INTRODUCTION TO BUSINESS MANAGEMENT

Module Guide

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MANCOSA
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 This module guide,
Introduction to Business Management(NQF Level 5)
will be used across the following programmes:

Bachelor of Business Administration

Bachelor of Commerce in Accounting

Bachelor of Commerce in Corporate

Communication

Bachelor of Commerce in Digital Marketing

Bachelor of Commerce in Entrepreneurship

Bachelor of Commerce in Financial Management

Bachelor of Commerce in Human Resource

Management

Bachelor of Commerce in Information and

Technology Management

Bachelor of Commerce in International Business

Bachelor of Commerce in Marketing Management

Bachelor of Commerce in Project Management

Bachelor of Commerce in Retail Management

Bachelor of Commerce in Supply Chain

Management

Higher Certificate in Business Management

 Introduction to Business Management

Table of Contents
Preface 2
Unit 1: Introduction to Management 11
Unit 2: Evolution of Management Theory 37
Unit 3: The Management Environment 63
Unit 4: The Management Process 90
References 126
Bibliography 128

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 Introduction to Business Management

Preface
A. Welcome
Dear Student

Welcome to the Introduction to Business Management (IBM5) module.You are encouraged to

read this overview and module guide carefully, as it will aid you through your study journey.This
module guide intends to develop your knowledge and proficiency.

The field of Business Management is dynamic and innovative. The learning content and special
features contained in this module guide will provide you with opportunities to explore current industry
developments and theories.

As this is a distance-learning module, self-discipline and time management would need to be applied
effectively.You will have the opportunity to engage with interactive digital tools via MANCOSA
Connect to enhance your learning journey.

Through the inclusion of relevant content and industry aligned practices within the learning content,
you will develop critical thinking and problem-solving skills, empowering you as change agents for a
more sustainable world.

Please note that some special features may not have answers available, where answers are
not available this can be further discussed with your lecturer during the webinar session.

We hope you enjoy the module.

MANCOSA does not own or purport to own, unless explicitly stated otherwise, any intellectual
property rights in or to multimedia used or provided in the Introduction to Business
Management guide. Such multimedia is copyrighted by the respective creators thereto and
used by MANCOSA for educational purposes only.
Should you wish to use copyrighted material from this guide for purposes of your own that
extend beyond fair dealing/use, you must obtain permission from the copyright owner.

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 Introduction to Business Management

B. Module Overview

The Module is a 15 credit module at NQF level 5

The purpose of this module is to introduce the student to business management thereafter,
explain the relationship between organisation and management. The student will also be
introduced to the evolution of management theory and its relationship to modern practices. The
student will be able to identify levels of management and discuss activities which are performed
at each level. The core areas of management, manager role distribution and managerial skills
are discussed. Thereafter, the relationship between the management process and its
environments and student’s understanding of contemporary management issues and their
application are outlined. Lastly, students are provided with examples that illuminate principles of
good business and both independent and directed study as related to business management are
discussed

C. Learning Outcomes and Associated Assessment Criteria of the Module

Module Outcomes Associated Assessment Criteria

Key management principles and

practices are identified to establish a
foundation for further analysis
Roles and functions of management
Describe the fundamental management are explained to demonstrate their
principles and practices within the importance in achieving organisational
business context objectives
Application of management principles
and practices in various business
scenarios are analysed to illustrate
their relevance and effectiveness

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 Introduction to Business Management

Concepts of organisation and

management are defined to provide a
basis for further examination
Structure and functions of
Demonstrate the concept of
organisations are described to illustrate
organisation and management
their relationship with management
functions within the business context
Interactions between management and
various organisational components are
analysed to demonstrate their mutual
influence and interdependence

Historical development of management

theory is explained to understand its
evolution over time
Various management theories are
compared and contrasted to reveal
Explain the evolution of management
their similarities, differences, and
theory and its relationship to modern
contributions to modern management
management practices
practices

Relevance of different management

theories in the contemporary business
environment are assessed to determine
their applicability and usefulness

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 Introduction to Business Management

Various levels of management are

identified to provide a foundation for
further analysis
Roles and responsibilities associated
Differentiate between the levels of with each level of management are
management and the activities described to demonstrate their distinct
performed at each level within the functions
business context Interactions between management
levels analysed to illustrate the
importance of coordination and
communication in achieving
organisational objectives

Core areas of management roles and

responsibilities associated with them
are defined to establish a foundation
for further application
Distribution of managerial roles and the
Apply the core areas of management,
required skills for effective
manager role distribution, and
management are analysed to
managerial skills in a management
determine their relevance and
context
importance

Concept of management roles and

managerial skills are applied to real-
world scenarios to demonstrate their
practical relevance and effectiveness

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 Introduction to Business Management

Management processes and the

various environments are defined to
establish a foundation for further
analysis
Internal and external environments and
Discuss the relationship between the their impact on the management
management process and its processes are analysed to demonstrate
environments within the business their influence on decision-making and
context strategies
Strategies used by management to
navigate and adapt to different
environments are evaluated to ensure
organisational success and
sustainability

Contemporary management issues and

challenges are identified to provide a
basis for further examination
Causes and consequences of
Develop a framework that enables an
contemporary management issues are
effective and ethical decision of
applied to understand their impact on
contemporary management issues and
organisations and stakeholders
their application within the business
context Theoretical knowledge of contemporary
management issues are analysed to
propose solutions and strategies for
addressing them in real-world
scenarios

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 Introduction to Business Management

Diverse business management theories

and practices are analysed to identify
their relevance and applicability in
different scenarios, to ensure well-
informed decision-making
Various organisational structures and
Analyse the fundamental principles of management styles are compared and
effective business management in contrasted to enhance adaptability and
various organisational contexts responsiveness within dynamic
business environments
Practical examples of business
management scenarios are described
to illustrate the application of key
principles and theoretical concepts in
real-world situations

Business management topics are

researched using reliable sources that
are conducted to enhance knowledge
and understanding of the subject
matter
Undertake autonomous and guided Effective communication and
research, demonstrating a collaboration skills during guided study
comprehensive understanding of activities are demonstrated to foster
business management concepts and productive learning experiences and
practices knowledge sharing
Personal learning and research
experiences are conducted to identify
areas for improvement and implement
strategies for continuous professional
development

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 Introduction to Business Management

D.Acronym

E. How to Use this Module

This Module Guide was compiled to assist you with your study journey. The purpose of the Module
Guide is to allow you the opportunity to integrate the theoretical concepts discussed within the
content of the Module Guide. We suggest that you read through the entire module guide to get an
overview of its contents. At the beginning of each Unit, you will find a list of Learning Outcomes This
outlines the main points that you should understand when you have completed the Unit/s.

This Module Guide should be studied in conjunction with the prescribed, recommended textbook(s)/
reading(s) and other relevant study material. It is important that you make your own notes as you
work through the prescribed, recommended textbook(s)/ reading(s), other relevant study material,
and the module guide. You may obtain additional reading material by utilising publications
referenced at the end module guide under the reference list and bibliography.

F. Study Material
The study material for this module includes, programme handbook, this Module Guide, and a list of
prescribed and recommended textbooks/readings which may be supplemented by additional
readings.

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 Introduction to Business Management

G. Prescribed Textbook
The prescribed and recommended reading(s)/textbook(s) presents a tremendous amount of material
in a simple, easy-to-learn format. You should read ahead during your course. Make a point of it to re-
read the learning content in your module textbook. This will increase your retention of important
concepts and skills. You may wish to read more widely than just the Module Guide and the
prescribed and recommended textbooks/readings, the Bibliography and Reference list provides you
with additional reading.

The prescribed and recommended textbook(s)/reading(s) for this module are:

Prescribed Reading(s)/Textbook(s)

J o n e s , G . R . a n d G e o r g e , J . M . ( 2 0 2 2 ) .Contemporary Management. Twelfth Edition.

Massachusetts: McGraw Hill.
Smit, P.J. and Cronje, D.J. (2020). Management Principles. Seventh Edition. Cape Town: Juta.

Recommended Reading(s)/Textbook(s)

Erasmus, B. and Rudansky-Kloppers, S. (2020). Introduction to Business Management. Eleventh

Edition. Southern Africa: Oxford University Press.

