS NPSF
SJTL(SPVQTIJGU GPSFYBNQMF UPPLQMBDFXIFOUIFHPWFSOPSTPG BIJHI
TDIPPM IFME B NFFUJOH UP EFDJEF IPX UIFZ XPVME TQFOE B TVCTUBOUJBM
BNPVOUPG NPOFZHFOFSBUFECZUIFQBSFOUTUISPVHIWBSJPVTGVOESBJTJOH
FWFOUTBOEDPOUSJCVUJPOT5IFQBSFOUTJOTUSVDUFEUIFHPWFSOPSTUPVTF
UIFNPOFZJOBOZXBZUIFZTBXųU CVUIJOUFEUIBUUIFTDJFODFMBCPSBUPSZ
OFFEFEBOVQHSBEF5IFJOEJWJEVBMHPWFSOPST BMMPG UIFNQBSFOUTBUUIF
TDIPPM DBNFUPUIFNFFUJOHDPOWJODFEUIBUUIFZXPVMEBHSFFUPTQFOE
UIFQBSFOUTNPOFZPOVQHSBEJOHUIFTDJFODFMBCPSBUPSZ)PXFWFS POF
EPNJOBOUHSPVQNFNCFSNBEFPVUBWFSZTUSPOHDBTFGPSUIFSFOPWBUJPO
PGUIFTDIPPMIBMMJOTUFBE"GUFSBMFOHUIZEJTDVTTJPO UIFXIPMFHSPVQ
BHSFFE UIBU UIFZ XPVME TQFOE UIF NPOFZ PO UIF SFOPWBUJPO PG UIF
TDIPPMIBMM5IJTXBTBWFSZSJTLZEFDJTJPO FTQFDJBMMZCFDBVTFUIFQBSFOUT
JOEJDBUFEUIFJSQSFGFSFODFGPSUIFSFOPWBUJPOPG UIFTDJFODFMBCPSBUPSZ
Communication
$PNNVOJDBUJPO IBT B TUSPOH JOŴVFODF PO HSPVQ NFNCFST CFIBWJPVS
BOEJUQMBZTBOJNQPSUBOUQBSUJOUIFJSNPUJWBUJPOUPBDIJFWFUIFHSPVQT
HPBMT&ŲFDUJWFDPNNVOJDBUJPOSFEVDFTBNCJHVJUJFTBOEDMBSJųFTBHSPVQT
UBTLT*OUFSNTPG HSPVQQSPDFTTFT JUJTFTTFOUJBMGPSHSPVQNFNCFSTUP
FOTVSFUIBUPOFPSBGFXNFNCFSTEPOPUEPNJOBUFUIFDPNNVOJDBUJPO
JOUIFHSPVQBOEUIBUBMMUIFHSPVQNFNCFSTIBWFUIFPQQPSUVOJUZUP
DPOUSJCVUFUPUIFEFDJTJPONBLJOHBOEPUIFSQSPDFTTFTPG UIFHSPVQ
Power, interests, influence and politics

4PNFHSPVQNFNCFSTNJHIUIBWFNPSFQPXFSUIBOPUIFST5IJTDPVME
JOŴVFODFPUIFSHSPVQNFNCFSTUPEPUIJOHTUIFZXPVMEOPUPUIFSXJTF
IBWFEPOF1PXFS QPMJUJDTBOEDPOŴJDUJOPSHBOJTBUJPOTJTUIFUPQJDPG
$IBQUFSBOEJUQFSUBJOTUPHSPVQDPOUFYUTBTXFMM1PXFSBOEQPMJUJDT
JTBOJOUFHSBMQBSUPG HSPVQTJOPSHBOJTBUJPOT.BOBHFSTNBOBHFQPMJUJDT
JOUIFJSHSPVQTCZ:
r FOTVSJOHUIBUBMMHSPVQNFNCFSTBSFDPNNJUUFEUPUIFJSHSPVQT
JOUFSFTUTBOEUPBUUBJOUIFJSHSPVQTHPBMT
r EFQMPZJOHTDBSDFPSHBOJTBUJPOBMSFTPVSDFTPQUJNBMMZ
r FOTVSJOHUIBUHSPVQQFSGPSNBODFPVUDPNFTBSFDMFBSBOE
PCKFDUJWF
Conflict
.BOZ DPOŴJDUT BSF UIF SFTVMU PG EJTBHSFFNFOUT CFUXFFO UIF WBSJPVT
HSPVQT JO BO PSHBOJTBUJPO )PXFWFS JG NBOBHFST EFBM XJUI DPOŴJDU
DPSSFDUMZ QPTJUJWF DPOŴJDU DBO QSFWFOU TUBHOBUJPO TUJNVMBUF DSFBUJWJUZ
SFMFBTFUFOTJPOTBOEJOJUJBUFDIBOHFJOUIFJSHSPVQT8FEJTDVTTDPOŴJDU
BOEDPOŴJDUSFTPMVUJPOJO$IBQUFS

PART V: Leading
18.5.5 Group tasks

5IF UBTLT UIBU HSPVQT QFSGPSN SBOHF GSPN TJNQMF SPVUJOF BOE
TUBOEBSEJTFE
UPDPNQMFY OPWFMBOEOPOSPVUJOF
4UPDLUBLJOHXJMMCF
BTJNQMFUBTLGPSBHSPVQPG FNQMPZFFTJOBSFUBJMTUPSFBTIFBEPŵDF
VTVBMMZQSPWJEFTDMFBSHVJEFMJOFTPOIPXUPEPJU)PXFWFS JNQMFNFOUJOH
BOFXFMFDUSPOJDJOWFOUPSZDPOUSPMTZTUFNXJMMCFNVDINPSFDPNQMFY
5BTLT BMTP WBSZ JO UFSNT PG UIF SFRVJSFE EFHSFF PG JOUFSEFQFOEFODF
CFUXFFO NFNCFST BOE CFUXFFO WBSJPVT HSPVQT " IJHI EFHSFF PG
task interdependence task interdependence CFUXFFO HSPVQ NFNCFST SFRVJSFT FŲFDUJWF
DPNNVOJDBUJPOBOEMPXMFWFMTPG DPOŴJDUCFUXFFOHSPVQNFNCFSTJO
requires effective
PSEFSGPSUIFHSPVQUPQFSGPSNFŲFDUJWFMZ5BTLJOUFSEFQFOEFODFJTUIF
communication and low levels of
NPTUQPXFSGVMCBTJTPG JOUFSBDUJPOCFUXFFOHSPVQTJOBOPSHBOJTBUJPO8F
conflict between groups
EJTUJOHVJTICFUXFFOUISFFLJOETPG JOUFSBDUJPOQPPMFEJOUFSEFQFOEFODF
sequential interdependence, and reciprocal interdependence.
"OPUIFSWBSJBCMFUIBUJOŴVFODFTUIFQFSGPSNBODFPG HSPVQTJTUBTL
VODFSUBJOUZ *O UIF UVSCVMFOU CVTJOFTT FOWJSPONFOU UIFSF BSF NBOZ
VODFSUBJOUJFT CFZPOE UIF DPOUSPM PG NBOBHFNFOU 5BTL VODFSUBJOUZ
PDDVSTXIFOHSPVQTBSFVOTVSFPG UIFEJSFDUJPOUIFPSHBOJTBUJPOJTUBLJOH
PSCFDBVTFPG GVUVSFFWFOUTUIBUNBZBŲFDUUIFNBOEUIFJSBDUJWJUJFTJO
the organisation.
)BWJOHFYBNJOFEHSPVQTJOUFSNTPG BMMUIFWBSJBCMFTUIBUJOŴVFODF
UIFJSEFWFMPQNFOUBOECFIBWJPVS XFTIBMMOPXMPPLBUBTQFDJBMLJOEPG
HSPVQ XIJDIJTHBJOJOHQPQVMBSJUZJODPOUFNQPSBSZPSHBOJTBUJPOTOBNFMZ
XPSLUFBNT
LEARNING OBJECTIVE 6 18.6 ORGANISATIONAL TEAMS

Describe the characteristics of *OPVSEJTDVTTJPOPG HSPVQT XFNFOUJPOFEUIBUUFBNTBSFBTQFDJBMLJOE
a work team. of group, and that although all teams are groups, not all groups are teams.
0SHBOJTBUJPOTDBOEFWFMPQHSPVQTJOUPUFBNT CVUUIFJSDIBSBDUFSJTUJDT
XJMMDIBOHF%FWFMPQJOHUFBNTBOEVUJMJTJOHUIFJSGVMMQPUFOUJBMSFRVJSFT
WFSZTQFDJBMNBOBHFNFOUTLJMMT
.PEFSOPSHBOJTBUJPOTVTFUFBNTUPBEESFTTUIFEFNBOETJNQPTFEPO
UIFNCZ GPSFYBNQMF HMPCBMJTBUJPO XIJDIJTPOFPG UIFNPTUJNQPSUBOU
JOŴVFODFTPONPEFSOCVTJOFTTQSBDUJDF TFF$IBQUFS

&BSMJFSJOPVSEJTDVTTJPO XFEFųOFEBXPSLHSPVQBTBVOJUPG UXP
PSNPSFQFPQMFXIPJOUFSBDUQSJNBSJMZUPTIBSFJOGPSNBUJPOBOENBLF
work teams
EFDJTJPOTUIBUXJMMIFMQFBDIHSPVQNFNCFSQFSGPSNXJUIJOIJTPSIFS
a small number of employees PXOBSFBPG SFTQPOTJCJMJUZ8PSLUFBNTEJŲFSJOBOVNCFSPG XBZTGSPN
with complementary XPSLHSPVQT
competencies, a common
*ODPOUSBTUUPBXPSLHSPVQ Bwork team DPOTJTUTPG BTNBMMOVNCFS
purpose, and collective
PG FNQMPZFFTXJUIDPNQMFNFOUBSZDPNQFUFODJFTXIPXPSLUPHFUIFSPO
accountability to achieve their
BQSPKFDU BSFDPNNJUUFEUPBDPNNPOQVSQPTF BOEBSFBDDPVOUBCMFGPS
goals
QFSGPSNJOHUBTLTUIBUDPOUSJCVUFUPBDIJFWJOHBOPSHBOJTBUJPOTHPBMT17.
Two examples of nature’s bio teams

Ants18
Ant colonies are arguably the most successful team despite their tiny size, they comprise ten per cent of
on the planet. They are so dominant in nature that, all living things by weight on the planet. No matter

where you are in the world, if you are outside and Geese19
you look down carefully, you will probably see an Flocks of geese fly amazing distances, constantly
ant. Ants have no overall leader and the queen’s rotating the bird that handles the extra responsibility
role is simply to reproduce. Even with their tiny and air resistance of leading. A goose can fly up to 70
brains, ants use swarm intelligence to solve complex per cent further in a team than by itself due to
route-planning problems as efficiently as our best the optimisation of slipstream effects through the
computers. ‘V’ formation. If a goose falls behind, two birds will
automatically drop out of formation to assist it or
care for it until it dies.
18.6.1 Characteristics of effective work teams

The characteristics of work teams differ from those of work groups in
several ways. We discuss the characteristics of effective work teams in
the next section.
Complementary competencies
In effective teams, team members have complementary competencies
in terms of knowledge, skills and value orientation. Organisations select
team members based on their technical skills and on their interpersonal
and other skills required for the effective functioning of the specific
team. The team members’ skills should complement one another. This
means that each individual team member should have skills, which no
one else in the team has, so that each member contributes a distinct skill
towards the task, and the collective skills of the members will enable the
team to complete the task from start to finish.
Organisations use various selection tools to ensure that their teams
possess complementary competencies. One such tool is the Belbin the Belbin method
method, named after the creator of the method, R Meredith Belbin20, to be effective, a team should
who conducted a comprehensive study of the best mix of characteristics have team members who fulfil
in a team and produced a list of eight roles that teams need in order to eight specific team roles
be fully effective:
1. The chairperson presides over the team, coordinates its efforts, and
is a disciplined, balanced, and focused person. The chairperson is a
good judge of people and things.
2. The shaper is a highly-strung, outgoing, and dominant person with
a drive and passion for the task, spurring on the action. The shaper
can be over-sensitive, irritable and impatient.
3. The plant is introverted but intellectually dominant, the source
of original ideas and proposals, and the most imaginative and the
most intelligent member of the team. The plant can be careless of
details, may resent criticism and may easily withdraw.
4. The monitor-evaluator is an analytical rather than a creative
intelligence. The monitor-evaluator is dependable and therefore
a good person to check quality, but may be tactless and cold, and
often less involved than the other team members.
5. The resource-investigator is the popular member of the team –
extroverted, sociable, and relaxed. The resource-investigator
brings new contacts and ideas to the group and acts as the

PART V: Leading
salesperson, diplomat, or liaison officer of the group. This person is

OPUWFSZPSJHJOBM OPSBESJWFS BOEOFFETUIFUFBNUPBQQSFDJBUFIJT
PSIFSDPOUSJCVUJPO
5IFcompany worker JTUIFQSBDUJDBMPSHBOJTFSXIPUVSOTJEFBTJOUP
NBOBHFBCMFUBTLT$IBSUT TDIFEVMFTBOEQMBOTBSFUIFDPNQBOZ
XPSLFSTTUSFOHUI5IVTUIFQFSTPOJTOPUWFSZFYDJUJOH BOEEPFT
OPUMFBE CVUJTBEFQUBUBENJOJTUFSJOH
7. The team worker IPMETUIFUFBNUPHFUIFSCZCFJOHTVQQPSUJWFPG
others, listening, encouraging, harmonising and understanding. This
QFSTPOJTMJLBCMFBOEQPQVMBSCVUVODPNQFUJUJWF
8. The finisherDIFDLTUIFEFUBJMT XPSSJFTBCPVUTDIFEVMFTBOEEVF
EBUFT BOECSJOHTUPUIFUFBNBTFOTFPG VSHFODZ5IFųOJTIFSJTOPU
BMXBZTBQPQVMBSQFSTPO
"DDPSEJOHUP#FMCJO UIFSFTIPVMEOPUCFUPPNBOZPG POFUZQFJOBUFBN

CFDBVTFJUXJMMDBVTFBMBDLPG CBMBODF XIJMFJG UIFSFBSFUPPGFXUZQFT
UIFUFBNXJMMOPUCFBCMFUPQFSGPSNTPNFPG JUTUBTLT
Commitment to the common purpose

4VDDFTTGVMUFBNNFNCFSTBSFDPNNJUUFEUPBDPNNPOQVSQPTF BTFU
PG QFSGPSNBODF HPBMT BOE FYQFDUBUJPOT " NBKPS EJŲFSFODF CFUXFFO
HSPVQTBOEUFBNTJTXIPEFWFMPQTUIFHPBMTBOEQMBOT BOEXIPNBLFT
UIFEFDJTJPOT*OBUFBN UIFUFBNNFNCFSTIFMQUPGPSNVMBUFUIFHPBMT
BOEUIFSPMFPG UIFNBOBHFSJTUPJOWPMWFNFNCFSTBOEUPFOTVSFUIBU
NFNCFSTVOEFSTUBOE BDDFQU BOEBSFDPNNJUUFEUPBDIJFWJOHUIFHPBMT
5IFEJTUJODUJWFDIBSBDUFSJTUJDPG BUFBNJTBTIBSFEDPNNJUNFOUCZJUT
NFNCFSTUPUIFJSKPJOUQFSGPSNBODF"TJNQMFFYBNQMFPG BUFBNHPBM
NBZ CF UP SFTQPOE UP BMM DVTUPNFS DBMMT XJUIJO IPVST PS B NPSF
DPNQMFYHPBMNBZCFUPSFEVDFEFGFDUTCZQFSDFOUPWFSUIFOFYUTJY
NPOUIT5IFLFZQPJOUJTUIBUUFBNTDBOOPUBDIJFWFUIFTFHPBMTXJUIPVU
UIFDPNNJUNFOUPG BMMUIFNFNCFSTPG UIFUFBN21.
Cross-cultural perspectives on teamwork in the workplace

People in different cultures think about work in what you might expect from your family versus
different ways and have different expectations about what you might expect from your sports team, the
teamwork. For example, in the United States, people differences emerge. Families are central to one’s
use many sports metaphors, while in Latin America life while involvement in one’s sports team is more
people often refer to the work team as a family. limited, less caring and more competitive22.
Comparing these two contrasts by thinking about
Shared mission and collective responsibility

5IFUFBNDPODFQUJNQMJFTUIBUBMMUFBNNFNCFSTLOPXBOETIBSFUIF
NJTTJPOPG UIFPSHBOJTBUJPOBOEUIFUFBNBOEUIBUUFBNNFNCFSTBDDFQU
DPMMFDUJWFSFTQPOTJCJMJUZGPSUIFQFSGPSNBODFPG UIFUFBN3FWJTJUJOHUIF
PQFOJOHDBTFTUVEZPG UIF#5(MPCBM$IBMMFOHF3PVOEUIF8PSME:BDIU
3BDF TIPXTUIBUUIFDSFXNFNCFSTPG BOZHJWFOCPBUDPVMEOPUIBWF
BDIJFWFEUIFJSTIBSFEHPBMPG DPNQMFUJOHUIFSBDFJOUIFCFTUQPTTJCMF
time if they had not had a shared mission. They also had to accept
DPMMFDUJWFSFTQPOTJCJMJUZGPSTBJMJOHUIFJSCPBUBOEBSSJWJOHTBGFMZBUUIFJS
destination.
Individual and mutual accountability and rewards

"NBKPSEJŲFSFODFCFUXFFOXPSLHSPVQTBOEXPSLUFBNTJTUIBUHSPVQ
NFNCFST BSF JOEJWJEVBMMZ BDDPVOUBCMF BOE SFXBSEFE XIFSFBT UFBN
NFNCFSTBSFCPUINVUVBMMZBOEJOEJWJEVBMMZBDDPVOUBCMFBOESFXBSEFE
GPSUIFUFBNTQFSGPSNBODF
Synergy
5IFJOEJWJEVBMFŲPSUTPG UFBNNFNCFSTSFTVMUJOBMFWFMPG QFSGPSNBODF
UIBUJTHSFBUFSUIBOUIFTVNPG UIFJSJOEJWJEVBMJOQVUT TFFDIBSBDUFSJTUJDT
PG#FMCJOTUFBNTJO4FDUJPO

Shared leadership
*OHSPVQT UIFSFJTPOFDMFBSMFBEFSUFBNTTIBSFMFBEFSTIJQ.PTUUFBNT
JEFOUJGZBTQFDJųDQFSTPOBTUIFMFBEFSCVUUIFQFSTPOVTVBMMZTIBSFTUIJT
SFTQPOTJCJMJUZXJUIPUIFSNFNCFST5FBNMFBEFSTFNQPXFSNFNCFSTUP
QFSGPSNNBOBHFNFOUGVODUJPOTXIJMFUIFZGPDVTPOEFWFMPQJOHFŲFDUJWF
HSPVQ TUSVDUVSFT BOE QSPDFTTFT BOE PO EFWFMPQJOH UFBN TLJMMT 5FBN
MFBEFSTQMBOBOEDPOEVDUNFFUJOHTBOEIBOEMFQSPCMFNNFNCFST5IFJS
role changes from managing to coaching and facilitating.
Equality
5FBNT BSF DIBSBDUFSJTFE CZ FRVBMJUZ m JO UIF CFTU UFBNT FWFSZPOF
TVQQSFTTFTUIFJSJOEJWJEVBMFHPGPSUIFHPPEPG UIFUFBN*OUIFFYBNQMF
PGUIF#5(MPCBM$IBMMFOHF3PVOEUIF8PSME:BDIU3BDF XFTBXUIBU
JO UIF GPSNJOH TUBHF TFMGJOUFSFTU XBT QBSBNPVOU *O UIF QFSGPSNJOH
TUBHF TFMGJOUFSFTUHBWFXBZUPBGPDVTPOHSPVQQFSGPSNBODF
Size
"DDPSEJOH UP #FMCJO23 UIF CFTU EJŲFSFOUJBUPS CFUXFFO HSPVQT BOE
UFBNT JT TJ[F (SPVQT DBO DPNQSJTF NBOZ NFNCFST CVU UFBNT BSF
NPTU FŲFDUJWF JG UIFZ BSF TNBMM BOE JO #FMCJOT PQJOJPO UIF PQUJNVN
TJ[F SBOHFT GSPN GPVS UP TJY NFNCFST CVU OPU NPSF BT TFOJPSJUZ BOE
TUBUVTCFHJOUPSFQMBDFNFSJUBOEDPOUSJCVUJPOXIFOUFBNNFNCFSTIJQ
FYDFFETTJY
Selection
#FMCJO24 BMTP TUSFTTFT UIF DSJUJDBM JNQPSUBODF PG TFMFDUJPO B UBTL
QFSGPSNFE CZ UFBN MFBEFST XIFO UIFZ BUUFNQU UP TFMFDU UIF CFTU
QPTTJCMFUFBN
18.7 REASONS WHY ORGANISATIONS USE LEARNING OBJECTIVE 7

TEAMS EZplain why and under what
circumstances organisations
*NQMFNFOUJOHUFBNTJTOPUUIFTPMVUJPOUPBMMPSHBOJTBUJPOBMQSPCMFNT
could use teams effectively.
)PXFWFS UFBNTBSFWFSZFŲFDUJWFXIFOUIFGPMMPXJOHDPOEJUJPOTFYJTU :

PART V: Leading
r UIFQSPCMFNJTSFMBUJWFMZDPNQMFY VODFSUBJO BOEIPMETUIF

QPUFOUJBMGPSDPOŴJDU
r UIFQSPCMFNSFRVJSFTJOUFSHSPVQDPPQFSBUJPOBOEDPPSEJOBUJPO
r UIFQSPCMFNBOEJUTTPMVUJPOIBWFJNQPSUBOUPSHBOJTBUJPOBM
consequences
r UIFSFBSFUJHIUCVUOPUJNNFEJBUFEFBEMJOFT
r XJEFTQSFBEBDDFQUBODFBOEDPNNJUNFOUBSFDSJUJDBMUPUIF
successful implementation of a response to a situation.
8IFO JNQMFNFOUFE VOEFS UIF DPSSFDU DPOEJUJPOT UIF BEWBOUBHFT UP

organisations using teams could include:
r *OOPWBUJPO5FBNTFOIBODFDSFBUJWJUZXIFOQFPQMFXJUIBWBSJFUZ
PG FYQFSJFODFBOEFYQFSUJTFXPSLPOBDPNNPOQSPCMFNPSUBTL
r 4QFFE5FBNTDBOSFEVDFUIFUJNFSFRVJSFEUPDPNQMFUFB
UBTLCFDBVTFUIFZSFQMBDFTFSJBMEFWFMPQNFOUXJUIQBSBMMFM
EFWFMPQNFOU*OTFSJBMEFWFMPQNFOU POFGVODUJPODPNQMFUFT
BUBTL BOEUIFOIBOETPWFSUPUIFOFYUUFBNGVODUJPO VOUJMBMM
UIFGVODUJPOTIBWFDPNQMFUFEUIFJSUBTLTJOTFRVFODF*OQBSBMMFM
EFWFMPQNFOU UIFUFBNNFNCFSTDPNQMFUFBOEDPPSEJOBUFTFWFSBM
UBTLTTJNVMUBOFPVTMZ
r $PTU4FMGNBOBHJOHUFBNTIBWFUIFBCJMJUZUPSFEVDFDPTUTBOE
SFTQPOEGBTUFSUPDVTUPNFSSFRVFTUTCFDBVTFPG UIFJSBCJMJUZUP
NBLFEFDJTJPOTRVJDLMZJOPSEFSUPNFFUUIFEFNBOETPG DIBOHJOH
situations.
r 2VBMJUZ5FBNTIBWFTIBSFEBDDPVOUBCJMJUZBOEDPNNJUNFOUUP
UIFJSKPJOUFŲPSU XJUIUIFDPOTFRVFODFUIBUFYDFMMFOURVBMJUZJTB
QSJNBSZHPBMPG XPSLUFBNT
LEARNING OBJECTIVE 8 18.8 TYPES OF TEAM

Differentiate between problem 5IFNPTUDPNNPOUZQFTPG UFBNJOPSHBOJTBUJPOTBSFQSPCMFNTPMWJOH
solving selfmanaged cross UFBNT TFMGNBOBHFE XPSL UFBNT DSPTTGVODUJPOBM UFBNT BOE WJSUVBM
functional and virtual teams. teams.
Problem-solving teams are typically composed of employees from
UIFTBNFEFQBSUNFOUXIPNFFUGPSBGFXIPVSTFBDIXFFLUPEJTDVTT
XBZT PG JNQSPWJOH RVBMJUZ FŵDJFODZ BOE UIF XPSL FOWJSPONFOU "U B
CVTZSFTUBVSBOU UIFLJUDIFOTUBŲNFNCFSTNFFUFBDIXFFLUPEJTDVTT
DVTUPNFSDPNQMBJOUT NPSFFŲFDUJWFXBZTPG QSFQBSJOHEJTIFT UIFMBZPVU
PG UIFSFTUBVSBOUUPQSPNPUFFŵDJFODZBOETPPO"MUIPVHIUIJTUFBN
NBZTVHHFTUJNQSPWFNFOUT JUEPFTOPUIBWFUIFBVUIPSJUZUPJNQMFNFOU
any of its solutions unilaterally.
Self-managed work UFBNTGVODUJPOBVUPOPNPVTMZCFDBVTFUIFZNBLF
BOEJNQMFNFOUEFDJTJPOTBOEUBLFGVMMSFTQPOTJCJMJUZGPSUIFPVUDPNFT
$POTJEFSUIFFYBNQMFPG BOFMFDUSPOJDTDPNQBOZUIBUBTTFNCMFTNPEVMBS
VOJUTGPSVTFJODPNQVUFST"VUPOPNPVTXPSLUFBNTPG UPQFPQMF
EPUIFXPSL5IFUFBNTBSFSFTQPOTJCMFGPSUIFQSPEVDUJPOPG UIFVOJUT
GSPNUIFBSSJWBMPG TVQQMJFTUPUIFTIJQNFOUPG ųOJTIFEQSPEVDUT&WFSZ
UFBNNFNCFSJTNVMUJTLJMMFEBOEQFSGPSNTPQFSBUJOHUBTLTUPQSPEVDF

UIF XIPMF QSPEVDU 5IF UFBNT NFFU EBJMZ BOE NBLF EFDJTJPOT BCPVU
QSPEVDUJPOBOEUIFBMMPDBUJPOPG XPSL BOEJTTVFTTVDIBTJNQSPWFNFOUT
JOXPSLEFTJHOPSUIFIJSJOHPG OFXUFBNNFNCFST&BDIUFBNIBTB
MFBEFSXIPBDUTBTBSFTPVSDF DPBDIBOEGBDJMJUBUPS27.
8IFOPSHBOJTBUJPOTEFDJEFPOVTJOHTFMGNBOBHFEXPSLUFBNT UIFZ
IBWF UP NBLF DFSUBJO EFTJHO DIBOHFT XIJDI NBZ JODMVEF DIBOHJOH UIF
PSHBOJTBUJPO TUSVDUVSF UP B ŴBUUFS EFTJHO EJTUSJCVUJOH QFSGPSNBODF
SFMBUFE JOGPSNBUJPO UP FNQMPZFFT QSPWJEJOH FYUFOTJWF USBJOJOH
BOE EFWFMPQNFOU FMJNJOBUJOH TUBUVT EJŲFSFODFT SFXBSEJOH UFBN
QFSGPSNBODF BOEDSFBUJOHDPOEJUJPOTGPSFNQMPZFFFNQPXFSNFOU
Cross-functional teams comprise employees on the same hierarchical
MFWFM TVDI BT UIF NBSLFUJOH NBOBHFS ųOBODJBM NBOBHFS PQFSBUJPOT
NBOBHFS BOE TP PO $SPTTGVODUJPOBM UFBNT VTVBMMZ DPOTJTU PG QFPQMF
JO UIF TBNF PSHBOJTBUJPO CVU DPVME BMTP JODMVEF QFPQMF GSPN PUIFS
PSHBOJTBUJPOT 5IJT UZQF PG UFBN JT TVJUBCMF JO TJUVBUJPOT XIFSF UIF
UFBN IBT UP TPMWF DPNQMFY QSPCMFNT XIJDI SFRVJSF UIF FYQFSUJTF PG
TQFDJBMJTUTXJUIEJWFSTFCBDLHSPVOET
Virtual teamsDPNQSJTFHFPHSBQIJDBMBOEPSPSHBOJTBUJPOBMMZEJTQFSTFE
DPXPSLFSTXIPVTFUFMFDPNNVOJDBUJPOTBOEJOGPSNBUJPOUFDIOPMPHJFT
UPBDDPNQMJTIBOPSHBOJTBUJPOBMUBTL285IFZXPSLJOBOZQMBDF BUBOZ
UJNFBOEmJODSFBTJOHMZmBDSPTTPSHBOJTBUJPOBMCPVOEBSJFT VOMJLFUFBNT
UIBUQSJNBSJMZPQFSBUFUISPVHIGBDFUPGBDFNFFUJOHTCFUXFFONFNCFST
of the same organisation29.
7JSUVBM UFBNT NBZ TVŲFS GSPN GFXFS TPDJBM SFMBUJPOTIJQT BOE MFTT
EJSFDUJOUFSBDUJPOBNPOHNFNCFSTCFDBVTFUIFZBSFVOBCMFUPFOHBHF
JOGBDFUPGBDFEJTDVTTJPO BOEUIFZEPOPUIBWFUIFBEWBOUBHFTTVDIBT
UPOFPGWPJDF FZFNPWFNFOU IBOEHFTUVSFT BOECPEZMBOHVBHF7JSUVBM
UFBNT UFOE UP CF NPSF UBTLPSJFOUFE FTQFDJBMMZ XIFSF UIF NFNCFST
IBWF OPU NFU QFSTPOBMMZ 5IF NFNCFST PG WJSUVBM UFBNT HBJO MFTT
TBUJTGBDUJPOGSPNUIFHSPVQJOUFSBDUJPOQSPDFTTDPNQBSFEUPNFNCFST
PGGBDFUPGBDFUFBNT.
18.9 DEVELOPING INDIVIDUALS INTO TEAM LEARNING OBJECTIVE 9

MEMBERS EZplain how organisations
could develop individuals into
5IFSFBSFTFWFSBMPQUJPOTBWBJMBCMFUPPSHBOJTBUJPOTXJTIJOHUPJOUSPEVDF team members.
UFBNTJOUIFXPSLQMBDF5IFTFJODMVEFGPMMPXJOHBTUSJDUTFMFDUJPOQSPDFTT
UPFOTVSFUIBUUIFPSHBOJTBUJPOFNQMPZTUIFSJHIULJOEPG QFPQMF USBJOJOH
FYJTUJOHBOEOFXFNQMPZFFTUPCFDPNFFŲFDUJWFUFBNNFNCFST BOE
JNQMFNFOUJOHBSFXBSETZTUFNUIBUFODPVSBHFTUFBNXPSL
The selection process

*O BEEJUJPO UP UIF UFDIOJDBM TLJMMT OFFEFE UP QFSGPSN UIF XPSL
DBOEJEBUFTBQQMZJOHGPSQPTJUJPOTJOWPMWJOHUFBNXPSLNVTUBMTPQPTTFTT
TVJUBCMFQFSTPOBMJUZBUUSJCVUFT FOBCMJOHUIFNUPGVMųMUIFJSUFBNSPMFT
1FSTPOBMJUZ USBJUT BSF EJŵDVMU UP DIBOHF BOE UIFSFGPSF UFBNCBTFE
PSHBOJTBUJPOTPGUFOVTFJOUFOTJWFBOETPQIJTUJDBUFETFMFDUJPOQSPDFEVSFT
XIFO IJSJOH OFX FNQMPZFFT 5IF TFMFDUJPO QSPDFTT TIPVME JEFOUJGZ
UIPTFQFPQMFXIPQPTTFTTUIFJOUFSQFSTPOBMTLJMMTUPCFFŲFDUJWFUFBN

PART V: Leading
QMBZFST0SHBOJTBUJPOTUZQJDBMMZMPPLGPSQFPQMFXJUIUIFBCJMJUZUPųOE
DPNNPO BSFBT PG VOEFSTUBOEJOH XJUI PUIFS NFNCFST PG B UFBN BOE
QFPQMFXJUIFŲFDUJWFDPNNVOJDBUJPOTLJMMT QMBOOJOHBOEBENJOJTUSBUJPO
TLJMMT SFMFWBOUUFDIOJDBMTLJMMT BOEBHMPCBMBXBSFOFTT JG UIFUFBNTBSF
QBSUPG HMPCBMPSHBOJTBUJPOT
0SHBOJTBUJPOTDBOVTFUIF#FMCJONFUIPE
XIJDIXFEJTDVTTFEQSFWJPVTMZ UPFOTVSFUIBUUIFUFBNJODMVEFTBMMFJHIU
TQFDJųFESPMFT
Training
5FBNCVJMEJOH QSPHSBNNFT BSF PGUFO FŲFDUJWF FWFO GPS PSHBOJTBUJPOT
QFSGPSNJOHJOUFOTJWFTFMFDUJPOQSPDFEVSFTCFGPSFIJSJOHUFBNNFNCFST
*ODBTFTXIFSFUFBNTOFFEUPCFBCMFUPDPQFXJUISBSFBOEVOFYQFDUFE
FWFOUT UFBNT VTF UFBNCVJMEJOH JOUFSWFOUJPOT UP IFMQ UIFN EFWFMPQ
TVDDFTTGVMMZ BTXFIBWFTFFOJOUIFPQFOJOHDBTFTUVEZ5IFDBTFTUVEZ
FNQIBTJTFTUIFBEWBOUBHFTBTTPDJBUFEXJUIUFBNCVJMEJOHXIFSFUIFUFBN
SFMJFT IFBWJMZ PO UFBNXPSL GPS TVSWJWBM 5IF QVSQPTF PG UFBNCVJMEJOH
QSPHSBNNFTJTVTVBMMZUPUSBJOUFBNNFNCFSTUPQFSGPSNBWBSJFUZPG
NBOBHFSJBMBOEMFBEFSTIJQBDUJWJUJFTBOEUPFOIBODFUFBNDPIFTJWFOFTT
Reward systems
5IF FWBMVBUJPO BOE SFXBSE TZTUFNT PG PSHBOJTBUJPOT JOŴVFODF UIF
CFIBWJPVSPG HSPVQNFNCFST BTXFIBWFBMSFBEZJOEJDBUFEFMTFXIFSF
JO UIF DIBQUFS " SFXBSE TZTUFN JOEJDBUFT UP JOEJWJEVBMT BOE HSPVQT
IPX UIFZ TIPVME EJSFDU UIFJS FOFSHJFT BOE UIFZ SFJOGPSDF EFTJSFE
QFSGPSNBODF %JŲFSFOU UFBNT SFRVJSF EJŲFSFOU SFXBSE TZTUFNT 5IF
GPMMPXJOH DPOTJEFSBUJPOT QFSUBJO UP EFTJHOJOH BO BQQSPQSJBUF SFXBSE
system for a particular type of team:
r UIFVTFPG OPONPOFUBSZSFXBSETUPSFDPHOJTFFYDFMMFOUUFBN
performance
r UIFQPSUJPOPG BOJOEJWJEVBMTSFNVOFSBUJPOUIBUUIFPSHBOJTBUJPO
TIPVMEMJOLUPUIFQFSGPSNBODFPG UIFUFBN WFSTVTQBZGPS
JOEJWJEVBMQFSGPSNBODF
r UIFCBTJTGPSEJTUSJCVUJOHSFXBSETBNPOHUFBNNFNCFST
5IJT CSJOHT VT UP UIF FOE PG UIJT DIBQUFS PO HSPVQT BOE UFBNT JO
PSHBOJTBUJPOT*O$IBQUFS XFMPPLBUUIFDPODFQUPG NPUJWBUJPOBOE
XBZTJOXIJDINBOBHFSTNBZJOŴVFODFUIFQFSGPSNBODFPG JOEJWJEVBMT
BOEHSPVQTJOUIFPSHBOJTBUJPOJOPSEFSUPBDIJFWFJUTHPBMT

Chapter 18 Work groups and teams
CHAPTER SUMMARY
1. Distinguish between groups and teams in an organisation.
A group refers to two or more individuals, interacting and interdependent, who come together
to achieve particular goals. A work team comprises a small number of individuals with
complementary competencies who work together on a project, are committed to a common
purpose, and are accountable for performing tasks that contribute to achieving an organisational
goal.
2. Explain why people join groups.

• Groups offer security to people.
• An individual can achieve a certain status by joining a group that others view as important
because the group provides recognition and status for its members.
• An individual can increase his or her self-esteem if accepted into a highly valued group.
• Joining groups can satisfy the social (or affiliation) needs of people.
• Groups represent power because group action can achieve what individuals often cannot
achieve by themselves.
• People also join groups to achieve goals that they cannot achieve alone.
3. Differentiate between the various types of group in organisations.

• informal groups
• formal groups
• work groups.
4. Describe the stages of group development.

• forming
• storming
• norming
• performing
• adjourning.
5. Identify the variables that influence group behaviour.

• organisational context
• group member resources
• group structure
• group processes
• group tasks.
part V: Leading
6. Describe the characteristics of a work team.

• complementary competencies in terms of knowledge, skills, and value orientation
• commitment to the common purpose, a set of performance goals, and expectations
• shared mission and collective responsibility
• individual and mutual accountability and rewards
• the individual efforts of team members result in a level of performance that is greater than the
sum of their individual inputs (synergy)
• shared leadership
• equality where members suppress their individual egos for the good of the team
• size is small; the optimum size ranges from four to six members
• selection of the best team.
7. Explain why, and under what circumstances organisations could use teams effectively.
Teams are effective when:
• the problem is relatively complex, uncertain, and holds the potential for conflict
• the problem requires inter-group cooperation and coordination
• the problem and its solution have important organisational consequences
• there are tight but not immediate deadlines
• there is widespread acceptance and commitment in response to a situation.
8. Differentiate between problem-solving, self-managed, cross-functional and virtual teams.

• Problem-solving teams are typically composed of employees from the same department who
meet for a few hours each week to discuss ways of improving quality, efficiency, and the work
environment.
• Self-managed work teams function autonomously because they make and implement
decisions and take full responsibility for the outcomes.
• Cross-functional teams comprise employees on the same hierarchical level, usually in the
same organisation but could also include people from other organisations.
• Virtual teams comprise geographical and/or organisationally dispersed co-workers who use
telecommunications and information technologies to accomplish an organisational task.
9. Explain how organisations could develop individuals into team members.

• The selection process involves selecting candidates who possess suitable personality
attributes enabling them to fulfil their team roles.
• Training, such as teambuilding programmes, are necessary to train team members to perform
a variety of managerial and leadership activities and to enhance team cohesiveness.
• Reward systems influence the behaviour of group members and indicate to individuals and
groups how they should direct their energies. Furthermore they reinforce desired performance.
KEY TERMS
command group SPMFDPOŴJDU
DSPTTGVODUJPOBMUFBNT SPMFFYQFDUBUJPO
friendship group UBTLHSPVQ
(SPVQ#FIBWJPVS.PEFM SFXBSETZTUFN
cohesion role perception
group processes teams
groups TFMGNBOBHFEUFBNT
interest group WJSUVBMUFBNT
QSPCMFNTPMWJOHUFBNT TUBHFTPG HSPVQEFWFMPQNFOU
REVIEW QUESTIONS
1. Consider the opening case study.
%PZPVUIJOLUIFHSPVQTUSVDUVSFPGUIFXJOOJOHUFBNTDPOUSJCVUFEUPUIFJSTVDDFTT "OTXFSUIF
RVFTUJPOCZEJTDVTTJOHUIFDPNQPOFOUTPG HSPVQTUSVDUVSFBOEVTFFYBNQMFTGSPNUIFDBTFTUVEZ
UPTVCTUBOUJBUFZPVSEJTDVTTJPO
%JTDVTTUIFWBSJPVTHSPVQQSPDFTTFTUIBUEJTUJOHVJTIFEUIFTVDDFTTGVMUFBNTGSPNUIFMFTT
successful teams in the yacht race.
5IJOLPG BUFBNPG XIJDIZPVXFSFBNFNCFS%FTDSJCFUIFDIBSBDUFSJTUJDTPG UIFUFBNNFNCFSTXIP
GVMųMMFEUIFFJHIUUFBNSPMFTJEFOUJųFECZ#FMCJO
%FTDSJCFBTJUVBUJPOXIFSFZPVFYQFSJFODFEUIFFŲFDUTPGAHSPVQUIJOL
END NOTES
%DVHGRQ&UDQZHOO:DUG-%DFRQ$ 0DFNLH5Inspiring leadership: staying afloat in turbulent times.
&RUQZDOO7KRPVRQSSŋ
5REELQV63 -XGJH7$ Organizational behavior.WKHGLWLRQ8SSHU6DGGOH5LYHU3UHQWLFH+DOOS
5REELQVRSFLWS
/XVVLHU51Management foundations: concepts, applications, skill development. &LQFLQQDWL6RXWK:HVWHUQ
&ROOHJH3XEOLVKLQJS
5REELQVRSFLWS
7KHVHFWLRQRQWKH*URXS%HKDYLRXUPRGHOGHULYHVIURP5REELQV63 Organizational behavior.WKHGLWLRQ
8SSHU6DGGOH5LYHU3UHQWLFH+DOO5REELQVRSFLWSSŋ
&UDQZHOO:DUGHWDORSFLWS
5REELQVRSFLWS
,ELG
%DVHGRQDQH[DPSOHFLWHGLQ6PLW3-&URQMÒ*GH-%UHYLV7 9UED0-Management principles: a
contemporary edition for AfricaWKHGLWLRQ&DSH7RZQ-XWD3XEOLVKHUVS
/XVVLHURSFLWS
/XVVLHURSFLWS
:LOOLDPV.'+DUNLQV6 /DWDQÒ%,GHQWLğDELOLW\DVDGHWHUUHQWWRVRFLDOORDğQJ7ZRFKHHULQJH[SHULPHQWV
Journal of Personality and Social PsychologySSŋ
5REELQVRSFLWS
5REELQVRSFLWS
+HOOULHJHO'-DFNVRQ6( 6ORFXP-:Management: a competency-based approachWKHGLWLRQ2QWDULR
6RXWK:HVWHUQ&ROOHJH3XEOLVKLQJS

PART V: Leading
17 Nelson, D.L. & Quick, J.C. 2002. Understanding organizational behavior: a multimedia approach. Cincinnati: South-
Western College Publishing, p 222.
18 Bonabeau E. 1999. Swarm intelligence: from natural to artificial systems. Oxford, 9–7, pp 271–273.
19 Thompson, K. Bioteaming: Why virtual teams need more than internet technology to succeed. Bioteam features:
[Online] Available from: http://www.bioteams.com/bioteams_features.html. Accessed on 27 June 2005, p 39.
20 Belbin, R.M. 1981. Management Teams. London: Heinemann
21 Hellriegel et al, op. cit., pp 460–461.
22 Gibson, C.B. & McDaniel, D.M. 2010. Moving beyond conventional wisdom: advancements in cross-cultural theories
of leadership, conflict, and teams. Perspectives on Psychological Science. [Online] Available from: http://www.
psychologicalscience.org/index.php/news/releases/cross-cultural-perspective-can-help-teamwork-in-the-workplace.
html. Accessed on 11 August 2010.
23 Belbin, R.M. Beyond the team. Oxford: Butterworth-Heinemann, p 18.
24 Ibid.
25 Serrat, O. Working in Teams. Asian Development Bank. March, 2009, p 34. [Online] Available from http://www.adb.org/
Documents/Information/Knowledge-Solutions/working-in-teams.pdf. Accessed on 9 August 2010.
26 Hellriegel, op. cit.
27 Morgan, M. 1997. Images of organization. Thousand Oaks, California: Sage Publications Inc, p 106.
28 Hellriegel, D., Slocum, J.W. & Woodman, R.W. 2001. Organizational behavior. 9th edition. Cincinnati: South-Western
College Publishing, pp 230–231.
29 Robbins, 2009. op. cit., p 360.
30 Hellriegel et al, 2002, op. cit. pp 476–478.

Chapter 19
Principles of leading
Mari Vrba
OPENING CASE
Sizwe Nxasana, CEO of First Rand His relationship with FirstRand goes back to
Limited1 when he served on the board of NBS Bank, in
which Rand Merchant Bank had a stake, and he
There is a Rolls-Royce, a Maserati, an Aston Martin was a non-executive director of FirstRand Bank
and a couple of Porsches, but it is the Bugatti Veyron from 2003, while he was still at Telkom. Through
that occupies pride of place in the collection of fast this involvement, he came to understand the bank’s
cars owned by the CEO of FirstRand, the South strategy and some of the issues the banking sector
African financial services group2. But do not get faced. Nxasana joined FirstRand Bank in January
too envious; these vehicles are merely miniature 2006 as CEO.
models that line a shelf in the Johannesburg office According to Nxasana, the first few months a
of the first black South African to head one of new executive spends in an organisation are about
South Africa’s big four commercial banking groups, making sense of the organisation. At FirstRand
Sizwe Nxasana, who succeeded Paul Harris, one of Bank, he made a study of key operating divisions,
three founders of FirstRand, as CEO of FirstRand all of which were large businesses in their own
Limited in 2010. right. In the process, he identified the areas the
Nxasana graduated from the East London- organisation had to focus on to enable the various
based University of Fort Hare, the oldest black companies in the group to cross-sell and grow.
university in Southern Africa. He started his career Key objectives which he identified included
at Unilever and Price Waterhouse and in 1989, attracting and retaining the right people, pursuing
established Sizwe & Co, the first black-owned audit growth opportunities, improving efficiencies,
practice in South Africa. In 1996, he became the dealing with transformation issues around
founding partner of the first black-owned national employment equity, and meeting and exceeding
firm of accountants, Nkonki Sizwe Ntsaluba, where the requirements of the financial services charter.
he was national managing partner until 1998, when Indeed, a commitment to social change strongly
he joined Telkom as CEO and proceeded to lead influenced his plans.
Telkom’s transformation from being a government Although improvement in operating
department to becoming a fully owned parastatal. performance and returns remained a priority, a
Describing himself as an introvert, Nxasana belief in the necessity of black empowerment
says the ability to remain quiet and listen has was a key driver for Nxasana. In his view, the two
enabled him to empower those around him. He is objectives intertwined in the sense that the goal of
a passionate entrepreneur who believes in building transformation is complementary to the goal of
lasting companies around quality people. growing the business.
PART V: Leading
FirstRand Bank has an entrepreneurial culture He believes in allowing managers to manage

within its business units – and one of the defining their areas of responsibility without interference
elements in the organisation is its owner-manager because centrally controlled bureaucratic
culture. Nxasana saw his role ‘at the centre as being organisations are simply not as flexible as
a catalyst, helping to make things happen, offering decentralised ones.
guidance that empowers people, and paving the Referring in an interview4 to the difficult task
way for on-going discussion and debate’3. that CEOs have to communicate bad news in
FirstRand Group comprises a number of agile difficult times, he revealed another side of his
businesses that are able to execute strategies leadership style by remarking that openness is
quickly and efficiently. Regarding his role as CEO the foundation upon which to build success in
of the Group since 2010, Mr Nxasana believes organisations.
that promoting an entrepreneurial culture is vital Nxasana was awarded an Honorary Doctorate
because it enables the organisation to launch new of Commerce from the University of Fort Hare in
products and services quickly into the marketplace. 2004.
LEARNING OBJECTIVES
The purpose of this chapter is to explore the concept of leadership. The objective of studying this
. &eƂne the concept of leadership as a OanageOent function.
. &ifferentiate betYeen leadership and OanageOent.
. &iscuss the coOponents of leadership.
4. Explain the trait theory.
. %oOpare the behavioural leadership theories Yith each other.
6. Discuss the contingency theories of leadership.
. Describe the conteOporary approaches to leadership.
LEARNING OBJECTIVE 1 19.1 TOWARDS A DEFINITION OF LEADERSHIP

DeƂne the concept of In the opening case study, Sizwe Nxasana, widely considered one of
leadership as a OanageOent South Africa’s top business leaders, shares some of his experiences as
function. the CEO of FirstRand Limited.
Later in this chapter, we describe a number of capabilities successful
leaders possess. One of these is sensemaking, meaning that effective
leaders immerse themselves in the organisation or in an organisational
situation to learn about the issues, the people and specific problems
before they take action. Another capability of successful leaders is their
ability to relate to people both inside and outside the organisation by
listening to others, but also by presenting their own viewpoints.
In the case study, Mr Nxasana describes his first months at FirstRand
Bank as making sense of the organisation by studying key operating
divisions and by identifying focus areas and key objectives. He drew on
his distinctive ability to remain quiet and listen to the issues surrounding
him before reaching conclusions and taking action. He also expresses
CHAPTER 19 Principles of leading
his own strong opinions about issues, for example, his passion for social
change, transformation and black empowerment alongside the goal of
growing the business at FirstRand.
Leadership is the process whereby a leader exerts influence over leadership
others and inspires, motivates and directs their behaviour to achieve when a leader exerts influence
goals. In describing two of his leadership capabilities, we focused on over others and inspires,
specific actions of Mr Nxasana, such as sensemaking and relating to motivates and directs their
people. However, any attempt to describe or define the human quality behaviour to achieve goals
of ‘leadership’ is more problematic.
Leadership is a subject that has long fascinated researchers.
Researchers ask questions such as, Why are some people natural leaders
and others not? Can one learn to become an effective leader? Why
do people willingly follow leaders? Why do people stop following their
leaders? After conducting a comprehensive review of the leadership
literature, Stogdill concluded that ‘there are almost as many definitions
of leadership as there are persons who have attempted to define the
concept’5.
Yukl6 examined definitions of leadership ranging from a focus on
influence, to a focus on change, to a focus on vision. Following are a few
definitions cited by him:
‘the behaviour of an individual … directing the activities of a group
toward a shared goal’7
‘the ability to step outside the culture … to start evolutionary
change processes that are more adaptive’8
‘about articulating visions, embodying values, and creating the
environment within which things can be accomplished’9.
After examining numerous definitions, Yukl10 concluded that the
only common denominator in most definitions is that leadership entails
a process whereby one person exerts intentional influence over other
people to guide them and to structure and facilitate activities and
relationships in a group or in an organisation. Taking our cue from this
element present in many definitions of leadership, we define leadership
for the purpose of the current discussion as:
‘the process by which a person exerts influence over other people
and inspires, motivates and directs their activities to help achieve
group or organisational goals’11.
Implicit in all definitions of leadership is that influence is the major
process involved in the leadership role. (For a complete discussion on
influence, and its relationship to power, see Chapter 7.) In the context
of leadership, influencing12 is the process leaders follow to communicate
ideas, gain acceptance of them and inspire followers to support and
implement the ideas through change. Influence manifests in leaders’
ability to affect the actions of others and the relationship between
leaders and followers.
A major consequence of leader behaviour is predictable follower
behaviour, which tends to reinforce, diminish or extinguish leadership.
A symbiotic relationship (working together to their mutual advantage)
exists between leaders and followers because without follower consent,
an aspiring leader cannot lead13. Chester Barnard14 (see Chapter 1)

PART V: Leading
famously asserted that followers have a ‘zone of acceptance’ within which

they willingly allow themselves to be activated, directed and controlled
by a leader. This zone is in the mind and behaviour of the follower, not in
a position or in the leader. People do not blindly follow leaders, but once
a leader-follower relationship develops, an effective leader focuses the
energy of individuals and groups to achieve organisational goals.
LEARNING OBJECTIVE 2 19.2 LEADERSHIP AND MANAGEMENT

Differentiate between John Kotter15, in a classic Harvard Business Review article, points out that
leadership and management. leadership and management are different constructs and that each has
its own unique characteristics and complementary systems of action.
Figure 19.1 shows how he distinguishes between leadership and
management:
Leaders cope with change Managers cope with complexity

r UGVVKPICFKTGEVKXG rRNCPPKPICPFDWFIGVKPI
r CNKIPKPIRGQRNG rQTICPKUKPICPFUVCHƂPI
rOQVKXCVGCPFKPURKTGRGQRNG rEQPVTQNNKPICPFRTQDNGOUQNXKPI
Figure 19.1: The difference between management and leadership
Kotter argues that organisations need leaders to deal with change

stemming from business environments characterised by major, ongoing
change. In Chapter 3, we discuss the major forces of change facing
organisations, including technological change, changes stemming from
major advances in information technology and globalisation. To deal
with change, organisations need leaders to provide a vision (direction),
communicating and obtaining support for the vision (aligning people)
and motivating and inspiring people to follow the vision. The result of
ongoing change is that organisations become more complex.
Managers need to deal with this complexity in their organisations. To
this end, they perform the management functions of planning, organising,
and controlling to attain their organisations’ goals in an environment
characterised by change.
Kotter maintains that not all leaders are strong managers, nor are
all managers strong leaders, but that effective organisations value both
managers and leaders and make them part of their groups and teams at
all levels of the organisation. However, in preparing people for executive
positions, or to develop people to lead their organisations through
periods of major change, organisations endeavour to develop people
who can both manage and lead16.
The contemporary view is that, in order to survive in the highly
competitive global business environments of the twenty-first century,
organisations should employ managers who are also leaders at all levels
of their organisations. In this respect, Manning for example observes
that both management and leading involve exactly the same thing: ‘The
achievement of a specific purpose through others’17.
In our discussion of leadership in the current chapter, we view
leading as a management function and part of the management process
TFF $IBQUFS
BOE XF BTTVNF UIBU B NBOBHFST QFSTPOBM MFBEFSTIJQ
TUZMF IPXUIFNBOBHFSJOŴVFODFTPUIFST
SFŴFDUTBMTPJOUIFNBOOFSJO
XIJDIUIFNBOBHFSQFSGPSNTUIFPUIFSUISFFNBOBHFNFOUGVODUJPOTPG
planning, organising and control.
19.3 THE COMPONENTS OF LEADERSHIP LEARNING OBJECTIVE 3

.BOBHFSTVTFQPXFSBOEEFMFHBUFBVUIPSJUZBOESFTQPOTJCJMJUZ CVUUIFZ Discuss the components of
SFNBJOBDDPVOUBCMFGPSBUUBJOJOHUIFJSVOJUTPSUIFPSHBOJTBUJPOTHPBMT leadership.
8FEJTDVTTUIFTFBVUIPSJUZSFMBUJPOTIJQTJO$IBQUFS
-FBEFST BSF BCMF UP JOŴVFODF PUIFST CFDBVTF UIFZ QPTTFTT power.
1PXFSJTUIFQPUFOUJBMUPJOŴVFODFCFIBWJPVS UPDIBOHFUIFDPVSTFPG
FWFOUT UP PWFSDPNF SFTJTUBODF BOE UP HFU QFPQMF UP EP UIJOHT UIFZ
XPVMEOPUPUIFSXJTFEP18*O$IBQUFS XFEJTDVTTJOEFUBJMUIFTPVSDFT
PG QPXFS MFBEFST NBZ BDDSVF JO PSEFS UP MFBE FŲFDUJWFMZ 8F EJTDVTT
UIFGPMMPXJOHNBKPSTPVSDFTPG QPXFSJEFOUJųFECZ'SFODIBOE3BWFO19
in Chapter 7:
r -FHJUJNBUFQPXFSmCBTFEPOPDDVQZJOHBIJFSBSDIJDBMQPTJUJPOJO
the organisation.
r 3FXBSEQPXFSmTUFNTGSPNUIFMFBEFSTBCJMJUZUPSFXBSEBOE
punish people.
r 3FGFSFOUQPXFSmCBTFEPOUIFQFSTPOBMQPXFSPGBMFBEFS
CFDBVTFQFPQMFGPMMPX MJLFBOESFTQFDUUIFMFBEFS
r &YQFSUQPXFSmTUFNTGSPNLOPXMFEHFBOEFYQFSUJTF
-FBEFST DBO FNQMPZ WBSJPVT TPVSDFT PG QPXFS TJNVMUBOFPVTMZ *G UIF

NBOBHFS PG B EFQBSUNFOU MFHJUJNBUF QPXFS
SFXBSET FNQMPZFFT
GPS XPSL XFMM EPOF SFXBSE QPXFS
JT BO FYQFSU JO IFS ųFME FYQFSU
QPXFS
BOEQFPQMFMJLFIFSQFSTPOBMMZ SFGFSFOUQPXFS
TIFXPVMECF
BWFSZTUSPOHMFBEFS
*O BEEJUJPO UP UIF TPVSDFT NFOUJPOFE BCPWF .PSHBO JEFOUJųFT
BEEJUJPOBMTPVSDFTPG QPXFSBOEBSHVFTUIBUQPXFSJOŴVFODFTAXIPHFUT
XIBU XIFOBOEIPXJOPSHBOJTBUJPOT TFFUIFEJTDVTTJPOJO$IBQUFS

*OBEEJUJPOUPQPXFS UIFPUIFSDPNQPOFOUTPG MFBEFSTIJQJODMVEF21:
r "VUIPSJUZJTUIFSJHIUPG BNBOBHFSUPHJWFDPNNBOETUP BOE
demand actions from, employees.
r 3FTQPOTJCJMJUZJTUIFPCMJHBUJPOUPBDIJFWFPSHBOJTBUJPOBMHPBMTCZ
QFSGPSNJOHTQFDJųFEBDUJWJUJFT.BOBHFSTBSFSFTQPOTJCMFGPSUIF
results of their organisations, departments or sections.
r %FMFHBUJPOJTUIFQSPDFTTPG BTTJHOJOHSFTQPOTJCJMJUZBOEBVUIPSJUZ
UPQFPQMFUPBDIJFWFPSHBOJTBUJPOBMHPBMT.BOBHFSTEFMFHBUF
SFTQPOTJCJMJUZBOEBVUIPSJUZEPXOUIFDIBJOPG DPNNBOE
%FMFHBUJOHSFGFSTUPHJWJOHFNQMPZFFTOFXUBTLT XIJDINBZ
CFDPNFQBSUPG BSFEFTJHOFEKPCPSNBZTJNQMZCFBPODFPŲ
assignment.
r "DDPVOUBCJMJUZJTUIFFWBMVBUJPOPGIPXXFMMJOEJWJEVBMTNFFUUIFJS
SFTQPOTJCJMJUJFT.BOBHFSTBSFBDDPVOUBCMFGPSFWFSZUIJOHUIBU
IBQQFOTJOUIFJSTFDUJPOTPSEFQBSUNFOUT.BOBHFSTDBOEFMFHBUF
BVUIPSJUZBOESFTQPOTJCJMJUZ CVUUIFZDBOOFWFSEFMFHBUFUIFJS
BDDPVOUBCJMJUZ
PART V: Leading
LEARNING OBJECTIVE 4 19.4 LEADERSHIP APPROACHES

Explain the trait theory. 4USPOH MFBEFSTIJQ JT WJUBM GPS PSHBOJTBUJPOBM TVDDFTT BMUIPVHI JU JT OPU
UIF POMZ DPOUSJCVUJOH GBDUPS /PU TVSQSJTJOHMZ MFBEFSTIJQ JT BMTP POF
PG UIF NPTU SFTFBSDIFE UPQJDT JO UIF TPDJBM TDJFODFT BOE JO CVTJOFTT
NBOBHFNFOUSFTFBSDI*OOVNFSPVTTUVEJFT SFTFBSDIFSTIBWFBUUFNQUFE
UPEFUFSNJOFUIFLFZDIBSBDUFSJTUJDTBOECFIBWJPVSQBUUFSOTPG BTUSPOH
MFBEFS 5IF NBKPS DBUFHPSJFT PG MFBEFSTIJQ UIFPSJFT BSF USBJU UIFPSZ
CFIBWJPVSBMUIFPSZBOEDPOUJOHFODZUIFPSZ
19.4.1 Trait theory

The early leadership studies concentrated on the personal qualities
and characteristics of successful leaders. The premise of early trait
trait research researchXBTUIBUTPNFQFPQMFBSFCPSOMFBEFSTXJUIDIBSBDUFSJTUJDT
trait research focuses on the UIBUEJTUJOHVJTIUIFNGSPNPUIFSQFPQMFXIPBSFOPUMFBEFST5IFSFTVMUT
unique personal characteristics PG UIFTFSFTFBSDIFŲPSUTXFSFNBJOMZVODPOWJODJOHCFDBVTFUSBJUTWBSZ
of successful leaders GSPNPOFMFBEFSUPBOPUIFSBOETPNFUSBJUTEFWFMPQPOMZBGUFSBMFBEFS
BTTVNFTBMFBEFSTIJQQPTJUJPO)PXFWFS EVSJOHUIFTBOET
UIFFNFSHJOHųFMEPG QTZDIPMPHZQSPWJEFEUSBJUSFTFBSDIFSTXJUIUPPMT
TVDIBTBQUJUVEFBOEQTZDIPMPHJDBMUFTUT UPJOWFTUJHBUFUIFEJTUJOHVJTIJOH
characteristics of strong leaders in dimensions such as personality, physical
USBJUT BCJMJUJFT TPDJBMDIBSBDUFSJTUJDTBOEXPSLSFMBUFEDIBSBDUFSJTUJDT"
SFDVSSFOUųOEJOHPG NBOZPG UIFTFTUVEJFT XIJDISFTFBSDIFSTDPOEVDUFE
XJUI UIF QVSQPTF UP QSPEVDF AB MJTU PG MFBEFSTIJQ USBJUT XBT UIBU UIF
SFMFWBODZPG WJUBMUSBJUTXBTPGUFOEFQFOEFOUPOUIFTQFDJųDTJUVBUJPO22.
4JODFUIFT UIFSFXBTBSFOFXFEJOUFSFTUJOUSBJUUIFPSZBOEB
GFXQSPNJTJOHTUVEJFTDPODMVEFEUIBUUIFSFBSFBUMFBTUTPNFUSBJUTUIBU
TVDDFTTGVMMFBEFSTIBWFJODPNNPO4PNFPG UIFWJUBMUSBJUTTVDDFTTGVM
MFBEFSTTFFNUPTIBSFBSFTFMGDPOųEFODF IPOFTUZJOUFHSJUZBOEESJWF23.
3FDFOUTDBOEBMTXPSMEXJEFBOEJO4PVUI"GSJDB JOWPMWJOHMFBEFSTXIP
BDUJOEJTIPOFTUXBZTBOECFUSBZUIFJSPSHBOJTBUJPOTBOEUIFJSGPMMPXFST
BSFPDDVSSJOHJOQSJWBUFBOEQVCMJDPSHBOJTBUJPOTBUBOJODSFBTJOHSBUF24.
"TBSFTVMU USVTUJTCFDPNJOHBWJUBMDPNQPOFOUPG FŲFDUJWFMFBEFSTIJQ
.BOBHFSTDBOOPUCFFŲFDUJWFMFBEFSTJGUIFJSFNQMPZFFTEPOPUQFSDFJWF
UIFN BT CFJOH USVTUXPSUIZ *O PSEFS UP CF USVTUFE MFBEFST OFFE UP
EJTQMBZUIFGPMMPXJOHUSBJUT:
r JOUFHSJUZmBMFBEFSTIPOFTUZBOEUSVUIGVMOFTT
r DPNQFUFODFmBMFBEFSTUFDIOJDBMBOEJOUFSQFSTPOBMLOPXMFEHF
BOETLJMMT
r DPOTJTUFODZmBMFBEFSTSFMJBCJMJUZ QSFEJDUBCJMJUZBOEHPPE
KVEHFNFOUJOIBOEMJOHTJUVBUJPOT
r MPZBMUZmBMFBEFSTXJMMJOHOFTTUPQSPUFDUBOPUIFSQFSTPO
r PQFOOFTTmPOFDBOSFMZPOUIFNBOBHFSUPUFMMUIFXIPMFUSVUI
'VSUIFSNPSF BDPODFQUUIBUJTDVSSFOUMZFOKPZJOHNVDISFTFBSDIJOUFSFTU
JT FNPUJPOBM JOUFMMJHFODF BOE IPX JU SFMBUFT UP MFBEFSTIJQ &NPUJPOBM
JOUFMMJHFODF DPNQSJTFT B MFBEFST USBJUT JO UFSNT PG TFMGBXBSFOFTT BOE
BOBXBSFOFTTPG PUIFSTGFFMJOHT8FEJTDVTTUIFSFMBUJPOTIJQCFUXFFO
leadership and emotional intelligence in a separate section later in this
chapter.
19.4.2 Behaviour approaches to leadership LEARNING OBJECTIVE 5

5IF BTTVNQUJPO UIBU TVDDFTTGVM MFBEFST CFIBWF EJŲFSFOUMZ GSPN %ompare the behavioural
VOTVDDFTTGVMMFBEFSTVOEFSQJOTUIFCFIBWJPVSBMBQQSPBDIUPMFBEFSTIJQ leadership theories with each
#FIBWJPVSBM BQQSPBDI SFTFBSDIFST BUUFNQUFE UP EFUFSNJOF IPX other.
TVDDFTTGVM MFBEFST BDU IPX UIFZ EFMFHBUF DPNNVOJDBUF BOE NPUJWBUF
UIFJS FNQMPZFFT 5IF CFMJFG XBT UIBU NBOBHFST DPVME MFBSO UIF POF
ASJHIUXBZUPMFBE"MUIPVHIUIFOVNFSPVTCFIBWJPVSBMSFTFBSDITUVEJFT
XFSF OPU WFSZ TVDDFTTGVM JO QSPEVDJOH B EFųOJUF MJTU PG CFIBWJPVST
EJTUJOHVJTIJOHMFBEFSTGSPNOPOMFBEFSTJOFWFSZTJUVBUJPO JUEJEMFBEUPB
CFUUFSVOEFSTUBOEJOHPG UIFEJŲFSFOUTUZMFTPG MFBEFSCFIBWJPVS
University of Iowa’s leadership styles

,VSU -FXJO BOE IJT BTTPDJBUFT BU UIF 6OJWFSTJUZ PG *PXB DPOEVDUFE
SFTFBSDIPOMFBEFSTIJQTUZMFT XIJDIJTUIFDPNCJOBUJPOPG USBJUT TLJMMT
BOE CFIBWJPVST MFBEFST VTF BT UIFZ JOUFSBDU XJUI GPMMPXFST. They
JEFOUJųFEUXPMFBEFSTIJQTUZMFT
r "MFBEFSXJUIBOautocraticMFBEFSTIJQTUZMFNBLFTUIFEFDJTJPOTBOE
limits employee participation.
r "MFBEFSXJUIBdemocraticMFBEFSTIJQTUZMFJOWPMWFTFNQMPZFFT
JOEFDJTJPONBLJOH FODPVSBHFTUIFJSQBSUJDJQBUJPOBOEQSPWJEFT
GFFECBDL
3PCFSU 5BOOFOCBVN BOE 8BSSFO 4DINJEU FYQBOEFE PO UIF XPSL PG
-FXJO BOE IJT BTTPDJBUFT BOE GPVOE UIBU MFBEFSTIJQ TUZMFT DPVME SBOHF
from autocratic to democratic on a continuum SFŴFDUJOH EJŲFSFOU
amounts of employee participation. The researchers proposed that in
EFDJEJOHUPXIJDIFYUFOUMFBEFSTIJQCFIBWJPVSTIPVMECFACPTTDFOUSFE
VTFPGBVUIPSJUZCZBNBOBHFS
BTPQQPTFEUPAFNQMPZFFDFOUSFE BSFB
PGGSFFEPNGPSFNQMPZFFT
EFQFOETPOUIFNBOBHFS "N*DPNGPSUBCMF
XJUI UIJT
UIF FNQMPZFFT "SF UIFZ SFBEZ UP BDDFQU SFTQPOTJCJMJUZ

BOE UIF FOWJSPONFOU 8IBU BSF UIF UJNF BOE PUIFS DPOTUSBJOUT
27.
5IF SFTFBSDIFST DPODMVEFE UIBU NBOBHFST TIPVME NPWF UPXBSE
NPSFFNQMPZFFDFOUSFETUZMFTJOUIFMPOHUFSNUPFOIBODFFNQMPZFF
NPUJWBUJPO EFDJTJPORVBMJUZ UFBNXPSLBOENPSBMF
Ohio State University studies

3FTFBSDIFST BU UIF 0IJP 4UBUF 6OJWFSTJUZ DPOEVDUFE B NBKPS TUVEZ
PO FŲFDUJWF MFBEFSTIJQ CFIBWJPVS 5IFZ BOBMZTFE UIF SFTQPOTFT PG
UIPVTBOETPG FNQMPZFFTUPBRVFTUJPOOBJSFUIFZEFWFMPQFE UIF Leader
Behaviour Description Questionnaire -#%2
5IFSFTFBSDIJOEJDBUFEUIBU
UXPJOEFQFOEFOUEJNFOTJPOTPG CFIBWJPVSEFTDSJCFMFBEFST
r Initiating structureEFTDSJCFTUIFCFIBWJPVSPG MFBEFSTXIPEFųOF
UIFMFBEFSFNQMPZFFSPMFUPDMBSJGZXIBUUIFZFYQFDUGSPN
FNQMPZFFT FTUBCMJTIGPSNBMMJOFTPG DPNNVOJDBUJPOBOEEFUFSNJOF
IPXFNQMPZFFTTIPVMEQFSGPSNUIFJSUBTLT28.
r ConsiderationSFGFSTUPUIFCFIBWJPVSPG MFBEFSTXIPTIPXDPODFSO
GPSTVCPSEJOBUFTBOEFOEFBWPVSUPGPSNBXBSNBOEGSJFOEMZ
SFMBUJPOTIJQXJUIFNQMPZFFT UIFFYUFOUUPXIJDIBMFBEFST
SFMBUJPOTIJQXJUIFNQMPZFFTJTDIBSBDUFSJTFECZNVUVBMUSVTU BOE

PART V: Leading
the degree of respect for employees’ ideas and regard for their
feelings29.
Research findings confirmed that consideration and initiating structure

are relatively independent behaviour categories, meaning that a leader
can exhibit both behaviour types in a high degree, a low degree of both,
or a high degree of one and a low degree of the other30.
The University of Michigan leadership studies

At the University of Michigan, researchers also conducted a research
study on leadership. The focus of this research was to identify
relationships among leader behaviour, group processes and measures of
group performance. The researchers found that two types of leadership
differentiate effective and ineffective managers.
r Job-centred leader behaviour describes the behaviour of leaders
who focus their attention on the job and work procedures involved
with that job.
r Employee-centred leader behaviour describes the behaviour of
leaders who develop cohesive work groups and ensure employee
satisfaction31.
Unlike the consideration and initiating structure defined by the research

done at the University of Ohio, the University of Michigan researchers
asserted that employee-centred and job-centred leadership are distinct
and in opposition to one another. A leader’s behaviour is either
employee-centred or job-centred, but cannot be both32.
University of Texas – Blake and Mouton’s leadership grid

Blake and Mouton of the University of Texas developed the managerial
grid, an instrument that identifies various leadership styles on a two-
dimensional grid. They used a questionnaire to measure, on a scale from
one to nine, a manager’s concern for people or concern for production:
r concern for people – maintaining good relations
r concern for production – accomplishing the task.
To indicate the kind of ‘concern’ a manager displays in relation to

employees, Blake and Mouton used a nine-point scale where a score of
one indicates a low concern and a score of nine indicates a high concern.
Drawing these two scales at right angles to each other creates a grid
emphasising five major leadership styles:
1. Impoverished management (1.1). The manager has little concern
for task or people and exerts just enough effort to survive in the
organisation.
2. Authoritarian management (9.1). The manager is concerned with the
task at the expense of the employees.
3. Country club management (1.9). The manager promotes good
relationships with employees at the expense of the task.

4. Middle-of-the-road management (5.5). The manager assumes that

the needs of the organisation and the needs of the people are in
conflict and thus seeks to find a compromise and attends to both,
but not sufficiently to either the task or the employees.
5. Team management (9.9). The manager emphasises both the
production and people needs by obtaining maximum productivity
and making full use of employees by creating a team spirit where
individuals know exactly what the manager expects of them. The
team reaches decisions by consensus or the manager delegates
the decision-making responsibility to individual employees when it
affects their own work.
The researchers identified the ‘ideal leadership style’ as the team

management style where a manager is strong on both dimensions (9.9),
a high–high style.
The theories on leader behaviour made a significant contribution
to the evolution of leadership theory, but in general failed to identify
consistent patterns of leadership behaviour and employee responses
because results vary over different ranges of circumstances. Like the
trait research, the behaviour research suffers from a tendency to over-
simplify complex questions. Nevertheless, the research provides some
insight into ways of improving managerial effectiveness.
19.4.3 Contingency approaches to leadership33 LEARNING OBJECTIVE 6

The contingency (or situational) approaches to leadership Discuss the contingency
acknowledge that predicting leadership success is more complex than theories of leadership.
examining the traits and behaviours of successful leaders. The premise
is that the situation determines which style will work best. contingency (or situational)
The situational (or contingency) variables may include the nature of approaches to leadership
the work performed by the leaders’ unit, the nature of the external the underlying assumption of
environment, and the characteristics of followers. Contingency approach the approach is that there is
research focuses on aspects pertaining to a situation that could enhance not necessarily a one-best style
the relationship of specific leader behaviours to leadership effectiveness. of leadership, but rather that it
The assumption is that different leadership behaviours will be effective in depends on the situation which
different situations and that the same behaviour is not the most effective style will work best
in all situations34.
Least Preferred Co-worker (LPC theory)

The LPC contingency model, developed by Fred Fiedler, describes
how the situation determines the relationship between leadership
effectiveness and a trait measure called ‘the least preferred co-worker’,
(LPC) score, which measures whether a leader is task-oriented or
relationship-oriented.
The LPC score is determined by asking a manager to select the co-
worker with whom he or she could work least well. Then the leader
rates the least preferred co-worker on a scale of adjectives, such as
scales ranging from friendly to unfriendly, cooperative to uncooperative
and efficient to inefficient.

PART V: Leading
Fiedler proposes that effective group performance depends on the

proper match between:
r BMFBEFSTTUZMFPG JOUFSBDUJOHXJUIFNQMPZFFT -1$TDPSF
BOE
r UIFEFHSFFUPXIJDIUIFTJUVBUJPOHJWFTDPOUSPMBOEJOŴVFODFUPUIF
leader.
He identified three situational criteria that organisations can manipulate

to create a proper situational match with the behaviour orientation of
the leader:
1. Leader-member relations is the degree to which the leader has the
TVQQPSUBOEMPZBMUZPG FNQMPZFFT BOEUIFFYUFOUUPXIJDIUIF
SFMBUJPOTXJUIFNQMPZFFTBSFGSJFOEMZBOEDPPQFSBUJWF
2. Position powerJTUIFEFHSFFUPXIJDIUIFMFBEFSIBTUIFBVUIPSJUZUP
evaluate performance and administer rewards and punishments.
3. Task structureNBZSBOHFGSPNATUSVDUVSFEUPVOTUSVDUVSFEXIFSF
FBDIFNQMPZFFTPCKFDUJWFTBOESFTQPOTJCJMJUJFTBSFDMFBSMZEFųOFE
UPUIFEFHSFFUPXIJDITUBOEBSEPQFSBUJOHQSPDFEVSFTFYJTUUP
BDDPNQMJTIUIFUBTL BEFUBJMFEEFTDSJQUJPOPG UIFųOJTIFEQSPEVDU
PSTFSWJDF BOEDSJUFSJBUPNFBTVSFQFSGPSNBODFBDDVSBUFMZ
#ZDPNCJOJOHUIFTFFMFNFOUT 'JFEMFSJEFOUJųFTFJHIUTJUVBUJPOTBOEUIFJS
EFHSFFPG AGBWPVSBCMFOFTT EFOPUJOHUIFMFBEFSTJOŴVFODFBOEDPOUSPM
PWFSUIFHSPVQ
GPSUIFMFBEFS
Situation Relations Structure Power Degree of favourableness

1 good structured high favourable
2 good structured low favourable
3 good unstructured high favourable
4 good unstructured low moderately favourable
5 poor structured high moderately favourable
6 poor structured low moderately favourable
7 poor unstructured high moderately favourable
8 poor unstructured low unfavourable
Figure 19.2: The ‘favourableness’ of situations for leaders

Source: Fiedler, F.E. 1967. A theory of leadership effectiveness. New York: MacGraw Hill.
"MFBEFSIBTNBYJNVNJOŴVFODFJOTJUVBUJPOBOEWFSZMJUUMFJOŴVFODF
in situation 8.
" UBTLPSJFOUFE DPOUSPMMJOH MFBEFS JT NPTU FŲFDUJWF XIFO UIF
TJUVBUJPOTBSFFJUIFSGBWPVSBCMFPSVOGBWPVSBCMF TJUVBUJPOT BOE

PSWFSZEJŵDVMU TJUVBUJPO

The people-oriented leader tends to be more effective in the
JOUFSNFEJBUF TJUVBUJPOT XIJDI BSF NPEFSBUFMZ GBWPVSBCMF GPS B MFBEFS
TJUVBUJPOT BOE


*NQMJDJUJOUIFNPEFMJTUIBUBOJOEJWJEVBMTMFBEFSTIJQTUZMFJTųYFE GPS
FYBNQMF JG B TJUVBUJPO SFRVJSFT B UBTLPSJFOUFE MFBEFS BOE UIF QFSTPO
JO UIF MFBEFSTIJQ QPTJUJPO JT SFMBUJPOTIJQPSJFOUFE FJUIFS UIF TJUVBUJPO
must change or the leader must be replaced with a leader who is more
effective in task-oriented situations.
The path–goal theory of leadership (Robert House)

3PCFSU )PVTF EFWFMPQFE UIF QBUImHPBM NPEFM UP FYQMBJO IPX UIF
CFIBWJPVS PG B MFBEFS JOŴVFODFT UIF TBUJTGBDUJPO BOE QFSGPSNBODF
PG FNQMPZFFT )F BTTFSUT UIBU JU JT UIF MFBEFST SFTQPOTJCJMJUZ UP IFMQ
FNQMPZFFTBDIJFWFUIFJSHPBMT.BOBHFSTTIPVMEQSPWJEFUIFOFDFTTBSZ
EJSFDUJPOBOETVQQPSUUPFOTVSFUIBUFNQMPZFFTHPBMTBSFJOMJOFXJUI
UIFPSHBOJTBUJPOTHPBMTBOEPCKFDUJWFT)PVTFJEFOUJųFEGPVSMFBEFSTIJQ
behaviours that managers can use in different situations:
r DirectiveMFBEFSTIJQCFIBWJPVS5IFMFBEFSUFMMTFNQMPZFFTXIBU
UIFZBSFFYQFDUFEUPEP HJWFTTQFDJųDHVJEBODF BTLTUIFNUP
GPMMPXSVMFT QSPDFEVSFTBOETDIFEVMFTBOEDPPSEJOBUFTUIFJS
XPSL5IFUBTLJTUZQJDBMMZVOTUSVDUVSFEBOEDPNQMFY FNQMPZFFT
BSFJOFYQFSJFODFE BOEUIFSFJTMJUUMFGPSNBMJTBUJPOPGSVMFTBOE
QSPDFEVSFTUPHVJEFUIFXPSL#ZSFEVDJOHSPMFBNCJHVJUZ UIF
FŲFDUPG UIJTMFBEFSTIJQTUZMFJTUIBUUIFFNQMPZFFTFYQFDUBODZPG
success increases and thus their effort increases.
r Supportive leadership behaviour. The leader considers the needs
PG FNQMPZFFT EJTQMBZTDPODFSOGPSUIFJSXFMGBSFBOEDSFBUFTB
GSJFOEMZDMJNBUFJOUIFXPSLVOJU5IFUBTLJTMJLFMZUPCFTUSFTTGVM
CPSJOH UFEJPVTPSEBOHFSPVT5IFFŲFDUPG UIJTMFBEFSTIJQTUZMFJT
BOJODSFBTFJOFNQMPZFFFŲPSUBOETBUJTGBDUJPOCFDBVTFUIFMFBEFS
DVMUJWBUFTUIFJSTFMGDPOųEFODF MPXFSTUIFJSBOYJFUZ BOEUIVT
reduces the unpleasant aspects of the work to a minimum.
r Participative leadership behaviour. The leader consults with
FNQMPZFFTBOEUBLFTUIFJSPQJOJPOTBOETVHHFTUJPOTJOUPBDDPVOU
5IFUBTLJTUZQJDBMMZVOTUSVDUVSFEBOEUIFFŲFDUPG UIJTMFBEFSTIJQ
TUZMFJTUIBUFNQMPZFFFŲPSUBOETBUJTGBDUJPOJODSFBTFCFDBVTF
PG CFUUFSSPMFDMBSJUZ BOEBOJODSFBTFJOUIFJOUSJOTJDSFXBSETPG
XPSLSFTVMUTJOTBUJTGBDUJPOGPSFNQMPZFFTXJUIBIJHIOFFEGPS
BDIJFWFNFOUBOEBVUPOPNZ
r Achievement-oriented leadership behaviour. The leader seeks
QFSGPSNBODFJNQSPWFNFOUT FNQIBTJTFTFYDFMMFODFJOQFSGPSNBODF
BOETIPXTDPOųEFODFUIBUFNQMPZFFTXJMMBUUBJOIJHITUBOEBSET
5IFUBTLJTMJLFMZUPCFVOTUSVDUVSFE DPNQMFYBOEOPOSFQFUJUJWF
5IFFŲFDUPG UIJTMFBEFSTIJQTUZMFJTBOJODSFBTFJOFNQMPZFF
TFMGDPOųEFODFBOEUIFFYQFDUBUJPOPG TVDDFTTGVMMZBDDPNQMJTIJOHB
challenging task or goal.
1BUImHPBMUIFPSZIBTNBEFBOJNQPSUBOUDPOUSJCVUJPOUPUIFTUVEZPG
MFBEFSTIJQ CZ QSPWJEJOH B DPODFQUVBM GSBNFXPSL UP HVJEF SFTFBSDIFST
JO JEFOUJGZJOH QPUFOUJBMMZ SFMFWBOU TJUVBUJPOBM WBSJBCMFT UIBU JOŴVFODF
MFBEFSTIJQTUZMFT

PART V: Leading
Situational leadership theory (Paul Hersey and Kenneth

Blanchard)
Hersey and Blanchard proposed a contingency leadership theory based
on the premise that the most effective leadership style depends on the
level of task maturity of the employees. Maturity includes two related
components:
r Job maturity relates to the individual employee’s task-relevant skills
and technical knowledge.
r Physiological maturity refers to the employee’s self-confidence and
desire to accomplish the task.
A high-maturity employee has the ability and confidence to perform a

task, assumes more responsibility and has the confidence to complete
the task. A low-maturity employee lacks both ability and self-confidence.
The ‘readiness’ of an employee to complete a task ranges from poor
ability and little confidence to good ability and very confident to do the
task:
r .1PPSBCJMJUZBOEMJUUMFDPOųEFODFUPEPUIFUBTL
r .1PPSBCJMJUZCVULFFOUPUSZ
r .(PPEBCJMJUZCVUMJUUMFFOUIVTJBTNUPEPUIFUBTL
r .(PPEBCJMJUZBOEWFSZDPOųEFOUUPEPUIFUBTL
Furthermore, Hersey and Blanchard’s model uses two dimensions of

leadership behaviour, namely task behaviour and relationship behaviour.
r Task behaviour is the extent to which a leader directs and structures
employees’ work.
r Relationship behaviour is the extent of emotional support and
encouragement a leader provides to employees when they do their
work. By combining these two elements, Hersey and Blanchard
identified four basic leadership styles:
r Telling (S.1) – high task structuring and low people relationship.
The leader gives direct instructions, sets performance
standards and tells employees exactly what he or she expects
of them.
r Selling (S.2) – high task structuring and high people relationship.
The leader gives direction to employees, but encourages
them to contribute their inputs and he or she uses them when
appropriate. Furthermore, the leader expresses confidence in
the employees and gives them feedback on their performance
(people relationship).
r Participating (S.3) – low task structuring and high people
relationship. The leader assists employees to find their own
solutions to work-related problems and work methods, but
does not provide the answers for them (low task structuring).
The leader encourages employees to think by asking questions
and acting as a soundboard, but does not tell them what to do
(high people relationship).

r Delegating (S4) – little task structuring and little people

relationship. The leader discusses the result the employee has
to achieve, measures it afterwards and gives recognition when
appropriate.
Matching the leadership style with the level of task maturity determines
UIFNPTUFŲFDUJWFMFBEFSTIJQCFIBWJPVS JF4XJUI.4XJUI.
and so on). For example, if an employee has poor ability, but is keen
UP BUUFNQU EPJOH B UBTL .
UIF NBOBHFS DPVME HJWF IFS EJSFDUJPO
but encourage her to contribute her own inputs and the leader will use
them when appropriate. The leader will also express confidence in the
FNQMPZFFBOEHJWFIFSGFFECBDLPOIFSQFSGPSNBODF 4
.
Hersey and Blanchard’s theory has made a positive contribution to
leadership theory. They stressed the importance of treating different
employees differently, but also treating the same employee differently
as the situation changes. The practical implication of the theory is
that managers should be aware of the opportunities to build the skills
and confidence of employees, rather than assuming that an employee
without skills or motivation should remain problematic.
Despite their deficiencies, contingency theories provide insight into
leadership in the context of different situations.
19.5 CONTEMPORARY APPROACHES TO LEARNING OBJECTIVE 7

LEADERSHIP Describe the contemporary
approaches to leadership.
The discussion on leadership theories in the previous section defined
leadership as leaders’ ability to influence their employees to achieve
organisational goals. More recently, the focus has shifted to viewing
leaders as individuals who define organisational reality through the
articulation of a vision.
This view of leadership is not confined to top managers alone as
managers at all levels are stronger leaders if they can convey the vision
of their section, department, group or team to their employees.
19.5.1 Charismatic leadership

Researchers perceive a strong positive relationship between
charismatic leadership and employees’ performance and satisfaction. charismatic leadership
Charismatic leaders often have traits such as self-confidence, vision, charismatic leaders have traits
the ability to articulate the vision, strong convictions about the vision, such as self-confidence, vision,
unconventional behaviour and environmental sensitivity. Charismatic the ability to articulate the vision,
leadership may be most appropriate when the followers’ task has an strong convictions about the
ideological component, perhaps explaining why charismatic leaders most vision, unconventional behaviour
often appear in politics, religion or unusual business organisations. The and environmental sensitivity
‘dark’ side of charismatic leaders is that such leaders can convey a vision
and form strong emotional bonds with followers, but may do so to meet
their own needs and not those of their followers.
In the next section, we discuss the leadership styles of transactional
and transformational leaders. An interesting observation is that while
all transformational leaders are charismatic, not all charismatic leaders

PART V: Leading
are transformational leaders. Transformational leaders are charismatic

because they also express a compelling vision of the future and
form strong bonds with followers, but they align it with the needs of
followers, as we will explain later. The difference between charismatic
and transformational leaders is that while both are concerned with
organisational or societal change, transformational leaders do it for the
benefit of followers, while charismatic leaders may do it for their own
benefit.
19.5.2 Transactional leadership39

Burns was the first to distinguish between transformational and
transactional leadership transactional leadership He explains that transactional leaders
involves an exchange of rewards motivate their followers by appealing to their self-interest. A case in
for compliance point would be corporate leaders exchanging pay and status for work.
He describes transactional leadership as an exchange of rewards for
compliance. Transactional leaders display behaviour associated with
three transactional styles as defined by Bass and Avolio:
r Contingent reward – leaders employ goal setting to help clarify what
they expect of their followers and the rewards they will receive for
accomplishing goals and objectives.
r Management-by-exception (active) – leaders are monitors whose
main aim is to detect variances between the planned objectives
and actual performance.
r Management-by-exception (passive) – leaders take action only when
something goes wrong.
19.5.3 Transformational leadership

Burns describes transformational leadership as ‘a process in which
leaders and followers raise one another to higher levels of morality and
motivation’. Bassfurther refines the distinction between transactional
transformational leadership and transformational leadership and defines transformational
a process in which leaders and leadership as ‘the leader’s effect on followers in that they feel trust,
followers raise one another to admiration, loyalty and respect for their leader’. He added that a
higher levels of morality and transformational leader’s followers are motivated to do more than is
motivation expected of them.
Transformational leaders appeal to followers’ values and their sense
of a higher purpose by identifying and communicating organisational
(or societal) problems and articulating a compelling vision of how the
organisation (or society) can improve. This vision links to the values
of both the leader and the followers, and is, therefore, different from
charismatic leadership, as explained previously.
In most organisational contexts, transformational leadership
is desirable because it improves employee satisfaction, trust and
commitment. Research findings indicate that transformational
leadership consistently promotes greater organisational performance.
Furthermore, transformational leaders are effective in organisations
where major change and transformation is taking place.
Bass and Avolio, identify four leadership styles associated with
transformational leadership, namely idealised behaviour, inspirational
motivation, intellectual stimulation, individualised consideration, and a

fifth characteristic, idealised attributes, which is based on the other four
leadership styles.
r Idealised behaviours relate to a leader’s expression of his or her
values and beliefs to followers, and the extent to which he or she
demonstrates moral and ethical conduct.
r Inspirational motivation refers to the way leaders articulate
and communicate shared organisational goals and a mutual
understanding of what is right and important. They provide a vision
of what is possible and how to attain organisational goals.
r Intellectual stimulation relates to the way leaders approach
problems, particularly persistent ones, by questioning previously
used assumptions to solve such problems.
r Individualised consideration refers to the empathy shown by
leaders towards their followers’ capabilities, needs and desires.
These leaders treat followers as unique individuals, thus reducing
frustration and competition. This includes supporting, encouraging
and coaching them.
r Idealised attributes represent the highest level of transformational
leadership, in the sense that followers identify fully with the leader,
and he or she uses this to develop them. Such leaders are authentic
and have a high degree of credibility among their followers.
Research aimed at identifying individuals with the potential to become

transformational leaders is particularly relevant in South Africa. This is
because of the unique socio-economic context of a country in which
organisations need to transform rapidly, and have a great need to
develop effective managers on all levels of organisations. In addition to
the unique transformational forces that are affecting the South African
business environment, the major changes that have occurred worldwide,
including the opening of new markets and global competition, also have
an impact. Advances in information technology have altered the way
organisations operate and compete, forcing them to change continually.
South African organisations need transformational leaders who can
lead them through these changes in order to remain competitive in a
complex business environment.
19.5.4 Emotional intelligence and transformational

leadership
Salovey and Mayer were the first researchers to use the term emotional intelligence
emotional intelligence. They define emotional intelligence as ‘the the ability to monitor one’s
ability to monitor one’s own and others’ feelings and emotions, to own and others’ feelings and
discriminate among them and to use this information to guide one’s emotions
thinking and actions’. The Emotional Competence Inventory developed
CZ %BOJFM (PMFNBO is a competency-based emotional intelligence
NPEFM EFTJHOFETQFDJųDBMMZGPSXPSLQMBDFBQQMJDBUJPO(PMFNBOT&$*
instrument measures the following emotional competencies of managers
at all levels of the organisation in various organisational settings:
r Self-awareness refers to an individual’s ability to accurately perceive
PART V: Leading
his or her own emotions and be aware of them as they occur, and
includes keeping track of the way he or she tends to respond to
specific situations and people.
r Self-management refers to an individual’s ability to manage his or
her emotional reactions to all situations and people.
r Social awareness relates to an individual’s ability to understand what
other people think and feel.
r Relationship management refers to an individual’s ability to use
the awareness of his or her own emotions, and those of others,
to manage interactions successfully. Relationship management
includes clear communication and effective conflict handling.
Various research studies conducted to investigate the relationship

between emotional intelligence and transformational leadership confirm
that the higher a leader’s emotional intelligence skills, the higher he or
she scores on the transformational leadership styles identified by Bass
and Avolio. The lower a leader scores on emotional intelligence skills,
the lower he or she scores on transformational leadership styles.
19.5.5 Servant leadership54

‘Servant leaders transcend self-interest to serve the needs of others,
help others grow and develop and provide opportunity for others to
servant leadership gain materially and emotionally’. Servant leadership can range
ranges from encouraging and from encouraging and assisting others in their personal development to
assisting others in their personal helping people find purpose in their jobs. The basic principles of servant
development to helping people leadership include the following:
find purpose in their jobs r 4FSWBOUMFBEFSTQVUTFSWJDFCFGPSFTFMGJOUFSFTUTCZDIPPTJOHUPVTF
their talent for the benefit of individuals and the organisation.
r 4FSWBOUMFBEFSTIBWFUIFBCJMJUZUPMJTUFOUPPUIFST UPNBLFBO
effort to understand their problems and showing confidence in
them. They do not impose their will on others, but attempt to
understand what the group needs or wants and then to further
those interests to the best of their ability.
r 5IFZJOTQJSFUSVTUCZCFJOHUSVTUXPSUIZ TFFUIFFYQMBOBUJPOPG
these concepts in the first section of this chapter).
r 4FSWBOUMFBEFSTIFMQPUIFSTUPųOEUIFQPXFSPGUIFIVNBOTQJSJU
and accept their responsibilities. They show an openness and
willingness to empathise with others and because they create close
relationships, they show their own human vulnerability.
19.5.6 The Leadership Framework (Ancona)56

The Leadership Framework integrates a number of leadership theories
and is relevant for leaders functioning in the contemporary business
environment which is characterised by change and uncertainty.
The four assumptions that underpin the leadership framework are:
r -FBEFSTIJQEPFTOPUQFSUBJOUPUPQNBOBHFSTPOMZ CVUJT
distributed throughout the organisation.

r -FBEFSTIJQJTQFSTPOBMBOEEFWFMPQNFOUBMJOUIFTFOTFUIBUFWFSZ
leader is unique and can improve by learning and developing.
r *UJTBQSPDFTTUPDSFBUFDIBOHFCFDBVTFMFBEFSTBŲFDUDIBOHF
r 5IFMFBEFSTIJQTLJMMTPG MFBEFSTEFWFMPQPWFSUJNF
The Leadership Framework comprises four key leadership capabilities

and the leader’s change signature. These capabilities are sensemaking,
relating, visioning and inventing. Leaders need all these capabilities to be
successful and they use them on an ongoing basis.
Sensemaking
Sensemaking is about a leader making sense of the organisation and its
environment, and the process of understanding its context. An analogy
of the process of sensemaking is cartography. When a mapmaker
maps an external terrain, the map will represent what the mapmaker
is seeing, focusing on the aspects he or she wants to include on the
map. Subsequently there is no one best map, but various useful maps. In
similar vein, a leader maps an organisation. Effective leaders make sense
of the context in which they lead and they create maps that represent
the current situation faced by the organisation. They are able to quickly
and effectively capture the complexity of their environments and
explain it in simple terms to others. They are also courageous enough to
present their own unique maps, even if it differs from the norm. In the
case study, Mr Nxasana describes how he spent the first few months at
FirstRand Bank making sense of the organisation.
Relating
Relating refers to the development of key relationships within and across
organisations. The core capabilities of relating are inquiry, advocacy and
connecting.
r Inquiry refers to the ability of a leader to listen and understand
what others are thinking and feeling. Inquiry therefore requires
the leader to suspend judgement, to listen without imposing his or
her own view and to understand the other person’s point of view.
The opening case study relates how Mr Nxasana uses his ability to
remain quiet and listen to understand the viewpoint of others.
r Advocacy refers to a leader’s opinions and ability to take a stand.
It involves being clear about his or her own point of view and the
ability to explain the merits of their view to others whilst being
open to alternative views. Advocacy also involves the ability of
leaders to take responsibility for their biases and judgements and
acknowledging when they were wrong.
r Connecting entails that a leader cultivates a set of people who
help each other to accomplish their goals. It refers to the ability
of a leader to build collaborative relationships with others and to
create coalitions for change.

PART V: Leading
Visioning
7JTJPOJOH DFOUSFT PO DSFBUJOH B DPNQFMMJOH JNBHF PG UIF GVUVSF "
DPNQFMMJOH HFOVJOFWJTJPOUIBUJTTIBSFEFYUFOTJWFMZJTWJUBMCFDBVTFJU
QSPWJEFT B TIBSFE QJDUVSF PG UIF GVUVSF NPUJWBUFT QFPQMF UP DIBOHF
UIFJSCFMJFGT UPXPSLIBSEBOEFYDFM BOECJOETQFPQMFUPHFUIFSXJUIB
DPNNPOJEFOUJUZBOETFOTFPG EFTUJOZ7JTJPOTJOEJDBUFXIBUJTJNQPSUBOU
BOEQSPWJEFQFPQMFXJUIBTFOTFPG NFBOJOHBCPVUUIFJSXPSL(PPE
MFBEFSTGPDVTPOIFMQJOHQFPQMFWJTVBMJTFUIFGVUVSF8IFSFTFOTFNBLJOH
DSFBUFTBNBQPG XIBUJT WJTJPOJOHDSFBUFTBNBQPG XIBUDPVMECF
Inventing
*OWFOUJOH SFGFST UP B MFBEFST BCJMJUZ UP DIBOHF UIF XBZ QFPQMF XPSL
UPHFUIFS CZ DSFBUJOH UIF QSPDFTTFT BOE TUSVDUVSFT UP NBLF B WJTJPO B
SFBMJUZ*UNBZJOWPMWFBOBDUJPOBJNFEBUPWFSDPNJOHBQBSUJDVMBSPCTUBDMF
UP DIBOHF PS B OFX XBZ PG EPJOH UIJOHT *U GPDVTFT PO DPOUJOVPVT
JNQSPWFNFOUBOEDBOIBQQFOPOBTNBMMPSMBSHFTDBMF*OWFOUJOHJTBO
BDUJPOPSJFOUBUFE BDUJWJUZ CVU JU BMTP JOWPMWFT B NJOETFU PG DSFBUJWF
OFXBQQSPBDIFT OFXTPMVUJPOTBOEOFXQSBDUJDFT*OWFOUJOHSFMBUFTUP
TFOTFNBLJOHCFDBVTFBMFBEFSXIPJTBXBSFPG DIBMMFOHFTXJMMTUSJWFUP
JOWFOUTPMVUJPOTUPEFBMXJUIUIFN
The change signature

5IFGPVSDBQBCJMJUJFTSFMBUFUPXIBUMFBEFSTEP5IFDIBOHFTJHOBUVSFJT
BCPVUXIP UIF MFBEFS JT JO UFSNT PG IJT PS IFS VOJRVF DIBSBDUFSJTUJDT
FYQFSJFODFTBOETLJMMT
19.5.7 Empowerment
*O TPNF DPOUFNQPSBSZ PSHBOJTBUJPOT DIBSBDUFSJTFE CZ CFJOH ŴBU
ŴFYJCMF EJWFSTF OFUXPSLFEBOEHMPCBM TFF$IBQUFS
NBOBHFSTPGUFO
JODPSQPSBUF FNQPXFSNFOU JOUP UIFJS QFSTPOBM MFBEFSTIJQ TUZMFT *O
DPNQMFYPSHBOJTBUJPOT BGFXNBOBHFSTDBOOPUNBLFBMMUIFEFDJTJPOTBT
UIFZIBWFEPOFJOUIFQBTU3BUIFS MFBEFSTFNQPXFSFNQMPZFFTBUBMM
MFWFMTCZHJWJOHUIFNUIFQPXFSUPNBLFEFDJTJPOT UPCFSFTQPOTJCMFGPS
UIFJSPVUDPNFTBOEUPJNQSPWFRVBMJUZBOEDVUDPTUT
5IFVMUJNBUFBJNPG FŲFDUJWFMFBEFSTIJQJTUIFBCJMJUZUPHFUQFPQMFUP
BDIJFWFUIFHPBMTPG UIFJSPSHBOJTBUJPOT5IFWBSJPVTUIFPSJFTXFIBWF
EJTDVTTFEJOUIJTDIBQUFSTIPXUIBUUIFSFBSFNBOZQFSTQFDUJWFTPOIPX
UP QSPWJEF FŲFDUJWF MFBEFSTIJQ JO UXFOUZųSTU DFOUVSZ PSHBOJTBUJPOT
'SPNUIFEJTDVTTJPOTJOUIJTDIBQUFS JUJTBQQBSFOUUIBUSFTFBSDIFSTIBWF
TUVEJFEMFBEFSTIJQJOEJŲFSFOUXBZT EFQFOEJOHPOUIFJSQSFGFSFODFTBOE
UIFSFTFBSDIUJNFMJOF$MFBSMZ SFTFBSDIFSTIBWFNBEFTPNFQSPHSFTTJO
QSPCJOHUIFFMVTJWFDPODFQUPG MFBEFSTIJQ CVUNBOZRVFTUJPOTSFNBJO

Chapter 19 Principles of leading
CHAPTER SUMMARY
1. Define the concept of leadership.
Leadership is the process by which a person exerts influence over other people and inspires,
motivates and directs their activities to help achieve group or organisational goals.
2. Differentiate between leadership and management.

Kotter argues that organisations need leaders to deal with change stemming from business
environments characterised by major, on-going change. To deal with change, organisations
need leaders to provide a vision (direction), communicating and obtaining support for the
vision (aligning people) and motivating and inspiring people to follow the vision. The result of
on-going change is that organisations become more complex. Managers need to deal with
this complexity in their organisations. To this end, they perform the management functions
of planning, organising, and controlling to attain their organisations’ goals in an environment
characterised by change.
3. Discuss the components of leadership.

Leaders are able to influence others because they possess power of one kind or another.
Power is the potential to influence behaviour, to change the course of events, to overcome
resistance, and to get people to do things they would not otherwise do. The power leaders
have stems from the following sources identified by French and Raven: legitimate power,
reward power, referent power and expert power. The other components of leadership are
authority, responsibility, accountability and delegation.
4. Explain the trait theory.

The early leadership studies focused much attention on the personal qualities and
characteristics of successful leaders. Traits are the unique personal characteristics of a person
and trait research focused on the characteristics of strong leaders.
5. Compare the behavioural leadership theories with each other.

People oriented Task oriented
Ohio State University Consideration Initiating structure
University of Michigan Employee-centred Job-centred
University of Texas Concern for people Concern for production
Source: Daft, 2001, p 59.
6. Discuss the contingency theories of leadership.

• The LPC contingency model
• Path–goal model
• Hersey and Blanchard’s theory
Part V: Leading
7. Describe the contemporary approaches to leadership.

• Charismatic leadership
• Transactional leadership
• Transformational leadership
• Emotional intelligence
• Servant leadership
• The MIT Leadership Center’s Leadership Framework
KEY TERMS
achievement-oriented leadership behaviour job maturity
advocacy leader-member relations
authoritarian management Least Preferred Co-worker
autocratic leadership style legitimate power
behavioural leadership theories Loyalty-Managerial grid
charismatic leadership middle-of-the-road management
competence openness
concern for people participative leadership behaviour
concern for production path–goal model
connecting physiological maturity
consideration position power
consistency referent power
contingency leadership models relating
country club management reward power
delegating sensemaking
democratic leadership style servant leadership
directive leadership behaviour situational leadership theory
emotional intelligence supportive leadership behaviour
employee-centred leader behaviour task structure
expert power team management
Hersey and Blanchard’s model the change signature
impoverished management the path–goal theory of leadership
initiating structure trait theory
inquiry transactional leadership
integrity transformational leadership
inventing trust
job centred leader behaviour visioning
REVIEW QUESTIONS
1. Discuss the shortcomings of the trait theory.
2. Discuss the contributions of the behavioural and contingency theories to the body of knowledge on
leadership.
3. Would you prefer to work for a leader who has an ‘initiating structure’ or a ‘consideration’
leadership style? Substantiate your answer.
4. Distinguish between charismatic and transformational leaders.
5. Apply the Leadership Framework to the leadership style of Mr Sizwe Nxasana by identifying his
capabilities and leadership change signature. You may have to find additional information on his
leadership style by conducting an internet search.
END NOTES
1 Adapted from (i) Honey, A. 2009. FirstRand Bank: Sizwe Nxasana, Entrepreneur Media SA (Pty) Ltd, November 10.
[Online]. Available from: http://www.entrepreneurmag.co.za/advice/success-stories/entrepreneur-profiles/firstrand-
bank-sizwe-nxasana/. Accesssed on 26 June 2013. (ii) Discovery Invest Leadership Summit 9 October 2013, Speakers;
Sizwe Nxasana. [Online] Available from: https://www.theleadershipsummit.co.za/speakers/view/sizwe-nxasana.
Accessed on 23 June 2013.
2 Quoted in Africa Breakfast Club, The African Millionaire blogspot, November 20, 2010. [Online] Available from: http://
theafricanmillionaire.blogspot.com/2010/11/sizwe-nxasana-first-black-ceo-of-top-4.html. Accessed on 23 June 2013.
3 Honey, 2009, op. cit.
4 Quoted in: Discovery Invest Leadership Summit 9 October 2013, Speakers; Sizwe Nxasana. [Online] Available from:
https://www.theleadershipsummit.co.za/speakers/view/sizwe-nxasana. Accessed on 23 June 2013.
5 Stogdill, R.M. 1974. Handbook of leadership: a survey of the literature. New York: Free Press, p 259. In Yukl, G. 1998.
Leadership in organizations. 4th edition. Upper Saddle River, NJ: Prentice-Hall International, p 2.
6 Yukl, G. 1998. Leadership in organisations. 4th edition. Upper Saddle River, New Jersey: Prentice Hall, p 2.
7 Hemphill, J.K. & Coons, A.E. 1957. Development of the leader behaviour description questionnaire. In Yukl, op. cit., p 2.
8 Schein, E.H. 1992. Organizational culture and leadership. 2nd edition. San Francisco, CA: Jossey-Bass, p 2. In Yukl,
1978, p 2.
9 Richards, D. & Engle, S. 1986. After the vision: suggestions to corporate visionaries and vision champions. In Yukl,
1978, p 2.
10 Yukl, op. cit.
11 Jones, G.P. & George, J.M. 2011. Contemporary management. 7th edition. New York: McGraw-Hill Irwin, p 427.
12 Lussier, R.N. & Achua, C.F. 2001. Leadership: theory, application, skill development. Cincinatti: South-Western College
Publishing, p 7.
13 Lipman-Blumen, J. 1999. Connective leadership: managing in a changing world. Oxford: Oxford University Press, p 32.
14 Wren, D.A. 1994. The evolution of management thought. 4th edition. New York: John Wiley Sons, p 598.
15 Kotter, op. cit., pp 40–53.
16 Ibid., p 40.
17 Manning, T. 2001. Discovering the essence of leadership. Cape Town: Zebra Press, pp 28–29.
18 French, W.L. & Bell, C.H. 1990. Organizational development, behavioral science interventions for organization
improvement. 4th edition. Englewood Cliffs, NJ: Prentice Hall, p 280.
19 (i) French, J.R.P. & Raven, B.H. 1959. The bases of social power. In Senior, B. and Swailes, S. 2010. Organizational
change. 4th edition. Essex: Prentice Hall, p181. (ii) Luthans, F. 2011. Organizational behavior. 12th edition. New York:
McGraw-Hill International Edition, pp 314–318.
20 Morgan, G. 1997. Images of organization. Thousand Oakes: Sage, pp 170–199.

PART V: Leading
'X7RLW*6(UDVPXV%- 6WU\GRP-:HGVIntroduction to business managementWKHGLWLRQ

&DSH7RZQ2[IRUG8QLYHUVLW\3UHVVS
'DIW5/The leadership experienceQGHGLWLRQ2UODQGR)ORULGD+DUFRXUW&ROOHJH3XEOLVKHUVS
,ELGS
'X7RLWHWDORSFLWS
5REELQV63Organizational behaviorWKHGLWLRQ8SSHU6DGGOH5LYHU3UHQWLFH+DOOS
/XVVLHU51 $FKXD&)Leadership: theory, application, skill development.(DJDQ0LQQHVRWD7KRPSVRQ
6RXWK:HVWHUQS
5REELQVRSFLWS,Q9UED0- %UHYLV7A guide to passing General Management. &DSH7RZQ1HZ
$IULFD%RRNVS
*ULIIHQRSFLWS
,ELG
'DIWRSFLWS
,ELG
'DIWRSFLWS
<XNORSFLWS
,ELGS
+HUVH\3 %ODQFKDUG.Management of Organizational Behavior: utilizing human resources. (QJOHZRRG&OLIIV
3UHQWLFH+DOOS
<XNORSFLWS
'X7RLWHWDORSFLWSSŋ
+XJKHV5/*LQQHWW5& &XUSK\*- Leadership: enhancing the lesssons of experience. 1HZ<RUN
0F*UDZ+LOO+LJKHU(GXFDWLRQS
7KHGLVFXVVLRQRIWUDQVDFWLRQDODQGWUDQVIRUPDWLRQDOOHDGHUVKLSDQGHPRWLRQDOLQWHOOLJHQFHLVIURP9UED0
(PRWLRQDOLQWHOOLJHQFHVNLOOVDQGOHDGHUVKLSEHKDYLRXULQDVDPSOHRI6RXWK$IULFDQğUVWOLQHPDQDJHUVManagement
Dynamicsŋ
%XUQV-0Leadership in organisations1HZ<RUN+DUSHU 5RZ
%DVV%0 $YROLR%-)XOOUDQJHOHDGHUVKLSGHYHORSPHQWPDQXDOIRUWKHPXOWLIDFWRUOHDGHUVKLSTXHVWLRQQDLUH
3DOR$OWR&DOLIRUQLD0LQG*DUGHQ
,ELGS
%DVV%0Leadership and performance beyond expectations.,Q<XNO*/HDGHUVKLSLQ2UJDQLVDWLRQV
1HZ<RUN3UHQWLFH+DOO
,ELGS
%DUOLQJ-6ODWHU) .HOORZD\(.7UDQVIRUPDWLRQDOOHDGHUVKLSDQGHPRWLRQDOLQWHOOLJHQFHLeadership and
Organizational Development Journalŋ
/RZH.% .URHFN.*(IIHFWLYHQHVVFRUUHODWHVRIWUDQVIRUPDWLRQDODQGWUDQVDFWLRQDOOHDGHUVKLSDPHWD
DQDO\WLFUHYLHZ Leadership Quarterlyŋ
%DVVDQG$YROLRRSFLW
6DORYH\3 0D\HU-'Emotional intelligence. Imagination, Cognition and Personalityŋ
,ELG
*ROHPDQ'$Q(,EDVHGWKHRU\RISHUIRUPDQFH,Q&KHUQLVV& *ROHPDQ'(GVThe emotionally intelligent
workplace6DQ)UDQFLVFR-RVVH\%DVV
%UDGEHUU\7 *UHDYHV-Emotional intelligence appraisal: technical manual>2QOLQH@$YDLODEOHIURP
ZZZ7DOHQW6PDUWFRP$FFHVVHGRQ2FWREHU
%DVVDQG$YROLRRSFLW
9UEDRSFLWS
'DIWRSFLWS
,ELG

56 Ancona, D., Kochan, T.A., Scully, M., Van Maanen, J. & Westney, D.E. 2009. Managing for the future: organizational
behavior and processes. 3rd edition. Cincinnati: South-Western College Publishing, pp M14–8 to M14–16.
57 Ibid., pp M14–9.
58 Ibid.
59 Ibid., pp M14–11.
60 Ibid.
61 Ibid., pp M14–12.
62 Ibid., pp M14–9.
63 Ibid., pp M14–13.
64 Ibid., pp M14–14.

Chapter 20
Workforce motivation
.BSJ7SCB
OPENING CASE
Google1
*O 4UBOGPSE6OJWFSTJUZHSBEVBUFTUVEFOUT-BSSZ (PPHMFTPŵDFTBSFGBNPVTGPSUIFJSJOOPWBUJWF
1BHFBOE4FSHFZ#SJOTQFOUIPVSTJOUIFJSEPSNJUPSZ BOE GVO EFTJHOT "DDPSEJOH UP (PPHMF UIFJS EBUB
SPPNT CVJMEJOH B TFBSDI FOHJOF DBMMFE A#BDL3VC DPOųSNT UIBU JUT PŵDF TQBDFT IBWF B QPTJUJWF
UIBU VTFE MJOLT UP EFUFSNJOF UIF JNQPSUBODF PG JNQBDU PO UIF QSPEVDUJWJUZ DPMMBCPSBUJPO BOE
JOEJWJEVBM XFC QBHFT -BUFS JO UIFZ GPSNFE inspiration of their employees. The aim at
(PPHMF UIFDPNQBOZUIBUXPVMEIBWFBQSPGPVOE (PPHMFJTUPNBLFJUTPŵDFTQBDFTBQMBDFXIFSF
JNQBDUPOUIFXPSMEPGXPSL4JODFUIFO (PPHMF FNQMPZFFT XBOU UP CF "MUIPVHI UIF (PPHMF
IBTHSPXOGSPNBTFBSDIFOHJOFJOBTJOHMFMBOHVBHF PŵDFT BSPVOE UIF XPSME BSF OPU JEFOUJDBM UIFZ
to a company offering scores of products and tend to share some essential elements, such as
TFSWJDFT JODMVEJOHWBSJPVTGPSNTPGBEWFSUJTJOHBOE CJDZDMFT PS TDPPUFST GPS FŵDJFOU USBWFM CFUXFFO
XFC BQQMJDBUJPOT GPS WBSJPVT UBTLT CZ VTJOH NBOZ NFFUJOHT TIBSFE DVCJDMFT AIVEEMF SPPNT BOE
different languages and employing thousands of WFSZ GFX TPMP PŵDFT 5IFSF BSF BMTP MBQUPQT
FNQMPZFFTJO(PPHMFPŵDFTBSPVOEUIFXPSME FWFSZXIFSF QPPMUBCMFT WPMMFZCBMMDPVSUT BTTPSUFE
(PPHMFJTGBNPVTGPSBUUSBDUJOHUIFCFTUUBMFOU WJEFP HBNFT QJBOPT 1JOH1POH UBCMFT BOE HZNT
'PSFYBNQMFJO GPSUIFUIJSEDPOTFDVUJWFZFBS Employees eat lunch in the office café, sitting
(PPHMFBDIJFWFEUIFOVNCFSPOFSBOLJOHPGFortune BU XIBUFWFS UBCMF IBT BO PQFOJOH BOE FOKPZJOH
Magazine’sA#FTU$PNQBOJFTUP8PSL'PS DPOWFSTBUJPOTXJUIQFFSTGSPNEJŲFSFOUUFBNT5IF
5IF DPNQBOZ TUSJWFT UP QSFTFSWF JUT VOJRVF DPNNJUNFOUUPJOOPWBUJPOBU(PPHMFJTBSFTVMUPG
TUBSUVQ DVMUVSF GSPN XFMDPNJOH UIFJS OFX BMMFNQMPZFFTCFJOHDPNGPSUBCMFXJUITIBSJOHJEFBT
FNQMPZFFTBOEUFBNUIFNXJUIA(PPHMFCVEEJFT BOE PQJOJPOT &WFSZ FNQMPZFF JT B IBOETPO BOE
UP DFMFCSBUJOH UFBN BDDPNQMJTINFOUT BU 'SJEBZ WFSTBUJMFFNQMPZFFBOEUIFCFMJFGJTUIBUFWFSZPOF
DPNQBOZ NFFUJOHT (PPHMF TUSJWFT UP DVMUJWBUF DPOUSJCVUFTUPUIFTVDDFTTPGUIFDPNQBOZ
FNQMPZFF TBUJTGBDUJPO BOE UIF CFMJFG JT UIBU FWFSZ (PPHMF JT JODMVTJWF JO UIFJS IJSJOH BOE GBWPVS
employee is central to the success of the company. BCJMJUZ PWFS FYQFSJFODF *O UIFJS PŵDFT BSPVOE
(PPHMF PŲFST B WBSJFUZ PG CFOFųUT JODMVEJOH B UIF XPSME (PPHMF FNQMPZFFT TQFBL EP[FOT PG
DIPJDF PG NFEJDBM QSPHSBNNFT TUPDL PQUJPOT MBOHVBHFT 5IF SFTVMU JT B UFBN UIBU SFŴFDUT UIF
NBUFSOJUZBOEQBUFSOJUZMFBWF BOENVDINPSF HMPCBMBVEJFODF(PPHMFTFSWFT(PPHMFFNQMPZFFT
"MUIPVHI(PPHMFTIBSFTDFSUBJOBUUSJCVUFTXJUI UISJWF JO TNBMM GPDVTFE UFBNT BOE FOWJSPONFOUT
UIF XPSMET NPTU TVDDFTTGVM PSHBOJTBUJPOT TVDI XIFSFIJHIFOFSHZJTQFSWBTJWF UIFZCFMJFWFJOUIF
BT B GPDVT PO JOOPWBUJPO JU JT OPU B DPOWFOUJPOBM BCJMJUZPGUFDIOPMPHZUPDIBOHFUIFXPSME BOEBSF
PSHBOJTBUJPOCFDBVTFJUJTųSNMZDPNNJUUFEUPSFUBJO BT QBTTJPOBUF BCPVU UIFJS MJWFT BT UIFZ BSF BCPVU
UIFDIBSBDUFSJTUJDTPGBTNBMMDPNQBOZ(PPHMFIBT UIFJSXPSL
PŵDFT BSPVOE UIF XPSME CVU SFHBSEMFTT PG XIFSF 0OUIF(PPHMFXFCTJUF UIFDPNQBOZMJTUTTPNF
UIFPŵDFJT (PPHMFDSFBUFTBQPTJUJWFFOWJSPONFOU PG UIF SFBTPOT XIZ QFPQMF TIPVME XBOU UP XPSL
CZ IJSJOH UBMFOUFE MPDBM QFPQMF XIP TIBSF UIFJS GPSUIFDPNQBOZ0OFSFBTPOJTUIBUCFJOHBQBSUPG
DPNNJUNFOUUPUIFJSXPSLBOEXBOUUPFOKPZEPJOH TPNFUIJOHUIBUNBUUFSTBOEXPSLJOHPOQSPEVDUTJO
it. XIJDIPOFDBOCFMJFWFJTSFNBSLBCMZGVMųMMJOH
CHAPTER 20 Workforce motivation
LEARNING OBJECTIVES
The purpose of this chapter is to provide an overview of motivation in the workplace. The objective of
1. Explain the nature of motivation.
2. Illustrate and explain the motivation process.
3. Differentiate between content theories, process theories, and reinforcement theories of motivation.
4. Discuss the content theories.
5. Discuss the process theories.
6. Discuss the reinforcement theory of motivation.
7. Present arguments for and against the use of money as a motivator.
8. Explain how managers can use job design to motivate workers.
20.1 THE NATURE OF MOTIVATION LEARNING OBJECTIVE 1

A large part of the leading function of managers is to seek ways to Explain the nature of
improve employee performance. We address the following question in motivation.
this chapter: What must managers do to improve the performance of
employees and therefore make the organisation more productive?
Motivation bears a direct influence on employee performance, and
managers can play a major part in the motivation of their employees. A
common misconception is that managers can motivate their employees
to perform better. Nobody can motivate another person, motivation
comes from within. Motivation is an inner desire to satisfy an unsatisfied
need.
From the viewpoint of organisations (and managers), motivation
may be defined as the willingness of an employee to achieve the goals
of the organisation.
Motivation is what drives people to behave in certain ways. People
are not always aware of what motivates them. They behave in ways
that seem right under the circumstances. However, one definite tenet
of motivation is that people do whatever is best for them. If employees
perceive that their best interests link to the interests of the organisation,
they will probably be motivated to achieve the goals of the organisation.
In this respect, managers can do much to create a work environment in
which the best interests of employees and of the organisation coincide.
In the opening case, we saw how Google creates an environment where
their employees are motivated to work hard, to play and to enjoy life.
20.2 THE MOTIVATION PROCESS LEARNING OBJECTIVE 2

Illustrate and explain the
There are numerous definitions of motivation. From an organisational motivation process.
point of view, motivation is the willingness of an employee to achieve
the goals of the organisation. The motivation process comprises an motivation
inner state of mind that channels (or moves) an employee’s behaviour the willingness of an employee
and energy towards the attainment of organisational goals. to achieve organisational goals

PART V: Leading
Figure 20.1 depicts the motivation process in its simplest form. The
motivation process consists of the following interdependent elements:
Satisfaction/
Need Motive Behaviour Consequence
dissatisfaction
FEEDBACK
Figure 20.1: The motivation process

To illustrate the motivation process, consider the following example:

r /FFE"OFNQMPZFFIBTBOVOGVMųMMFEOFFEGPSIJHIFSTUBUVTJOUIF
organisation where she works.
r .PUJWF)FSEFTJSF NPUJWF
JTUPBEWBODFUPBNBOBHFSJBMQPTJUJPO
r #FIBWJPVS5IJTOFFEXJMMNPUJWBUFIFSUPFOHBHFJOTQFDJųD
CFIBWJPVS4IFNBZXPSLPWFSUJNF BOENBZFOSPMGPSB
management development course.
r $POTFRVFODF5IFDPOTFRVFODFPG IFSCFIBWJPVSNBZCFFJUIFS
QPTJUJWFPSOFHBUJWF5IFPSHBOJTBUJPONBZQSPNPUFIFS PSNBZ
not.
r 4BUJTGBDUJPOEJTTBUJTGBDUJPO5IFDPOTFRVFODFPG UIFCFIBWJPVS
DPVMEMFBEUPTBUJTGBDUJPOPSEJTTBUJTGBDUJPO5IFFNQMPZFFXJMMCF
TBUJTųFEJG TIFSFDFJWFTBQSPNPUJPO CVUEJTTBUJTųFEJG OPU
r 'FFECBDL*G EJTTBUJTGBDUJPOJTUIFPVUDPNF UIFOFFESFNBJOT
VOTBUJTųFE BOEUIFNPUJWBUJPOQSPDFTTXJMMTUBSUBMMPWFSBHBJO
4BUJTGBDUJPO POUIFPUIFSIBOE JTVTVBMMZTIPSUMJWFECFDBVTF
QFPQMFIBWFNBOZOFFETBOEBTTPPOBTPOFOFFEJTTBUJTųFE
BOPUIFSOFFEXJMMTVSGBDF*G UIFQFSTPOJOUIJTFYBNQMFBEWBODFT
UPBųSTUMJOFNBOBHFNFOUQPTJUJPO TIFNBZWFSZTPPOXBOUB
further promotion to a middle management position. This will
again cause dissatisfaction and the motivation process, with its
feedback loop, will start all over again.
*G NBOBHFST VOEFSTUBOE XIBU NPUJWBUFT UIF CFIBWJPVS PG UIFJS

FNQMPZFFT UIFZDBOJOŴVFODFUIFJSXPSLQFSGPSNBODF*UJTJNQPSUBOU
UP CFBS JO NJOE UIBU NPUJWBUJPO JT OPU UIF POMZ GBDUPS UIBU JOŴVFODFT
work performance. The variables that determine performance are
NPUJWBUJPO HPBMPSEFTJSF
BCJMJUZ USBJOJOH LOPXMFEHFBOETLJMMT
BOE
UIFPQQPSUVOJUZUPQFSGPSN
.PUJWBUJPO¤"CJMJUZ¤0QQPSUVOJUZ1FSGPSNBODF2
'SPN UIF BCPWF FRVBUJPO JU CFDPNFT BQQBSFOU UIBU BO FNQMPZFF
must possess a high level of motivation plus the appropriate training,
LOPXMFEHF BOE TLJMMT UIBU BSF OFDFTTBSZ UP QFSGPSN FŲFDUJWFMZ JO B
given work situation. In South Africa, with its critical shortage of skilled
workers, it becomes increasingly important for managers to address the
ability component of the performance equation.
In addition to motivation and ability, the employee should have the
opportunity to perform. In other words, the work environment should
be supportive. The employee must have adequate resources, such as
tools, computers, equipment, materials and supplies to be able to do the
work3. Conducive working conditions, helpful co-workers, supportive
policies and procedures, sufficient information to make job-related
decisions, and adequate time to do a good job are factors that influence
worker performance. Work performance is also influenced by a person’s
values and attitude, perceptions, learning, emotional intelligence, and
so on (see Chapter 17). The positive attitude of employees towards
themselves, their colleagues, their organisation, and even the country
where they work, may contribute to workforce motivation.
Global Competitiveness Index4

‘South Africa was ranked as the 52nd most ranking 25th overall for market size. The strength
competitive country out of 144 surveyed in of auditing and reporting standards and efficiency
the 2012/13 World Economic Forum’s Global of corporate boards both ranked first, while the
Competitiveness Index, making it the second highest protection of minority shareholders’ interests ranked
ranked country in Africa after Tunisia (32nd). It second out of all 144 economies in the survey.
ranked third among the BRICS’ economies, with The most impressive achievement of the country is
China at 29 and Brazil at 48. its financial market development, for which it ranks
Conducted by the World Economic Forum third overall, ‘indicating high confidence in South
(WEF) in partnership with leading academics and Africa’s financial markets at a time when trust is
a global network of research institutes, the index returning only slowly in many other parts of the
calculates its rankings from publicly available data world’.
and a poll of business leaders in 144 economies. Weaknesses that the country will have to address
The main goal of the report is to evaluate countries’ in order to improve its competitiveness include
economic environment and their ability to achieve improvement of its infrastructure and its poor
sustained levels of prosperity and growth.’ labour market efficiency. In addition, security and
South Africa benefits from the relatively large size the health of the country’s workforce are areas of
of its economy, particularly by regional standards, concern.
20.3 THE MOTIVATION THEORIES LEARNING OBJECTIVE 3

Differentiate between content
The basis of theories on human behaviour is careful observation. theories, process theories,
Consequently, theory and practice usually relate to each other. Although and reinforcement theories of
theories can never predict behaviour with certainty because there are motivation.
too many variables to take into account, they can provide managers with
a good indication of how people might behave in various circumstances.
We classify motivation theories in terms of content, process, and
reinforcement theories as shown in Table 20.1 on the next page.

PART V: Leading
Table 20.1: ClassiƂcation of motivation theories
Content theories Process theories Reinforcement theories

Focus r +FGPVKH[VJGPGGFsVJCV r 6JGRTocGssoHIoCN r $GJCXKouTCsCHuPcVKoP
GORNo[GGsYCPVVosCVKsH[ sGVVKPI oHKVscoPsGSuGPcGs
r +FGPVKH[VJGHCcVoTsVJCVKPƃuGPcG r 'XCNuCVKoPoHsCVKsHCcVKoP
VJGDGJCXKouToHGORNo[GGs CHVGTIoCNsJCXGDGGP
CcJKGXGF
6JGoTKGsOoFGNs r /CsNoYosJKGTCTcJ[oHPGGFs r 'SuKV[VJGoT[ r 4GKPHoTcGOGPVVJGoT[
OoFGN r 'ZRGcVCPc[VJGoT[
r 6JG'4)VJGoT[oHOoVKXCVKoP
r *GT\DGTIosVYoHCcVoTOoFGN
r #cSuKTGFPGGFsVJGoT[
LEARNING OBJECTIVE 4 20.3.1 Content theories of motivation

Discuss the content theories. The content theories of motivation are associated with the work of
researchers such as Maslow, Herzberg and McClelland. These theories
content theories of
attempt to answer some of the following questions: What needs do
motivation
people want to satisfy? What are the factors that influence individual
deal with the ‘what’ of behaviour? According to this perspective, people have needs that they
motivation wish to satisfy, which in turn direct their behaviour towards satisfying
these needs.
Maslow’s hierarchy of needs

Abraham Maslow, a psychologist, formulated one of the most familiar
theories of individual motivation. Maslow based his hierarchy of needs
theory on two important assumptions:
1. People always want more, and their needs depend on what they
already have. A need that has already been satisfied is not a
motivator, only unsatisfied needs can influence behaviour.
2. People’s needs arise in order of importance. When one need
has been partially satisfied, the next one will come forward to be
satisfied.
Figure 20.2 on page 474 illustrates the hierarchical order of human needs
according to Maslow’s classification, separated into higher- and lower-
order needs. Physiological and security needs are lower-order needs.
Extrinsic rewards (rewards provided by the organisation) generally
satisfy these needs. Affiliation, esteem, and self-actualisation are higher-
order needs, satisfied by intrinsic rewards (rewards experienced directly
by the individual).
Maslow’s hierarchy of needs The five levels in Maslow’s hierarchy of needs model are:
model 1. Physiological needs. In organisations, these needs represent the
five levels of needs arranged in most basic level in the hierarchy and comprise such needs as salary
a hierarchy from lower-order to or wages and basic working conditions. As long as these needs are
higher-order needs unsatisfied, employees will strive to satisfy them. However, once
these needs are satisfied, they no longer influence behaviour. Most

employees belong to labour unions, which negotiate for higher

wages and basic working conditions to ensure that these basic
needs of their members are satisfied.
2. Security needs. Once a person’s basic physiological needs have
been satisfied, his or her security needs come into play. Security
in the workplace, job security, insurance, medical aid schemes and
pension schemes satisfy an individual’s need for security.
3. Social needs.These are the needs for love, friendship, acceptance,
and understanding by other people and groups of people. In
organisations, people join different groups to satisfy their social
needs. By forming work groups, teams, and encouraging sufficient
interaction among employees, managers can ensure that the
organisation meets their employees’ social needs. At Google, they
go out of their way to address their employees’ social needs. For
example, at lunchtime, almost everyone eats in the office café,
sitting at whatever table has an opening and enjoying conversations
with peers from different teams.
4. Esteem needs. This higher-order need is the need for self-respect
and recognition by others. The need for success, recognition and
appreciation of achievement are examples of esteem needs. It is
in this area in particular that managers can play a significant role in
satisfying the needs of their employees, for example, by rewarding
high achievement with recognition and appreciation.
5. Self-actualisation needs. The highest level of Maslow’s hierarchy
of needs is the need for self-actualisation. This represents the
apex of human needs. Self-actualisation is the full development
of an individual’s potential. The need for self-actualisation is the
most difficult to satisfy in an organisational context. Managers can
help by creating a climate in which self-actualisation is possible,
for example, by providing employees with skills development,
the chance to be creative, and the opportunity to have complete
control over their jobs. Google is a prime example of an
organisation that addresses this need, where all employees’
creative ideas matter and are considered worth exploring.
Employees have the opportunity to develop innovative new
products that millions of people will find useful.
Maslow’s hierarchy of needs theory in perspective

Although Maslow’s hierarchy of needs provides an adequate explanation
of human needs in organisational settings, contemporary managers
realise that they cannot confine their employees’ needs to a simple five-
step hierarchy. The following are some of the criticisms of the theory.
1. During certain periods of their lives, people reorder the levels
of the hierarchy in their personal lives. For example, when a
company retrenches a director unexpectedly, his lower level needs
resurface.
2. It is very difficult to determine the level of needs at which an
individual is motivated at a specific time.

PART V: Leading
3. Managers work with many employees and in large organisations.

It is difficult, if not impossible, to determine on which level each
employee’s unsatisfied needs are. This is especially true in South
African organisations where the ratio of managers to subordinates
is very high.
4. Individuals differ in the extent to which they feel that a need has
been sufficiently satisfied. The extent to which employees are
motivated to pursue money, recognition, or other need satisfiers
differs from one individual to the next.
Self-actualisation needs
Esteem needs
Higher order
AfƂliation needs
needs
Security needs
Lower order
needs
Physiological needs
Figure 20.2: Maslow’s hierachy of needs model

Management applications of Maslow’s hierarchy of

needs motivation theory
Managers may ask the following questions: What is the value of
Maslow’s hierarchy to me as a manager in South Africa? What are the
possibilities for applying this hierarchy of needs? What are the benefits
and limitations of the model?
It is evident that a number of difficulties arise in the practical
application of the theory. However, despite the criticism against it,
Maslow’s hierarchy of needs has intuitive appeal because it is easy to
understand. The theory highlights important categories of needs and
differentiates between higher-order and lower-order needs. Most
importantly, it stresses the importance of personal growth and self-
actualisation in the workplace.

Managers can apply Maslow’s theory by providing for the physiological

and security needs of their employees. They can include employees
in groups and teams to satisfy their social needs, and they can create
working environments where the higher-order needs (esteem and self-
actualisation) of their workers can be satisfied.
The ERG theory

Clayton Alderfer refined Maslow’s theory by dividing Maslow’s five
needs into three broader categories of needs, namely existence needs,
relatedness needs and growth needs (ERG theory). The ERG theory
1. Alderfer’s existence needs correspond to Maslow’s physiological categorises human needs
and physical safety needs. into three broad categories:
2. The relatedness needs focus on how people relate to others and existence, relatedness and
correspond to Maslow’s social needs. growth needs
3. Growth needs relate to Maslow’s esteem and self-actualisation
needs.
The theory differs from Maslow’s theory because Alderfer suggested

that more than one level of needs can motivate at the same time,
for example, a desire for friendship (relatedness) and the need for a
promotion (growth) can simultaneously influence the motivation of an
individual. The ERG theory also has a ‘frustration-regression aspect’,
which means that if needs remain unsatisfied, an individual may become
frustrated and revert to satisfying lower level needs. The ERG theory
is more flexible than the rigid hierarchy of needs theory which states
that one level of needs must be satisfied before the next level will come
to the fore. The management implications of the ERG theory is that
employees strive to satisfy various needs and that if their higher-order
needs are not met, they may regress to satisfying lower-order needs.
Herzberg’s two-factor motivation theory Herzberg’s two-factor

In the 1950s, Frederick Herzberg conducted a study to examine the motivation theory
relationship between job satisfaction and productivity within a group of distinguishes between hygiene
about 200 accountants and engineers. He found that the factors leading factors (job context) and
to job satisfaction were separate and different from those leading to job motivators (job content)
dissatisfaction – hence the term ‘two-factor model’. Figure 20.3 on the
next page shows the two-factor model.
Herzberg termed the sources of work satisfaction ‘motivator
factors’. These include the work itself, achievement, recognition,
responsibility, and opportunities for advancement and growth. These
factors relate to job content (what people actually do in their work)
and are associated with positive feelings about their work. In the case
of Google, all employees have the opportunity to develop innovative
new products that millions of people will find useful. The employees
have the opportunity to grow and advance in an environment where the
organisation welcomes and recognises creativity and new ideas.

PART V: Leading
SatisƂed
MOTIVATOR FACTORS
achievement
SATISFACTION
recognition
work itself
AREAS OF
responsibility
advancement
Not satisƂed
Not dissatisƂed
HYGIENE FACTORS
organisation policy
DISSATISFACTION
supervision
salary
AREAS OF
working conditions
interpersonal
relationships
DissatisƂed
Figure 20.3: Model of Herzberg’s two-factor theory

Herzberg termed the sources of work dissatisfaction ‘hygiene factors’.

These are factors in the job context, including salary, interpersonal
relations (supervisor and subordinates), company policy and
administration, status and job security. If the organisation provides
adequately for hygiene factors, there will be no dissatisfaction. However,
if they are not in place, it will cause dissatisfaction. Herzberg found that
hygiene factors are associated with individuals’ negative feelings about
their work and these factors do not contribute to employee motivation.
At Google, there are many examples of hygiene factors, such as lunches
in the cafeteria and a variety of benefits including a choice of medical
programmes, stock options, maternity and paternity leave, and much
more.
An interesting aspect of Herzberg’s theory is that he classifies salary
as a hygiene factor, which will not motivate people. According to his
theory, people work to earn salaries, it is part of the job context and they
will be extremely dissatisfied if they do not receive salaries. However,
if the organisation links a monetary reward to performance, such as a
merit bonus or a promotion, it provides recognition of the employee’s
performance and is, therefore, a motivator.
Herzberg’s theory differs from Maslow’s hierarchy of needs in that

he assumes that most employees have already satisfied their social
and economic needs (lower-order needs) to such an extent that only
Maslow’s higher-order needs motivate them. However, they must
continue to satisfy their lower-order needs in order to maintain their
present situation.
Management applications of Herzberg’s two-factor

theory
The two-factor theory’s contribution to our understanding of motivation
in the workplace is Herzberg’s focus on the importance of the work
itself in the motivation of employees, which has led to an interest in
job enrichment. He also explained the limited influence of more money,
fringe benefits, and better working conditions (hygiene factors) on
motivation, and the strong influence of factors such as achievement,
recognition, responsibility, and opportunities for advancement and
growth (motivators).
Does Herzberg’s motivation theory have staying power?5

There have been significant changes in organisations a more important part. For Herzberg, recognition
worldwide (see Chapter 3) since Herzberg was an important factor. These results suggested
undertook his research. Researchers examined the that the importance of recognition has declined.
issue of whether Herzberg’s two-factor motivation The researchers attributed this, in part, to the fact
theory is still relevant decades after it he posited that organisations are becoming flatter, with fewer
it. The researchers conducted a survey in the opportunities for promotion (see Chapter 3). The
UK and received 3 200 responses. The findings most important finding of the research, however,
demonstrated that money and recognition do not is that, despite the criticism, Herzberg’s two-
appear to be primary sources of motivation and factor theory still has relevance in contemporary
those factors associated with intrinsic satisfaction play organisations.
Acquired needs model acquired needs model

People acquire needs for achievement, affiliation or power, but one
different needs are predominant
need is predominant in each individual. This approach, also known as
in different people
McClelland’s achievement motivation theory, postulates that people
acquire certain types of need during a lifetime of interaction with the
environment. Although earlier research showed that people generally
have a need for achievement, power, and affiliation, McClelland’s
research indicated that different needs predominate in different people.
An individual can be a high achiever, a power-motivated person,
or someone with a high need for affiliation with others. The model
proposes that, when a need is strong, it will motivate the person to
engage in behaviours to satisfy that need.
1. The need for achievement is the need to excel; to achieve in
relation to a set of standards; to strive to succeed. Achievers
prefer jobs that offer personal responsibility, feedback, and
moderate risks.
2. The need for affiliation is the desire for friendly and close
interpersonal relationships.
PART V: Leading
3. The need for power is the need to make others behave in a way in
which they would not otherwise have behaved.
A significant aspect of McClelland’s research is that people can acquire

the need for achievement. Studies6 of achievement motivation indicate
that employees can stimulate their achievement need through training.
The objective of such training would be to encourage them to think in
terms of accomplishments, winning and success, and to prefer situations
in which they have personal responsibility, regular feedback, and have
to take moderate risks. McClelland’s research shows that people are
not static and can improve their own abilities. It could be possible to
alleviate South Africa’s shortage of effective managers by stimulating
the achievement needs of employees with the potential to become
managers.
Management applications of the acquired needs model

Organisations use the acquired needs model to improve worker
performance by placing employees in jobs according to their predominant
needs:
1. Employees with a high need for achievement prefer non-routine,
challenging tasks with clear, attainable goals. Feedback on their
performance should be fast and frequent. Managers should
continually increase their responsibility for doing new tasks. They
tend to be valuable employees and are good at working in self-
managed teams in large organisations. They are also successful in
entrepreneurial activities such as running their own businesses.
People with a high need for achievement are not necessarily good
managers, because achievers are interested in how well they do
personally and not in influencing others7.
2. Employees with a high need for affiliation will be motivated if they
work in teams and if they receive praise and recognition from their
managers. They derive satisfaction from the people they work with
rather than from the task itself.
3. Employees with a high need for power prefer work where they
can direct the actions of others; they prefer to be working in
competitive and status-oriented situations. The best managers are
high in their need for power and low in their need for affiliation.
In fact, it seems that a high power need may be a requirement for
managerial effectiveness8.
The cross-cultural application of motivation theory9

Cross-cultural studies indicate that cultural have their origins in the United States of America.
differences influence individual expectations and Managers in South Africa work with a uniquely
assumptions about management. Although South diversified workforce and consequently these
Africa is a complex mixture of several cultures theories may not always be applicable. South Africa
and sub-cultures, the dominant management is a developing country, whereas the United States of
practices are – for historical reasons – Western. America is a developed country. Intrinsic motivation
The motivation theories we discuss in this chapter of higher-level needs tends to be more relevant to

developed countries than to developing countries researcher measured cultural dimensions and
where lower level needs predominate. leader attributes and found that there are significant
Even in developed countries, the level of needs differences between African and white managers
focus varies. The needs for self-esteem and self- in seven of the eight cultural dimensions measured.
actualisation tend to motivate people in the United The culture of white South African managers is
States of America. In Greece and Japan, security largely congruent with Western or Eurocentric
is more important, while in Sweden, Norway, and management systems, which tend to emphasise
Denmark people are more concerned with social competition and a work orientation, free enterprise,
needs. Individualistic societies (the United States individual self-sufficiency, self-fulfilment, exclusivity,
of America, Canada, the United Kingdom and planning, and methodology. The culture of black
Australia) tend to have individualistic approaches South African managers differs largely from the
to business where self-accomplishment is valued culture of Western or Eurocentric management
highly. Collective societies ( Japan, Mexico, Singapore, and is comparable to the Afrocentric management
Venezuela, and Pakistan) have group approaches system, which emphasises collective solidarity,
to business where they tend to value group inclusivity, collaboration, consensus and group
accomplishment and loyalty. significance, concern for people, and patriarchy.
In a South African cross-cultural study, the
20.3.2 Process theories of motivation LEARNING OBJECTIVE 5

In contrast to the content theories that attempt to identify people’s Discuss the process theories.
needs, the focus in process theories is on how motivation actually
occurs. The emphasis is on the process of individual goal setting and the process theories
evaluation of satisfaction after the achievement of goals. The best-known deal with the ‘how’ of
process theories are the equity theory and the expectancy theory. motivation
The equity theory of motivation

According to the equity theory, an individual must be able to equity theory
perceive a relationship between the reward he or she receives and his individuals compare their
or her performance. The individual perceives a relationship based on a inputs and outputs to those of
comparison of the input-output ratio between himself or herself and someone they perceive as an
someone else whom he or she regards as an equal. equal to establish if the reward
they receive is fair
Own Input-output : Input-output of comparable individual
Inputs refer to effort, experience, qualifications, seniority, and status.

Outputs include praise, recognition, salary, promotion, and so on. The
equal peer could be a co-worker in the organisation or a worker in a
different organisation doing a similar job. A store manager in Woolworths
may consider another store manager in the same organisation as a
comparable peer, or he may identify a store manager in Pick n Pay as a
comparable peer. Note that the definition stresses the word ‘perceived’
and not actual input or output.
A worker’s comparison of his or her own situation with another
comparable worker’s situation leads to one of three conclusions: the
worker is under-rewarded, over-rewarded, or equitably rewarded. If

PART V: Leading
JOEJWJEVBMTQFSDFJWFUIFNTFMWFTUPCFVOEFSSFXBSEFE UIFZXJMMUSZUP
SFTUPSFUIFFRVJUZBOEXJMMEPPOFPG UIFGPMMPXJOH10
r SFEVDFUIFJSJOQVUTCZNFBOTPG MPXFSQFSGPSNBODF
r JODSFBTFUIFJSSFXBSECZBTLJOHGPSBSBJTF
r EJTUPSUUIFSBUJPTCZSBUJPOBMJTJOH
r BUUFNQUUPQFSTVBEFUIFPUIFSJOEJWJEVBMUPDIBOHFUIFJSJOQVUT
and/or rewards
r MFBWFUIFTJUVBUJPO CZUFOEFSJOHBSFTJHOBUJPO
r ųOEBOFXQFSTPOUPVTFJOUIFJSDPNQBSJTPO
8IFO JOEJWJEVBMT QFSDFJWF UIFJS SFXBSE BT CFJOH HSFBUFS UIBO UIFJS
JOQVUT KVTUJGZ UIFZ XJMM BMTP UBLF TUFQT UP SFTUPSF UIF FRVJUZ BOE NBZ
JODSFBTFUIFJSJOQVUTCZIJHIFSQFSGPSNBODF SFEVDFUIFJSSFXBSECZ GPS
FYBNQMF UBLJOHBQBZDVU EJTUPSUUIFSBUJPTCZSBUJPOBMJTJOH USZUPSFEVDF
UIFPUIFSQFSTPOTJOQVUT PSUSZUPJODSFBTFUIBUQFSTPOTSFXBSE
Individual inputs Individual outputs

Individual outputs
Compare input/output ratio

with an equal individual
Perceive equity Perceive inequity

Perceive inequity
No change in Under-rewarded Over-rewarded

behaviour
Change behaviour Change behaviour
Perceive equity Perceive equity
Figure 20.4: The equity theory model

Management applications of the equity theory of

motivation
5IFFRVJUZUIFPSZNBLFTBTVCTUBOUJBMDPOUSJCVUJPOUPPVSVOEFSTUBOEJOH
PG NPUJWBUJPO BOE XPSL QFSGPSNBODF BT JU GPDVTFT PO BO JOEJWJEVBMT
GFFMJOHT BCPVU IPX GBJSMZ UIF PSHBOJTBUJPO USFBUT IJN PS IFS JO UIF
XPSLQMBDF"DDPSEJOHUPUIFUIFPSZ BSFXBSEXJMMPOMZNPUJWBUFXPSLFST
JG UIFZ QFSDFJWF JU UP CF GBJS BOE FRVJUBCMF 1FPQMF CBTF UIFJS GFFMJOHT
PG FRVJUZ BOE JOFRVJUZ PO UIFJS QFSDFQUJPOT XIJDI UP UIFN SFQSFTFOU
their reality. Creating equity in the workplace is rather difficult, because

it is human nature to overestimate one’s inputs and outputs, while
underestimating those of other people. This may lead to the wrong
perception of inequity and cause resentment and demotivation.
The management implication of the equity theory is that managers
should manage peoples’ perceptions by being open and transparent
regarding the inputs and outputs required for different jobs. Furthermore,
the organisation should be fair in rewarding people’s contributions.
Figure 20.4 on the previous page illustrates the equity model.
The expectancy theory of motivation

Victor Vroom developed the expectancy theory. This theory is expectancy theory
currently one of the most widely accepted explanations of motivation. individuals need to perceive a
The expectancy theory argues that people will act according to their relationship between their effort
perceptions that their work efforts will lead to certain performances and and their performance, their
outcomes, and how much they value the outcomes. performance and the reward
The expectancy theory suggests that the following three elements they receive and the value they
determine an individual’s work motivation11: place on the reward
1. Expectancy (effort–performance relationship)
Expectancy is the individual’s belief that a particular level of
performance will follow a particular level of effort, for example,
expectancy will be high when a salesperson is sure that she will
be able to sell more units (performance) if she works overtime
(effort). Expectancy will be low if she is convinced that, even
if she works overtime, she will not be able to sell more units.
High expectations generally create higher motivation than low
expectations. In the above example, the salesperson is likely to
work overtime to achieve her goal of selling more units – if she
expects that by working overtime, she will be able to reach her
goal.
2. Instrumentality (performance–reward relationship)
Instrumentality refers to the degree to which an individual believes
that a certain level of performance will lead to the attainment of
a desired outcome. In our example, instrumentality will be high if
the salesperson believes that if she sells more units, she will receive
a bonus. It will be low if she believes that she will not receive a
bonus, even if she sells extra units.
3. Valence (rewards–personal goals relationship)
Valence is the value or importance that an individual attaches
to various work outcomes. Each outcome has an associated
valence or value. For motivation to be high, employees must
value the outcomes they will receive for their performance. To be
motivated, the salesperson in our example must value the bonus
(outcome) she will receive for working overtime to sell more
units. If she places a higher value on other outcomes, such as less
work stress or more time with her family, her motivation to work
overtime and sell more units will be low.

