Introduction to Business Management

The Role of Business in Society

 Business activity: involves the transformation of resources into goods and
services to meet society’s needs. The needs and values of a society have a
strong influence on what the business does.

 Profit: the reward for meeting people’s needs, and it enables businesses to
pay for resources and to make a living. However, profit has to be earned in a
way that is fair and sustainable, and that is why the board of Prasa finds itself
in the precarious position of trying to turn around a business facing challenges
on many fronts.
 formal sector: large businesses such as Standard Bank, Naspers, Vodacom,
Anglo American, Tiger Brands and many other large public corporations – 375
of which are listed on the Johannesburg Securities Exchange (JSE) – are
responsible for most of South Africa’s economic activity. As market economies
develop, they tend to become less dependent on primary economic activities
like mining and agriculture and more dependent on services.
 Informal sector: small, medium, and micro enterprises (SMMEs), which are
mostly family or individually owned, contribute to about 30 per cent. Many
microenterprises form part of the informal sector. They are not part of the
formal economy because they are not registered, and many people involved
in these enterprises live primarily on a subsistence or survival basis.
Moreover, such businesses often put pressure on the infrastructure of inner-
city areas, as due to their informal nature they do not contribute to rates and
taxes.
 Business responsibility to society for sustainability:
o social responsibility: Historically, the social responsibility of a business
has been measured by its contribution towards employment
opportunities and by its contribution to the economy. But while these
factors remain important, many other factors are now included in
assessing the social performance of a business e.g., safe working
conditions, corporate social investment.
o Employment equity: the notion that the composition of the workforce at
all levels should reflect the composition of the community. It aims to
create equal employment opportunities for all and redress the
inequalities of the past by ensuring that workforces are composed in
 roughly the same proportions as the groups that make up the
population as a whole. In South Africa, the Employment Equity Act
became law in 1998.
o Business ethics: the ethical behaviour of managers and executives in
the business world. To make business ethics practical, many
organisations nowadays have codes of business conduct to provide
clear guidelines to managers on what is ethical and what is not.
o Consumerism: a social force that protects consumers against unsafe
products and malpractice by exerting moral and economic pressure on
businesses.
o Environmental sustainability: increasingly stakeholder activism and
legislation are forcing businesses to take the environment into
consideration. Businesses are frequently responsible for air, water and
soil pollution, and for the resultant detrimental effects on fauna and
flora. Citizens therefore often form pressure groups to protect the
environment.
 Not only should businesses be aware of their influence on the physical
environment, but also of the effect their business activities have on
consumers, the economy at large and competitors.
 At the same time, society is influenced by business i.t.o. prosperity,
employment, behaviour patterns, etc.

Needs and Need Satisfaction

 The economic principal: The decision to obtain the greatest possible benefit
(or satisfaction) with the limited resources we have.
 Maslow’s Hierarchy of Needs: once one is obtained society seeks to achieve
the next level.

 Production factors: refer to all the resources used for producing goods or
services. In the business world, there are four types of resources available to
manufacture goods or provide services.
o Natural resources: include agricultural land, industrial sites, residential
stands, minerals and metals, forests, water and all such resources that
nature puts at the disposal of humankind. Their supply cannot be
increased. In other words, the amount of natural resources any one
country possesses is given, and is in most cases, therefore, scarce.
Moreover, human effort is usually necessary to process these
resources into need-satisfying products. In the process, natural
resources are depleted and may become even scarcer.
o Human resources (production factor of labour): the physical and mental
talents and skills of people employed to create products and services.
People receive wages for their labour. The size of the labour force of
any country and therefore the availability of that production factor, is
determined by, among the size of the population, the level of its
education and training, the proportion of women in the labour force and
the retirement age.
o Capital: represented by the buildings, machinery, cash registers,
computers and other products, produced not for human consumption,
but for making possible the further production of consumer products.
Capital products usually have a long working life, the reason for the
scarcity factor of capital is that a community takes years to build up its
stock of capital. Every year it spends a certain amount on things such
as roads, bridges, mine shafts, factories and shopping centres, and
there is always a shortage of these things. The owners or suppliers of
capital are usually remunerated in the form of interest or rent.
o Entrepreneurship: refers to the collective capacity of entrepreneurs,
who are those individuals who accept the risks involved in providing
products and services for their society. Entrepreneurs take the risk of
providing their knowledge and capital in setting up a business with the
prospect of being rewarded with significant profits if they are
successful. If they do not succeed, they may lose a lot. The production
factor of entrepreneurship is scarce in the sense that not everybody in
a community is prepared to take the risks that are inevitable when
providing new products or services or has the ability to manage an
organisation successfully.
The Main Economic Systems

 Free market economy (capitalism): This economic system is based on the

principle that each individual in society is free to choose his or her own
economic activity.
 Command economy (communism): This system is based on the principle that
the state (the government) owns almost all of the country’s resources and that
the state (in the form of government officials) decides what products and
services should be manufactured/ provided, who should be employed where,
what each person should earn, and so on.
 Socialism: According to this system, individuals may certainly own private
property and choose their own form of economic activity. The state, however,
also owns many of the country’s resources and plays a far greater economic
role than in a free-market system.
 Mixed economy: an economic system that includes a variety of public and
government control, or a mixture of capitalism and communism. There is not
one single definition for a mixed economy. Relevant aspects include a degree
of private economic freedom (including privately owned industry) intermingled
with centralised economic planning and government regulation.
The Need-Satisfying Institutions of The Market Economy
 Profit-Seeking Businesses: private or state-owned business organisations,
e.g. public corporations.
 Government departments: government organisations that do not operate on a
profit-seeking basis. They provide a service to society, and they obtain their
funds from Treasury. In other words, the people in the society pay for these
services by means of taxes.
 Non-profit seeking businesses: privately owned organisations that do not
strive to make a profit. Most of them seek to obtain just sufficient income to
cover their costs.

The Nature of Business Management and The Classification of The

Study Material on Business Management
The key difference between Economics and Business Management is that the
former studies the “management of the national economy” and the latter studies the
“management of a need-satisfying institution”. Economics is a study of the broader
area of economic problems in the community, whereas Business Management
focuses on the problems of individual organisations in the same community.
Business Management entails the study of how to manage a business as
productively as possible. More specifically, the task of business management entails
an examination of the factors, methods and principles that enable a business to
function as efficiently and productively as possible in order to maximise its profits.

Business Activities:
 researching markets to find out whether there is a need for the product of the
business.
 acquiring and processing raw materials in the manufacturing process.
 appointing people to operate the machinery in the manufacturing process.
 Managing capital obtained and income generated.
 Paying creditors and remunerating workers remunerated.
 Co-ordinating and manging the above business activities. Furthermore, these
activities must be coordinated and managed.
This is the reason why activities are grouped into functional areas to ensure
proper coordination and management. The functional areas are depicted in the
following figure: