001_2014_4_e.pdf

# 2013 University of South Africa All rights reserved Printed and published by the University of South Africa Muckleneuk, Pretoria MNG2601/1/2014–2020 70079501 3B2

MNB Style

Contents Study unit

Page

Introduction

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TOPIC 1: THE NATURE OF MANAGEMENT

1

STUDY UNIT 1:

The evolution of management theory

STUDY UNIT 2:

The management process

15

STUDY UNIT 3:

Composition of the management environment

27

TOPIC 2: PLANNING

3

39

STUDY UNIT 4:

Principles of planning

41

STUDY UNIT 5:

Strategic management

52

STUDY UNIT 6:

Decision making

64

STUDY UNIT 7:

Information management

78

TOPIC 3: ORGANISING

91

STUDY UNIT 8:

93

Principles of organising

TOPIC 4: LEADING

STUDY UNIT 9:

107

Individual behaviour in the organisation

109

STUDY UNIT 10: Principles of leading

110

STUDY UNIT 11: Workforce motivation

121

TOPIC 5: CONTROL

133

STUDY UNIT 12: Principles of control Bibliography

134 143

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Introduction 1

WELCOME

It gives us pleasure to welcome you to the module General Management (MNG2601). To make your studies easier, and to help you share in our enthusiasm for this field, we urge you to read this overview. Refer back to it as often as you need to throughout your studies. The field of management is extremely dynamic and challenging, so we have inserted additional reading material and case studies, over and above the learning content in this study guide. This will provide you with opportunities to explore the latest developments in the field of business management, and will help you to discover management as it is practised today. We hope that you will enjoy this module.

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PURPOSE OF THE MODULE

The purpose of this module, in the broader context of the BCom degree, is to provide you with graduate-level knowledge, applied competence and skills related to general management principles. Special emphasis is placed on the management functions of planning, organising, leading and control to prepare you to be employable managers, workers or entrepreneurs, and contributors to society and the business community.

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LINK TO OTHER MODULES

This module does not stand alone, it is an integral part of the BCom degree in business management. Therefore, the purpose and the learning objectives of this module are aimed at developing your expertise and abilities in the field of business management. This module in General Management (MNG2601) will provide the foundation for the next module in management which is prescribed for the second year, namely MNG2602 (Contemporary Management Issues). You would normally continue your studies with the two strategic management modules in the third year (MNG3601 and MNG3602) if you want to specialise in management.

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OBJECTIVES AND COMPETENCIES

4.1

Module objectives

When you have worked through this module, you will be able to: . apply management skills, roles and functions in the wider context of the organisation as an open system interacting with the market and macro-environment . use the rational decision-making model to make effective decisions, apply the planning process and demonstrate the ability to conceptualise all aspects of the goal-setting, planning and strategic planning function of managers . analyse the elements of organisation design and identify the authority relationships in organisations . explain why managers should understand the key variables that determine human behaviour and motivation in order to be effective leaders . apply the control process and explain the focus of control in organisations

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We cover these specific outcomes in the following topics: Topic Topic Topic Topic Topic

4.2

1: 2: 3: 4: 5:

The nature of management Planning Organising Leading Control

Prerequisite competencies

To be successful in this module, we assume that you can: . learn from predominantly written materials in the language of instruction (English or Afrikaans) . communicate effectively what you have learnt in the language of instruction (English or Afrikaans) . with guided support, learn independently and take responsibility for your learning

4.3

Our assumptions

We also assume that you: . have prior knowledge and an understanding of basic management concepts and principles as indicated by the successful completion of modules MNB1501 and MNB1601 (or their equivalents) . can read and understand legal documents, tutorial letters, textbooks and articles in business newspapers and journals which are all written predominantly in English . are able to communicate coherently and appropriately what you have learnt in the language of instruction (English) at NQF level 6 (see also section 7 in the preface) . can, with limited guidance (appropriate for an NQF level 6 module), learn independently and take responsibility for your learning . are able to demonstrate a solid knowledge base of general and strategic management, and a sound understanding of key terms, rules, concepts, established principles and theories in the fields of general management and strategic management after completing the compulsory NQF level 5 management modules

4.4

Critical cross-field outcomes

This module will assist you in achieving the following critical cross-field outcomes. You should be able to: . identify, analyse, formulate and creatively and innovatively serve the commercial and economic needs of individuals and society . work effectively with others as a member of a team, group, organisation or community, and contribute to the group output in tasks originating in the fields of business, commerce and management . manage and organise your activities and life responsibly and effectively, including your studies within the open and distance learning context . collect, analyse, organise and critically evaluate information as required in the pursuit of the BCom degree . communicate effectively using visual, mathematical and/or language skills in the modes of written presentation . use science and technology effectively and critically, showing responsibility towards the environment and health and wellbeing of others, in the community, national and global contexts . demonstrate an understanding of the world as a set of related systems by recognising that (v)

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problem-solving contexts do not exist in isolation, and by acknowledging their responsibilities to those in the local and broader community

4.5

Embedded knowledge

After completing this module, you will understand why organisations are open systems which are in constant interaction with their environments. In particular, you will understand that the work of a manager is to transform organisational resources (or inputs) into outputs as effectively and efficiently as possible. In addition, you will understand how managers perform the four management functions (planning, organising, leading and control) to manage the transformation of organisational inputs into outputs. Completion of the module will enable you to analyse organisational contexts and to apply the skills that you have mastered by completing various activities and case studies.

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FRAMEWORK OF THE MODULE

The framework of this module is as follows: TOPIC

STUDY UNIT 1 The evolution of management theory 2 The management process 3 Composition of the management environment

1 THE NATURE OF MANAGEMENT

4 5 6 7

2 PLANNING

3 ORGANISING

8 Principles of organising 9 Individual behaviour in the organisation 10 Principles of leading 11 Workforce motivation

4 LEADING

5 CONTROL

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Principles of planning Strategic management Decision making Information management

12 Principles of control

COMPOSITION OF THE STUDY/LEARNING PACKAGE FOR THE MODULE

The study package for this module consists of this study guide and Tutorial Letters 301 and 101. You have to purchase the prescribed book as soon as possible. The prescribed book is vital because you will not be able to complete this module successfully without it.

6.1

Prescribed book

Please obtain the following book: Brevis, T & Vrba, MJ (eds). 2013. Contemporary management principles. Cape Town: Juta.

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6.2

Explanation of terms

Any teaching and learning method requires the use of certain terms. The terms we use in this study guide are as follows: . A topic represents a major component of the subject and tutorial matter. It has a number of learning outcomes, which indicate the standard or level of competence you should achieve in the specific topic. . A study unit is an identifiable section of a topic. Each topic therefore consists of one or more study units. . We link the learning objectives for each topic and study unit to the study unit activities, the assignments and the examination. The objectives are a means by which we evaluate or assess your mastery of a specific topic.

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THE APPROACH TO TEACHING AND LEARNING IN THIS MODULE

Unisa is a distance learning institution, so you will be studying independently most of the time. To help you in your independent studies we will use tutorial letters to guide you through the learning material. These tutorial letters will also help you to master the learning objectives, and to prepare you for formative assessment (assignments) and summative assessment (examinations). We expect you to master the contents of the prescribed tutorial matter on your own according to the guidelines provided in the tutorial letters. This module in General Management is placed at NQF Level 6, and the credits attached to the unit standard are 12 credits (120 notional hours). As a student of a second-year module the following NQF level descriptors apply to you:

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QUESTION

STUDENT OF A SECOND-YEAR MODULE (NQF LEVEL 6)

What should you know about the subject?

. A well-rounded and systematic knowledge base in one or more disciplines/fields and a detailed knowledge of some specialist areas . A coherent and critical understanding of key terms, rules, concepts, principles and theories of one or more disciplines/ fields . Ability to map new knowledge onto a given body of theory, an acceptance of the multiplicity of right answers

What types of problems Unfamiliar concrete and abstract problems and issues using should you be able to evidence-based solutions and theory-driven arguments solve? How should you gather and analyse information and how should you interact with it?

Well-developed information retrieval skills; critical synthesis of quantitative and qualitative data, presentation skills following prescribed formats, using appropriate IT skills

How should you communicate?

Present and communicate information and your own ideas and opinions in well-structured arguments, showing an awareness of audience and using the academic/professional discourse appropriately

How independent should . Operate in variable and unfamiliar learning contexts, requiring you be in your learning? responsibility and initiative . Accurately self-evaluate and identify and meet your own learning needs

As a student at second year level, you should not only remember information, but also understand, apply, critically analyse, synthesise and evaluate the knowledge, as well as create a coherent or functional whole. To be successful in this module, you have to understand the implications of the level at which the module is presented (level 6). The purpose of studying General Management (MNG2601) is summarised as follows: . You have to develop a deep understanding of important concepts and learn how to apply them in real situations. . To develop your understanding, you must deliberately process the information you read. As you read, you have to try to identify the main ideas. You have to think about why they are important, how they are related to one another and their implications for people in real work environments. . As you work through each study unit, it is important to determine whether or not you understand the ideas that are presented in it. . You can test your understanding in several simple ways: – – – –

identifying the important ideas in the study unit and explaining them to someone else predicting what questions you could be asked about the study unit constructing examples to illustrate the ideas that are presented in a section answering the sample questions at the end of each study unit and the assignment questions that relate to the specific study unit

. When you read information in the textbook or in other sources, you should not always simply accept it as the absolute truth. You should question the ideas and information that

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you are studying to develop a better understanding of the real-world situations they describe. For example, you could question why we include leadership theories or motivation theories in this module. By trying to apply these theories to people and work situations that you know well, you may be able to understand why you should study them. The best way to test your understanding of the ideas that you learn about in this module is to try to apply them to real situations. The first step is to identify examples from your community (local or national) that illustrate the ideas that you are studying. For example, you can try to analyse the management environment of an organisation that you are familiar with. By trying to identify the organisation’s internal strengths and weaknesses (and external threats and opportunities), you can reinforce your understanding of the section on the business environment in the study material. We recommend that you first read all the prescribed chapters in the prescribed book to obtain an overview of the contents and an idea of the continuity of and relationship between the different topics.

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COMPLETING ACTIVITIES, ASSESSMENT QUESTIONS AND ASSIGNMENTS

We consider the completion of the activities and assessment questions in the tutorial letters and the assignments as crucial to the successful understanding of this module.

8.1

Assessment questions

At the end of each topic, you will find a list of assessment questions based on the work covered in the topic. You will find most of the answers to these questions in the study material covered in the study guide and prescribed book. We advise you to complete these questions diligently since they present opportunities to prepare you for possible examination questions.

8.2

Assignments

By completing the assignments that appear in Tutorial Letter 101, you will develop a feel for the types of questions you can expect in the examination. The assignment questions provide you with the opportunity to apply the theory to a case study or a practical situation related to a business. The answers and guidelines for dealing with each assignment will appear in the tutorial letters. You should study these guidelines in preparation for any examination questions that may stem from assignment questions.

8.3

Assessment of the module

We will assess your progress during the semester (on your assignments) and in the examination at the end of the semester against transparent assessment criteria that link directly to the objectives of the module. In Tutorial Letter 101 we provide further details of the assessment and examination requirements of this module.

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USE OF ICONS

The following icon is used in this study guide: Learning objectives. The learning objectives indicate what aspects of the particular topic or study unit you have to master (i.e. know and understand).

We have included the following figure, where the learning content corresponds with a learning objective: This figure indicates that the learning content covered in a particular section corresponds with a specific learning objective (in this figure it refers to learning objective 1).

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HOW YOU WILL BENEFIT FROM THIS MODULE

To increase your likelihood of success you should consider the following: . . . . .

Study the prescribed tutorial matter conscientiously according to the guidelines provided. Discuss the subject matter with colleagues and specialists. Attempt and complete the activities and assignments. Apply your knowledge in practice. Prepare properly for the examination.

If you have an academic problem, you are welcome to contact us.

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WHAT YOU CAN EXPECT FROM UNISA

You can expect us to do the following: . We will provide you with up-to-date and relevant study material, which we regularly compare and benchmark against similar local and international programmes. . We will keep the study material in line with the needs of industry and commerce by consulting regularly with the profession, and with industry leaders and government officials. . We will assist you by giving you the opportunity to develop competencies and skills at a certain level. The objectives correspond to the National Qualifications Framework (NQF) level 6. We will assess you by taking the level descriptors of the NQF into account. . We will support you whenever you require academic assistance. You may contact your lecturers by making personal appointments or by phone or via e-mail. We understand that studying through distance education is more challenging than attending a residential university. . We will provide you with clear indications of what we expect from you in terms of your assessment. . We will give you feedback on assignments. We end each study unit with additional reading material, and an activity based on the reading material (links are provided for additional reading materials). These are not

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compulsory, and you will not be assessed on these articles. However, please consider visiting these websites if you do have access to a computer and the internet, as they provide related and interesting information regarding your studies.

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MYUNISA

We urge all of you to access myUnisa, if possible. You can access the myUnisa web page with a computer or a smartphone that is linked to the internet. myUnisa is an online platform for you to communicate with other students, the lecturer and administrative departments at Unisa. You can also download your study materials, other resources and previous examination papers online.

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NOTE FROM THE AUTHORS

This study guide serves as a brief summary of the prescribed book. Each study unit will discuss the key concepts of the particular chapter under study. It is your own responsibility to read through the chapters in order to gain general background on a particular chapter. For both the study guide as well as the prescribed book chapters, we expect you to be able to discuss the respective study units/chapters individually, and in a broader context. We advise you to first read through each applicable chapter in the prescribed book, and then read through the study guide. While you are reading through the study guide, we suggest that you make your own additional summaries and/or notes of the content.

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HOW TO APPROACH MNG2601

If you are not sure where to begin or how to approach your studies in General Management (MNG2601), this section was inserted especially for you. – Your starting point is the study guide. See what topics and study units are covered in this module, and note their corresponding chapters. For example, you would typically start with study unit 1 and chapter 1. – Read through the chapter, paying special attention to the key concepts and learning objectives of that particular chapter. – After you have worked through the chapter, go back to the study guide and work through the relevant study unit. We are sure that you will find it pleasant to recognise (and be familiar with) the concepts and topics being discussed. – Make notes in the textbook, in the study guide or on a piece of paper, examination pad or book that you can use for MNG2601 summaries. – As you work through the study guide, please take note of the activities provided. We have also included additional reading material that relates to the concepts dealt with in the study units and their corresponding chapters. Although you are studying on your own, please contact me if you have any problems with this module. My contact details are in Tutorial Letter 101. I would also like to encourage you to use the myUnisa function and the discussion forums.

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CONCLUDING REMARK

We hope that you will enjoy your studies! We are looking forward to being your partners in this endeavour.

Best wishes Your lecturer for MNG2601 Department of Business Management Unisa

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Topic 1 The nature of management INTRODUCTION AND AIM OF TOPIC The aim of this topic is to help you to develop an understanding of what it is that makes the work of a manager different from that of a subordinate. To be a successful manager, you have to possess many skills and be able to play many roles, perform many functions and be a strong leader. You will achieve this by studying and applying the various principles, theories and applications of management that we will introduce you to in this module. The aim of this topic is to lay a firm foundation for your understanding of the complex issues that managers have to deal with and the skills they need to meet the demands of contemporary managerial jobs.

Learning objectives After completing this topic, you should be able to: — discuss the evolution of management theory and identify the forces that influence the development of management theories — demonstrate an understanding of what the work of managers entails in terms of the skills they need and the functions and roles they have to perform — analyse the South African management environment in the context of the organisation as an open system

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CONTENT Topic 1 comprises three study units: STUDY UNIT 1: The evolution of management theory STUDY UNIT 2: The management process

TOPIC 1: THE NATURE OF MANAGEMENT

STUDY UNIT 3: Composition of the management environment

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Study unit 1 The evolution of management theory INTRODUCTION AND AIM We typically associate history with past events such as world wars and political developments. The history of management corresponds with historical events in that it reflects the constantly changing needs of human beings throughout the ages. The history of management provides insight into the dominant culture of a time, as well as the political, economic, social, technological, international and ecological issues associated with that time. As students of management, we are interested in the development of management theory, because the legacy of past efforts, triumphs and failures becomes the guide for future management practice. Historical management practices are the foundation upon which contemporary management theory and practice rest. In this study unit, we examine the evolution of management theory from the late 19th century up until the point where the world has entered another revolution, the information technology (IT) revolution. The IT revolution has thrived in its development in the context of the new global economy.

STUDY CHAPTER 1 IN THE PRESCRIBED BOOK Contents of the study unit . . . . . . . . .

Why managers need to study the history of management theory The classical approach to management The behavioural approach to management The quantitative management approach The qualitative movement The systems approach The contingency theory The information technology revolution Internationalisation and globalisation

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OVERVIEW

Learning objectives After completing this topic, you should be able to: 1 explain why managers need to study the history of management theory 2 discuss the important contributions made by Frederick W Taylor, Max Weber and Henri Fayol to management theory 3 distinguish between the human relations, human needs and motivation and integration phases of the behavioural approach to management 4 explain why the quantitative approach to management emerged and how it led to the focus on quality 5 discuss the contributions of W Edwards Deming, Joseph M Juran and Philip B Crosby to the quality approach to management 6 discuss the systems approach to management and explain how systems thinking influenced the field of cybernetics, and Peter Senge’s ideas on the learning organisation 7 discuss the contributions of Tom Burns and George M Stalker, Paul Lawrence, Jay Lorch, Joan Woodward and Alfred Chandler to the contingency approach to management 8 describe the three revolutions that took place after the late 19 th century and explain how the IT revolution changed the business environment of organisations 9 explain the difference between internationalisation and globalisation

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KEY TERMS Administrative approach Bureaucratic approach Behavioural approach Charismatic organisations Contingency theory Double-loop learning Cybernetics Globalisation Human relations movement Human needs and motivation Information Technology revolution Internationalisation

Learning organisations Quantitative management theory Quality movement Rational-legal organisations Scientific management approach Single-loop learning Systems approach Systems and information The learning organisation Total quality management Traditional organisations

1.1 WHY MANAGERS NEED TO STUDY THE HISTORY OF MANAGEMENT THEORY Throughout history and even today, there has been a constant search for ‘‘best or better ways’’ to manage organisations. Why? Because of change! Changes in the social, political, economical, technological, international and ecological environments have an effect on management. The question then arises about what the best way would be to manage an organisation during a specific period. Hence management approaches change or adjust to a change in the environment. Examples of organisations that adapted to changes in their environment are McDonalds, Nike and Dell (computers). They all capitalised on globalisation and are currently competing internationally. This affected these organisations’ management approaches, such as adapting to different labour laws in different countries or deciding whether to centralise or decentralise a particular function. Why? Because they needed to decide what ‘‘the best way’’ would be to manage their particular organisation, while entering and competing in a global market. Did you KNOW? Green issues and sustainability are now among some of the highest priorities for businesses in the United Kingdom. This is because of an increased focus on the environment from the media, as well as new government targets and incentive schemes. For example, reducing waste once seen as an expense has now become a legitimate business function that continues to grow in importance and scale. Source: Reduce the use (2012)

Management theorists have developed numerous responses to the basic question: ‘‘What is the best way to manage an organisation?’’ We have distinguished between six approaches to management, since the beginning of the 20th century. These approaches form the basis for understanding the practice of management today. These approaches are reviewed in figure 1.1.

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FIGURE 1.1: The six approaches to management

1.2 THE CLASSICAL APPROACH TO MANAGEMENT The first significant event that impacted on the development of management theories was the industrial revolution. Consequently, three management theories emerged in the late 1800s and early 1900s. These three theories form part of the ‘‘classical approach’’ to management and comprise the following:

(1) (2) (3)

the scientific management approach (which focused on product efficiency) the bureaucratic management approach (which focused on the structure of organisations) the administrative management approach (which focused on the processes and principles of management)

1.2.1

Scientific management approach

What is the ‘‘best’’ way to manage an organisation? Some individuals responded to this management question by saying that we need to increase production efficiency. This

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became known as the so-called ‘‘scientific approach’’. Significant individuals who focused on the principles of efficiency were Frederick Taylor, Frank and Lillian Gilbreth, Henri Gantt, Harrington Emerson and Morris L Cooke.

1.2.2

Bureaucratic management approach

An additional response to the management question was to focus on organisational structure. A person who made a significant contribution to this management approache was Max Weber. His focus was on the fundamental issue of how organisations should be structured.

1.2.3

Administrative (or process) management

Another response to the management question emphasised the importance of managerial processes and principles. The most significant contribution this theory made was to define the general duties or functions of managers within a framework of clear guidelines and principles. Henri Fayol was the most influential management thinker, and was interested in the administrative side of operations.

1.3 THE BEHAVIOURAL APPROACH TO MANAGEMENT The theorists who contributed to the behavioural approach were Hugo Mu¨nsterberg, Mary Parker Follett, Chester Barnard, Elton Mayo, Kurt Lewin, Abraham Maslow, Frederic Herzberg and Douglas McGregor. These individuals focused on identifying ways to change individual and group behaviour in order to improve organisational effectiveness. The following two theories developed within the behavioural approach:

1.3.1

The human relations movement

According to this approach, organisations could improve productivity by improving job satisfaction (of employees). Managers were thus encouraged to be supportive, improve the social work environment and help workers to improve their self-esteem. Several theorists, such as Hugo Mu¨nsterberg, Mary Parker Follett, Chester Barnard, Elton Mayo and Kurt Lewin, were the pioneers and contributed significantly to this movement. Their work still influences the way we manage today.

1.3.2

Human needs and motivation

Here, the focus shifted towards motivation and its importance. This theory concentrated on employees’ personal needs, and how these needs influenced performance. The theorists who contributed significantly to the human needs and motivation approach were Douglas McGregor and Abraham Maslow.

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1.4 THE QUANTITATIVE MANAGEMENT APPROACH Quantitative methods led to new management specialities. Consequently, new management sciences and operations research were introduced. Management sciences deal with the development of mathematical models to assist managers in decision making. Operations research is an applied form of management science that helps managers to develop techniques to produce their products and render their services more efficiently. This theory also introduced techniques such as statistics, linear programming, waiting line or queuing theory, game theory, decision trees, the transportation method, Monte Carlo methods and simulation devices. The quantity management theory emphasised the importance of management decisions being based on quantifiable information.

1.5 THE QUALITY APPROACH The challenge for improved productivity resulted in the application of quantitative methods for solving managerial problems. However, another need emerged, namely knowing ‘‘what to do to improve the actual results’’. Researchers subsequently realised that improving quality necessitated the application of knowledge, techniques and tools throughout the entire organisation. The two major contributors to the quality approach were Joseph M Juran and W Edwards Deming, both of whom contributed to the development of total quality management (TQM). . Deming’s approach to quality management. W Edwards Deming focused on ‘‘continual improvement through lifelong learning’’, and he provided a new and comprehensive theory for managing organisations. . TQM. TQM implies that organisations need to apply the knowledge, techniques and tools of quality throughout an organisation to all functions and at all levels and in a coordinated way. Joseph M Juran and Phillip B Crosby deserve recognition for their major contributions to this theory. . In search of excellence. Additional contributors to the quality approach were Peters and Waterman. They contributed to this theory and the challenge of improving productivity and developed the McKinsey 7-S model (structure, strategy, systems, management style, skills, staff and shared values).

1.6 THE SYSTEMS APPROACH Systems researchers observed that organisations comprise of many parts. They found that these parts are interdependent and, as a whole, they achieve the goals of the organisation. Consequently, they view an organisation as a system. . Cybernetics: learning and learning to learn. Cybernetics suggests that systems can learn and, in the business environment, such knowledge can help managers understand complex situations. Such knowledge can also help managers to find better solutions to certain issues at hand.

