BUSINESS M ANAGEMENT TRAINING COLLEGE

S OUTH A FRICA ’ S M OST P RESTIGIOUS D ISTANCE E DUCATION B USINESS C OLLEGE

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DIPLOMA IN BUSINESS MANAGEMENT 1ST YEAR OR

DIPLOMA IN HUMAN RESOURCE MANAGEMENT 1ST YEAR
STUDY GUIDE: 621-SG-2
MANAGEMENT PRINCIPLES I:
MODULE 2: PLANNING AND ORGANISING
 READ THIS BEFORE YOU DO ANYTHING ELSE!
ICONS USED IN THIS MANUAL

LESSON 1 Indicates the start of a new lesson

Indicates the start of a Chapter (also top left of STUDY chapters)

Usually an explanation or definition of a specific word or concept

Examples of a specific topic or concept

Important information.

Making notes while you study is very important. Spaces have

been allocated throughout this manual for this purpose

Indicates self-assessment and self assessment answer section

THESE SHOULD NOT BE SUBMITTED FOR ASSESSMENT

Outcomes for this Module (What you will learn)

Prescribed textbook
Smit, P.J., Cronje, G. J., Brevis, T. & Vrba, M.J. eds. 2011.
Management Principles: A Contemporary Edition for Africa. 5th
ed. Cape Town: Juta.
ISBN 978-0-70217-281-6

Erasmus, B.J., Strydom, J.W. & Rudansky-Kloppers, S. eds.

2013. Introduction to Business Management. 9th ed.
Cape Town: Oxford University Press.
ISBN 978-0-70217-281-6

Only purchase the new editions if you did not already purchase the previous edition.

Recommended textbook:
Hellriegel, D., Slocum, J., Jackson S.E., & Louw, L. 2013 Management. 4th ed. Cape Town: Oxford
University Press
ISBN 978 019 5995 602
2 © Business Management Training College (Pty) Ltd
 READ THIS BEFORE YOU DO ANYTHING ELSE!
ASSIGNMENT STRUCTURE
For the 1st year of the Diploma Qualification
Study
Formative Summative Next Action from the college?
Process
SUBJECT: MANAGEMENT PRINCIPALS
Complete and submit
Module 1 College will mark Module 1
NO SUMMATIVE DUE
Step 1 Formative Assignment Formative Assignment and post
after Module 1
Introduction to Module 2.
Management
Complete and submit
College will mark Module 2
Module 2 NO SUMMATIVE DUE
Step 2 Formative Assignment and post
Formative Assignment after Module 2
Module 3.
Planning and Organising
Complete and submit
Complete and submit the College will mark Module 3
Module 3
Step 3 SUMMATIVE ASSIGNMENT Formative and Summative
Formative Assignment
on Module 1, 2 and 3. Assignment and post Module 4.
Leadership
SUBJECT: BUSINESS ADMINISTRATION
Complete and submit
Module 4 College will mark Module 4
NO SUMMATIVE DUE
Step 4 Formative Assignment Formative Assignment and post
after Module 4
Introduction to Business Module 5.
Administration
Complete and submit
College will mark Module 5
Module 5 NO SUMMATIVE DUE
Step 5 Formative Assignment and post
Formative Assignment after Module 5
Module 6.
Risk Management
Complete and submit
Complete and submit the College will mark Module 6
Module 6
Step 6 SUMMATIVE ASSIGNMENT Formative and Summative
Formative Assignment
on Module 4, 5 and 6. Assignment and post Module 7.
Financial Management
SUBJECT: ENTREPRENEURSHIP
Complete and submit
Module 7
College will mark Module 7
Formative Assignment NO SUMMATIVE DUE
Step 7 Formative Assignment and post
Introduction to after Module 7
Module 8.
Entrepreneurship

Complete and submit

Module 8 Complete and submit the College will assess Module 8
Step 8 Formative Assignment SUMMATIVE ASSIGNMENT Formative and Summative
The Entrepreneur as a on Module 7 and 8 Assignment and post the FISA.
Manager

COMPLETE THE FINAL INTEGRATED SUMMATIVE ASSESSMENT (FISA)

© Business Management Training College (Pty) Ltd

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 READ THIS BEFORE YOU DO ANYTHING ELSE!
STUDY PLANNER
PLANNING AND ORGANISING
15 CREDITS*
NQF LEVEL 5
Planned Start
and
Completion.
Type REF Heading/Description
(To be
completed by
the student)

Chapter 1 - The nature of management

Different Levels and Functions of Management in an
Lesson 1.1 |
Organisation
Lesson 1.2 Managerial Roles |
Managerial Skills and Competencies at Different Levels of
Lesson 1.3 |
Management
Challenges Faced by Management in South Africa, Africa and
Lesson 1.4 |
abroad

Lesson 1.5 Classical and Contemporary Management Theories |

Defend the use of different management theories in different
Lesson 1.5.1 |
environments
The importance of understanding the business environment
Lesson 1.6 |
when making management decisions

Lesson 1.7 The concept of the Systems Approach in Management |

The Macro-, Micro- and Market environment and the
Lesson 1.8 |
variables that comprise each of these.

Lesson 1.9 Preparing for Environmental Change |

Chapter 2 - Planning
Strategic planning
Lesson 2.1 Strategic Planning |

Lesson 2.2 Strategic Planning in the Hierarchy of Organisational Plans |

Lesson 2.3 The Process to follow when Developing a Strategic Plan. |

Lesson 2.4 The Components of a Strategic Plan |

Different Approaches, Tools and Techniques in Strategic
Lesson 2.5 |
Planning
Lesson 2.6 Deciding on Strategies |
Planning as a management function
Lesson 2.7 The Nature and Importance of Planning |
Lesson 2.8 Different Types of Planning |
4 © Business Management Training College (Pty) Ltd
 READ THIS BEFORE YOU DO ANYTHING ELSE!
Chapter 2 - Planning continues...

Lesson 2.9 Tools that can be used in Planning and Goal Formulating |

Lesson 2.10 The MBO (Management by Objectives) process |

Decision-making
Managerial Decisions, Decision Making Conditions and
Lesson 2.11 |
Models.
Lesson 2.12 Group Decision Making Techniques |
Lesson 2.13 Tools For Decision Making |
Information management
Information Management, Decision making and
Lesson 2.14 |
Information Systems.
Useful Information and Classification of Information
Lesson 2.15 |
Systems
Lesson 2.16 MIS’s and Decision Making. |
Developing a Generic Information System and the
Lesson 2.17 |
Manager’s role.
Chapter 3 - Organising
Organising and delegating
Organising and Structure is necessary for Implementing
Lesson 3.1 |
Plans and Attaining Goals.

Lesson 3.2 Organising and Designing an Organisational Structure |

Lesson 3.3 The design of Jobs as a Motivational Factor |

Managing change: culture, innovation and technology
Environmental Forces that require Organisations to
Lesson 3.4 |
Change
The Change Process and Main areas of Organisational
Lesson 3.5 |
Change
Lesson 3.6 Overcoming Resistance to Change |
Lesson 3.7 Corporate Culture |
Managing Diversity
Lesson 3.8 Diversity Defined and Explained |
Lesson 3.9 Strategies for Managing Diversity |
Lesson 3.10 Managing Cultural Diversity |
Complete online formative assignment through the virtual
Formative |
Campus
*SAQA equates one credit with ten notional hours of study. Credits include all studies related to this
module, including prescribed and recommended research, assignments and work related projects if
required. Credits will only be granted upon completion of the full programme.

© Business Management Training College (Pty) Ltd

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 CHAPTER 1
THE NATURE OF MANAGEMENT

IN THIS CHAPTER:
 LESSON 1.1 : DIFFERENT LEVELS AND FUNCTIONS OF
MANAGEMENT IN AN ORGANISATION
 LESSON 1.2 : MANAGERIAL ROLES
 LESSON 1.3 : MANAGERIAL SKILLS AND COMPETENCIES AT
DIFFERENT LEVELS OF MANAGEMENT
 LESSON 1.4 : CHALLENGES FACED BY MANAGEMENT IN SOUTH
AFRICA, AFRICA AND ABROAD
 LESSON 1.5 : CLASSICAL AND CONTEMPORARY MANAGEMENT
THEORIES
 LESSON 1.5.1 : DEFEND THE USE OF DIFFERENT MANAGEMENT
THEORIES IN DIFFERENT ENVIRONMENTS

AT THE END OF THIS CHAPTER YOU WILL BE ABLE TO:

 Understand management and their functions, on different management levels.
 Explain the managerial roles.
 Explain the various managerial skills and competencies needed at the different
levels of management.
 Describe some of the major challenges faced by management in South Africa,
Africa and abroad.
 Describe the various classical and contemporary management theories.
 Defend the use of different management theories in different environments.
 Explain the concepts Macro-, micro and market environment and the variables
that comprise each of these.
 Explain the importance of understanding the business environment when making
management decisions.
 Explain the concepts of the systems approach in management.
 Propose ways in which management can prepare for environmental change.
 LESSON 1.1
LESSON 1.1
DIFFERENT LEVELS AND FUNCTIONS OF
MANAGEMENT IN AN ORGANISATION

In this Lesson:
Any organisation, whether new or old, whether small or big needs to run
smoothly and achieve the goals and objectives which it has set. For this
they develop and implement their own management concepts. There are
basically four management concepts that allow any organisation to handle the
tactical, planned and set decisions. These are planning, organising, leading
and controlling. The four basic functions of the management are just to have
a controlled plan over the preventive measure.

CONCEPTS AND VOCABULARY TERMS YOU NEED TO UNDERSTAND:

 A Ethics: The rules or standards governing the conduct of a person or the

members of a profession.
 Systems Approach: unique approach to problem solving, in that it views
certain 'problems' as a part of the overall system.
 Sustainability: To keep in existence; maintain.
 Pragmatic: Dealing or concerned with facts or actual occurrences; practical.
 Model: a simplification of the real world in order to explain complex
relationships in easy-to-understand terms.
 Organisational design: matching the organisation’s structure to its
strategies.
 Obsolete: No longer in use.

Key points:
 Managers work at different levels and deal with different challenges.
 Managers are classified according to two areas, namely by functions and by level
 Basic management activities are:
 Planning,
 Organising,
 Leading and
 Controlling.
 Management tasks include, but are not limited to,:
 decision making,
 communicating,

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 THE NATURE OF MANAGEMENT
 controlling,
 disciplining,
 motivating,
 coordinating,
 evaluating and
 delegating.
 General management functions include:
 Human Resources,
 Marketing,
 Public Relations,
 Production,
 Financial and
 Administration.
 The four management functions as performed by each of the levels are illustrated
in table 1.1.

TABLE 1.1 PLANNING ORGANISING LEADING CONTROLLING

Long term. Leading the

Determine mission Design broad whole
Top Controls whole
and vision, overall organisational organisation
Management organisation.
strategies of entire structure. through the top
organisation. executive.

Medium and short-

term planning. Leading by Controlling
Middle Implement plans, Organise means of management
Management policies and functional areas. department activities of own
strategies formulated heads. departments.
by top management.

Provide technical
Short term. Apply policies, assistance, Controls
Lower
Management
Implement plans of rules and motivate sub- achieving of day-
middle management. procedures. ordinates. to-day goals.
Supervises.

THE PROCESS AND TASKS OF MANAGEMENT

The management process consists of four main tasks. These tasks include
planning, organising, leading and controlling. These tasks use resources to
achieve the organisations’ goals and objectives, and are interrelated. That means
that you cannot make a decision in one area without considering its affect on the
others:

Planning Organising Leading Controlling

8 © Business Management Training College (Pty) Ltd

 LESSON 1.1
a) Planning is deciding what the organisation is going to do. It consists of the
following activities:
 Developing a purpose and vision for the organisation.
 Identifying and forecasting changes occurring in the macro, market and micro
environment.
 Setting integrated objectives and strategies for the organisation and each of its
functional departments. It is essential that the management team develop these
together so that they are consistent vertically and horizontally in the organisation.
 Developing tactical and operational plans and schedules of action to achieve the
objectives in each functional department.
 Developing integrated company and departmental budgets against which
performance is measured.

b) Organising is deciding how the strategies and plans will be executed. It consists
of the following activities:
 Identifying the work to be done and grouping it into logical operating functions and
units.
 Establishing job positions and working relationships between the operating units
and departments.
 Recruiting, selecting and placing people in these positions.
 Establishing methods of coordinating activities between units and departments.

c) Leading is getting people to work willingly to execute plans. It consists of the

following activities:
 Communicating with them.
 Motivating people.
 Making decisions and solving problems related to people.
 Managing conflict and change in an organisation.
 Developing teams and individuals.

d) Controlling ensures that plans are executed correctly. It consists of the following
activities:
 Establishing standards of performance. This is done at the planning stage for each
of the resources and functional departments.
 Measuring actual performance against those standards.
 Evaluating reasons for deviations from the set standards.
 Taking corrective action.

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 THE NATURE OF MANAGEMENT

STUDY AND RESEARCH

MANAGEMENT PRINCIPLES 4TH EDITION

Read Chapter 1.1 “Introduction”, pages 4-6.
Study 1.2 “Organisations and managers”, pages 6-7.
Study 1.3 “The nature of management”, pages 7-9.
Study 1.4 “A definition of management”, pages 9-11.
Study 1.5 “Different levels and kinds of management in the organisation”,
pages 11-13.
Study 1.6 “Areas of management”, pages 14-15.

MANAGEMENT PRINCIPLES 5TH EDITION

Read Chapter 1.1 “Introduction”, pages 4-5.
Study 1.2 “Business organisations and managers”, pages 5-6.
Study 1.3 “The nature of management”, pages 6-8.
Study 1.4 “Definition of management”, pages 8-9.
Study 1.5 “Different levels and kinds of management in the organisation”,
pages 10-12.
Study 1.6 “Areas of management”, pages 12-14.

You will never be the person

you can be if pressure,
tension and discipline are taken
out of your life.
-James G Bilkey.

10 © Business Management Training College (Pty) Ltd

 LESSON 1.2
LESSON 1.2
MANAGERIAL ROLES

In this Lesson:

The Canadian academic, Henry Mintzberg who had trained as a

mechanical engineer, wrote his PhD thesis at the MIT Sloan School of
Management analysing the actual work habits and time management of chief
executive officers (CEOs). In 1973, Mintzberg's thesis on the nature of
managerial work was adopted as a study and published for a wider audience.

He reduced the thousands of things managers do in the course of planning,

organising, leading and controlling to ten roles, which he grouped into three
broad categories: decisional roles, interpersonal roles and informational roles.
He then identified ten separate roles in managerial work. (Hellriegel et al.,
2013:10)

Mintzberg found that although individual capabilities influence the

implementation of a role, it is the organisation that determines the need for a
particular role, addressing the common belief that it predominantly a
manager's skill set that determines success.

Effective managers develop protocols for action given their job description and
personal preference, and match these with the situation at hand.

CONCEPTS AND VOCABULARY TERMS YOU NEED TO UNDERSTAND:

 Officiates: To perform the duties and functions of an office or a position of

authority.
 Figurehead: a person nominally having a prominent position, but no real
authority.

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 THE NATURE OF MANAGEMENT
Key points
 Managers play about ten different roles, classified into three main groups namely
interpersonal, information role and decision-making role.
 The interpersonal role includes being a figurehead, a leader and a relationship
builder.
 The information role includes monitoring or gathering information, analysing the
information and acting as spokesperson for the department.
 The decision making role includes entrepreneurship and problem solving. Must
also make decisions about resources have to negotiate various parties and
stakeholders.

Table 1.2: Mintzberg’s Ten Managerial roles with some example

Category Role Examples of possible activities
Seek and receive information, scan papers and reports,
Monitor
maintain interpersonal contacts
Informational
Disseminator Forward information to others, send memos, make phone calls

Spokesperson Represent the unit in speeches and reports

Figurehead Perform ceremonial and symbolic duties, receive visitors

Direct, motivate and influence subordinates to do tasks willingly

Interpersonal Leader to the best of their abilities. Conduct training sessions and
associated duties.
Maintain information links in and beyond the organisation
Liaison
through networking
Initiate new projects, identify new opportunities and areas of
Entrepreneur
growth and development
Resolve conflicts, assist subordinates to deal with and embrace
Disturbance handler
Decisional change, provide solutions

Resource allocator Set priorities, draw up budgets etc.

Represent organisation during negotiations with unions,

Negotiator
suppliers etc.

STUDY AND RESEARCH

MANAGEMENT PRINCIPLES 4TH EDITION

Study 1.7 “The role distribution of managers”, pages 15-17.
MANAGEMENT PRINCIPLES 5TH EDITION
Study 1.7 “The role distribution of managers”, pages 14-15.

12 © Business Management Training College (Pty) Ltd

 LESSON 1.3
LESSON 1.3
MANAGERIAL SKILLS AND COMPETENCIES AT
DIFFERENT LEVELS OF MANAGEMENT

In this Lesson:

An excellent characteristic of a good leader is to be able to provide consistent

motivation to his/her team, encouraging them to attain excellence and quality
in their performance. A good leader is always looking for ways to improve
production and standards. Management skills can enable a leader to create a
quality effective team.

CONCEPTS AND VOCABULARY TERMS YOU NEED TO UNDERSTAND:

 Competent: the quality of being adequately or well qualified physically and
intellectually.

Key points

 Skills needed by top management differ from those required by lower

management.
 The three main skills are conceptual skills, interpersonal skills and technical skills.
 The recently established MCI (Management Charter Initiative) focuses on what
managers should do in the workplace, and not what they should know.
 Competent means that the manager must demonstrate that he or she can apply
the competence in a work situation.
 Skills and competencies must be understood against the background of the
environment in which a manager works.

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 THE NATURE OF MANAGEMENT
We have learnt in module one, what management is and what managers do. We
have also learnt various definition of management and what the management
process is all about. Let’s now look at Figure 1.3 that provides a structure of
management’s definitions. Adapted from Aaron J. Shenhar, J. Renier, (1996) "How
to define management: a modular approach", Management Development Review,
Vol. 9 Iss: 1, pp.25 - 31

Management
is the process of getting things done,
effectively and efficiently
through and with other people.

“what” “how”

Management is a To manage means to

science and art decide and to execute

Managing production factors: natural Managerial roles:

resources, human resources, informational, decision-making
information resources and capital and interpersonal roles

Managing the system: Managerial phases:

resources, processes, situations Path finding; problem-solving and
and relations implementation

Managers have a duty and Management functions:

responsibility to the organisation Planning; organising,
to get results. leading and controlling

Technical Human Operational Strategic

Managerial knowledge and skills

14 © Business Management Training College (Pty) Ltd

 LESSON 1.3
WHAT DOES IT TAKE TO BE AN EFFECTIVE MANAGER?

Hellriegel et al. (2008:12) defines managerial competencies as sets of knowledge,

skills, behaviours, and attitudes needed by managers in order to be effective in a
wide range of managerial jobs and various organisational settings. They identified
six specific competencies that are transferable from one organisation to the next
namely: communication, planning and administration, teamwork, strategic action,
global awareness, and self-management.

Communication Competency
This term refers to the effective transfer and exchange of information that leads to
understanding between yourself and others. We have learnt in our definition of
management that management involves getting work done through other people,
thus communication is essential to effective managerial performance.
Communication competency includes informal -, formal communication, and
negotiation.

Planning and Administration Competency

This competency involves deciding what tasks need to be completed, determining
how they should be executed, allocating resources to enable execution of tasks,
and finally monitoring progress to ensure that they are executed.
Some of the management tasks include:
 information gathering, analysis and problem-solving;
 planning and organising projects;
 time management;
 budgeting and financial management.

Teamwork competency
Accomplishing tasks through small groups of people who are collectively
responsible and whose work is interdependent requires teamwork competency.
Managers in organisations that utilise teams can become more effective by:
 designing teams;
 creating a supportive team environment; and
 managing team dynamics.

Strategic Action Competency

Managers need to understand the overall mission and values of the organisation to
ensure that their actions and those of the people they manage are aligned with
them, this process involves strategic action competency.

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 THE NATURE OF MANAGEMENT
Strategic action competency includes:
 understanding the industry in which the business operates;
 understanding the organisation and its business processes;
 taking strategic action.

Global awareness competency

Carrying out an organisation’s managerial work by drawing on the human,
financial, information, and material resources from multiple countries, and serving
markets that span multiple cultures, requires global awareness competency.

Self-Management Competency
Taking responsibility for your life at work and beyond involves self-management
competency. Self-management competency includes:
 integrity and ethical conduct;
 personal drive and resilience,
 balancing work/life issues, and
 self-awareness and development. (Hellriegel et al., 2008:12)

Table 3.1 Identifies several important aspects of each key managerial

competency. Adapted from Hellriegel et al., (2013:31)

16 © Business Management Training College (Pty) Ltd

 LESSON 1.3
Table 3.1 Six key managerial competencies.

Key managerial
Important aspects of key competency
competency

Informal communication

Communication Formal communication

Negotiation

Information-gathering, analysis and problem-solving

Planning and organising projects

Planning and administration
Time management

Budgeting and financial management

Designing teams

Teamwork Creating a supportive environment

Managing team dynamics

Understanding the industry

Strategic action Understanding the organisation

Taking strategic actions

Cultural knowledge and understanding

Global awareness
Cultural openness and sensitivity

Integrity and ethical conduct

Personal drive and resilience

Emotional intelligence and
self-management Balancing work and life issues

Self-awareness and development

Spiritual intelligence

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 THE NATURE OF MANAGEMENT
WHAT IS A COMPETENCY ACCORDING TO THE NQF?
This is the ability of a learner to integrate a number of tasks in a particular
circumstance or context according to a set standard.
The three inner circles represent Skills (S), Knowledge (K) and Attitude (A)

A
S

K
Competence
C

Competence in SAQA terms is applied competence – the union of practical,

foundational and reflexive competence.

Practical competence Foundational Competence Reflexive competence

The demonstrated ability to
integrate our performances
The demonstrated ability to The demonstrated
with our understanding so
perform a set of tasks and understanding of what we
that we are able to adapt to
actions in authentic are doing and why we are
changed circumstances and
contexts. doing it.
explain the reason behind
these adaptations.
The old NQF was divided into 8 levels and 3 bands:
Band 1: General Education and Training Certificates (GETC):
• ABET (Adult Basic Education Training) level 1/Grade R, 1, 2 & 3 Early childhood
Development or foundation phase for the adult learner.
• ABET level 2 and part of level 3/Grade 4, 5, 6: This is the intermediate phase
• ABET level 3/Grades 7, 8, 9: This is the senior phase.
Band 2: Further Education and Training (FET):
• Includes levels 2, 3 and 4 of the NQF offered by Schools, Colleges, Private
providers, Training Centres, NGO’s and in-house training.
Band 3: Higher Education and Training (HET):
• Level 5: Occupational certificates (issued by Industry) and Diplomas issued by
Universities, Technicons, Colleges, Private/Professional Institutions/
• Level 6: First Degrees and Higher Diplomas issued by Universities, Technicons,
Colleges, Private/Professional Institutions/Workplace.
• Level 7: Higher Degrees and Professional Qualifications issued by
Tertiary/Research/Professional Institutions.
 Level 8: Masters
 Level 8+: Doctorates and Further Research Degrees issued by search/Professional
Institutions.

18 © Business Management Training College (Pty) Ltd

 LESSON 1.3
 The new NQF has 10 levels, providing for General, Further and Higher Education
Training bands.

FIGURE: 1.3 PREVIOUS NQF LEVELS

Old NQF
Band Qualification Type
Levels
8 Higher Education and Training Post-doctoral research degrees
Doctorates
7 Masters degrees
Professional Qualifications
6 Honours degrees
National first degrees
5 Higher Diplomas
National Diplomas
National Certificate
4 Further Education and Training Matric/ National Certificate
Certificate (FETC)
3 Grade 11

2 Grade 10
1 General Education and Training Grade 9 or ABET Level 4
Certificate (GETC)

FIGURE 1.4: STRUCTURE OF THE NEW NQF (DOE WEBSITE 2010)

School New
NQF Band Types of Qualifications
grades Levels
Doctor’s degree (e.g. PhD or Dphil)
Honours degree
Master’s degree
Higher
Postgraduate Diploma
5-10 Education
General first degree
and
Professional first degree Postgraduate
Training
Bachelor’s degree
Higher Certificate
First Diploma
Further
12 Education
4
and
11 3 Certificate
Training
10 2
Certificate
(FETC)
9 1 Grade 9 or ABET Level 4
8
7 General
6 Education
and
5
Training
4 Certificate
3 (GETC)
2
1

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 THE NATURE OF MANAGEMENT

SELF ASSESSMENT LEARNING ACTIVITY 1

1 2

3 4 5

7 8 9

10

11

12 13

14

15 16

17

18

[Link]

ACROSS DOWN

3 This skill refers to the ability to work with people. 1 The person nominally having aprominenet
6 One of the managment roles, according to position, but no real authority.
Mintzberg, is the ------------------role. 2 This management function deals with monitoring
7 This management function deals with directing progress.
and motivating. 4 The most advanced skills level according to the
8 This skill refers to the ability to view the NQF.
operation of the organisation and its parts 5 This level of management organise functional
holistically. areas.
12 the quality of being adequately or well-qualified 9 This function deals with determining the vision,
physically and intellectually. mission and goals.
14 The rules or standards governing the conduct of 10 The process of planning, organising, leading and
a person or the memvers of a profession. controlling.
17 This management function deals with groupig 11 Organisations enable us to reach these by
activities together. coordinating the efforts of different individuals.
18 This level of management is concerned with 13 The major difference between managers and
long-term planning, leading and controlling. non-managers is the shift from ---------------skills
to interpersonal and conceptual skills.
15 In addition to management functions,
management have certain ----------------.

20 © Business Management Training College (Pty) Ltd

 LESSON 1.3

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 THE NATURE OF MANAGEMENT

STUDY AND RESEARCH

MANAGEMENT PRINCIPLES 4TH EDITION

Study 1.8 “Managerial skills and competencies at various managerial
levels”, pages 17-20.
MANAGEMENT PRINCIPLES 5TH EDITION
Study 1.8 “Managerial skills and competencies at various managerial
levels”, pages 15-18.

22 © Business Management Training College (Pty) Ltd

 LESSON 1.4
LESSON 1.4
CHALLENGES FACED BY MANAGEMENT IN
SOUTH AFRICA, AFRICA AND ABROAD

In this Lesson:
For the past decade businesses have been facing more challenges,
including the need to change the way it does business, than ever before.
Diversity and change constantly require diligent management.

CONCEPTS AND VOCABULARY TERMS YOU NEED TO UNDERSTAND:

 Effective management: managing in a capable way and producing an

intended result.
 Efficient management: working without waste or using a minimum of time,
effort and expense.
 Note: The definition for ‘efficient’ says nothing about the goals of the
operation. A person can be very efficient at what they are doing but still not
get to where they want to be because they aren't doing the right things.
That's where "effective" comes in. "Effective" means "having the desired
result". Once the desired overall result is defined, the tasks leading to the
result can be isolated and these tasks can then be completed efficiently.
While this seems obvious, the actual execution of tasks in many companies
doesn't follow this simple principle.
Non-profit organisations: an organisation that does not distribute its
surplus funds to owners or shareholders, but instead uses them to help
pursue its goals.
 SME: Small and Medium Enterprise or Subject Matter Expert (HR).

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Key points
 Effective and efficient management practice is equally important in large and
smaller business organisations as well as non-profit organisations.
 SMEs need to play a greater role in the economy. Management training and
development should therefore be a priority.
 South-Africa’s new government structure make tremendous demands on scarce
resources and poses a challenge to management.
 South-Africa needs to overcome poverty and can only be successful if it improves
its level of management skills.

1. INTRODUCTION
There are many definitions for productivity and most of them are complex. Yet
productivity is a very simple and vital concept.

Productivity can be seen as a measure of how efficient a person or an operation is;

it is determined by comparing :
 the value of the output result with
 the cost of the input resource.

Productivity therefore refers to the quantity and quality of output of an individual or

an organisation relative to the input resources. A productive organisation is one
where the value of the output produced, out-weighs the cost of the inputs and
processing activities. Everybody in the organisation, but specifically people in
leadership roles need to develop a clear understanding of what acceptable and
unacceptable productivity levels look like. Management have the added
accountability of maintaining a balance between what is desired and what is
unacceptable.

Inputs are normally items like the time, capital, equipment and any other
expenditure employed to produce the output. The output can be a specific product
or service that is delivered to a customer at a specific price. The margin, by which
the benefits received for the output outweigh the cost of the inputs, is critical in
today’s organisations and has a direct influence on its survival in the world
marketplace.

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 LESSON 1.4
2. METHODS OF IMPROVEMENT

One way to improve productivity is to improve the methods used for performing
work. Any change in the way a task is performed so that it lowers the cost,
completion time, or improves the quality of the product or service provided by the
task, is called a methods improvement. The methods improvement process
normally involves observing each minute segment of a job and then examining
these segments for ways to do the job better as a whole.

It may also be known as work simplification, time-and-motion study, operations

analysis, systems engineering, methods and systems analysis, waste reduction,
motion economy, or even quality circles.

STUDY AND RESEARCH

MANAGEMENT PRINCIPLES 4TH EDITION

Study 1.10 “The scope of management”, pages 21-22.
MANAGEMENT PRINCIPLES 5TH EDITION
Study 1.10 “The scope of management”, pages 19-20.

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 NOTES:

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 LESSON 1.5
LESSON 1.5
CLASSICAL AND CONTEMPORARY
MANAGEMENT THEORIES

In this Lesson:

Circumstances in the capitalist world gave rise to a need for professional

management. Management had to invent solutions to problems, and they
developed their own theories about the organisation and its management.
Managers have to distinguish between poor and sound theories, to predict the
future with some degree of confidence. A sound theory describes the
circumstances under which it does and does not work.

CONCEPTS AND VOCABULARY TERMS YOU NEED TO UNDERSTAND:

 Theory: Theories are analytical tools for understanding, explaining, and

making predictions about a given subject matter.
 Productivity: the ratio of the quantity and quality of units produced to the
labour per unit of time.
 Classical: designating of a specified course of study that is or has been
standard and traditionally authoritative, not new, recent, and experimental.
 Contemporary: in the style of the present or recent times; modern.
 Bureaucratic: one who follows a routine in a mechanical, unimaginative
way, insisting on proper forms, petty rules.

Key points

 Theories bring predictable success to the world of management.

 The theories of management can be classified into the classical approach and the
contemporary approach.

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CLASSICAL APPROACHES

Scientific approach
 focus is on ways to improve performance of individual workers. It also focused on
the issue of managing work – not managing people.
 Contributors to scientific management – Gilbreth and Gantt.
 Limitations – people are not machines, but human beings.
Process approach
 planning and the organisation of people in the workplace became the focus of
consideration.
 Contributor to administrative/process approach – Henri Fayol. 14 principles for
effective management.
 Limitations – postulates that formal authority should be maintained by managers.
Bureaucratic approach
 Stressed the need for a strictly defined hierarchy governed by clearly defined
regulations and authority.
 Contributor – Max Weber.
 Limitations – managers are being compensated to do what they are told to do.
Managers often rewarded for complying with out-dated rules.

 Early approaches emphasised technical aspect of work at the expense of personal

aspect.
 Depression, changes in economic, political, social, technological environments
caused managers to challenge these approaches.
 Managing people became focus.
 Hawthorne studies leaded to Human relations approach.

Human Resource Approach

 Employees are more motivated by social needs than economic needs.
 Contributor – Mayo. Studied people in the work environment using scientific
methods.
 Behavioural scientists – Maslow and McGregor.
 Limitations

Quantitative theory
 ‘Crunching numbers’. Management science and operations research
 Used in planning and control activities, product strategies, production scheduling,
capital budgeting, cash flow management, inventory control.
 Limitations – used mainly as tool or aid in decision making as many aspects of
management cannot be quantified.

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 LESSON 1.5
CONTEMPORARY APPROACHES

Systems Approach
Views the organisation as a group of interrelated parts the only purpose: to remain
in balance (equilibrium).
System comprises four elements:
 Input (resources)
 Transformation process (managerial, systems etc.)
 Outputs (procedures or services)
 Feedback (reaction from the environment)

Contingency approach
The application of management principles depends on the particular situation.
Every organisation exists in a unique environment with unique employees and
unique goals.
There is more than one way to achieve a goal.

Total quality management

Management that is driven by competition and customer needs and expectations.
Creating learning organisations and promoting motivation for learning.
Counterpoint to the believe that low costs are the only way to increase productivity.

ASPECTS COMMON TO TQM AND CONTINUOUS IMPROVEMENT

PROGRAMMES

According to Thomson & Strickland (2001) the following aspects are common to
TQM and CI programmes:
 Committed leadership
Unwavering, long-term commitment by top managers to the philosophy, usually
under a name something like Total Quality Management, Continuous Improvement
(CI), or Quality Improvement (QI).
 Adoption and communication of TQM
Using tools like the mission statement, and themes or slogans.
 Closer customer relationships
Determining customers' (both inside and outside the firm) requirements, then
meeting those requirements no matter what it takes.
 Closer supplier relationships
Working closely and cooperatively with suppliers (often sole-sourcing key
components), ensuring they provide inputs that conform to customers' end-use
requirements.

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 Benchmarking
Researching and observing operating competitive practices.
 Increased training
Usually includes TQM principles, team skills, and problem solving.
 Open organisation
Lean staff, empowered work teams, open horizontal communications, and a
relaxation of traditional hierarchy.
 Employee empowerment
Increased employee involvement in design and planning, and greater autonomy in
decision-making.
 Zero-defects mentality
A system in place to spot defects as they occur, rather than through inspection
and rework.
 Flexible manufacturing (applicable only to manufacturers)
Can include just-in-time inventory, cellular manufacturing, design for
manufacturability (DFM), statistical process control (SPC), and design of
experiments (DOE).
 Process improvement
Reduced waste and cycle times in all areas through cross-departmental process
analysis.
 Measurement
Goal-orientation and zeal for data, with constant performance measurement, often
using statistical methods

Six Sigma
 Focus is on defects per million.
 Strives to produce products and services better, faster and more cheaply than
competitors.
 Eliminates waste costs.

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 LESSON 1.5
INTRODUCTION TO QUALITY ASSURANCE

Quality Assurance covers all activities from design, development, production,

installation, servicing and documentation, this introduced the rules: "fit for purpose"
and "do it right the first time". It includes the regulation of the quality of raw
materials, assemblies, products and components; services related to production;
and management, production, and inspection processes.

One of the most widely used paradigms for Quality Assurance management is the
PDCA (Plan-Do-Check-Act) approach, also known as the Shewhart cycle.

A valuable process to perform on a whole consumer product is failure testing, the

operation of a product until it fails, often under stresses such as increasing
vibration, temperature and humidity. This exposes many unanticipated
weaknesses in a product, and the data is used to drive engineering and
manufacturing process improvements.

Often quite simple changes can dramatically improve product service, such as
changing to mould-resistant paint or adding lock-washer placement, to the training
of new assembly personnel.

Many organisations use statistical process control to bring the organisation to Six
Sigma levels of quality, in other words, so that the likelihood of an unexpected
failure is confined to six standard deviations on the normal distribution. This
probability is less than four one-millionths. Items controlled often include clerical
tasks such as order-entry as well as conventional manufacturing tasks.

Traditional statistical process controls in manufacturing operations usually proceed

by randomly sampling and testing a fraction of the output. Variances of critical
tolerances are continuously tracked, and manufacturing processes are corrected
before bad parts can be produced.

During the 1980’s, the concept of “company quality” with the focus on
management and people came to the forefront. It was realised that, if all
departments approached quality with an open mind, success was possible if the
management led the quality improvement process.

The company-wide quality approach places an emphasis on three aspects :

 Elements, such as controls, job management, adequate processes, performance
and integrity criteria and identification of records;
 Competence, such as knowledge, skills, experience and qualifications;

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 Soft elements, such as personnel integrity, confidence, organisational culture,
motivation, team spirit and quality relationships.
The quality of the outputs is at risk if any of these three aspects are deficient in
any way. The approach to quality management given here is therefore not limited
to the manufacturing theatre only but can be applied to any business activity.

Design work, administrative services, consulting, banking, insurance, computer

software, retailing and transportation.

It comprises a quality improvement process, which is generic in the sense it can

be applied to any of these activities and it establishes a behaviour pattern,
which supports the achievement of quality.

This in turn is supported by quality management practices which can include a

number of business systems and which are usually specific to the activities of the
business unit concerned.

In manufacturing and construction activities, these business practices can be

equated to the models for quality assurance defined by the International Standards
contained in the ISO 9000 series and the specified Specifications for quality
systems.

Still, in the system of Company Quality, the work being carried out was shop floor
inspection which did not control the major quality problems. This led to quality
assurance or total quality control, which has come into being recently.

Total Quality Control is the most necessary inspection control of all in cases
where, despite statistical quality control techniques or quality improvements
implemented, sales decrease.

The major problem which leads to a decrease in sales was that the specifications
did not include the most important factor, “What the customer required”.

The major characteristics, ignored during the search to improve manufacture and
overall business performance were:
 Reliability
 Maintainability
 Safety

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 LESSON 1.5
As the most important factors had been ignored, a few refinements had to be
introduced:
 Marketing had to carry out their work properly and define the customer’s
specifications.
 Specifications had to be defined to conform to these requirements.
 Conformance to specifications i.e. drawings, standards and other relevant
documents, were introduced during manufacturing, planning and control.
 Management had to confirm all operators are equal to the work imposed on
them and holidays, celebrations and disputes did not affect any of the quality
levels.
 Inspections and tests were carried out, and all components and materials,
bought in or otherwise, conformed to the specifications, and the measuring
equipment was accurate, this is the responsibility of the QA/QC department.
 Any complaints received from the customers were timorously and satisfactorily
dealt with.
 Feedback from the user/customer is used to review designs.
If the original specification does not reflect the correct quality requirements, quality
cannot be inspected or manufactured into the product.

For instance, all parameters for a pressure vessel should include not only the
material and dimensions but operating, environmental, safety, reliability and
maintainability requirements.

To conclude, the above forms the basis from which the philosophy of quality
assurance has evolved, and the achievement of quality or the “fitness-for-purpose”
is “quality awareness” throughout the company.

Total Quality Management (TQM) is a management strategy aimed at

embedding awareness of quality in all organisational processes. TQM has been
widely used in manufacturing, education, government, service industries, as well
as NASA space and science programmes.

As defined by the Deming Prize Committee of the Union of Japanese Scientists

and Engineers:

"TQM is a set of systematic activities carried out by the entire organisation to

effectively and efficiently achieve company objectives so as to provide products
and services with a level of quality that satisfies customers, at the appropriate time
and price."

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The Japanese have four steps for Total Quality Management:

1. Kaizen focuses on Continuous Process Improvement, to make processes

visible, repeatable and measureable.
2. Atarimae Hinshitsu focuses on intangible effects on processes and ways
to optimize and reduce their effects.
3. Kansei examines the way the user applies the product leads to
improvement in the product itself.
4. Miryokuteki Hinshisu broadens management concern beyond the
immediate product.

Total Quality Management was developed in the mid 1940s by Dr. W. Edwards
Deming, who at the time was an advisor in sampling at the Bureau of Census and
later became a professor of statistics at the New York University Graduate School
of Business Administration.

In 1984, the United States Department of the Navy Personnel Research and
Development Center began researching the use of statistical process control
(SPC), Ishikawa's Total Quality Control (TQC) and quality management methods
for potential benefit in making performance improvements. This work included a
detailed examination of the quality management approaches advocated by Philip
B. Crosby, W. Edwards Deming, and Joseph Juran.

Some say the name “Total Quality Management” (TQM) was first used by the
Department of the Navy in 1985 when they were starting to introduce the methods
that had been successful in the North Island test to other Naval installations. The
word "control" in Ishikawa's TQC wasn't good enough and was replaced by
"management". Xu stated in his paper, "The Making of TQM: History and Margins
of the Hi(gh)-Story" from 1994, that "Total Quality Control" is translated wrong from
Japanese since there is no difference between the words "control" and
"management" in Japanese.

Quality Assurance through statistical methods is a key component in a

manufacturing organization, where TQM generally starts by sampling a random
selection of the product. The sample can then be tested for things that matter most
to the end users. The causes of any failures are isolated, secondary measures of
the production process are designed, and then the causes of the failure are
corrected. The statistical distributions of important measurements are tracked.
When parts' measures drift into a defined "error band", the process is fixed.

The error band is usually a tighter distribution than the "failure band", so that the
production process is fixed before failing parts can be produced.
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 LESSON 1.5
It is important to record not just the measurement ranges, but what failures caused
them to be chosen. In that way, cheaper fixes can be substituted later (say, when
the product is redesigned) with no loss of quality. After TQM has been in use, it's
very common for parts to be redesigned so that critical measurements either
cease to exist, or become much wider.

It took people a while to develop tests to find emergent problems. One popular test
is a "life test" in which the sample product is operated until a part fails. Another
popular test is called "shake and bake", in which the product is mounted on a
vibrator in an environmental oven, and operated at progressively more extreme
vibration and temperatures until something fails. The failure is then isolated and
engineers design an improvement.

A commonly-discovered failure is for the product to disintegrate. If fasteners fail,

the improvements might be to use measured-tension nut drivers to ensure that
screws don't come off, or improved adhesives to ensure that parts remain glued.

If a gearbox wears out first, a typical engineering design improvement might be to

substitute a brushless stepper motor for a DC motor with a gearbox. The
improvement is that a stepper motor has no brushes or gears to wear out, so it
lasts ten times or more longer. The stepper motor is more expensive than a DC
motor, but cheaper than a DC motor combined with a gearbox. The electronics is
radically different, but equally expensive. One disadvantage might be that a
stepper motor can hum or whine, and usually needs noise-isolating mounts.

Often, a "TQM" product is cheaper to produce because of efficiency/performance

improvements and because there's no need to repair dead-on-arrival products,
which represents an immensely more desirable product.

THE SIX SIGMA QUALITY MANAGEMENT PROGRAMME

Six Sigma is a quality management programme that measures and improves the
operational performance of a company by identifying and correcting defects in
the company's processes and products.

Originally Six Sigma was defined as a process variation that would produce no
more than 3.4 defects per million parts or "opportunities." Today, however, Six
Sigma is applied to produce a product that satisfies the customer and minimizes
supplier losses to the point at which it is not cost effective to pursue a higher
quality.

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Six Sigma was pioneered at Motorola in the mid-1980s by Bob Galvin, who
succeeded his father and Motorola founder, Paul Galvin, as head of the company,
and by Motorola engineer Bill Smith. It was later picked up and followed by other
large companies such as AlliedSignal (now known as Honeywell) and finally
General Electric, who ultimately popularized the process. It has since spread to
many other large companies, including Ford, Caterpillar, Raytheon, Seagate
Technology, Microsoft, and many more.

Although Six Sigma is usually applied to manufacturing companies, it can be

applied wherever the control of variation is desired. In recent years, it has begun
to branch out into the service industry, and in 2000, Fort Wayne, Indiana became
the first city to implement the program in a city government. Some, claiming that
Six Sigma's impact has not yet been fully realized, advocate an open source
approach so that the principles of Six Sigma might be more widely adopted.

Why six standard deviation?

According to the graph of the standard normal distribution, only two billionths of
the normal curve falls beyond six standard deviations, in contrast to the value of
3.4 millionths publicized by Six Sigma promoters. Confusingly, that value
corresponds to precision within 4.5 standard deviations, reflecting an allowance for
a 1.5 standard deviation "drift" in the manufacturing or service process mean
value. Introduced by Mikey Harry around 1980, its magnitude was based on
observations and personal experience, not empirical data. It is used to account for
model inaccuracies, since defects in manufacturing processes do not always
correspond to the normal distribution. Instead, processes tend to drift with time,
causing the majority of error to fall on one side of the normal distribution and as a
result, a higher defect rate than 3.4 defects per million operations (DPMO) if no
shift were used. With Six Sigma methodology, however, if the process drifts by 1.5
standard deviations, the level of quality will remain within 3.4 DPMO.

Criticisms of Six Sigma

The 1.5 sigma shift assumption is not without its critics. Donald J. Wheeler, a
respected quality professional, labels it "goofy", arguing that it is misapplied in
practice and that it is probably inaccurate anyway. Often, implementers of Six
Sigma simply add 1.5 "sigmas" to their sigma calculation, transforming a 4.5 sigma
process (3.4 DPMO) into a 6.0 sigma process. But this reflects a
misunderstanding of the nature of the shift. If short-term data is used (data that
does not reflect potential process drift), 1.5 sigmas should be subtracted from the
final sigma calculation to account for the potential drift. Thus, achieving 3.4 DPMO
using short term data reflects a three sigma process, not six sigma, when used to
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 LESSON 1.5
reflect the long-term failure rate. Alternatively, if long-term data is used to make the
sigma calculations, the process drift will have already been accounted for, and no
additions or subtractions to the sigma calculation are necessary.

The other common objection is that the choice of a shift of 1.5 sigmas is too
arbitrary and probably inaccurate. Some suggest that the 1.5 sigma shift was
implemented for marketing reasons, so that the program could be named Six
Sigma instead of "4.5 Sigma" without setting the unrealistic goal of two defects per
billion. However, according to original training material used at Motorola in 1985,
the point at which a shift became detectable with a sample size of 4 was 1.5
standard deviations, suggesting that the number was not arbitrarily selected.

In practice, the principle of six standard deviations of quality between the upper
and lower specification limits is often not applied with mathematical rigor. Instead,
Six Sigma is seen as a methodology or mind-set with the goal of minimizing
defects. It is used in this way in non-manufacturing environments, where it serves
as an analogy to manufacturing processes and is not used for statistical
distributions. Similarly, the frequent misuse of the 1.5 shift assumption in
manufacturing processes is a reflection of a similar attitude in industrial
applications as well. Six Sigma is controversial with the statistics profession. Some
teachers of statistics are critical of the standard of statistical teaching found in Six
Sigma materials. Others object to the idea that a single universal standard can be
appropriate across all domains of application. They argue that quality standards
should be set on a case-by-case basis using decision theory or cost-benefit
analysis. Others suggest that Six Sigma, rather than being a true methodology, is
more often implemented to start an unending cycle of improvement and use of
better tools on the industry day to day practices rather than to use advanced
statistical theories that cannot be daily applied.

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STUDY AND RESEARCH

MANAGEMENT PRINCIPLES 4TH EDITION

Read Chapter 2 “The evolution of management theory”, pages 25-53.
MANAGEMENT PRINCIPLES 5TH EDITION
Read Chapter 2 “The evolution of management theory”, pages 27-53.

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 LESSON 1.5.1

LESSON 1.5.1
DEFEND THE USE OF DIFFERENT MANAGEMENT
THEORIES IN DIFFERENT ENVIRONMENTS

In this Lesson:

The application of management principles depends on the particular situation

that management faces at a given point in time. There is no single best way to
manage. Management must decide which principle or combination of
principles will work best.

CONCEPTS AND VOCABULARY TERMS YOU NEED TO UNDERSTAND:

 Utilisation: The optimum use of human capital and physical resources.

 Contingency: something whose occurrence depends on chance or uncertain
conditions.

Key points:
 Theories are shaped by environmental influences, which will be reflected in
different approaches at different times and in different situations.
 No one theory dominates the field of management. The eclectic approach is the
state of the art in management theory and practice today.
 Classical approaches form the foundation for management today, however they
are not without limitations. Contemporary approaches take the broader role of the
organisations and its environment into consideration.
 The application of management principles depends on the particular situation that
management faces at a given point in time. There is no single best way to
manage. Management must decide which principle or combination of principles will
work best.
 Every organisation exists in a unique environment with unique employees and
unique goals.
 Different yet potentially successful approaches may be available for the same
management problem. This is called equifinality – there is more than one way to
reach the same goal.

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Classical Theories
Emphasised technical aspects of work at
expense of personal aspects

Process/administrative Bureaucratic
Scientific approach
approach approach
Stressed the need for
Ways to improve
a strictly defined
performance of Planning and the
hierarchy governed by
FOCUS individual workers. organisation of people in the
clearly defined
Managing work – not workplace
regulations and
managing people
authority.
CONTRIBUTORS Gilbreth and Gantt. Henri Fayol Max Weber
Managers are being
compensated to do
People are not It postulates that formal what they are told to
LIMITATIONS machines but human authority should be do. Managers often
beings. maintained by managers. rewarded for
complying with
outdated rules.

1930 Early approaches challenged by depres- Social,

depression sion of 1930, and changes in economic, political,
Economical political, social and technological environ- technological
changes ments. changes

HR Approach Quantitative Theory

Employees are more motivated
by social needs than ‘Crunching numbers’.
FOCUS economic needs. Management science and
Workers viewed as human operations research
beings, not machines.

Mayo, Maslow, McGregor,

CONTRIBUTORS _
Hawthorne studies

The belief that a happy worker

is productive is too simplistic. Used mainly as tool or aid in
Economic aspects remain decision making as many
LIMITATIONS
important. Human aspects are aspects of management cannot
complex and many factors play be quantified
a role in productivity of workers.

Classical approaches provide foundation

for management and organisations as
they function today. Contemporary
approaches focus more on the broader
role of the organisation in its environment.
The roots of contemporary approaches lie
in classical approaches.

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 LESSON 1.5.1

STUDY AND RESEARCH

MANAGEMENT PRINCIPLES 4TH EDITION

Study 2.2 “Why study management theory”, page 28.
Study 2.3 “Understanding the different management theories”, pages 28-
30.
MANAGEMENT PRINCIPLES 5TH EDITION
Study 2.2 “Why study management theory”, pages 29-30.
Study 2.3 “Understanding the different management theories”, page 30.

The difference between average people and

achieving people is their perception of
and response to failure
- Dr John C Maxwell.

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 CHAPTER 1
THE NATURE OF MANAGEMENT

CONTINUES...

IN THIS CHAPTER:
 LESSON 1.6 : EXPLAIN THE IMPORTANCE OF UNDERSTANDING
THE BUSINESS ENVIRONMENT WHEN MAKING MANAGEMENT
DECISIONS
 LESSON 1.7 : EXPLAIN THE CONCEPT OF THE SYSTEMS
APPROACH IN MANAGEMENT
 LESSON 1.8 : EXPLAIN MACRO-, MICRO- AND MARKET
ENVIRONMENT AND THE VARIABLES THAT COMPRISE EACH OF
THESE.

 LESSON 1.9 : PREPARING FOR ENVIRONMENTAL CHANGE

AT THE END OF THIS CHAPTER YOU WILL BE ABLE TO:

 Explain the concepts Macro-, micro- and market environment and the variables
that comprise each of these.
 Explain the importance of understanding the business environment when making
management decisions.
 Explain the concepts of the systems approach in management.
 Propose ways in which management can prepare for environmental change.
 LESSON 1.6
LESSON 1.6
THE IMPORTANCE OF UNDERSTANDING THE BUSINESS
ENVIRONMENT WHEN MAKING MANAGEMENT DECISIONS

In this Lesson:

It has always been important for a business to know and understand

how it fits in and interacts with the surrounding environment on both an
internal (office/factory/shop environment) and external view (how your
business operates with the outside world).

Researching your environment will benefit the management team by putting

them in a position to develop a strategy for both the long and short term.

CONCEPTS AND VOCABULARY TERMS YOU NEED TO UNDERSTAND:

 Paradigm: way of thinking.

Key points:
 Over the past decade, South African management environment has changed at a
fast pace, with political transformation the driver of change.
 A changing environment holds threats and opportunities.
 Variables in the environment will impact the way in which an organisation is
managed.
 Neither the organisation nor the environment is a self-supporting, closed system,
but each depends on each other for its continued existence.

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IMPACT OF VARIABLES

Economic variables: the fluctuating rand, the rise in energy and raw material cost,
high economic growth, punitive labour laws, low productivity.

High crime levels: impact negatively on businesses as sales revenue is spent on

crime prevention. It causes high cost of security, theft, insurance and fraud.
Foreign investors are hesitant to invest in SA.

Political dispensation: Management is under pressure to adopt Afro-centric

management philosophies, to empower previously disadvantaged people by
complying with the Employment Equity Act and economical empowerment.

Influx of illegal foreigners: this puts further pressure on the deteriorating health,
education, transport and municipal services.

An organisation cannot be managed effectively if the relationship between the

organisation and the environment with its threats and opportunities are not
understood.
 Environmental variances that influence the organisation must be classified to
identify trends.
 Three environments that managers must understand e.g. micro-, market- and
macro environments. Each has its own variables.
 All variables create opportunities and threats. Management’s decisions influence
the market environment through the strategies it applies.

CHARACTERISTICS OF THE BUSINESS ENVIRONMENT

The following characteristics stress how important it is for management to

understand and have knowledge of the environment in which the organisation
operates:
 Interrelatedness of environmental factors of variables;
 Increasing instability;
 Environmental uncertainty;
 Complexity of the environment;
 The environment is becoming unpredictable.

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STUDY AND RESEARCH

MANAGEMENT PRINCIPLES 4TH EDITION

Read Chapter 3 “Managing in a changing environment”, pages 55-78.
MANAGEMENT PRINCIPLES 5TH EDITION
Read Chapter 3 “Managing in a changing environment”, pages 57-82.

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 NOTES:

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 LESSON 1.7
LESSON 1.7
THE CONCEPT OF THE SYSTEMS APPROACH
IN MANAGEMENT

In this Lesson:

The systems approach to management is a concept which views a

company as an interconnected purposive system that consists of several
business sections. It is a management approach which enables the leadership
to see the company as a unified part or a major section of the larger outside
corporate environment. Even a small activity in a part has a substantial effect
on other sections in the company. Such a system may be biological, physical
or social; and may enable the management to efficiently determine the long-
term goals of the company. The systems approach states that for realising the
operations of an entity, it is essential to see the entity as a complete system.

CONCEPTS AND VOCABULARY TERMS YOU NEED TO UNDERSTAND:

 System: a set of interrelated elements functioning as a whole.

 Open system: a system is open if:
 it is dependent on the environment in which it operates
 the environment is dependent on the system
 there is a specific interaction between system and environment
 Sub-system: a system within a system.
 Synergy: The whole is greater than the sum of its parts, or individual efforts
are simultaneously applied in such a way that the result of the simultaneous
application is greater than the sum of the individual efforts.
 Entropy: The process of systems disintegration (the opposite of synergy)

Key points:

 Concepts from the theory of systems are used to explain the interdependence
between the business organisation and its environment.
 A business organisation is a system that operates in a specific environment.
 A business obtains inputs from the environment (e.g. labour, raw materials,
knowledge and expertise). Inputs are transformed into outputs (e.g. products,
services).

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 According to systems approach, management must combine viewpoints of various
sub-systems so that the overall goal of the system as a whole can be obtained.
 The functions of management should be seen as interdependent components that
complement each other (synergy).

Smith et al. (2008:39) points out that the systems approach to management views
an organisation as a group of interrelated parts with a single purpose: to remain in
balance (equilibrium). The action of one part influences the other parts and causes
imbalances.

Characteristics of a system:

 A system is complex: each aspect of the business must be dealt with differently.
 A system can be opened or closed: a system is open if:
 it is dependent on the environment in which it operates;
 the environment is dependent on the system;
 there is a specific interaction between system and environment.
 A system strives for equilibrium.
 A system strives towards achieving a multiplicity of goals.

Managers therefore cannot deal separately with individual parts: they should view
the organisation as a whole and should anticipate the effect of their decisions on
the other parts of the organisation.

From a systems point of view, management should maintain a balance between

the various parts of the organisation as well as between the organisation and its
environment.

Which leads us to lesson 1.8. The macro-, market-, and micro-environments and
the variables that comprises each of these.

STUDY AND RESEARCH

MANAGEMENT PRINCIPLES 4TH EDITION

Study 3.2 “Concepts of systems theory”, pages 57-59.
MANAGEMENT PRINCIPLES 5TH EDITION
Study 3.2 “Concepts of systems theory”, pages 61-63.

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LESSON 1.8
THE MACRO-, MICRO- AND MARKET ENVIRONMENT
AND THE VARIABLES THAT COMPRISE EACH OF THESE.

In this Lesson:
Nieuwenhuizen & Oosthuizen (2010:8) points out that the business
environment comprises everything that can affect the establishment’s
growth and survival positively or negatively and therefore influences the
achievement of the organisation’s objectives.
The business environment present opportunities and threats to the
organisation and is continuously changing. This means that the environment in
which the organisation operates is dynamic and that the organisation needs to
adapt in order to maximize its performance and competitiveness.

It is necessary to classify the numerous variables that influence the

organisation. This will enable us to identify certain trends for future analysis in
each section or sub-environment.

CONCEPTS AND VOCABULARY TERMS YOU NEED TO UNDERSTAND:

 Competition (as a variable in the market environment): a situation in the

market environment in which different organisations with more or less the
same product or service compete for the business patronage of the same
consumers.
 Micro-environment: factors or elements in an organisation’s immediate area
of operations that affects its performance and decision making freedom.
These factors include competitors, customers, distribution channels, suppliers
and the general public.
 Market or task environment: the environment that immediately surrounds
the organisation.
 Macro-environment: major and uncontrollable external factors that influence
an organisation’s decision making, and affect its performance and strategies.
Include economic, demographic, social, legal and political conditions,
technological changes and natural forces.
 Technology: the practical application of knowledge especially in a particular
area.

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Understanding the business environment in which the business operates is a very
important aspect of business management. It encapsulates many different
influences and the difficulty is making sense of this complexity, which arises
because the micro, market and macro environments and their variable are
interdependent. For example, a rise in the interest rate will have an influence on
the cost of capital, meaning it will be more expensive to borrow money from the
bank to buy an office building or machinery. Figure 1.8 below illustrates the
different layers of the business environment.

Figure 1.8 The different layers of the business environment.

The macro-environment consists of broad environmental factors that impact to a

greater or lesser degree on organisations. Having identified the key drivers of
change from the broad data, possible scenarios can be drawn which will help the
organisation to draw up its strategy.

The next layer is called an industry or sector. This is a group of organisations

producing the same products or services. A useful framework for analysing an
industry is Porter’s Five Forces Framework, which we are going to discuss in the
next part of this lesson.

The layer adjacent to the organisation itself is its competitors and markets. Within
most industries or sectors, there will be many different organisations with different
characteristics and competing on different bases. The concept of strategic groups
can help with the identification of both direct and indirect competitors. Competitor
analysis allows companies to identify and understand its competitors. Furthermore,
customers’ expectations are not all the same.
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They have a range of different requirements, which can be understood through the
use of market segments and critical success factors.

Understanding how such factors might impact on and drive change in general is
only the starting point. Managers need to understand the key drivers of change and
also the differential impact of these external influences and drivers on particular
industries, markets and individual organisations. It is worthwhile assessing which
factors are the most important at the present time and which will be over the
coming years. It is particularly important that the future impact is assessed and fully
understood.

MACRO-ENVIRONMENT (EXTERNAL)
The macro environment include the PESTLE variables. These are factors over
which management have no control. Variables in this environment have a direct as
well as indirect influence on the organisation. Uncontrollable environmental forces
or ‘megatrends’ are represented here. Economic conditions like inflation, interest
rates, fluctuations in the economy and the growth rate of the economy influence the
level of consumer spending and consequently the performance of the business
sector. Other important factors in this environment include risk, labour legislation
and tax laws, BBBEE legislation, business cycles, exchange value of our currency,
degrees of competitiveness, demand and supply, government and support
structures etc.

The external, macro environment consists of the following factors, which are
uncontrollable as far as the organisation is concerned. They all create opportunities
and threats for an organisation.
The different variables are as follows:
 Political environment
 Economic environment
 Socio-cultural environment
 Technological environment
 Legal environment
 Ecological/physical environment
 International environment

Political environment (The state of government and public affairs in general)

The political and legal environment consists of the government and its political
programmes and policies. They include the laws of the country at all levels of
government. Many laws affect particular industries and impact on the management
of organisations in those industries. Management decisions are affected by politics.

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Governments influence the organisation’s market both internally (government
expenditure) and externally (political policy). Managers must be aware of the
activities, legislation, and measures of the government as well as political trends.
 Political stability (for example Zimbabwe and Argentina)
 Elections
 A good example is the legislation preventing advertising of tobacco products
and the huge impact it had on the way cigarette companies now function.

Economical environment (Relating to trade, industry and the creation of wealth)

The economic environment consists of factors such as inflation and interest rates,
monetary and fiscal policies, foreign exchange rates and national economic growth
rates. The Economic environment also include the growth rate, levels of
employment, consumer income, the rate of inflation, the exchange rate. These
forces result in prosperity or adversity. The economic environment is also
influenced by crime, social and technological trends. It is important that
management be vigilant about economic trends and the mission, goals and
strategy of the organisation must be reviewed regularly.
 Exchange rates
 Unemployment
 Inflation
 Tax laws
 A good example is the change in the value of a currency that can make an
important impact on the enterprise like Zimbabwe.

Socio-cultural (Relating to matters governed by common law and factors

dictating behaviour and responses.) The social- and cultural environment includes
issues such as demography, lifestyles value and the need for satisfactory
education, health and housing. This environment is most sensitive to cross-
influences especially technology and economy. Culture also influences
organisations. The HIV/AIDS epidemic and poverty cause changes in the
environment. Management cannot ignore these social influences.

 Social norms
 Concern for health and physical well being
 Cultural diversity – interaction and barriers
 Family structures
 The large unemployment levels in South Africa create pressures in all these areas.
Crime and corruption and HIV/ AIDS affect all of us in some way.

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Technological environment (The scientific study and use of applied science.)
Technology is involved in every process of the business, form manufacturing,
marketing and managing. Technology affects the ability to compete in a market. It
has strategic implications for organisations as well as industries.
It is important that management keep abreast of technological change.
The technological environment for most organisations, are changing rapidly. It
creates opportunities for product and process innovation.
 Speed of development
 Diversity: networks, satellite, TV, radio, CD’s, on-line services
 Cost implications
 Cell phone technology that changes constantly

Ecological/physical environment (Natural / environmental concerns)

The ecological environment consists of natural resources and geographic
and climatic conditions. This environment contains natural resources and receives
waste, which form pollution. Managers must be aware of shortage of resources,
cost of energy, cost of pollution, damage to natural resources.
Managers in agriculture must be aware of temperatures and their influence on
resources and food production.

 Cost implications
 Public opinion
 Sites and locations
 The rise in temperatures can have an impact on an organisation.

International environment

The international environment includes such issues as multinational companies,

competitors who open facilities in South Africa, legislation, economic conditions
and political trends and events. Businesses that operate internationally are in a
complex environment as each country has its own unique environmental factors.
South Africa’s re-admission to international markets offers managers many
opportunities. Management must constantly assess possible global threats to their
products and markets.

 Cheap imports from China threaten many industries and companies such as the
textile industry in South Africa.

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THE MARKET OR TASK ENVIRONMENT
The market environment refers to the variables directly outside the organisation
that might have a positive or negative influence on the organisation. This
environment consists of the market, suppliers, intermediaries, competitors,
substitute products, possible new entrants, and labour unions.
It contains those variables that revolve around competition an pose threats or
create opportunities for organisations.

The variables are as follows:

Market – consists of people who have needs that they want to satisfy, and the
financial means to satisfy these needs. Consumer purchasing behaviour is
influenced by consumer needs, purchasing power, purchasing behaviour. These
aspects are influenced by variables in the macro-environment e.g. demographic
trends, economic factors and cultural values.
Suppliers – they provide the materials, capital or labour that is used as input, and
are converted into outputs, or products and services. The inputs must be of the
right quality, quantity and price.
Intermediaries –They bridge the gap between the manufacturer and the
consumer. Examples of intermediaries are wholesalers, retailers, agents, brokers,
banks, insurers.
Competitors – the actual quantity of a particular product, as also the price levels of
the product, are often determined by competitors, and not consumers.
Competition sees to it that prices of products do not become too high, it provides
an incentive for higher productivity and it encourages new technology to be
discovered. The consumer benefits from competition.

The intensity and nature of competition are determined by five forces (see fig 3.3
on page 67 of your Management Principles text book, 4th Edition or if you are
using the 5th edition text book, see page 71).

TO EXPLAIN THE VARIABLES IN A DIFFERENT WAY TO YOU.

The market or task environment consists of the following factors, which can be
influenced by management strategies:
 The organisation’s markets, which could be businesses or consumers, who need
products and services from your organisation. Each of these have unique buying
processes, behaviour, needs and attitudes. Extensive market research is frequently
needed to evaluate these issues.
 The organisation's suppliers of resources.
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 The organisation's competitors who compete for resources and customers in the
marketplace. Why do our competitors take business from your organisation? Why
do you take business from them?
 The organisation's intermediaries who distribute the organisation's products and
services to the markets.
 Some authors believe that the shareholders are also part of this environment. In
the case of a public company, which is listed on the Stock Exchange, this would be
correct because most of the shareholders are anonymous as far as company
management is concerned.
 An organisation could have strategic allies or partners, either in South Africa or
abroad.

THE MICRO-ENVIRONMENT

Management organises, plans, leads and controls the activities of the organisation.
Different levels of management operate in this environment and strive to create
synergy between various goals.

Please refer to the variables – see figure 3.2, The Composition of the Management
Environment, page 60 of your prescribed, Management Principles text book, 4th
Edition or if you are using the 5th edition text book, see page 64.

The micro-environment consists of the following participants and elements in the

organisation itself. All of these are under the control of the management of the
organisation:
 The mission and goals of the organisation.
 Organisational culture which is the set of values that helps everyone understand
what the organisation stands for, how it operates, and what is important.
 The organisation and its management.
 The resources of the organisation e.g.
Human Resources, including:
 The board of directors, who decide the overall policies and strategies the company
will adopt.
 The managers, who decide how they are going to run the company in terms of
resource acquisition and use.
 The employees e.g. sales staff whom, together with the managers, are responsible
for achieving the organisation's objectives.

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Physical Resources, including:
 Buildings,
 Equipment
 Warehouses
 Inventories
 Services- and distribution facilities
To be competitive, these resources must be:
 strategically located,
 be productive,
 be low in operating costs,
 be effective distributors and
 make the proper product or service.

Financial Resources, including:

 cash flow
 debt capacity
 new equity available.

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STUDY AND RESEARCH

MANAGEMENT PRINCIPLES 4TH EDITION

Read Chapter 3 “Managing in a changing environment”, pages 55-78.
Study 3.3 “The composition of the management/business environment”,
pages 59-63.
Study 3.4 “The internal or micro-environment”, page 63.
Study 3.5 “The market or task environment”, pages 63-67.
Study 3.6 “The macro-environment”, pages 67-74.
MANAGEMENT PRINCIPLES 5TH EDITION
Read Chapter 3 “Managing in a changing environment”, pages 57-82.
Study 3.3 “The composition of the management/business environment”,
pages 63-66.
Study 3.4 “The internal or micro-environment”, pages 66-67.
Study 3.5 “The market or task environment”, pages 67-71.
Study 3.6 “The macro-environment”, pages 71-78.

INTRODUCTION TO BUSINESS MANAGEMENT 8TH EDITION

Read Chapter 4 “The Business Environment”, pages 100-134.
INTRODUCTION TO BUSINESS MANAGEMENT 9TH EDITION
Read Chapter 4 “The Business Environment”, pages 101-133.

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 NOTES:

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 LESSON 1.9
LESSON 1.9
PREPARING FOR
ENVIRONMENTAL CHANGE

In this Lesson:

The rapid and discontinuous change that is taking place in the

environment has a direct impact on the way that businesses are being
managed. Managers are finding that old, proven recipes for success and
specialised routines are no longer effective and it is necessary to adopt new
approaches to management.

CONCEPTS AND VOCABULARY TERMS YOU NEED TO UNDERSTAND:

 Environmental scanning: a process of gathering, analysing, and dispensing

information for tactical or strategic purposes.
 Strategic responses: Responding to information by making strategic
changes or plans.

SA is a country which is undergoing rapid and unprecedented changes,

where many of the old structures (both economic and social)
have been swept away in a turbulence of post-apartheid adjustments.
What is true in South African business today,
may not be true tomorrow.

Key points:
 Concepts from the theory of systems are used to explain the interdependence
between the business organisation and its environment.
 A business organisation is a system that operates in a specific environment.
 A business obtains inputs from the environment (e.g. labour, raw materials,
knowledge and expertise). Inputs are transformed into outputs (e.g. products,
services).
 According to systems approach, management must combine viewpoints of various
sub-systems so that the overall goal of system as a whole can be obtained.
 The functions of management should be seen as interdependent components that
complement each other. (synergy).

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We have learnt in a previous lesson that because an organisation is an open
system, there are certain relations between it and the various dimensions of the
management environment. In this lesson we examine how the environment
influences the organisation and how the organisation reacts to it.

Organisations operating in a changing environment usually experience constant

pressure to adapt their products and services to meet the demands of their
customers and their new preferences.

Hellriegel et al. (2008:217) points out that an organisation that provides good and
services in environment with slow technological innovation and relatively few
competitors (stable environments) has different problems than those of an
organisation who operates in a growing, changing, and highly competitive market
with a lot of uncertainty (changing environments).

We have learnt in the previous lesson that the competitive forces (customers,
competitors, suppliers, new entrants, and substitute goods and services) dictate
the type and amount of information that managers need in order to make decisions.

Most organisations operate in both stable and changing environments and as a

result some functions may undergo little structural change whereas others may
change considerably.

Uncertainty in the environment

Smith et al. (2008:75) points out that an organisation’s environment can be studied
from two perspectives, namely the extent of change and the level of complexity.

The extent of change refers to the degree of stability or instability of the

environment.

Complexity of the environment depends on the number of variables, resulting in

either a complex or simple environment. Interaction between these two dimensions
determines the level of uncertainty that the environment holds for the organisation.

Stable environment
A stable environment is characterized by a few changes. The changes that do
occur have minimal impact on the organisation’s internal operations. In a stable
environment top management can easily keep track of trends and what’s
happening in the business.

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According to Hellriegel et al. (2008:217) a stable environment is reflected in:
 products that haven’t changed much in recent years;
 little technological innovation;
 a fixed set of competitors, customers, and other stakeholders; and
 consistent policies from government.

Changing environment
Change is a difficult concept to define. According to Smit et al. (2008:74-75) it
means changing a state of stability top one of instability, moving from the
predictable to the unpredictable, or from the known to the unknown. It is
immeasurable and causes uncertainty. Hellriegel et al. (2008:217) points out that a
changing environment is unpredictable because of frequent shifts in products,
technology, competitors, markets, and/or political forces. Changes are the norm,
rather than the exception. Have you ever hear the expression: “the only thing
constant is change”?

A changing environment is reflected in:

 products that are continuously changing or evolving;
 significant technological innovations that make production processes or equipment
obsolete;
 sets and/or actions of competitors, customers, or other stakeholders that change
continually; and
 government actions that reflect the current level of political clout wielding by
various interest groups for consumer protection, product safety, pollution control,
and civil rights. (Hellriegel et al. (2008:218))

Smith et al (2008:76) states that insights into trends in the management/business

environment and the ability to predicts their implications for decision-making are
becoming management priority. The extent to which the environment influences
the management of the organisation depends of the type of organisation and the
nature of the environment.

The responses to the changes in the environment revolve around two main
aspects namely: environmental scanning and information management.

According to Smith et al (2008:76) if an organisation is to have knowledge of the

environment for decision-making purposes, its information management system
should make adequate provision for environmental scanning.

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STUDY AND RESEARCH

MANAGEMENT PRINCIPLES 4TH EDITION

Study 3.7 “Interfaces between the organisation and the environment ”,
pages 74-76.
Study 3.8 “Ways in which management can prepare for environmental
changes”, pages 76-77.
MANAGEMENT PRINCIPLES 5TH EDITION
Study 3.7 “Interfaces between the organisation and the environment ”,
pages 78-81.
Study 3.8 “Ways in which management can prepare for environmental
changes”, pages 81-82.

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 CHAPTER 2
PLANNING

STRATEGIC PLANNING

IN THIS CHAPTER:
 LESSON 2.1 : STRATEGIC PLANNING
 LESSON 2.2 : STRATEGIC PLANNING IN THE HIERARCHY OF
ORGANISATIONAL PLANS
 LESSON 2.3 : THE PROCESS TO FOLLOW WHEN DEVELOPING A
STRATEGIC PLAN.
 LESSON 2.4 : THE COMPONENTS OF A STRATEGIC PLAN
 LESSON 2.5 : DIFFERENT APPROACHES, TOOLS AND
TECHNIQUES IN STRATEGIC PLANNING
 LESSON 2.6 : DECIDING ON STRATEGIES

AT THE END OF THIS CHAPTER YOU WILL BE ABLE TO:

1. Explain what strategic planning encompasses
2. Defend the importance of strategic planning in the hierarchy of organisational
plans
3. Explain the process to be followed in order to create a strategic plan
4. Explain each component that should be dealt with in a strategic plan
5. Recommend different approaches, tools and techniques that can be used when
formulating a strategic plan
6. Compile a strategic plan
 LESSON 2.1
LESSON 2.1
STRATEGIC PLANNING

In this Lesson:
Strategic planning is an organisation's process of defining its strategy,
or direction. To do this management need to make decisions on
allocating its resources to pursue this strategy, including its capital and
people. Various business analysis techniques can be used in strategic
planning.
Strategic planning is the formal consideration of an organisation's future
course. All strategic planning deals with at least one of three key questions:
 "What do we do?"
 "For whom do we do it?"
 "How do we excel?"

CONCEPTS AND VOCABULARY TERMS YOU NEED TO UNDERSTAND:

 External environmental assessment: involves studying the strategies and

moves of rival firms towards assessing the opportunities and threats for an
organisation.
 Corporate combinations: alliance of a company and one or more
incorporated or unincorporated businesses into a single accounting entity that
then carries on the activities of the separate entities.
 Decline strategy: A product form has reached this stage when it becomes
clear the market is no longer able to sustain itself. In organisations it refers to
the selling off of assets or divisions, resulting in job-losses.
 Differentiation strategy: Approach under which a firm aims to develop and
market unique products for different customer segments.
 Financial ratios: is a relative magnitude of two selected numerical values
taken from an enterprise's financial statements. Often used in accounting,
there are many standard ratios used to try to evaluate the overall financial
condition of a corporation or other organisation. Ratios may be expressed as
a decimal value, such as 0.10, or given as an equivalent percentage value,
such as 10%. Some ratios are usually quoted as percentages, especially
ratios that are usually or always less than 1, such as earnings yield, while
others are usually quoted as decimal numbers, especially ratios that are
usually more than 1, such as P/E ratio; these latter are also called multiples.

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Key points:
 Strategic planning is an organisation's process of defining its strategy, or direction,
and making decisions on allocating its resources (including capital and people) to
pursue this strategy.
 Strategic planning is mostly done by top management. Its an on-going, long-term
planning process to reach the main objectives of the organisation by formulating
and implementing broad, long term plans. In doing this, many factors are taken into
account such as:
 values, norms and philosophy;
 the strong and weak points;
 internal and external environments of the organisation.
 The focus is on the changing future and changes in the external environment. The
question that must be answered when planning strategically is: “How can we
change our current processes and practices to prepare for a better future?”
 Strategic planning has some unique characteristics, such as being future-
orientated, integrating management functions, on-going activity.

Planning is the starting point of the management process.

Du toit et al. (2012:176-177) identifies the following benefits of planning:
 planning provides direction;
 planning reduces the impacts of change;
 planning promotes co-ordination;
 planning ensures cohesion;
 planning facilitates control.

Strategic Planning
Long-term, high-level planning, consisting of:
 Clarifying the company’s vision
 Setting the company’s mission and establishing the objectives that need to be
attained in order to accomplish it.
 Determining strategies, which are the methods used to achieve those
objectives.
Operational Planning
Short-term planning involving daily operations and instructions according to set
objectives. Operational planning is needed to carry out the strategic plans and
operate the business. It sets:
 Policies and procedures
 Standards and methods
 Budgets

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THE ROLE OF STRATEGIC PLANNING

Planning is the starting point of the management process. Strategic planning is

perhaps the most important type of planning that owners and managers of small
business must do, for a strategic plan is the major, comprehensive, long-term plan
that determines the nature of the business. Unfortunately, only about a third of
small firms use long-range strategic planning.

Strategic planning consists of two parts:

A. The organisation's mission and objectives and
B. Its strategies.

A. Mission and objectives

Organisations must plan ahead for varying lengths of time into the future.

The mission is a long-range vision of what the business is trying to become. It is

concerned with broad concepts such as the firm's image, with the basic services
the firm plans to perform e.g. "entertainment'' instead of just "movies", and with
long-term financial success. Once set, missions are rarely revised.
A clear definition of your mission enables you to design results-oriented objectives
and strategies. To deviate from your true mission can have adverse results.

It may happen that a company deviates from their original mission that promised to
provide quality products, but as business progresses, they start importing lower
quality products to decrease cost and increase profits, and the promise in the
mission is no longer fulfilled.

EXAMPLES OF STRATEGIC PLANNING ACTIVITIES:

1. Selection of the type of business to enter.

2. Formulating the mission of the company.
3. Deciding whether to start a new business, buy an existing one, or buy a
franchise.
4. Choosing the product or service to sell.
5. Decision on the market niche to exploit.
6. Selection of the location for the business.
7. Choosing the type of organisation to use.
8. Determination of financial needs.

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Objectives are the goals that give shorter-term direction to the business and
serves as benchmark for measuring performance. Meeting of these objectives
leads to the accomplishment of the mission.

Formulating the mission and objectives for a small business involves three
important considerations: (we have discussed these considerations in the previous
chapter)
 The organisation’s external environment;
 The market or task environment;
 The micro or internal environment (resources) that gives it a competitive edge.

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STUDY AND RESEARCH

MANAGEMENT PRINCIPLES 4TH EDITION

Study 4.1 “Introduction”, pages 81-84.
MANAGEMENT PRINCIPLES 5TH EDITION
Study 4.1 “Introduction”, pages 90-91.

INTRODUCTION TO BUSINESS MANAGEMENT 8TH EDITION

Read Chapter 6 “Planning”, pages 173-189.
INTRODUCTION TO BUSINESS MANAGEMENT 9TH EDITION
Read Chapter 7 “Planning”, pages 189-206.

As you climb the ladder of success,

occasionally check to make sure
it is leaning against the right wall.

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LESSON 2.2
STRATEGIC PLANNING IN THE HIERARCHY OF
ORGANISATIONAL PLANS

In this Lesson:

An institution must have a clearly defined purpose or mission statement

appropriate to its hierarchical structure. Hellreigel et al. (2008:71) defines
strategic planning as the process of:
 analysing the organisation’s external and internal environments;
 developing a vision and a mission;
 formulating overall goals;
 identifying general strategies to be pursued; and
 allocating resources to achieve the organisation’s goals.

The overall purpose of strategic planning is to deal with environmental

opportunities and threats as they relate to the organisation’s strengths and
weaknesses. Top managers develop strategic plans in order to achieve the
organisation’s strategic goals. These plans focus on the organisation as a
whole and not on a specific function or operation, although the ultimate aim is
to create synergy.

CONCEPTS AND VOCABULARY TERMS YOU NEED TO UNDERSTAND:

 Business strategy: this strategy determines how best to compete in a
particular industry or market.
 Functional level strategy: is a plan of action to strengthen an organisation's
functional and organisational resources, as well as its coordination abilities, in
order to create core competencies.
 Tactical planning: A continuous process where people make decisions about
projects and activities in support of strategic plans. It must be decided how
outcomes are to be accomplished, what products will be produced, how
success is measured.
 Operational planning: a subset of strategic work plan. It describes short-
term ways of achieving milestones and explains how, or what portion of, a
strategic plan will be put into operation during a given operational period.

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Key points:
 Top management formulates strategic plans, and middle- and lower management
have to put the plans into action.
 Middle- and lower management perform tactical and operational planning.
 Strategic planning takes place at corporate and also business level.
 The business strategy is concerned with the strategies for each unit or business
within a corporation. Each business has its own strategy.
 Each functional level strategy states the goals that functional managers developed,
to help the business achieve its goals.
 There should be consistency of strategies across all three levels.

THE SETTING AND USE OF OBJECTIVES

Some of the aspects of managing in an organisation:

 The importance of satisfying the needs of the customers, employees and shareholders.
 The responsibility of a manager at different levels in organisations.
 The different functional areas in an organisation.
 The need for managers to reach the correct results and use the minimum of
 resources to achieve them.
 The management process.

Each of these requires you to set an objective of some type and make a plan to
reach it. It may be a written plan, shared with many people, or something you keep
in your head and do by yourself. Either way, you are working to achieve something.

NEED FOR OBJECTIVES AND GOALS IN AN ORGANISATION

The term ‘goal’ indicates a long term, say three year, result for which one aims.
The word ‘objective’ is a short term, specifically stated, measurable result that one
intends to reach. The objectives keep you on the path towards the longer-term
goal.

Advantages of good objectives:

 Clear goals and objectives provide direction and unity of purpose in an
organisation. Everyone knows where the organisation is heading and why.
 Clear objectives help improve the planning process. Individuals and
departments know precisely what has to be done to achieve the objectives.
 Good objectives can motivate individuals. If appropriate rewards are available
for their achievement, employees will be more motivated to work towards achieving
objectives.
 Good objectives help with the control process. Achievements are analysed to
measure performance.

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 Objectives are needed to provide focus. Unless you have a clear focus on what
you have to achieve and when, nothing will happen. A team will achieve the
objectives, because they are focused.

CHARACTERISTICS OF GOALS AND OBJECTIVES

Goals and objectives are set at the top levels in an organisation and then at
department, section and individual level. At the higher levels the goals are less
specific and detailed, though still stated in quantitative terms. The further down the
organisation they are set, the more detailed they become. This process is called
the hierarchy of objectives.
Regardless of your level in the organisation, or functional department in which you
work, useful objectives have the following characteristics:
 The objectives or results to be achieved must be stated clearly.
 They must be measurable, so that achievement can be verified at the end of the
period.
 Indicate time, quantity, quality, and cost where possible. Also state how and when
performance will be measured and reported.
 Objectives must be challenging in order to motivate a person to try to achieve
them. They must not, however, be unrealistically high, or else a person will not
even try to achieve them.
 The objectives for individuals and departments must be communicated to
everyone who may need to be aware of them.
 Objectives must always be stated in order of priority to enable a clear focus to be
placed on them. Focus is a critical issue in objective setting and planning, because
time and resources must be used efficiently.
 Objectives must be limited to a manageable and achievable few.
 The objectives must be coordinated and consistent with your superior’s objectives,
and with those of your subordinates.
 Each objective should be written clearly to ensure complete understanding by
every person.
 Objectives must be realistic for which information is needed. This information is
obtained from the three environments.

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Let’s revise these three environments:
1. The micro-environment refers to aspects such as the enterprise’s objectives,
rules, regulations, policy, budget, decisions, plans and organisation structure.
2. The market environment refers to the interaction that takes place between your
business and its immediate environment. The immediate environment includes the
consumers and their needs, suppliers and creditors, staff and your competitors in
the market.
3. The macro-environment refers to the economic, political, social, technological
and ecological factors in the environment. They are environmental variables that
cannot be controlled by the organisation. The macro environment can either have
a favourable or adverse effect on the enterprise or organisation.

THE OBJECTIVE SETTING PROCESS

Different organisations have different objectives. For example: charitable

organisations strive to achieve objectives related to their different charitable
missions. Government organisations exist to provide one or more services, and
their objectives are thus linked to service delivery.

According to Ford and Le Roux (2008:35) the average business strives to achieve
two common objectives namely: survival and prosperity. These broad strategic
objectives will entail more specific business objective. In a commercial business,
the directors have to achieve a balance between the primary objectives of survival
and prosperity. There is certainly no point in surviving forever if they are not making
a profit, or being immensely profitable if it is not sustainable.

Businesses also need to balance their economic objectives of survival and profit
against the needs and interests of the community at large. These include issues
such as paying employees a fair wage, limiting pollution etc. Maintaining this
balance is part of what we refer to as corporate governance.

Ford and Le Roux (2008:35) points out that all organisations need to set objectives
at each of the different levels, so that every member of staff knows what they are
required to be working towards. The directors identify what each department must
contribute for the overall strategic objectives to be achieved, and then provide each
department with a set of departmental business objectives.

The traditional process of setting objectives uses a top-down approach. Top

managers tell the middle managers what the objectives are. From this level the
objectives are progressively broken down into sub-objectives that are given to
people.

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This approach is justified on the basis that top managers know what is happening
in the organisation and what must be done. It is vertical downward communication
only. It leaves no doubt in anyone’s mind what must be done. Some managers and
other employees may like this managerial style, but many people do not want to
“be told what to do”. They want to participate in the process.

The newer approach is to set objectives using a top-down bottom-up method. With
this approach, top managers set guidelines for what must be achieved and expect
input from the lower levels about the detail and process of achievement. This is a
participative management style, using vertical communications in both directions. It
helps achieve vertical alignment in the organisation. Communication will take
longer, but a greater commitment to achieving the desired objectives results.

Planning is that aspect of management in which you determine in advance what

you want to achieve with your business and how you want to achieve it. When you
plan, you draw up objectives for your business, and work out a systematic plan for
achieving these objectives.

Planning is needed for each level and functional area for the following reasons:
 It gives direction and focus to each functional department in an organisation.
 It forces people to think before acting. Resources must be used efficiently to
achieve the desired results.
 It encourages managers to analyse changes in the macro and market
environments and to plan to take them into account.
 When an organisation plans together, its people begin to understand each other’s
business and operational problems. They also develop a better appreciation of the
business as a whole. This is the system approach being applied in practice.
 Planning together improves the horizontal communication and coordination
between sections and departments when the plans are implemented.
 Good plans help reduce waste of time and materials. It makes the organisation
more effective and efficient.
 The standards of performance and objectives set at the planning stage are used in
the controlling stage to ensure the company is “on track” towards achieving its
results.

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THE LEVELS OF PLANS IN AN ORGANISATION

We have learnt thus far that planning determines in advance what the organisation
wants to achieve in terms of their objectives and what should be done to achieve
these objectives.

Different types of planning are done at different levels of management.

Top managers, who are responsible for the performance of the whole
organisation, make strategic plans. They develop the longer- term goals and
strategies to reach them. The goals and strategies must focus on the needs of the
customers, employees and shareholders. These plans have a time-span of three to
ten years or longer. Ferreira et al. (2009:317) points out that top management
represents a relatively small group of managers who control the organisation and
with whom this final authority and responsibility for executing the management
process rests. This level consists of board of directors, the managing director or
CEO, partners and management committees.

Middle managers that manage functional departments develop tactical plans

from the strategic plans and designed to implement them. The time-span is for the
medium term, normally not longer than one year. Tactical plans focus on short-term
objectives and detailed plans for the efficient utilisation of resources to achieve
effective results in each functional department. Middle management, which
includes functional managers, has to ensure that the strategic plans of top
management are implemented. These managers are primarily responsible for
implementing policies, plans and strategies determined by top management, as
well as allocation of resources. Each functional manager requires a greater degree
of technical knowledge regarding the function. The functional managers are also
more involved with the management of human and other resources. Planning at
this level is called tactical planning. Ferreira et al. (2009:317)

Supervisors or first-line managers make operational plans for the short term.
The lower level management, including supervisors, are responsible for the day-to-
day activities of the organisation. They manage sections within functional
departments and make detailed plans to implement the tactical plans. The time-
span is between one week and one year. Individual responsibilities are clearly
defined. Detailed, sequenced action steps are listed, together with completion
dates for each step. Implementation requires “hands-on” involvement on the part of
the supervisor. The operatives (workers) work directly on jobs, and report to
supervisors. They make the products and provide services for customers. They are
concerned with daily and weekly plans in their area of responsibility.

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According to Smit & Cronje (2005:97), tactical plans differ from strategic plans in
the following ways:

Plan characteristic Strategic planning Tactical Planning Operational Planning

Alternative name Long-term planning Medium-term planning Short-term planning

Lower-level
Responsibility Top management Middle management
management

Time Frame 3-10 years 1-3 years Less than 1 year

 Day-today activities
 Entire organisation
 Policies,
 Mission, goals,
 Functional procedures, and
Detail strategies
objectives rules
 External
 Programmes,
environment
budgets, projects

 broad, general  More detailed than  Fine detail

Information guidelines strategic plans  Specific,
 Vague, qualitative  More specific quantitative

Adapted from Ferreira et al. (2009:318)

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STUDY AND RESEARCH

MANAGEMENT PRINCIPLES 4TH EDITION

Study 4.2 “Strategic planning: What it encompasses ”, pages 84-87.
MANAGEMENT PRINCIPLES 5TH EDITION
Study 4.2 “Strategic planning: What it encompasses ”, pages 91-95.

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LESSON 2.3
THE PROCESS TO FOLLOW WHEN DEVELOPING A
STRATEGIC PLAN.

In this Lesson:

A strategic plan should not be confused with a business plan. The

former is likely to be a (very) short document whereas a business plan is
usually a much more substantial and detailed document. A strategic plan can
provide the foundation and frame work for a business plan.
A satisfactory strategic plan must be realistic and attainable so as to allow
managers and entrepreneurs to think strategically and act operationally.

Strategic plans usually refer to a period of more than five years, but this
depends on the industry in which the organisation operated. Du toit et al.
(2012:186) points out that strategic plans filter down in the organisation to
form the basis for tactical plans and subsequently for operational plans. There
are two levels of strategic plans namely: corporate strategies and business
strategies.

Corporate strategies identify what businesses the organisation should be in,

focusing on the scope of the organisation and deployment of resources.

Business strategies determines how best to compete in a particular industry or

market.

CONCEPTS AND VOCABULARY TERMS YOU NEED TO UNDERSTAND:

 Vision statement: an organisation's process of defining its strategy, or
direction, and making decisions on allocating its resources to pursue this
strategy, including its capital and people.
 Mission statement: a formal short written statement of the purpose of a
company or organisation. The mission statement should guide the actions of
the organisation, spell out its overall goal, provide a sense of direction, and
guide decision-making. It provides the framework or context within which the
company's strategies are formulated.

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Key points:
 An inspiring, effective vision statement is created and communicated by top
management.
 Management formulates a mission statement that aligns the organisation with its
dream in terms of its products, market, and technology.
The mission statement also addresses the philosophy of the organisation.
 The internal environment is assessed by identifying and evaluating internal
factors, and then developing input for the strategic planning process. By using this
information, an organisational profile is constructed.
 Take external environment into consideration and do environmental forecasting.
 The mission statement must be translated into measurable long-term goals and
communicated to everyone in the organisation.
 A suitable and workable strategy must be chosen and implemented.

STUDY AND RESEARCH

MANAGEMENT PRINCIPLES 4TH EDITION

Read 4.3 “The strategic planning process”, pages 87-102.
MANAGEMENT PRINCIPLES 5TH EDITION
Read 4.3 “The strategic planning process”, pages 95-113.

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LESSON 2.4
THE COMPONENTS OF A STRATEGIC PLAN

In this Lesson:

A strategic plan is made up from a number a number of components.

 The vision
 The mission
 The internal environment
 The external environment
 Long term goals
 Strategy

CONCEPTS AND VOCABULARY TERMS YOU NEED TO UNDERSTAND:

 Balanced Scorecard: a strategic performance management tool that can be
used by managers to keep track of the execution of activities by staff within
their control and monitor the consequences arising from these actions.
 Performance measurement technique which considers four areas:
customer satisfaction, internal productivity, innovation and continuous
improvement as well as the financial aspect.

Key points:
 The vision: Effective vision inspires individuals to realise what they can be in
future. It is about creating expectation at individual level. It is not what the company
is currently but what it wants to be.
 The mission: is a brief description of a company's fundamental purpose. A mission
statement answers the question, "Why do we exist?" The difference between a
mission statement and a vision statement is that a mission statement focuses on a
company’s present state while a vision statement focuses on a company’s future.
 The internal environment: When developing a strategy, the organisation must
know its internal capabilities, or strengths and weaknesses.
Once the strengths and weaknesses have been assessed, the organisational
profile can be constructed. This profile will determine the strategy.

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 The external environment: Organisations must always be aware of what is
happening in the external environment when creating a strategic plan, as this
impact on the business. This includes macro-, social, micro- and market
environment.

The macro and market environment changes constantly. This presents

opportunities, or threats that may be changed into opportunities.
It is necessary to be able to predict the type of environment that the organisation
will face in the future, and to prepare accordingly. Environmental forecasting is
therefore very important.

Once an organisation knows its strengths and weaknesses, and the opportunities
and threats in the external environment, it can create a strategy that are in line with
the organisation’s mission and goals.

Ford and Le Roux (2008:45) identify the following elements of a strategic plan:
 a vision statement describing what the organisation will look like once the strategic
plan has been achieved.
 a mission statement summarising the organisation’s primary products and services,
key processes and main target markets.
 a value statement, which sets the moral boundaries and guidelines for the
organisation.
 Long term goals/objectives: The mission statement must be translated into long
term goals and the expected completion dates, to ensure that everyone
understands the mission of the organisation clearly. The goals must be realistic as
it guides decision making. Goals must be measurable. The Balanced Scorecard
may be used for this.
 the critical success factors of the organisation, which are the key components that
need to be available before we can achieve the strategy, such as sufficient finance
and appropriately skilled staff.
 the performance milestones, which are the sub-objectives that have to be achieved
on schedule in order for the main strategic objectives to be accomplished on time.
 the outline of the implementation path taken from the implementation road map,
which provides guidance such as deadlines and the allocation of responsibility and
authority.
 Strategy: description of the various strategic issues by which the organisation plans
to reach its goals. The choice of a strategy is guided by the organisations mission
statement and its long-term goals.

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 The strategy is based on a core idea about how the organisation can best compete
in the market. This core idea is called the generic strategy.

Three types of generic strategies are:

1. Low-cost leadership – Maximise sales by minimising costs per unit.
2. Differentiation - Charge higher prices for a product that customers perceive to be
different from similar products offered by competitors.
3. Focus – The focus on specific product line or segments of the market that gives an
organisation a competitive edge.

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LESSON 2.5
DIFFERENT APPROACHES, TOOLS AND TECHNIQUES
IN STRATEGIC PLANNING

In this Lesson:
There is a wide range of strategic planning tools available -- in essence
mental approaches and procedures to apply to develop effective
strategic plans.

CONCEPTS AND VOCABULARY TERMS YOU NEED TO UNDERSTAND:

 Leverage ratio: looks at the source of the organisation’s capital.

 Activity ratio: measures how well the organisation is using its resources.
 Profitability ratio: measures how well the organisation is managed.

Key points:
The organisational profile depicts strategically important strengths and
weaknesses on which the organisation should base its strategy. This must show
top management what the organisation’s capabilities, limitations and
characteristics are. To decide which factors are truly strategic, one of the following
approaches may be followed:
EVALUATION OF FUNCTIONAL SEGMENTS:
 Concentrates on in-depth studies of the functional area of an organisation.
VALUE-CHAIN APPROACH:
 Looks at an organisation as a chain of activities that transforms inputs into outputs
that customers value. It analyses and reveals how different activities in an
organisation create customer value. It distinguishes between primary activities and
secondary activities.
RESOURCE-BASED VIEW (RBV):
 Organisations differ in fundamental ways because each possesses a unique
mixture of resources and different set of core competencies.
PRODUCT/MARKET EVOLUTION:
 The requirements for success change over time.
FINANCIAL ANALYSIS:
 Just as it is important to construct a new building on a strong foundation, it is
important to build the economic future of your business on a sound financial base.

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Evaluating the financial viability of our business will help us understand the
financial strengths and weaknesses of our business’ position.
With knowledge of our financial situation we are in a better position to respond to
current economic forces within the industry.
Profitability analysis involves analysing how much money the business is
making. Profitability is measured using an Income Statement. Profitability refers
to the ratio (expressed as a percentage) between the net income earned during a
particular period and the capital used in that period to generate the income.
Profitability is an important concept for the owner of a small business. It is an
expression of the main goal of the business. The owner of the small business
enterprise tries to increase the profitability of the capital as far as possible—the net
income earned by means of the available capital must, over the long term, be as
high as possible.
Liquidity deals with how much cash the business could convert or generate in the
short term, usually one year, to meet financial obligations. The activities carried out
by an enterprise (for generating income) result in expenses and payments.
Examples are the payment of the enterprise’s creditors, interest payments, wages
and salaries, rent, water and electricity. The enterprise must always be able to
make these payments regularly and on time.
 The financial analysis is used to assess strengths and weaknesses of an
organisation based on past data.
 The key financial ratios that are used are: Liquidity, leverage, activity and
profitability.
 Strategic internal factors – how to evaluate as strength or weakness?
 Four perspectives:
1. Comparison with past performance.
2. Comparison with competitors.
3. Comparison with industry ratios.
4. Benchmarking.

STUDY AND RESEARCH

MANAGEMENT PRINCIPLES 4TH EDITION

Study 4.3.3 “Assessing the internal environment”, pages 91-95.
MANAGEMENT PRINCIPLES 5TH EDITION
Study 4.3.3 “Assessing the internal environment”, pages 99-106.

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LESSON 2.6
DECIDING ON STRATEGIES

In this Lesson:

The choice of strategy is guided by the organisation’s mission statement and

long term goals. To be most effective, strategies should give a business a
sustainable and competitive advantage in the market place.
They should combine the various activities, such as marketing, production/
operations, research and development, finance and human resources, in
order to use the organisation’s resources most effectively.

CONCEPTS AND VOCABULARY TERMS YOU NEED TO UNDERSTAND:

 Divestiture strategy: Plan whereby a product line (or a product division of a
business) is liquidated or sold so as to limit either real or anticipated losses
and to redirect the resources behind that product line or division to other
company products or divisions.

Key points:
The scope and complexity of strategic planning, strategy formulation, and strategic
decision vary between organisations. Once a generic strategy has been chosen, a
grand strategy is decided upon. Three categories must be considered:

1. Growth strategy:

Internal: With this strategy the business concentrates on improving what one is
already doing. Known skills and capabilities are a major advantage here.
External: Higher risk, including integration and diversification are considered.
Five common corporate-level growth strategies are:
 Forward integration: this occurs when an organisation enters the businesses of its
customers, moving it closer to the ultimate consumer.
 Backward integration: occurs when a company enters the businesses of its
suppliers, usually to control component quality, ensure on-time delivery, or
stabilise prices.

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 Horizontal integration: this occurs when a company acquires one or more
competitors to consolidate and extend its market share.
 Concentric diversification: sometimes called related diversification, this occurs
when an organisation acquires or stars a business related to the organisation's
existing business in terms of technology, markets, or products.
 Conglomerate diversification: occurs when an organisation adds unrelated goods
and services to its line of businesses.
2. Decline strategy
Involves selling off assets or selling divisions when an organisation needs to re-
focus on its activities to cut costs drastically.
 Divestiture strategy to achieve permanent change in the scope of operations.
 Harvesting
 Liquidation

3. Corporate combinations
A long-term strategy that required commitment of funds, resources, facilities and
services by two or more legally separate entities to a combined undertaking for
their mutual benefit.

Before we decide on the strategy we should discuss the following issues:

CLARIFY THE STRATEGY

The purpose of strategy clarification is to determine the following:
 A description of the business;
 A description of the strategy;
 The competitive advantage of the organisation;
 The clarity of the strategy throughout the organisation.

STRATEGY DESCRIPTION AND CLARITY

Besides describing what business an organisation is in, the leadership team
should also describe what strategy the company is pursuing in that business.
Without strategy, managers have no framework by which to make decisions.
Therefore, it becomes difficult to prioritise internal initiatives, determine the value
of initiatives, decide where to commit resources, and decide when to say “no” to
opportunities or developments. The easiest way to determine an organisation’s
strategy is to find the strategic direction and strategic objective statements often
published by upper management. If these statements exist and people are
available to describe the direction and objectives in more detail (such as upper
management or people from the planning group), the leadership team’s job is
easy. However, if no such documents exist, or if they are vague and non-
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descriptive, it will be necessary to interview people that have been in the
organisation for an extended period of time.
Team members may also want to review presentations that have been made to
investors where strategy has been described, or look at decisions that have been
made historically. It is also important to determine which products or markets the
affected the company’s direction. The rationale behind such decisions can provide
insight into what the organisation currently does and why.

Another aspect of strategy clarification is determining how clear the strategy is in

the minds of people throughout the organisation. Unless the strategy is clear to
those who actually implement it, the process of developing a strategy will be
nothing more than an academic exercise with little benefit to the business.
However, care should be taken not to dismiss a strategy because a company
appears to have little focus. It is quite possible that the lack of focus is due to
problems in the company's communication process or in the organisation's design
and not because of the strategy itself. To determine where the problem is, the
team should ask employees (those in charge of implementing the strategy) how
they interpret and describe the company's strategy, what problems they see with
the strategy, and how, what they are asked to produce, compares with what they
are rewarded for. This may provide significant insights into what the company's
actual strategy is, how well it is being communicated, and how people on the front
lines think that it could be improved.

DISTINCTIVENESS AND ADVANTAGE

One characteristic of a successful strategy is that it distinguishes a company from

its competitors by creating a sustainable competitive advantage in the
marketplace. If organisations do not make a specific effort to determine how to
prioritise initiatives and commitment of resources, they become unfocused and
their performance is mediocre. Likewise, organisations that spend all of their
resources and time trying to do everything well, end up being viewed by customers
as following a "me too" strategy that offers nothing different, unique, or better in
comparison to other players in the market. The consequence of either action is
that customers have no compelling reasons to develop a loyal relationship with the
company. Businesses that have a competitive advantage in the marketplace
usually make a conscious effort to achieve world-class performance in a certain
area. Businesses that are unclear about their strategy are also unclear about how
to focus resources and management efforts in order to become world class.

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QUESTIONS TO ASK IN STRATEGY CLARIFICATION

 Does this strategy give us the market share we need and expect?
 What kind of demand is there for this product or service?
 Will this strategy provided a sustainable competitive advantage?
 Will this strategy help us accomplish our strategic objectives?
 What kind of future opportunity is there if this strategy is followed?
 What are the vulnerabilities of this strategy?
 Is this strategy consistent with the environment and changing customer needs?
 What value does this give our shareholders?
 How does this strategy fare in future mapping or scenario analysis?
 How easily and quickly can this strategy be copied?

OUTLINE THE BUSINESS PROCESSES

There are certain processes in every business that must exist in order to deliver
products and services to the customer, either internal or external. Strategy helps
business leaders decide which of those processes should be emphasised in order
to distinguish the company in the marketplace.

Competitors in an industry pursue different priorities in order to set themselves

apart from others who provide similar products or services.
A good strategy will:
 Define how a business gains distinctiveness in the eyes of customers.
 What is different about the relationship a business will have with its customers
versus the relationship competitors have with customers.
 What must be emphasised to gain a competitive advantage.

After a team has determined the macro workflow, it should determine what part of
that work flow should be emphasised given the strategy. A business cannot do
everything in the macro workflow well. Attempting to excel at everything will
constrain resources and dilute focus. Organisations that focus their efforts and
resources typically become distinct and advantaged in their industry. For a
business to become world-class, managers need to decide what part of the
workflow they will focus on.

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DETERMINE CAPABILITIES

Once the team has clarified the business's strategy, the processes that should be
emphasised and requirements for future viability, set the next step to determine
the capabilities required and whether or not they are currently available.
The questions central to this are:
 What are the required capabilities, and
 Does the business have the necessary skills and capabilities to successfully
execute the chosen strategy?

If the capabilities don't currently exist in the business, they must either be
developed or a new strategy must be chosen. It is generally easier to implement a
new strategy if a business already has some of the necessary skills and
capabilities - especially if it already has an advantage based on those capabilities.
However, the absence of those skills and the difficulty of developing capabilities
should not rule out the pursuit of a good strategy. Instead, the merit of a particular
strategy should be determined on the basis of:
 whether or not the skills can be acquired,
 the cost of acquiring those skills, and
 the strategy's potential to create a competitive advantage.

CAPABILITIES NEEDED AND CURRENT STATE

Capabilities are different than skills. A skill is a proficiency in a specific area of

expertise, such as palaeontology in the field of geology. Capabilities are the
combination of several skills designed to carry out a particular process, such as
negotiating, which requires combined knowledge about the business, its
processes, the industry, human nature, and selling. Whether choosing a new
strategy or implementing an existing strategy, it is essential that after core
processes have been outlined, capabilities need to be improved to a level that
exceeds the performance of competitors in those processes and gives a business
distinctiveness. Support work, which is outside the core processes, should be
improved only to parity with competition. Otherwise, resources get diverted and
diluted away from the key processes and capabilities required to gain competitive
advantage.

The first step in determining what capabilities are required is to look at the
processes that give customers the bundle of products and services they want
most. This can be done by reviewing the process analysis completed earlier.

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Managers should decide what must be done to deliver those products at lower
cost, better quality, superior service, or improved speed. The answers to these
questions will indicate what capabilities are required.

The next step is to determine the level of capability an organisation has in these
core processes. This can be done by talking to a variety of people that are
involved with the business, such as employees, suppliers, and customers.

The following table shows the internal and external sources that can be helpful in
determining capabilities:

Helpful sources for determining capabilities

Internal External
Employees Suppliers

Managers (especially country managers) Partners

Other divisions Industry experts

Internal reports Professional organisations

Planning departments Recruiters

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STUDY AND RESEARCH

MANAGEMENT PRINCIPLES 4TH EDITION

Study 4.4 “Grand strategies”, pages 102-107.
Study Figure 4.11 “Grand strategies”, page 103.
MANAGEMENT PRINCIPLES 5TH EDITION
Study 4.4 “Grand strategies”, pages 113-119.
Study Figure 4.11 “Grand strategies”, page 114.

INTRODUCTION TO BUSINESS MANAGEMENT 8TH EDITION

Read Chapter 15 “The strategic management process”, pages 530-548.
INTRODUCTION TO BUSINESS MANAGEMENT 9TH EDITION
Read Chapter 7.4 “The planning process”, pages 197-202.

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 CHAPTER 2
PLANNING
CONTINUES...

PLANNING AS A MANAGEMENT

FUNCTION

IN THIS CHAPTER:
 LESSON 2.7 : THE NATURE AND IMPORTANCE OF PLANNING
 LESSON 2.8 : DIFFERENT TYPES OF PLANNING
 LESSON 2.9 : TOOLS THAT CAN BE USED IN PLANNING AND
GOAL FORMULATING
 LESSON 2.10 : THE MBO (MANAGEMENT BY OBJECTIVES)
PROCESS

AT THE END OF THIS CHAPTER YOU WILL BE ABLE TO:

1. Explain the nature and importance of planning.
2. Explain the different types of planning.
3. Use different tools to plan and formulate goals.
4. Explain the MBO process.
 LESSON 2.7
LESSON 2.7
THE NATURE AND IMPORTANCE OF
PLANNING

In this Lesson:

Planning means looking ahead and chalking out future courses of action to be
followed. It is a preparatory step. It is a systematic activity which determines
when, how and who is going to perform a specific job. Planning is a detailed
programme regarding future courses of action.
It is rightly said “Well plan is half done”. It is the basic management function
which includes formulation of one or more detailed plans to achieve optimum
balance of needs or demands with the available resources.
Planning ahead, utilising the vision and mission statements of an organisation,
and making changes to plans when necessary can all lead to the success of a
manager.

CONCEPTS AND VOCABULARY TERMS YOU NEED TO UNDERSTAND:

 Budget: generally a list of all planned expenses and revenues. It is a plan for
saving and spending.
 Standard operating procedures: detailed, written instructions to achieve
uniformity of the performance of a specific function.

Key points:
 All managers engage in planning – top management must formulate strategies,
middle management must translate these plans into goals for functional areas, first
line managers translate these into plans and goals for specific sections in the
organisation.
 The purpose of every plan made by managers is the attainments of the purpose of
the organisation, and that is to make profit.
 Planning is the primary management function as the other functions can not be
performed without successful planning.
 Planning takes time, time is money therefore plans must be effective.
 Planning is necessary for: structuring the organisation, determining what kinds of
people are needed and determining how we should lead them.

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THE ROLE OF PLANNING

In order to become an effective small business owner-manager, you must look

ahead. In selecting the business to enter, you are doing just that planning for the
future.

Planning should be the first step in performing a series of managerial functions, as

it sets the future course of action both for the business as a whole and for each
part of it.
Planning, which is the process of setting objectives and devising courses of action
to achieve those objectives, answers such questions as:
 What business am I in?
 What finances do I need?
 What is my sales strategy?
 Where can I find needed personnel?
 How much profit can I expect?

Planning is one of the most difficult activities small business owners have to do.
Yet it is essential because, before taking action, managers must know where they
are going and how to get there. Outsiders who invest or lend money need to know
what are an organisation’s chances of success and their chances of making
money. Plans provide courses of action, information to others, bases for change
and a means of delegating work. In summary, well-developed plans can:
 Interest people with money in investing in your business.
 Guide the owner and managers in operating the business.
 Give direction to and motivate employees.
 Provide an environment to attract customers and prospective employees.

Although planning is so important it is one of the most difficult managerial activities

to perform. For this reason, small businesspeople, pre-occupied with day-to-day
operations, often neglect planning or must force themselves to do it. They should
remember that, while predicting the future is risky, doing no planning can be
disastrous.

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We’ve suggested one reason why so many small business owners and managers
neglect planning, despite its importance: Day-to-day activities leave them little or
no time for planning.
Some other reasons are:
 They fear the problems and weaknesses planning may reveal.
 They lack knowledge of how to plan.
 They feel that future changes cannot be planned for.

STUDY AND RESEARCH

MANAGEMENT PRINCIPLES 4TH EDITION

Read Chapter 5 “Planning”, pages 112-141.
Study 5.2 “The nature and importance of planning”, page 114-117.
MANAGEMENT PRINCIPLES 5TH EDITION
Read Chapter 5 “Planning”, pages 129-158.
Study 5.2 “The nature and importance of planning”, page 131-134.

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 NOTES:

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LESSON 2.8
DIFFERENT TYPES OF PLANNING

In this Lesson:

To formulate realistic plans, managers need to understand that the

different kinds of plans and goals in an organisation forms an hierarchy. The
different kinds of organisational plans and goals should support each other.

CONCEPTS AND VOCABULARY TERMS YOU NEED TO UNDERSTAND:

 Scheduling: the arrangement of a number of related operations in time.
 Policies: a deliberate plan of action to guide decisions and achieve rational
outcome(s). However, the term may also be used to denote what is actually
done, even though it is unplanned.

Key points:

Strategic plans
 Are designed to ensure that the organisation is aligned with the changing external
environment
 Do not attempt to outline in detail how the goals will be accomplished.
 Top management is responsible for strategic plans.

Tactical plans
 Deals with people and action to implement in strategic plans
 The focus is on functional areas.
 Middle management is responsible.

Operational plans
 Focus on carrying out tactical plans to achieve goals.
 Single-use plans are for non-recurring activities. Examples are programmes,
budgets and projects.
 Standing plans remain roughly the same for long periods of time. Examples are
policies, standard procedures and methods, rules.
 First-line managers or lower-level management are responsible for operational
plans.

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Let’s revise what we have learnt in lesson 2.2.

THE LEVELS OF PLANS IN AN ORGANISATION

Managers at different levels make different types of plans in each functional area.
Top managers, who are responsible for the performance of the whole
organisation, make strategic plans. They develop the longer- term goals and
strategies to reach them. The goals and strategies must focus on the needs of the
customers, employees and shareholders. These plans have a time-span of three
to ten years or longer.

Middle managers that manage functional departments develop tactical plans

from the strategic plans and designed to implement them. The time-span is for the
medium term, normally not longer than one year. Tactical plans focus on short-
term objectives and detailed plans for the efficient utilisation of resources to
achieve effective results in each functional department.

Supervisors or first-line managers make operational plans for the short term.
They manage sections within functional departments and make detailed plans to
implement the tactical plans. The time-span is between one week and one year.
Individual responsibilities are clearly defined. Detailed, sequenced action steps are
listed, together with completion dates for each step. Implementation requires
“hands-on” involvement on the part of the supervisor.

The operatives (workers) work directly on jobs, and report to supervisors. They
make the products and provide services for customers. They are concerned with
daily and weekly plans in their area of responsibility.

Top management Purpose Strategic plans

or mission

Long-term goals

Strategic plans

Middle management Tactical plans Tactical plans

Supervisors or first-line Single-use plans Standing plans Operational plans

managers

The figure above illustrates the kinds of organisational plan.

Adapted from Smith al et .(2008) p.118

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 LESSON 2.8
TYPES OF PLANS IN AN ORGANISATION

Organisations have the following types of plans:

 Mission statements. A broad statement of what an organisation intends to do

and achieve. It provides a big picture of “who we are, what we do and where we
are headed”.

 Purpose statements. A statement of intent for a department in an organisation,

based on the mission statement, but specifically designed for each specialized
area.

 A Strategy. Is how a business is going to compete, developed at an overall

business level, for each department and each section. All these contribute must
the overall competitive advantage in the market place.

 Single-use plan or project plan. A one-time only type of plan. An example can
be to open a new branch.

 A Policy. States an organisation’s response to repetitive situations. Examples

can be an annual leave policy, company car policy, and salaries and wages policy.
It should also include policies on Employment Equity (EE), Broad-Based Black
Economic Empowerment (BBBEE), HIV and AIDS.

 A Procedure or a standing plan. Used to implement on-going operational

decisions. Consists of a set of rules, e.g. how to buy something for a company.

 Rules. Specify what action should take place in a specific situation. It has to be
obeyed.

 A Programme. A single-use plan for a large set of activities. E.g. the

electrification of rural areas. It can consist of a number of projects, one for each
village.

 A Budget. A plan expressed in numerical terms, normally financial. It shows the

acquisition and use of resources to make a plan work.

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EIGHT STEPS IN THE PLANNING PROCESS.

1. Identify opportunities and threats

2. Formulate objectives

3. Make assumptions and draw up plan of action accordingly

4. Identify alternative plans of action

5. Analyse and evaluate the alternative plans of action

6. Select the final plan

7. Draw up a budget

8. Implement the plan

Step 1: Identify opportunities and threats

 Analyse the macro and market environments for changes that affect your
organisation.
 Identify opportunities and threats to your organisation.
 Establish consumers’ needs.
 Monitor competitors.

Step 2: Formulate objectives

 Where do we want to be, what do we want to do to accomplish and by when?
 Develop purpose statements for each functional department.
 Set objectives and goals for the organisation as a whole and for each functional
area.
 Clearly state desired results.