H. Special Features
In the Module Guide, you will find the following icons together with a description. These are designed to
help you study. It is imperative that you work through them as they also provide guidelines for
examination purposes.

~~~~~~~~~~~~~~

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 Introduction to Business Management

Special Feature Icon Description

A Think Point allows you to apply your analytical skills to reflect

THINK POINT on the topic. You may be asked to apply a concept to your own
experience or to think of an example.

An Activity tests your knowledge on content that is highlighted

ACTIVITY within specific content areas. The purpose of an activity is to
give you an opportunity to apply what you have learned.

The readings provided should be read in order to develop your

knowledge of the content areas. If you are unable to acquire the
READINGS
suggested readings, then you may consult with any current
sources that deal with the subject.

PRACTICAL A Practical Application or an Example provides insight and

APPLICATION enhances your learning of the topic, allowing you to apply the
OR EXAMPLES theory learnt through real-life scenarios within this module.

Knowledge Check Questions (KCQ) appear in the form of

KNOWLEDGE
True/False or Multiple Choice Questions throughout the Module
CHECK
Guide. KCQs will test your knowledge of the content areas
QUESTIONS
covered.

REVISION Revision Questions will test your understanding of module and

QUESTIONS unit outcomes.

A Case Study provides different scenarios to illustrate how

CASE STUDY
theory is practiced.

VIDEO A Video Activity with links are included in your Module Guide
ACTIVITY along with instructions to attempt after watching the video.

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 Introduction to Business Management

Unit
1: Introduction to
Management
U n i t 1 : I n t r o d u c t i o n t o M a n a g e m e n t

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 Introduction to Business Management

Unit Learning Outcomes

CONTENT LIST LEARNING OUTCOMES FOR THIS UNIT

Introduces the topic areas covered for

1.1 Introduction the unit

Describe the relationship between the

organisation and management
Examine the management process and
1.2 The Nature of Management describe the relationship between the
management process and its
environments

Define a workable definition of

1.3 Definition of Management management

Identify the levels of management and

1.4 Levels of Management describe the activities which are

performed at each level

Describe the areas of management,

1.5 Management and the Organisation manager role distribution and

managerial skills

Identify and describe the concepts of,

and key differences between, the ‘old’
1.6 ‘Old’ and ‘New’ Organisations organisation and the ‘new’
organisation

Select and define the measures of

1.7 Management and Organisational managerial and organisational
Performance performance

Identify and describe contemporary

1.8 Scope and Challenges of Management management challenges

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 Introduction to Business Management

Summarises the topic areas covered

1.9 Summary for the unit

Prescribed and Recommended Reading(s)/Textbook(s)

Prescribed Reading(s)/Textbook(s)
Jones, G.R. and George, J.M. (2022). Contemporary Management.
Twelfth Edition. Massachusetts: McGraw Hill.
Smit, P.J. and Cronje, D.J. (2020). Management Principles. Seventh
Edition. Cape Town: Juta.
Recommended Reading(s)/Textbook(s)
Erasmus, B. and Rudansky-Kloppers, S. (2020). Introduction to
Business Management. Eleventh Edition. Southern Africa: Oxford
University Press.

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 Introduction to Business Management

1.1 Introduction

This section, the first section of the Introduction to Business Management Module, serves to
introduce the student to the concept of management. In so doing the following issues are examined:

Nature of management
Definition of management
Levels of management
Management and the organisation
‘Old’ and ‘new’ organisations
Management and organisational performance; and
The scope and challenges of management

Robbins (1997:38) identifies organisations to be characterised by a distinct purpose, multiple

members and a systematic structure. Organisations have emerged and exist primarily because they
are more efficient than individuals operating individually and therefore can produce items and/or
provide services which an individual could not produce/provide alone. In so doing the organisation is
able to meet the needs and demands of current day society through:

Bringing together resources to produce and provide the products and services which the society
needs
Creating and providing career opportunities for members of the society

In order to meet the needs and demands of current day society, organisations establish goals which
need to be operationalised for the purpose of the organisation to be achieved (Smit & Cronjé, 2020).
Management serves to ensure that such goals are established and operationalised, and in so doing
supports the purpose of the organisation.

Think Point 1.1

Select an organisation of your choice and analyse their goals.

1.2 The Nature of Management

Management’s task is argued to be “…to examine factors, methods and principles that enable a
business organisation to maximise its profits and achieve its objectives, (Cronje:2002:8). The
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 Introduction to Business Management

achievement of this task is reliant on the management process, which comprises the functions of
planning, organising, leading and controlling, as depicted in Figure 1.1 below.

Figure.1.1: The Nature of Management (adapted from Smit & Cronjé, 2002:9)

A study of Figure 1.1 reveals that the management process requires interaction with a number of
variables within different ‘environments’:

The organisation
The macro-environment; and
Management schools of thought

The Organisation
Within the organisation, management achieves the goals of the enterprise through acting on its
human, financial, physical and informational resources by executing the four central management
functions of Planning, Organising, Leading and Controlling (abbreviated to POLC). These four
functions comprise the core management process:

Planning involves determining which goals and courses of action the organisation and the
various departments should pursue
Organising involves the structuring and arranging of work, resources, departments and the
overall organisation in a manner which will facilitate the achievement of organisational goals
Leading involves influencing the organisation’s employees so as to ensure that they are

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 Introduction to Business Management

motivated to perform actions which are aligned with the organisation’s overall goals
Control means narrowing the gap between what was planned and the actual achievement of
management, and ensuring that all activities are carried out as they should be. (Du Toit et al,
2013)

The four management functions will be further discussed in Section 4 of this Module Guide.

Video Activity 1.1

Watch the video using the link below and answer the question that
follows.
https://www.youtube.com/watch?v=8jxJOa1P0lY
Explain the four functions of management.

The Environment
The organisation operates within a market environment, comprising consumers, suppliers and
competitors, as well as the macro-environment, which includes the technological, economic, social,
political and international environments. These two environments impact on the organisation and
therefore affect the nature of the organisation’s management. The organisation’s environment will be
discussed further in Section 3 of this Module Guide.

Management Schools of Thought

Management Schools of Thought (also known as Management Theories) present frameworks which
provide the manager and management student with fundamental principles to guide effective
management decisions and actions. Management Theories will be addressed further in Section 2 of
this Module Guide.

1.3 Definition of Management

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

exists within the literature. Definitions include:

“…The process of planning, organising, leading and controlling the resources of the organisation
to achieve stated organisational goals as productively as possible” (Cronjé,et al 2004:10)
“…The process of getting things done through the efforts of other people” (Mondy, Sharplin &
Premeaux, 1991: 3)
“…The process of planning, organising, leading, and controlling the work of organisation
members and of using all available organisational resources to reach stated organisational
goals.” (Jones & George, 2022)

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 Introduction to Business Management

An analysis of the above definitions point to the essential components which should be included in a
definition of management:

Management
Involves a process in which …
The management functions of planning, organising, leading and controlling are executed
Organisational resources are utilised; and
Work is achieved through the efforts of other employees
So as to provide for …the effective and efficient achievement of the organisation’s goals

Practical Application 1.1

A municipality received funding from government allocation, rates and taxes

amongst others. With these funds, together with employees, the municipality
is required to maintain its offices and other assets whilst providing service
delivery based on statistic as well as other information they possess, specific
to the area under management.
With the use of appropriate examples, identify the four basic resources of the
municipality that its management can utilise.

1.4 Levels of Management

Three levels of management within an organisation may be identified:

Top Management
Middle Management
Lower / First-Line / Supervisory Management

The three levels of management may be distinguished according to level of responsibility, main
functions, time orientation and positions held, as indicated in Table 1.1

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 Introduction to Business Management

Table 1.1: Three Levels of Management

TOP MANAGEMENT MIDDLE LOWER

MANAGEMENT MANAGEMENT
RESPONSIBILITY Overall responsibility for Responsible for Responsible for
the organisation specific departments departmental sections /
subsections
MAIN FUNCTION Strategic management Implementation of Application of rules &
policies, plans & procedures to achieve
strategies high levels of
productivity
TIME ORIENTATION Long Term Medium Term Short Term
POSITIONS HELD Board of Directors, Departmental Section/subsection
Managing Director, heads, e.g. heads, e.g. Product,
CEO, Management Marketing Sales & Promotion
Committees Manager, HR Managers within the
Manager Marketing Department

Think Point 1.2

Take note of the top, middle and lower management positions within your
organisation. From your experience, elaborate on the actions / tasks
undertaken by each level of management?

Evidence shows that managers at all levels spend time on all management functions. However, as
Daft (1995) points out, the amount of time spent on each particular function differs between each
level of management (see Table 1.2

Table 1.2: Percentage of Time Spent on Management Functions by Management Level

PLANNING ORGANISING LEADING CONTROLLING

TOP MANAGERS 28 % 36 % 22 % 14 %
MIDDLE MANAGERS 18 % 33 % 36 % 13 %
FIRST-LINE 15 % 24 % 51 % 10 %
MANAGERS
(Daft, 1995: 17)

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 Introduction to Business Management

It is evident from table 1.2 that:

Top managers spend much time organising, and a substantial amount of time planning
Middle managers spend time mostly on organising and leading; and
Lower managers spend just over half of their time leading

Activity 1.1

Discuss the following statement:

First line managers spend 51% of their time leading as opposed to middle
managers and top managers who spend 36% and 22% respectively.

Practical Application 1.2

Based on the above figure, discuss the different levels of management being
depicted.

1.5 Management and the Organisation

It has already been identified, in the Introduction (subsection 1.1) to this section, that the relationship
between the organisation and management is critical in that management serves to support the
establishment of goals, implementation of actions and utilisation of resources, so as to enable the
achievement of the organisation’s purpose.

This subsection serves to further highlight management’s relation to the organisation by discussing
the areas of management, role distribution of managers as well the managerial skills required at
various managerial levels.

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 Introduction to Business Management

1.5.1 Areas of Management

A business also has different types of managers, each responsible for the management of a more or
less specialised group of activities. Six functional areas of management may be identified (Cronjé, et
al, 2004:125):

Marketing Management
Financial Management
Operations Management
Purchasing Management
Human Resource Management
Public Relations Management

These functional areas of management will be examined further in Section 4 of this Module Guide.
In addition to the six functional areas of management identified above, a seventh area may be
identified: that of General Management (Cronjé, 2004).
This area of management involves the execution of the four generic management functions of
Planning, Organising, Leading and Controlling (POLC), already identified in subsection 1.2, and
which are to be discussed further in Section 4 of this Module Guide. General Management is not only
performed within each of the six areas of management identified above, but at all levels of
management as well.

1.5.2 The Role Distribution of Managers

The manager’s relation to the organisation can be further explored from a role distribution
perspective.
As identified in paragraph 1.5.1 above, the area of General Management identifies the four
management functions of Planning, Organising, Leading and Controlling (POLC) as characterising
the manager’s work. However, Mintzberg (1990) argues that not only do these widely accepted
management functions provide an inadequate explanation of what managers do, they fail to provide
a practical approach to understanding and developing managerial competence as well.
It is argued that the traditional POLC approach oversimplifies the complexity of the manager’s job,
which is in effect, “enormously complicated and difficult” (Mintzberg, 1990: 167) and is characterised
by brevity, fragmentation and an overburden of tasks. Thus, Mintzberg (1990) maintains that it is
more useful to view the manager’s relation to the organisation in terms of their roles.

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 Introduction to Business Management

Figure 1.2: The overlapping roles of managers (Du Toit, et al: 2007:137)

Figure 1.2 presents the three categories of managerial roles in a sequential manner. The sequence
begins with status emerging from the formal authority vested in the manager’s position.

This status allows for the formation of interpersonal relationships and the execution of Interpersonal
Roles. The interpersonal relationships in turn provide the manager with access to information and
the consequent carrying out of Informational Roles. This information consequently enables the
manager’s decision-making, and his execution of Decisional Roles.

Think Point 1.3

Based on your knowledge, outline some examples of the negotiators’ role
of managers.

It needs to be noted that Mintzberg (1990) emphasises that although he breaks down the manager’s
work into ten different roles, his focus is on the gestalt (whole) and he argues that the roles are not
separable. In so doing the complex nature of managerial work is acknowledged.

Mintzberg (1990) argues that the managerial role approach contributes to more effective
management in that, unlike the traditional POLC approach, it provides managers with insight into the
pressures and complexities of their work.

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 Introduction to Business Management

Video Activity 1.2

Watch the video using the link below and answer the question that
follows.
https://www.youtube.com/watch?v=r0ZRnKNyBlA
Discuss the three conceptual categories of manager’s role.

1.5.3 Managerial Skills

In order for the manager to effectively perform in his/her position, certain managerial skills are
required.
Cronjé et al (2004) identify three categories of skills which managers at all levels of the organisation
are identified to possess:

Conceptual Skills: which refer to the manager’s ability to view the operation of the organisation
and its parts holistically
Interpersonal Skills: which refer to the manager’s ability to communicate and work effectively with
others
Technical Skills: which refer to the ability to use discipline specific skills to complete a particular
task

Obviously managers at different hierarchical levels within the organisation will employ these skills to
varying degrees. For example, the nature of the work which top management performs requires a
greater reliance on, and employment of, conceptual skills.

Mintzberg (1990) identifies the following skills to be important to managerial work:

Development of peer relationships

Motivation of subordinates
Conflict resolution skills
Negotiation skills
Establishment of information networks
Dissemination of information
Allocation of resources
Decision-making in conditions of extreme ambiguity
Introspective skills which provide for learning of the job

The key difference between the managerial skills identified by Mintzberg (1990) and those identified
by Cronjé, et al (2004) is that while the latter’s focus is on skill categories, the former emphasises

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 Introduction to Business Management

important skills necessary to cope with the complex nature of managerial work. Indeed, it may be
argued that the majority of skills identified by Mintzberg (1990) fall within S Cronjé’s, et al (2004)
Conceptual and Interpersonal Skill categories.

Management education, which can take the form of formal or continuous education, provides the
manager or potential manager with the opportunity to develop management skills within an
educational setting, for example, at colleges, technikons, universities and/or company in-house
training facilities (Cronjé, 2004).

Managerial skills may be developed from both education and experience, as depicted next, in Figure
1.3.

Figure 1.3: Mechanisms for the Development of Management Skills (from Smit & Cronjé,
2002:20)

In contrast to management education, practical experience provides the manager and potential
manager with the opportunity to develop management skills while performing his/her job.

With regards to the effectiveness of the two different approaches it is important to note Mintzberg’s
(1990) assertion that the development of management competence cannot be achieved from a
theoretical approach to education alone. Indeed, it has been recognised that for management
development programs to be effective, the cognitive learning which results from education should be
married with the practical learning which results from experience.

This subsection, entitled Management and the Organisation, has served to further explore the
fundamental principles underlying the relationship between the organisation and the work of the

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 Introduction to Business Management

manager. In so doing, the Areas of Management, Managerial Roles and the Managerial Skills were
examined.

1.6 ‘Old’ and ‘New’ Organisations

The management environment has been undergoing change which has resulted in change in
organisations and managerial work. This has resulted in the emergence of the ‘new’ organisation
which provides the flexibility necessary to respond adequately to the changing environment
(Robbins, 1997).

Organisations are changing in a number of ways. Table 1.3 below identifies some of the key
changes, as identified by Robbins (1997).

Table 1.3: Key Changes within Organisations (Robbins, 1997: 11)

‘OLD’ ORGANISATION ‘NEW’ ORGANISATION

Permanent jobs Temporary jobs

Control organisation’s own destiny Externalise risk (e.g. through

through independence outsourcing)

Relatively homogenous workforce Diverse workforce

9-to-5 workdays Workdays with no time boundaries

Large corporations provide job security Large corporations are cutting overall staff

“If it ain’t broke, don’t fix it” Reengineer all processes

Work is organised around individuals Work is organised around teams

Moss Kanter (1989) argues that as a result of competitive pressures within the management
environment, organisations are adopting more flexible strategies and structures. The move to
flexibility requires that managers learn to perform new ways of managing, deal with change,
implement new ways of motivating people and accept changes in their own bases of power.

Moss Kanter (1989) argues that the post-entrepreneurial organisation presents the traditional
manager with the following changes:

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 Introduction to Business Management

An increased number and variety of channels (horizontal, vertical, cross-functional) exist for
exerting influence and taking action within the new organisation
Within the new organisation, relationships of influence are emerging within horizontal peer
networks, and thus are not limited to the vertical chain of command
The division between managers and non-managers is blurring, particularly in terms of information
accessibility, access to relationships outside the organisation and control over assignments
External relationships are becoming important in providing for internal power and influence, as
well as career development
As a result of the above four factors, stable and predictable paths of career development for
managers are difficult to pre-determine and to guarantee

The above five factors demonstrate how the post-entrepreneurial manager is distinct from the
traditional manager in that his/her managerial power and success is not derived from his/her
hierarchical position. Indeed, it is asserted that managers “….must learn to operate without the
crutch of hierarchy. Position, title, and authority are no longer adequate tools, not in a world where
subordinates are encouraged to think for themselves and where managers have to work
synergistically with other departments and even other companies” (Moss Kanter, 1989: 16).

Thus Moss Kanter’s (1989) approach essentially differs from the traditional management approach in
that while the traditional approach is grounded in the concept of hierarchy (as shown in subsections
1.4 and 1.5), the post-entrepreneurial approach’s focus is on relationship networks.

1.7 Management and Organisational Performance

It was indicated in the Introduction (subsection 1.1) that to meet the needs and demands of current
day society, organisations establish goals which must be operationalised for the purpose of the
organisation to be achieved (Cronje, 2004). Management serves to ensure that such goals are
established and operationalised, and in so doing supports the purpose of the organisation. Thus, it
follows that organisational performance has a strong relation to managerial performance.

The assessment of managerial and organisational performance is one characterised by much

debate (Stoner & Freeman, 1992). However, the criteria on which there is much agreement are
those of efficiency and effectiveness:

Efficiency (‘doing things right’) focused on input and output. An efficient manager is regarded to
be one who is able to achieve outputs which measure up to the inputs (time, materials, labour)
used to achieve the outputs
Effectiveness (‘doing the right thing’) focuses on choosing the most appropriate goals and plans
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 Introduction to Business Management

of action (Stoner & Freeman, 1992: 6)

Activity 1.2

With the aid of an example, illustrate the difference between efficiency and
effectiveness.

Cronje (2004) argue that the efficiency-effectiveness approach tends to be simplistic. Rather, the
economic principle, where the organisation (and its management) should seek to achieve the
highest possible output with the lowest possible input, should be used as the measure of managerial
and organisational performance (Cronje, 2004).

1.8 Scope and Challenges of Management

A number of challenges exist for management not only within the Southern African region, but