PART V: Leading
The management applications of the expectancy

theory of motivation
Some critics of the expectancy theory say that the theory tends to
be unrealistic because few individuals perceive a strong relationship
between performance and rewards in their job. Organisations in general
reward individuals according to measures such as seniority, effort, job
difficulty, and skill level, rather than according to performance which
may explain why a significant segment of the workforce exerts low levels
of effort in their work12. Management applications of the expectancy
theory include the following13:
r -JOLUIFQFSGPSNBODFPG FNQMPZFFTUPUIFSFXBSETUIBUUIFZ
receive.
r &NQMPZFFTBSFNPUJWBUFEUPBDIJFWFPVUDPNFTUIBUUIFZEFTJSF
and managers should determine what outcomes employees
perceive as desirable and provide them. Outcomes may be intrinsic
or extrinsic, depending on the needs of the employee and the
employee’s expectations of what is due to him or her.
r 0SHBOJTBUJPOTTIPVMEDMFBSMZDPNNVOJDBUFEFTJSFECFIBWJPVSTBOE
UIFJSPVUDPNFTUPFNQMPZFFT&NQMPZFFTTIPVMELOPXXIBUMFWFM
of effort the organisation expects of them in order to receive a
desired reward.
Figure 20.5 shows the expectancy theory model.
Effort Performance Reward
EXPECTANCY INSTRUMENTALITY VALENCE
Figure 20.5: The expectancy theory model

Reinforcement theory of motivation

LEARNING OBJECTIVE 6 Reinforcement theory of motivation is a behaviourist
Discuss the reinforcement approach with the basic premise that behaviours followed by positive
theory of motivation. consequences will occur more frequently. Behaviours followed by
negative consequences will not occur as frequently. Ways to reinforce
reinforcement theory of desired behaviour include the following:
motivation r 1PTJUJWFSFJOGPSDFNFOU5PFODPVSBHFTQFDJųDCFIBWJPVS
behaviour is a function of its organisations can reward individuals as they move closer to the
consequences EFTJSFECFIBWJPVS QPTJUJWFSFJOGPSDFNFOU
5IFZDBOEPUIJT
by rewarding desired behaviour with either intrinsic or extrinsic

rewards.
r "WPJEBODF0SHBOJTBUJPOTDBOSFJOGPSDFEFTJSFECFIBWJPVSCZUIF
BWPJEBODFPG VOEFTJSBCMFDPOTFRVFODFT"OFYBNQMFIFSFJTBO
JOEJWJEVBMXIPTUJDLTUPUIFUBSHFUEBUFGPSBQSPKFDUJOPSEFSUP
BWPJEBSFNJOEFS)FPSTIFJTNPUJWBUFEUPBDUJOUIFEFTJSFEXBZ
DPNQMFUJOHUIFQSPKFDUPOUJNF
JOPSEFSUPBWPJEUIFVOEFTJSBCMF
SFTVMU BSFNJOEFS

r /FHBUJWFSFJOGPSDFNFOU3FJOGPSDFNFOUDBOBMTPCFOFHBUJWF
BOEIFSFXFDBOEJTUJOHVJTICFUXFFOUXPLJOETPG OFHBUJWF
SFJOGPSDFNFOU OBNFMZQVOJTINFOUBOEFYUJODUJPO
r 1VOJTINFOU.BOBHFSTVTFQVOJTINFOUPSEJTDJQMJOBSZBDUJPO
UPEJTDPVSBHF XFBLFO
VOEFTJSBCMFCFIBWJPVS"DDPSEJOH
UPSFJOGPSDFNFOUUIFPSZ UIFVOQMFBTBOUDPOTFRVFODFT
QVOJTINFOU
PGBOZVOEFTJSBCMFCFIBWJPVSXJMMEJTDPVSBHF
BOJOEJWJEVBMGSPNSFQFBUJOHUIFCFIBWJPVS5IJTJTOPUBO
FŲFDUJWFGPSNPG SFJOGPSDFNFOUXIFONFUFEPVU QVOJTINFOU
NPUJWBUFTQFPQMFCVUPODFUIFOFHBUJWFSFJOGPSDFNFOU
JTOFVUSBMJTFE UIFZGBMMCBDLJOUPUIFJSPMEQBUUFSOTPG
VOEFTJSBCMFCFIBWJPVS5IFQPTTJCJMJUZPG OFHBUJWFTJEFFŲFDUT
PG QVOJTINFOU TVDIBTBOHFSUPXBSETUIFNBOBHFSPSUIF
PSHBOJTBUJPO TVQQPSUTUIFWJFXUIBUJUTIPVMEOPUCFB
EFTJSBCMFGPSNPG CFIBWJPVSSFJOGPSDFNFOUJOUIFXPSLQMBDF
r &YUJODUJPO.BOBHFSTDBOBMTPVTFFYUJODUJPOUPXFBLFO
CFIBWJPVS FTQFDJBMMZCFIBWJPVSUIBUUIFZQSFWJPVTMZSFXBSEFE
"OFYBNQMFJTBTVCPSEJOBUFXIPTUBSUTXPSLJOHGPSBOFX
NBOBHFS)JTQSFWJPVTNBOBHFSBQQSFDJBUFEJUJG IFUPMEUBMFT
BCPVUIJTDPXPSLFST5IFOFXNBOBHFS IPXFWFS XJTIFTUP
EJTDPVSBHFTVDICFIBWJPVS BOEUIFSFGPSF JHOPSFTUIFTFUBMFT
*GUIFNBOBHFSEPFTOPUSFBDUUPUIFTVCPSEJOBUFTUBMFT UIF
TVCPSEJOBUFTVOEFTJSBCMFCFIBWJPVSXJMMCFDPNFFYUJODU BOEJU
JTMJLFMZUIBUIFPSTIFXJMMOPUSFQFBUJUJOGVUVSF
/PUPOMZUIFUZQFPG SFJOGPSDFNFOUUIBUJTVTFEJTJNQPSUBOU CVU

BMTPXIFOBOEIPXGSFRVFOUMZJUUBLFTQMBDF
5IFTVDDFTTPG SFJOGPSDJOHCFIBWJPVSEFQFOETPOXIFOUIF
SFJOGPSDFNFOUPG EFTJSFECFIBWJPVSUBLFTQMBDF.BOBHFSTDBOVTF
WBSJPVTTUSBUFHJFTUPTDIFEVMFSFJOGPSDFNFOU
r Continuous reinforcementUBLFTQMBDFXIFONBOBHFST
SFJOGPSDFBMMEFTJSFECFIBWJPVST"OFYBNQMFPG DPOUJOVPVT
SFJOGPSDFNFOUXPVMECFBMFDUVSFSXSJUJOHJOEJWJEVBM
DPNNFOUBSZPOFBDIBTTJHONFOUTVCNJUUFECZBTUVEFOU
r The fixed interval schedule QSPWJEFTSFJOGPSDFNFOUBUųYFE
UJNFT SFHBSEMFTTPG CFIBWJPVS"NPOUIMZTBMBSZDIFRVFJT
BOFYBNQMFPG BųYFEJOUFSWBMTDIFEVMF FHPODFBNPOUI

"TMPOHBTBOJOEJWJEVBMXPSLT CFIBWJPVS
EVSJOHBTQFDJųD
QFSJPEPG UJNF JOUFSWBM
IFPSTIFXJMMSFDFJWFBTBMBSZ
DPOTFRVFODF


PART V: Leading
r The variable interval schedule BMTPVTFTUJNFBTUIFCBTJTPG

SFJOGPSDFNFOU CVUUIFJOUFSWBMTEJŲFS4VDITDIFEVMJOHJTVTFGVM
GPSJOTQFDUJPOTEVSJOHXIJDIBNBOBHFSQSBJTFPSSFXBSE
employees.
r 5he fixed ratio schedule QSPWJEFTSFJOGPSDFNFOUBGUFSBųYFE
OVNCFSPGQFSGPSNBODFT'PSFYBNQMF GPSFWFSZUFOOFX
DMJFOUTUIBUBOJOTVSBODFBHFOUJO+PIBOOFTCVSHSFDSVJUT IFPS
TIFSFDFJWFTBGSFFBJSUJDLFUGSPN+PIBOOFTCVSHUP$BQF5PXO
r The variable ratio scheduleJOŴVFODFTUIFNBJOUFOBODFPG
EFTJSFECFIBWJPVSUIFNPTUCZWBSZJOHUIFOVNCFSPG
CFIBWJPVSTSFRVJSFEGPSSFJOGPSDFNFOU&BDIQFSGPSNBODF
JODSFBTFTUIFQPTTJCJMJUZPG BSFXBSEmIFODFFNQMPZFFTBSF
FODPVSBHFEUPJODSFBTFUIFGSFRVFODZPG EFTJSBCMFCFIBWJPVS
Management applications of the reinforcement theory

0SHBOJTBUJPOT VTF SFJOGPSDFNFOU UIFPSZ FYUFOTJWFMZ " XFMMLOPXO
FYQFSUPONBOBHFNFOUJOUIF64" 1SPGFTTPS'SFE-VUIBOT IBTCFFO
studying the effects of reinforcement theory14)FIBTJEFOUJųFEųWFTUFQT
UIBUNBOBHFSTTIPVMEGPMMPXUPFOIBODFNPUJWBUJPOJOUIFXPSLQMBDFCZ
VTJOHSFJOGPSDFNFOUUIFPSZFŲFDUJWFMZ
r *EFOUJGZDSJUJDBM PCTFSWBCMF QFSGPSNBODFSFMBUFECFIBWJPVSTUIBU
BSFUIFNPTUJNQPSUBOUUPTVDDFTTGVMKPCQFSGPSNBODF
r .FBTVSFIPXPGUFOXPSLFSTFOHBHFJOUIFTFCFIBWJPVST
r "OBMZTFUIFDBVTFTBOEDPOTFRVFODFTPGUIFTFCFIBWJPVSTUPIFMQ
NBOBHFSTDSFBUFDPOEJUJPOTUIBUQSPEVDFUIFDSJUJDBMCFIBWJPVST
JEFOUJųFE BOEUPEFUFSNJOFXIFUIFSUIFCFIBWJPVSTQSPEVDFUIF
desired results.
r 6TFQPTJUJWFBOEOFHBUJWFSFJOGPSDFNFOUUPJODSFBTFUIFGSFRVFODZ
PG UIFTFDSJUJDBMCFIBWJPVST
r &WBMVBUFUIFFYUFOUUPXIJDIUIFSFJOGPSDFNFOUIBTBDUVBMMZ
DIBOHFEXPSLFSTCFIBWJPVSCZDPNQBSJOHCFIBWJPVSCFGPSFUIF
SFJOGPSDFNFOUUPCFIBWJPVSBGUFSUIFSFJOGPSDFNFOU
*OBQQMZJOHSFJOGPSDFNFOUUIFPSZ JUJTJNQPSUBOUUIBUFNQMPZFFTTIPVME
LOPXFYBDUMZXIBUNBOBHFNFOUFYQFDUTGSPNUIFN.BOBHFSTTIPVME
VTF BQQSPQSJBUF SFXBSET UP SFJOGPSDF CFIBWJPVS m UIFZ TIPVME FOTVSF
UIBU FNQMPZFFT WBMVF UIF SFXBSET UIFZ HJWF GPS EFTJSFE QFSGPSNBODF
"MMFNQMPZFFTIBWFEJŲFSFOUOFFET4PNFFNQMPZFFTNBZXBOUNPSF
NPOFZPUIFSTNBZQMBDFBIJHIFSWBMVFPONPSFMFJTVSFUJNFUPTQFOE
XJUIUIFJSGBNJMJFT*OBQQMZJOHUIFSFJOGPSDFNFOUUIFPSZ JUJTJNQPSUBOU
OPUUPSFXBSEQPPSQFSGPSNBODF CVUJUJTFRVBMMZJNQPSUBOUUPQSBJTF
employees for good performance.
'JHVSFPOUIFOFYUQBHFTIPXTIPXCFIBWJPVSDBOCFSFXBSEFE
using reinforcement theory.

Desirable Positive reinforcement
Avoidance
Individual
behaviour
Punishment
Undesirable
Extinction
Figure 20.6: The reinforcement theory model

20.4 MONEY AS A MOTIVATOR LEARNING OBJECTIVE 7

Management theorists often downplay the role of money as a motivator. Present arguments for and
Instead, they place more emphasis on the importance of factors such against the use of money as a
as challenging jobs, recognition for achievement and opportunities for motivator.
personal growth and creativity in the workplace. Researchers of human
behaviour agree that these factors do satisfy the higher-order needs of
people in the workplace. However, there is also evidence that money
influences people’s work performance. All the theories of motivation
dealt with in this chapter accept that money is a motivator under certain
conditions.
r .POFZTBUJTųFTUIFMPXFSPSEFSOFFETPG .BTMPXBOE)FS[CFSHT
hygiene factors according to the respective theories.
r 8FIBWFFYQMBJOFEJOPVSEJTDVTTJPOPG )FS[CFSHTUIFPSZUIBU
when the organisation links a monetary reward – such as a merit
bonus – to the recognition of good performance, it acts as a
motivator.
r &RVJUZUIFPSZTVHHFTUTUIBUXFVTFQBZBTBNFBTVSFNFOUPG GBJS
treatment by comparing it to our outputs.
r "DDPSEJOHUPUIFFYQFDUBODZUIFPSZ NPOFZJTBNPUJWBUPSJG
employees perceive that good performance results in a monetary
reward that they value highly.
r 5IFSFJOGPSDFNFOUUIFPSZTVHHFTUTUIBUNPOFZJTBSFXBSEUP
reinforce behaviour that leads to a positive job performance.
From the above, we can conclude that organisations should base a

balanced reward system on the assumption that different people have
EJŲFSFOU OFFET XIJDI UIFZ TBUJTGZ JO EJŲFSFOU XBZT 5IJT JT FTQFDJBMMZ
relevant for South African organisations where the workforce is hugely
diverse. A reward system should make provision for intrinsic as well as

PART V: Leading
extrinsic rewards to create an environment in which employees will be

motivated to achieve organisational goals.
LEARNING OBJECTIVE 8 20.5 DESIGNING JOBS THAT MOTIVATE

Explain how managers can use Organisations should design work by building a greater scope for
job design to motivate workers. personal achievement and recognition into the job. In this section, we
investigate the concepts of job enlargement, job enrichment and the job
characteristics model.
20.5.1 Job enlargement

job enlargement Job enlargement involves horizontal work loading – adding a greater
the addition of more diverse variety of tasks to an existing job. We illustrate the concept of job
tasks on the same level to an enlargement as follows:
existing job Worker A Worker B Worker C Worker D
Step 1 Step 2 Step 3 Step 4
In this example, four workers perform a job comprising four steps
and each of them completes one of the steps. The workers produce
60 units of a product daily, thus each worker repeats his or her step 60
times. By applying job enlargement, it is possible to redesign the task as
follows:
Worker A Worker B Worker C Worker D
Step 1–4 Step 1–4 Step 1–4 Step 1–4
Instead of repeating the same step 60 times, each of the four
workers produces 15 complete units of the product. The work will
be more meaningful to him or her because of this simple redesign. A
disadvantage of job enlargement is that it increases the variety of tasks,
but it does not necessarily alter the challenge that the work offers.
20.5.2 Job enrichment

Herzberg’s work on the two-factor motivation theory influenced
job enrichment thinking on vertical work loading (job enrichment). Job enrichment
the inclusion of higher-level addresses the shortcomings of job enlargement. It involves the vertical
tasks to a worker’s existing job, extension of jobs when the person responsible for the actual job takes
including planning and control on the planning and the control of the work, previously performed by
activities his or her manager. Immediate feedback on the work performed enables
the worker to set new goals aimed at improved performance.
Job enrichment is an important motivation technique because the job
design entails greater scope for personal achievement and recognition,
which leads to greater job satisfaction. In its simplest form job enrichment
entails the addition of measurable goals, decision-making, responsibility,
control and feedback on work, to the activities of the job incumbent.
The elements of job enrichment and their effect on motivation are
evident from the example15 shown in Figure 20.7 on the next page.

Measurable
goals
Decisions and Control and

responsibility feedback
Performance
of vertically
extended job
Figure 20.7: Job enrichment

20.5.3 The job characteristics model

The job characteristics model, developed by Hackman and job characteristics model
Oldham16, suggests that certain core job dimensions create critical the skill variety, task identity,
psychological states, which lead to beneficial personal and work task significance, autonomy
outcomes. The model recognises that these relationships are strongest and feedback dimensions of a
among employees who have a high need for personal growth and job create critical psychological
development. Individuals who are not particularly interested in personal states, which may lead to
growth and development are unlikely to experience the psychological positive personal and work
responses to the core job dimensions or the benefits of the predicted outcomes
personal and work outcomes. Thus, the model recognises an important
limitation of job enrichment: not all workers can or want to apply job
enrichment to their work. Furthermore, not all kinds of work or jobs
are suitable for job enrichment. The five core dimensions in the model
are skill variety, task identity, task significance, autonomy and feedback.
1. Skill variety – the more a worker can use his or her various skills
to perform a greater variety of tasks, the more challenge the job
offers.
2. Task identity – relates to the extent to which a worker performs
the job in its entirety. Tasks are frequently so over-specialised that
a worker can do only part of the total job, which leads to low job
satisfaction.
3. Task significance – this indicates the extent to which the task
influences the lives or work of other people. It is important for
people to know that their work is meaningful.
4. Autonomy – refers to the control a worker has over decision-
making and the way he or she performs the task. It relates to the
person’s cultivated sense of responsibility. Managers can use the
management-by-objectives technique to reinforce this dimension.
PART V: Leading
5. Feedback – denotes the extent to which the worker receives direct

and clear feedback on the effectiveness of his or her performance.
This dimension is important in terms of correcting deviations and
identifying errors.
According to Hackman and Oldham, the core dimensions listed above

create three critical psychological states:
Meaningfulness of the work

The first three factors (skill variety, task identity and task significance)
contribute to a task’s meaningfulness. According to the model, a task
is meaningful if the worker experiences it as being important, valuable,
and worthwhile. Fortune magazine’s prestigious ‘100 Best Companies
to Work For’ consistently rates Google as one of the best companies
to work for and one of the reasons may be their belief that Google
employees create meaningful products which they can believe in. Google
employees believe in the ability of technology to change the world and
are as passionate about their lives as they are about their work.
Responsibility for outcomes of the work

Autonomous jobs make workers feel personally responsible and
accountable for the work they perform. They are free to decide what to
do and how to do it, and so they feel more responsible for the results,
whether good or bad.
Knowledge of the actual results of the work activities

Feedback gives employees knowledge of the results of their work.
When a job provides people with information about the effects of their
actions, they can evaluate their performance more accurately, thereby
improving the effectiveness of job performance as a result.
Based on the proposed relationship between the core dimensions
and the resulting psychological responses, the model postulates that
job motivation would be highest when the job that a worker performs
scores high on the various dimensions. The Job Diagnostic Survey
( JDS) is a questionnaire that measures the degree to which various
job characteristics are present in a particular job. Managers use the
responses to the JDS to predict the degree to which a job motivates the
worker who performs it. They use an index known as the Motivating
Potential Score (MPS), calculated as follows:
Motivating Potential Score = [Skill Variety + Task Identity + Task Significance]

× [Autonomy] × [Feedback]
3
The MPS represents an index of a job’s potential to motivate workers.

The higher the MPS for a job, the greater the likelihood of beneficial
personal and work outcomes, such as high internal work motivation,

high-quality work performance, high satisfaction with the work, and

low absenteeism and turnover of employees. By knowing a job’s MPS, a
manager can identify jobs that are in need of redesigning.
Management applications of the job characteristics

model
The job characteristics model can guide managers to enhance the
motivating potential of jobs:
r $PNCJOFUBTLT UIFSFCZFOBCMJOHXPSLFSTUPQFSGPSNUIFFOUJSF
job (skill variety and task identity).
r 'PSNOBUVSBMVOJUTJOPSEFSGPSPUIFSTUPJEFOUJGZXPSLFSTXJUI
the work they do. An example here is to allocate responsibility to
each claim processor at an insurance company for specific accounts
instead of a random distribution of work (task identity and task
significance).
r &TUBCMJTIDMJFOUSFMBUJPOTIJQTCZBMMPXJOHUIFXPSLFSTXIPQSPWJEFB
service to meet the recipients (clients) (skill variety, autonomy and
feedback).
r -PBEKPCTWFSUJDBMMZ UIFSFCZQSPWJEJOHHSFBUFSSFTQPOTJCJMJUZBOE
control over work (autonomy).
r 1SPWJEFXPSLFSTXJUIGFFECBDLPOUIFSFTVMUTPGUIFJSXPSLBOE
keep feedback channels open.
In this chapter, we have discussed the fascinating subject of human

motivation with the focus on motivation in the workplace and the role
of motivation on worker performance. Throughout the discussion, we
considered the management applications of the various motivation
theories. It is essential for managers of contemporary organisations to
know why and how their employees are motivated (or not) to achieve
organisational goals.

Part V: Leading
CHAPTER SUMMARY
1. Explain what motivation encompasses.
From an organisational point of view, motivation is the willingness of an employee to achieve
organisational goals. The motivation process comprises an inner state of mind that channels
(or moves) an employee’s behaviour and energy towards the attainment of organisational
goals. The motivation process consists of the following interdependent elements: need,
motive, behaviour, consequence, satisfaction or dissatisfaction and feedback.
2. Illustrate and explain the motivation process.

See Figure 20.1. The motivation process begins when an individual has an unsatisfied need,
which provides a motive for the individual’s behaviour. The motive drives the individual’s
behaviour towards satisfying the need. The consequence of the behaviour will be either
positive or negative which could lead to satisfaction or dissatisfaction. In the case where
dissatisfaction is the outcome, the need remains unsatisfied, and the motivation process will
start all over again. Satisfaction, on the other hand, is usually short-lived because people have
many needs and as soon as one need is satisfied, another need will surface.
3. Differentiate between content theories, process theories, and reinforcement theories of

motivation.
The content and process theories deal with the ‘what’ and the ‘how’ of motivation
respectively. Reinforcement theories look at the ways in which desired behaviour can be
encouraged. See Table 20.1.
4. Discuss the content theories.

The content theories include the theories of Maslow, Alderfer, Herzberg and McClelland.
• Maslow’s hierarchy of needs differentiates between five needs, arranged in a hierarchy
where, according to Maslow, lower-order needs such as physiological needs, security needs
and social needs must be satisfied before people move on to satisfy the higher-order needs
of esteem and self-actualisation.
• Clayton Alderfer refined Maslow’s theory by dividing Maslow’s five needs into three broader
categories of needs, namely existence needs, relatedness needs and growth needs (ERG
theory).
• Herzberg’s two-factor motivation theory makes a distinction between motivators (factors
in the job content) and hygiene factors (factors in the job context) and states that only
motivators can motivate people whereas hygiene factors must be present (if they are not, it
will cause dissatisfaction) but if present, they will not motivate.
• McClelland’s achievement motivation theory postulates that people acquire certain types
of needs during a lifetime of interaction with the environment. According to McClelland,
different needs predominate in different people. An individual can be a high achiever, a
power-motivated person or someone with a high need for affiliation with others. The model
proposes that, when a need is strong, it will motivate the person to engage in behaviours to
satisfy that need.
5. Discuss the process theories.

The process theories deal with the process of how motivation actually occurs. The emphasis
is on the process of individual goal setting and the evaluation of satisfaction after the
achievement of goals. The best-known process theories are the equity theory and the
expectancy theory.
Chapter 20 Workforce motivation
6. Discuss reinforcement theory (behaviour modification) of motivation.

Reinforcement theory is a behaviourist approach, with the basic premise that behaviour is
a function of its consequences. The theory suggests that behaviours followed by positive
consequences will occur more frequently. Behaviours followed by negative consequences will
not occur as frequently. Ways to reinforce desired behaviour is through positive reinforcement,
avoidance and negative reinforcement, including punishment and extinction.
7. Present arguments for and against the use of money as a motivator.

Motivation theory places more emphasis on the importance of factors such as challenging
jobs, recognition for achievement, opportunities for personal growth and creativity in the
workplace as motivators. These factors do satisfy the higher-order needs of people in the
workplace. However, there is also evidence that money influences people’s work performance.
Many of the theories of motivation accept that money is a motivator under certain conditions.
For example, money satisfies the lower-order needs of Maslow and Herzberg’s hygiene
factors according to the respective theories. Equity theory suggests that we use pay as a
measurement of fair treatment by comparing it to our outputs. According to the expectancy
theory, money is a motivator if employees perceive that good performance results in a
monetary reward that they value highly. The reinforcement theory suggests that money is a
reward to reinforce behaviour that leads to a positive job performance.
8. Explain how managers can use job design to motivate workers.

Managers can use horizontal job loading (job enlargement), vertical job loading (job enrichment)
or use the principles of the job characteristics model, which suggests that certain core job
dimensions create critical psychological states, which lead to beneficial personal and work
outcomes.
KEY TERMS
acquired needs job context
autonomy job enlargement
avoidance job enrichment
esteem needs motivators
equity need for achievement
expectancy need for affiliation
existence needs need for power
extinction negative reinforcement
feedback physiological needs
growth needs positive reinforcement
hygiene factors relatedness needs
hierarchy of needs self-actualisation needs
higher-order needs skill variety

hygiene factors social needs
instrumentality task identity
job characteristics model task significance
job content valence
PART V: Leading
REVIEW QUESTIONS
1. Explain why money has a limited influence as a motivator. Use the various theories of motivation to
substantiate your arguments.
2. John loves his work. He has to make important decisions and take risks, for which he accepts full
responsibility. He thrives on the challenges of his job, but expects his manager to give him regular
feedback on his performance. Explain why John is a valuable employee in terms of McClelland’s
motivation theory.
3. A young employee is very keen to win the ‘Achiever of the Year’ award. Her perception is that if she
puts in an intense effort, her performance will be outstanding and thus enable her to win the award.
Use the expectancy theory to explain why she would be motivated to work very hard to win the
award.
4. A computer software company paid their programmers well, yet after attending a workshop where
the programmers compared their salaries and workload to that of programmers from another
company, they demanded even higher salaries. Explain, by using the appropriate motivation theory,
why the programmers were demotivated after returning from the workshop.
5. A survey of nurses found that two of their most important rewards were the belief that their work
was important and a feeling of accomplishment. Explain in terms of the job characteristics model why
the nurses are motivated to work hard.
END NOTES
1 Case study based on: Life at Google. [Online] Available from: http://www.google.com/intl/en/jobs/lifeatgoogle/
toptenreasons/index.html. Accessed on 24 October 2011.
2 Robbins, S.P. 2000. Organizational behavior. 9th edition. Upper Saddle River: Prentice-Hall, pp 173–174.
3 Ibid.
4 Available [Online] http://www.southafrica.info/business/economy/globalsurveys.htm. Accessed on 23 May 2013.
5 Basset-Jones, N. & Lloyd, G.C. 2005. Does Herzberg’s motivation theory have staying power? Journal of Management
Development, 24(10): 929–943.
6 Robbins, op. cit., p 164.
7 Robbins, S.P. & Judge, T.A. 2009. Organizational behavior. 13th edition. Upper Saddle River: Prentice-Hall, p 215.
8 Op. cit., p 215.
9 (i) Adapted from Lussier, R.N. 2000. Management fundamentals: concepts, applications, skill development. Cincinnati:
South-Western College Publishing, p 441. (ii) Booysen, L. Cultural differences between African black and white
managers in South Africa. Paper delivered at 12th Annual conference of the Southern Africa Institute for Management
Scientists, Pretoria, 31 October to 2 November 2000.
10 Griffen, R.W. 2011. Management: Principles and Practices. China: South-Western Gengage Learning, p 365.
11 Robbins, op. cit., p 231.
12 Ibid.
13 Plunkett, W.R., Attner, R.F. & Allen, G.S. 2002. Management: Meeting and exceeding customer expectations. 7th edition.
Cincinnati: South-Western College Publishing, p 428.
14 Williams, C. 2002. Effective management: A multimedia approach. Cincinnati: South-Western College Publishing, p 541.
15 Janson, R. & Purdy, J.R. 1975. A new strategy for job enrichment. California Management Review, (Summer), pp 55–71.
16 The discussion of this theory is based on (i) Greenberg, J. & Baron, R.A. 1993. Behavior in organizations: Understanding
and managing the human side of work. 4th edition. Boston: Allyn & Bacon, pp 140–141. (ii) Hackman, J.R. & Oldham, G.
1975. Development of the job diagnostic survey. Journal of Applied Psychology. (April), pp 150–170.

PART VI
%QPVTQNNKPI
Chapter 21
Principles of control
5FSTJB#SFWJT
PART VI: Controlling
OPENING CASE
Johnson & Johnson1
History
Johnson & Johnson ( J&J) and its family of companies (acetaminophen) elixir for children, was the first
are the world’s sixth-largest consumer health prescription aspirin-free pain reliever. A year
company, celebrating 125 years in the industry. later, it became available without prescription and
Furthermore, J&J is the world’s largest and most earned status as the pain reliever doctors and
diverse medical devices and diagnostics company, pediatricians recommended most. In the period
the world’s fifth largest biologics company and the 1976 to 1989, J&J entered new areas of health,
world’s eighth largest pharmaceutical company. such as vision care, mechanical wound closure
Currently, J&J has more than 250 operating and diabetes management. In 1987 the company
companies in 60 countries, employing about introduced ACUVUE® Brand Contact Lenses, the
116 000 people. first disposable contact lenses that could be worn
J&J was founded in 1886 by three brothers, for up to a week, thrown away and replaced with
Robert Wood Johnson, James Wood Johnson and a new pair. In 1994, the PALMAZ-SCHATZ® stent,
Edward Mead Johnson in New Brunswick, New the first coronary stent, revolutionised cardiology.
Jersey, US. Since 1886, the company played a huge Coronary stents keep vessels open so that blood
role in helping millions of people around the globe can flow to the heart. During 2002 the company
be well and stay well through more than a century entered new therapeutic areas such as HIV/Aids.
of change. Some of the company’s contributions In 2011, J&J celebrated 125 years of caring.
towards the consumer health industry are
highlighted below. The Tylenol crisis
In 1888, J&J published ‘Modern methods of J&J’s Tylenol pain reliever was certainly one of
antiseptic wound treatment’ which quickly became the most successful products in its 125 years.
one of the standard teaching texts for antiseptic However, it also posed one of the biggest
surgery. The company spread the practice of sterile challenges to the company. In 1982, when James
surgery in the US and around the world. In the same E. Burke was chairman and CEO of the company,
year, the company pioneered the first commercial seven people died in the Chicago area after taking
first aid kits. The initial kits were designed to help cyanide-laced, extra-strength Tylenol capsules. The
railroad workers, but soon it became the standard most prominent, and by now legendary, example
in treating injuries. In 1920, J&J’s employee Earle of good decision-making in a crisis remains J&J’s
Dickson invented BAND-AID®Brand Adhesive handling of the Tylenol disaster. Since the first
Bandages, which went on the market in 1921. death was reported on September 30, 1982, Burke
They were the first commercial dressings for small portrayed the ability to take a decision and act in
wounds that consumers could apply themselves. a crisis. Burke not only preserved the reputation
In 1954, JOHNSON’S®Baby Shampoo with NO of his highly respected consumer company, but he
MORE TEARS® formula entered the market as saved the Tylenol brand. At no point did he try to
the first mild and soap-free shampoo specifically back off from the company’s responsibility in the
designed to be gentle enough to clean babies’ hair incident, even though it was later proven that the
but not irritate their eyes. In 1959, the company tampering had occurred at the retail level. ‘When
acquired McNeil Laboratories in the US and Cilag those people died,’ says Burke, ‘I realised there were
Chemie, AG in Europe, giving J&J a significant some things we hadn’t done right. Responsibility
presence in the growing field of pharmaceutical for that incident had to be, in part, ours. It wasn’t
medicines. One McNeil product, TYLENOL® easy to take responsibility ... but it was clear to us,

CHAPTER 21 Principles of control
to me especially, that whether we could be blamed Should an event, such as the product tampering,
for the deaths or not, we certainly could have occur, J&J has procedures in place for immediate
helped to prevent them. How? Through packaging. action, for example the withdrawal of products,
The fact is that the package was easily invaded. and informing patients, doctors, consumers and
You could take the capsule out, open it up, put the government agencies about safety issues that will
poison in and then put the capsule back together. help protect people.
It was easy to do. I felt, and still feel, that it was our All medicines have some side effects. Although
responsibility to fix it.’ Burke’s conviction, and his all their medicines undergo years of scientific
total commitment to the safety of the customer, tests before they are approved to determine
led the company to spend $100 million on a recall safety and efficacy, the same safety issues cannot
of 31 million bottles of Tylenol, which before the be identified during drug development. Rare
tampering, had been the country’s best selling adverse reactions may not be detected because
over-the-counter pain reliever. The recall decision the number of patients that participate in clinical
was a highly controversial one because it was so tests is much smaller than the number of people
expensive. There were plenty of people within who take the drug once it is on the market. For this
the company who felt there was no possible way reason, J&J maintains a dedicated team of medical
to save the brand, that it was the end of Tylenol. professionals who study the safety and efficacy of
Many press reports said the same thing. But Burke their medicines after they have reached the market.
had confidence in J&J and its reputation, and also They monitor reports of adverse events that are
confidence in the public to respond to what was made to regulatory agencies around the world.
right. It helped turned Tylenol into a billion dollar
business. Within eight months of the recall, Tylenol
Ingredient safety
had regained 85 per cent of its original market
The J&J companies buy and manufacture an array
share and a year later, 100 per cent. The person
of raw materials, active ingredients, packaging
who tampered with the Tylenol was never found.
components and other supplies to make their
In 1984, J&J replaced capsules with caplets, and
products. They also use advanced technologies
in 1988, the company introduced gel caps, which
to deliver products with superior performance
look like capsules but cannot be taken apart. As
features. The safety and quality of these materials
evident from the information above, product
and technologies are critical to the success and
safety, ingredient safety and product quality and
safety of their final products.
safety compliance are high on J&J’s priority list.
Before J&J uses raw materials, their pharmacists,
toxicologists, laboratory analysts and other
Product safety health scientists conduct thorough evaluations in
As far as product safety is concerned, every their laboratories. They view their suppliers as
product that the company sells must meet their important partners in their business and require
high standards of quality, safety and efficacy. Safety them to provide raw materials, packaging and other
professionals at J&J companies conduct thorough supplies that meet J&J’s high standards of material
safety assessments as part of the detailed testing safety and quality. Their companies are expected
of quality, safety and effectiveness before any to comply with regulations on ingredients in all
new product is introduced to the market. These countries where their products are sold. Wherever
professionals make assessments of each raw authorities have set limits on certain ingredients,
material, to identify safe and effective ingredients, they require that their product formulations are
as well as the finished product, to ensure it works within those limits. They also work with regulatory
the way that it is intended to work. J&J also assesses authorities around the world to ensure that their
their products after they have reached their market ingredients are safe for patients and consumers as
in order to identify any safety issue that may occur. well as the environment.

Product quality and safety compliance r QSPDFEVSFTBSFJOQMBDFUPQSFWFOUEJWFSTJPO

"T UIF ++ DPNQBOJFT FWPMWF UP PQFSBUF VOEFS B from their products from their intended
TJOHMF RVBMJUZ GSBNFXPSL XJUI B DPNNPO TFU PG EJTUSJCVUJPODIBOOFMTBOEUPQSPUFDUUIFN
quality and compliance elements, these actions help from counterfeiting.
UP FOTVSF UIF IJHIFTU RVBMJUZ QSPEVDUT PO XIJDI
UIFJS DVTUPNFST IBWF SFMJFE VQPO GPS NPSF UIBO .BOZPG UIF++CVTJOFTTFTBOEGBDJMJUJFTIBWFCFFO
ZFBST&BDI++PQFSBUJOHDPNQBOZJTFYQFDUFE DFSUJųFE UP NFFU *OUFSOBUJPOBM 0SHBOJTBUJPO GPS
to ensure that: 4UBOEBSEJTBUJPO *40
SFRVJSFNFOUT GPS RVBMJUZ
r QSPEVDUTNFFUTBGFUZBOERVBMJUZSFRVJSFNFOUT NBOBHFNFOU*40DFSUJųDBUJPONFBOTUIBUBRVBMJUZ
and perform as required throughout their NBOBHFNFOUTZTUFNIBTCFFOUISPVHIBUIPSPVHI
shelf life SFWJFXFE QSPDFTT CZ BO PVUTJEF BVEJU DPNNJUUFF
r BMMQSPEVDUTBOEJOHSFEJFOUTUIBUUIFZQVSDIBTF BOE GPVOE UP TBUJTGZ SJHPSPVT TUBOEBSET ++T
from suppliers meet their requirements DPNNJUNFOU UP DPNQMJBODF BMTP FYUFOET UP UIFJS
FYUFSOBM NBOVGBDUVSFST 5IF ++ 3FTQPOTJCJMJUZ
r DIBOHFTUPNBUFSJBMT QSPEVDUMBCFMMJOH 4UBOEBSETGPS4VQQMJFSTBTTJTUTUIFNUPJEFOUJGZBOE
QBDLBHJOH QSPDFTTFT TZTUFNT GBDJMJUJFT TFMFDUCVTJOFTTQBSUOFSTUIBUPQFSBUFJOBNBOOFS
NFUIPETBOEFRVJQNFOUBSFSFWJFXFEBOE UIBUJTDPOTJTUFOUXJUIUIFJSWBMVFT RVBMJUZTUBOEBSET
BQQSPWFECFGPSFUIFZBSFNBEF and quality requirements.
LEARNING OBJECTIVES
6JKUEJCRVGTGZCOKPGUVJGRTKPEKRNGUQHEQPVTQNCPFIKXGUCPQXGTXKGYQHVJGXCNWGCPFKORQTVCPEGQH
EQPVTQN6JGQDLGEVKXGQHUVWF[KPIVJKUEJCRVGTKUVQGPCDNG[QWVQ
&GƂPGEQPVTQN
'ZRNCKPVJGKORQTVCPEGQHEQPVTQN
+ORNGOGPVVJGUVGRUKPVJGEQPVTQNRTQEGUUKPCPQTICPKUCVKQP
&KUVKPIWKUJDGVYGGPVJGXCTKQWUNGXGNUQHEQPVTQN
'ZRNCKPVJGXCTKQWUHWPEVKQPCNCTGCEQPVTQNU[UVGOU
+FGPVKH[CPFGZRNCKPVJGEJCTCEVGTKUVKEUQHCPGHHGEVKXGEQPVTQNU[UVGO
LEARNING OBJECTIVE 1 This opening case illustrates the importance of product safety, ingredient
&GƂPGEQPVTQN safety and product quality and safety compliance in a health and
QIBSNBDFVUJDBMDPNQBOZTVDIBT+PIOTPO+PIOTPO5IPSPVHIDPOUSPM
QSPDFTTFTBSFSFRVJSFECZUIFDPNQBOZUPFOTVSFUIJT
control
the regulatory task of
management that determines 21.1 A DEFINITION OF CONTROL
whether or not there has been ControlJTUIFųOBMTUFQJOUIFNBOBHFNFOUQSPDFTTBOEDBOCFEFųOFE
a deviation in the organisational BTUIFSFHVMBUPSZUBTLPG NBOBHFNFOUUIBUEFUFSNJOFTXIFUIFSPSOPU
plans so that steps can be taken UIFSFIBTCFFOBEFWJBUJPOJOUIFPSHBOJTBUJPOBMQMBOTTPUIBUTUFQTDBO
to prevent and/or rectify errors CFUBLFOUPQSFWFOUBOEPSSFDUJGZFSSPSTPSEFWJBUJPOTGSPNUIFQMBOT
or deviations from the plans 8JUIPVUDPOUSPM PSHBOJTBUJPOTIBWFOPJOEJDBUJPOPG IPXXFMMUIFZBSF

performing in relation to their goals. Control keeps the organisation

moving in the proper direction. At any point in time, control compares
where the organisation is in terms of performance (for example,
financial performance, productivity, and so on) to where it is supposed
to be. Control provides an organisation with a mechanism for adjusting
its course if performance falls outside acceptable boundaries. Without
effective control procedures in place, an organisation is unlikely to reach
its goals – or, if it does reach them, to know that it has. It is important
that control should be viewed as a continuous process in the organisation
and that it is interwoven with planning, organising and leading.
21.2 THE IMPORTANCE OF CONTROL LEARNING OBJECTIVE 2

Explain the importance of
Control is necessary in any organisation for the following reasons:
control.
r $POUSPMFOTVSFTUIBUBMMBDUJWJUJFTBUBMMMFWFMTPGUIFPSHBOJTBUJPO
are in accordance with the organisation’s overall objectives. In
this way, control provides a coordinating mechanism that links the
planning and control processes of an organisation.
r $POUSPMFOTVSFTUIBUUIFPSHBOJTBUJPOTSFTPVSDFTBSFEFQMPZFEJO
such a way that it attains its objectives.
r $POUSPMSFTVMUTJOCFUUFSRVBMJUZBOEFOBCMFTNBOBHFNFOUUPDPQF
with environmental change and uncertainty. Between the time
that goals and objectives are formulated and the time they are
attained, many things can (and do) happen in the organisation
and its environment to disrupt movement towards the goal – or
even change the goal itself. A properly designed control system
can help managers anticipate, monitor and respond to changing
circumstances. An improperly designed control system can result
in organisational performance that falls far below acceptable levels,
and may even lead to the downfall of the organisation.
r $PNQMFYPSHBOJTBUJPOTOFFEDPOUSPMNFBTVSFTUPFOTVSFUIBU
costly mistakes are avoided. Small mistakes and errors do not often
seriously damage the financial health of an organisation. Over time,
however, small errors may accumulate and become very serious if
not properly controlled. LEARNING OBJECTIVE 3
r *OPSEFSUPDPNQFUF PSHBOJTBUJPOTOFFEUPCFUJHIUMZSVO BOE Implement the control steps in
control is therefore necessary. When it is implemented effectively, an organisation.
control can also help reduce costs and increase outputs.
control process
r $POUSPMGBDJMJUBUFTEFMFHBUJPOBOEUFBNXPSL
a process followed by
management to ensure that
21.3 THE CONTROL PROCESS the organisation’s goals and
Control is the process in which management ensures that the objectives are realised or that
organisation’s goals and objectives are realised or that actual performance actual performance ties in with
ties in with predetermined standards. The steps in the control process predetermined standards
are highlighted in the next section. control standard
Step 1: Establish standards of performance. A control standard is a target against which
BUBSHFUBHBJOTUXIJDITVCTFRVFOUQFSGPSNBODFXJMMCFDPNQBSFE5IF subsequent performance will be
first step in the control process is to establish standards of performance. compared
Control standards should meet certain criteria. They should:

r CFFYQSFTTFEJONFBTVSBCMFUFSNT
r CFDPOTJTUFOUXJUIUIFPSHBOJTBUJPOBMHPBMT
r CFSFBMJTUJD
r JEFOUJGZQFSGPSNBODFJOEJDBUPST
1FSGPSNBODF JOEJDBUPST BSF NFBTVSFT PG QFSGPSNBODF UIBU QSPWJEF

JOGPSNBUJPO UIBU JT EJSFDUMZ SFMFWBOU UP XIBU JT CFJOH DPOUSPMMFE 'PS
FYBNQMF XIFODPOUSPMJTGPDVTFEPOSFWFOVF NPOUIMZTBMFTJODSFBTFT
BSFSFMFWBOU XIFSFBTTQFOEJOHGVOETPOSFTFBSDIBOEEFWFMPQNFOUJT
MFTTSFMFWBOU
Step 2: .FBTVSFBDUVBMQFSGPSNBODF The second step in the control
QSPDFTTJTUPNFBTVSFBDUVBMQFSGPSNBODF5IJTTUFQJOWPMWFTDPMMFDUJOH
EBUB BOE SFQPSUJOH PO BDUVBM QFSGPSNBODF 5IF WBSJBCMFT TIPVME CF
SFMJBCMF BOE RVBOUJųBCMF UP NBLF NFBOJOHGVM DPNQBSJTPO QPTTJCMF
0CTFSWBUJPOBOENFBTVSFNFOUTIPVMECFJOBDDPSEBODFXJUIUIFDPOUSPM
system; that is, they should occur at the strategic points and according
UP UIF TUBOEBSET EFUFSNJOFE CZ UIF DPOUSPM TZTUFN 'PS FYBNQMF
EBJMZ XFFLMZ BOE NPOUIMZ TBMFT ųHVSFT NFBTVSF TBMFT QFSGPSNBODF
BOEQSPEVDUJPOQFSGPSNBODFNBZCFFYQSFTTFEJOUFSNTPG VOJUDPTU
QSPEVDURVBMJUZPSWPMVNFQSPEVDFE&NQMPZFFTQFSGPSNBODFJTPGUFO
NFBTVSFEJOUFSNTPG RVBMJUZPSRVBOUJUZPG PVUQVU)PXFWFSGPSNBOZ
KPCTNFBTVSJOHQFSGPSNBODFJTOPUTPTUSBJHIUGPSXBSE
Step 3: &WBMVBUF EFWJBUJPOT The third step in the control process
JOWPMWFTDPNQBSJOHNFBTVSFEQFSGPSNBODFBHBJOTUFTUBCMJTIFETUBOEBSET
"DUVBMQFSGPSNBODFNBZCFIJHIFSUIBO MPXFSUIBOPSJEFOUJDBMUPUIF
TUBOEBSE*G BDUVBMQFSGPSNBODFJTIJHIFSUIBOUIFTUBOEBSE JUNBZNFBO
UIBUUIFTUBOEBSEDPVMEIBWFCFFOEFUFSNJOFEUPPMPXBOETIPVMECF
IJHIFSJOGVUVSF*G BDUVBMQFSGPSNBODFJTMPXFSUIBOUIFTUBOEBSE UIF
RVFTUJPO JT IPX NVDI EFWJBUJPO GSPN UIF TUBOEBSE UP BMMPX CFGPSF
UBLJOHSFNFEJBMBDUJPO0OMZFYDFQUJPOBMEJŲFSFODFTCFUXFFOBDUVBMBOE
QMBOOFE QFSGPSNBODF TIPVME CF DPNNVOJDBUFE UP UPQ NBOBHFNFOU
UIJTJTLOPXOBTADPOUSPMCZFYDFQUJPO
XIFSFBTTVCPSEJOBUFTEFBMXJUI
MFTTTJHOJųDBOUEFWJBUJPOT
Step 4: 5BLFDPSSFDUJWFBDUJPO The fourth and last step in the control
QSPDFTTJTUPEFUFSNJOFUIFOFFEGPSDPSSFDUJWFBDUJPO5IJTTUFQJTBJNFE
BU BDIJFWJOH PS CFUUFSJOH UIF QFSGPSNBODF TUBOEBSE BOE FOTVSJOH UIBU
EJŲFSFODFT EP OPU SFDVS *G UIFSF BSF TJHOJųDBOU EFWJBUJPOT DPSSFDUJWF
BDUJPO NBZ JODMVEF JNQSPWJOH UIF BDUVBM QFSGPSNBODF SFWJTJOH UIF
TUSBUFHZPSMPXFSJOHQFSGPSNBODFTUBOEBSET5IFPVUDPNFPG UIFųOBM
TUFQTFSWFTBTBOJOQVUUPUIFTVCTFRVFOUDPOUSPMQSPDFTTBOEJOEJDBUFT
the standard of performance.
'JHVSFPOUIFOFYUQBHFJMMVTUSBUFTUIFDPOUJOVPVTOBUVSFPG UIF
control process.

Measure actual performance

Establish standards of
performance
Evaluate deviations
Take corrective action
Figure 21.1: The control process
21.4 THE LEVELS OF CONTROL LEARNING OBJECTIVE 4

The management of any organisation is responsible for the performance Distinguish between the
of the organisation as a whole as well as the performance of individual various levels of control.
groups and departments. In this section, we focus on management’s task
to control the organisation as a whole. To enable management to control
the performance of the organisation requires control to be broken
down into levels. The two basic levels of control within the organisation
are strategic control and operations control. We shall briefly examine
each of these.
21.4.1 Strategic control

Strategic control is exercised at top management level and entails a close
study of the organisation’s:
r UPUBMFŲFDUJWFOFTT
r QSPEVDUJWJUZ
r NBOBHFNFOUFŲFDUJWFOFTT
r NBUVSJUZ
Total effectiveness
The chief concern when examining an organisation’s total effectiveness total effectiveness
is determining the extent to which it attains its mission and goals. This the extent to which the
involves an examination of the extent to which the organisation has organisation has reached its
reached its goals and the way in which the goals have been realised. goals and the way in which the
As mentioned in Chapter 10 (Principles of planning), the balanced goals have been realised
score card (BSC) is one of the most highly touted management tools
today, which serves as both a planning and control mechanism. As a balanced score card (BSC)
control mechanism, the BSC measures an organisation’s attainment of a management tool that
its mission by considering four dimensions, namely finance, customer measures an organisation’s
service, internal business performance, as well as learning and growth attainment of its mission by
performance. The intent is to link and balance the goals and related considering the role of finances,
measures for each perspective to one another. The financial and customers, internal processes
customer perspectives are viewed as focusing on outcomes, whereas and learning and growth
the internal and learning and growth perspectives are viewed as focusing
on activities. Examples of the factors and questions addressed in each of
these four dimensions include the following:

r 'JOBODJBMEJNFOTJPO5IFųOBODJBMEJNFOTJPOBOTXFSTUIF
RVFTUJPOA5PTVDDFFEųOBODJBMMZ IPXTIPVMEXFBQQFBSUPPVS
TIBSFIPMEFST .FBTVSFTPG UIFųOBODJBMEJNFOTJPOJODMVEF
QSPųUBCJMJUZ HSPXUIJOUFSNTPG QSPųUTBOEUIFNBSLFUWBMVFPG UIF
organisation.
r $VTUPNFSEJNFOTJPO5IFDVTUPNFSEJNFOTJPOBOTXFSTUIF
RVFTUJPOA5PBDIJFWFPVSWJTJPO IPXTIPVMEXFBQQFBSUP
PVSDVTUPNFST .FBTVSFTPG UIFDVTUPNFSEJNFOTJPOJODMVEF
QFSDFQUJPOTPG TFSWJDFRVBMJUZ USVTUXPSUIJOFTT BOEMPZBMUZ
r *OUFSOBMCVTJOFTTQSPDFTTFTEJNFOTJPO5IFJOUFSOBMCVTJOFTT
QSPDFTTFTEJNFOTJPOBOTXFSTUIFRVFTUJPOA5PTBUJTGZPVS
TIBSFIPMEFSTBOEDVTUPNFST XIBUCVTJOFTTQSPDFTTFTNVTU
XFFYDFMJO .FBTVSFTPG UIJTEJNFOTJPOJODMVEFQSPEVDUJWJUZ
FNQMPZFFNPUJWBUJPO PSHBOJTBUJPOBMDPNQFUFODJFT FNQMPZFF
DPNQFUFODJFT FNQMPZFFSBUFPG EFGFDUTBOEPSFSSPSTBOETBGFUZ
records.
r -FBSOJOHBOEHSPXUIEJNFOTJPO-BTUMZ UIFMFBSOJOHBOEHSPXUI
EJNFOTJPOBOTXFSTUIFRVFTUJPOA5PBDIJFWFPVSWJTJPO IPX
XJMMXFTVTUBJOPVSBCJMJUZUPDIBOHFBOEJNQSPWF .FBTVSFT
PGUIJTEJNFOTJPOJODMVEFLOPXMFEHFNBOBHFNFOU DSFBUJWJUZ
EFWFMPQNFOUPG OFXQSPEVDUTBOETFSWJDFT FNQMPZFFUSBJOJOHBOE
EFWFMPQNFOU
"MM GPVS EJNFOTJPOT PG UIF #4$ BSF FRVBMMZ JNQPSUBOU 5IF NPEFM
DPOUFOET UIBU MPOHUFSN PSHBOJTBUJPOBM FYDFMMFODF BOE RVBMJUZ DBO CF
BDIJFWFEPOMZCZUBLJOHBCSPBEBQQSPBDI BOEOPUCZTPMFMZGPDVTJOHPO
ųOBODJBM QFSGPSNBODF 'VSUIFSNPSF UIF NPEFM JT GVUVSF PSJFOUFE BOE
OPUQSJNBSJMZBSFWJFXNJSSPSPG QFSGPSNBODF BTJTPGUFOQPSUSBZFEJO
USBEJUJPOBMųOBODJBMSFQPSUTTVDIBTJODPNFTUBUFNFOUT CBMBODFTIFFUT
BOE DBTIŴPX TUBUFNFOUT *NQMFNFOUBUJPO PG UIF #4$ CFOFųUT BO
PSHBOJTBUJPOJOUIFGPMMPXJOHXBZT
*UIFMQTBMJHOLFZQFSGPSNBODFHPBMTBOENFBTVSFTXJUITUSBUFHZBU
BMMMFWFMTPG BOPSHBOJTBUJPO
5IFNPEFMQSPWJEFTNBOBHFNFOUXJUIBDPNQSFIFOTJWFQJDUVSFPG
CVTJOFTTPQFSBUJPOT
*UGBDJMJUBUFTDPNNVOJDBUJPOBOEVOEFSTUBOEJOHPGCVTJOFTTHPBMT
BOETUSBUFHJFTBUBMMMFWFMTPG BOPSHBOJTBUJPO
5IFNPEFMQSPWJEFTTUSBUFHJDGFFECBDLBOEMFBSOJOHUP
management.
productivity
Productivity
the relationship between
products and services (outputs) 5IF TFDPOE PWFSBMM JOTUSVNFOU PG DPOUSPM UIBU UPQ NBOBHFNFOU DBO
and the resources (inputs) used JOUSPEVDFUPFWBMVBUFUIFPSHBOJTBUJPOTQFSGPSNBODFBTBXIPMFJTUP
to generate those outputs in an study its productivity1SPEVDUJWJUZDBOCFEFųOFEBTUIFSFMBUJPOTIJQ
effort to provide an indication CFUXFFO QSPEVDUT BOE TFSWJDFT PVUQVUT
BOE UIF SFTPVSDFT JOQVUT

of the effectiveness with which VTFE UP HFOFSBUF UIPTF PVUQVUT JO BO FŲPSU UP QSPWJEF BO JOEJDBUJPO
the organisation’s resources are PG UIFFŲFDUJWFOFTTXJUIXIJDIUIFPSHBOJTBUJPOTSFTPVSDFTBSFCFJOH
being deployed EFQMPZFE 1SPEVDUJWJUZ JT OPSNBMMZ FYQSFTTFE BT B SBUJP JOEJDBUJOH UIF

SFMBUJPOTIJQ CFUXFFO UIF PVUQVUT BOE UIF SFTPVSDFT FNQMPZFE UP

HFOFSBUF UIF PVUQVUT 1SPEVDUJWJUZ SBUJPT QSPWJEF NBOBHFNFOU XJUI
BO JOEJDBUJPO PG UIF FŲFDUJWFOFTT XJUI XIJDI PSHBOJTBUJPOBM SFTPVSDFT
BSF CFJOH EFQMPZFE BOE BMMPDBUFE "O JNQSPWFNFOU PS JODSFBTF JO
QSPEVDUJWJUZGSPNPOFQFSJPEUPUIFOFYUJTSFQSFTFOUFEJOBOJODSFBTFJO
UIFPVUQVUmJOQVUSBUJPJOUIFTFDPOEQFSJPEDPNQBSFEUPUIFųSTU
1SPEVDUJWJUZDBOCFJODSFBTFEJOųWFCBTJDXBZT
r BHSFBUFSPVUQVUJTNBEFXJUIGFXFSJOQVUT
r BHSFBUFSPVUQVUJTNBEFXJUIUIFTBNFJOQVUT
r UIFTBNFPVUQVUJTNBEFXJUIGFXFSJOQVUT
r BTNBMMFSPVUQVUJTNBEFXJUIFWFOGFXFSJOQVUT
r BHSFBUFSPVUQVUJTNBEFXJUINPSFJOQVUT CVUUIFJODSFBTFJO
output is greater than the increase in inputs.
"DDPSEJOH UP UIF DPODFQU PG QSPEVDUJWJUZ BO JNQSPWFNFOU JO RVBMJUZ

JTBMTPSFHBSEFEBTBOJNQSPWFNFOUJOQSPEVDUJWJUZ FWFOJG BQBSUJDVMBS
PVUQVUmJOQVUSBUJPSFNBJOTDPOTUBOU7BSJPVTGPSNTPG QSPEVDUJWJUZFYJTU
'PS FYBNQMF UPUBM GBDUPS QSPEVDUJWJUZ JT BO JOEJDBUPS PG IPX XFMM UIF
PSHBOJTBUJPOVTFTBMMPG JUTSFTPVSDFT TVDIBTMBCPVSDBQJUBM JOGPSNBUJPO
QIZTJDBMSFTPVSDFTBOETPPO5PUBMGBDUPSQSPEVDUJWJUZJTEFųOFECZUIF
GPMMPXJOHGPSNVMB
5PUBMGBDUPSQSPEVDUJWJUZPVUQVUTJOQVUT
5IF CJHHFTU QSPCMFN XJUI UPUBM GBDUPS QSPEVDUJWJUZ JT UIBU BMM UIF
JOHSFEJFOUTNVTUCFTQFDJųFEJOUIFTBNFUFSNTm3BOET GPSFYBNQMF
'VSUIFSNPSF JU HJWFT MJUUMF JOTJHIU JOUP IPX UIJOHT DBO CF DIBOHFE UP
JNQSPWF QSPEVDUJWJUZ 'PS UIFTF SFBTPOT NBOZ PSHBOJTBUJPOT ųOE JU
NPSFVTFGVMUPDBMDVMBUFBQBSUJBMQSPEVDUJWJUZSBUJP'PSFYBNQMF MBCPVS
QSPEVDUJWJUZDBOCFDBMDVMBUFECZVTJOHUIFGPMMPXJOHGPSNVMB
-BCPVSQSPEVDUJWJUZMBCPVSPVUQVUTEJSFDUMBCPVS
5IJTNFUIPEIBTUXPBEWBOUBHFT'JSTU JUJTOPUOFDFTTBSZUPUSBOTGPSN
UIFVOJUTPG JOQVUJOUPTPNFPUIFSVOJU4FDPOEMZ UIJTNFUIPEQSPWJEFT
NBOBHFST XJUI TQFDJųD JOTJHIUT JOUP IPX DIBOHJOH EJŲFSFOU SFTPVSDF
JOQVUTBŲFDUTQSPEVDUJWJUZ
.BOBHFSTDPOTJEFSJUJNQPSUBOUUIBUUIFJSPSHBOJTBUJPOTNBJOUBJOIJHI
MFWFMTPGQSPEVDUJWJUZGPSBWBSJFUZPG SFBTPOT0SHBOJTBUJPOBMQSPEVDUJWJUZ
JTBQSJNBSZEFUFSNJOBOUPG BOPSHBOJTBUJPOTMFWFMPG QSPųUBCJMJUZBOE
VMUJNBUFMZ PG JUTBCJMJUZUPTVSWJWF*G POFPSHBOJTBUJPOJTNPSFQSPEVDUJWF
UIBOBOPUIFS JUXJMMIBWFNPSFQSPEVDUTUPTFMMBUMPXFSQSJDFTBOEIBWF
NPSFQSPųUTUPSFJOWFTUJOPUIFSBSFBT1SPEVDUJWJUZBMTPEFUFSNJOFTUIF
TUBOEBSEPG MJWJOHXJUIJOBQBSUJDVMBSDPVOUSZ
Management effectiveness
The third dimension of strategic control is measuring management management effectiveness
effectiveness5IJTBQQSPBDIJEFOUJųFTWBSJPVTDSJUJDBMTVDDFTTGBDUPST management audit of the
XIJDI JODMVEF QSPųUBCJMJUZ UIF PSHBOJTBUJPOBM TUSVDUVSF SFTFBSDI BOE organisation’s main success
EFWFMPQNFOU ųOBODJBM QPMJDZ BOE NBSLFU TIBSF UP NFOUJPO B GFX factors

5IFTFGBDUPSTBSFNFBTVSFECZBOFYUFSOBMDPOTVMUBOUFWFSZZFBSBOE
NBOBHFNFOUSFDFJWFTGFFECBDLTPUIBUJUDBOUBLFUIFOFDFTTBSZBDUJPO
organisational maturity Organisational maturity

the ability to achieve strategic Organisational maturity DBO CF EFųOFE BT UIF BCJMJUZ UP BDIJFWF
objectives with a stable and TUSBUFHJD PCKFDUJWFT XJUI B TUBCMF BOE DPNQFUFOU XPSLGPSDF UISPVHI
competent workforce, through FŲFDUJWFNBOBHFNFOUBOEMFBEFSTIJQQSJODJQMFT BOEFŲFDUJWFQSPDFTTFT
effective management and BOE TZTUFNT 5IF 0SHBOJTBUJPOBM .BUVSJUZ .PEFM IBT CFFO EFWFMPQFE
leadership principles, and JO PSEFS UP BTTFTT BO PSHBOJTBUJPOT QSPHSFTT UPXBSET QFSGPSNBODF
effective processes and systems FYDFMMFODF*OPSEFSUPBDIJFWFQFSGPSNBODFFYDFMMFODF BOPSHBOJTBUJPO
OFFETUPBEESFTTųWFLFZCVTJOFTTQSBDUJDFT OBNFMZ
1. Organisational strategy, structure and support. Organisational
TUSBUFHZBOETUSVDUVSFXFSFEJTDVTTFEJO$IBQUFSTBOE
SFTQFDUJWFMZ8JUIJOUIFPSHBOJTBUJPOBMNBUVSJUZDPOUFYU JUSFGFST
UPUIFGPSNVMBUJPO EFQMPZNFOUBOESFWJFXPG BOPSHBOJTBUJPOT
PWFSBMMTUSBUFHZBOEQMBOTBOEUIFPSHBOJTBUJPOBMTUSVDUVSFOFFEFE
to support its strategies and plans.
8PSLŴPXQSPDFTTFT"MMQSPDFTTFTOFFEUPCFJEFOUJųFE SFWJFXFE
BOEJNQSPWFE
.BOBHFNFOUTLJMMTBOEDPNQFUFODF.BOBHFSJBMTLJMMTBOE
DPNQFUFODJFTXFSFIJHIMJHIUFEJO$IBQUFSBTDSVDJBMDPOUSJCVUJOH
GBDUPSTUPUIFTVDDFTTPG BOPSHBOJTBUJPO*OUFSNTPG PSHBOJTBUJPOBM
NBUVSJUZ JUSFGFSTUPUIFCFIBWJPSBOEBDUJPOTPG UIFNBOBHFSJBM
team and leaders; and their inspiration, support and promotion of
a culture of performance and success.
'VODUJPOBMTLJMMTBOEDPNQFUFODF5IF0SHBOJTBUJPOBM.BUVSJUZ
.PEFMEPFTOPUPOMZIJHIMJHIUUIFJNQPSUBOUSPMFQMBZFECZ
UPQNBOBHFST JUBMTPTUSFTTFTUIFJNQPSUBODFPG UIFTLJMMTBOE
competency of functional management.
3FTPVSDFBOEJOGPSNBUJPONBOBHFNFOUTZTUFNT5IFMBTUCVTJOFTT
QSBDUJDFGPDVTFTPOUIFFŲFDUJWFBOEFŵDJFOUVUJMJTBUJPOPG
organisational resources and information.
5IFTFCVTJOFTTQSBDUJDFTNVTUCFBEESFTTFETJNVMUBOFPVTMZJOPSEFSUP
BDIJFWFQFSGPSNBODFFYDFMMFODF5IFTFQSBDUJDFTBSFJOUFSSFMBUFEBOE
BMMJNQBDUEJSFDUMZPOPUIFSQSBDUJDFTBOEUIFSFGPSFDPOUSJCVUFUPUIFJS
SFTQFDUJWFFŵDJFODZJNQSPWFNFOUPSEFUFSJPSBUJPO
5IF 0SHBOJTBUJPOBM .BUVSJUZ .PEFM JEFOUJųFT GPVS TUBHFT PG
PSHBOJTBUJPOBMNBUVSJUZ XIJDIDBOCFEFTDSJCFEBTGPMMPXT
Stage 1: .JOJNJTFNJTUBLFT5IJTJTUIFMPXFTUTUBHFPG NBUVSJUZJOBO
PSHBOJTBUJPOBOEDBOCFCSPLFOEPXOCZEFQBSUNFOU TFDUJPOPSVOJUPG
UIFPSHBOJTBUJPO XIJDIBSFQFSDFJWFEBTBEEJOHWFSZMJUUMFWBMVFUPUIF
PSHBOJTBUJPO 5IF SPBE UPXBSET JNQSPWFNFOU XJUIJO UIF EFQBSUNFOU
VOJUPSTFDUJPO CFHJOTXJUIUIFSFBMJTBUJPOPG OPOQFSGPSNBODFXIJDI
OFFET UP MFBE UP JNNFEJBUF BDUJPO *NNFEJBUF BDUJPO JOWPMWFT UIF
FTUBCMJTINFOU PG B DVMUVSF PG NJOJNJTJOH DPTUMZ NJTUBLFT JO PSEFS UP
TUJNVMBUF BO FOWJSPONFOU XIFSF DBMDVMBUFE SJTLT BSF FODPVSBHFE
"O JNQSPWFNFOU QSPKFDU DBO CF MBVODIFE UP BEESFTT CSFBLUISPVHI
JNQSPWFNFOUTJOCVTJOFTTQSBDUJDFT XIJDINBZMPPLBTGPMMPXTBUUIJT
stage:
r 0SHBOJTBUJPOTUSBUFHZ TUSVDUVSFBOETVQQPSU#VTJOFTTQMBOT
QSPHSBNNFTBOEQSPKFDUTBSFOPUBMJHOFEXJUITUSBUFHZ
PSHBOJTBUJPOBMTUSVDUVSFJTOPUDPOEVDJWFUPUIFGSFFŴPXPG
JOGPSNBUJPOBMUIPVHIQSPKFDUNBOBHFNFOUJTXFMMSFDPHOJTFE
UIFPSHBOJTBUJPOEPFTOPUTVQQPSUPSQMBDFQSJPSJUZPOQSPKFDU
BDUJWJUJFT
r 8PSLŴPXQSPDFTTFT1SPDFTTFTBSFBEIPDBOEOPUXFMM
EPDVNFOUFE OPEJŲFSFOUJBUJPOJTNBEFXJUISFHBSEUPDPNQMFYJUZ
SJTLPSDPNQFUFODF2VBMJUZIBQQFOTCZBDDJEFOU
r 4LJMMTBOEDPNQFUFODF%FWFMPQNFOUQMBOTGPSFNQMPZFFTBSFOPU
BQSJPSJUZ OPUNVDIPQQPSUVOJUZJTDSFBUFEXJUISFHBSEUPUFBN
DPNQFUFODFPSJOEJWJEVBMTQFDJBMJTBUJPO
r 3FTPVSDFBOEJOGPSNBUJPONBOBHFNFOUTZTUFNT4ZTUFNTBSF
TUBOEBMPOFXJUIWFSZMJNJUFEJOUFSGBDJOH IBOEPWFSTBSFNBOVBMBOE
lead times are consistently long.
Stage 2: *OEVTUSZ QPTJUJPOJOH %VSJOH UIF TFDPOE QIBTF PG UIF
0SHBOJTBUJPOBM .BUVSJUZ .PEFM FNQIBTJT JT QMBDFE PO BEEJOH WBMVF UP
UIF JOUFSOBM FOWJSPONFOU BOE UP ESJWF FŵDJFODJFT .BOBHFNFOU TFFLT
UP UBLF TPNF BEWBOUBHF JO JUT SFTPVSDF BMMPDBUJPO JO PSEFS UP HBJO B
NFBTVSFPGDPNQFUJUJWFBEWBOUBHF"MMEFWFMPQNFOUQSPKFDUTBSFMJOLFE
UPUIFPSHBOJTBUJPOTTUSBUFHJDJOUFOU5IFPSHBOJTBUJPOBMDVMUVSFFWPMWFT
UPCFJOHSFDPHOJTFEBTACFJOHBNPOHTUUIFCFTUJOJUTJOEVTUSZ#VTJOFTT
QSBDUJDFTNBZIBWFUIFGPMMPXJOHDIBSBDUFSJTUJDTEVSJOHUIJTQIBTF
r 0SHBOJTBUJPOBMTUSBUFHZ TUSVDUVSFBOETVQQPSU1SPKFDUTBOE
QSPHSBNNFTBSFBMJHOFEXJUITUSBUFHZUIFPSHBOJTBUJPOBMTUSVDUVSF
JTDPOEVDJWFUPUIFGSFFŴPXPG JOGPSNBUJPOQSPKFDUNBOBHFNFOU
JTOPUPOMZXFMMSFDPHOJTFECVUUIFPSHBOJTBUJPOBDUVBMMZQMBDFTB
QSFNJVNPOBMMQSPKFDUBDUJWJUJFT
r 8PSLŴPXQSPDFTTFT1SPDFTTFTBSFXFMMEPDVNFOUFEBOE
GPMMPXFE2VBMJUZIBQQFOTDPOTJTUFOUMZCVUJTJOUFSOBMMZGPDVTFE
5IFPSHBOJTBUJPOSFDPHOJTFTUIFQPXFSPG CFODINBSLJOH
r 4LJMMTBOEDPNQFUFODF%FWFMPQNFOUQMBOTGPSFNQMPZFFTBSFJO
QMBDFBOEPQQPSUVOJUZJTDSFBUFEXJUISFHBSEUPUFBNDPNQFUFODF
BOEJOEJWJEVBMTQFDJBMJTBUJPO$PNQFUFODFJTTUJMMJOUFSOBMMZGPDVTFE
XJUITLJMMTEFWFMPQNFOUBJNFEBUJNQSPWJOHJOUFSOBMFŵDJFODJFT
r 3FTPVSDFBOEJOGPSNBUJPONBOBHFNFOUTZTUFNT"XPSLŴPX
management system is in place and interfaces to critical resource
NBOBHFNFOUTZTUFNT NBOVBMIBOEPWFSTBSFNJOJNJTFEBOEMFBE
UJNFTBSFDPOTJEFSBCMZJNQSPWFE5IFXPSLŴPXNBOBHFNFOU
TZTUFNUBLFTDBSFPGDIBOHFNBOBHFNFOUBOEDPOųHVSBUJPO
management.
Stage 3: *OEVTUSZ MFBEFS The third phase of the Organisational
.BUVSJUZ.PEFMSFQSFTFOUTBNVDINPSFQSPHSFTTJWFQFSDFQUJPOPG UIF
PSHBOJTBUJPO.BOBHFNFOUFYQFDUTUIFPSHBOJTBUJPOUPBDUJWFMZTVQQPSU
BOE TJHOJųDBOUMZ TUSFOHUIFO JUT DPNQFUJUJWF QPTJUJPO BOE CFDPNF B
DPNQFUJUJWFMFBEFSJOJUTJOEVTUSZ"MMDPOUSJCVUJPOTBSFEFSJWFEGSPNBOE
BSFEJDUBUFECZUIFPSHBOJTBUJPOBMTUSBUFHZ0SHBOJTBUJPOTPGUFOBSSJWFBU
UIJTTUBHFBTBOBUVSBMDPOTFRVFODFPG CPUIUIFJSTVDDFTTJOEFWFMPQJOH
BOFŲFDUJWFCVTJOFTTTUSBUFHZCBTFEPOGPSNBMQMBOOJOHQSPDFTTFTBOE
UIFJSXJTIUPTVQQPSUUIBUTUSBUFHZJOBMMGVODUJPOBMBSFBT*OUIJTTUBHF
UIF PSHBOJTBUJPOBM DVMUVSF IBT FWPMWFE UP CFJOH SFDPHOJTFE BT ACFJOH
UIF CFTU JO JUT JOEVTUSZ UIFSFCZ ųOEJOH BO PQUJNBM NJY JO FŵDJFODZ
BOEFŲFDUJWFOFTT#VTJOFTTQSBDUJDFTIBWFUIFGPMMPXJOHDIBSBDUFSJTUJDT
during this phase:
r 0SHBOJTBUJPOBMTUSBUFHZ TUSVDUVSFBOETVQQPSU-POHBOETIPSU
term strategies are optimised and critical performance indices
BSFVTFEUPNFBTVSFWBSJBODFTCFUXFFOBDUVBMBOEQMBOOFE
QFSGPSNBODF"MMQSPKFDUTBOEQSPHSBNNFTBSFJOJUJBUFEGSPN
TUSBUFHZEFWFMPQNFOUUIFPSHBOJTBUJPOBMTUSVDUVSFGVMMZTVQQPSUT
UIFGSFFŴPXPG JOGPSNBUJPO&BSMZXBSOJOHTZTUFNTBSFJOQMBDFGPS
DSJUJDBMCVTJOFTTBSFBTUIFPSHBOJTBUJPOIBTTVDDFTTGVMMZTIJGUFEUPB
NBOBHFCZQSPKFDUPSQSPHSBNNFDVMUVSF
r 8PSLŴPXQSPDFTTFT1SPDFTTFTBSFTUSFBNMJOFE CPUUMFOFDLT
IBWFCFFOSFNPWFEBOENFUSJDTBSFJOQMBDFUPNFBTVSFQSPDFTT
QFSGPSNBODF3JTLBOEDPNQFUFODFDPOUSJCVUFHSFBUMZUPXBSET
SFTPVSDFPQUJNJTBUJPO2VBMJUZJTOPUOFHPUJBCMFBOEUIFGPDVT
JTTIJGUJOHUPXBSETBEEJOHWBMVFUPUIFFYUFSOBMFOWJSPONFOU
#BDLXBSEBOEGPSXBSEWFSUJDBMJOUFHSBUJPONBZCFBDIJFWFEXJUI
MJUUMFFŲPSU#FODINBSLJOHPG QSPDFTTFTJTVOEFSUBLFOBOEGPSN
QBSUPG UIFPSHBOJTBUJPOTMFBSOJOHJOJUJBUJWFT
r 4LJMMTBOEDPNQFUFODF%FWFMPQNFOUQMBOTGPSUFBNTBOE
FNQMPZFFTBSFBMJHOFEBOEGVMMZTVQQPSUBDIJFWJOHUIFPSHBOJTBUJPOT
TUSBUFHZ.BOBHFNFOUBOEGVODUJPOBMNBUVSJUZJTFWJEFOUJOBMMBSFBT
PG UIFCVTJOFTTFOWJSPONFOU$PNQFUFODFGPDVTJTTIJGUJOHUPUIF
FYUFSOBMFOWJSPONFOUXJUIEFWFMPQNFOUQMBOTJODMVEJOHFYUFSOBM
interfaces.
r 3FTPVSDFBOENBOBHFNFOUJOGPSNBUJPOTZTUFNT"MMTZTUFNT
BSFGVMMZJOUFHSBUFEBOEQSPBDUJWFTZTUFNTMFBSOJOHUBLFTQMBDF
/PNBOVBMIBOEPWFSTFYJTUXJUIMFBEUJNFTPODPNQMFYXPSL
FYDFFEJOHDVTUPNFSFYQFDUBUJPOT
Stage 4: 4VTUBJO JOEVTUSZ MFBEFSTIJQ QPTJUJPO 5IF ųOBM TUBHF JO UIF
NPEFM JT UIF NPTU QSPHSFTTJWF PG UIF GPVS TUBHFT %VSJOH UIJT QIBTF
UIF PSHBOJTBUJPO JT FYQFDUFE UP QSPWJEF TJHOJųDBOU TVQQPSU UP UIF
EFTJSFEDPNQFUJUJWFBEWBOUBHF5IFPSHBOJTBUJPOBMDVMUVSFIBTFWPMWFE
UPDPOUJOVPVTJNQSPWFNFOUBTXFMMBTUIFDPOUJOVPVTTFFLJOHGPSOFX
PQQPSUVOJUJFT#VTJOFTTQSBDUJDFTIBWFUIFGPMMPXJOHDIBSBDUFSJTUJDT
r 0SHBOJTBUJPOBMTUSBUFHZ TUSVDUVSFBOETVQQPSU5IFPSHBOJTBUJPO
DPMMBCPSBUFTBOESFMJFTPOJUTSFMBUJPOTIJQXJUIUIFFYUFSOBM
FOWJSPONFOU$SJUJDBMQFSGPSNBODFJOEJDFTBSFVTFEUPNFBTVSF
WBSJBODFT&YUFSOBMQSPKFDUTBOEQSPHSBNNFTBSFJOJUJBUFEGSPN
TUSBUFHZEFWFMPQNFOUFYUFSOBMTUSVDUVSFTBSFGVMMZTVQQPSUJWFPG
UIFGSFFŴPXPG JOGPSNBUJPOXJUIFBSMZXBSOJOHTZTUFNTJOQMBDFGPS
DSJUJDBMCVTJOFTTBSFBT5IFPSHBOJTBUJPOIBTTVDDFTTGVMMZTIJGUFEUPB
NBOBHFCZQSPKFDUDVMUVSF
r 8PSLŴPXQSPDFTTFT4UPOFXBMMTBOECPUUMFOFDLTIBWFCFFO
SFNPWFEGSPNFYUFSOBMQSPDFTTFTNFUSJDTBSFJOQMBDFUPNFBTVSF
PWFSBMMQSPDFTTQFSGPSNBODF&YUFSOBMBOEJOUFSOBMRVBMJUZJOUFSNT
PG XPSLŴPXQSPDFTTFTJTOPUOFHPUJBCMF BOEFYUFSOBMFOUJUJFTBSF
FODPVSBHFEUPQBSUJDJQBUFJOCFODINBSLJOHJOJUJBUJWFT
r 4LJMMTBOEDPNQFUFODF%FWFMPQNFOUQMBOTGPSFYUFSOBMBOE
JOUFSOBMUFBNTBOEFNQMPZFFTBSFBMJHOFEBOEGVMMZTVQQPSU
UIFPWFSBMMTUSBUFHZ"QSFNJVNJTQMBDFEPONBOBHFNFOUBOE
GVODUJPOBMNBUVSJUZJOBMMBSFBTPG UIFFYUFSOBMBOEJOUFSOBM
NBOBHFNFOUFOWJSPONFOU5SBJOJOHQMBOTGVMMZTVQQPSUUIF
EFWFMPQNFOUPG UIFTVCKFDUNBUUFSTDJFODF CFGPSFBEESFTTJOH
UIFBSUPG FYFDVUJPO*OEVTUSZDFSUJųDBUJPODPNQMFUFTUIF
RVBMJUZQFSTQFDUJWFBOEJTTFFOBTBDPNQFUJUJWFBEWBOUBHFXJUI
DPNNFSDJBMWBMVFGPSUIFQFSTPOBTXFMMBTUIFPSHBOJTBUJPO
r 3FTPVSDFBOENBOBHFNFOUJOGPSNBUJPOTZTUFNT"MMFYUFSOBM
JOGPSNBUJPOTZTUFNTBSFGVMMZJOUFSGBDFEXJUIJOUFSOBMTZTUFNT
BOEQSPBDUJWFTZTUFNTMFBSOJOHUBLFTQMBDF/PFYUFSOBMNBOVBM
IBOEPWFSTFYJTUXJUIMFBEUJNFTPOBMMDPNQMFYXPSLFYDFFEJOH
DVTUPNFSFYQFDUBUJPOT$PNNVOJDBUJPOBOESJTLNBOBHFNFOU
FYUFOETUPTPDJBMNFEJB
5IFDIBSBDUFSJTUJDTPG UIFCVTJOFTTQSBDUJDFTJOFBDIPG UIFBCPWFGPVS