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Step 3: Make assumptions and draw up plans of action accordingly
 These are assumptions the management team make about changes in the macro
and market environments
 Existing organisation strengths and weaknesses, policies and plans are
considered.
 Forecasts of possible environmental changes are critical inputs

Step 4: Identify alternative plans of action

 Several courses of action are often available to reach objectives.

Step 5: Analyse and evaluate the alternative plans of action

 Each alternative’s use of resources, ease of implementation, impact on other
departments, and effectiveness.

Step 6: Select the final plan

 Supporting plans to make the main plan work.

Step 7: Draw up a budget.

 Some objectives must be converted into financial results, and the resources and
actions needed to achieve them must also be put into financial terms.

Step 8: Implement the plan

 Now implement the plan you have decided on, and make provision for supporting
plans.

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STUDY AND RESEARCH

MANAGEMENT PRINCIPLES 4TH EDITION

Study 5.3 “Kinds of organisational plan”, page 117-121.
Study 5.4 “The time-frame for planning”, page 121-125.
MANAGEMENT PRINCIPLES 5TH EDITION
Study 5.3 “Kinds of organisational plan”, page 134-138.
Study 5.4 “The time-frame for planning”, page 138-139.

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 LESSON 2.9
LESSON 2.9
TOOLS THAT CAN BE USED IN PLANNING
AND GOAL FORMULATION

In this Lesson:

The way goals are formulated is important. By choosing the right tools,
achieving goals can be empowering. Planning tools assist managers to plan
scientifically. These tools include forecasting, budgeting, scheduling and
monitoring tools.

CONCEPTS AND VOCABULARY TERMS YOU NEED TO UNDERSTAND:

 Forecasting: A projection of conditions expected to prevail in the future

(using past and present information)
 Budget: a list of all planned expenses and revenues.
 PERT: Programme Evaluation and Review Technique. This is a project plan
where activities are shown as boxes and dependant links between activities.

Key points:
 Planning tools enable managers to plan scientifically. Planning involves defining
resources required to complete a project, devising a schedule and developing a
budget. Planning is about determining how the project within the team will achieve
the constraints of time, budget, performance specifications and resources.
Forecasting
 The first step is to identify factors that could provide opportunities and those that
could provide threats.
 Sales and revenue forecasting and technological forecasting are vital for any
organisation.
 Other types of forecasting include resource forecasting, economic forecasting,
market forecasting, forecasting of possible new legislation.
Budgeting
 This tool is used to translate future plans into quantitative terms.
 Budgets control the evaluation of organisational activities.
 Budgets provide clear guidelines on an organisation’s resources and their
utilisation.

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A budget is a written document that expresses management's goals and forecasts

in financial terms for a specific future period. It is a financial plan for a future
period.

Budgets are part of our society. Whether you are budgeting your time, or your
available funds, everybody works on a budget in one way or another. Budgets vary
from your household budget to the state budget. Every enterprise has to work
according to a budget to ensure that enough cash is available to pay creditors and
that it is not tied up in excessive purchases of stock.
REASONS WHY A BUDGET IS DRAWN UP

 It sets a formal framework for an enterprise to make forecasts and set goals.
 Budgets are an instrument for management and staff to evaluate whether goals
have been achieved, in other words an aid to financial control by comparing
actual results with budgeted results.
 They also serve as an aid in the process of financial planning. For example, in the
budgeting process capital requirements of the enterprise are determined - this
enables the enterprise to make provision at an early stage for its financing needs.
 They create a cost-awareness among staff. Budgets are used to control costs in
the enterprise and limit them to a minimum. They can also start indicating danger
signs if possible problems arise.
 They co-ordinate the organisation’s goals and unify them to achieve a primary
goal. They also contribute to the effective utilisation of the resources at the
organisation's disposal.
 They give the enterprise the opportunity to take external factors into account, such
as competition and economic cycles that can influence it during financial planning.
 They throw more light on the enterprise's performance and are used as an aid to
apply financial control.

Budgets are drawn up a reasonable time before the end of the financial year to be
ready for the following year to which they will apply. It takes place by collecting
and processing the necessary information from all the various components. Thus,
a medium to large enterprise will already have its budget ready in September for
the following twelve-month period January to December.

The cycle that illustrates the purpose of budgets in the enterprise is as follows -
a budget is merely goals that are converted to figures:

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Measure results and make

Set goals
changes if necessary.

Develop plans to achieve

Agree on goals
goals

The starting point is the corporate planning procedure which determines direction
by deciding on the broad objectives of the company and the strategies intended in
order to achieve those objectives. As the sales budget will largely be the
determinant of the composition of other budgets, it is usually prepared first. This
requires forecasts of anticipated market trends and expected sales volumes. The
following budgets can be identified.

DID YOU KNOW?

A budget is an estimate of what is expected. The actual figures which result will vary from the
budget.

 The sales budget

This budget is used to establish each product type, to know the sales volume and
the selling price. In the case of a service organisation, the revenue
expected from each of the services offered. The following factors are
particularly significant in preparing this budget.

Past experience. Experience about the type of business gained from being
actively engaged for some time is a major factor in predicting future revenue levels.
Prospective pricing policy. The higher the price the lower the selling of large
quantities, but higher prices offers a higher margin. Attention must be paid
between margins and volumes.
Order on hand. An order book would be a good idea to keep trace of the strength
of demand for the goods or services on offer.
Market research. Every large organisation will engage in market research to
determine customer preferences.

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Economic conditions. Most goods and services are affected by economic

conditions, plans to expand can be implemented.

Other factors. Industry conditions, product promotions, the impact of

competitors and the existing market share needs consideration to prepare the
sales budget.

 Capital expenditure budgets

This budget is over a longer term and needs planning for expenses in the future on
assets such as machinery. These assets needs significant amounts of funding
capital. There would be an impact on the cash flow budget.

 Production budgets
Once the required control for sales has been determined, the budget for raw
materials, labour cost, overheads and production expenses can be calculated.

TYPES OF BUDGETS

1. Term budget
The term budget deals with the financial planning over a period, long, short or
medium term. We distinguish the long-term budget with plans over a period longer
than one year, this includes the capital budget over a longer period. There are also
the short-term budgets, for example capital budget (over short term) and the cash
budget.

2. Project budget
The project budget deals with specific projects and the results are frequently taken
up in the capital as well as the cash budgets.

3. Year budget
The year budget gives, in financial terms, a plan for the year ahead and leans
partly on the long term planning. It consists of a main budget for which the basis is
formed by the ancillary budgets which are drawn up according to the departments.

4. Cash budget
Such a budget is simply a schedule that contains a forecast of the outgoing and
incoming amounts during a specific future time. Normally this budget is drawn up
for a year in advance to show the position at the end of each month. The
influence of the season on the capital requirements is clearly shown.

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5. Flexible budgets
When the total costs of an enterprise moves with changes in the volume, a so-
called flexible budget can be used. Such a budget shows the estimated amount of
the cost at different levels of production extent. The flexible budget is normally
expressed in terms of fixed total cost for a specific period plus a variable cost per
unit of the production extent.

6. Zero-base budget (ZBB)

The zero-budget hints at a method according to which budgets can be drawn up.
The zero-base budget means that the budget is being drawn up without
consideration of preceding figures or events. It is based on fundamental
revaluation of goals, methods and sources.

7. Sales forecasting budget

Accurate forecasting is of great significance in sales budgets. This technique is
based on predictions of the future which is unknown. Most predictions use the past
as the basis and needles to say the past seldom replicates itself. Sales forecasts
may be divided into two categories: Subjective forecasts and mathematical
forecasts.

Subjective forecasts is an opinion of an individual or a group. Mathematical

techniques use recorded figures from the past and attempt to use it into the future.

Scheduling and monitoring

 The Gantt Chart breaks a project down into smaller tasks, each with an estimated
time frame. The actual duration of the task is then determined. By comparing the
target dates with actual dates of completion, managers can easily monitor the
progress.
 The key components of a Programme Evaluation and Review Technique (PERT)
network are activities, events, time, the critical path, and cost. A critical path to
complete a project is determined by identifying how long each activity will take.
 It consists of four steps:
 List all activities
 Determine completion times
 Arrange tasks chronologically
 Determine the critical path

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An efficient planning tool that is used by many companies is the Gantt chart.
Gantt chart is a type of bar chart that illustrates a project schedule. Gantt charts
illustrate the start and finish dates of the planned actions of a project. The
horizontal axis shows the time while the action plans are shown on the vertical
axis. Gantt charts can be used to show current schedule status using percentage-
complete shadings or bars and a vertical "TODAY" line as shown here. The today
line is moved daily.

Example of a Gantt/Bar chart: source: Richie et al. (1998)

Current time is equal to week 10

Activities
ahead of
schedule

Activities
behind planned
schedule
Total float

Activity
completed

(week) 4 8 10 12 16 20 24 28

The beauty of the Gantt chart is its simplicity. The horizontal axis always
represents the time. The vertical axis always represents the tasks. The horizontal
bars show the duration of each task. The start and end of each bar (usually
marked off with a special shape,) shows the start and end time/date of the task.
Gantt charts sometimes fail to adequately illustrate certain interrelationships
between the activities and resources in more complex projects. By using the PERT
planning technique managers are able to obtain a graphical display of all project
activities, an estimated time of duration of the project, an indication of which
activities are most critical for finishing the project on time and an indication of how
long any activity can be delayed without influencing the planned project duration.
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One of the main features of techniques such as PERT and Critical Path Method
(CPM) is the use of network diagrams. A network diagram shows sequential
relationships between activities by use of arrows and nodes.

Scheduling

Once you have decided what your objectives are, you have to work towards
achieving them. This entails scheduling your time in order to make provision for
those tasks that will ensure that you reach these objectives. Keeping your
objectives in a notebook somewhere in a drawer places them out of your sight and
therefore out of your mind. Scheduling entails determining realistic times for the
beginning and completion of each objective and task.

You will remember that, earlier on, reference was made to how (diary, planners,
etc.) you could plan your daily activities. However, these aids may also be used to
schedule your objectives and to keep them continually in sight.

After having prioritised the activities for each day, you also need to schedule them.
Each working day has to start off with a plan of all the tasks that need to be
performed.

Scheduling tools include:

 Year planners;
 Electronic organisers;
 Diaries;
 Gantt charts.

Set aside approximately one hour per day in which to do your planning, 'prioritising
and scheduling.

Which planning aid will I use?

The year planner will give you an overall view of the year; the deadlines as well as
objectives for the year. The electronic organiser and diary will be used for the
detail regarding objectives, i.e. if the year planner shows your objectives, then your
diary would be used to note the appointments, meetings etc. but more specifically
the times of these events. The Gantt chart is usually used when managers need to
manage different jobs and projects and track the progress of these jobs and
projects on a day to day basis.

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STUDY AND RESEARCH

MANAGEMENT PRINCIPLES 4TH EDITION

Study 5.7.1 “Forecasting”, pages 127-128.
Study 5.7.2 “Budgeting”, page 129.
Study 5.7.3 “Scheduling and monitoring”, pages 129-132.
MANAGEMENT PRINCIPLES 5TH EDITION
Study 5.7.1 “Forecasting”, pages 144-146.
Study 5.7.2 “Budgeting”, pages 146-147.
Study 5.7.3 “Scheduling and monitoring”, pages 147-149.

A successful man continues to look for work,

after he has found a job.

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 LESSON 2.10
LESSON 2.10
THE MBO (MANAGEMENT BY
OBJECTIVES) PROCESS

In this Lesson:

The MBO process aims to increase organisational performance by

aligning goals and subordinate objectives throughout the organisation. Ideally,
employees get strong input to identify their objectives, time lines for
completion, etc.

CONCEPTS AND VOCABULARY TERMS YOU NEED TO UNDERSTAND:

 Management by Objectives (MBO): Refers to goal-formulation at individual

level.
 Key performance area: The area that management is focusing on.

Key points:
 The MBO technique was designed to achieve the integration of individual and
organisational goals.
 The principal is that you are motivated to perform more efficient if you participate in
selecting your own personal goals.
 MBO manager focus on the end result, not the activity. They delegate tasks by
negotiating the goals our outcomes with subordinates, without telling them in detail
how to get to the goal.
 Everybody has a clear understanding of the objectives and is aware of their own
roles and responsibilities in achieving those objectives.
 The process should start at the top and have the active support of top managers,
who should explain to subordinates the reason for the process.
 Each individual should have clear understanding of the hierarchy of plans and
goals, and of the key performance areas.

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THE MBO PROCESS

 Job output/goals: goals are set and key performance areas discussed by manager
and sub-ordinate.
 Targets: Performance targets that are specific, concise and time-related are set.
 Discussion of goals: Targets are discussed with the superior, so that both parties
are committed. The role of the superior is that of counsellor, and to make sure that
goals are realistic.
Possible resources that the sub-ordinate would need are also discussed at this
stage.
 Checkpoints: the sub-ordinate’s progress is measured periodically and adjustment
of goals is performed when needed.
 Feedback: The degree of goal attainment is reviewed and recommendations are
made by the superior, where needed.

1. INTRODUCTION
One of the most important tools for monitoring and managing is the popular
technique for the integration of organisational (and project) and individual goals,
called Management by Objectives (MBO). MBO is based on the belief that the joint
participation of team members and team leaders/project managers in translating
project goals into more specific individual goals has a positive impact on employee
motivation. In other words, the team member will be more motivated to perform
more efficiently in the project if he participates in selecting his own personal goals.

In adopting the principle of management by objectives, the team member will not
only complete his day's work as a paid employee, but also with an important goal in
mind, a goal or objective which, in the long run, will also afford him job satisfaction.

The individual forms a part of the team and all strive together to reach the team
objectives.
MBO deals with the following four important questions:
 Where are we going?
 What must be done to get there?
 How must it be done?
 Who must do it, and by when?

2. ADVANTAGES OF IMPLEMENTING MBO

2.1 Improvement of the Managerial Function
There is clarity of planning and control; and the team increasingly reaches their
objectives because they have been clearly defined.
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Every team member knows what is expected of him and what he must do.
There is thus no waste of time in the organisation.

2.2 Accurate Evaluation of Results

Management by Objectives provides an objective instrument of evaluation, by
which actual results can be measured against expected results. Each and every
team member can measure his own performance and results, because the
requirements have been clearly and specifically formulated and are measurable.

2.3 Increased Motivation

A further advantage of goal directed management is increased motivation. Each
team member shares in the formulation of objectives relevant to his own activities,
but also with regard to the objectives for the whole project. This gives him a feeling
of participation and commitment to the project and he feels that he is working more
constructively and not just reporting for another day in the daily grind.

2.4 Management Development

The MBO strategy is also a form of self-discipline. Every team member shares in
the outlining of his duties and tasks for the project. In the process he plans the type
of activities, schedules, and aids that he will need to get the job done. Thus he
gradually becomes acquainted with the essence and problems of management. By
considering the suggestions of all the members of staff, how he acts and performs
in his own field, the date when he will have finished his job, and the standard that
he will reach, every worker becomes psychologically involved in the process of self
-development. The employee thus feels that he is not just another member of staff,
but also part of the total managerial process.

2.5 Co-ordinated teamwork

MBO offers possibilities for co-ordinated action whereby each member of the team
contributes to its success. It can also be determined which team member is not
pulling his weight and corrective action can be taken. Results in a project depend
on goal directed planning and organisation to comply with a series of expectations.
Results don't fall into one's lap.

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3. THE MBO PROCESS

1. Long term goals and strategy
Goal Setting 2. Development of specific goals for the organisation
3. Departmental goals
4. Individual goals; each employee

5. Formulate plans for actions

Plan for Action
6. Implement and take individual remedial action

Self-Control 7. Evaluation of progress in terms of goals

8. Evaluation of progress as a whole;

Reinforce action and motivate by :
Periodic Revision a) Training and Development
b) Compensation
c) Career and manpower planning

The MBO process has four main elements seen in the above diagram:
 The objective. What do we want to achieve?
 The planning of action. What is going to be done to get these results?
 Control. How are we going to determine if we are still on schedule, and whether
we're doing better or worse than we had planned?
 Periodic revision. If we were to deviate, what are we going to do to get back to
the results we should have achieved?

4. IMPLEMENTING MBO
According to Smit & Cronje (2003), having adopted the MBO philosophy, each
team member should have a clear understanding of the hierarchy of objectives
and goals of the team. The team members should also understand what areas
management is focussing on and why.

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 LESSON 2.10
The MBO System - Manpower training

Goal Plan of
Setting Action

Training and Development

 Evaluate Performance
 Manpower Planning

Periodic Self
Revision Control

5. SETTING GOALS AND OBJECTIVES

Properly specified objectives will display most of the following characteristics:
 They are explicit;
 They can be measured and controlled;
 They are ambitious but achievable;
 They are hierarchically related;
 They have time limits.

Another way of identifying well-defined objectives is to see if they are SSMART:

 Simple – do not use complicated words and phrases
 Specific – clearly identify what will be done
 Measurable – indicators of progress must be included in the definition
 Achievable – it must be possible to complete the objective successfully
 Realistic – no time for daydreaming!
 Time limited

The following guidelines can assist the team in specifying the project objectives:
 Always start with “To”, followed by a verb and the related measurable result or
activity. E.g.: “To build a store room” or “To appraise the functioning of supervisors
in the operations department before 31 August”.
 Use strong, action oriented verbs that describe observable and measurable
behaviour. E.g.: “To design an organisational chart for the project team” (not: “To
attempt to design …”). Phrases like “to ensure that” or “to assist participants to
acquire” do not express the precise action to be undertaken. The verb selected
must be the most descriptive of the activity to be undertaken.

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 State only one purpose or aim. Objectives should not contain two or more verbs.
Not: “To design and install a management information system”
 Specify a single end-product or result. Not: “To build a dispensary and access
road”
 Ensure that progress against the objective is measurable. Set an indicator of
progress against each one. Ask the question, “How will we know if we have
achieved this objective?” E.g.: Objective: “To increase sales of new product”
should rather read: “To increase the sales volume of product A to 200 per month
(or by 20%) in the next 3 months”
 Read up on industry standards. This will provide a benchmark to check your
indicators and competitiveness against.

STUDY AND RESEARCH

MANAGEMENT PRINCIPLES 4TH EDITION

Study 5.8 “Goal formulation”, pages 132-136.
Study 5.9 “The process of goal setting”, page 136.
Study 5.10 “Techniques for goal setting”, pages 136-139.
MANAGEMENT PRINCIPLES 5TH EDITION
Study 5.8 “Goal formulation”, pages 149-153.
Study 5.9 “The process of goal setting”, pages 153-154.
Study 5.10 “Techniques for goal setting”, pages 154-157.

INTRODUCTION TO BUSINESS MANAGEMENT 8TH EDITION

Read Chapter 6.3.4 “A goal-setting techniques: Management by
objectives”, pages 180-181.
INTRODUCTION TO BUSINESS MANAGEMENT 9TH EDITION
Read Chapter 7.3.4 “A goal-setting techniques: MBO”, pages 196-197.

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 CHAPTER 2
PLANNING
CONTINUES...

DECISION-MAKING

IN THIS CHAPTER:
 LESSON 2.11 : MANAGERIAL DECISIONS, DECISION MAKING
CONDITIONS AND MODELS.
 LESSON 2.12 : GROUP DECISION MAKING TECHNIQUES
 LESSON 2.13 : TOOLS FOR DECISION MAKING

AT THE END OF THIS CHAPTER YOU WILL BE ABLE TO:

1. Differentiate between problems, problem solving, and decision making.
2. Compare the different types of managerial decisions and decision-making
conditions.
3. Explain the various decision-making models.
4. Suggest techniques for improving group decision-making.
 LESSON 2.11
LESSON 2.11
MANAGERIAL DECISIONS, DECISION
MAKING CONDITIONS AND MODELS.

In this Lesson:
Good decision making is an essential skill for career success generally,
and effective leadership particularly. If managers can learn to make timely and
well-considered decisions, then they can often lead teams to spectacular and
well-deserved success. However, if they make poor decisions, the team risks
failure.

CONCEPTS AND VOCABULARY TERMS YOU NEED TO UNDERSTAND:

 A problem: exists whenever managers have perceived a difference between

what has actually happened and what they have planned to happen.
 Problem solving: is when corrective action is taken to solve the problem.
 Decision making: the process of selecting an alternative course of action that
will solve a problem.

Key points:
 All managers must make decisions, but they vary in content. All decisions are
either programmed or non-programmed.
 Programmed decisions are routine and do not have to be investigated each time. It
falls within operating procedures and does not require much time.
 Non-programmed decisions have never occurred before, are complex and require
problem solving.
 Decisions are made under three conditions, namely certainty, risk, uncertainty.
 Conditions of certainty exist when options, benefits and costs involved are known.
No elements of change are present.
 Conditions of risk exist when the outcome of each alternative is unknown.
Probability can be assigned to outcomes – the probability will be either objective or
subjective.
 Conditions of uncertainty exist when there is lack of information – the outcome is
unknown and managers can not determine probabilities.
 The two main decision making models are the rational model and the bounded-
rationality model.
 The rational is also known as ‘optimising’ – the best possible solution is selected.

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 DECISION-MAKING
 In the case of the bounded-rationality model the decision maker uses ‘satisficing’
or selecting the first option that meets minimum criteria.
 Managers need to know which model to use and when.

DEFINITIONS OF THE WORD “PROBLEM”

Ulschak (1994) sees a problem as "The existence of a gap between where a

person is and where that person would like to be" while Huber (1985) sees it as
the difference between the present (real) situation and the ideal situation.
According to Bass (1983) a problem is "When something is not as it should be”.
Thus, the organisational decision maker must be able to describe what is and what
should be. “What should be” is a standard, an objective, or a certain criterion
against which alternatives can be evaluated. Any question, situation or person
which causes an unacceptably large discrepancy between 'what is' and 'what
should be', could therefore be classified as a problem. It is very important to be
very clear on 'what is' and 'what should be' (objective) before attempting to solve
any problem.

STATING THE PROBLEM

The first step in the problem solving process is to be sure what your problem looks
like. There is a saying that a properly stated problem is already half solved! In this
module we will have a look at a few techniques to analyse a problematic situation
and properly state the problem. Once the problem has been prepared for "creative
attack", it will be much easier to generate ideas to solve it.
NEGATIVE STATE
A well-defined problem is not a statement in respect of the absence of a solution
but a description of an existing negative state. If your description of a problem
includes anything that suggests the absence of a solution, that definition will limit
your search for a creative solution as you will immediately start concentrating on
the supposed absence. By defining the problem in terms of a negative state, you
put no limitations on the number of possible solutions. The following three
examples should illustrate the point.

ABSENCE OF A SOLUTION NEGATIVE STATE

Existing water sources are bacteriological

No safe water.
contaminated.

No equipment available to manage Information not properly utilized in the

information in the Department. execution of the job.

No pesticides available. Harvest is infested by pests.

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Try to redefine the following "problems":
1. Lack of transport.
2. Lack of training.
3. Lack of Administrative support.
4. No cooperation between sections.
5. No vision/objectives.

CONSTRUCTING A PROBLEM/DECISION TREE

STEP 1: Identify all the major problems in the situation (never assume there is
only one). Use a mind map and/or any other appropriate idea generating technique
to generate a list of possible problems.

STEP 2: Identify the core problem. Identify the 5 most central issues of the
problematic situation in your list as generated in step1. From these issues choose
the most basic negative state in the situation. It must be the most basic priority
need on which all/most others hinge.

STEP 3: Write the core problem in a block in the centre of an A3 paper.

STEP 4: Identify the causes. Take another paper and do a mind map on all the
causes of this core problem. Try to start with direct causes and then break them
down to sub-causes (causes of direct causes!). Include ideas on sources,
institutions, interest groups, etc. and remember that mono-causalistic explanations
of social and/or behavioural phenomena are always inadequate.

STEP 5: Arranging causes. Try to group related causes together and identify the
major causes. Arrange causes in blocks parallel to each other underneath the core
problem.

STEP 6: Identify effects. Do a mind map on all effects the core problem may have.
Begin with direct effects and work towards other indirect effects. Group related
effects together, identify major effects and arrange them in blocks, parallel to each
other above the core problem.

STEP 7: Ensuring depth. Look at the direct causes and indirect/sub-causes (roots)
of your problem tree. Have you taken each cause to its origin? Could it be broken
down into smaller sub-causes? Try to really find the place where the roots "hit the
rocks" before stopping. Look at the direct and indirect effects (branches) of your
problem tree. Take every effect to it utmost, largest consequence. Group some
effects together, what will their combined effect be?

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STEP 8: Identify the central, combined effect. Look at the effects that are on the
highest level above the core problem. What will their combined effect be? Write
this central effect at the top of your problem tree and connect it to the highest row
of effects.

We now have a complete problem tree consisting of:

 Roots (CAUSES),
 A trunk (CORE PROBLEM) and
 Branches (EFFECTS).

Let’s draw a problem tree for the following situation.

Your new section does not provide good support to your Director. He has
complained about this problem on numerous occasions but your predecessors
have not been able to solve the problem. You are expected to do something about
it.
Always evaluate your problem tree according to the following:
 Is the core problem stated as a negative state?
 Are the causes broken down sufficiently?
 Are the effects taken to a single, central consequence?
 Was an appropriate idea generating technique used?

Rewrite all negative statements in your problem tree to be positive and action
orientated. By doing this you will find that you "suddenly" have objectives, a goal
and a vision!

GETTING READY FOR CREATIVE ATTACK

You could prepare your problem for creative attack by using one or a combination
of the following techniques:

Problem flower
Write your core problem in a circle in the middle of an A3 page (Follow the
principles of Mind Mapping and generate ideas by starting with the objectives
projecting as petals from the centre).

Goal-problem statement
Add the words "How can I/we ..." to your goal (use a mind map or any other
appropriate idea generating technique to generate possible solutions.)

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 LESSON 2.11
Objective-problem statement
Add the words "How can I/we ..." to each of your objectives and generate ideas
regarding each of them.

Prepare your problem from the previous exercise for creative attack.

SHORTCUT: You may be confronted by a problem which is not very complex and
to which you have to get quick solution. In this case you could also use the
following:
 State problem as negative state
 Generate ideas regarding all facts surrounding the problem
 Use these facts to restate the problem
 Add "How can I/we ..." to the statement
 Try different verbs after "How can we....?"

CLASSIFICATION OF PROBLEMS

Categories:
People (Behavioural) problems: Change of behaviour will have to be part of the
solution.
Operational problems: The organisation, procedures etc. cause the main problem.
Easier to identify and solve.
Technical problems: Faulty machinery, system errors, etc. Easiest type to treat

Intensity:
First degree: Finding a better idea. Present way of doing works but manager wants
to improve.
Second degree: Something is definitely wrong. The present way of doing it is
ineffective. Response to a specific concern is needed.
Third degree: A survival issue. Either an effective response is developed or the
program will not survive. A specific time limit is normally set.

RESOURCES FOR SOLVING PROBLEMS

 Self
 Group
 Committee
 Task group
 Specialist

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APPROACHES TO SOLVING PROBLEMS
 Logical problem solving process
 Creative problem solving process

Decision-making is the process of making a choice between one or more

possible options.

STEPS IN THE DECISION-MAKING PROCESS

 Step one.
The first step is to recognise that a problem, threat or opportunity exists. What
type of decision be needed and under what conditions? What is the level of
uncertainty and risk? You also have to define the problem at this stage. Be careful
not to treat the symptom as the cause. One has to answer the questions: What is
happening? When, where why and how? It is a process of gathering facts about
the situation and problem. Only then can you diagnose the problem and clearly
define it. That will help with the decision-making process.

 Step two.
A desired result or solution must then be identified.
What goals objectives are needed?
Who will be involved in the decision-making process?
Will it be an individual decision or a group decision? Why?
What constraints may exist?

 Step three.
A stage of thinking critically occurs now. You must use your experience and those
of other people to analyse the causal relationships and implications of the
situation. This part of the process helps identify patterns and meaning from
information. Develop a range of alternative solutions to the problem. One
solution is to do nothing and hope the problem will solve itself. Creative solutions are
often necessary and it may be necessary to consult other people in the organisation.
Do not allow existing attitudes and conventional thinking to influence the process.
This stage of analysis must develop the tasks and activities that have to be
performed by individuals. Develop decision rules or factors that are relevant to the
decision to be made. Typically you would be concerned about costs against benefits,
operational feasibility, the resources needed, time to implement, and the decision's
effect on other departments. Here again, if it were a major decision, input from other
people would normally be needed.

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 LESSON 2.11
 Step Four.
Evaluate each alternative solution against these criteria. This process must be
done very thoroughly to ensure that the best solution is selected. If this does not
happen, an incorrect decision is likely.

 Step Five.
Select the best solution in terms of the criteria.

 Step Six.
Implement the decision in the organisation. This requires an action plan that
includes all those affected by- the decision to ensure their commitment.

 Step Seven.
Follow up on the action plan to ensure that the chosen solution has solved the
original problem.

STUDY AND RESEARCH

MANAGEMENT PRINCIPLES 4TH EDITION

Read Chapter 6 “Creative problem solving and decision making”, pages
142-164.
Study 6.1 “The decision-making process”, pages 149-153.
MANAGEMENT PRINCIPLES 5TH EDITION
Read Chapter 6 “Managerial decision making”, pages 163-187.
Study 6.5 “Decision-making models”, pages 169-174.

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 NOTES:

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 LESSON 2.12

LESSON 2.12
GROUP DECISION MAKING TECHNIQUES

In this Lesson:

When it operates efficiently, a group's decision making will nearly always

outperform the ability of any one of its members working on their own. This is
especially the case if the group is formed of diverse members. During decision
-making, various possible solutions are considered for problems and the best
solution is chosen. A large number of different problem-solving techniques are
used in practice. These techniques include: fishbone diagrams, brainstorming,
research, the nominal group technique and Delphi technique.

CONCEPTS AND VOCABULARY TERMS YOU NEED TO UNDERSTAND:

 Optimising: To make as perfect or effective as possible.
 Satisficing: to act in such a way as to satisfy the minimum requirements for
achieving a particular result.

Key points:
 Group decision making techniques are used to minimise the disadvantages and
maximise the advantages of group decision making.
 Four important techniques are: brainstorming, nominal group technique, Delphi
technique and groups decision support systems.
 Brainstorming: overcomes the problem of conformity to dominant group opinions.
Stimulates creative or imaginative solutions. This technique is often appropriate at
lower management level.
 Nominal group technique: overcomes the problem of situations where groups may
be affected by a dominant person. Discussions and interpersonal communication
are restricted and members are physically present. This technique is often used by
middle management as it entails using multiple inputs from several people. The
information can be obtained in a structured format as it is a structured variation of
small-group discussion methods. People sit around a conference table and
independently list their ideas regarding the forecast. They then each get an
opportunity to explain their ideas to the group. Each member’s ideas are recorded.
They will refer to these ideas later on in their discussions. Eventually all the ideas
of the managers are prioritised and integrated.

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THE NOMINAL GROUP TECHNIQUE IN DETAIL

This method of solving problems uses a group of people to find potential solutions
to an identified problem. A very productive technique that can generate lots of
good high quality ideas, it involves all the members of a group and uses
consensus to evaluate and rank all the ideas generated. Its outcome is a group
agreement about the action needed to solve a problem.

The following steps are normally followed:

Step 1
The team leader presents the problem or opportunity to the group. This must be
done in a way that does not suggest a preferred solution. The process and ground
rules are also explained at this stage.
Step 2
Working on their own, everyone writes down a list of potential solutions for the
stated problem.
Step 3
Everyone, in turn, reports a single idea. This is recorded on a flip chart or board.
The name of the person who suggested the idea is not recorded, nor are any
comments or evaluations made. This continues until all the ideas have been
recorded.
Step 4
During a brief discussion any clarification of ideas needed is given and similar
ideas are amalgamated -but only if the owners of the original ideas are agreeable.
Step 5
Each group member then identifies what she or he thinks are the 'top five' ideas of
this composite list. She or he writes these down on a piece of paper and gives this
to the leader - without sharing it with the group.
Step 6
The leader generates a top five list for the group from these lists.
Step 7
This is reported to the group and then discussed. Another vote is taken to identify
the idea/s to be put into action.

Most people find it difficult to report their ideas briefly and without commenting on
their merits. The group leader must maintain the discipline of quickly moving on to
the next person for each new idea. It is also important that the group stays
together while the team leader - or someone else - is analysing the options to find
the group's top five.

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 LESSON 2.12
 Delphi technique: It does not require the physical presence of participants. It uses
a series of confidential questionnaires to refine a solution. Mostly used by top
management. This technique is very useful for generating ideas about unstructured
or relatively less developed subject areas, such as workforce planning.

 Group decision support systems: A computer supported system, most GDSS’s

can be used for face-to-face groups as well as groups that communicate through
electronic media. It is used in the brainstorming technique (electronic
brainstorming), electronic meetings which blends the nominal group technique with
computer technology, and real-time Delphi, where a computer conference is
substituted for the mail questionnaires of the conventional Delphi.

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Figure 2.12 below illustrates where the different group decision-making techniques
are mainly used:

Top
Management

Delphi
Decision

Middle
Management

Nominal group

Lower-level
Management

Brainstorming

Adapted from Smit et al. (2008:154)

STUDY AND RESEARCH

MANAGEMENT PRINCIPLES 4TH EDITION

Study 6.6 “Group decision-making”, pages 153-154.
Study 6.7 “Techniques for improving group decision-making”, pages 154-
157.
MANAGEMENT PRINCIPLES 5TH EDITION
Study 6.6 “Group decision-making”, page 174.
Study 6.7 “Techniques for improving group decision-making”, pages 175-
178.

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 LESSON 2.13

LESSON 2.13
TOOLS FOR DECISION MAKING

In this Lesson:

Timely and well-considered decisions will lead a team to spectacular and well-
deserved success.

CONCEPTS AND VOCABULARY TERMS YOU NEED TO UNDERSTAND:

 NPV: Nett present value - the present value of an investment's future net
cash flows minus the initial investment.

Key points:
Tools are used to assist managers in the decision-making process.
Three types of tools that can be used are:
 quantitative tools for decision making;
 the Kepner-Fourie method; and
 the cost benefit analysis.

Quantitative tools:
 Conditions of certainty
 Linear programming: It determines which route is the least costly to follow by
maximising benefits and minimising losses.
 Queuing theory: It analyses the cost of waiting in queues. It tries to achieve an
optimal balance between the cost of increasing service and the amount of time
spent on waiting.
 Conditions of risk and uncertainty
 Probability analysis: looks at the likelihood that an outcome will occur, expressed
as a percentage.
 Pay-off matrix: indicates possible pay-offs, or returns, from different courses of
action.
 Decision tree: a graphic illustration of the various solutions available to solve a
problem. It estimates the outcome of a series of decisions. This method was
explained in detail in lesson 2.11.

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 Break-even analysis: it calculates the volume of sales that will result in profit. The
break-even point is the level of sales where no profit or loss results.
 Capital budgeting: each alternative investment is analysed in financial terms and
placed on the budget. Methods used include payback period, average rate of return
and nett present value.
 Simulation: this tool imitates real conditions to compare likely outcomes.
Simulations are made with mathematical simulations and computers.

The Kepner-Fourie method: This method combines the objective quantitative

approach with some subjectivity. Value weights are assigned to certain criteria.
Cost benefit analysis: This method is used where managers are faced with
situations when the benefit received for the cost is uncertain. It compares the costs
and benefits of each alternative course of action. Benefits can be seen as
advantages, and costs as disadvantages. Cost Benefit Analysis (CBA) is a
relatively simple and widely used technique for deciding whether to make a
change. As its name suggests, you simply add up the value of the benefits of a
course of action, and subtract the costs associated with it. Costs are either once-
off, or may be on-going. Benefits are most often received over time. We build this
effect of time into our analysis by calculating a payback period. This is the time it
takes for the benefits of a change to repay its costs. In its simple form, cost-benefit
analysis is carried out using only financial costs and financial benefits. For
example, a simple cost benefit ratio for a road scheme would measure the cost of
building the road, and subtract this from the economic benefit of improving
transport links. It would not measure either the cost of environmental damage or
the benefit of quicker and easier travel to work.
A more sophisticated approach to building a cost benefit model is to try to put a
financial value on intangible costs and benefits. This can be highly subjective - is,
for example, a historic water meadow worth R300,000, or is it worth R2 000,000
because of its environmental importance? What is the value of stress-free travel to
work in the morning?

STUDY AND RESEARCH

MANAGEMENT PRINCIPLES 4TH EDITION

Study 6.8 “Tools for decision-making”, pages 157-164.
MANAGEMENT PRINCIPLES 5TH EDITION
Study 6.8 “Tools for decision-making”, pages 178-184.

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 CHAPTER 2
PLANNING
CONTINUES...

INFORMATION MANAGEMENT

IN THIS CHAPTER:
 LESSON 2.14 : INFORMATION MANAGEMENT, DECISION MAKING
AND INFORMATION SYSTEMS.
 LESSON 2.15 : USEFUL INFORMATION AND CLASSIFICATION OF
INFORMATION SYSTEMS
 LESSON 2.16 : MIS’S AND DECISION MAKING.
 LESSON 2.17 : DEVELOPING A GENERIC INFORMATION SYSTEM
AND THE MANAGER’S ROLE.

AT THE END OF THIS CHAPTER YOU WILL BE ABLE TO:

1. Explain the link between information management and decision-making.
2. Explain what an information management system comprises.
3. Identify the characteristics of useful information.
4. Explain how a management information system can support decision-making.
5. Develop a generic information system for managers.
 LESSON 2.14
LESSON 2.14
INFORMATION MANAGEMENT, DECISION
MAKING AND INFORMATION SYSTEMS.

In this Lesson:

Improving information management practices is a key focus for many

organisations, across both the public and private sectors.
This is being driven by a range of factors, including a need to improve the
efficiency of business processes, the demands of compliance regulations and
the desire to deliver new services. Information management’ is an umbrella
term that encompasses all the systems and processes within an organisation
for the creation and use of corporate information. Information management is,
however, much more than just technology. Equally importantly, it is about the
business processes and practices that underpin the creation and use of
information. It is also about the information itself, including the structure of
information (‘information architecture’), metadata, content quality, and more.

Information management therefore encompasses:

 people;
 process;
 technology;
 content.

CONCEPTS AND VOCABULARY TERMS YOU NEED TO UNDERSTAND:

 Information system: The people, procedures and other resources used to

collect, transform, and disseminate information in an organisation.

Key points:
 An information system takes data from the external and internal environments and
changes it to information that can be used by management in decision making.
 Managers must learn how to manage the information in their fields.
 Information systems uses data (input) and then process this (through organising
and analysing) to provide information (output) that enables management to make
decisions.

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 INFORMATION MANAGEMENT
 Information is then stored for future use and feedback is given on the activities.
 The human resources required are specialists (developers) and end-users
(managers)

HUMAN RESOURCE INFORMATION SYSTEMS (HRIS)

In today's corporate world human resources has come to play a very critical role in
a business. Whether it concerns the hiring and firing of employees or whether it
concerns employee motivation, the Human Resources department of any
organisation now enjoys a very central role in not only formulating company
policies, but also in streamlining the business process.

To make a human resource department more effective and efficient new

technologies are now being introduced on a regular basis so make things much
simpler and more modernised. One of the latest human resource technologies is
the introduction of a Human Resources Information System (HRIS); this integrated
system is designed to help provide information used in HR decision making such
as administration, payroll, recruiting, training, and performance analysis.

Human Resource Information System (HRIS) merges human resource

management with information technology to not only simplify the decision making
process, but also aid in complex negotiations that fall under the human resource
umbrella. The basic advantage of a Human Resource Information System (HRIS)
is to not only computerise employee records and databases but to maintain an up
to date account of the decisions that have been made or that need to be made as
part of a human resource management plan.

The four principal areas of HR that are affected by the Human Resource
Information System (HRIS) include; payroll, time and labour management,
employee benefits and HR management. These four basic HR functionalities are
not only made less problematic, but they are ensured a smooth running, without
any problems. A Human Resources Information System (HRIS) thus permits a
user to see online a chronological history of an employee from his /her position
data, to personal details, payroll records, and benefits information.

The advantage of a Human Resource Information System (HRIS) in payroll is that

it automates the entire payroll process by gathering and updating employee payroll
data on a regular basis. It also gathers information such as employee attendance,
calculating various deductions and taxes on salaries, and handling employee tax
reports.

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 LESSON 2.14
With updated information this system makes the job of the human resource
department very easy and simple as everything is available on a 24/7 basis, and
all the information is just a click away.

In time and labour management a Human Resource Information System (HRIS) is

advantageous because it lets human resource personnel apply new technologies
to effectively gather and appraise employee time and work information. An
employee's information can easily be tracked and assessed on a more scientific
level. It can then be determined whether an employee is performing to his/her full
potential or not, and if there are any improvements to be made, to ensure that the
employee feels more secure.

Employee benefits are very crucial because they help to motivate an employee to
work harder. By using a Human Resource Information System (HRIS) in employee
benefits, the human resource department is able to keep better track of which
benefits are being utilized by which employee and how each employee is profiting
from the benefits provided.

A Human Resource Information System (HRIS) also has advantages in HR

management, because it curtails time and cost consuming activities leading to a
more efficient HR department. This system reduces the long HR paper trail that is
often found in most HR divisions of companies and leads to more productive and
conducive department on the whole.

COMPUTERISED HUMAN RESOURCE INFORMATION SYSTEMS (CHRIS)

Computerised Human Resource Information Systems (CHRIS) has become one of

the most important tools for many businesses. Even the SMME’s needs to realise
the benefits of using CHRIS to be more efficient. Many organisations do not
realise how much time and money is wasted on manual human resource
management (HRIS) tasks until they investigate the amount of time spent on
manual labour. CHRIS is advancing to become its own information technology (IT)
field. It allows companies to cut costs and offer more information to employees in a
faster and more efficient way. Especially in difficult economic times, it is critical for
companies to become more efficient in every sector of their businesses and the
human resource department is no exception. CHRIS refers to software packages
that address HR needs with respect to planning, employee information access,
and employer regulatory compliance.

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Several major software companies provide CHRIS packages. Depending on the
company's needs and size, package options may include some or all of the
following services:
 Employee career cycle management
 24/7 data access to authorised managers
 Customised levels of access to confidential data
 Pre-populated forms and templates
 Access to real-time data—with instantaneous updates
 Employee administration
 Benefits administration
 Compliance
 Recruitment
 Performance and development
 Safety and health
 Succession planning
 Time-off management
 Organisation management
 Payroll
 Training

The opportunities to add more services are endless and continue to improve.

For most companies, the hardware and software needed to run these programs
are fairly standard. Hardware and software is dependent on the complexity of the
HRIS package; more complex HRIS packages require more hardware (e.g., server
space and speed).

HRIS technology costs vary considerably, depending on the size of the company
and its HR needs. Costs for deploying a comprehensive HRIS package include
license fees, implementation, technology, training, and maintenance. Research
has found that most companies can recoup HRMS costs within three years of
system launch, based on process efficiencies alone.

The value of HRIS results from a reduction in HR support costs, based on

efficiency improvements. By eliminating paper and process inefficiencies,
companies can expect additional cost reductions while improving service and
becoming more efficient. There are many other benefits of HRIS. Some subject
matter experts believes that HR departments can reduce time spent on
administrative work by 40-50%, resulting in either the elimination of headcount or
the redeployment of effort to higher value tasks, such as decision support and
employee development.

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 LESSON 2.14
Another benefit of HRIS includes allowing HR to transition from an administrative
department to a strategic management department. The strategic value aspect of
the HRIS investment focuses on managing human capital by supporting functions
such as recruitment, performance/competency management, employee
development, and employee customer service. By executing well in these areas,
companies can reduce employee turnover, reduce hiring costs, and improve
individual performance.

External environment

Government regulations

HR Management System
t
ke

HR Sub-functions
ar

Te
m

ch
 Planning
ur

no
bo

 Staffing/employment

lo
La

Organisational goals

gy
 Training &
Development  Productivity
 Performance  Services
Strategic Management
management  Profit
 Remuneration and
System Benefits  Return on investment
 Quality of Work Life

HR
s

 Morale
n

Fe
er

St
ed
nc

at
b ac

e-
o

k Human Resource
lC

of
-
ta

Information System t h
e

e-
Feedback
i
oc

---------| HRIS |---------

rt a
S

Competition

A model of organisational functioning

The HRIS is usually part of the organisations larger management information

system (MIS) which would include the production, marketing, financial and
accounting functions. The need and function for HRIS can extend from the first
time information is needed about an employee during the recruitment process to
the last time, when the employee retires or resigns from the organisation.

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 INFORMATION MANAGEMENT
THE NATURE OF CHRIS
Whether an organisation is small or large in terms of the amount of employees
employed at the organisation, there is always a lot of paperwork that concerns
“people information”. People information refers to the individual employees in an
organisation. The organisation needs to manage and keep information about the
employee’s personal details, their financial details and details regarding their
working life at the organisation. In addition to the above mentioned information, the
organisation should also keep records, documents and correspondence relating to
the various Human Resource systems and processes.
A major task of the HR department is to keep all the information about the
employees and to ensure that this information is made available at the right time to
the right people in other departments.

The scope of the HRIS should include the following personnel functions:
 Recruitment and selection (staffing)
 Training and development
 Compensation
 Benefits
 Workforce planning.

The HRIS is based on an open system model involving three main activities:
1. Inputs: employee information, company policies & procedures and other
personnel related information.
2. Transformation: The refers to the actual computer. It includes the software or
written instructions that tell the computer how to operate.
3. Outputs: This refers to the actual use of the newly processed information which
may be in the form of reports generated regarding the employment equity status or
training completed by employees etc.

The system normally has a form of control to monitor its functioning. This control is
achieved through feedback. The feedback elements help to ensure that the
outputs are those that the system seeks to achieve.

INPUT Transformation OUTPUT

Employee Info Software Reports

Control system
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 LESSON 2.14
THE BENEFITS OF CHRIS
The following benefits can be the results of the introduction of an efficient human
resource information system:
 The system reduces errors and increases efficiency and reduces costs as paper
work is reduced and forms are standardised. Reports are generated much quicker;
 Better planning and preparation for the future can be conducted as the system can
be used as a strategic tool;
 The system provides valuable information to decision makers regarding potential
future opportunities. Future problems can be picked up sooner as the system will
alert the users of problem areas.

Note that these benefits can only be achieved if the systems is updated regularly
and if the system is integrated with the organisations other functions. Users needs
to be properly trained on the systems to operate effectively.

MODULES OF HRIS

It is important that the HRIS in an organisation is flexible. To achieve this goal all
HRISs are built on a modular basis. Each module is designed for a specific
departmental or functional application in a fully developed HRIS. In developing an
HRIS database the most effective way is to start with two or three modules and to
get them operational. Thereafter additional modules can be added to meet the
expanding requirements.

An HR database module can be described as follows:

 It is directed to one specific HR function;
 It has its own input forms or screens;
 It uses some internal transformations to the data;
 It has some reports or analysis that are particular to that user group or function;
 It may have some data elements that are unique to that user or function.

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What kinds of information are required for Human Resource Management?

A Example of a basic personnel module:

 Personal information of job applicants and employees such as:
 Service record administration - When each employee joined the company and
length of service.
 Manpower planning statistics - Recruitment and selection planning
 Personnel directory information - Home Address and contact information, family
contact details, as well as disabilities and capabilities.
 Affirmative action administration - Employment equity plans for the organisation
 Employee profile - Age, gender, ID number and EE status etc.
 Turnover analysis - Retention rates of employees, why, how often do staff retire or
resign reports
 Historical studies - Previous training and development conducted by staff
 Reporting structures - Management, first line manager, supervisors etc. who
reports to who.

B An example of a career development and planning module:

 Facilitates employee search to fill vacant positions;
 Provides employee record of succession planning, training and development;
 Enables tracking of employees to promote;
 Provides audit reports for job review and status;
 Provides audit reports of skills;
 Enables the user to complete the annual training reports (ATR) and work place
skills plan (WSP).

C An example of a legislation module:

 Applicant flow analysis;
 Performance against affirmative action goals and timetables;
 All labour related Acts;
 BEE profile;
 Amendments to legislation;
 Trade union and association matters.

D An example of a training and development module:

 School, Further Education and Training records or University qualifications;
 Workplace training records;
 Outsourced and sponsored training;
 Tracking of programme enrolment, scheduling and location selection;
 Development of recommended training programmes by grade (school grades or
NQF levels), skill, or management level.
 Training gaps identified and skills programmes that needs to be developed to close
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 LESSON 2.14
this gap.
 Training needs according to work profiles and job descriptions
 Interface with succession planning and career development.

E An example of a wage and salary administration module:

 Pay grade structure
 Automatic increase list
 Wage and salary survey analysis
 Performance appraisal comparison
 Merit programme administration
 Job evaluation information
 Salary budget analysis and administration
 Benefit details

F An example of a finance information module:

 Payroll
 Cost of employment and operational benefits
 Medical schemes
 Deductions for tax such as PAYE
 Contributions to pensions funds and Unemployment insurance fund (UIF)
 Skills development levies and other levies
 Employee tax

G An example of a Labour relations module:

This will include Disciplinary procedures, termination of employment procedures,
disciplinary hearings etc.

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 Corporate
Personnel  Biographical
module  Historical
 HR Policies

Affirmative
Position control
action

Health
Applicant tracking and
safety

Benefits
Payroll
and
Health claims
DATABASE admin

HR Planning and
Skills inventory
forecasting

Career
Succession
development and
planning
planning

Training
OPEN MODULE
and development

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STUDY AND RESEARCH

MANAGEMENT PRINCIPLES 4TH EDITION

Study 7.2 “The link between decision-making and information”, pages
167-169.
Study Figure 7.1 “The relationship between an organisation’s information
system and decision-making ”, page 168.
MANAGEMENT PRINCIPLES 5TH EDITION
Study 7.2 “The link between decision-making and information”, pages
193-195.
Study Figure 7.1 “The relationship between an organisation’s information
system and decision-making ”, page 193.

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 NOTES:

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 LESSON 2.15
LESSON 2.15
USEFUL INFORMATION AND CLASSIFICATION
OF INFORMATION SYSTEMS

In this Lesson:
Information should have certain benefits over raw data to be considered
a value-added resource to the organisation. There are certain characteristics
that information should have in order to be useful and of value to the
organisation.

CONCEPTS AND VOCABULARY TERMS YOU NEED TO UNDERSTAND:

 MIS: Management Information System - A computer system designed to

help managers plan and direct business and organisational operations.

Key points:
Information must be:
 accurate,
 relevant,
 sufficient and
 current in order to be a value-added resource.
Information systems provide managerial of operational support and can be
classified as such.

Operations information systems

 The purpose is to support business operations.
 Used to record and process data resulting from business transactions, and
provides documents and reports for internal and external use.
 Operations IS make routine decisions that control physical processes.
 Automations systems change manual methods and paper communications media
and supports productivity.

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Management information systems (MIS)

The goal of these systems is to provide information on and support for decision
making by managers.
Providing information and support for managerial decision making at all levels of
management is complex, as decisions differ at each level.
Three types of MIS’s are used:
 Information-reporting systems: provide end-users with information reports for
decision making.
 Decision support systems: Computer-based and provide interactive information
support during decision making.
 Analytical models
 Specialised databases
 Own insights and judgments
 Modelling processes
 Executive information systems: These are designed to around the strategic
needs of top management to provide immediate and easy access to information on
critical success factors.

Other classifications of information systems

These systems can support business operations as well as managers at
operational, tactical or strategic levels.

 Expert systems: a decision making package that can reach a level of

performance similar to a human expert in a specialised area.
 Business function system: It directly supports a business function such as
accounting, HR, marketing, etc.
 Internet: Provides e-mail, interaction with remote computers, file transfer protocol
to move around files (FTP) and World Wide Web.
 Extranet: It links an organisation’s stakeholders electronically.
 Intranet: Internal network with access limited to employees.
 Electronic commerce: Buying and selling goods and services electronically.

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STUDY AND RESEARCH

MANAGEMENT PRINCIPLES 4TH EDITION

Study 7.4 “Characteristics of useful information”, page 171.
Study 7.5 “Organising information systems”, pages 171-172.
Study 7.6 “Classification of information systems”, pages 172-178.
MANAGEMENT PRINCIPLES 5TH EDITION
Study 7.4 “Characteristics of useful information”, page 197.
Study 7.5 “Organising information systems”, pages 197-198.
Study 7.6 “Classification of information systems”, pages 198-204.

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 NOTES:

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 LESSON 2.16

LESSON 2.16
MIS’S AND DECISION MAKING.

In this Lesson:
The role of information in decision making cannot be over-emphasised.
Effective decision making demands accurate, timely and relevant information.

CONCEPTS AND VOCABULARY TERMS YOU NEED TO UNDERSTAND:

 E-commerce: the buying and selling of products or services over electronic

systems such as the Internet and other computer networks.

Key points:
 The goal of an Information System (IS) is to provide information on and support for
decision making by managers.
 The Management Information system (MIS) must support the decision making
process at operational, tactical and strategic level.
 At operational level decisions are structured. The MIS process transactions as they
occur.
 At tactical level decisions are semi-structured and results from operational level are
used.
 At strategic level, decisions are unstructured. Top management needs information
from internal as well as external sources to gauge the organisations strengths and
weaknesses and opportunities and threats (SWOT analysis).
 That is why several types of IS are needed to support the variety of end-user
responsibilities. (Previously discussed in lesson 2.15)

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STUDY AND RESEARCH

MANAGEMENT PRINCIPLES 4TH EDITION

Study “Decision support systems (DSS)”, page 175.
MANAGEMENT PRINCIPLES 5TH EDITION
Study “Decision support systems (DSS)”, page 201.

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 LESSON 2.17
LESSON 2.17
DEVELOPING A GENERIC INFORMATION
SYSTEM AND THE MANAGER’S ROLE.

In this Lesson:
In this lesson we explain the role of managerial end-users in developing
an information system, and learn how to develop a generic information system
for managers.

CONCEPTS AND VOCABULARY TERMS YOU NEED TO UNDERSTAND:

 Expert systems: software that attempts to provide an answer to a problem,

or clarify uncertainties where normally one or more human experts would
need to be consulted.
 World Wide Web: computer network consisting of a collection of internet
sites that offer text and graphics and sound and animation resources.

Key points:
Managers are IS users and their performance depend on the quality of the IS
support available. It is therefore important for them to have a say in the
development of the IS. An Information System is designed through a process in
which managers and technical staff develop systems. The systems are based on
the information requirements of an organisation.
 Step one: systems investigation.
Determine the nature and scope of the need for information. Conduct a feasibility
study to determine the information needs of prospective users. This study also
determines the objectives, resource requirements and cost benefits.
 Step two: systems analysis
A more in-depth study of end-user information requirements. A study is conducted,
then the current system is analysed, and then the new system is analysed.
 Step three: systems design
The design specifies how a system will meet the information requirements of the
end-users. The systems specialist, not management, plays a major role in this.
 Step four: systems implementation, maintenance, security
hardware and software is acquired, software is developed, programs are tested
and installation activities take place. Maintenance involves monitoring, evaluating
and modifying the system. Security is addressed in the design and implementation
stage.

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 INFORMATION MANAGEMENT

STUDY AND RESEARCH

MANAGEMENT PRINCIPLES 4TH EDITION

Study 7.7 “Developing an Information Systems”, pages 179-181.
Read 7.8 Summary, pages181-182.
MANAGEMENT PRINCIPLES 5TH EDITION
Study 7.7 “Developing an Information Systems”, pages 204-207.
Read 7.8 Summary, page 207.

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 CHAPTER 3
ORGANISING

ORGANISING AND DELEGATING

IN THIS CHAPTER:
 LESSON 3.1 : ORGANISING AND STRUCTURE IS NECESSARY
FOR IMPLEMENTING PLANS AND ATTAINING GOALS.
 LESSON 3.2 : ORGANISING AND DESIGNING AN
ORGANISATIONAL STRUCTURE
 LESSON 3.3 : THE DESIGN OF JOBS AS A MOTIVATIONAL
FACTOR

AT THE END OF THIS CHAPTER YOU WILL BE ABLE TO:

1. Explain the concepts of organising, organisation, and organisational structure.
2. Explain how the organisation used its structure to implement its strategic plans
and goals.
3. Expound on the importance of organising in attaining the organisation’s goals.
4. Describe organising process in designing an organisational structure.
5. Explain the principles of organising that should be considered in designing an
organisational structure.
6. Explain the ‘structure follows strategy’ adage.
7. Propose recommendations regarding the design or redesign of jobs as a
motivational factor.
 LESSON 3.1
LESSON 3.1
ORGANISING AND STRUCTURE IS NECESSARY FOR
IMPLEMENTING PLANS AND ATTAINING GOALS.

In this Lesson:

Nieuwenhuizen et al. (2007:31) points out that organising is a

management function by means of which a business structure is established
through the distribution of tasks, allocation of resources and the coordination
of activities to achieve the objectives of the business. Organising also involves
delegation. Duties, authority and responsibilities are allocated to people in
positions of leadership and their position with regard to one another is
determined to promote cooperation and effectiveness in the business. The
environment of current business requires an increased focus on practices and
skills in planning projects and work, properly organising tasks and one’s work
to improve productivity and delegating work to empowered staff. Businesses
and indeed, all organisations, find themselves needing more productive
methods of planning, more appropriate goals and effective means of
accomplishing work. A focus on using productive best practices allows for
effective and efficient management of work and making changes in the
organisation.

CONCEPTS AND VOCABULARY TERMS YOU NEED TO UNDERSTAND:

 Organising: refers to the process of creating a structure for the organisation
that will enable its people to work effectively towards its vision, mission, and
goals. Organising takes place when two or more people work together to
achieve common purpose. This means that one must determine in advance
how, where, by whom, when and with what resources the jobs must be
carried out to achieve the objectives of the business. Such decisions will also
give your business an organisational structure.
 The grouping and allocation of activities to main sections and
subsections.
 The creations of posts within these sections.
 Decisions on duties, authority and responsibilities.
 Organisational structure: responsibilities, authorities and relations
organised in such a way as to enable the organisation to perform its functions;
 Organisation: the end result of the organising process.

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 ORGANISING AND DELEGATING

Key points:
 Other management functions cannot be performed if there is no organising.
 Plans and strategies will not become real if people are not deployed.
 Leadership is not possible if lines of responsibility are not clear.
 Control is not possible if people do not know what tasks they are responsible for.
Reasons for organisation:
 Organisational structure clearly indicates responsibilities.
 Responsible people are accountable for outcomes and actions are linked to results.
 Clear communication channels are established, which leads to effective
communication.
 Resources are meaningfully deployed.
 Synergy improves effective and quality work.
 Total workload is divided.
 Tasks, procedures and resources are grouped.
 Related tasks and activities are grouped meaningfully in specialised sections.
 Activities are coordinated.
 Structure follows strategy: managers must structure an organisation in such a
way that it is aligned with its plans and goals. Organising means tasks necessary to
achieve goals are assigned, so a structure is created to work effectively in line with
strategy.

Ferreira et al. (2009:338) defines organising as the management task that

concerns the arrangement of the activities and resources of the organisation by
assigning duties, responsibilities and authority to people and departments, as well
as determining the relationship between them, to promote the co-operation and to
make the systematic performance of the work and the achievement of objectives
possible in the most effective way. In order words, it means to decide how, by
whom, with what aids and within what practical period of time the work must be
performed so that it can take place in the most effective manner.

The usual way of depicting organising in an organisation is with an organisational

chart. An organisational chart is a structural framework that provides an overview
of the activities in the organisation, the functional areas, main and subordinate
divisions, the formal lines of authority, responsibility and communication, and the
different levels of management.

We are going to discuss the various types of organisational structures in the next
lesson.

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SIX STEPS IN THE ORGANISING PROCESS

1. 2. 3.
Gather the necessary Identify and analyse Group related tasks
information activities together

4. 5. 6.
Divide the workload Allocate responsibilities Obtain the necessary
according to resources and authority resources and announce
arrangements

STUDY AND RESEARCH

MANAGEMENT PRINCIPLES 4TH EDITION

tudy 8.2 “Organising, organisation, and organisational structure”, pages
187-188.
Study 8.3 “Reasons for Organising”, pages 188-189.
MANAGEMENT PRINCIPLES 5TH EDITION
Study 8.2 “Organising, organisation, and organisational structure”, page
217.
Study 8.3 “Reasons for Organising”, pages 218-219.

INTRODUCTION TO BUSINESS MANAGEMENT 8TH EDITION

Read Chapter 7 “Organising”, pages 191-206.
INTRODUCTION TO BUSINESS MANAGEMENT 9TH EDITION
Read Chapter 8 “Organising”, pages 208-222.

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LESSON 3.2
ORGANISING AND DESIGNING AN
ORGANISATIONAL STRUCTURE

In this Lesson:

The environment of current business requires an increased focus on

practices and skills in planning projects and work, properly organising tasks
and one’s work to improve productivity and delegating work to empowered
staff. Businesses and indeed, all organisations, find themselves needing more
productive methods of planning, more appropriate goals and effective means
of accomplishing work. A focus on using productive best practices allows for
effective and efficient management of work and making changes in the
organisation.

CONCEPTS AND VOCABULARY TERMS YOU NEED TO UNDERSTAND:

 Responsibility: the obligation to achieve goals by performing required

activities. Responsibility is an obligation that is placed on you to perform.
 Accountability: the evaluation of how well individuals meet their
responsibility. Accountability is the evaluation of how well a person meets their
responsibilities. Accountability cannot be delegated.
 Authority: The right to make decisions, issue orders, and use resources.
Authority is inherent in a position. It is the right to give orders and to expect
them to be obeyed.
 Power: the ability to influence the behaviour of others.

Key points:
The organising process consists of the following steps:
Step one: Determine goals and objectives . This follows from vision, mission, and
strategy.
Step two: identify activities that must be completed to attain goals.
Step three: Divide activities into meaningful units. Group members into work units
and coordinate the efforts of groups (organisational design).
Step four: delegate tasks, authority and responsibility and determine relationships
between individuals.
Step five: design organisational structure and give feedback.

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THE PRINCIPLES OF ORGANISING

Certain principles are applied to design the organisational structure. According to

Ferreira et al. (2009:339) experience has shown that if these principles are applied,
no matter the size of the organisation, the result will be an effective organisation.

Let’s now discuss some of these principles:

 Unity of command: each employee reports only to one supervisor. According to
Hellriegel et al. (2013:302) every employee is supposed to know who is giving
direction and to whom he/she reports. According to this principle managers should
minimise any confusion over who makes decisions and who implements them
because uncertainty in this area can lead to serious productivity and morale
problems.

 Chain of command (also referred to as line of authority or scalar principle) :

This principle states that a clear and unbroken chain of command should link every
person in the organisation with someone at a higher level, all the way to the top of
the organisation. The basic idea is that each individual in the organisation should
be able to identify his/her boss and trace the line of authority through the
organisation all the way to the top position in the company. This principle assists
employees to determine who they can go to if they have a problem and also to
whom they should report to.

 Span of control: Refer to the number of employees that one manager must
control. According to Hellriegel et al. (2013:303) the span of control principle states
that the number of people reporting directly to any manager should be limited
because one manager cannot supervise a large number of subordinates
effectively.

 Specialisation or division of tasks: Specialisation refers to the division of tasks

into smaller, more meaningful units in order to achieve the objectives of the
organisation. Ferreira et al. (2009:345) points out that in specialisation, activities
are divided amongst the subordinates according to the nature of the activity and
the parts of the task in such a way that a particular subordinate can perform more
or less similar tasks and utilise and develop his/her skills as much as possible.

 Standardisation: Is the process of developing uniform practices that employees

are to follow. The purpose is to create conformity.

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 Coordination: all departments, sections and individuals should work together to
reach goals and are therefore interdependent. Co-ordination is the process of
achieving unity among interdependent activities. Co-ordination is needed when two
or more interdependent individuals, groups or departments must work together to
achieve a common goal. In organisations, organising usually creates specialised
and differentiated jobs, such as managers for production and managers for sales.

 Authority: Ferreira et al. (2009:339) points out that authority refers to the rights
inherent in a managerial position to tell people what to do and to expect them to do
it. Authority is basically the right to decide and act. Authority should not be
confused with power. Unlike authority, power is not coupled to a particular position,
but is related to certain influences such as rewards, coercion and subject
knowledge.

 Power: there are different kinds of power evident in organisations:

 Legitimate power
 Power of reward
 Coercive power
 Referent power
 Expert power

 Responsibility: managers are responsible for achieving strategic, tactical and

operational goals. When authority is granted, responsibility is created.
Responsibility is the obligation of a subordinate to achieve objectives by performing
assigned tasks. Accepting a task creates an obligation of performance and
responsibility. Ferreira et al. (2009:341)

 Downsizing: reducing the size of an organisation by reducing number of

employees in different departments, or by eliminating a whole department.

 Departmentalisation: One of the first steps to be followed when an organisational

structure is formed is departmentalisation. According to Ferreira et al. (2009:343)
departmentalisation comprises the logical grouping of activities in an organisation
that belong together. All sources required for a certain activity are grouped together
in one department. The different departments created by departmentalisation
therefore represent the organisational structure of the organisation as it often
appears on an organisational chart. Departmentalisation is usually based on the
function, product or service, location and customer.

 Delegation: the process of assigning responsibility and authority for

accomplishment of objectives. Managers delegate tasks to their subordinates so
they have more time to concentrate on managing their subordinates.

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REASONS FOR DELEGATION IN ORGANISATIONS

Managers should delegate work to subordinates for these reasons:
 To develop the decision-making skills of subordinates.
 To pass work to individuals who may be able to perform it faster, at a lower salary
cost, and more effectively because of their specialized knowledge.
 To develop depth of experience in the organisation.
 To give the manager more time for the overall management of the department
and strategic thinking.
 To provide subordinates with greater job satisfaction and allow them to
demonstrate competence.
 Work that may develop a person, or assess his or her capability for promotion.

REASONS FOR RELUCTANCE TO DELEGATE

Some managers are reluctant to delegate to their subordinates for these reasons:
 They do not want to give the person a chance to try out new ideas and plans.
 They are concerned that the person will make a mistake or perform more
competently than they do.
 They do not trust the subordinate to use the authority correctly.
 They feel indispensable and believe that only they can do the job or that the
decisions are too important to be left to subordinates.
 They desire to dominate people and want to feel in charge with subordinates
having to ask for decisions to be made.
 The subordinate will not accept the delegation because of a lack of confidence
or skill.
 The organisation's culture or structure does not allow proper delegation.

PROCESS OF EFFECTIVE DELEGATION

Let’s analyse the process of effective delegation and some issues you must
consider when delegating:
 Clarify the assignment or what is to be delegated in terms of the department's
objectives and plans. It must be consistent with them.
 Explain why the work is being delegated.
 Equal opportunities should be given to any person to take on delegated work.
Identify the person who is most suitable for the task and is willing to do it. This
person must have the ability and motivation to succeed. Use the correct
management communication style to ensure effective communication between
you.
 Use a motivational style to get the commitment and enthusiasm of the person.
Discuss the objectives to be achieved to ensure the person's commitment. The
objectives must be realistic, challenging and achievable.
 Agree the subordinate's limits of authority, and the time and resources needed to

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do the job. Consider the impact on other departments in the organisation.
 Ask the subordinate how he is going to do the job. This ensures a reasonable
understanding of the job.
 Agree and schedule progress checkpoints and how progress will be measured
and assessed.
 Measure and evaluate progress at the checkpoints. Reward achievement and
correct mistakes in such a way that the subordinate is encouraged to learn from
the exercise, and does not feel threatened in any way.

All organisations develop structures to establish:

 Job roles – so that all employees know what they are supposed to do and what is
expected of them.
 Levels of authority – so that employees know whom they report to, and who
makes the plans and takes the decisions that affect the way the business is run
and the jobs the employees do.
 Channels of communication – so that all employees know what the business is
trying to achieve (and therefore what they are working towards) and are aware of
decisions that have been taken which affect their work. Good channels of
communication also allow employees to feed back information to their colleagues
about any problems that may occur, and suggestions on how performance could
be improved.

TYPES OF ORGANISATIONAL STRUCTURES

The way a business is structured depends on the specific functional areas and
needs of the business. Some functional areas such as production will be focused
on a single department while others such as administration may be spread across
several departments. There are some characteristics of organisational structure,
however, that are common to all businesses.

Some of the major factors which will influence the way in which they are organised
include:
 Size of the organisation – how many employees;
 The culture;
 The systems;
 Types of jobs;
 Nature of the organisation;
 Nature of the industry.

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HIERARCHICAL STRUCTURES (LINE OR FUNCTIONAL STRUCTURES)

Traditionally, business organisations had been given hierarchical structures. A
hierarchical structure is based on levels of authority and responsibility, with each
person in the organisation having a clearly defined position that sets limits on the
amount of authority and responsibility they have. Hierarchical structures are
usually shown in a form of a pyramid (see figure below).

CEO and Board

Senior Managers

Middle Managers

Junior Managers

Operatives and Support Staff

At the top of the structure is the most senior manager of the business; this is
usually the owner or the managing director. Below this are levels of less senior
managers, middle managers, junior managers, supervisors, operatives and support
staff.

Employees at each level, except the top and bottom, are responsible to a
supervisor or manager at the level above and have authority over a number of
employees at the level below.

An overwhelming majority of institutions in South Africa have a functional or line

structure. This structure is usually hierarchical and there is a clear distinction
between line and staff powers.

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The following are the organisation or management structures that can be used by
an organisation:
(1) Line organisation.
(2) Line-staff organisation.
(3) Functional organisation.
(4) Matrix organisation.

LINE ORGANISATION

According to Ferreira et al. (2009:352) the line organisational structure is one of the
oldest and simplest organisational structures. It is mainly retail organisations that
function according to this structure.

A line manager is one who has direct authority over subordinates who contribute
directly to the achievement of departmental and organisational objectives.

The authority lines are clear and run strictly vertical from top to bottom using the
line and the persons in command are called line functionaries. The subordinates
receive their instructions only from their immediate heads - unity of command.
Only one person is in command of a department or a group of activities - unity of
control.

General Manager

Administrative Marketing
manager Manager

Departmental Departmental Departmental Departmental

Head Head Head Head

WORKERS WORKERS WORKERS WORKERS

Example of a line organisational structure.

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LINE AND STAFF ORGANISATION

General manager

LEGAL ADVISER
DEPT. A DEPT. B
WORKING,
STUDY
DEPARTMENT
A1 A2 B1 B2

WORKERS WORKERS WORKERS WORKERS

Staff authority
Line authority

A staff manager is one who offers advice and assistance to line managers.
Human resources and financial managers fall into this category. From the aspect
of communication and management, the head of the financial department would
have line authority over his/her subordinates. The Human Resource manager
would also have line authority over the people that report to him/her, but they
would only have staff authority over people from other departments. It can also be
a Legal Advisor e.g. a Labour Lawyer, a Chartered Accountant or a Business
Consultant. It can therefore be an employee, or a specialist whom are consulted
and remunerated for the services rendered.

There are obvious advantages in using staff managers.

 They are specialists in their particular field, and therefore have expertise about
their subjects
 As specialists, they have access to information about a particular subject and
make it available to line managers.
There are some disadvantages to using staff managers.
 One is that they may try to tell line managers what to do and how to do it, thus
undermining the latter's authority. This creates conflict in the organisation.
 They do not have to accept responsibility for their advice and plans. Failure can be
placed on the line manager for not having used the advice correctly.
 Staff managers may also produce advice and plans that are not consistent with the
organisation’s strategies and objectives.
 It is also likely that staff managers are highly educated in their particular field and
can make the line manager feel threatened or inferior.

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In order for these relationships to work successfully, certain requirements are
needed:
 A clear definition is needed about the relative roles and responsibilities of each
category of manager.
 Line managers must be educated about the benefits of using staff advice.
 Staff managers must be held responsible for the quality of the advice they give and
its ability to solve problems.

FUNCTIONAL ORGANISATION
GENERAL MANAGER

HEAD HEAD HEAD HEAD HEAD HEAD HEAD

PURCHASE PRODUCTION ADMIN PERSONNEL FINANCE EXTERNAL MARKETING
RELATIONS

A B C D X Y Z

B1 B2 B3 B4 Y1 Y2 Y3

= LINE AUTHORITY
= FUNCTIONAL AUTHORITY

This organisation structure is based on the idea called the division of work. The
idea is known as departmentalisation, which means that jobs that are similar are
grouped together. These groups are known as “functions”. Functional managers
are in charge of each functional area.

The advantages of this structure are:

 Key activities are in the functional departments.
 It allows for a high degree of specialisation in each function.
 It is easy to recruit, train and develop specialists in each function.
 Accumulated experience in each function develops greater individual and collective
efficiencies in the department.
 Growth and expansion inside a department are relatively easy because the
structure is in place and operating.
 There is central responsibility for the results of the organisation.

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The disadvantages of this structure are:

 The general manager must be skilled at integrating and coordinating the
operations as one system. He must also have knowledge of each of the functions
to manage them effectively
 The managers in each function remain specialists and do not develop general
management skills and experience.
 The functional specialist managers often tend to concentrate on their own
department's performance and lose sight of the objectives of the organisation as
a whole. "Empire-building" sometimes occurs.
 It is often difficult to assess responsibility for performance or lack of it.
 Power struggles may occur between functional managers because they are
"pushing" for their status.
 Business processes that deliver value to customers run across the departmental
boundaries. This means that it is fragmented into paragraphs and does not operate
as one co-ordinated process. Most departments participate in the marketing and
selling processes and the execution of customer orders. Very good horizontal
communication and coordination between the departments are necessary to
ensure the organisational system functions effectively and efficiently. This is often
a major problem with structures of this type.
 Decision-making can be slow if the organisation has several layers of
management, and if agreement is needed from all functions.

MATRIX ORGANISATION

The matrix structure is used less often than the other types. It goes against
conventional principles of organising, because individuals report to two managers.
This type of structure is often used on major projects, where professionally skilled
people are brought together for a limited time to achieve a specific target.
One manager is a functional expert, and controls his people from the functional
expertise, training, rewards, and development aspects. The other is a business, or
project manager, in charge of the daily, operational performance on projects.

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Example of a matrix or project organisational structure. Adapted from Ferreira et al.
(2009:356)

The matrix structure has the following advantages:

 It allows the organisation to focus on key aspects of business performance.
 One is functional expertise; the other is project management or business skill.
 It allows the organisation to take advantage of key- people for specific projects.
 It helps individuals and teams to focus on results for the organisation as a whole,
rather individual departments or functions.
 It encourages teamwork among diverse individuals on one project or aspect of the
business.
Some disadvantages are:
 It is very hard to manage in this structure because individuals may play one
manager against the other.
 Very good communication procedures are needed.
 It requires competent project managers because they have to build a team on
each occasion.
 Decision-making may be protracted because of the number of individuals who
must consulted.
 Individuals must be adaptable and flexible because they- will be working on
different projects and with different people. Good interpersonal skills are needed.

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STUDY AND RESEARCH

MANAGEMENT PRINCIPLES 4TH EDITION

Study 8.4 “The organising process”, pages 189-190.
Study 8.5 “The principles of organisation”, pages 190-194.
Study 8.6 “Authority”, pages 194-199.
Study 8.7 “Organisational design”, pages 199-206.
MANAGEMENT PRINCIPLES 5TH EDITION
Study 8.4 “The organising process”, page 219.
Study 8.5 “The principles of organisation”, pages 219-224.
Study 8.6 “Authority”, pages 224-228.
Study 8.7 “Organisational design”, pages 229-235.

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LESSON 3.3
THE DESIGN OF JOBS AS
A MOTIVATIONAL FACTOR

In this Lesson:
Job design is undertaken keeping in mind job satisfaction and
performance. Job design plays an important role in enhancing motivation level
of the employees at the workplace.

CONCEPTS AND VOCABULARY TERMS YOU NEED TO UNDERSTAND:

 Job design: the process of combining tasks that employees are responsible
for. The term job design refers to the way that tasks are combined to form
complete jobs. Some jobs are routine because the tasks are standardised and
repetitive and others are non-routine. When jobs are changed, job redesign
takes place.
 Job re-design refers, more specifically, to any activities that involve the
alteration of specific jobs that seeks to increase both the quality of an
employee’s work experience and on-the-job productivity.
 Job specialisation: the narrowing-down of activities to repetitive routines.
 Job expansion: the process of making a job less specialised.

Key points:
 Organisational design is the arrangement of positions into work units or
departments. These are interrelated in an organisation.
 Job design is the process of combining the tasks that each employee is
responsible for and is performed once the organisational structure is in place.
 Jobs must be designed in such a manner that it motivates the incumbents of the
different positions to contribute towards the organisation’s goals.
 Encouraging employees to be involved in designing their own jobs motivates them
and increases productivity.
 Job specialisation is used in industries where many employees are illiterate or very
inexperienced in the workings of a business.
 Job expansion can occur through job rotation, job enrichment or job enlargement.
 Job rotation: different jobs are performed in a set period of time.
 Job enrichment: is implemented by adding depth to a job, giving an employee more
tasks as well as more control over the job.

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 Job enlargement: an employee carries out a wider range of activities of the same
level of skill. The job will be more interesting as it is more varied.
Human resources planning describes the intended actions of the organisation to
ensure that the organisation has the right number and right mix of people at the
right time and place to achieve present and future organisational goals, efficiently.
Human resources planning forms the first step in the human resources provision
process. The concepts underlying human resources planning is job design, job
analysis, job specification and job description. Before any decisions can be taken
with regards to the number and types of individuals necessary to carry out a job,
one first has to look at the job itself.

Different approaches can be followed during job design, for example:

 Job enlargement: Job enlargement increases the number and variety of tasks
that an individual performs, which results in jobs with more diversity. “Whole” jobs
eliminate repetitiveness and give more meaning to the work.
 Job enrichment: Job enrichment refers to the vertical expansion of jobs. It
increases the degree to which the worker controls the planning, execution and
evaluation of his job. An enriched job allows workers to do a complete activity,
increases the employee’s freedom, independence and responsibility and provides
feedback so individuals will be able to assess and correct their own performance.
 Job simplification: This means that the job is divided into smaller parts so that
lower skilled employees can carry out the less important parts.
 Job rotation: Job rotation increases variety by permitting workers to shift jobs
periodically. The strength of job rotation is that it reduces boredom through
diversifying the employee’s activities and makes it possible to distribute unpleasant
jobs. The job design has a definite influence on the employee’s motivation to
perform and thus on the organisation and organisational effectiveness.

STUDY AND RESEARCH

MANAGEMENT PRINCIPLES 4TH EDITION

Study 8.8 “Job design”, pages 206-207.
MANAGEMENT PRINCIPLES 5TH EDITION
Study 8.8 “Job design”, pages 235-236.

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Study 8.8 “Job design”, pages 235-236.

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 CHAPTER 3
ORGANISING
CONTINUES...

MANAGING CHANGE: CULTURE,

INNOVATION AND TECHNOLOGY

IN THIS CHAPTER:
 LESSON 3.4 : ENVIRONMENTAL FORCES THAT REQUIRE
ORGANISATIONS TO CHANGE
 LESSON 3.5 : THE CHANGE PROCESS AND MAIN AREAS OF
ORGANISATIONAL CHANGE
 LESSON 3.6 : OVERCOMING RESISTANCE TO CHANGE
 LESSON 3.7 : CORPORATE CULTURE

AT THE END OF THIS CHAPTER YOU WILL BE ABLE TO:

1. Explain how environmental change forces the organisation to adapt.
2. Differentiate between first-order and second-order change.
3. Depict and discuss the change process.
4. Identify and discuss the four main areas of organisational change.
5. Recommend ways of overcoming resistance to change.
6. Explain what the concept of organisational culture encompasses.
7. Discuss the importance of managing the organisational culture in order to
change the organisation.
8. Explain briefly what organisational culture analysis encompasses.
9. Explain the importance of aligning the organisation’s culture with the chosen
strategy and structure.
 LESSON 3.4
LESSON 3.4
ENVIRONMENTAL FORCES THAT REQUIRE
ORGANISATIONS TO CHANGE

In this Lesson:

Nothing is as upsetting to your people as change. Nothing has greater

potential to cause failures, loss of production, or falling quality. Yet nothing is
as important to the survival of your organisation as change. History is full of
examples of organisations that failed to change and that are now extinct. The
secret to successfully managing change, from the perspective of the
employees, is definition and understanding.

CONCEPTS AND VOCABULARY TERMS YOU NEED TO UNDERSTAND:

 Change: moving from the familiar to unfamiliar. It is about making things
different. Change varies in scale, the number of people involved, the driving
force or triggers and the methods of change.

Key points:
 An organisation is influenced by the forces of change in the environment.
 Change is complicated, as people are involved and people have a natural
resistance to change.
 When the pace of change in the environment outstrips the pace of change inside
the organisation, the organisation will run into problems.
 Managers must sense the need for change and look beyond ‘comfort zones’.
 Understanding when and how to change is a vital management function.
Examples of changes are:
 New products
 Technological developments and breakthroughs
 Demands for environmental friendly products
 Cultural diversity
 Legislation
 Global competition
 Employment equity acts and labour laws
 Changing lifestyles
 Climate change Etc.

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 Forces from inside the organisations that may cause change include implementing
new strategies and revised mission statements.
 Internal change often occurs as a result of changes in the external environment,
such as changes in corporate governance that will cause reporting systems to
change.
 Mangers can respond to internal need for change either through reactive change or
planned change.
 Reactive change is hurried an poorly planned, and is called crisis management.

Change can be planned in anticipation of future events or it can be in reaction to

events. Some changes are predictable, others completely discontinuous. Internal
change comes about from the fact that South African businesses are continually
confronted with demands originating from political change incorporating affirmative
action and the elimination of discrimination concerning race or gender. Businesses
today are faced with a diverse workforce in terms of race, age, culture, gender,
education etc. Change can come from a variety of sources. These sources can be
external triggers and external triggers that impact on a business.

Van Tonder (2004:21) provides the following examples of external triggers for
change:
 changes in the broader environment such as political shifts,
 technological developments;
 changes in the economic and legal frameworks;
 industry specific trends;
 competitive initiatives by other businesses.

Examples of internal triggers for change are:

 the implementation of a new it system;
 a new CEO with a unique management style or strategy;
 new products or market developments;
 process innovation;
 restructuring.

ORGANISATIONAL DEVELOPMENT:

Organisational development is a field of applied behavioural science focused on

understanding and managing organisational change. Organisational development
is defined as a planned effort by organisations, managed from the top to increase
organisational effectiveness through planned interventions in the organisations
processes using behavioural science knowledge.

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This includes making changes in:
 Job descriptions;
 Decision-making processes;
 Shape, size and nature of divisions and departments;
 Managerial style;
 Quality of programmes;
 Mechanisms for reporting and exercising accountability;
 Human resource management practises.

Field analysis remains a popular change management tool. It conceptualises

organisational change as a process shaped by the interaction of driving forces for
change with retraining forces impending change. Organisations are systems held in
balance by equal and opposing forces.
When examining the internal and external driving forces of change, we need to
look at the variables in the macro– and market environment.

For this balance to be altered, in other words for change to take place, there must
be either a strengthening of the driving forces for example:
 legislation;
 globalisation has the effect of world-class competitors entering the South African
market;
 economic imperatives;
 competitive pressure;
 changing needs and preferences of the business’s customers;
 technological innovation such internet banking etc.

or a weakening of the straining forces (forces against change) for example:

 traditional practices;
 organisational culture;
 job security;
 fear of the unknown;
 potential loss of power base;
 lack of resources;
 lack of organisational capability.

LEWIN’S THREE PHASE MODEL OF CHANGE

Kurt Lewin is responsible for introducing the force field analysis approach to
manage planned business change. This model recognises that change is the
consequence of a disturbance in the force field surrounding an entity or business,
and that the objective should be to re-establish a situation of equilibrium (balance).

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The underlying principle is that the driving forces must outweigh straining or
resisting forces in any situation if change is to happen (Cameron & Green, 2004).
This force field system consists of three stages to describe the process of
organisational change:

STAGE 1:

Unfreezing the current organisational balance. This involves the process of

making people aware of their habitual modes of thinking and behaviour and making
them aware of the need to change (Senior, 2002).
Main tasks of the change agent during this stage are to: (Kroon, 1995:512)
 create a need to change by identifying the reasons for the need;
 to analyse the current situation;
 to describe the ideal future state;
 to prepare a strategic plan.
STAGE 2:

Moving / changing to a new position. This process involves making the actual
changes that will take the business to a new level.
The main tasks involve:
 establishment of new strategies and structures;
 establishment of new policies and systems.
STAGE 3:

Refreezing in the new position. This process involves making the changes
permanent and rewarding desired outcomes by offering rewards for performance.
The main tasks involve:
 Offering positive reinforcement
 providing resource support;
 the change agent should stabilise the change.
Therefore the best strategy for change is to reduce the restraining forces and
thereby increasing the driving forces. The organisation must be awakened by a
new reality and must disengage from the past, recognising that the old ways of
doing things is no longer acceptable.

The organisation needs to embrace a new vision of the future, uniting behind the
steps necessary to achieve that vision. Finally as new attitudes, practises,
processes and policies are put in place to change the company, these must be
“refrozen” or solidified. This effort can only be successful if the whole company
participates in the change effort. A change agent is mostly used to manage the
planned change process as he/she is an independent external management
consultant or facilitator.

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People in the organisation can be divided into three change categories:
 Change strategists: The board of senior managers and professional leadership.
 Change implementers: This could be project coordinators for quality
improvement.
 Change recipients: This includes all the employees in the organisation.

Making recommendations for change.

Goal directed recommendations are made for consideration by management. Key
stakeholders are approached with recommendations. Barriers to achieving the
desired outcomes is identified and solutions are presented.

Resistance to change on an individual level:

Change triggers emotional reactions because of the accompanied uncertainty. The
business manager should take resistance to change into account when considering
making changes and during the planning phase of change. Resistance to change
by organisational stakeholders is a strong restraining force. Resistance can be a
major source of conflict. There are many personal reasons for resistance to
change, one of which some people are more concerned about their own interests
than that of the business. Questions such as: “what about me?” often arise. People
fear that they might lose something valuable through the change process, such as
their job, status in the business or fear of their future role in the business. Often,
people don’t understand the reasons for the change or don’t agree with the
changes. Stakeholders resist change not purely on emotional grounds but for
reasonable and predictable reasons:

1. Narrow-minded self-interest:
This occurs when stakeholders expects to lose something as a result of change
being implemented.
It may include factors such as:
 loss of power;
 loss of confidence;
 additional workload;
 loss of income;
 job insecurity .
2. Resentment:
Resentment develops either within particular people because of change, often
called change fatigue or due to the increased presence of power and authority.
This accurse as a result of the number and range of instructions that almost
inevitably flow from management in implementing change.

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3. Different perceptions of change:

Perceptions depends on a person’s position in the company and their access to
information.
4. Misunderstanding or lack of trust:
This is normally a symptom of poor communication.
5. Low tolerance for change:
Fear of being unable to learn new skills or new work behaviour.

Resistance to change at group (division or department) level:

These people may resist change if they feel that their group structure, social norms
or power base is being affected. At organisational level it has been suggested that
a series of interrelated factors may contribute to resistance, including
organisational structures, culture and strategy.

Resistance to change has been characterised as cognitive blockage:

 “Don’t need to change” blockage: based on the inability or unwillingness to
monitor the organisational environment for forces of change.
 “Can’t change” blockage: This blockage centres around the lack of resources or
power
 “Won’t change” blockage: This blockage is primarily linked to political issues in
which people or groups think that the cost of change outweighs the potential
benefit.

OVERCOMING RESISTANCE TO CHANGE

The following strategies can be used to overcome resistance to change:

 Education and communication: People need to understand the reasons for change.
Allow employees the opportunity to ask questions. Confirm the benefits of the
changes to all the stakeholders. One-on-one discussions about the proposed
changes should be held to encourage participation in a heartfelt environment.
 Participation: When employees are encouraged to participate in the planning
process they feel that their opinions and view matter to the organisation. This will
give them a sense of belonging and worth.
 Facilitation and support: Facilitation involves providing resources to the employees
to perform the changes without any deviations in performance. Employees should
be support on a psychological and emotional level to help them cope with their
reactions to the new changes.
 Negotiation: A possible way to reduce resistance to change is to offer and
negotiate something of value to the employee in exchange for their support. This
strategy is however a very dangerous rout to take as it can open up the possibility
of satisfying one group and aggravating another.

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The three steps to successful organisational change:
1. Changes for quality improvement should be driven by a “vision” of what needs to
be accomplished. The “why” and “when” of the change must be realised. A
fundamental change strategy should be adopted by all.
2. The culture of the organisation needs to be receptive to change for change to
actually occur. Perceptions and behaviour of individual stakeholders and recipients
must be acknowledged, resistance overcome. Change must be supported by the
entire organisation.
3. Focused attention is needed on the process of implementing the changes. Change
does not happen because someone has a vision. It happens where there is a
shared vision and the change is managed in a receptive culture. Taking into
account individual styles, motivations and readiness to adopt change, the rational,
emotional, as well as a flexible approach to managing the whole change process.

Implementing change.
Change must be implemented according to the agreed methods. Support
measures are implemented. Individuals are assisted with overcoming resistance to
change and rewarded for positive contributions.

Recommendations for the implementation process:

 Continually align the project with the vision of where the company is going and with
the wider organisations vision.
 Manage the project effectively by employing or appointing a person who is
dedicated to the task of overseeing the project on a day to day basis.
 Appoint a project team from across different levels in the organisation to advise on
the process.
 Show or demonstrate early and middle term success to all involved in the process
by showing evidence of benefits achieved through the implemented changes.
 Allow time for feedback from all involved. Take time to listen to positive responses,
objections and allow for adjustments.
 Planning for individual futures takes time. Have a source of transitional funding
available to provide incentives for change. From physical restructuring to
redundancy or early retirement payment as well as Training and Development
funds for skills development initiatives. Anticipate the need for such investments
rather than being reactive to events or barriers brought up during the process.

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Progress is monitored to ensure smooth implementation. Progress is

regularly reported to all stakeholders. Stakeholders needs to be informed on
the progress made since implementation of the project.

This updating is usually handled by progress reports, which can take many forms:
 Memoranda;
 Letters;
 Short reports;
 Formal reports;
 Presentations.

Content of a progress report:

Depending on the situation most progress reports have the following similarities in
content:

1. Background on the project itself:

In many instances, the stakeholders is responsible for several projects. Therefore,
they expects to be informed as to:
 what the project is about;
 what its objectives are;
 what the status of the project was at the time of the last reporting.

2. Discussion of achievements since last reporting.

This stage follows the progress of the tasks presented in the proposal's schedule.

3. Discussion of problems that occurred.

Progress reports are not necessarily for the benefit of only the stakeholders. Often,
the project manager benefit from the reporting because he or she can share or
warn the stakeholders about problems that occurred. In some situations, the
stakeholders or people involved in the change process might be able to direct the
organisation toward possible solutions. In other situations, you might negotiate a
revision of the original objectives, as presented in the proposal.

4. Discussion of work that lies ahead.

During this stage, the plan for meeting the objectives of the project should be
discussed. In many ways, this section of a progress report is written in the same
manner as the "Plan of Action" stage of the proposal, except that now you have a
better perspective for the schedule and calculated earlier.

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5. Assessment of whether the objectives will be met.
Stakeholders expects that the objectives will change somewhat during the process,
so be honest about the changes. A positive attitude needs to be communicated to
strengthen confidence in the project.

STUDY AND RESEARCH

MANAGEMENT PRINCIPLES 4TH EDITION

Read 9.1 “Introduction”, pages 214-216.
MANAGEMENT PRINCIPLES 5TH EDITION
Read 9.1 “Introduction”, pages 247-249.

OTHER RECOMMENDED READING:

“Who moved my cheese?” by Dr Spencer Johnson is a must read for any one going
through change. The importance of understanding different personalities of people and
how they react to change. Written for all ages this story takes less than an hour to read,
but its unique insights can last for a lifetime. “Who moved my cheese? is a simple
parable that reveals profound truths. It is an amusing and enlightening story of four
characters who live in a maze and look for cheese to nourish them and make them
happy. Cheese is a metaphor for what we want to have in life and the maze is where
we look for what we want. This profound book from bestselling author, Dr S Johnson
will show you how to anticipate change, adapt to change quickly, enjoy change and
lastly be ready to change quickly, again and again.”

The manager’s pocket guide to Corporate Culture Change by Richard Bellingham,

Ed.D. ISBN. 087425616X. This guide provides the essential methods for mobilising
people behind shared values. The book provides interesting reading material on how to
overcome cultural barriers and focus on change.
All improvements requires change, and improving quality in an organisation involves
changing the way that things are done, changes in processes and in the behaviour of
people and teams of people. Whether a quality improvement programme includes the
whole organisation in “macro” change or whether a team, division or department is
reorganising on a “micro” scale, the same principals of change management apply.

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LESSON 3.5
THE CHANGE PROCESS AND MAIN AREAS OF
ORGANISATIONAL CHANGE

In this Lesson:

Leaders and managers continually make efforts to accomplish successful and

significant change -- it's inherent in their jobs.

CONCEPTS AND VOCABULARY TERMS YOU NEED TO UNDERSTAND:

 Change agent: those people who make change happen.
 Areas of organisational change: those areas in which the majority of
changes take place.
 Change management process: the formal and carefully planned process
that a delegated manager or team will use to manage their implementation of
a significant change. Every management process will be unique, but certain
issues will need to be addressed in all such processes. Ford & Le Roux
(2008:143)

Key points:

 The first step in the change process is the recognition of change – managers
often does not recognise the need to change, or they perceive the change as
being too drastic and they do not want to ‘rock the boat’. Changes need strong
leadership who can create a vision of the future despite uncertainties created by
change.
 The need for change may be caused by various factors, for examples a decline in
turnover, a strike, budget deficits, changing product offerings, technological
advantages.
 The second step is to clearly state the desired outcome of the change.
 The third step is to diagnose the causes that necessitated change. The reasons
must be analysed and corrected.
 The fourth step is to select a change agent so that the change can take place.
 The fifth step is to plan the implementation by considering cost, target dates, and
the influence on the rest of the organisation.

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 Once the change is implemented, it must be evaluated to see if the change has
been successful.

Areas of organisational change are strategy, structures, technology and people. A

change in one of these areas will often bring about change in another areas or
areas.
 Change in strategy: any change in the future course of the business will result in
changes in the functional strategies and in other areas of the organisation.
 Change in organisational structure: involves changes in management levels,
span control, authority or decision making.
 Technological change: involves altering equipment or engineering processes,
production or systems processes.
 Changing people: it may be necessary to change beliefs, values, attitudes or to
change competency levels of people.

We have learnt thus far that change is the continuous adoption of business
strategies and structures in response to changing internal pressures or external
forces. Change happens whether we encourage and welcome it or not. In order to
take control of the change process and to ensure that it is a positive and not a
negative process, business must have a vision, a strategy and a proven process
for managing change.

According to Stimpson & Farquharson (2012:635) “business as usual” will become

increasingly rare as global, economic and technological upheavals necessitate a
business response. Change management requires organisations to be able to
cope with dramatic once-off change as well as more gradual evolutionary change:
 evolutionary or incremental change occurs quite slowly over time, e.g. the
movement towards more fuel-efficient cars or environmentally friendly cars etc.
These changes can be anticipated or unexpected. Obviously, incremental changes
that are anticipated tend to be easier to manage.
 Dramatic or revolutionary change, especially if unanticipated, causes many
more problems. For example conflict in Kenya in 2008 forced many luxury safari
holiday companies to re-establish themselves. In extreme cases, these dramatic
changes might lead to re-engineering of the organisation.

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Table 3.5 below provides some common causes of change and how to recognise
the major causes of change. Adapted from Stimpson & Farquharson (2012:654)

Nature of change Examples of change Managing change

Technological advances -  Products: new computer  Need for staff re-training

leading to new products and software, iPods and  purchase of new
new processes iPhones, hybrid-powered equipment
cars  additions to product
portfolio (other products
to be developed)
 Need for quicker product
development, which may
need new organisational
structures and teams.

Macro economical changes -  Changes in consumers’  Need for flexible

fiscal policy, interest rates, disposable incomes - and production systems -
fluctuations in the business demand patterns that including staff flexibility -
cycle result from this to cope with demand
 boom or recession changes.
conditions - need for extra  explain need for extra
capacity or rationalisation. capacity or the need to
rationalise.
 deal with staff cutbacks in
a way that encourages
staff who remain to
accept change.

Legal changes  Changes to what can be  Staff training in terms of

sold (raising the age of company policy and
buying cigarettes) or legislation in terms of
advertising regulations (in regulations pertaining to
term of cigarettes) the sale of certain items
 Not permitting alcohol to etc.
be sold at certain times or
days of the week.

Competitors’ actions  Newer products  Encourage new ideas

 lower prices (based on from staff
higher competitiveness/  increase productivity by
lower costs accepting the need to
 higher promotion budgets change production
methods
 ensure resources are
available to meet
challenges

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Stimpson & Farquharson (2012:655) developed a checklist of essential points that
managers should consider before attempting to introduce significant changes in an
organisation.

Essential point to consider:

Recognise the reasons why the business needs to introduce change.

A new vision and objectives must be communicated to stakeholders.

Ensure resources are in place to enable change to happen.

Give maximum warning of the change.

Involve staff in the planning and implementation phases.

Communicate through all of the stages.

Introduce initial changes that bring quick results.

Focus on staff training.

Sell the benefits.

Remember the effects on the individual.

Check on how individuals are coping and support them.

Stimpson & Farquharson (2012:655) points out that all strategic changes must be
managed. This means that:

 new objectives need to be established that recognise the need for change.

 resources (finance and staff) need to be made available for the change to be
implemented.

 appropriate action needs to be taken and regularly checked on to ensure that the
planned changes are introduced.

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THE PROBLEMS OF CHANGING ORGANISATIONAL CULTURE

According to Stimpson & Farquharson (2012:651) changing the value system of a

business and attitudes of all staff is never going to be an easy task. The process
could take many years before all staff and processes have been ‘fully converted’.
Changing the organisational culture could mean changing the way people think and
react to problematic situations. It can also mean directly challenging the way things
have been done for years until now. It may also involve substantial changes of
personnel, job descriptions, communication methods and working practices. Much
work has been done on analysing the ‘best way’ to bring about change to an
organisation’s culture. They key common elements to these different approaches
are:
 concentrate on the positive aspects of the business and how it currently operates,
and enlarge on these;
 obtain the full commitment of people at the top and key personnel.
 establish new objectives and mission statements that accurately reflect the new
values and attitudes that are to be developed;
 encourage ’bottom-up’ participation of employees when defining existing problems
or when devising new solution;
 train staff in new procedures and new ways of doing things to reflect the changed
value systems of the business;
 change the staff reward system to avoid rewarding success by doing things the ‘old
way’ instead ensure that ‘new’ appropriate behaviour is encouraged and receives
the deserved recognition.

THE NATURE OF INNOVATION AND CHANGE

Hellriegel et al. (2008:368) points out that in fast-moving organisations, innovation

and change go hand-in-hand. Innovation is the process of creating and
implementing a new idea. Because new ideas can take various forms, many types
of innovation are possible:

 Technical innovation may refer to the creation of new products and services.

 Process innovation may occur even if new products and services are not
developed. This process may involve creating new ways of producing, selling and/
or distributing an existing product or service.

 Administrative innovation occurs when creation of a new organisational design

improves the production and delivery of products and services. Examples of
administrative innovation includes virtual teams and computerised information
management systems.

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STUDY AND RESEARCH

MANAGEMENT PRINCIPLES 4TH EDITION

Study 9.3 “The change process”, pages 217-219.
Study 9.4 “Areas of organisational change”, pages 219-221.
MANAGEMENT PRINCIPLES 5TH EDITION
Study 9.3 “The change process”, pages 250-252.
Study 9.4 “Areas of organisational change”, pages 252-254.

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 LESSON 3.6
LESSON 3.6
OVERCOMING RESISTANCE TO CHANGE

In this Lesson:

Change often results in emotional reaction, as people are uncertain of the

effects of the change. People get used to routine, activities, surroundings,
systems and they feel comfortable with their current situation, also called a
comfort zone. Change implies that the familiar is changed for the unknown,
and people do not know what to expect. It is therefore imperative that when
planning for change, management must take resistance into account and take
steps to counter it.

CONCEPTS AND VOCABULARY TERMS YOU NEED TO UNDERSTAND:

 Evolutionary change: a gradual change, impacting only on one or two
departments, without major repercussions to other parts of the system.
 Revolutionary change: radical change, impacting on the whole organisation
and often needs re-engineering of the entire organisation.
 OD – Organisational development: a planned, organisation-wide effort to
increase an organisation's effectiveness and viability.

Key points
 Education and communication: the nature and the logic of the change should
be communicated and explained to people. It is important that people understand
the change.
 Participation and involvement: gives employees a change to express fears and
to be part of decision making.
 Facilitation and support: involves providing resources and in some instances
psychological support.
 Negotiation and rewards: a proposed change is negotiated with the parties
involved and an agreement reached.

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 Reasons for efforts that fail are:
 Too much complacency
 No sufficient coalition to make change happen
 Absence of an exciting vision
 Under-communicating the vision
 Permitting obstacles to block the vision
 Failing to create short-term wins
 Neglecting to anchor changes in corporate culture.

We have learnt that top managers are responsible for making changes that will
ensure that the organisation use emerging opportunities and minimize the effects
of possible threats. Resistance to change amongst employees is a reality and
managers have to be able to convince their employees of the necessity of the
changes in order to get their co-operation. They must also be able to assist
employees to deal with the anxiety and uncertainty that comes with change.

STUDY AND RESEARCH

MANAGEMENT PRINCIPLES 4TH EDITION

Study 9.5 “Resistance to change”, pages 221-225.
MANAGEMENT PRINCIPLES 5TH EDITION
Study 9.5 “Resistance to change”, pages 254-258.

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 LESSON 3.7
LESSON 3.7
CORPORATE CULTURE

In this Lesson:

The culture of an organisation is almost like a personality, and this culture will
influence activities in the organisation. Some changes necessitates changes in
the corporate culture, therefore it is necessary to analyse the current culture.
The corporate culture should be well aligned with the organisation’s strategy
and structure, as it could become a potent source of resistance to change.

CONCEPTS AND VOCABULARY TERMS YOU NEED TO UNDERSTAND:

 Corporate culture: the values, attitudes and beliefs of the people working in
an organisation that control the way they interact with each other and with
external stakeholder groups.
 Organisational Culture Analysis (OCA): an instrument that can determine
the difference between the current culture and the desired culture.

Key points:
 Corporate culture refers to a set of assumptions that work so well that they are
regarded as valid assumptions within the organisation.
 Elements that determine an express a corporate culture are:
 Symbols
 Rituals
 Ideologies
 Language
 Tales
 Assumptions
 Relationships
 Humour
 These elements form the content of the corporate culture. The content drives the
behaviour of the people.

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 Corporate culture is an asset to a company, but can become a liability if not
properly managed. This happens when important beliefs and values interfere
with the strategy and structure of the organisation.
 A strong culture has a big influence on organisational behaviour and is more
resistance to change.
 Changing an organisation’s culture is usually preceded by and OCA.
 The OCA is a barometer of the difference in current culture and that which is
desired. It is an analysis of whether or not conditions for competence exist.
 The OCA measures three conditions for competence:
 Collaboration;
 Commitment;
 Creativity.
 There are three basic approaches that managers can follow to change culture:
 Getting people to subscribe to a new pattern of beliefs and values.
 Removing people who deviate from the culture
 Strengthening the prevailing culture through communication and training.
 In severe cases mergers or acquisitions can be used to change culture.
 Managers must know when to change the prevailing culture.

Stimpson & Farquharson (2012:647) defines corporate culture as ‘the way we do

things around here’. This means how the people in the organisation look at the
world and how they respond to it in trying to achieve certain goals.
It can be said that the corporate culture of an engineering company is very different
to that of a hospital. Similarly, in some schools culture is driven by the need for
excellent examination results, while others view that educating a person for the
‘world of work’ is more important. The culture of an organisation gives it a sense of
identity and is based on the values, attitudes and beliefs of the people who work in
the organisation.

STUDY AND RESEARCH

MANAGEMENT PRINCIPLES 4TH EDITION

Study 9.6 “Culture and change”, pages 225-230.
Study 9.7 “Organisational development”, pages 230-231.
MANAGEMENT PRINCIPLES 5TH EDITION
Study 9.6 “Culture and change”, pages 258-263.
Study 9.7 “Organisational development”, page 263.

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 CHAPTER 3
ORGANISING
CONTINUES...

MANAGING DIVERSITY

IN THIS CHAPTER:
 LESSON 3.8 : DIVERSITY DEFINED AND EXPLAINED
 LESSON 3.9 : STRATEGIES FOR MANAGING DIVERSITY
 LESSON 3.10 : MANAGING CULTURAL DIVERSITY

AT THE END OF THIS CHAPTER YOU WILL BE ABLE TO:

1. Define and distinguish diversity from what it is not.
2. Identify the primary and secondary dimensions of diversity.
3. Recommend strategies for managing diversity.
4. Describe the opportunities and the challenges presented by diversity.
5. Define ethnocentrism and stereotyping.\Recognise and explain cultural
differences.
6. Recommend approaches for managing cultural diversity.

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LESSON 3.8
DIVERSITY DEFINED AND EXPLAINED

In this Lesson:

For many businesses, it's a disappointing and unfortunate conclusion:

diversity efforts have not made the progress that so many had hoped for since
South Africa’s transition to a constitutional democracy. Understanding why
South African businesses and organisations in general have not made more
diversity progress is complex. The bottom line: to maximise the impact of
diversity efforts, diversity work must be woven directly into the business'
people strategies and the way we manage our businesses.

People are distinguished as groups by biological and environmental

differences. Working with people whose values, attitudes, beliefs, perceptions,
languages and customs are very different from one’s own can make from
costly misunderstanding, miscommunication, misperception and
misevaluation. Diversity in South Africa is very dynamic and complicated as a
result of a history of legislated race separation.

A diverse workplace is better able to understand the demographics of the

marketplace it serves and is thus better equipped to thrive in that marketplace
than a company that has a more limited range of employee demographics.
Since there are many misconceptions about diversity, understanding diversity
can be made easier by ascertaining what it is not.

CONCEPTS AND VOCABULARY TERMS YOU NEED TO UNDERSTAND:

 Diversity: refers to all people (men and women, people of many generations,
people from ethnically and racially diverse backgrounds etc.) who bring a
variety of backgrounds, styles, perspectives and beliefs as assets to groups in
an organisation.
 Workforce diversity: organisations are becoming more heterogeneous in
terms of gender, race, ethnicity, ability, age and other aspects of
differentness.
 The platinum rule: treat others as they want to be treated.

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Key points
 Diversity is not culture. This only focuses on differences, and not on ways in
which people are alike. It is therefore exclusive, not inclusive.
 Diversity is not equal employment opportunities or affirmative action. Employment
equity (EE) and Affirmative action (AA) are laws enforced on people while valuing
diversity affirms people’s differences as an asset.
 Diversity is not an absence of standards. The focus should be on a person’s
capabilities and system adjustments that support diversity.
 Diversity is not a vendetta against white males. It is critical to look to the future
without blaming one group.
 Diversity is about demographics.
 Diversity is about profitability. It fosters teamwork and helps organisations identify
and meet the needs of customers and consumers.
 Diversity is about values. It has to do with human rights, civil rights and religious
beliefs.
 Diversity is about behaviour.
 Diversity is a long-term process. Long-term commitment to a comprehensive
strategy, including training, is necessary.
 Diversity enables people to retain individuality while contributing to a
collectively larger picture. It includes everyone and is an asset.
 The platinum rule is the cornerstone of diversity behaviour. Treat others as
they want to be treated!
 Shifts in demographics, changing immigration patterns and social change are
factors that affect the work environment.
 The following are dimensions of diversity:
 Gender issues
 Age
 Marital status
 Physical ability
 Language

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 LESSON 3.8
STUDY AND RESEARCH

MANAGEMENT PRINCIPLES 4TH EDITION

Read 10.1 “Introduction”, pages 233-235.
Study 10.2 “Misconceptions of diversity”, pages 235-238.
Study 10.3 “What is diversity?”, pages 238-239.
Study 10.4 “Diversity defined”, pages 239-241.
Read 10.5 “Reasons for the increased focus on managing workforce
diversity”, pages 241-243.
Read 10.6 “The need for diversity management in South Africa”, pages
243-244.
MANAGEMENT PRINCIPLES 5TH EDITION
Read 10.1 “Introduction”, pages 269-270.
Study 10.2 “Misconceptions of diversity”, pages 271-274.
Study 10.3 “What is diversity?”, pages 274-275.
Study 10.4 “Diversity defined”, pages 275-277.
Read 10.5 “Reasons for the increased focus on managing workforce
diversity”, pages 277-279.
Read 10.6 “The need for diversity management in South Africa”, pages
279-280.

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 NOTES:

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 LESSON 3.9
LESSON 3.9
STRATEGIES FOR MANAGING DIVERSITY

In this Lesson:

To address diversity issues, consider these questions: what policies,

practices, and ways of thinking within our organisational culture have
differential impact on different groups? What organisational changes should
be made to meet the needs of a diverse workforce as well as to maximize the
potential of all workers?

In order to use diversity to enhance the effectiveness of the company,

management must be aware of the negative impact that stereotypes,
prejudices and discrimination have on employees. They must demonstrate in
a real and observable manner that they value diversity and do not discriminate
against anyone because they are different. If management does not address
the challenges and opportunities posed by diversity, staff could become
de-motivated, frustrated and some may even resign.

Conflict between employees may increase. This could result in a destructive

and unhappy environment. Absenteeism may also increase because of staff
dissatisfaction. It is the manager’s responsibility to help staff members accept
diversity.

CONCEPTS AND VOCABULARY TERMS YOU NEED TO UNDERSTAND:

 Afro-centric: Centred or focused on Africa or African people, especially in

relation to historical or cultural influence:
 Eurocentric: Centred or focused on Europe or European people (or white
people in this context) especially in relation to historical or cultural influence:
 Ascription: assigning some quality or character to a person or thing
 Monoculture: mono-cultural - having only one (single) culture;
 Inclusivity: Non-dominant groups are represented and participative within the
workplace.

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 MANAGING CULTURAL DIVERSITY
Key points:
Three perspectives on how organisations perceive the task of managing diversity.
 Discrimination and fairness: the focus is on creating equal opportunities and
assuring fair treatment.
 Access and legitimacy: the aim is to match internal employee demographics to
customers and marketplace served.
 Learning and effectiveness: the aim is to incorporate diversity into the heart and
fabric of the mission, work and culture of the organisation.
 Only the third strategy which is learning and effectiveness will enable
organisations to benefit from managing diversity.
 In SA, the emphasis is on the first strategy, as virtually every organisation in South
Africa is under pressure to transform its worker and leadership profiles faster. This
indicates that South Africa needs to work harder to shift to the learning and
effectiveness paradigm.

STUDY AND RESEARCH

MANAGEMENT PRINCIPLES 4TH EDITION

Study 10.7 “Managing diversity”, pages 245-249.
MANAGEMENT PRINCIPLES 5TH EDITION
Study 10.7 “Managing diversity”, pages 280-285.

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 LESSON 3.10
LESSON 3.10
MANAGING CULTURAL DIVERSITY

In this Lesson:

According to Hellriegel et al. (2008:368) the composition of the South African

workforce has changed dramatically since the early 1980s. Many of the
changes are summarised by the term workforce diversity. Workforce diversity
refers to the mix of people from various backgrounds in the labour force.
There are two important aspects of workforce diversity namely: demographic
diversity and cultural diversity. In this lesson we will focus mainly on cultural
diversity.

For South Africa to thrive and survive in the competitive global market it needs
to draw on its diversity and create positive synergies. Co-workers from diverse
cultures run the risk of misinterpreting one another on the basis of language,
non-verbal messages, cultural values pertaining to time, work styles,
presentation styles and understanding of the organisational culture.

CONCEPTS AND VOCABULARY TERMS YOU NEED TO UNDERSTAND:

 Culture: the attitudes and behaviours that is characteristic of a particular

social group or organisation.
 Ethnocentrism: the belief that one’s own group or culture is inherently
superior to other cultures and groups.
 Stereotyping: an assumption that group averages or tendencies are true for
each and every member of that group.

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 MANAGING CULTURAL DIVERSITY
Key points:

 We only discover that our culture is different when we encounter others of another
culture.
 Organisations in South Africa that comprise of diverse cultures must meet the
challenge to manage cultural differences efficiently and effectively.
 Approaches include the golden rule approach, the ‘right the wrongs’ approach
and the ‘value of differences’ approach.

 Cultural dimensions are:

 Social orientation;
 Power distance;
 Uncertainty avoidance;
 Goal orientation;
 Relationship and rules;
 Degree of involvement;
 How status is accorded;
 Time orientation.

STUDY AND RESEARCH

MANAGEMENT PRINCIPLES 4TH EDITION

Read 10.8 “Cultural diversity”, pages 250-253.
Study 10.9 “South African culture values”, pages 253-260.
Read 10.10 “Synergistic solutions to problems of cultural difference”,
pages 260-261.
Read 10.11 “Diversity training”, pages 261-264.
Read 10.12 “Summary”, page 265.
MANAGEMENT PRINCIPLES 5TH EDITION
Read 10.8 “Cultural diversity”, pages 285-289.
Study 10.9 “South African culture values”, pages 289-296.
Read 10.10 “Synergistic solutions to problems of cultural difference”,
page 296.
Read 10.11 “Diversity training”, pages 296-300.
Read 10.12 “Summary”, page 300.

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 LESSON 3.10

SOLUTION TO SELF ASSESSMENT LEARNING ACTIVITY 1 (P.20)

F C
I N T E R P E R S O N A L E M
G N I I
U I N F O R M A T I O N G D
R R H D
L E A D I N G C O N C E P T U A L
H L L E
E L A M M
A G I N A A
D C O M P E T E N T N N N
A E G I A A
L C N G G
S E T H I C S G E E
R N C M M
O R G A N I S I N G R E E
L C I N N
E T O P M A N A G E M E N T T
S L E

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