globally as well.

Cronje et al (2007) identify the following challenges to management within the Southern African
region:

Management Training for Large and Small Business Organisations: As both large and small
businesses play an important role in the South African economy, one of the challenges is to
ensure that organisations of all sizes have skilled management who are able to ensure effective
organisational performance. Such management competence should be acquired through
appropriate management training
International Management: Globalisation has resulted in South African organisations having to
compete with global players. The challenge for management exists in improving the performance
of South African organisations to achieve sustainable competitive advantage within this highly
competitive market (Cronje, et al 2004)
Non-profit Seeking Organisations: Non-profit organisations within South Africa, such as the
government, place a significant demand on scarce resources. Management’s challenge within
these organisations is to ensure efficient and effective use of these resources
Managerial and Economic Empowerment: The initiatives of the South African apartheid
government resulted in considerable inequalities and consequently a vast number of
disadvantaged individuals. The challenge for management therefore is to ensure the managerial
and economic empowerment of the previously disadvantaged individuals through, for example,
management training and mentorship (Cronje, et al 2004)
Cultural Diversity: The South African organisation is characterised by diversity in terms of race,

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 Introduction to Business Management

ethnicity, religion, gender and sexual orientation. The challenge therefore is for management to
not only appropriately manage, but also harness the potential of a diverse workforce

Taylor (2000) identifies HIV and AIDS to be a management challenge. Indeed, it is expected that in
2010 21% of the South African workforce will be HIV positive, while 3% will have AIDS. It is argued
that in order to deal with the HIV/AIDS epidemic, South African management need to start planning
and devising inventive solutions.

The effective addressing of the management challenges identified by (Cronje, et al 2004) and Taylor
(2000) may be argued to be dependent on management which is dedicated and enthusiastic.
However, research undertaken by Hofmeyer (1998) during 1997 shows that South African
management attitudes have become more negative since 1994, particularly in the areas of
management relations, productivity, management development and leadership. This thus presents a
further challenge: given South African management’s less positive attitudes, is it possible for
management to be sufficiently committed and motivated for the challenges identified by Cronjé
(2004) and Taylor (2000) to be effectively addressed?

1.9 Summary

This section served to introduce the student to the fundamentals of management. The nature of
management was examined, and a definition of management was formulated. Further, the levels of
management, the areas of management, management roles as well as management skills were
examined. The implications which the new organisation has for management were also explored, as
were measures of management and organisational performance. This introduction to management
was concluded with an examination of the current and future management challenges.

The next section of this Study Guide, Section 2, will examine the evolution of management theory.

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 Introduction to Business Management

Knowledge Check Question 1.1

Select the correct answer:

1) Which of the following roles would spend more than half of their time
leading?
a. Board Directors
b. Chief Executive Officers
c. Human Resource Manager
d. Sales Manager

2) Planning, organising, leading and controlling are called managerial

a. Roles
b. Functions
c. Competencies
d. Skills

3) Conceptual skills refer

a. To the managerial skills that are required for the manager to
effectively perform in his/her position
b. To the ability to use discipline specific skills to complete a particular
task
c. To the manager’s ability to communicate and work effectively with
others
d. To the manager’s ability to view the operation of the organisation and
its parts holistically.

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 Introduction to Business Management

Case Study 1.1

Read the following article and answer the questions below.

Pick n Pay converts spaza shop into store in Diepkloof
Pick n Pay on Thursday opens the first spaza-to-store conversion in Diepkloof
township in Soweto, as it looks for more markets in a tighter economy
The strategy comes as the number of new malls being built drops and
competition from slicker foreign operators continues.
The move will allow Pick n Pay to move more rapidly at a lower cost in lower-
income areas, where it has less penetration than rivals such as Shoprite.
There are 12 full-format Pick n Pay stores in Soweto.
Chris Reed, the grocer’s group executive for franchise, said on Wednesday
that many independent township traders were experiencing tough times, as
the economy tightens, and competition becomes more intense. "When we talk
to spaza owners about the challenges, and how we might help, they
frequently identify better access to quality products at good prices, a reliable
distribution system, good business management systems, and business
advice and mentorship as priority areas for them," he said.
The pilot scheme, which is being opened in partnership with the Gauteng
department of economic development is owned and run by Solly Legae and
his family, who have traded in Diepkloof since 1972.
On a tour of the store, which carries about 800 stock-keeping units, Mr Legae
said the initiative would change the face of retail in townships.
"We were just buying and selling … that’s what you do in townships. The
systems that Pick n Pay have brought make me think I’ve been playing all
along.
"There’s a vast difference in how I’m running the business," he added.
The store offers services including social grant pay-outs, Lotto, bill payments,
and the sale of prepaid electricity — all known drivers of footfall. The sales are
linked to the grocer’s Smart Shopper scheme.
In managing the store, Mr Legae has received mentoring and advice from
franchisee Bonny Sachane
(Source: Moorad, 2016 – Extract – Full article available at https:
//www.supermarket.co.za/news-article.asp?ID=5769)
Questions

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 Introduction to Business Management

1. Briefly explain the managerial functions that Mr. Solly Lagae will be
responsible for as owner-manager of the business.
2. Discuss the overlapping roles of Mr. Solly Lagae as owner-manager of the
business.
3. Discuss some socio-cultural factors associated with townships that might
affect Mr. Solly Lagae business operations.

Revision Questions

1. Identify the essential components which should be included in the definition

of management.
2. Elaborate on the Time Spent on Management Functions by Management
Levels.
3. Discuss some of the key changes within organisations.

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 Introduction to Business Management

Answers

Activity 1.1
Discuss the following statement:
First line managers spend 51% of their time leading as opposed to middle managers and top
managers who spend 36% and 22% respectively.
Answer:
Learners are expected to relate to the following:

First line managers spend just over half of their time leading
First line managers spend the most amount of time leading when compare to the other levels
First line managers supervise more employees than other levels therefore, time spent leading is
higher

Activity 1.2
With the aid of an example, illustrate the difference between efficiency and effectiveness.
Answer:
Learners are expected to relate to the following:

Efficiency (‘doing things right’) focuses on input and output. An efficient manager is regarded to
be one who is able to achieve outputs which measure up to the inputs (time, materials, labour)
used to achieve the outputs
Effectiveness (‘doing the right thing’) focuses on choosing the most appropriate goals and plans
of action
Let's consider a surgery example. A surgeon is very skilled, perhaps the best in the country. The
impending job is to operate on the patient's left knee. However, the surgeon doesn't perform all
the steps of the process leading up to the surgery. Someone else marks the right knee for
surgery. However skilled this surgeon is, however fast he performs the surgery (i.e., however
efficient he is), this process will not be effective. When the patient awakens from the surgery, he
will not be a happy camper. And what about the HMO? Who will pay for a surgery performed on
the wrong knee? (https://www.referenceforbusiness.com/management/De-Ele/Effectiveness-and-
Efficiency.html#ixzz6WQ2r0WnF)

Case Study 1.1

1. Briefly explain the managerial functions that Mr. Solly Lagae will be responsible for as
owner-manager of the business.
Answer:
The managerial functions of the owner manager would be as follows:

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 Introduction to Business Management

Planning involves determining which goals and courses of action the organisation and the
various departments should pursue
Organising involves the structuring and arranging of work, resources, departments and the
overall organisation in a manner which will facilitate the achievement of organisational goals
Leading involves influencing the organisation’s employees so as to ensure that they are
motivated to perform actions which are aligned with the organisation’s overall goals
Control means narrowing the gap between what was planned and the actual achievement of
management and ensuring that all activities are carried out as they should be

2. Discuss the overlapping roles of Mr. Solly Lagae as owner-manager of the business.
Answer:
The overlapping roles are as follows:

Decision making
Act as an entrepreneur
Trouble-shoot
Allocate resources
Negotiate
Interpersonal role
Representative figure
Leader
Relationship
Informational role
Monitor
Analyser
Spokesman

3 Discuss some socio-cultural factors associated with townships that might affect Mr. Solly
Lagae business operations.
Answer:
Some socio-cultural aspects:

Poverty
Unemployment
Lack of infrastructure, e.g. power, water

Knowledge Check Question 1.1

1. Which of the following roles would spend more than half of their time leading?

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 Introduction to Business Management

a. Board Directors
b. Chief Executive Officers
c. Human Resource Managerd. Sales Manager
Answer: D

2. Planning, organising, leading and controlling are called managerial.

a. Roles
b. Functions
c. Competencies
d. Skills
Answer: B

3. Conceptual skills refer.

a. To the managerial skills that are required for the manager to effectively perform in his/her
position
b. To the ability to use discipline specific skills to complete a particular task
c. To the manager’s ability to communicate and work effectively with others
d. To the manager’s ability to view the operation of the organisation and its parts holistically.
Answer: D

Practical Application 1.1

A municipality received funding from government allocation, rates and taxes amongst others.
With these funds, together with employees, the municipality is required to maintain its offices
and other assets whilst providing service delivery based on statistic as well as other
information they possess, specific to the area under management. With the use of appropriate
examples, identify the four basic resources of the municipality that its management can
utilise.
Answer:
Learners are expected to relate to the following:

Top management is represented by Board of Directors and CEO

Middle management is represented by COO, CFO, CMO and SVP Corporate Development
Lower management is not represented in the diagram

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 Introduction to Business Management

Practical Application 1.2

Based on the above figure, discuss the different levels of management being depicted.
Answer:
Learners are expected to relate to the following aspects of the municipality:

Human resources – employees

Financial resources – fund received
Physical resources – offices
Information resources - statistics

Think Point 1.1

Select an organisation of your choice and analyse their goals.
Answer:
Learners are expected to select an organisation that they are familiar with and perform the following:

Identify the goals

Analyse the meaning of the goals
Relate the goals to the purpose of the organisation

Think Point 1.2

Take note of the top, middle and lower management positions within your organisation. From
your experience, elaborate on the actions / tasks undertaken by each level of management?
Answer:
Learners are expected to elaborate on the following:

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 Introduction to Business Management

Top management actions, e.g. developing corporate strategy

Middle management actions e.g. manage specific areas such as marketing
Lower management actions e.g. supervise officials within units

Think Point 1.3

Based on your knowledge, outline some examples of the negotiators’ role of managers.
Answer:
Learners are expected to provide some examples and elaborate:

Example: Price negotiation – managers might negotiate to secure better pricing of material
Example: Salary negotiation – managers might need to negotiate the salaries of their employees

Video Activity 1.1

Explain the four functions of management.
Answer:
Learner must discuss the following:

Category 1: Informational
Managing by information
The activities used to maintain and develop an information network
Involves monitoring, disseminating and being spokesperson - 75% of managers time involves
communicating with others
Category 2: Interpersonal
Managing through people
Pertain to the relationship with others and are related to human skills
Involves undertaking a figurehead, leader and liaison role
Category 3: Decisional
Managing through action
Pertain to those events about which the manager must make a choice and take action
Involves being entrepreneurial, acting as a mediator and perform the allocator as well as the
negotiator role

Video Activity 1.2

Discuss the three conceptual categories of manager’s role.
Answer:
Learner must discuss the following:

Planning

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 Introduction to Business Management

Where the organisation wants to be in the future and how to get there

Organising

Assigning tasks, grouping tasks into departments, delegating authority and allocating resources
across the organisation

Leading

Creating a shared culture and values, communicating goals to people throughout the organisation
and infusing employees with the desire to perform at a high level

Controlling

Monitoring employees’ activities, determining whether the organisation is moving towards its goals
and making corrections as necessary

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 Introduction to Business Management

Unit
2: Evolution of Management Theory

Unit 2: Evolution of Management Theory

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 Introduction to Business Management

Unit Learning Outcomes

CONTENT LIST LEARNING OUTCOMES FOR THIS UNIT

Introduces the topic areas covered for

2.1 Introduction the unit

State the importance and relevance of

2.2 Why study Management Theory? studying management theory

Define the concept of theory and

2.3 Understanding Management Theory identify the factors which influence the
development of management theory

Describe the principles of the various

2.4 Theories of Management Theories in Management

2.5 Management Theory or Management Define the concept of a management

Fad? fad

Summarises the topic areas covered

2.6 Summary for the unit

Prescribed and Recommended Reading(s)/Textbook(s)

Prescribed Reading(s)/Textbook(s)
Jones, G.R. and George, J.M. (2022). Contemporary Management.
Twelfth Edition. Massachusetts: McGraw Hill.
Smit, P.J. and Cronje, D.J. (2020). Management Principles. Seventh
Edition. Cape Town: Juta.
Recommended Reading(s)/Textbook(s)
Erasmus, B. and Rudansky-Kloppers, S. (2020). Introduction to
Business Management. Eleventh Edition. Southern Africa: Oxford
University Press.

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 Introduction to Business Management

2.1 Introduction

While Section 1 introduced the student to the fundamentals of management, this section examines
the Evolution of Management Theory. Management theory is argued by some to have originated with
Nicocolé Michiavelli, while others argue that the Egyptians were the first management thinkers
(Micklethwait & Wooldridge, 1996). However, while Michiavelli and the Egyptians may well have
been management thinkers, it is only during the last century that management has undergone
systematic investigation and has been established as a formal discipline.

This section of the Study Guide examines the body of management knowledge which has emerged
since the early 1900s. In so doing, the following will be studied:

Why study management theory?

Understanding management theory
The theories of management
Classical Approach
Scientific management theory
Administrative management theory
Behavioural & Human Relations Approach
Quantitative Approach
Contemporary Approaches
Systems theory
Contingency theory
Chaos theory
Other contemporary theories

2.2 Why Study Management Theory?

The management student may wonder why the study of management theory is necessary. However,
as will be shown, the study of management theory is critical in developing not only a holistic
understanding of the discipline, but professional competence as well.

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 Introduction to Business Management

Think Point 2.1

Think about your experience in your current organisation and/or
organisations for which you have worked in the past:

• Identify two managers, with whom you have dealt, who have
demonstrated vastly different management styles (for example, an
absolute autocrat vs a democratic manager)
• Identify the one manager as ‘Manager A’ and the other manager
‘Manager B’
• From your experience and observations, what principles do you think
underlie Manager A’s view of, and approach to management?
• From your experience and observations, what principles do you think
underlie Manager B’s view of, and approach to management?

2.3 Understanding Management Theory

In studying management theory, it is important that the management student understands the
concept of ‘theory’, as well as the factors which influence the development of theory.

Definition of Theory
Stoner & Freeman (1992) define a ‘theory’ as a “coherent group of assumptions put forth to explain
the relationship between two or more observable facts and to provide a sound basis for predicting
future events”. Another definition of the word ‘theory’ is “a supposition or system of ideas explaining
something” (Thompson, 1995: 1446). In essence, therefore, a theory is a framework of principles.

From the management perspective, it may be argued that each management theory provides a
framework of principles which serve to guide not only the manager’s understanding of management
issues, but his/her management-related actions as well.

Factors influencing the development of Theory

It needs to be noted that management theories do not develop in a vacuum but develop within, and
as a result of, the dynamic environment. The environmental forces which impact on the development
of management theory are depicted in Figure 2.1 below:

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 Introduction to Business Management

Figure 2.1: Environmental forces that shape management thought (from Smit & Cronjé, 2002:
37)

Figure 2.1 portrays the numerous environmental factors such as political, social, economic,
ecological as well as international forces that have shaped management thoughts from the
beginning.

2.4 Theories of Management

The schools of management which will be studied in this subsection include:

Classical Approach
Behavioural & Human Relations Approach
Quantitative Approach
Contemporary Approach

These schools emerged in a chronological sequence, which is depicted in Figure 2.2 below.

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 Introduction to Business Management

Figure.2.2: Key Management Theories (adapted from Freeman & Stoner, 1992: 29)

It must be noted however, that although the schools developed chronologically, later management
theories did not (and do not) serve to replace the earlier theories. Rather, each new theory which
emerges tends to complement or exist alongside those theories which have been established for
some time.

Think Point 2.2

Examine Figure 2.2 which provides an indication of the periods during
which the various schools of management emerged. Elaborate on any of
the environmental forces which were influential during the periods in
which these management schools of thought emerged?

2.4.1 The Classical Approach

The two major theories which comprise the Classical Management Approach are Scientific
Management Theory and Administrative Management Theory.

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 Introduction to Business Management

Figure.2.3: The Classical Management School

The emergence of the Classical Approach was influenced by the steam-engine which was a product
of the Industrial Revolution. Steam power provided for efficient production which in turn led to a shift
from farm work to factory work where the principle of mass production was upheld. This shift from the
agrarian mode to the factory system brought about a number of organisational problems, such as
poor motivation of workers (Cronje,et al 2004). The classical theories emerged to address these
problems.

Scientific Management Theory

Scientific Management Theory arose partly due to the need to increase productivity. Fredrick Taylor,
Henry Gantt and Frank and Lillian Gilbreth are best known for their contributions to the field of
Scientific Management.
Frederick Taylor was a manufacturing manager (originally a mechanical engineer) who sought to
increase the productivity of the individual worker through increasing specialisation and job division of
labour. He developed four principles to increase efficiency in the workplace:

Examine the way in which workers perform their tasks and experiment with ways of improving the
way in which the task is performed
Record the new methods of performing the task as rules and standard operating procedures
Ensure that workers’ skills and abilities match the needs of the task, and train them to perform the
task according to the written rules and standard operating procedures
Determine an acceptable level of performance for each task and develop a remuneration system
which rewards performance which exceeds the acceptable level (Cronje, et al, 2004)

Frank & Lillian Gilbreth built on the work of Taylor and focused on work simplification. Their approach
included:

Analysing each individual action required to perform a task

Identifying better ways of performing each action

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 Introduction to Business Management

Increasing the efficient performance of the whole task through reorganising the individual actions
(Jones & George, 2022)

Henry Gantt redesigned the incentive system developed by Taylor by providing not only for the
payment of a bonus to the worker who exceeded the daily standard, but to the worker’s supervisor as
well. He also devised a chart for production scheduling, the Gantt Chart, which is still in use today
(Stoner & Freeman, 1992).

The Scientific Management Approach succeeded in its endeavour to increase productivity. However,
the approach, in focusing on work and productivity, neglected to address the ‘human’ element, which
ultimately resulted in worker dissatisfaction and distrust of management.

Administrative Management Theory

While Scientific Management Theory focused on the productivity of the worker, Administrative
Management Theory essentially focused on how to increase productivity at the level of the
organisation. Henri Fayol and Max Weber made significant contributions to this view of
management.
Henri Fayol, recognised as Europe’s greatest management pioneer, adopted a process approach to
management. He identified 14 principles which he argued could increase the efficiency of the
management process. Many of these principles (e.g. division of labour, authority and responsibility,
unity of command, unity of direction, team spirit) form the basis of management and research today