QIBTFTPGUIFPSHBOJTBUJPOBMNBUVSJUZNPEFMXJMMQSPWJEFBOJOEJDBUJPO
PGUIFNBUVSJUZPG UIFPSHBOJTBUJPO*EFBMMZ BOPSHBOJTBUJPOXJMMBJNUP
IBWFUIFDIBSBDUFSJTUJDTBTTPDJBUFEXJUI1IBTFPG UIFNPEFM JOPSEFS
UPTVTUBJOJUTJOEVTUSZMFBEFSTIJQQPTJUJPOPWFSUIFMPOHUFSN'JHVSF
JMMVTUSBUFTUIFWBSJPVTQIBTFTJOUIFNPEFM
STAGE 1
Minimise mistakes
STAGE 2
Position in industry
STAGE 3
Being an industry leader
STAGE 4
Sustain the industry leader position
Figure 21.2: Four stages of the Organisational Maturity Model
5IF BCPWF PWFSWJFX PG TUSBUFHJD DPOUSPM FNQIBTJTFT UIF DPNQMFYJUZ

PG UIF NBOBHFNFOU UBTL "U B MPXFS MFWFM NBOBHFNFOU FYFSDJTFT
PQFSBUJPOTDPOUSPM
21.4.2 Operations control

4USBUFHJDDPOUSPMTUBSUTBUUIFUPQBOEŴPXTEPXOUIFPSHBOJTBUJPOUP
UIFEBZUPEBZPQFSBUJPOT0QFSBUJPOTDPOUSPMJTUIFSFGPSFDPODFSOFE
XJUIUIFPSHBOJTBUJPOTQSPDFTTFTUIBUFOUBJMUSBOTGPSNJOHSFTPVSDFTJOUP
QSPEVDUT BOE TFSWJDFT 'PS FYBNQMF TVQQMJFST DSFEJUPST BOE MFOEFST
JOQVUT
FWBMVBUF UIF PSHBOJTBUJPOT BCJMJUZ UP QBZ UIFN BOE XIJMF
NBOVGBDUVSJOHUIFQSPEVDUTPSQSPEVDJOHUIFTFSWJDF USBOTGPSNBUJPO


quality control is exercised. Finally, customers evaluate product

performance and service after the sale (outputs) when making
purchasing decisions. Operations control is exercised at different points
in the transformation process, namely when inputs are made, when
transformation takes place, and when outputs are produced. Figure 21.3
illustrates the systems process with types of control.
Inputs Transformation Outputs Stakeholder

process satisfaction
Preliminary Concurrent Rework Damage
control control control control
Feedback
Figure 21.3: Systems process with the various types of control
At the different stages of the systems process, different types of control

are needed:
preliminary control Preliminary control concentrates on the resources or inputs – that
control over the resources or is, financial, human, information, entrepreneurial, physical – that the
inputs – that is, financial, human, organisation gets from the external environment. Preliminary control
information, entrepreneurial, is designed to anticipate and prevent possible problems. Planning
physical – that the organisation and organising are the keys to preliminary control. In functional
gets from the external departments, preliminary control plays an important role. For example,
environment in the operations department, machines should be serviced to prevent
breakdowns that would cause problems later on. In the opening case,
safety professionals at J&J companies make assessments of each raw
material used to identify safe and effective ingredients. J&J views their
suppliers as important partners in their business and require them to
provide raw materials, packaging and other supplies that meet J&J’s high
standards of material safety and quality. Their companies are expected
to comply with regulations on ingredients in all countries where the
products are sold. J&J also work with regulatory authorities around the
world to ensure that ingredients are safe for patients and consumers as
well as the environment.
concurrent control Concurrent control involves taking action as inputs are
transformed into outputs to ensure that standards are met. The aim of
taking action as inputs are
concurrent control is to meet standards for product or service quality
transformed into outputs to
or quantity. Concurrent control relies heavily on feedback. More and
ensure that standards are met
more organisations are adopting concurrent controls because these are
an effective way to promote employee participation and catch problems
early in the overall transformation process. In the case of J&J, many of
the companies’ businesses and facilities have been certified to meet
International Organisation for Standardisation (ISO) requirements for
quality management. ISO certification means that a quality management

system has been through a thorough reviewed process by an outside audit

committee and found to satisfy rigorous standards. J&J’s commitment
to compliance also extends to their external manufacturers. The J&J
Responsibility Standards for Suppliers assist them to identify and select
business partners that operate in a manner that is consistent with their
values, quality standards and quality requirements.
Rework control focuses on the outputs of the organisation rework control
after the transformation process is complete. Final products can be control over the outputs of
inspected before they are sold. Although rework control alone may the organisation after the
not be as effective as preliminary or concurrent control, it can provide transformation process is
management with information for future planning. For example, if a complete
quality check of finished products indicates an unacceptably high defect
rate, the production manager knows that he or she must identify the
causes and take steps to eliminate them. Rework control can provide
a basis for rewarding employees. Recognising that an employee has
exceeded personal sales goals by a wide margin, for example, may alert
the manager that a bonus or merit is in order.
Damage control (customer/stakeholder satisfaction) means action damage control (or customer/
is taken to minimise the negative impacts on customers or stakeholders stakeholder satisfaction)
due to faulty outputs. One form of damage control is warranties, which action is taken to minimise the
requires refunding the purchase price, fixing the product or replacing the negative impacts on customers
product. In the opening case, J&J also conducts damage control. Should or stakeholders due to faulty
an event such as product tampering occur, they have procedures in place outputs
for immediate action, for example the withdrawal of products, and
informing doctors, consumers and government agencies about safety
issues that will help protect people.
Feedback from customers and stakeholders is used to ensure
continuous improvement in products. The J&J company also makes use
of feedback control which is a measurement of the organisation’s feedback control
attainment of its mission. All medicines have some side effects. a measurement of the
Although all their medicines undergo years of scientific tests before it organisation’s attainment of its
is approved to determine whether it is safe and effective in treating a mission
particular disorder, some safety issues cannot be identified during drug
development. Rare adverse reactions may not be detected because
the number of patients that participate in clinical tests is much smaller
than the number of people who take the drug once it is on the market.
Most organisations, such as J&J, use more than one form of operations
control. In what follows, we will discuss the various forms of functional
area control systems.
21.5 FUNCTIONAL AREA CONTROL SYSTEMS LEARNING OBJECTIVE 5

Organisational systems control can be applied to all the major functional Explain the various functional
areas in the organisation, namely finance, human resources, physical area control systems.
resources and information.
21.5.1 Financial control Ƃnancial control

Financial control is the control of financial resources as they flow into the control of financial resources
the organisation (such as revenues and shareholder contributions), are as they move through the
held by the organisation (such as working capital and retained earnings), organisation

and flow out of the organisation (such as expenses and salaries).

Organisations need to manage their finances so that revenues are
sufficient to cover costs and still earn a profit for the owners. The control
of financial resources is central to the control of other resources in the
organisation. Financial control can be executed by means of budgets,
financial statements, ratio analysis and financial audits.
Budget
budget A budget is a plan expressed in numerical terms. Organisations need
a plan expressed in numerical to compile a budget for work groups, departments, sections and for
terms the organisation as a whole. The usual time period for a budget is
one year, but quarterly and monthly breakdowns are also commonly
used. Budgets are generally expressed in financial terms, but they may
occasionally be expressed in units of output, time or other quantifiable
factors. Most organisations make use of three types of budgets:
r 'JOBODJBMCVEHFU"ųOBODJBMCVEHFUJOEJDBUFTXIFSFUIF
organisation expects to obtain its cash for the coming financial
period and how it plans to use it. An example of a financial budget
is a cash budget, which shows all sources of cash income and cash
expenditures for a certain period of time.
r 0QFSBUJOHCVEHFU"OPQFSBUJOHCVEHFUJTDPODFSOFEXJUIUIF
planned operations within the organisation. An example of an
operating budget is a sales budget, which shows the income that
the organisation expects to receive from normal operations.
r /PONPOFUBSZCVEHFU"OPONPOFUBSZCVEHFUJTTJNQMZBCVEHFU
FYQSFTTFEJOOPOųOBODJBMUFSNT TVDIBTBMBCPVSCVEHFU XIJDI
shows the hours of direct labour available for use.
Financial statements
Ƃnancial statement A financial statement is a profile of some aspect of an organisation’s
profile of some aspect of
financial circumstances. The three most basic financial statements, which
an organisation’s financial
should be prepared and used by all organisations, are the balance sheet,
circumstances
income statement and cashflow statement. A balance sheet lists the
assets and liabilities of the organisation at a specific point in time, usually
the last day of the organisation’s financial year. The balance sheet can
be seen as a snapshot of the organisation’s financial position at a single
point in time. The income statement summarises financial performance
over a period of time, usually one year. An organisation’s revenues,
less expenses, are reported to give the net income (profit or loss) for a
certain period. The cashflow statement presents the cash receipts and
payments for the stated time period.
Ƃnancial ratios Financial ratios

Information from an organisation’s balance sheet and income statement
compare different elements
is used in computing financial ratios. Financial ratios compare different
of a balance sheet or income
elements of a balance sheet or income statement with one another to
statement with another to
assess the financial health, position and performance of the organisation.
assess the financial health,
Liquidity ratios indicate how easily organisational assets can be converted
position and performance of the
JOUPDBTI%FCUSBUJPTNFBTVSFUIFPSHBOJTBUJPOTBCJMJUZUPNFFUMPOH
organisation
term financial obligations.
Financial audits Ƃnancial audit

Financial audits are independent appraisals of an organisation’s independent appraisal of an
accounting, financial and operational systems. There are two major organisation’s accounting,
types of financial audit, namely the external and the internal audit. financial and operating systems
External audits are financial appraisals conducted by experts who are not
employees of the organisation. External audits are typically concerned
with determining that the organisation’s accounting procedures and
financial statements are compiled in an objective and verifiable manner.
An internal audit is handled by employees of the organisation. Its
objective is the same as that of an external audit – to verify the accuracy
of financial and accounting procedures used by the organisation.
Furthermore, internal audits examine the efficiency and appropriateness
of financial and accounting procedures.
21.5.2 The control of human resources

Human resources are one of the organisation’s main resources and
should be controlled meaningfully. The main instruments used to control
an organisation’s human resources are performance measurement,
coaching, counselling and disciplining.
Performance measurement
In performance measurement, the performance of groups and performance measurement
individuals is assessed and compared with predetermined standards. the performance of groups and
Tasks are subdivided into components and the importance of each sub- individuals is assessed and
task is determined so that criteria and measuring instruments can be compared with predetermined
developed. Performance standards are then developed so that actual standards
performance can be measured against these standards for feedback to
management and consequent action can be taken.
Coaching
Coaching refers to a one-to-one relationship between a manager and an coaching
individual employee, aimed at developing and improving the employee’s one-on-one relationship
on-the-job performance. Motivational feedback is given to individuals between a manager and an
in order to maintain and improve their performance. Employees who individual employee aimed
are given more immediate, frequent and direct feedback perform at at developing and improving
higher levels than those who are not given such feedback. Coaching is the individual’s on-the-job
an important management skill that is used to get the best results from performance
an employee.
Counselling
Counselling and disciplining focus on problematic, non-performing counselling
employees. Such employees are not performing according to standards giving feedback to employees
or are violating the plans and policies of the organisation. There are four so that they realise that
types of problematic employees. The first type is those employees who problems affect their job
do not have the ability to meet job performance standards. The second performance
type refers to those employees who do not have the motivation to meet
job performance standards. The third type is those employees who
do not have the means to meet job performance standards. The last
type refers to those employees with problems, such as child-care and
personal relationship problems. Management counselling is the process

of giving employees feedback so that they realise that a problem is
affecting their job performance, and referring employees with problems
to the employee assistance programme. If an employee is unwilling or
unable to change, discipline is necessary.
Discipline
discipline Discipline is defined as corrective action aimed at enabling employees
corrective action aimed at to meet performance standards and organisational plans. The major
enabling employees to meet objective of discipline is to change behaviour. Secondary objectives
performance standards and of discipline may be to let employees know that action will be taken
organisational plans when standing plans or performance requirements are not met and to
maintain authority when it is challenged. Effective disciplining rests on
the following eight guidelines:
1. Clearly communicate the performance standards and organisational
plans to all employees.
2. Be sure that the punishment is fair.
3. Follow the organisational plans yourself.
4. Take consistent, impartial action when the rules, formal procedures
and policies are broken.
5. Discipline immediately, but stay calm and get all the necessary facts
before you discipline.
6. Discipline in private.
7. Document discipline.
8. Resume normal relations with the employee when the discipline is
over.
Figure 21.4 illustrates the steps in the discipline model which should be
followed each time an employee must be disciplined.
Step 1: Refer to past feedback
Step 2: Ask why the undesired behaviour was used
Step 3: Give the discipline
Step 4: Get a commitment to change and develop a plan
Step 5: Summarise and state the follow-up disciplinary action to be taken
Figure 21.4: The discipline model

Source: Lussier, R.N. 2006. Management Fundamentals. 3rd edition. Mason: Thomson, p 513.

21.5.3 Control of physical resources

The physical resources of an organisation are its tangible assets, such
as land, buildings, machinery, vehicles, equipment, office furniture, raw
material, work in progress and its finished products. Various control
systems can be implemented to control the physical resources of an
organisation. In the discussion that follows, we focus on three control
systems, namely inventory control, operational control and quality
control.
Inventory control
Inventory control is used to keep inventory, and the costs thereof, inventory control
as low as possible without causing shortages that may delay the exercising control over all
manufacturing process or other processes within the organisation. inventories in order to keep
Organisations have inventory control for three reasons, namely to inventory levels and costs as
have enough products to satisfy the needs of consumers; to keep to low as possible without causing
a minimum uncertainties regarding the delivery and availability of raw shortages
materials and components so that the manufacturing process is not
interrupted and to hedge the organisation during times of high inflation.
Four techniques can be used to control inventory: the economic
ordering quantity, materials requirement planning, enterprise resource
planning and the just-in-time system.
Two basic decisions that can help minimise inventory are how many
raw materials to order and when to order from outside suppliers.
Ordering the minimum amounts at the right time keeps raw materials,
work-in-progress and finished goods inventories at low levels. The
economic order quantity is based on replenishing inventory levels by
ordering the most economic order quantity. It is designed to minimise the
total of ordering costs and holding costs for inventory items. Ordering
costs are those costs associated with actually placing the order, such
as postage, receiving, and inspection. Holding costs are those costs
associated with keeping the item on hand, such as storage space charges,
financial charges and materials-handling expenses. The following formula
can be used to calculate the economic order quantity:
EOQ = [ 2RS ] 12
H
where:
EOQ = optimal quantity to order
R = total required over planning horizon (usually one year)
S = cost of preparing one order
H = cost of holding one unit for the planning horizon
The economic order quantity works well with inventory items that are
not dependent on one another. For example, in a restaurant the demand
for hamburgers is independent of the demand for coffee; thus, an
economic order quantity is calculated for each item. A more complicated
inventory problem occurs with dependent demand inventory, meaning
that the item demand is related to the demand for other inventory items.
For example, if the Ford Motor Company decides to make 100 000 cars,
it will also need 400 000 tyres. The demand for tyres is dependent on
the demand for cars.

The most common inventory control system to use for handling such
dependent demand inventory is materials requirements planning. This
is a dependent demand inventory planning and control system that
schedules the exact amount of all materials required to support the
desired end product. With materials requirements planning, managers
can better control the quantity and timing of deliveries of raw materials,
ensuring that the right materials arrive at the correct time they are
needed in the production process.
Enterprise resource planning takes material requirement planning
one step further, as it collects processes and provides information
about an organisation’s entire enterprise. Ordering, product design,
production, purchasing, inventory, distribution, human resources, receipt
of payments and forecasting the future demand are incorporated into
one network system.
Just-in-time inventory systems are designed to reduce the level of an
organisation’s inventory and its associated costs, aiming to push to zero
the amount of time that raw materials and finished products are kept in
the factory, being inspected or in transit. The just-in-time system is also
referred to as ‘stockless systems’.
Operational control
operational control The purpose of operational control is to determine the effectiveness
controlling the operations of of the organisation’s transformation process. Techniques that can be
an organisation in order to used in operational control are linear programming, PERT and break-
determine the effectiveness of even analysis. Linear programming is a quantitative tool for optimally
its transformation process allocating scarce resources among competing uses to maximise benefits
or minimise losses. The resources may be human, financial, physical or
informational. PERT, an acronym for Programme Evaluation and Review
Technique, is a planning and control tool that uses a network to plan and
control projects involving numerous activities and their interrelationships.
The key components of PERT are activities, events, time, the critical
path and possible cost. These components are explained in the following
example. If a construction company is awarded a contract from the
South African Government to build a railway between Johannesburg
and Pretoria, this project will involve several events for the company.
Each event that needs to take place will involve certain activities. The
time that each activity takes can be measured in, for example, days,
weeks or months, and the critical path can be calculated. The critical
path determines the time it will take the company to complete the
railway by identifying how long each activity will take. It may be essential
for the construction company to complete the project within a time
period as specified by the government. The critical path is the longest
time-consuming sequence of events and activities in a PERT network.
This should enable management to work out the time it will take to
construct the railway in order to ensure that it is completed on time.
Project management is discussed in detail in Chapter 14.
Break-even analysis involves the calculation of the volume of sales
that will result in a profit. It requires a forecast of the sales volume and
the cost of production. The break-even point is then calculated as the
level of sales where neither profit nor loss results.
Quality control
Quality control BOE QSPEVDUJWJUZ DPOUSPM HP IBOE JO IBOE 2VBMJUZ Quality control
DPOUSPMSFGFSTUPUIFBDUJWJUJFTUIBUNBOBHFNFOUQFSGPSNTUPFOTVSFB the activities that management
MFWFMPGRVBMJUZUIBUXJMMTBUJTGZUIFDVTUPNFSPOUIFPOFIBOE CVUBMTP perform to ensure a level of
IBWF DFSUBJO CFOFųUT GPS UIF PSHBOJTBUJPO PO UIF PUIFS *U DPNQSJTFT quality that will satisfy the
three steps: customer on the one hand, but
r UIFEFųOJUJPOPG RVBMJUZPCKFDUJWFTPSTUBOEBSET also have certain benefits for
r NFBTVSJOHRVBMJUZ the organisation, on the other
r SFDUJGZJOHEFWJBUJPOTBOETPMWJOHRVBMJUZQSPCMFNTJOBOFŲPSUUP
LFFQUIFDPTUPG RVBMJUZBTMPXBTQPTTJCMF
2VBMJUZ DPOUSPM JT BO JNQPSUBOU DPODFSO GPS JOEJWJEVBM NBOBHFST BOE
PSHBOJTBUJPOTGPSUIFGPMMPXJOHSFBTPOT
r 'JSTU RVBMJUZIBTCFDPNFPOFPG UIFNPTUDPNQFUJUJWFQPJOUTJO
CVTJOFTTUPEBZ
r 4FDPOE NBOBHFSTIBWFDPNFUPSFDPHOJTFUIBURVBMJUZBOE
QSPEVDUJWJUZBSFSFMBUFEJOCVTJOFTT*OUIFQBTU NBOZNBOBHFST
UIPVHIUUIBUUIFZDPVMEJODSFBTFPVUQVU QSPEVDUJWJUZ
POMZCZ
EFDSFBTJOHRVBMJUZ.BOBHFSTUPEBZIBWFMFBSOFEUIFIBSEXBZ
UIBUTVDIBOBTTVNQUJPOJTOFBSMZBMXBZTXSPOH*G BRVBMJUZ
DPOUSPMQSPDFTTJTJOTUBMMFE UISFFUIJOHTBSFMJLFMZUPSFTVMU'JSTU
UIFOVNCFSPG EFGFDUTJTMJLFMZUPEFDSFBTF PDDBTJPOJOHGFXFS
SFUVSOTGSPNDVTUPNFST4FDPOE CFDBVTFUIFOVNCFSPG EFGFDUT
JTSFEVDFE SFTPVSDFTEFEJDBUFEUPSFXPSLJOHŴBXFEPVUQVUXJMM
CFEFDSFBTFE5IJSE NBLJOHFNQMPZFFTSFTQPOTJCMFGPSRVBMJUZ
reduces the need for quality inspectors. Consequently, the
PSHBOJTBUJPOJTBCMFUPQSPEVDFNPSFVOJUTXJUIGFXFSSFTPVSDFT
r 5IJSE JNQSPWFERVBMJUZMPXFSTDPTUT1PPSRVBMJUZSFTVMUTJOIJHIFS
SFUVSOTGSPNDVTUPNFST IJHIXBSSBOUZDPTUTBOEDPNFCBDLT
'VUVSFTBMFTBSFMPTUCFDBVTFPG EJTTBUJTųFEDVTUPNFST
21.5.4 Control of information resources

3FMFWBOU BOE UJNFMZ JOGPSNBUJPO JT PG UIF HSFBUFTU JNQPSUBODF UP
NBOBHFST UP QFSGPSN UIF UBTLT PG QMBOOJOH PSHBOJTJOH MFBEJOH BOE
DPOUSPMMJOH " NBOBHFNFOU JOGPSNBUJPO TZTUFN VTFT EBUB DPMMFDUFE
GSPN BMM EFQBSUNFOUT BOE FYUFSOBM TPVSDFT USBOTGPSN UIF EBUB JOUP
JOGPSNBUJPO XIJDI JT VTFE BT JOQVUT UP BMM BQQSPQSJBUF FNQMPZFFT
BOE NBOBHFST JO BMM EFQBSUNFOUT 5IFSFGPSF JOGPSNBUJPO OFFET UP CF
DPOUSPMMFE JO PSEFS UP FOTVSF UIBU JU JT BDDVSBUF SFMFWBOU TVŵDJFOU
BOE UJNFMZ 5P CF FŲFDUJWF DPOUSPM TZTUFNT OFFE UP QPSUSBZ DFSUBJO
DIBSBDUFSJTUJDT XIJDIBSFEJTDVTTFEMBTUMZJOUIJTDIBQUFS
21.6 CHARACTERISTICS OF AN EFFECTIVE LEARNING OBJECTIVE 6

CONTROL SYSTEM Identify and explain the
characteristics of an effective
'PS B DPOUSPM TZTUFN UP CF FŲFDUJWF JU TIPVME IBWF UIF GPMMPXJOH control system.
characteristics:
r *OUFHSBUFEXJUIQMBOOJOH"DPOUSPMTZTUFNJTFŲFDUJWFPOMZXIFOJU

is integrated with planning. Control complements planning because

when deviations are encountered, it shows that plans and even
goals need to be revised. Control therefore renders the necessary
inputs in the planning process. The narrower the interface between
planning and control, the better the control system that will be
introduced.
r 'MFYJCJMJUZ"OFŲFDUJWFDPOUSPMTZTUFNTIPVMECFBCMFUP
accommodate change. The management environment is changing
constantly (as discussed in Chapter 4). This necessitates timely
adjustments in goals and plans.
r "DDVSBDZ"DPOUSPMTZTUFNTIPVMECFEFTJHOFEJOTVDIBXBZUIBU
it provides a goal-oriented and accurate picture of the situation.
Errors and deviations should not be concealed in the control
process.
r 5JNFMJOFTT5JNFMZDPOUSPMEBUBBSFTVQQMJFESFHVMBSMZBOEBT
needed.
r 0CKFDUJWJUZ5IFDPOUSPMTZTUFNTTIPVMEQSPWJEFDPOUSPMEBUBUIBU
are as objective as possible.
r /PUUPPDPNQMFY5IFDPOUSPMTZTUFNTIPVMEOPUCFUPPDPNQMFY
CFDBVTFDPNQMFYTZTUFNTDBOIBWFBOFHBUJWFJOŴVFODFPOUIF
sound judgement of competent managers.

Chapter 21 Principles of control
CHAPTER SUMMARY
The purpose of this chapter is to provide you with an overview of control as a management
function.
1. Define control.
Control as a management function can be described as a process in which managers ensure
that actual performance is in line with the predetermined objectives.
2. Explain the importance of control.

Control is one of the four fundamental management functions. It is the final step in the
management process, and the starting point for planning. Control is necessary in any
organisation for the following reasons: (i) Control ensures that all activities at all levels of the
organisation are in accordance with the organisation’s overall objectives. (ii) Control ensures
that the organisation’s resources are deployed in such a way that it attains its objectives.
(iii) Control results in better quality and enables management to cope with environmental
change and uncertainty. (iv) Complex organisations need control measures to ensure that
costly mistakes are avoided. (v) In order to compete, organisations need to be tightly run, and
control is therefore necessary. (vi) Control facilitates delegation and team work.
3. Implement the steps in the control process in an organisation.

• establish standards of performance
• measure actual performance
• evaluate deviations
• take corrective action.
4. Distinguish between the various levels of control.

Strategic control focuses on the performance of the total organisation, and it involves a
study of the organisation’s total effectiveness, productivity, management effectiveness
and organisational maturity. Operations control focuses on the different stages of the
transformation process where inputs, transformation and outputs are controlled.
5. Explain the various functional area control systems.

Control focuses on virtually every activity or group of activities in the organisation, but
normally aims at physical, financial, information and human resources.
6. Identify and explain the characteristics of an effective control system.

Effective control systems are characterised by the extent to which planning and control are
integrated, as well as the flexibility, accuracy, timeliness, objectivity and complexity of the
system.
KEY TERMS
#BMBODFE4DPSF$BSE #4$
human resources control
CVEHFU information control
coaching JOWFOUPSZDPOUSPM
concurrent control +VTUJOUJNF +*5

DPOUSPMMFWFMT NBOBHFNFOUFŲFDUJWFOFTT
control process .BUFSJBMT3FRVJSFNFOUT1MBOOJOH .31

control system operational control
counselling organisational maturity
damage control performance measurement
disciplining physical resources control
&DPOPNJD0SEFSJOH2VBOUJUZ &02
preliminary control
GFFECBDLDPOUSPM QSPEVDUJWJUZ
ųOBODJBMBVEJU quality control
ųOBODJBMDPOUSPM SFXPSLDPOUSPM
ųOBODJBMSBUJP strategic control
ųOBODJBMTUBUFNFOU UPUBMFŲFDUJWFOFTT
REVIEW QUESTIONS
%FųOFUIFUFSNADPOUSPMBOEFYQMBJOJUTSPMFJOUIFNBOBHFNFOUQSPDFTT
%FGFOEUIFJNQPSUBODFPG DPOUSPMJOUIFNBOBHFNFOUPG BOPSHBOJTBUJPO
%FTDSJCFUIFTUFQTJOUIFDPOUSPMQSPDFTT
7BSJPVTMFWFMTPG DPOUSPMDBOCFGPVOEJONPTUPSHBOJTBUJPOT*EFOUJGZBOEFYQMBJOUIFTFMFWFMT
&YQMBJOUIFWBSJPVTGVODUJPOBMBSFBDPOUSPMTZTUFNT
*OPSEFSUPCFFŲFDUJWFBOETFSWFJUTJOUFOEFEQVSQPTF BDPOUSPMTZTUFNOFFETUPTBUJTGZWBSJPVT
DIBSBDUFSJTUJDT&YQMBJOUIFTFDIBSBDUFSJTUJDT
END NOTES
$GDSWHGIURPLKWWSZZZMQMFRPFRQQHFWDERXWMQMRXUFLWL]HQVKLS$FFHVVHGRQ-DQXDU\LLKWWSZZZMQM
FRPFRQQHFWDERXWMQMFRPSKLVWRU\$FFHVVHGRQ$SULOLLLKWWSZZZMQMFRPFRQQHFWDERXWMQMRXUFDUH
$FFHVVHGRQ$SULO

Index
This is an author and subject index arranged in letter-by-letter order. Figures and illustrations are indicated in
Italics, and see and see also references guide the reader to the access terms used. Authors’ chapters are indicated
in Bold font.
80/20 principle see Pareto principle Barnard, Chester 11 approaches 101
A behavioural continuous 97, 111, 113
A-B-C priority system 216, 231 approach 10, 23, 25, 451 dimensions 92, 96-97, 111
ability 195, 409 rewards 13 effort 100
accountability 343, 347, 449 Benetton Group 373-374 situational factors 100
acquired needs model 477-478 Black Management Forum 198 incremental 96, 113
management application 478 Boeing 116-117, 119, 132 initiatives 112
acquisition 247, 248, 256, 314 BOP see Bottom of the Pyramid interventions 114
administrative Boston Consulting Group growth share management 92, 112
approach 25 matrix 250, 251, 256 planned 96, 113
management 4, 8 Botha, Louis 305-338 process 101, 113
affirmative action 190, 191, 192, 198, Bottom of the Pyramid 172, 180 punctuated 97
200, 202 break-even analysis 276, 280, 512 reactive 96, 113
African Brevis, Tersia 28-45, 69-89, 211-232, revolutionary 96, 113
business culture 58 233-258, 259-281, 282-304, 339-372, strategic 103, 112, 148
Federated Chamber of Commerce 373-392, 493-516
changing
198 Brown Earth Company 126
environment 35
market 58 BT Global Challenge Round the World
people 104, 112, 113
alarm phase 105, 113 Yacht Race 420, 428
charisma 157
appeals budgets 223, 230, 231, 508, 516
charismatic
inspirational 146, 157 Buffett, Warren E 394
leadership 7, 457
upward 146, 157 bureaucracies 7, 8, 8, 55-56, 65, 67
organisations 6, 7, 25
Apple 22, 196, 282-283 constraints 7
classical management approach see
apply model 175, 181 differentiation 7
management
incentives 7
psychology 6, 10 coalition(s) 146, 146, 147, 157
artefacts 120, 121, 130, 131 integration 7
coercive power 139, 155, 157, 348
Artemis 326 bureaucratic
collective interests 144, 157
asset reduction 249 management 4, 6
command group 424, 443
assumptions 120-121, 130, 131 model 6
communication 18, 39, 224
attitudes 407-408, 416, 417 Burns, Tom 20, 24
breakdown 149
components 407-408 business
costs 290, 302
affective 407 decisions 163
digital 296
behavioural 407-408 environment 12, 25, 49, 92
frequent 224
cognitive 407 ethics 159, 161, 163, 179, 181
plan 321, 323, 336, 337
authority 6, 9, 11, 122, 341, 347, 349, function IS 295
planning process 229
369, 371 portfolio analysis 250, 256
Companies Act (Act 71 of 2008) 162,
see also legitimate authority practices 171 175, 179, 181
centralised 351-352, 352, 369, 371 simulations 277 competence 192
decentralised 351-352, 369, 371 strategies 243, 245, 256 competent technologies 19, 24
advantages 353 competition 77-78, 87, 150, 151, 156
disadvantages 353 C competitive advantage 2, 192, 286, 302,
delegation 348, 349, 363, 369 capital 303, 375, 380
see also effective delegation budgeting 276, 280 complexity 18
formal 140, 349, 369 requirements 78 compressed work week 201
informal 349, 369 capitalism 2 computer
line 349-351, 369 capitalist philosophers 2 aided design 387, 388, 391
staff 349-351, 369 certainty 264, 266, 275, 279, 280 aided manufacturing 388, 391
chain of command 371 based simulations 387, 391
B Chandler, Alfred 21 operators 288
balanced scorecard 244-245, 499, 516 change(s) 18, 30, 48, 49, 65, 92-103, concentration growth strategy 247, 256
bar chart 309, 315, 316, 327, 328 111-112, 113 conflict 148, 150-151, 156, 157
causes 149 controlling 32, 45, 493 bargaining power 88
dysfunctional 149 cooperation 6, 41 capital 52, 67
functional 149 Cooke, Morris L 6 defections 245
intergroup 150, 156 coordination 41, 343, 346, 371 increased demands 52
interpersonal 149, 159 coping with change 113 needs 52, 88
intensity 149 core perspective 244-245
level 149 business approach 172-173, 181 purchasing behaviour 88
management 148-149, 151, 151, 156 competencies 51, 172 cybernetics 18-19, 24, 25
strategies 148, 151-152, 156 corporate
resolution 134, 157 citizenship 176, 178, 179, 180, 181 D
consequentialism 164, 165, 179, 181 combination 248, 256 data 285, 287, 302, 303
consultation tactics 146, 157 culture 116 decision(s) 164
consumers decline strategy 248-249, 249, 256 making 40, 259, 262, 279, 280
product awareness 52 governance 159, 163, 173-175, 179, conditions 261, 263-264, 264,
contemporary organisations 46, 48, 49, 181, 350 265-266, 266, 279, 280
54, 56, 65, 66 apply or explain approach 175, evaluation 269
business environment 49 181 group 269-270, 273, 280
change 49 comply or explain approach 175, models 266, 279
variables 49 181 processes 141, 166, 266, 267,
contingency legislative approach 174 267-269
approach 20, 24, 72, 87, 88, 453 statutory approach 174, 180 role 45
planning 218, 231 voluntary approach 173, 174-175, skills 261
theory 12, 20, 21, 25, 453, 463 180 tools 274, 275, 275, 276, 280
control 494, 496, 515 growth strategies 246, 247, 256 non-programmed 263, 280
concurrent 506-507 performance 171, 180 programmed 263, 280
damage 507, 516 Research Foundation 28 support systems (DSS) 293, 303
definition 496-497, 515 social responsibility 159, 168-169, tree 276, 280
171, 180, 181
feedback 507 Delphi technique 270, 272-273, 280
approaches 171
functional area control systems 507- questionnaires 273
509 broad view 169-170, 171, 180
Deming’s system of profound knowledge
audits 509 contemporary approaches 180, 16
171
budget 508, 516 deontology 164, 179, 181
narrow view 169, 171, 180
financial statements 508, 516 differentiation 246
strategies 250, 256, 303
ratios 508 strategies 246, 256
cost
human resources 509, 516 digital citizenship 296, 303
benefit analysis 278, 280
coaching 509, 516 nine themes 296
leadership 245
counseling 509, 516 dimensions of change 97, 97, 111
strategy 245-246, 256
discipline 510, 516 discipline 9, 408, 510, 510
counter organisations 142
model 510 Disney’s Euro Disneyland venture
creativity 413, 417 259–260
performance measurement
509 Crosby, Phillip B 16 distress 107, 107, 113
importance 497, 515 culture(s) 118-122, 126-127, 131, 160, distributed computing 67
189
information resources 513 diversification strategy 247-248, 256
concept 118, 130
levels 499, 515, 516 diversity 185, 187, 189, 191-193, 208,
different types 126-127, 130, 131 209
operations 505
elements 117-120, 124, 130 age 195
physical resources 511-513, 516
importance 127 behaviour 193, 208
inventory 511, 516
industry 123, 130, 131 challenges 189
operational 512, 516
levels 120-122, 130 continuum 202, 209
quality 513, 516
national 122, 122, 130, 131, 132 demographic changes 192
preliminary 506
organisational 118-119, 121, 124, dimensions 187, 190, 194, 204, 205,
principles 494 127, 128, 130, 131, 166
process 497-499, 499, 515, 516 209
regional 122, 130, 131, 132 gender issues 194, 195, 199
rework 507, 516 cultural
standards 497 inclusive 193
differences 58 initiatives 204
strategic 499, 516 environment 81-82, 88
system 497, 507, 513, 515, 516 language 195
customer(s) 76-77, 88 long-term process 193, 208
systems process 506
INDEX
management 194, 196, 199, 200, Edwards Deming, W 15 pollutants 177, 178, 181
202, 203, 206, 208, 209 effective stressors 150
approaches 200 delegation 363-364 sustainability 178
research 203 advantages 364 uncertainty 142
strategies 202, 208 obstacles 365-366 volatility 226, 230, 231
marital status 194, 195 process 366-367, 366 ERG theory 475, 490
misconceptions 189, 208 global managers 58 ethical
objective and fair processes 204 effectiveness 30, 33, 34, 45 analysis 160, 179
paradigms 202, 203, 209 efficiency 30, 33, 34, 45 business 162-163
perspectives 202 EIS see executive information systems conduct 177
physical ability 195 electronic convictions 98, 112, 113
platinum rule 194, 209 commerce 297, 303 leadership 176, 180, 181
profitability 192 media 389 scrutiny 181
training 187, 189, 204-205, 209 e-mail 292, 295, 296, 303 ethics 162, 163, 179, 181, 350
system adjustments 191 emotional of governance 162, 181
values 193, 208 intelligence 403-404, 416, 417, 450, equality 122, 437
workforce 194, 196, 208 459, 464 equity 10
divestiture strategy 249, 256 and leadership 459-460 eustress 107, 113
division pillars 404, 416 exchange 146, 156, 157
of labour 6 alchemy 404, 416 executive information systems (EIS) 294,
of work 9, 343, 346, 371 depth 404, 416 303
Dodd-Frank Act 181 fitness 404, 416 exhaustion phase 113
double-loop learning see learning literacy 404, 416 expert
drive 42, 42, 43, 44, 45 stressors 106-107, 113 power 139-140, 155, 157, 348
DSS see decision support systems employees 13-14 systems (ES) 294, 303, 385-386, 391
decision making 228 external
E empowerment 14 environment 11, 18, 73, 73, 75, 85,
e-business 373, 381-385, 390 participation 14 97, 103
advanced technologies 385-388, 391 self-management 14 forces of change 94, 111, 113
marketing 389, 391 employment projects 310, 336, 337
revenue generating model 382, 391 equal opportunities 190, 190 stakeholders 12
trading model 381-382, 391 equity 189 extranet 297, 303
type of shopping model 383-384, Act see South Africa
391 empowerment 462 F
web management 388, 391 end users 288, 293, 300 factors of production 35, 52
ecological/physical environment 80, Enron 159-161, 162, 163, 164, 166, 167, fair remuneration 9
82, 88 181 Fayol, Henry 8-9, 23
e-commerce 291, 303, 381, 384 enterprise resource planning 295, 512 principles of administration 9-10
business to business 297, 303, 381, entrepreneurship training 43 file transfer protocol (FTP) 295, 303
384, 391 environment 18, 20, 73, 73, 74, 87, 88 finance 38, 45
business to consumer 297, 303, 381, analysis 83, 87, 88, 242-243, 256 financial perspective 244
391
cultural 81, 88 flat structure 61, 66, 67
consumer to consumer 297, 303,
changes 12, 20, 30, 35, 48 flexitime 201
381, 391
economic 81, 88 focus 246
economic
ecological/physical 82, 88 strategy 256
empowerment 198, 202
external 75, 96-97 focused
environment 81, 88
operating 166, 167 differentiation strategy 246
forces 94, 111
internal 74 low-cost strategy 246
growth models 178
macro- 75, 87, 88 Follett, Mary Parker 12
power 198
market 75-76, 76, 87, 88, 94 laws 12
recessions 265
micro- 74, 75, 87, 88 forces of change 92-93, 111
sustainability 178, 181
political/legislative 81, 88 external 94-95
transformation 198
remote 79, 80, 87, 88 internal 93-94
economies of scale 77, 246
technical 80, 88 Ford Motor Company 196, 216, 377
education
environmental mission statement 216
and communication 98, 112, 113
complexity 226, 230, 231 values 216
in management 45
conditions 20 vision 216
formal development 424-425, 424, 439-440, nature 14
authority 140, 155, 349, 369 441, 443 needs 13, 23, 25, 472, 473
organisation 55, 349 adjourning 426, 441 relations 10, 12, 23
power 139, 155, 157 forming 425, 441 movement 25
friendship group 422, 423, 443 norming 425, 441 resources 9, 38, 44, 45, 63, 74, 104,
performing 426, 441 223, 253, 375, 428, 509, 516
G storming 425, 441 specialists 288
Gantt, Henry L 5 diversity 432
Gantt (bar) chart 309, 316, 327-328, dynamics 11 I
328 formal 423, 441 IBM 197, 240-241, 294
gender 142 informal 422, 441 incentives 12
relations 142, 195 effectiveness 426 individual(s) 396, 411
General loyalty 15 behaviour 10, 405, 408, 409
Adaptation Syndrome (GAS) 105, member resources 426, 427, 429, differences 396
113 441 interests 9, 98, 144-157
Electric (GE) 233-234, 247, 248, 249 norms 271, 430-431 network 143-144
strategy in action 248, 249-250 organisational context 427, 428, 441 output 411, 411
generation policies, procedures 427-428 perceptual process 402
X 54 power, interests, influence and politics performance 413-415
Y 54-55, 67 433 plan 222, 230, 231
generic strategies 245-246, 256 processes 427, 432, 441, 443 qualities 396, 411
Gilbreth, strategic goals 427 resistance to change 97-98, 111-112,
Frank Bunker 5 status 431 113
Lillian Evelyn Moller 6 structure 426, 427, 429, 441 stress 90
global cohesiveness 431-432 talent 411
competition 52, 60, 82 diversity 432 industrial
Competitiveness Index 471 leadership 429 efficiency 10
diversity 197 norms 430 psychology 10, 12
economy 22, 25, 49-50, 65, 67 roles 429-430 Revolutions 4, 21-22
networks 51 size 432 industry culture 123-124, 130, 131
organisations 50, 58, 65, 359 status 431 influence 145, 155, 157
Positioning System (GPS) 212 tasks 427, 434, 441, 443 sustained 145
standards 50 interdependence 434 tactics 145-146, 146
trade 50 types 438, 441 information 18, 59, 65, 302, 303
globalisation 2, 22, 23, 25, 29, 49-50, work 54, 423, 434-438, 441 control 141
65, 67, 71, 82, 196 and decision-making 284-285
goal(s) 45, 252, 256 H decision-support systems (DSS) 293,
long-term 221, 243, 244 hardware resources 288, 303 303
priorities 216, 231 auxiliary storage 288 exchange 18
setting 214, 262 central processing unit (CPU) 288 executive systems (EIS) 294, 303
short-term 225, 256 input devices 288 management 282, 284, 286, 302
Google 62, 172, 389, 468 output devices 288 quality 284
governance 159, 173-177, 179, 180, harvesting strategy 249, 249, 256 sharing 59
181, 350 Herzberg’s two-factor motivation theory reporting systems (IRS) 293, 303
of ethics 162-164, 181 475-477, 476, 490 systems 285, 285, 287-288, 287, 290,
government regulation 78 management applications 477 302, 303
grand strategy 246, 256 relevance 477 classification 291
group(s) 421-422, 441, 443 hierarchy of plans 225 development life cycle 299
behaviour 10, 11, 441 history 3, 4, 23, 118 systems analysis 299-300, 303
model group 426-427, 427 , 443 Hofstede’s dimensions of national culture systems design 300, 303
communication 433 122-123 systems implementation 300,
conflict 433 Holland’s classification of personalities 303
decision-making 15, 269-270, 280, 400, 415, 417 systems investigation 299, 303
432-433 homo economicus model 164, 181 systems maintenance 300
techniques 270-273, 271, 280 human systems security 300
decision support systems (GDSS) behaviour 13, 14, 101 technology 285, 286, 289, 302
270, 273-274, 280 capital 53, 67 revolution 21-22, 25, 48, 54, 285

INDEX
informational role 39, 40, 44, 45 expansion 362-363, 370 transformational 458-459, 464
ingratiating 146, 157 fit 109, 113 trait theory 450, 463
innovation 52, 199, 438 maturity 456, 464 contingency 453-455, 464
lack of 94 overload 109, 113 definition 446-448, 463
strategy 247, 256 performance 104, 107, 107, 397, Framework 460-461, 464
inputs 32, 44, 45, 479 398, 410, 491, 509 and management 448-449, 448, 463
inspirational appeals 146, 156, 157 redesign 370 research studies 451-453
integration strategy 247, 256 security 109, 113 Ohio State University 451-452,
intellectual capital 52-53, 65, 67 sharing 201 463
inter-cultural business 58 specialisation 362, 370 University of Iowa 451
interdependence 346 origin 362 University of Michigan 452, 463
pooled 346, 371, 434 Jobs, Steve 282 University of Texas 452-453, 463
reciprocal 347, 371, 434 Johnson & Johnson 494-496 change signature 462
sequential 346-347, 371, 434 Juran, Joseph M 15, 16, 23, 24 inventing 462
task 150, 156, 434 tripol concept 16, 24 relating 461-462
interest(s) 157 just-in-time 313, 380, 511, 512, 516 sensemaking 461, 464
groups 98, 112, 113, 144, 155, 157, visioning 462, 464
423, 443 K servant 460, 464
intermediaries 78-79, 88 Kepner-Fourie method 277-278, 277, styles 451, 453, 456
internal perspective 309-310, 245 280 Kurt Lewin’s research 451
internationalisation 25 key performance theories 453, 455-456, 463
international marketplace 196 areas (KPAs) 214, 215, 242, 242 path-goal theory 455-456, 463,
internet 50-51, 295, 303 indicators 332, 337 464
interpersonal King situational leadership theory
conflict 149, 156 II Report on Corporate Governance 456-457, 464
interaction 144 2002 175, 350 leading 32, 45, 393, 445
relationships 34, 109 Report on Governance for South principles 445
role 39, 40, 44, 45 Africa (King III) 162, 174, 175-176, learning
179, 180, 181 abilities 19
internal forces for change 93, 111, 113
value dimensions 175, 180 double-loop 19, 25
interpersonal alliances 142, 155
knowledge 62 and growth perspective 245, 499
initiative 10, 65, 203, 204
age 288-289 organisations 19, 24, 25, 53
intergroup behaviour 150, 156
control 141 process 19
intranet 297, 303
management 53, 67 single-loop 19, 25
IRS see information reporting systems
workers 53, 54 Least Preferred Co-worker (LPCW)
Kotter’s Eight Step Process of successful theory 453-454, 464
J change 101-102, 112
Japanese LeisureNet 227-228
management style 15 legitimate
L authority 6
productivity achievements 17, 23 labour
job charismatic 6
force 195, 196, 208 traditional 7
analysis 5 market 78, 88, 195
centred leader behaviour 452, 464 traditional-legal 7
policies 90, 161 power 139, 155, 157, 348, 449, 463,
characteristics model 487, 489, 491 unions 78, 88, 198 464
autonomy 488 language 125, 131 Lewin, Kurt 11
feedback 488 Lawrence, Paul 20, 24 Lewin’s change model 101, 112
skill variety 487 leaders 446, 448, 449, 450, 454 life changes 109, 113
task identity 487 leadership 176-177, 227, 253, 429, 437, limited resources 34-35
task significance 487 446-447, 462, 463 linear
conflict 113 behaviour 451-453, 463 programming 275, 280
content 475, 490, 491 Description Questionnaire trend estimation 85, 88
context 475, 476, 490, 491 (LBDQ) 451-452
liquidation 249, 252, 256
creation 33 components 449-450, 463
locus of control 399, 415, 417
demands 109 contemporary approaches 451, 457,
Lorcsh, Jay 20, 24
design 361-362, 370, 371, 486, 491 464
low cost strategies 246
enlargement 370, 486, 491 charismatic 457, 464
lower-level management 37, 37, 45,
enrichment 370, 486, 487, 491 transactional 458, 464
217, 298, 352

M open 72 micro-environment 74, 75, 87, 88
Machiavelli, Niccolo 137, 157 theory(ies) 16, 23, 72 micro-management 350-351, 369
The Prince 138 evolution 1 Microsoft
macro-ethics 167, 181 history 3-4, 23 Project 326
management 29-30, 44, 45, 71, 217 training and development 43, 44, 353 South Africa 196, 199
administrative (or process) 8 managerial middle management 36, 45, 60, 348
areas 38, 44 activities 225, 284 Mintzberg’s managerial roles 40
behavioural approach 10, 23 competence 43 see also managerial roles
bureaucratic 6 decision-making 71, 262, 279, 284 MIS see management information
challenges 57-58, 59-62, 65-66, 66 experience 43, 45 systems
conflict resolution 63 intelligence 265 miscommunication 187
workforce diversity 63 roles 39-40, 40, 45 mismanagement 34
classical approach 4, 8, 25 decision-making 40, 40, 45 misunderstanding 98, 112, 113
command and control 13 information 39-40, 40, 45 mission 213, 214, 230, 231, 253, 256,
contingency approach 20, 24, 72, 87, interpersonal 39, 40, 45 257
88 skills 40-42, 42, 44, 45 statement 214, 216, 220, 239, 242
definition 30, 44, 72 drive 42, 42, 45 money as a motivator 485-486, 491
effectiveness 257, 502 teambuilding 41, 42, 45 moral
environment(s) 35, 45, 69, 71, 72, technical 41, 42, 45 decision-making 164, 166
73, 74-75, 82-83, 82, 87, 88 stress 92, 108, 114 standards 166, 179
analysis 71, 83-86, 86 sources 108-109 morality 163, 179, 181
composition 72 managers 3, 23, 24, 29, 33-36, 44, 45, Morgan, G 140
functions 31-32, 213 213, 262-264, 279 Images of organization 140
controlling 31, 32, 45 behaviour 13, 112 motion study 5
finance 38, 45 challenges 49, 66, 66 motivation 13, 23, 25, 410, 416, 459,
human resources 38, 45 diversity skills 205 469, 489, 490
leading 31, 32, 45 role influence on performance 469
marketing 38, 45 distribution 39, 44 process 469-471, 470, 490
operations 38, 45 incompatibility 149 theories 471, 490
organising 31, 32, 45 skills 34, 40-42 classification 472
planning 31, 45, 213 managing workforce diversity 196, 197, content 472-473, 490
see also planning 199, 200, 208, 209 cross-cultural application 478-479
procurement 38, 45 approaches 200 equity 479-480, 419
public relations 38, 45 differences 201 management applications 480
research and development 38, 45 benefits 199, 200 model 480
information 285-286, 287 spheres of activity 206 expectancy 481-482, 491
systems (MIS) 292-293, 298-299, strategies 199, 208 management application 482
298, 303, 387, 391 manipulation for co-optation 99, 112, model 482
levels 36-37, 37, 39, 298 113 process 471, 479, 490
top 36, 45 market(s) 2 reinforcement 482-484, 490
middle 36-37, 45 development strategy 247, 257 management application 484
lower 37, 45 sustainable 2 model 485
objectives 217, 217 marketing 38, 44, 45, 200, 375 motivators 477, 490, 491
by objectives (MBO) 223-224, 225, MARS model of behaviour 408-410, MTN South Africa 28-29, 30, 33, 35,
231 409, 416, 417 225
practical experience 43 Maslow, Abraham 14 Münsterberg, Hugo 10
process 28, 29, 30-31, 31, 44, 45, 72, Maslow’s hierarchy of needs 472-474, Myers-Briggs psychometric test 401, 417
73, 87, 88, 261, 279 490
quality approach 15, 23, 25 management applications 474-475 N
approach 23, 25 model 474 national
theory 14 Mayo, George Elton 13 culture see culture
responsibilities 37 MBO see management Qualifications Framework 43
scientific 4, 25 MBTI personality inventory 401, 416 needs hierarchy 472-474, 490, 491
social process 33 McKinsey 7-S model 17, 17 higher order 472, 473, 474, 474, 490,
systems approach 17, 24, 25, 72, 87, mechanistic organisation 20 491
88 mentors 30 affiliation 472, 474
closed 72 merger 240, 247, 248, 257 esteem 472, 474, 491

INDEX
self-actualisation 472, 474, 491 research 14 prioritisation 217

lower order 472, 474, 490, 491 PERT technique 15 groups 422-423
physiological 474, 491 opportunity 267, 410, 417 categories 423, 423
security 474 optimising 266, 377 formal 423
negative organisation(s) 342-343, 368, 369, 370, friendship 423
duty 169, 180, 181 371 informal 422
feedback 24, 18 design 6, 32, 112, 344, 354, 368, 371 interest 423
reinforcement 483, 491 desirable outcomes 236-237 work see work group
negotiation 99, 112, 113, 134, 152, 157 groups 428, 441 hierarchy 217
phase 153-154, 157 individual(s) behaviour 393 learning 19, 53, 67
planning phase 152-153, 157 information systems (IS) 290 location departmentalisation 356,
process 152, 154, 157 strategy 290 357
skills 154 strategies 235, 291 maturity 502-505, 515, 516
network structure 359, 360, 369, 371 structure 20, 21, 24, 60, 103, 109, model 505
networked organisations 59, 65, 67 112, 113, 141, 354 mission 213, 262, 343-344
new departmentalisation approach 354, matrix departmentalisation 358, 358
entrants 77, 88 369 multiple departmentalisation 358
organisation model 56, 57 supplier relationships 59 network structure 359, 360
flatter and leaner 60 team members 439-440, 442 new venture units 359-360
flexibility 61 reward systems 440 objectives 14, 30, 34
venture units 359, 370, 371 selection 439 performance 74, 149, 199, 244
Ngambi, Hellicy 185-210, 393-419 training 440 philosophy 240
Nike Inc. 185-186, 192, 193, 199 types of teams 438-439 politics 157
nominal group technique 272, 273, 280 use of teams 437-438, 441 power 138, 155
non-renewable resources 35 organisational product departmentalisation 356,
normative ethics 164, 179, 181 alliances 59 356, 371
approaches 165, 165 architecture 253-254, 256, 257 remote working 361
theory 164 barriers to change 97, 111, 112 restructuring 51
Nxasana, Sizwe 445 behaviour 19 structure 342, 344, 349, 354, 368,
boundaries 141 369, 370, 371
O change 90, 92-94, 103-104, 112, 113 design 344, 344
objectives 34, 44, 45, 214-215, 231, 252, people 104 sub-culture 124, 131
257 strategic 103 team approach 360, 360
acceptable 215 structure 103 virtual network approach 360-361,
attainable 215 technology 103 370
congruent 215 chart 342, 355, 371 see also virtual network
criteria 215 conflict 151, 156 vision 213-214
flexible 215 culture 64, 109, 113, 118-120, 121, organising 339, 342, 368, 371
measurable 215 126, 128-129, 130, 131, 166, 181, importance 343
253, 257, 428 principles 345
specific 215
change 128-129 accountability 345, 347, 371
timeframe 215
levels 130 authority 345, 347, 349, 371
online
loans 384, 391
types 130, 131 see also authority
typologies 127 chain of command 345, 371
news 384, 391
customer departmentalisation 357, coordination 345, 346-347, 371
service provision 384, 391 357
trading 384, 391 delayering 345, 348, 371
diversity delegation 345, 348, 371
travel bookings 384, 391 continuum 202
operational plans 220, 221, 222, 225, division of work 345, 346, 371
goals 205 downsizing 345, 348, 371
230, 231
divisional departmentalisation 359, flexibility 348-349
operations 38, 44, 45 359
control 505-506, 515, 516 power 345, 348, 371
field 124, 130, 131
information systems 292, 303 responsibility 347, 371
functional departmentalisation 355,
office automation systems 292 span of control 345, 346, 371
355
outbound logistics 379, 391 standardisation 345, 346, 371
functions 88, 291, 291
process control systems 292 unity of command and direction
goals 11, 14, 17, 30, 31, 32, 34, 39,
transaction processing systems 345, 347
44, 214, 216, 217, 224, 268, 344
292 outputs 33, 34, 44, 45

outsourcing 67 costs 220, 230 portfolio
overall effectiveness 257 guidelines 222-229 analysis 252, 256
process 218, 228, 229 matrix 250, 256, 257
P sets standards 219 production
pace of change 96, 113 plans 220-222, 222 management 14
Pareto principle 15, 216, 231 directional 222, 231 operations 21
parity principle 363 intermediate 221 scheduling
password 301 long-term 221, 231 control systems 5
pay incentive system 5 medium-term 221, 231 productivity 5, 15, 23, 249, 254, 255,
pay off matrix 276, 280 operational 221, 231 256, 257, 500-501
perception 401, 402, 415, 416, 417 programme 222 Program Evaluation and Review
perceiver 402 projects 222 Technique (PERT) 15, 309, 326, 337
selective 403 short-term 221, 231 diagram 326-327, 327
situation 402 single-use 222, 231 time estimates 15
target 402 specific 222, 231 programme 222, 223, 224, 231
perceptual standing 223, 231 programmed decisions 280
inaccuracies 403-404 strategic 220, 231 programmers 288
grouping 402-403, 403, 417 tactical 221, 231 project 231, 306
processes 401-402, 402, 416 time consuming 226 budget 317, 330-331, 332, 336, 337
performance 33, 74, 397, 411, 413-415, types 220, 230, 231 charter 316, 324, 325, 337
417 policies 87, 88, 223 client 314, 336, 337
management system 428 political close 334-335, 337
measurement 34 action 145-147, 155, 157 completion date 324, 327
personality 396, 397, 415, 417 behaviour 147, 147 cost management plan 331, 331, 337
assessment 397 /legislative environment 81, 88 key performance indicators 309, 332,
Big Five model 398-399, 399, 415, science 146 337
417 skills 147 management 306-309, 307, 319, 336,
agreeableness 398 337
politics 93, 134
conscientiousness 398 advantages 308-309
pooled interdependence 346, 371
extroversion 398 communication plan 321, 323,
positive 336, 337
neuroticism 398-399 duty 180, 181
openness 398 external perspective 311, 336
reinforcement 482, 491 implementation 333-334, 336, 337
factors 397, 397 power 6, 93, 134, 137-138, 143, 145,
inventory 401, 416 internal perspective 309, 310
155, 157, 371, 491
testing 397, 398, 415 key role players 306, 312, 336
deep structure 142
traits 399, 415 office 313-314, 336, 337
games 134-136
Holland’s classification 400, 415, perspectives 309-311
and interest 144, 155
417 process 314-334, 315, 336
sources 93, 138-139, 155
locus of control 399 quality plan 315, 318, 336, 337
pressure 146, 146, 156, 157
self-efficacy 400-401, 415, 417 resources 307, 308, 336, 337
Primavera 326
self-monitoring 400, 415, 417 stakeholder plan 319, 320, 336,
principle of autonomy 62 337
personal priorities 216, 231
power 139, 155, 157, 348 tactical plan 315, 317
probability 264, 279 planning checklist 333
values 405, 416 analysis 276, 280
personnel selection process 428 procurement plan 330, 337
problems 262, 279, 280 resource management plan 329, 329,
PERT see Program Evaluation and problem-solving 262, 279
Review Technique; operations 337
procedures 223, 231 risk 337
Pick n Pay 90-91, 93, 103
process management plan 333, 334, 337
piece-rate work 5
approach 72, 87, 88 response plan 335
planning 31, 36, 37, 45, 211, 213, 219,
management 8, segmentation 335
226-229, 230, 231
see also administrative schedule 324, 336, 337
barriers 227-228, 230, 231
management scope 324, 337
benefits 218-219, 230, 231
procurement 38, 44, 45 sponsor 313, 337
communicate 229
product(s) 18 team 313, 336, 337
complex environment 217
development strategy 247, 257 promissory relation 168, 181
and control 219, 220
differentiation 78 public relations 38, 44, 45
contingency 218, 229, 231

INDEX
punctuated equilibrium change 111, 113 satisficing 266 status incongruity 109, 113
scarce resources 30, 33, 35, 140, 150, stories 125, 131
Q 155, 156 strategic
quality 23 Schwartz’s value constructs 405-406, alliances 51, 248
control 16 405, 416, 417 analysis 238, 238, 256, 257
improvement 16 scientific management 4-6, 25 business units (SBUs) 250, 251
movement 15-17, 25 scope of change 96, 113 change 103, 112, 113
Deming approach 15-16 self-efficacy 400, 415, 417 control 254-255, 254, 256, 257
planning 16 self-monitoring 400, 415, 417 direction 20, 93, 111
quantitative Selye, H 105-107 drift 120, 131
methods 14, 15 Senge, Peter 19-20, 24 implementation 252, 253, 255, 256
tools for decision-making 274-275, The fifth discipline 19 leadership 253, 257
275 sequential interdependence 346-347, management 233, 235, 236-237, 256,
conditions of certainty 275 371 257
conditions of risk and uncertainty shareholder value 171, 171, 244 process 237, 255, 256
276 simulation 277, 280, 281, 387 manager 312-313, 336, 337
quasi-stationary equilibrium 101 single-loop learning see learning plans 220, 225
queuing theory 275-276, 280 skill variety 487, 488, 489, 491 characteristics 221
social timeframe 221
R capital 253 values 185
RAFT values 173 contract 169, 171, 180, 181 strategies 253
rational networks 143 feasible 235
decision-making model 266, 279, 280 software resources 288 strategy 21, 229, 245, 246, 256
-legal organisations 7, 25 application software 288 cost leadership 245
persuasion 146, 156, 157 procedures 288 differentiation 246
reciprocal interdependence 347, 371 system software 288 formulation 243-244, 243, 257
referent power 139, 157, 348, 464 source of change 96, 113 implementation 252-253, 252, 256,
refreezing 101, 113 South Africa 178 257
relationships at work 109, 113 Companies Act (Act 71 of 2008) strength 243, 257
remote environment 79-80, 80, 87, 88 162, 179, 181 stress 104-106, 106, 107, 113
see also environment Employment Equity Act 63, 95, 188, and health 107-108
203
research and development 38, 44, 45, chronic 108, 108
375 ethnic groups 197
management 110
resistance GDP 170
phases 105-106
to change 97, 98-99, 100, 112, 226, population growth rates 35, 35
sources 108
230 internet access 50
structural capital 52, 67
phase 105, 113 South African
structure 21
resources 30, 31-32, 87, 88 Airways (SAA) 340, 354
substitutes 78, 88
see also inputs demographics 188
supplier(s) 79, 88
responsibility 347, 369, 370, 371 employment by occupational level
bargaining power 79, 88
retrenchments 190 188
networks 57
reward organisations 187, 188, 194, 196,
198, 204 sustainable competitive advantage 286,
power 139, 155, 157, 449, 463, 464 302, 303, 375
system 440, 442, 443 society 187
sustainability 177-180, 181
risk 264, 266, 279, 280 span of control 345, 346, 369, 370, 371
SWOT analysis 85-87, 88
rituals 125-126, 131 specialisation 362, 370, 371
symbolism 135, 142
role stakeholder
symbols 124, 130, 131
conflict 109, 113, 430, 443 analysis 320, 321
system(s)
expectation 429, 443 identification 320
analysts 288
perception 416, 429, 443 matrix 321, 321
approach 17, 24, 25, 72, 87, 88
rules 223, 231 plan 319, 336, 337
behaviour 18
tactical 322
norms 18
S protocol requirements 322
open 18, 24, 65
SAP South Africa 222-223 theory 170, 181
theory 12
Sappi Limited 38-39 Stalker, George M 20, 24
thinking 20, 67
Sarbanes-Oxley Act (2002) 173, 174, standardisation 345, 346, 369, 371
180, 181 standing plans 223, 230

T U WL Gore & Associates 46-47, 48, 59,
tactical Ubuntu 178 60, 61, 62
manager 313, 336, 337 uncertainty 264-265, 276, 279, 280 Woermann, Minka L 159-184
plans 221, 225, 231 unemployment 54, 81, 190 Woodward, Joan 20, 24
takeover 248, 257 unfreezing 101, 112, 113 work 122, 423, 434, 435
talent 411, 417 unity of command 345, 368, 371 environment 219
management 74, 411, 412 upward appeals 146, 156, 157 knowledge of results of activities
drivers 412 useful information 289-290, 302 488-489
principles 413 see also information meaningfulness 488
task performance 15 characteristics 289, 302 responsibility of outcomes 488
Taylor, Frederick Winslow 2, 4, 23 costs 289-290, 302 setting 429
five principles 4-5 acquisition 290 stress 104
Taylorism 2 communication 290 team 434
team(s) 420, 421, 424, 426, 434, 442 processing 290 worker(s)
approach 360, 370, 371 retrieval 290 expectations 53-54, 65
cross functional 439, 442, 443 storage 290 generations 54
learning 19 quality 289 job requirements 53
members 435, 436, 439, 442 quantity 289 roles 53, 65
problem-solving 438, 442, 443 relevance 289 workflow management systems 386, 391
self-managed 438, 442, 443 timeliness 289 work groups 420, 423-424, 441
virtual 439, 442, 443 utilitarianism 165, 166, 179 authority structures 427
teambuilding 41, 44, 45 command 424
see also managerial skills V task 424
technical skills 41, 44, 45 value(s) 120-121, 131, 161, 231, 405- workforce
technological environment 80-81, 88 406, 416, 417 diversity 63, 185, 187, 188, 194, 196,
technology 21, 24, 25, 80, 81, 93, 94, analysis 15 208, 209
103, 142 chain(s) 79, 373, 374, 380, 390 motivation 468
advances 50-51 industry-specific 378-379, 378, working
temporariness 54, 67 390 environment 219, 225
theft internal 374-376, 376, 391 parents 63
goods 265 optimisation 377-378, 390, 391 relationships 206
information 265 system 374, 379-380, 380, 390, 391 workplace transformation 51
money 265 Vanguard Group 237 work teams 434, 442
theory virtual network organisation 360, 370, accountability and rewards 437
of communication and learning 18 371 ants 434-435
X 13 virtue ethics 164, 166, 180, 181 characteristics 435
Y 14 vision 102, 213, 220, 231, 235, 253, 257 collective responsibility 436-437
threat 85, 87, 88, 243, 257 of change 102, 112 complementary competencies 435-
top management 36, 44, 45, 227 development 238 436
total statement 238 common purpose 436
effectiveness 499-500, 515, 516 Vodacom 70-71, 79, 82 cross-cultural perspectives 436
quality management 15, 16, 25 Von Bertalanffy, Ludwig 17 effective 435
TQM see total quality management Vrba, Mari 1-27, 46-68, 90-115, equality 437
traditional organisations 7, 25 116-133, 134-158, 420-444, 445-467, geese 435
468-492 shared leadership 437
training
and development 43, 44, 204 selection 437
W size 437
and support 207
Wal-Mart 170 synergy 437
trait research 450-451, 463
weakness 85, 87, 88, 221, 236, 243, 257 world wide web 295, 303
see also leadership
web-based recruitment 384, 391
tripol concept 16
Weber, Max 6-8, 23, 55 Z
people as
theory of authority structures 6 zero defect concept 16, 24
customer 16
website management 388, 391
processor 16
Welch, Jack 233-234, 235, 244, 247,
supplier 16 248, 249
trust 450–451 winning strategy 236, 257
turnaround 249, 256, 257 see also strategy/ies

Contemporary Management Principles 4th Edition T Brevis and M Vrba

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Contemporary Management Principles 4th Edition T Brevis and M Vrba

Uploaded by

Copyright:

Available Formats

MANAGEMENT PRINCIPLES

T Brevis and M Vrba

© Juta and Company Ltd, 2014

1st Floor, Sunclare Building

ISBN: 978 1 48510 229 8 (Parent)

Project manager: Deidré Mvula

Chapter 1 The evolution of management theory .......................................................................... 1

Chapter 2 The management process ................................................................................................ 28

Chapter 3 Features of contemporary organisations and new management challenges ......... 46

PART II: MANAGEMENT IN A CHANGING ENVIRONMENT

Chapter 4 Composition of the management environment .......................................................... 69

Chapter 6 Corporate culture .............................................................................................................. 116

Chapter 7 Power, politics, conflict resolution and negotiation .................................................... 134

Chapter 9 Workforce diversity .................................................................................................. 185

iv CONTEMPORARY MANAGEMENT PRINCIPLES

PART III: PLANNING

Chapter 10 Principles of planning ............................................................................. 211

Chapter 11 Strategic management .......................................................................... 233

Chapter 12 Decision-making .................................................................................... 259

Chapter 13 Information management ..................................................................... 282

Chapter 14 Project management ............................................................................. 305

CONTEMPORARY MANAGEMENT PRINCIPLES v

Chapter 15 Principles of organising ......................................................................... 339

Chapter 16 Value chain and e-business .................................................................... 373

Chapter 17 Individual behaviour in organisations ................................................... 393

Chapter 18 Work groups and teams ....................................................................... 420

vi CONTEMPORARY MANAGEMENT PRINCIPLES

18.8 Types of team .................................................................................................................... 438

Chapter 19 Principles of leading ............................................................................... 445

Chapter 20 Workforce motivation ........................................................................... 468

PART VI: CONTROLLING

Chapter 21 Principles of control ............................................................................... 493

Index ............................................................................................................................................. 517

CONTEMPORARY MANAGEMENT PRINCIPLES vii

The capitalist philosophers that contemporary managers strive to achieve.

2 CONTEMPORARY MANAGEMENT PRINCIPLES

1.1 WHY MANAGERS NEED TO STUDY THE LEARNING OBJECTIVE 1

CONTEMPORARY MANAGEMENT PRINCIPLES 3

LEARNING OBJECTIVE 2 1.2 THE CLASSICAL APPROACH TO

1.2.1 Scientiﬁc management

Frederick W Taylor (1856–1915)

3. Select the best person to do the work.

Organisations first applied Taylor’s principles on the factory floor, but

Henry L Gantt (1861–1919)

Frank Bunker Gilbreth (1868–1924)

CONTEMPORARY MANAGEMENT PRINCIPLES 5

Lillian Evelyn Moller Gilbreth (1878–1972)

Morris L Cooke (1872–1960)

1.2.2 Bureaucratic management

EJCTKUOCVKEQTICPKUCVKQP Charismatic organisations

6 CONTEMPORARY MANAGEMENT PRINCIPLES

Greek term ‘charisma’ to mean any quality of individual personality

The major characteristics of a bureaucracy are summarised in Table 1.1

CONTEMPORARY MANAGEMENT PRINCIPLES 7

Table 1.1: The major characteristics of a bureaucracy

Weber’s bureaucratic management theory made a substantial

1.2.3 Administrative (or process) management

work complements that of Taylor as it contains the first significant

Fayol considered these activities as the work of the administrator (or

9. Scalar chain. A single, uninterrupted chain of authority should

LEARNING OBJECTIVE 3 1.3 THE BEHAVIOURAL APPROACH

1.3.1 Human relations movement

Hugo Münsterberg, (1863–1916)