(Jones & George, 2022).

Fayol also identified five basic functions of administration:

Planning
Organising
Commanding
Coordinating
Controlling

Having achieved the outcomes of Section 1 (Introduction to Management) of this Study Guide the
student of management should recognise that Fayol’s five basic functions correspond to the four
contemporary management functions of Planning, Organising, Leading and Controlling.

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 Introduction to Business Management

Activity 2.1

Contrast Fayol’s five basic functions of administration to the four

contemporary management functions of management.

Max Weber developed a theory of bureaucratic management and emphasised the need for a
hierarchy governed by lines of authority (Cronje, et, al 2004).

Administrative Management Theory has made a significant contribution to the field of management
in that a considerable number of its principles are still being used in management research and
applied in management practice today. A criticism of this theory, however, is that it is more applicable
for the stable organisations and predictable environments of the past (Stoner & Freeman, 1992).

Activity 2.2

Elaborate on the main difference between the Scientific Management Theory

and Administrative Management Theory.

2.4.2 The Behavioural & Human Relations Approach

While the focus of the Classical Management Approach was either the productivity of the worker or
the productivity of the organisation, the Behavioural & Human Relations Approach focuses on the
needs of the worker. Indeed, the Behavioural & Human Relations Approach emerged in part in
reaction to the ‘inhumane’ view of the Classical Approach. Mary Parker Follett, Elton Mayo and
Douglas McGregor are recognised as having made significant contributions to the Behavioural &
Human Relations Approach.
Mary Parker Follett writing emerged in reaction to Taylor’s scientific approach. Indeed, Follett argued
that it is the worker who knows most about his/her job and therefore the worker should be involved in
the job analysis and work development process. She also anticipated the current management
interest not only in self-managed teams and empowerment, but in horizontal (as opposed to Fayol’s
and Weber’s vertical) power and authority (Jones & George, 2022).

Hawthorne Effect
Elton Mayo appeared as a consequence of an experiment, which investigated the relationship
between the level of lighting in the workplace and workplace productivity, at the Hawthorne Works at
the Western Electric Company near Chicago during 1924 – 1933. The results showed that
productivity improved not only when lighting was improved, but when lighting conditions were made
worse as well (Jones & George, 2022). Elton Mayo, a Harvard psychologist, was called in to
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 Introduction to Business Management

investigate this phenomenon. It was argued that management’s interest in, and concern for, the
workers’ well-being had served to enhance worker performance. This phenomenon has come to be
known as the Hawthorne Effect.
The findings of the Hawthorne experiment precipitated an interest in research in the area of
managerial behaviour and leadership, and thus emerged the Human Relations Movement (Jones &
George, 2022).

Theory X vs. Y
Douglas McGregor argued that two different sets of assumptions determine how manager’s view
their subordinates and manage their departments. He argued that Theory X managers assume that
employees are inherently lazy and therefore they need to be closely supervised and controlled. On
the other hand, Theory Y managers adopt a positive view of employees and believe that it is the
manager’s task to create a climate in which employees can effectively perform their work (Cronje, et
al 2004).

The Behavioural & Human Relations Approach has contributed to the field of management in that it
has stressed the employee’s social needs, which in turn has led to a focus on the development of
people-management skills, as opposed to technical skills alone. Further, it has provided insights into
issues such as individual motivation, group behaviour and interpersonal relationships at work
(Stoner & Freeman, 1992). A limitation of the Behavioural & Human Relations Approach lies in the
fact that human behaviour is complex in nature, which presents challenges to its study.

Think Point 2.3

Consider the organisation for which you currently work. Describe the
particular organisational and managerial practices show evidence of a
Behavioural & Human Relations Approach?

2.4.3 Quantitative Approach

The Quantitative Approach, also referred to as the Management Science Approach, is essentially an
extension of Taylor’s Scientific Management Theory (Jones & George, 2022). It focuses on the use of
rigorous quantitative techniques which enable managers to achieve productivity through the most
effective and efficient use of organisational resources to produce goods or services. The Quantitative
School includes the following approaches, all of which provide the manager with tools and
techniques to increase the effectiveness of his/her decision-making:

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 Introduction to Business Management

Quantitative management (employs mathematical techniques such as linear programming,

modeling, simulation & queueing theory)
Operations management
Total Quality Management (TQM); and
Management information systems (MIS) (Jones & George, 2022)

2.4.4 Contemporary Approaches

A considerable number of contemporary management theories exist. The following contemporary
theories will be studied in this sub-section:

Systems Theory
Contingency Theory
Chaos Theory
Other Theories

Systems Theory
The Classical Approach, The Behavioural & Human Relations Approach and the Quantitative
Approach have two major short-comings which Systems Theory (also known as Organisational-
Environment Theory) seeks to address:

The influence of the environment is not considered; and

One part or aspect of the organisation is focused on the neglect of all other parts and/or
aspects (Cronje, et, al 2004)

Systems theory views the organisation as a purposeful and unified system which is composed of
interrelated elements.The principle of synergy applies in that the whole is regarded to be greater
than the sum of its parts (Stoner & Freeman, 1992).

Practical Application 2.1

Using a juice manufacturing business as an example, provide examples for

the four elements of a system.

The Concept of Congruence

Nadler & Tushman (1980) present a general model of the organisation which “provides a framework
for thinking about the organisation as a total system….the models major premise is that for
organisations to be effective, their subparts or components must be consistently structured and
managed – they must approach a state of congruence.” (Nadler & Tushman, 1980: 37). The concept
of congruence refers to achieving an appropriate balance between the parts of the organisation
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 Introduction to Business Management

(system), i.e. achieving a good ‘fit’ between the entire organisation’s components.
Nadler & Tushman’s (1980) Congruence Model of Organisational Behaviour is depicted as follows in
Figure 2.4

Figure 2.4: Congruence Model of Organisational Behaviour (from Nadler & Tushman, 1980: 47)

Figure 2.4 presents Nadler & Tushman’s (1980) Congruence Model of Organisational Behaviour
which views the organisation as a system which takes inputs from the environments and transforms
them within its system to produce outputs. The system (or organisation) is identified to consist of four
main components, namely, the informal organisation, task, individual and formal organisation. The
effectiveness of the organisation’s performance is dependent on the achievement of congruence
between all four components.

Characteristics of a System

A system is defined to be a set of interrelated components. An open system is one which interacts
with its environment, and in so doing becomes part of a greater system. Basic system characteristics
include:

Internal interdependence: where changes in one of the system’s components will result in
changes or repercussions in the system’s other components (Nadler & Tushman, 1980)
Capacity for feedback: information about the output can be used by the organisation to address
problems. However, organisations do not always use the information available
Equilibrium: the system seeks homeostasis, i.e. if an event leaves the system in a state of
imbalance, it will react in such a way so as to regain equilibrium

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 Introduction to Business Management

Equifinality: the system can achieve its outputs through a number of different ways or system
configurations (Nadler & Tushman, 1980)
Adaptation: a systems' survival depends on it maintaining a state of balance within the greater
system in which it operates, i.e. the environment

Video Activity 2.1

Watch the video using the link below and answer the questions that
follow.
https://www.youtube.com/watch?v=uHL-l_Iz_sA
After watching the video, answer the following questions:
1. List the two categories of systems and describe the main difference
between them.
2. In which category of systems does an organisation fall?
3. Provide a definition of a system.

Contingency Theory
Systems Theory provides for a Contingency Approach (also known as a Situational Approach) to
management. Given the complexity of today’s management environment, it would be unwise for the
manager to adhere to one particular school and neglect the others. Rather, given the dynamic
environment in which organisations operate, it is the manager’s task to tailor his/her management
approach to the particular situation – and this would require drawing on a range of management
theories.

Chaos Theory
For decades, managers have acted from the premise that organisational events can be controlled.
However, Chaos Theory, is based on the premise that very rarely can events be controlled, and thus
acknowledges the dynamic nature of the contemporary management environment.
Chaos Theory argues that “relationships in complex systems, like organisations, are nonlinear, made
up of interconnections and branching choices that produce unintended consequences and render
the universe unpredictable (Tetenbaum, 1998: 21).

Chaos Theory & the Present Day Organisation

Tetenbaum (1998) argues that the industrial era of the past is fundamentally different to the
information age of the present. During the industrial age the environment was relatively stable and
organisational work was routine. In contrast, however, Tetenbaum (1998) identifies the information
age to be characterised by the following:

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 Introduction to Business Management

Technology which increases production, efficiency and consumer power

Globalisation
Competition which, as a result of technology and globalisation, has become fiercer
Change, the pace of which is considerable
Speed
Complexity & Paradox which has emerged as a result of the above 5 factors and presents the
manager with the challenge of conflicting choices and conditions (Tetenbaum, 1998)

Key Characteristics of Chaos Theory

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

The characteristics of Chaos Theory include:

Chaos as Order: Tetenbaum (1998: 24) asserts that “chaos describes a complex unpredictable,
and orderly disorder in which patterns of behaviour unfold in irregular but similar forms”. An
example of such orderly disorder is the regular irregularity of a snowflake
Chaos as a Self-Organising Entity: Chaos Theory views systems to be self-organising in that
they are self-adaptive and complex (Tetenbaum, 1998). Thus structure evolves and change
emerges (this differs from the Classical Approach where structure is imposed). An example of an
organisation which is managed according to chaos principles and which is thus self-organising is
Visa, which has grown by 10,000% since 1970, consists of 20,000 financial institutions and
operates in more than 200 countries. However, despite its size and growth one does not know
where it is located due to the fact that it is decentralised, non-hierarchical and evolving
(Tetenbaum, 1998)

Building a Chaordic Organisation

Tetenbaum (1998) identifies the following characteristics of a chaordic organisation (i.e. an
organisation which embraces the chaordic paradigm):

Knowledge and information sharing

Innovation and creativity
Teamwork and project orientation
Diversity; and
Strong core values

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The role of management in facilitating the move to the chaordic organisation is to:

Manage the transition

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

Other Contemporary Theories

Cronje (2004) identify three further contemporary management theories:

Total Quality Management (TQM)

The Learning Organisation
Re-engineering

Total Quality Management (TQM) focuses the business on the achievement of quality through the
prevention of mistakes. The central principles of TQM, which have emerged from the work of
Deming, include:

Strong emphasis on the customer

Focus on continual improvement
Quality improvement in all that the organisation does
Accurate measurement
Employee empowerment (Cronjé, 2002)

The Learning Organisation approach, advocated by Peter Senge, is based on the Systems Theory
and argues that organisations should overcome their learning disabilities through:

Commitment to lifelong learning

Challenging assumptions and generalisations
Sharing the organisation’s vision
Promoting active dialogue within the organisation
Encouraging systems thinking (Cronjé, et al 2004)

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Video Activity 2.2

Watch the video using the link below and answer the question that
follows.
https://www.youtube.com/watch?v=40meQNZl3KU
List the six characteristics that most learning organisations have in common.

Re-engineering, is an approach put forth by Hammer & Champy, and involves the redesign (re-
engineering) of organisational processes so as to “create and sustain value for customers while
managing costs” (Cronjé, et al, 2004:137).

This subsection has explored various management theories. The theories which fall within the
Classical School, the Behavioural & Human Relations School, the Quantitative School and
Contemporary School have been examined.

Practical Application 2.2

A bank has recently undertaken a survey which point to them that customers
do not want to visit different desks to be serviced. For example, if a customer
enters the bank to apply for a loan, an ATM card and change her residential
address, it is very likely that the customer would have to go to different desks
to be assisted with each of the services.
Discuss the approach that can be taken by the bank to improve customer
service while managing cost.

2.5 Management Theory or Management Fad?

It is important that the manager is able to identify possible management fads. Micklethwait &
Wooldridge (1996) argue that the proliferation of management theories can be ascribed to the
existence of a management theory industry which is characterised not only by commercial success,
but also by a mixture of legitimate management approaches and damaging management fads.

In answer to the question “So why does a discipline that contains so much sense contain so much
nonsense as well?” (p 369), Micklethwait & Wooldridge (1996) argue that management theory is still
a young discipline, it is negatively influenced by the managers’ demands for instant solutions and
“the discipline, no less than astrology, is a magnet for charlatans” (Micklethwait & Wooldridge, 1996:
370).Donaldson & Hilmer (1998) also point out that “fads, jargon and superficial research are
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undermining the status and relevance of management work” (p 7). It is argued that not only do
management fads attempt to relegate the work of the manager, but they also often fail to bring about
the benefits which they claim.

Regarding the solution to the problem of management fads, Donaldson & Hilmer (1998) adopt a
medium to long term view and argue that the establishment of management as a profession,
characterised by ideals, ethics, a body of knowledge, sound reasoning and clear language, is the
‘antidote’ to management fads. On the other hand, Micklethwait & Wooldridge (1996) adopt a more
immediate approach and emphasise that the manager must learn to be selective. Indeed, they
assert that “nothing is more witch-doctorish than the suggestion that one magic potion will cure all
ills. By all means re-engineer your distribution system: but the same discipline will probably work
less well if it is applied to your research-and-development arm” (Micklethwait & Wooldridge, 1996:
370).

2.6 Summary
This section provided the student with an understanding of the evolution of management theory. The
reasons for studying management theory were elucidated and the concept of management theory
was examined. Various approaches to management theory, including the Classical Approach, the
Behavioural & Human Relations Approach, the Quantitative Approach and the Contemporary
Approach were explored. In closing, the existence of damaging management fads was discussed.

The next section of this Study Guide, Section 3, will examine the management environment.

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Knowledge Check Question 2.1

Select the correct answer:

1. Who redesigned the incentive system developed by Taylor by

providing not only for the payment of a bonus to the worker who
exceeded the daily standard, but to the worker’s supervisor as well?
a. Frank & Lillian Gilbreth
b. Henry Gantt
c. Max Weber
d. Douglas McGregor

2. Mary Parker Follett argued that

a. Europe’s greatest management pioneer, adopted a process
approach to management
b. management’s interest in, and concern for, the workers’ well-being
had served to enhance worker performance
c. it is the worker who knows most about his/her job
d. the agrarian mode to the factory system brought about a number of
organisational problems

3. In which Theory does management adopt a positive view of

employees?
a. Theory X
b. Theory Y
c. Management Theory
d. Leadership Theory

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Case Study 2.1

Read the following article and answer the question below.

Deming journey led to zero warranty claims: Siemens Gamesa
Chennai, Oct 14 (IANS) City based Siemens Gamesa Renewable Power
Private Ltd (SGRP), the first wind turbine company in the world to win the
prestigious Deming award, faced the challenge of not having any ready toolkit
to adapt from unlike the automobile industries, said a top company official.
However, over a period of time after starting the Total Quality Management
(TQM) the company started seeing benefits in the form of reduced raw
material inventory turnover, zero rework and nil warranty claims.
The Indian company is a subsidiary of the global wind power major -- 9.1
billion euros turnover Spain-headquartered -- Siemens Gamesa Renewable
Energy.
"Being the first wind company in the world to challenge this award, we didn’t'
have any ready toolkit to adapt from. Every aspect of TQM practices were
totally tailor-made to suit our wind turbine manufacturing processes and
operations," Ramesh Kymal, Chairman and Managing Director told IANS in
an interview.
The Deming Prize is one of the most prestigious global awards on TQM given
by the Union of Japanese Scientists and Engineers (JUSE).
Kymal said the Deming tag further adds credibility to their products and in the
current market scenario, it will certainly place us in a better light in the eyes of
our customers.
Queried about the tangible benefits derived after starting the TQM journey,
Kymal said: "The productivity levels had improved by 1.8 to 2 times as
compared to our previous recorded levels.
"We have achieved zero rework and our warranty claims has been reduced to
zero. Further, we have reduced our raw material inventory turnaround time to
two days for local suppliers," Kymal said.
According to Kymal, renewables as an industry has become extremely cost
competitive, forcing companies to reinvent themselves.
"We were growing steadily and expanding our manufacturing footprints where

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creating a common quality culture was imperative to ensure best in class

products and solutions to our customers. That sowed the idea for
implementation of TQM processes and challenging Deming Award," he said.
Though SGRP did not have any benchmark in the wind turbine industry to
challenge the Deming award, it was advised by Yasutoshi Washio -- professor
emeritus of Keio University, Japan and who had won the Deming prize for
Individuals in 1993 for his contribution of implementing quality control in
Japanese industries.
On the company’s TQM journey, Kymal said that it started in 2015 for its
industrial operations division, which included nacelle and hub manufacturing
facilities in Chennai, integrated manufacturing facility in Nellore and a blade
manufacturing facility in Halol.
"Our TQM journey commenced with benchmarking ourselves with various
Deming companies in other industries. In 2015, we had our plant and
functional heads visiting few Deming companies like Toyota, Aisin in Tokyo,
Japan," Kymal remarked.
On getting the confidence to challenge the Deming prize, Kymal said: "In
2018, we underwent the Deming diagnosis examination, the results of which
were quite encouraging from which we gained the confidence to apply for the
award in 2019."
On involving the suppliers in their Deming/TQM journey, Kymal said that as
part of the process, 10 key suppliers were trained on the TQM fundamentals
and concepts like plan-do-check-act (PDCA), Kaizen, seven quality control
tools (check sheet, control chart, stratification, pareto chart, histogram, cause
and effect and scatter diagram) and others thus ensuring that their processes
are benchmarked to Siemens Gamesa Renewable Power’s operations.
Further training on TQM fundamentals, quality control story approach,
Kanban and others were provided for around 90 suppliers based at Chennai,
Coimbatore and Vadodara region to improve their performance, Kymal said.
On implementing the suggestions made by JUSE, Kymal said: "Generally
JUSE presents its final feedback report during the award ceremony and we
are expecting to receive the same on November 6, 2019. We will work
towards implementing the same."
(Source: Outlookindia.com, 2019)
Question
In light of the above case study, discuss the central principles of TQM which
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have emerged from the work of Deming.

Revision Question

1. Provide reasons as to why today’s managers should understand the

different approached to managing organisations.
2. Elaborate on the four principles of Frederick Taylor to increase efficiency in
the workplace.
3. Explain the Hawthorne Effect.

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Answers

Activity 2.1
Contrast Fayol’s five basic functions of administration to the four contemporary management
functions of management.
Answer:
Fayol also identified five basic functions of administration:

Planning
Organising
Commanding
Coordinating
Controlling

Four contemporary management functions of management are:

Planning
Organising
Leading
Controlling

The main difference is the leading part in terms of management functions which is commanding and
coordinating in terms of Fayol’s functions of administration. The two concepts are similar.

Activity 2.2
Elaborate on the main difference between the Scientific Management Theory and
Administrative Management Theory.
Answer:
The Scientific Management Approach succeeded in its endeavour to increase productivity. However,
the approach, in focusing on work and productivity, neglected to address the ‘human’ element, which
ultimately resulted in worker dissatisfaction and distrust of management. Therefore, whilst Scientific
Management Theory focused on the productivity of the worker, Administrative Management Theory
essentially focused on how to increase productivity at the level of the organisation.

Case Study 2.1

In light of the above case study, discuss the central principles of TQM which have emerged
from the work of Deming.

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Answer:
The central principles of TQM, which have emerged from the work of Deming. Siemens Gamesa
Renewable Power Private Ltd should:

Place strong emphasis on the customer - creating a common quality culture was imperative to
ensure best in class products and solutions to our customers
Focus on continual improvement - every aspect of TQM practice was totally tailor made to suit
our wind turbine manufacturing processes and operations
Ensure quality improvement in all that the organisation does - the productivity levels had
improved by 1.8 to 2 times as compared to our previous recorded levels
Ensure accurate measurement - achieved zero rework and our warranty claims has been
reduced to zero
Provide employee empowerment - functional heads visiting few Deming companies like Toyota,
Aisin in Tokyo, Japan

Knowledge Check Question 2.1

1. Who redesigned the incentive system developed by Taylor by providing not only for the
payment of a bonus to the worker who exceeded the daily standard, but to the worker’s
supervisor as well?
a. Frank & Lillian Gilbreth
b. Henry Gantt
c. Max Weber
d. Douglas McGregor
Answer: B

2. Mary Parker Follett argued that

a. Europe’s greatest management pioneer, adopted a process approach to management
b. Management’s interest in, and concern for, the workers’ well-being had served to enhance
worker performance
c. It is the worker who knows most about his/her job
d. The agrarian mode to the factory system brought about a number of organisational
problems
Answer: C

3. In which Theory does management adopt a positive view of employees?

a. Theory X
b. Theory Y
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c. Management Theory
d. Leadership Theory
Answer: B

Practical Application 2.1

Using a juice manufacturing business as an example, provide examples for the four elements
of a system.
Answer:

Input – Resources such as people and fruits

Transformation process – Blending of the juice
Outputs – The juice
Feedback – Sales, customer satisfaction

Practical Application 2.2

Discuss the approach that can be taken by the bank to improve customer service while
managing cost.
Answer:
The above scenario calls for business re-engineering whereby the process can be completely re-
engineered to become more satisfying to the customer and more cost effective to the bank. This can
be achieved through the IT department which can create processes where information and
documents can be exchanged by different departments, providing a one stop service for all enquiries
using one employee.

Think Point 2.1

Think about your experience in your current organisation and/or organisations for which you
have worked in the past:

Identify two managers, with whom you have dealt, who have demonstrated vastly different
management styles (for example, an absolute autocrat vs a democratic manager)
Identify the one manager as ‘Manager A’ and the other manager ‘Manager B’
From your experience and observations, what principles do you think underlie Manager A’s
view of, and approach to management?
From your experience and observations, what principles do you think underlie Manager B’s
view of, and approach to management?

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Answer:
Each individual manager has a particular view about what management is, and how he/she should
approach it. This management framework, which guides the manager in his/her task, is based on a
number of principles which the manager has internalised as a result of his/her education and
experiences within, and interactions with, organisations and the world itself. In essence, therefore,
each individual manager’s actions are guided by his/her own unique, internalised management
‘theory’. It therefore follows that, in exposing the manager or potential manager to the range of
management theories which exist, an opportunity will be provided to perhaps challenge and/or
extend the manager’s current view of management, and thus enhance his/her professional
competence. Indeed, Stoner & Freeman (1992) point out that the study of management theory is
important in that the theories serve to:

Guide management decisions

Shape the manager’s view of organisations
Make the manager aware of the business environment
Provide the manager with a source of new ideas

Think Point 2.2

Examine Figure 2.2 which provides an indication of the periods during which the various
schools of management emerged. Elaborate on any of the environmental forces which were
influential during the periods in which these management schools of thought emerged?
Answer:
A study of the evolution of management schools of thought reveals that theories tended to emerge in
tandem with, or just after, notable environmental changes:

The Classical Management School emerged during the early 1900s and was influenced by the
economic, technical and cultural changes which were brought about as a result of the industrial
revolution and the introduction of steam power (Cronjé, et al 2004); Jones, George & Hill, 1998)
The Behavioural Management School emerged during the 1920s and 1930s and was influenced
by the Great Depression and decline in prosperity (Cronjé, et al 2004) as well as failure of the
Classical Management School to provide for workplace harmony (Stoner & Freeman, 1992)
The Quantitative Management Approach emerged during the 1940s and was influenced by
World War II during which both the British and the Americans utilised mathematical approaches
and technology to solving war-related problems (Cronjé, et al 2004)
The Contemporary Management Theories began to emerge during the 1950s and were
influenced by the rapid and ongoing change which characterised the business environment after
World War II (Cronjé, et al 2004)

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Think Point 2.3

Consider the organisation for which you currently work. Describe the particular organisational
and managerial practices show evidence of a Behavioural & Human Relations Approach?
Answer:
Organisational and managerial practices which exhibit a Behaviour & Human Relations Approach
could, for example, include:

Allowing for self-direction in employee work

Participative decision making
Self-managed work-teams
Knowledge sharing at, and between all levels
Training and development initiatives for employees

Video Activity 2.1

1. List the two categories of systems and describe the main difference between them.
Answer:

Closed systems
Open systems
Open systems interact with and is affected by the environment whereby closed systems do not

2. In which category of systems does an organisation fall?

Answer: Open systems

3. Provide a definition of a system.

Answer: A system is any set of distinct parts that interact to form a complex whole

Video Activity 2.2

List the six characteristics that most learning organisations have in common.
Answer: Characteristics that most learning organisations have in common:

Cherish an open culture

Design and implement feedback loops
Develop personal mastery
Create intelligent fast failure
Steal best practices
Share a common vision

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Unit
3: The Management
Environment
U n i t 3 : T h e M a n a g e m e n t E n v i r o n m e n t

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Unit Learning Outcomes

CONTENT LIST LEARNING OUTCOMES FOR THIS UNIT

Introduces the topic areas covered for

3.1 Introduction the unit

3.2 The Composition of the Management Identify the characteristics of the

Environment management environment

Describe the macro-environment

3.3 The Macro-Environment

3.4 The Market/Task Environment Examine the market/task environment

3.5 The Micro-Environment Describe the micro-environment

Recognise the impact of environmental

3.6 Interfaces between the Organisation and change and uncertainty on the
the Environment business organisation

Describe the approaches which

3.7 Ways in which Management can react to management can adopt in reacting to
the environment the environment

Summarises the topic areas covered

3.8 Summary for the unit

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Prescribed and Recommended Reading(s)/Textbook(s)

Prescribed Reading(s)/Textbook(s)
Jones, G.R. and George, J.M. (2022). Contemporary Management.
Twelfth Edition. Massachusetts: McGraw Hill.
Smit, P.J. and Cronje, D.J. (2020). Management Principles. Seventh
Edition. Cape Town: Juta.
Recommended Reading(s)/Textbook(s)
Erasmus, B. and Rudansky-Kloppers, S. (2020). Introduction to
Business Management. Eleventh Edition. Southern Africa: Oxford
University Press.

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3.1 Introduction
This section examines the Management Environment, and the focus will be on the following:

The composition of the management environment

The macro-environment
The market / task environment
The micro-environment
The interface between the organisation and the environment

Understand the nature of the management environment

Systems Theory, which was examined in Section 2 of this Study Guide, provides an argument for the
importance of managers understanding the environment in which they operate. According to
Systems Theory, the organisation is a system operating within the greater system of its environment.
Further, the organisation is an open system and thus is dependent on the environment in which it
operates and interacts with its environment so as to survive: the organisation obtains its resources
from the environment and processes these resources so as to produce outputs required by the
environment.

The concept of equilibrium or balance is an important one in Systems Theory, in that homeostasis is
a state, which the organisation continually seeks to attain and maintain. Thus, a change within the
environment, such as the emergence of a new technology within the IT industry, could result in an
imbalance between an IT organisation and its environment, in that the IT organisation’s processes
and products may not be aligned to the new technology.

It would thus be imperative for the IT organisation, which has achieved a state of incongruence with
its environment, to restore equilibrium through making the necessary adjustments to its subsystems.
It is imperative for the manager to understand the nature of the management environment in that, as
the Systems Approach demonstrates, it is critical to not only the effectiveness of the organisation, but
its survival as well.

Think Point 3.1

Describe three complexities within the management environment of
companies operating within South Africa.

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3.2 The Composition of the Management Environment

The Management Environment may be divided into several sub-environments which comprises of
three different environments:

The Micro-Environment - comprised of the organisation itself over which management has control
The Market / Task environment - also known as the industry environment and comprises the
environment immediately surrounding the organisation
The Macro-Environment - which refers to the greater environment, existing outside of the market
and task environment

These environments and the relationships between them are depicted in Figure 3.1 on the following
page.

Figure 3.1: The Composition of the Management Environment (from Smit & Cronje, 2002: 65)

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3.2.1 Main Characteristics of the Management Environment

The systems theory and the chaos theory are used to explain the main characteristics of the
management environment. Systems Theory highlights the inter-relatedness of environmental
factors, where a change in one environmental factor could result in a change in another
environmental factor (Cronje, et al. 2004).
For example, a technological innovation within the macro-environment may lead to the re-
engineering of the organisation’s structure within the micro-environment.The organisation’s new
structure may ultimately result in a more efficient production process within the micro-environment
and subsequent price reduction in the product.This price reduction could result in more customers
buying the organisation’s product in the market environment.

Chaos Theory highlights the complexity of the environment which emerges not only from the many
environmental factors to which the organisation must react (Cronje, et al., 2004), but also the non-
linear relationships between and within systems (Tetenbaum, 1998).

Chaos Theory, in recognising the complexity of the environment, also acknowledges the following
further characteristics of the management environment: increasing instability and environmental
uncertainty (Cronje, et, al 2004). Indeed, Chaos Theory acknowledges not only the rapid pace of
change which characterises the information age, but also the unintended and unpredictable
consequences which emerge from the non-linear connections within complex systems.

Think Point 3.2

In your own words, describe the effects of a drought on the hospitality
industry.

3.3 The Macro-Environment

The macro-environment influences the organisation directly as well as indirectly through the
organisation’s market environment (Cronjé, 2004). However, it is seldom that the organisation is able
to exert any reciprocal influence on the macro-environment. For example, when the economy of a
country slows, a clothing retailer will have to endure a decline in business. While the clothing retailer
may be able to come up with initiatives to stimulate business within his/her locality, he/she will not be
able to make a significant impact on the overall economy of the country.

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Practical Application 3.1

Assume that you have a transport business. Describe how an increase in the
price of fuel would affect your business and what control do you have on the
pricing of fuel?

The macro-environment may be divided into six sub-environments:

Technological environment
Economic environment
Socio-cultural environment
Institutional / Political environment
International environment
Ecological environment

Activity 3.1

What are the distinguishing characteristics of each of the sub-environments

comprising the macro-environment? In what ways could each sub-
environment impact on the organisation for which you work?
Technological Environment

Economic Environment

Socio-Cultural Environment

Institutional/Political Environment

International Environment

Ecological Environment

Video Activity 3.1

Watch the video using the link below and answer the questions that
follow.
https://www.youtube.com/watch?v=VrmZLaFY3YE
1. List all the elements of PESTLE?
2. Elaborate on the use of PESTLE analysis

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3.4 The Market / Task Environment

The market or task environment refers to the environment which immediately surrounds the
organisation, i.e. it comprises the industry in which the organisation operates. As Figure 3.1 shows,
the market environment has a direct influence on the organisation (or micro-environment) through,
for example, its competitors and suppliers (Cronje, et, al 2004).

The market environment comprises the:

Market
Consisting of the consumers or potential consumers who have particular needs and the buying
power to satisfy these needs
Suppliers
Provide the organisation with the ‘inputs’ required to produce the organisation’s goods and/or
services. These ‘inputs’ could take the form of materials (raw materials, equipment, energy),
capital and/or labour
Intermediaries
Include wholesalers, retailers and agents and serve to bridge the gap between the producer and
the consumer
Competitors
Are prevalent within a market economy, and compete with the organisation not only for market
share but for materials, capital and labour as well

Much of the literature which exists on the market environment revolves around Michael Porter’s work
on competitive forces. Porter (1979) argues that the nature of competition within an industry is not
only determined by competing organisations within the industry, but is established through the
prevalence of five forces:

The threat of new entrants

The bargaining power of the consumers
The bargaining power of suppliers
The threat of substitute products or services
The jockeying for position amongst the current competitors

These five forces are illustrated in Figure 3.2 below.

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Figure 3.2: Forces Driving Industry Competition (from Porter, 1979: 137).

The profitability of an industry is determined by its strongest force or forces (Porter, 1979) and
different forces are important to different industries.

Threat of Entry
The significance of a potential new entrant to the market can be reduced through the establishment
of substantial barriers to entry (Porter, 1979). Barriers to entry can be achieved when the industry
has:

Established economies of scale within the existing organisations

Differentiated products and/or services within existing organisations
Established high capital requirements for entry into the industry
Established cost advantages which are independent of the organisation
Limited access to distribution channels
Protection as a result of government policy (Porter, 1979)

Powerful Suppliers
Powerful suppliers can dominate competition within a particular industry through exercising

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bargaining power by reducing the quality of the goods and services supplied and/or raising the
prices of their goods and/or services (Porter, 1979).

Powerful Buyers
Customers may have a significant impact on the nature of competition within an industry (Porter,
1979). Customers who are powerful are able to reduce prices, play competitors off against each
other and insist on higher quality products and services.

Substitute Products
Substitute products serve to limit the profitability potential of an industry in that they impose a price
ceiling within the industry.This limitation can be overcome through the differentiation of competitors’
products within the industry (Porter, 1979).

Jockeying for Position

Jockeying for position is the fifth competitive force and refers to intense rivalry amongst competitors
within the same industry. Such intense rivalry can be demonstrated through price cuts, aggressive
marketing and new product innovation and introduction (Porter, 1979).
Thus, an assessment of the competitive forces operating within a particular industry will provide the
starting point from which the organisation may identify its strengths and weaknesses, and ultimately
develop an effective strategy which will enable the organisation to attain and sustain competitive
advantage within its market environment.

Practical Application 3.2

Elaborate on the competitive forces within the fast food industry with players
like KFC and McDonalds.

3.5 The Micro-Environment

The micro-environment refers to the organisation itself. It is the environment in which the manager
operates (Smit & Cronje, 2002) and performs the various management functions and roles at various
organisational levels, as was identified in Section 1 of this Module Guide (Introduction to
Management).

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Activity 3.2

The micro-environment is characterised by those issues discussed in Section

1 of this Study Guide. To consolidate your understanding of the nature of the
micro-environment, identify and briefly discuss the fundamental management
and organisational issues which were explored in Section 1.

As has been previously stated, the micro-environment is influenced both directly and indirectly (via
the market environment) by the macro-environment. However, the micro-environment is rarely able
to significantly influence the macro-environment. On the other hand, the market environment directly
impacts the micro-environment which in turn directly exerts influence on the market environment.
However, in order for the micro-environment’s influence on the market environment to provide for the
organisation’s strategic advantage, the micro-environment’s components should be strategically
aligned to the needs of the market. Porter (1985) asserts that it is important to establish the manner
in which an organisation creates value for the consumer through the examination of the
organisation’s value chain. The value chain essentially comprises the processes which take place in
the micro-environment.

The value chain, which is depicted in Figure 3.3, may be divided into two types of value activities:

Support activities which provide the infrastructure necessary for the performance of the primary
activities
Primary activities, the focus of which is the provision of the product and/or service and its
distribution to the consumer (Partridge & Perren, 1994)

Think Point 3.3

Using an example of choice, contrast a support activity against a primary
activity by your municipality.

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Figure 3.3: The Organisational Value Chain (from Partridge & Perren, 1994).

The organisation, in operating in the market environment, should adjust and configure the activities
in its microenvironment so as to ensure that the organisation is able to better meet the market needs
than its competitors (Partridge & Perren, 1994). For example, a retailing organisation which chooses
a low-cost strategy to gain competitive advantage within the market environment would examine its
value chain and focus on structuring its activities to reduce costs (such as reducing costs related to
the storing and transporting of the product - inbound logistics).

In summary, this subsection has examined the micro-environment, which essentially comprises the
environment within the organisation. It has been shown that much of that which was studied in
Section 1 of this Study Guide, such as management roles and functions, is involved in the micro-
environment.The configuring of activities according to Porter’s (1985) value chain approach as a
means of aligning the micro-environment to the macro-environment was also examined in this
subsection.

3.6 Interfaces between the Organisation and the Environment

The organisation is an open system and thus interacts with the market environment and macro-
environment in order to survive.This subsection examines the generic ways in which the environment
interacts with the organisation.

Environmental Change and the Organisation

Change involves moving from a state of “…stability to instability, moving from predictable to the
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unpredictable, or from the known to the unknown…it is immeasurable and causes uncertainty…”
(Cronje, 2004). Tetenbaum (1998) identifies change as a characteristic of the twenty-first century and
claims that “…today’s changes are discontinuous and happening at a geometric rate…” (Tetenbaum,
1998: 23). Such change has considerable implications for the organisation that, to maintain
congruence with its environment, the organisation “…must be sufficiently agile to be instantly
reconfigurable to meet new demands…” (Tetenbaum, 1998: 23).

Second curve marketplace

Morrison (1996) argues that a ‘second curve’ marketplace is in the process of emerging. This
marketplace is bringing about considerable forces of change such as new technology, new
consumers and new markets. A comparison of the first curve and the second curve markets is
provided in Table 3.1 below:

Table 3.1: Characteristics of the First Curve and Second Curve Markets

FIRST CURVE MARKET SECOND CURVE MARKET

Capital Knowledge

Producer Consumer

Atlantic Pacific

Japan China

International Trade Electronic Commerce

Computers Internet

Money People

(Morrison, 1996).

In order to compete in the second curve market, the organisation will operate differently to the
manner in which it operated in the first curve market. These changes are outlined in Table 3.2.

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Table 3.2: Characteristics of the First Curve and Second Curve Organisation

FIRST CURVE ORGANISATION SECOND CURVE ORGANISATION

Mechanistic Organic

Engineering Ecology

Corporations Individuals & Networks

Horizontal & Vertical Integration Virtual Integration

Business Processes Culture

(Morrison, 1996).

An examination of Table 3.1 and Table 3.2 indicates that in essence the move to the second curve
market and organisation represents a move towards a focus on people and the role which they play
within the complexity of business systems.

Although Morrison’s article was published quite recently (1996), it is likely that the management
student has encountered a number of the second curve characteristics which he identifies, for
example, electronic commerce, the internet, and the focus on people and the knowledge which they
bring to the organisation.

In closing, Morrison (1996) argues that organisations need to start embracing the second curve
changes, and at the same time effectively manage the first curve organisation and environmental
forces, which are still in operation.

3.6.1 Uncertainty in the Environment

As identified in subsection 3.2.1 the management environment is characterised by varying levels of
complexity and extent of change. Those organisations which operate within environments
characterised by high levels of complexity and dynamic change (such as the IT industry) experience
high levels of uncertainty (Cronje, 2004). Various recommendations may be made to assist such
organisations in coping with such uncertainty. Morrison (1996) in his article on the second-curve
market and organisation (discussed in 3.6.3) argues that in order to cope with uncertainty,
companies should:

Learn to jump, i.e. embrace emerging changes and markets

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Serve the new customer emerging from the second curve marketplace
Build a diverse management team
Focus on, and accept, the accelerating pace of change
Build second-curve capacity, i.e. develop new competencies which are sufficiently flexible
To cope with the demands of the second-curve market

Tetenbaum (1998) argues that in order to cope with uncertainty, an organisation should become
chaordic. How to go about developing a chaordic organisation was discussed in Section 2
(Evolution of Management Theory) of this Study Guide.

Thus, in summary, this subsection has focused on the impact which environmental change and
uncertainty has on the organisation.

Video Activity 3.2

Watch the video using the link below and answer the question that
follows.
https://www.youtube.com/watch?v=qhLvhYFLoWE
Discuss the concept of fourth industrial revolution.

3.7 Ways in which Management can react to the environment

A number of established methods exist to assist the organisation’s management in their attempts to
align the organisation to the external environment and anticipate environmental changes which are
imminent.

Cronje, et, al (2004) identify three inter-related approaches which the organisation can adopt in
reacting to the environment:

Information Management: which involves acquiring and maintaining knowledge of the

organisation’s environment through the process of environmental scanning, which serves to
identify threats and opportunities within the environment. Information obtained from
environmental scanning should be recorded in a management information system and should be
utilised to aid decision-making (Cronje, 2004)
Strategic Response: Once sufficient information on the environment has been acquired, a
strategic response needs to be initiated (Cronje, 2004), for example the organisation’s current
strategy may have to be adjusted and aligned to an emerging change within the environment
Structural Change: An adjustment to the organisation’s strategy (resulting from environmental
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change) may require that the organisation’s structure be adjusted in such a way that it is aligned
to the revised strategy (Cronje, 2004)

The effectiveness of the above approaches is dependent on the complexity and extent of change
which characterises the organisation’s environment. While the above approaches would be more
effective in a stable environment, they would not necessarily be effective in an environment
characterised by dynamic change and complexity. It may be argued that organisations operating in
such environments would benefit more from the implementation of chaordic organisational principles
(Tetenbaum, 1998, as discussed in Section 2 of this Module Guide.)

Case Study 3.1

Read the following article and answer the questions below.

Could disruptions such as COVID-19 bring new opportunities for business?
A new study has highlighted how businesses can use disruptive, external
changes, such as the COVID-19 pandemic to their advantage
Changes in the external environment always have an impact on the success
of companies and may even tilt previously valid laws of business off balance.
Jan Recker, Chair for Information Systems and Systems Development at the
University of Cologne’s Faculty of Management, Economics, and Social
Sciences, has published a study in Academy of Management Perspectives,
which explains how businesses can use this change in the external
environment to create a better business strategy. Recker explained: “If you
want to survive in a post-COVID-19 world, you should pause and question
your current strategy.
“Every crisis leads to change. But that also means that crises can lead to new,
even better business strategies.”
The market is no stranger to disruption
The global financial crisis of 2008 is often seen as a bad time for businesses;
however, the event gave rise to start-ups such as Airbnb and Uber.
Previously, private individuals had had reservations about letting strangers
into their own cars or homes, but in view of the financial bottlenecks caused
by the crisis, these business models became accepted and successful.
Another example of huge disruptions in the market-leading to business
success is the temperance movement in the USA in the 1920s, which proved
successful for soft drink giants such as Pepsi and Coca-Cola. It may be a

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matter of time before we see the new startups that have used the current
COVID-19 pandemic as an advantage to their business model.
Recker added: “Understanding the changes that are taking place, how they
affect companies and what can be done about them, is not only crucial for
companies to survive this change but can also be turned into a benefit.
“In the current situation, however, most companies look for temporary interim
solutions until they can return to ‘normal operations’. However, whether there
will ever be a return and what our new normality will be cannot be predicted.
Good business models have to be able to adapt.”
“Looking back, we can clearly see one thing,” Recker said. “History repeats
itself. And we can learn from it.”
(Extract - Source: Openaccessgovernment.org, 2020)
Questions
1. Identify two macro factors that have affected businesses.
2. Discuss the ways in which management can react to the environment.
3. Discuss what companies can do to cope with uncertainty.

3.8 Summary
This section examined the Management Environment. The characteristics and inter-relations of the
macro-environment, the market/task environment and the micro-environment were explored. The
impact of change and uncertainty on the organisation was also examined, as were the ways in which
management can respond to such uncertainty and change.

The next section of this Study Guide, Section 4, will examine the management process.

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Knowledge Check Question 3.1

Select the correct answer:

1. Which of the following environment is comprised of the organisation

itself over which management has control?
a. The Market Environment
b. The Micro-Environment
c. The Macro-Environment
d. The Task Environment

2. Which of the following serve to limit the profitability potential of an

industry in that they impose a price ceiling within the industry?
a. Powerful Buyers
b. Powerful Suppliers
c. Substitute Products
d. Threat of Entry

3. Which of the following provide the organisation with the ‘inputs’

required to produce the organisation’s goods and/or services?
a. Intermediaries
b. Competitors
c. Market
d. Suppliers

Revision Question

1. List and explain the elements comprising the market environment.

2. Discuss the characteristics of the First Curve and Second Curve
Organisations.
3. Elaborate on the three inter-related approaches which the organisation can
adopt in reacting to the environment.

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Answers

Activity 3.1
What are the distinguishing characteristics of each of the sub-environments comprising the
macro-environment? In what ways could each sub-environment impact on the organisation for
which you work?
Answer:

Technological Environment
Economic Environment
Socio-Cultural Environment
Institutional/Political Environment
International Environment
Ecological Environment

The distinguishing characteristics of the sub-environments of the macro-environment, and the

manner in which they impact the organisation, are outlined below.

Technological Environment
Technology is identified as “the combination of skills and equipment that managers use in design,
production and distribution of goods and services” (Jones, et al, 1998: 78). Tetenbaum (1998)
identifies technology as an important characteristic of the twentieth century in that it is significant in
promoting and accelerating change. In so doing, the technological environment can have significant
implications for the organisation, in that it can present both opportunities (e.g. market leadership as a
result of technological innovation) and threats (e.g. product obsolescence). Further, not only does
higher productivity result from technological advancement, but the technological environment also
provides innovations, such as teleconferencing and electronic mail, which plays a significant role in
changing the nature of work within organisations (Jones, et al, 1998).

Economic Environment
The factors within the economic environment which impact on the organisation include interest rates,
unemployment, inflation, consumer income and economic growth (Jones, et al, 1998). Cronjé (2004)
assert that the economic environment is influenced by the other five sub-environments (technology,
social, institutional/political, international and ecological). The economic environment has a
significant impact on the organisation in that the economy’s state of growth or decline influences the
consumer’s standard of living and buying power (Cronjé, 2004).

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Socio-Cultural Environment
Jones et al (1998) identify socio-cultural factors to be “pressures emanating from the social structure
of a country or society or from the national culture” (p80).

The factors within the socio-cultural environment which affect the firm include the attitudes, beliefs,
values, and opinions of the people within the firm’s external environment. These factors develop
from religious, ethnic, cultural, demographic and educational conditioning (Pearce & Robinson,
1997).

The socio-cultural environment affects the organisation in that emerging socio-cultural beliefs,
opinions and lifestyles result in:

Changes in demand for various types of products, for example, consumers’ interest in quality of
life issues in recent years has led to the demand for products and services which are health
orientated
Changes to the nature of employment within organisations, for example the focus on quality of life
issues has led to better and more flexible working conditions (Pearce & Robinson, 1997).

Cronje (2004) assert that the organisation is at the centre of social change in that not only does it
play a part in bringing about such change, but it is imperative for the organisation to keep abreast of
the emerging socio-cultural trends.

Institutional/Political Environment
Jones et al (1998) argue that political forces are “the outcomes of changes in laws and regulations,
such as the deregulation of industries, the privatisation of organisations, and increased emphasis on
environmental protection” (p 81). Thus the political environment essentially impacts on the
organisation as a regulating force. The government may also impact on the organisation through the
performance of it’s:

Supplier function, where government decisions will affect the organisation’s accessibility to
government-owned natural resources
Customer function, where government’s demands for various products may contribute to the
sustainability of certain organisations (Pearce & Robinson, 1997)

International Environment
In addition to technology, Tetenbaum (1998) identifies globalisation as a characteristic of the twenty-
first century. Global forces are identified to be “the outcomes of changes in international
relationships, changes in nations’ economic, political and legal systems, and changes in technology

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such as falling trade barriers, the growth of representative democracies, and reliable and
instantaneous communication” (Jones, et al, 1998: 82). The international environment impacts on
the organisation in that it expands to the complexity of the organisation’s environment, and in so
doing presents further opportunities and threats (Cronje, et, al, 2004).

Ecological Environment
The ecological environment comprises the limited natural resources, as well as the pollution which
results from human-ecology relationship (Cronjé, et, al, 2004).The focus is not simply on the impact
of ecological forces on the organisation, but rather on the reciprocal relationship which exists
between the ecology and business (Pearce & Robinson, 1997).The shortage of resources, water, air
and land pollution, global warming and damage to natural resources are some of the organisational
concerns which have emerged from the ecology-business relationship (Pearce & Robinson, 1997;
Cronje, 2004).The dynamics of this reciprocal relationship impact on the organisation through the
principle of eco-efficiency: organisations need to be eco-efficient through seeking to produce more
useful goods and services while continuously attempting to decrease not only pollution but resource
consumption as well (Pearce & Robinson, 1997).

Activity 3.2
The micro-environment is characterised by those issues discussed in Section 1 of this Study
Guide. To consolidate your understanding of the nature of the micro-environment, identify and
briefly discuss the fundamental management and organisational issues which were explored
in Section 1.
Answer:
The fundamentals of management, which were dealt with in Section 1 of this Study Guide, and which
characterise the micro-environment, include:

The Nature of Management

Management involves utilising inputs from the environment in the process of planning, organising,
leading and controlling (POLC) to produce outputs which satisfy the needs of the market. This
process of organisational management is influenced by the external environment as well as
prevalent management schools of thought.

Definition of Management
Management may be defined as a process in which the management functions of planning,
organising, leading and controlling are executed; organisational resources are utilised; and work is
achieved through the efforts of other employees. This process serves to provide for the effective and
efficient achievement of the organisation’s goals.

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Levels of Management
Three levels of management may be identified:

Top management, responsible for the overall and strategic management of the organisation
(e.g. Chief Executive Officer)
Middle management, responsible for specific department within the organisation (e.g.
Marketing Manager)
Lower management, responsible for departmental sections and subsections within the
organisation (e.g. Sales Manager)

Areas of Management
In addition to the area of General Management, six functional areas of management may be
identified: Marketing Management, Financial Management, Production and Operations
Management, Purchasing Management, Human Resource Management, and Public Relations
Management.

The Role Distribution of Managers

Mintzberg (1990) identifies three categories of managerial roles:

Interpersonal Roles (includes figurehead, leader, liaison role)

Information Roles (includes monitor, disseminator, spokesperson)
Decision-Making Roles (includes entrepreneur, disturbance handler, resource allocator
negotiator)

Old and New Organisations

Change within the environment has resulted in the emergence of a ‘new’ organisation, the
characteristics of which are outlined as follows:

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‘OLD’ ORGANISATION ‘NEW’ ORGANISATION

Permanent jobs Temporary jobs

Control organisation’s own destiny Externalise risk (e.g. through outsourcing)

through independence Diverse workforce

Workdays with no time boundaries

Relatively homogeneous workforce
Large corporations are cutting overall staff
9-to-5 workdays
Re-engineer all processes
Large corporations provide job security
Work is organised around teams
“If it ain’t broke, don’t fix it”

Work is organised around individuals

Management & Organisational Performance

Management of organisational performance should be measured not only in terms of the
achievement of effectiveness and efficiency, but also in terms of adherence to the economic
principle.

Case Study 3.1

1. Identify two macro factors that have affected businesses.
Answer:

Covid-19
Global Financial Crisis

2. Discuss the ways in which management can react to the environment

Answer:

Information Management: which involves acquiring and maintaining knowledge of the

organisation’s environment through the process of environmental scanning, which serves to
identify threats and opportunities within the environment. Information obtained from
environmental scanning should be recorded in a management information system and should
be utilised to aid decision making (Cronje, 2004)
Strategic Response: Once sufficient information on the environment has been acquired, a

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strategic response needs to be initiated (Cronje, 2004), for example the organisation’s current
strategy may have to be adjusted and aligned to an emerging change within the environment
Structural Change: An adjustment to the organisation’s strategy (resulting from environmental
change) may require that the organisation’s structure be adjusted in such a way that it is
aligned to the revised strategy (Cronje, 2004)

3. Discuss what companies can do to cope with uncertainty

Answer:

Learn to jump, i.e. embrace emerging changes and markets

Serve the new customer emerging from the second curve marketplace
Build a diverse management team
Focus on, and accept, the accelerating pace of change
Build second-curve capacity, i.e. develop new competencies which are sufficiently flexible
To cope with the demands of the second-curve market

Knowledge Check Question 3.1

1. Which of the following environment is comprised of the organisation itself over which
management has control?
a. The Market Environment
b. The Micro-Environment
c. The Macro-Environment
d. The Task Environment
Answer: B

2. Which of the following serve to limit the profitability potential of an industry in that they
impose a price ceiling within the industry?
a. Powerful Buyers
b. Powerful Suppliers
c. Substitute Products
d. Threat of Entry
Answer: C

3. Which of the following provide the organisation with the ‘inputs’ required to produce the
organisation’s goods and/or services?
a. Intermediaries
b. Competitors
c. Market

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d. Suppliers
Answer: D

Practical Application 3.1

Assume that you have a transport business. Describe how an increase in the price of fuel
would affect your business and what control do you have on the pricing of fuel?
Answer:
The following points must be noted:

Fuel pricing is a macro-environmental factor affecting businesses. A transport company would

be particularly affected as fuel is a major input into the business
As such, an increase, would increase the cost of doing business
The business would have to either take less profit or pass the cost to customers, therefore
making the services of the business costly
This means that the increase in price might affect the business negatively
The business owner does not have control over the pricing of fuel – macro-environmental factor

Practical Application 3.2

Elaborate on the competitive forces within the fast food industry with players like KFC and
McDonalds.
Answer:
The following points must be noted

KFC and McDonalds are strong players within the fast food industry
It appears that these two companies have the majority of the market share
The rivalry is mainly between the two and they market aggressively and have a strong
component of product innovation and introduction

Think Point 3.1

Describe three complexities within the management environment of companies operating
within South Africa.
Answer:
Three complexities could include:

Diversity management – with the background of South African apartheid system, managing
diversity can be complex
Social unrest – there has been an increase in protests
HIV / AIDS – With a high prevalence level, this pandemic affects business in numerous ways
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Think Point 3.2

In your own words, describe the effects of a drought on the hospitality industry.
Answer:
The following should be noted:

The drought is an external factor

The drought will impact on companies within the hospitality industry in many ways
Restaurants and hotels might need to be closed due to health and safety issues amongst others

Think Point 3.3

Using an example of choice, contrast a support activity against a primary activity by your
municipality.
Answer:
The following points must be noted:

Example of the municipality’s primary activity might include refuse removal, i.e. services to the
residents of the area
Example of a support activity by the municipality could be hiring of staff

Video Activity 3.1

1. List all the elements of PESTLE?
Answer: The elements are: Political / Economic / Social / Technological / Legal / Environmental

2. Elaborate on the use of PESTLE analysis

Answer:

It gives a bird’s eye view of the whole environment from many different angles that one wants to
check and keep a track of while contemplating on a certain idea / plan
Used by companies as a tool to track the environment they are operating in or when they are
planning to launch a new project/product/service etc

Video Activity 3.2

Discuss the concept of fourth industrial revolution.
Answer: The fourth industrial revolution is about:

Radical and fast changes

High speed changes

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Interplay between fields such as nanotechnology, brain research, 3D printing, mobile networks
and computing will create realities that were previously unthinkable
Access to technology will be improved and people will be able to co-create
Business models will be transformed
Social issues such as unemployment will need further consideration

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Unit
4: The Management
Process
U n i t 4 : T h e M a n a g e m e n t P r o c e s s

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Unit Learning Outcomes

CONTENT LIST LEARNING OUTCOMES FOR THIS UNIT

Introduces the topic areas covered for

4.1 Introduction the unit

4.2 Four Fundamental Management Describe the four management

Functions functions and their application

Recognise the various areas of

4.3 Areas of Management management

Summarises the topic areas covered

4.4 Summary for the unit

Prescribed and Recommended Reading(s)/Textbook(s)

Prescribed Reading(s)/Textbook(s)
Jones, G.R. and George, J.M. (2022). Contemporary Management.
Twelfth Edition. Massachusetts: McGraw Hill.
Smit, P.J. and Cronje, D.J. (2020). Management Principles. Seventh
Edition. Cape Town: Juta.
Recommended Reading(s)/Textbook(s)
Erasmus, B. and Rudansky-Kloppers, S. (2020). Introduction to
Business Management. Eleventh Edition. Southern Africa: Oxford
University Press.

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4.1 Introduction
This section will explore the Management Process. As identified in Section 1, Introduction to
Management, the management process entails the execution of the four management functions
Planning, Organising, Leading and Controlling (POLC). These functions are executed not only within
the area of general management, but within the functional areas of management as well.Thus, in
exploring the management process the following will be examined:

The Four Fundamental Management Functions

Planning
Organising
Leading
Controlling
The Areas of Management
General management
Financial function
Marketing function
Human Resources function
Operations function
Purchasing function

4.2 Four Fundamental Management Functions

The four fundamental management functions of Planning, Organising, Leading and

Controlling (POLC) comprise the management process, which serves to convert the organisation’s
resources (or inputs) into products and services (outputs) required by the organisation’s market.

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This process is depicted in Figure 4.1.

Figure.4.1: The Management Process (from Smit & Cronje, 2002: 9)

4.2.1 Planning
This sub-section explores the first of the four fundamental management functions, Planning. In so
doing, the following will be examined:

Types of organisational plans

Steps in the planning process
Barriers to effective planning
Planning tools

Jones & George (2022) asserts that the importance of planning revolves around four main reasons:

It provides a means for managers to participate in decision making about organisational goals
and strategies (Jones & George, 2022)
It is necessary to provide the organisation with a sense of direction and purpose. Without such a
sense of direction managers would pursue conflicting goals, which would jeopardise
organisational performance (Jones & George, 2022)
It helps to coordinate the functions of the various organisational departments
It serves as a means to control managers and assess performance (Jones & George, 2022)

In addition to Jones & George (2022) reasons for planning, Robbins (1997) asserts that planning
reduces the impact of change in that it forces managers to look ahead, anticipate and prepare for
potential change.

Types of Organisational Plans

Various types of organisational plans exist.

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Table 4.1: Characteristics of Organisational Plans (adapted from Smit & Cronje: 2002: 97).

STRATEGIC PLANNING TACTICAL PLANNING OPERATIONAL

PLANNING
Alternative Long-term planning Medium-term planning Short-term planning
Name
Responsibility Top management Middle management Lower management
Time-Frame 3 – 10 years 1 – 5 years Less than 1 year
Detail Focus on organisation as a
Establishes Establishes day-
whole
functional goals to-day activities

Purpose, mission, Determines

strategies policies,
procedures and
Alignment to external
rules
environment
Programmes,
Future orientation
budgets and
projects

Information
Broad, general More detailed Fine detail
guidelines than strategic
Specific &
plans
Vague & qualitative quantitative
More specific

Practical Application 4.1

Select a South African Government department of your choice and search

their webpage for their planning documents. Based on your findings,
elaborate on the two major types of plans listed.

Steps in the Planning Process

Cronje, et, al (2007) identify a generic planning process consisting of eight steps.These steps
include:

Step 1 - Opportunity Awareness: which involves realistically diagnosing the opportunity in the

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light of the organisation’s current capabilities

Step 2 - Establishing Goals: goals are formulated to provide direction to organisational plans
(Cronje, 2007)
Step 3 - Drawing up Premises: which involves the establishment of planning assumptions, i.e.
what is the future environment in which the plans are expected to occur (Cronjé, 2004)
Step 4 - Developing Various Courses of Action: which serves to establish alternative ways in
which the identified goal can be achieved
Step 5- Evaluating Alternatives: the alternatives established in Step 4 need to be evaluated in
terms of various factors, including the planning premises established in Step 3
Step 6 - Selecting a Course of Action: this step results from Step 5
Step 7 - Formulating Derivative Plans: this involves the drawing up of plans which support the
initial plan (Cronje,2004)
Step 8 - Budgeting: this step serves to establish the resources available for the manager to carry
out the plans and achieve organisational goals Cronje, 2004)

Barriers to effective Planning

Barriers exist which may mar the effectiveness of a manager’s attempts to plan. A number of barriers
to effective planning may be identified. These include:

Lack of environmental knowledge (such as possible economic and technology changes)

Lack of organisational knowledge (such as a lack of understanding about the organisation’s
strategy and capabilities)
Reluctance to establish goals (for example, due to fear of failure and lack of confidence)
Resistance to change, as change is inherent in planning
Time and expense (Cronje, et, al, 2004)

Barriers to effective planning may be overcome through:

Top management’s commitment to the planning process, demonstrated through the provision of
effective long-term plans
Management should recognise the limitations of planning and understand that plans will require
adjustments on an ongoing basis (Cronje, et al, 2004)
Management should ensure effective communication of organisational plans at all levels
The benefits of contingency planning should be recognised by organisations operating within a
turbulent environment (Cronje, et al,2004)

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Activity 4.1

Discuss the ways in which management may overcome the barriers to

effective planning.

Planning Tools
A number of scientific tools exist which can assist the manager in his/her planning efforts. These
tools include:

Forecasting
Budgeting
Scheduling
PERT (Programme Evaluation and Review Technique)

The distinguishing characteristics of the four planning tools are as follows:

Forecasting: a forecast provides a projection of future conditions based on current and historical
information. Different types of forecasting exist:
Sales forecasting predicts future sales
Technological forecasting predicts future technologies and determines when they should
become economically viable
Resource forecasting anticipates future needs for human, financial, physical and information
resources
Economic forecasting anticipates the future economic state of the country, such as the level
of unemployment

Budgeting: a budget is a plan “that deals with the future allocation and utilisation of various
resources with regards to different organisational activities over a given period” (Cronje, 2004). It
provides the manager with a means to translate plans into quantitative terms

Scheduling: A Gantt chart serves to break a project down into smaller tasks. These tasks are
plotted on a chart so as to determine how much time is required for the successful completion of
the tasks and the project as a whole (Cronje, 2004)

PERT: Programme Evaluation and Review Technique aids the planning of projects through
establishing a network of the project tasks and their inter-relationships (Cronje, 2004)

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Think Point 4.1

Elaborate on how you utilise the budgeting planning tool personally.

4.2.2 Organising
The plans, which are derived for the organisation, need to be supported by the second management
function of organising.This sub-section will explore the management function of organising and
examines the following:

Reasons for organising

Organisation design
Basic principles of organising
Factors influencing organisation design

Reasons for Organising

Organising is an integral part of the management process and is necessary for the following reasons,
as identified by Cronje,et,al (2004):

Organisation structure serves to delineate employees’ responsibilities and accountabilities

Organising facilitates effective communication through the establishment of clear channels of
communication
Organisation structure provides a mechanism for the coordination of the entire company
Organising provides for the grouping of related tasks and activities and in so doing provides for
specialisation which results in efficiency

Organisation Design
Organisation design is a process in which managers make a decision as to what type of
organisational structure is sufficiently aligned to the external environment and which is most
appropriate to the strategies and plans of the organisation. The steps involved in the process of
organisation design are depicted in Figure 4.2 below.

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Figure.4.2: The Organisation Design Process (adapted from Smit & Cronjé, 1997: 212)

Basic Principles of Organising

Four fundamental principles underlying organisation design may be identified.These are:

Division of work
Organisation structure
Departmentalisation
Coordination

Division of Work
Division of work involves “the breakdown of a complex task into components so that individuals are
responsible for a limited set of activities instead of the task as a whole” (Stoner & Freeman, 1992:
312), and in so doing provides for job specialisation. Job specialisation provides the advantages of
increased productivity, reduced training costs and reduced transfer time (Stoner & Freeman, 1992,
Smit & Cronje, 2002). However, it also has the disadvantage of alienating the worker from his/her
work, which may result in absenteeism and boredom (Stoner & Freeman, 1992).

Organisation Structure
The structure of the organisation is usually represented in the form of an organisational chart, in
which the division of work and departmentalisation of tasks is shown. The organisational chart also
shows the employees which report to each manager, and demonstrates each manager’s span of
control (Stoner & Freeman, 1992).
Two types of organisational structures exist within organisations:

The Formal Structure which is comprised of the relationships between managers and
subordinates, as represented in the organisational chart (Du Toit et al: 2013)
The Informal Structure which is a structure which emerges naturally from the social relationships
which develop between the employees within the organisation (Du Toit et al: 2013)

Du Toit et al (2013) recognise four underlying forces which influence the design of the organisational
structure:

Management’s perception of the organisation and organisational problems

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The task itself

Environmental forces
The needs and skills of subordinates

Departmentalisation
The formation of departments within an organisation results from specialisation and involves the
logical grouping of activities (Cronje, et, al 2004).The method of departmentalisation adopted
provides the organisation with a specific type of structure. The forms of organisational structure
include:

Functional organisational structure

Product departmentalisation
Location departmentalisation
Customer departmentalisation
Matrix organisational structure
Network departmentalisation

In establishing departments and designing the organisational structure it is important that the
manager keeps the following organisational design principles in mind:

Chain of command, where a management hierarchy is provided for the coordination of activities
Unity of command, which dictates that each subordinate should only report to one superior
Span of control, which refers to the number of subordinates who report to a
particular manager.The wider the span of control, the flatter the organisation (Smit & Cronje,
2020)

Coordination
A further principle of organising is that of coordination.

Factors influencing Organisation Design

Cronje, et,al (2004) identify five factors influencing organisation design:

The organisation’s environment

The relationship between strategy and structure
The size of the business
Staff employed by the business
The organisation climate and culture

Drucker (1974) provides an additional factor influencing organisational design: the current day
complex organisation which is multiproduct, multi-technology and multimarket.The central problem
therefore of the current day organisation is “the organisation of complexity and diversity” (Drucker,
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1974: 118). Due to the complexity of the current day organisation, it is asserted that organisation
design tends to be a series of risk-taking decisions, guided only by established organisation design
principles and logic.

Ostroff & Smith (1992) address the environmental factor identified by Smith & Cronjé (2020) in
examining organisational design. Indeed, it is asserted that “an ever more demanding competitive
environment requires ever higher levels of corporate performance” (Ostroff & Smith, 1992: 148). To
achieve the required levels of corporate performance, the organisation should move toward “a flatter,
more horizontal mode of organisation, in which cross-functional, end-to-end work flows link internal
processes with the needs and capabilities of both suppliers and customers” (Ostroff & Smith, 1992:
148).

In their presentation of the 7-S model, Waterman, Peters & Phillips (1980) address all 5 factors
influencing organisation design (either directly or indirectly) identified by Cronje, et al
(2004).Waterman et al (1980) assert that “structure is not organisation” (p 14) and point out that
many re-organisation initiatives have failed as management has simply attempted to reorganise the
structure of the firm.

When considering the organisation, and reorganisation, of a company, it is not simply structure that
should be considered, but “the relationship between structure, strategy, systems, skills, staff and
something we call superordinate goals” (Waterman et al, 1980: 17).

In summary this sub-section explored the management function of Organising.The reasons for
organising, the process of organisation design, the principles of organisation and factors influencing
organisation design, were examined.

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Knowledge Check Question 4.1

Select the correct answer:

1. Tactical planning establishes the

a. Vision
b. Functional goals
c. Day to day activities
d. Procedure and rules

2. Which one of the following is not a planning tool?

a. Forecasting
b. Scheduling
c. Costing
d. PERT

3. Span of control refers to

a. A management hierarchy provided for the coordination of activities
b. The doctrine that each subordinate should only report to one superior
c. Dividing and subdividing the overall task of an organisation
d. The number of subordinates who report to a particular manager

4.2.3 Leading
This subsection will examine the fundamental management function of leadership, and the following
will be studied:

The nature and components of leadership

Leadership vs management
Leadership models

The Nature & Elements of Leadership

Leadership may be defined as “the process by which an individual exerts influence over other people
and inspires, motivates, and directs their activities to help achieve group or organisational
goals” (Jones & George, 2022).

Leadership is a complex process which directly impacts on the performance of an organisation. It

comprises a number of elements, which include:

Authority: which provides the leader with the right, by virtue of his/her position within the
organisation, to give instructions and delegate work to subordinates (Cronje, et, al 2004)
Power: which refers to the leader’s ability to influence (without necessarily using his/her
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authority). Various types of power exist and include legitimate, reward, coercive, referent and
expert power (Cronje, et, al 2004)
Influence: which involves using authority and power in a manner which inspires and motivates
subordinates to take action (Cronje, et, al 2004)
Delegation: where the leader allocates a part of his/her own task to a subordinate to perform
together with the necessary authority to execute it
Responsibility & Accountability: where the leader is responsible for carrying out his tasks and
must account for his/her performance (Cronje, et, al 2004)

The types of power which a leader may utilise include:

Legitimate power: which refers to the power which the leader has as a result of the hierarchical
position which he/she possesses within the organisation (Jones & George, 2022)
Reward power: this refers to the leader’s ability to withhold or give tangible rewards (e.g.
incentives, pay increases, new office) and intangible rewards (e.g. respect, verbal praise)
Coercive power: refers to the leader’s ability to punish others and in so doing instil fear (Jones &
George, 2022). The exercise of coercive power has been found to seldom result in higher
performance
Referent power: results from a leader’s personal characteristics and refers to his/her ability to
command respect, admiration and loyalty (Jones & George, 2022)
Expert power: results from the knowledge, skills and expertise of the leader (Jones & George,
2022)

Think Point 4.2

Describe a type of power that you have experienced from a manager /
supervisor or person of authority.

Leadership vs Management
Much debate exists within the literature about leadership and management. Kotter (1990) argues
that management and leadership are “two distinctive and complementary systems of action” (p 103)
and that the former involves coping with complexity, while the latter involves coping with change. The
key differences between management and leadership which Kotter (1990) highlights are provided in
Table 4.1 below.

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Table 4.1: Differences between Management & Leadership (Knotter, 1990)

MANAGEMENT LEADERSHIP

Planning and Budgeting (in order to Setting a Vision (analyse broad range of
data in order to create visions and
produce orderly results)
strategies)

Organising & Staffing (includes decisions Aligning people (extensive

related to job structures, placing of communication of vision to various
employees in appropriate jobs, individuals – internal and external to the
communication of plans to workforce, etc) organisation)

Controlling & Problem Solving (ensures that Motivating People (energising staff to
managerial processes are fail-safe and risk- decide on own ways to achieve vision)
free)

Thus, according to Kotter (1990), leadership differs from management. Smit & Cronje (2002) support
this assertion but indicate that management is not only broader in scope than leadership but
encompasses leadership as well.

Leadership Models
A number of models exist which attempt to explain the nature of leadership. While those individuals
who follow a trait approach to leadership believe that leaders are born and not made, a number of
research studies and other leadership theories (such as behavioural and contingency theories)
undermine this belief. These theories will be examined in greater depth and depicted in figure 4.3
next. A brief summary of the various categories of leadership theories is provided below.

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Figure 4.3: Categories of Leadership Theories.

As depicted in Figure 4.3 above, four categories of leadership theories exist:

Trait Theories: focus on the personal characteristics and traits, such as intelligence, dominance
and self-confidence, which studies have shown leaders to possess (Jones & George, 2022)
Behavioural Theories: focus on the behaviour of successful leaders (Smit & Cronje, 2002)
Research has shown that leadership behaviour is two-dimensional and involves task-oriented
behaviour as well as employee oriented behaviour. The research also showed that leadership
behaviour appropriate to one situation is not necessarily suitable for another situation (Smit &
Cronje, 2002)
Contingency Theories: focus on the manner in which the situation impacts on the effectiveness
of leadership (Jones & George, 2022).While Fiedler’s model focuses on congruence which
exists between the leaders, the subordinates and the situation, Hersey & Blanchard’s model
focuses on the fit between the leader’s style and the maturity of his/her subordinates (Smit &
Cronje, 2002). The Vroom-Yetton-Jago model, on the other hand focuses on the degree of group
participation expected
Contemporary Theories: More recent leadership theories include Transformational Leadership
where leaders are able to initiate substantial innovation and change (Smit & Cronje, 2002).
Female Leadership is a further contemporary approach which focuses on an interactive
leadership style which succeeds in building consensus and creating an open and inclusive
environment (Smit & Cronje, 2002)

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In summary therefore, this subsection explored the management function of Leading.The nature and
elements of leadership were studied, the differences between management and leadership were
examined and the various leadership theories were investigated.

4.2.4 Controlling
Control refers to the “process whereby managers monitor and regulate how efficiently and effectively
an organisation and its members are performing the activities necessary to achieve organisational
goals” (Jones et al, 1998: 269). This function adds value to the overall management process and the
organisation, in that control:

Enables managers to achieve superior efficiency

Ensures, and improves, the quality of the goods/services produced/provided
Enhances responsiveness to customers (Jones, et al, 2022)

This section will explore the fourth management function, Controlling, and the following issues will be
examined:

The control process

The focus of control
The characteristics of an effective control system

4.2.4.1 The Control Process

The process of control is comprised of four steps, and is summarised in Figure 4.4 below.

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Figure.4.4: The Control Process (Smit & Cronje, 2002).

Video Activity 4.1

Watch the video using the link below and answer the question that
follows.
https://www.youtube.com/watch?v=nhkIjLVYGAM
Provide a description of the control process and list the four associated steps.

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4.2.4.2 The Focus of Control

Control mechanisms should be focused on activities relating to the organisation’s resources at
strategic control points.

Strategic Control Point

The organisation’s activities should be controlled at strategic control points (Jones & George, 2022).
As depicted in Figure 4.5 below, three strategic points exist at different stages of the management
process:

Input Stage: during this stage feed forward control must be implemented, where management
should seek to anticipate problems before they occur
Conversion Stage: during this stage, concurrent control must be exercised, where management
should deal with problems as they occur
Output stage: during this stage, feedback control should be implemented, where problems are
addressed by management after they have arisen (Jones & George, 2022)

Figure 4.5: Strategic Control Points

Organisational Resources
The control of the organisational resources should occur at strategic points within the management
process. Smit and Cronje (2002) identify various mechanisms to control the organisation’s physical,
financial, information and human resources.

Physical Resource Control Systems include:

Inventory control (systems include economic ordering quantity system, materials
requirements planning (MRP) and just-in-time (JIT))
Operational control, (techniques include PERT, linear programming and break-even
analysis)

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Quality control (techniques include Total Quality Management [TQM])

(Smit & Cronje, 2002).
Financial Resource Control Systems include:
The budget
Financial analysis
Information Resource Control Systems
Human Resource Control Systems include
Performance measurement
Ratio analyses (to determine, for example, labour turnover, absenteeism, work force
composition)

A further control system which is identified is that of strategic control, which involves the
organisation’s top management in the study of the total organisation with respect to its productivity,
effectiveness, management effectiveness and alignment to the environment.

4.2.4.3 Characteristics of an effective Control System

As was seen in the above subsection, a vast number of control systems and techniques are available
for the organisation to implement.However, it is important that the organisation implements its control
systems in a manner which ensures their effectiveness. There are five characteristics of effective
control systems:

Integration: it is important to integrate the management functions of planning and controlling in

that the latter provides information which stimulates the revision of organisational plans

Flexibility: it has emerged throughout this Study Guide that environmental change has a
considerable impact on the current day organisation. Thus, the organisation’s control systems
should be sufficiently flexible to accommodate adjustments to the organisation’s plans

Accuracy: it is imperative that the control system provides an objective and accurate picture of
the organisation’s situation

Timeliness: control data should be available to management on a regular basis

Simplicity: the control system should not be unnecessarily complex. A system which is too
complex is likely to hamper the manager’s utilisation of the system

In summary, this subsection explored the fourth management function, Control. In so doing, the
importance of control, the control process, the focus of control as well as the characteristics of an
effective control system were examined.

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Video Activity 4.2

Watch the video using the link below and answer the question that
follows.
https://www.youtube.com/watch?v=QdGfMrdE4f8
List the characteristics of an effective control system.

4.3 Areas of Management

The four fundamental management functions of Planning, Organising, Leading and Controlling
discussed in subsection 4.2 above comprise the area of General Management. As identified in
Section 1 (Introduction to Management) of this Study Guide, various functional areas of management
exist in which the activities of General Management are applied.

This sub-section will examine a number of the functional areas of management, and will address:

The financial function

The marketing function
The human resources function
The operations function
The purchasing function

4.3.1 The Financial Function

The Financial Function is concerned with “the flow of funds, and in particular…the acquisition of
funds, the application of funds for the acquisition of assets, and the administration of, and reporting
on, financial matters” (Cronje, 2004).

The relationship between Financial Function, other functional management areas, related disciplines
and the environment is depicted in Figure 4.6 below.

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Figure 4.6: The Relationship between the Financial Function and Related Disciplines, the
Organisation’s Environment and Other Management Areas (adapted from Cronje et al., 2004:
394).

4.3.2 The Marketing Function

The Marketing Function “consists of management tasks and decisions directed at successfully
meeting opportunities and threats in a dynamic environment, by effectively developing and
transferring a need-satisfying market offering to consumers in such a way that the objectives of the
business, the consumer and the society will be achieved” (Cronje et al., 2004)

The Marketing Function is involved in formulating a marketing strategy, which will enable the
organisation and its particular products and services to ‘reach’ the target market, through making
decisions about the four marketing instruments (four Ps):

Product: this refers to the item or service which is designed to satisfy the target market’s needs.
Decisions about products include brand decisions, packaging decisions, and decisions about
how to go about differentiating a product (Cronje, et al., 2004)
Price: refers to the exchange value of the product or service. Various factors influence the
determination of the price of a product (Cronje, et al., 2004)
Place: refers to the manner in which the product or service is to be distributed. Decisions about
place (distribution) include the choice of distribution channel and type of market coverage
Promotion: refers to the process of marketing communication which involves “informing,

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persuading and reminding the consumer" (Cronje, et al., 2004:279) about a particular product or
service through the use of advertising, personal selling, sales promotion and publicity

Think Point 4.3

Describe which of the four marketing instrument is being utilised when
companies place adverts in the newspaper.

4.3.3 The Human Resources Function

Human Resources Function may be defined as “the activities that managers engage in to attract and
retain employees and to ensure that they perform at a high level and contribute to the
accomplishment of organisational goals” (Jones & George, 2022).
Cronje et al. (2004) identify the task of the Human Resource (HR) Function within an organisation as
being to assist “other managers in the business to fully utilise the employees allocated to them” In so
doing, the HR Function engages in three central activities:

Attracting human resources: which involves the process of human resource planning,
recruitment, selection, placement and induction
Retaining human resources: which involves the management of employee performance,
remunerating employees, providing for health and safety and promoting positive labour relations
Developing human resources: which involves training and educating employees both on and off
the job (Cronje, et al., 2004)

Ulrich (1998) argues that despite HR’s generally poor reputation within organisations, given the
competitive forces which exist in the current day, “achieving organisational excellence must be the
work of HR” (Ulrich, 1998: 124). According to Ulrich (1998), the importance of HR is due to the
following organisational challenges:

Globalisation: which requires that organisations improve their learning capabilities and manage
complexity and diversity
Profitability through Growth: companies seeking revenue growth need to be innovative and
creative and encourage the sharing of information amongst employees
Technology: managers need to learn how to remain ahead of the information curve and
effectively utilise information to attain business results
Intellectual Capital: managers are presented with the challenge of attracting, assimilating,
compensating and retaining talented individuals
Change: in order to survive within an environment characterised by change, organisations will
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need to develop the capacity to cope with change (Ulrich, 1998)

For the HR Function to facilitate the manner in which the organisation deals with the above
challenges, the function needs to change its role by becoming a/an:

Partner in strategy execution (to guide strategy discussions and decisions)

Administrative expert (to improve efficiency within both the HR department and the entire
organisation)
Employee champion (to ensure employee commitment to the organisation)
Change agent (to build the organisation’s capacity to embrace and cope with change) (Ulrich,
1998)

Thus, in essence, HR needs to focus “more on deliverables of their work and less on just getting their
work done” (Ulrich, 1998: 134).

4.3.4 The Operations Function

The Operations Function is the function that is “primarily aimed at the utilisation of resources to
manufacture products and render services” (Cronje, 2004).
The Operations Function influences the organisational transformation process where inputs are
converted into organisational outputs, as indicated in Figure below:

Figure 4.7: The Operations Function (adapted from Cronje, et al., 2000: 357)

As shown in Figure 4.7, the following components of the Operations Function influence the
organisational transformation process:

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Operations Design: which addresses the integration of the design of products and/or services and
the design of processes to produce these products and/or services
Operations planning & Control: which involves activities, which aim to reconcile supply of, and
demand for, products and services in terms of volume, timing and quality
Operations Improvement: which involves the implementation of various activities and techniques
to improve operations performance

Practical Application 4.2

Using an organisation of your choice, identify and discuss the inputs,

transformation and outputs aspects of the business.

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Case Study 4.1

Read the following article and answer the question below.

How fruit juice is made
The process behind fruit juice depends on whether the fruit juice is ‘from
concentrate’ or ‘not from concentrate’. Let’s take orange juice as an example:
Not from concentrate
As with all fruit juices, the story of orange juice starts in the groves, where the
fruit is grown. Local growers cultivate oranges until they are ripe and ready to
be picked manually. Once the mature fruit is harvested, it goes straight to the
factory where it is inspected – only ripe oranges are selected for orange juice.
The inspection process goes quickly to ensure that the fruit retains all its
natural vitamins and nutrients. At harvesting, oranges are washed before
squeezing.
Once the juice is squeezed from the orange, it is rapidly pasteurised. This
keeps the juice fresh longer, and is a widely accepted approach that protects
its natural nutrients and maintains premium quality.
From concentrate
Here, the process has a few more stages. Depending on the technique, the
juice is either heated by steam so the water in juice evaporates, or ‘ultra-
filtrated’, and then concentrated using a reverse osmosis technique. Juice
concentrate is born! Next, water is added back to the concentrate and
blended to produce high-quality juice. Finally, the juice is pasteurised before
packaging.
Regardless of the method used, fruit juice producers make sure to capture the
fruit’s natural goodness and the qualities from the whole fruit from which the
juice is squeezed. Not-from-concentrate juice and from-concentrate juice use
the same fresh raw materials and are both considered (by the European
Commission’s definition) to be minimally processed fruit.
After processing, the fruit juice is filled and packed in a way that helps protect
its natural nutrients and quality.
(Source: fruitjuicematters.eu, 2019)
Question
Based on the above, discuss the input, process and output for making juice
with and without concentrates.

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4.3.5 The Purchasing Function

The purchasing function entails “the planning, organising, leading and controlling of all activities
relating to the purchase of materials and services from an external source and aimed at maintaining
and increasing the business’s profitability” (Cronje et al., 2004).

Cronje et al. (2004) identify that the activities of the Purchasing Function include:

The selection of suppliers

The purchasing of materials
The transport of materials to the business
Deciding what prices are acceptable
Determining quality and quantity of materials and/or services
Expediting and receiving materials
Controlling warehousing and inventory holding

Activity 4.2

Identify and explain at least 5 functional areas of management.

4.4 Summary
This section explored The Management Process.The four fundamental management functions of
Planning, Organising, Leading and Controlling (POLC) were examined, as were the areas of
management where the General Management, Financial Function, Marketing Function, Human
Resources Function, Operations Function and Purchasing Function were examined.

Revision Question

1. Discuss the importance of planning as one of the management functions.

2. Differentiate between Management and Leadership.
3. Discuss the characteristics of an effective control system.
4. List and explain the four marketing instruments.

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Answers

Activity 4.1
Discuss the ways in which management may overcome the barriers to effective planning.
Answer:
Barriers to effective planning may be overcome through:

Improve top management’s commitment to the planning process

Recognise the limitations of planning and understand that plans will require adjustments on an
ongoing basis
Ensure effective communication of organisational plans at all levels
Benefits of contingency planning should be recognised by organisations operating within a
turbulent environment

Activity 4.2
Identify and explain at least 5 functional areas of management.
Answer:

The financial function - concerned with the flow of funds, and in particular…the acquisition of
funds, the application of funds for the acquisition of assets, and the administration of, and
reporting on, financial matters
The marketing function - consists of management tasks and decisions directed at successfully
meeting opportunities and threats in a dynamic environment, by effectively developing and
transferring a need-satisfying market offering to consumers in such a way that the objectives of
the business, the consumer and the society will be achieved
The human resources function - the activities that managers engage in to attract and retain
employees and to ensure that they perform at a high level and contribute to the accomplishment
of organisational goals
The operations function - primarily aimed at the utilisation of resources to manufacture products
and render services / influences the organisational transformation process where inputs are
converted into organisational outputs
The purchasing function - entails “the planning, organising, leading and controlling of all activities
relating to the purchase of materials and services from an external source and aimed at
maintaining and increasing the business’s profitability

Case Study 4.1

Based on the above, discuss the input, process and output for making juice with and without
concentrates.
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Answer:
Making juice without concentrates:

Input – harvested fruits

Process
Inspection process / selection of fruits
Squeezing
Pasteurisation
Packaging
Output – juice

Making juice with concentrates:

Input – harvested fruits

Process
Inspection process / selection of fruits
Squeezing
Heating / water evaporation / ultra-filtered
Reverse osmosis
Dilution with water
Blending
Pasteurised
Packaging
Output
Juice
Juice concentrate

Knowledge Check Question 4.1

1. Tactical planning establishes the
a. Vision
b. Functional goals
c. Day to day activities
d. Procedure and rules
Answer: B

2. Which one of the following is not a planning tool?

a.Forecasting

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b. Scheduling
c. Costing
d. PERT
Answer: C

3. Span of control refers to

a. Management hierarchy provided for the coordination of activities
b. The doctrine that each subordinate should only report to one superior
c. dividing and subdividing the overall task of an organisation
d. The number of subordinates who report to a particular manager
Answer: D

Practical Application 4.1

Select a South African Government department of your choice and search their webpage for
their planning documents. Based on your findings, elaborate on the two major types of plans
listed.
Answer:
South African Government are required to develop and publish the following plans:

Strategic Plan
5 year horizon linked to the electoral cycle
Contains vision, mission and strategies / alignment to external environment
Future orientated
Annual Performance Plan
Plan for one year
More detailed than the strategic plan
More specific deliverables to be achieved for the year

Practical Application 4.2

Using an organisation of your choice, identify and discuss the inputs, transformation and
outputs aspects of the business.
Answer:
Learner is required to select a business and outlines the following pertaining to the business:

Input
Human Resource, e.g. staff
Financial, e.g. budgets
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Physical, e.g. inventory

Transformation
Description on how input are processed / converted
Output
Actual products / services produced by the business

Think Point 4.1

Elaborate on how you utilise the budgeting planning tool personally.
Answer:
Learners are expected to relate to the following:

A monthly / weekly income is received

Payment commitments have to be adhered to
Sufficient money is / must put aside for food
Some contingency fund is / might be put aside in case of emergencies
Some amount is / might be saved for the future

Think Point 4.2

Describe a type of power that you have experienced from a manager / supervisor or person of
authority.
Answer:
Learners must describe the situation and relate to one or a combination of the following:

Legitimate power: which refers to the power which the leader has as a result of the hierarchical
position which he/she possesses within the organisation (Jones, et al, 1998)
Reward power: this refers to the leader’s ability to withhold or give tangible rewards (e.g.
incentives, pay increases, new office) and intangible rewards (e.g. respect, verbal praise)
Coercive power: refers to the leader’s ability to punish others and in so doing instil fear (Jones, et
al, 1998). The exercise of coercive power has been found to seldom result in higher
performance
Referent power: results from a leader’s personal characteristics and refers to his/her ability to
command respect, admiration and loyalty (Jones, et al, 1998)
Expert power: results from the knowledge, skills and expertise of the leader (Jones, et al, 1998)

Think Point 4.3

Describe which of the four marketing instrument is being utilised when companies place
adverts in the newspaper.

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Answer:
The marketing instrument being utilised when companies place adverts in the newspaper is the
fourth P, which stands for Promotion.

Video Activity 4.1

Provide a description of the control process and list the four associated steps.
Answer:
The control process is a system that allows to set, measure, match, and tweak any business activity
such as production, packaging, delivery and more. The list of associated steps are as follows:

Establishing standards and methods for measuring performance

Measuring the performance
Determining whether performance matches the standards
Take corrective action

Video Activity 4.2

List the characteristics of an effective control system.
Answer:
An effective control system should be:

Accurate
Timely
Objective and Comprehensible
Focused on Strategic Control Points
Economically realistic
Organisationally realistic
Coordinated
Flexible
Integrated
Accepted by member of the organisation

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Answers to Revision Questions

UNIT 1
1. Identify the essential components which should be included in a definition of management.
Answer:

Involves a process in which

i. The management functions of planning, organising, leading and controlling are executed
ii. Organisational resources are utilised; and
iii. Work is achieved through the efforts of other employees
So as to provide for …the effective and efficient achievement of the organisation’s goals

2. Elaborate on the Time Spent on Management Functions by Management Level

Answer:

PLANNING ORGANISING LEADING CONTROLLING

TOP MANAGERS 28 % 36% 22 % 14 %

MIDDLE MANAGERS 18 % 33 % 36 % 13 %

FIRST-LINE MANAGER 15 % 24 % 51 % 10 %

Top managers spend much time organising, and a substantial amount of time planning
Middle managers spend time mostly on organising and leading; and
Lower managers spend just over half of their time leading

3. Discuss some of the key changes within organisations.

Answer:

Moving away from permanent jobs to temporary ones

Tendency to outsource more
Operating with a more diverse workforce
Typical 9-to-5 workday boundaries are getting blurred
Large corporation are cutting overall staff
Constant reengineering of processes
Teamwork is gaining prominence

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UNIT 2
1. Provide reasons as to why today’s managers should understand the different approached
to managing organisations.
Answer:

Not to repeat the same mistakes made by managers in the past

To better understand the current management practices
To expose managers to additional alternatives for consideration when practicing management

2. Elaborate on the four principles of Frederick Taylor to increase efficiency in the workplace.
Answer:

Examine the way in which workers perform their tasks and experiment with ways of improving the
way in which the task is performed
Record the new methods of performing the task as rules and standard operating procedures
Ensure that workers’ skills and abilities match the needs of the task, and train them to perform the
task according to the written rules and standard operating procedures
Determine an acceptable level of performance for each task and develop a remuneration system
which rewards performance which exceeds the acceptable level

3. Explain the Hawthorne Effect.

Answer:

Management’s interest in, and concern for, the workers’ well-being had served to enhance worker
performance
This interest might be presented either through positive or negative changes, it does not matter

UNIT 3
1. List and explain the elements comprising the market environment.
Answer:
Market

Consisting of the consumers or potential consumers who have particular needs and the buying
power to satisfy these needs

Suppliers

Provide the organisation with the ‘inputs’ required to produce the organisation’s goods and/or
services. These ‘inputs’ could take the form of materials (raw materials, equipment, energy),
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capital and/or labour

Intermediaries

Include wholesalers, retailers and agents and serve to bridge the gap between the producer and
the consumer

Competitors

Are prevalent within a market economy and compete with the organisation not only for market
share but for materials, capital and labour as well

2. Discuss the characteristics of the First Curve and Second Curve Organisations.
Answer:

FIRST CURVE ORGANISATION SECOND CURVE ORGANISATION

Mechanistic Organic

Engineering Ecology

Corporations Individuals & Networks

Horizontal & Vertical Integration Virtual Integration

Business Processes Culture

3. Elaborate on the three inter-related approaches which the organisation can adopt in
reacting to the environment.
Answer:

Information Management: which involves acquiring and maintaining knowledge of the

organisation’s environment through the process of environmental scanning, which serves to
identify threats and opportunities within the environment. Information obtained from
environmental scanning should be recorded in a management information system and should be
utilised to aid decision making (Cronje, 2004)
Strategic Response: Once sufficient information on the environment has been acquired, a
strategic response needs to be initiated (Cronjé, 2004), for example the organisation’s current
strategy may have to be adjusted and aligned to an emerging change within the environment
Structural Change: An adjustment to the organisation’s strategy (resulting from environmental

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change) may require that the organisation’s structure be adjusted in such a way that it is aligned
to the revised strategy (Cronje, 2004)

UNIT 4
1.Discuss the importance of planning as one of the management functions.
Answer:

Provides a means for managers to participate in decision making about organisational goals and
strategies (Jones & George, 2022)
Is necessary to provide the organisation with a sense of direction and purpose. Without such a
sense of direction managers would pursue conflicting goals, which would jeopardise
organisational performance (Jones & George, 2022)
Helps to coordinate the functions of the various organisational departments
Serves as a means to control managers and assess performance (Jones & George, 2022)

2. Differentiate between Management and Leadership.

Answer:

MANAGEMENT LEADERSHIP

Planning and Budgeting (in order to Setting a Vision (analyse broad range of
data in order to create visions and
produce orderly results)
strategies)

Organising & Staffing (includes decisions Aligning people (extensive

related to job structures, placing of communication of vision to various
employees in appropriate jobs, individuals – internal and external to the
communication of plans to workforce, etc) organisation)

Controlling & Problem Solving (ensures that Motivating People (energising staff to
managerial processes are fail-safe and risk- decide on own ways to achieve vision)
free)

3. Discuss the characteristics of an effective control system

Answer:

Integration: it is important to integrate the management functions of planning and controlling in

that the latter provides information which stimulates the revision of organisational plans

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Flexibility: it has emerged throughout this Study Guide that environmental change has a
considerable impact on the current day organisation.Thus, the organisation’s control systems
should be sufficiently flexible to accommodate adjustments to the organisation’s plans
Accuracy: it is imperative that the control system provides an objective and accurate picture of the
organisation’s situation
Timeliness: control data should be available to management on a regular basis
Simplicity: the control system should not be unnecessarily complex. A system which is too
complex is likely to hamper the manager’s utilisation of the system

4. List and explain the four marketing instruments.

Answer:

Product: this refers to the item or service which is designed to satisfy the target market’s needs.
Decisions about products include brand decisions, packaging decisions, and decisions about
how to go about differentiating a product (Cronjé, et al, 2004)
Price: refers to the exchange value of the product or service. Various factors influence the
determination of the price of a product (Cronjé, et al, 2004)
Place: refers to the manner in which the product or service is to be distributed. Decisions about
place (distribution) include the choice of distribution channel and type of market coverage
Promotion: refers to the process of marketing communication which involves “informing,
persuading and reminding the consumer" (Cronjé, et al, 2004:279) about a particular product or
service through the use of advertising, personal selling, sales promotion and publicity

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