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. Learning organisations. Peter Senge popularised the concept of learning organisations. He identified five ‘‘competent technologies’’ which, in his opinion, formed innovative learning organisations.

1.7 CONTINGENCY THEORY This theory holds that there is no ‘‘best way’’ of organising. According to the contingency theory, the ‘‘best’’ organisation structure depends on contingency factors. Tom Burns and George M Stalker, Paul Lawrence and Jay Lorsh, Joan Woodward, the University of Aston and Alfred Chandler identified several contingency variables such as environmental complexity, technology, organisation, strategy and organisation size. We have now looked at the six approaches to management, namely the classical, behavioural, quantitative, systems, contingency and quality approaches, and their respective influences on management theory. Many organisations still use elements of most of these theories. However, there were other developments that also affected management approaches. The next sections focus on the information technology revolution and globalisation and internationalisation, and their impact on management.

1.8 THE INFORMATION TECHNOLOGY REVOLUTION Towards the end of the previous century, three new revolutions occurred that can be attributed to the development of: . new technologies (industrial revolution) . electricity (industrial revolution) . information technology (IT revolution) Two industrial revolutions preceded the IT revolution. They introduced arrays of new technologies that formed and transformed the industrial systems. The IT revolution effected major changes in the world and in organisations, and resulted in the emergence of a global economy. This revolution has contributed significantly to the fast-changing and dynamic environments in which organisations are required to operate. Did you KNOW? As recently as the 1980s, phone calls over copper wire could carry only one page of information per second; today, a thin strand of optical fibre can transmit 90 000 volumes per second. In 1980, a gigabyte of storage occupied a whole room; now, 200 gigabytes of storage can fit into your shirt pocket. Source: Nye (2011)

1.9 INTERNATIONALISATION AND GLOBALISATION As mentioned earlier, the IT revolution led to the emergence of a global economy, sometimes referred to as globalisation. Globalisation has resulted in organisations being able to establish themselves and/or enter into transactions across borders (referred to as internationalisation). This has led to organisations operating without the traditional constraints of national boundaries. Global organisations seek to compete in any high-potential marketplace on the

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globe. Typical examples of global organisations are Toyota, Apple Inc, Coco-Cola and McDonalds.

SUMMARY A study of the evolution of management theory is relevant because researchers base contemporary management practices on what we have learnt from the successes and failures of past management approaches and theories. The respective management approaches and theories covered in this study unit were the scientific approach, the process approach, the bureaucratic approach, the behavioural approach, the quantitative and qualitative approaches, the systems approach and the contingency approach. Three revolutions affected the evolution of management theories. The concepts of internationalisation and globalisation emerged from the IT revolution.

REVIEW QUESTIONS (1) (2) (3) (4) (5) (6) (7) (8) (9)

What are the main focuses of each of the three classical theories? Explain the three significant contributions that Chester Barnard made towards management theory. What led to the quantitative approach? Explain the work of W Edwards Deming and Joseph M Juran. What is the major theme of the systems theory and why do we use the systems theory as the basis for our studies in this module? What is the difference between organisational learning and the learning organisation? Differentiate between single- and double-loop learning. What causes led to the three revolutions? What impact did the IT revolution have on the world? In your own words, write down the meaning of the terms ‘‘internationalisation’’ and ‘‘globalisation’’. Compare your answer with the relevant theory.

ADDITIONAL QUESTIONS Please refer to chapter 1 for additional questions.

FUN ACTIVITY (1) (2) (3)

Select the multiple-choice questions from your assignments pertaining to this study unit and answer them. Select the multiple-choice questions from an old examination paper (available on myUnisa) pertaining to this study unit and answer them. Choose any one of the additional resources provided and write a short review of the article, and explain why you found it interesting and of importance in today’s organisation.

REMINDER You will need to discuss the content of this study unit in more detail because this is only a summary. Refer to the learning objectives and make sure that you can to discuss each one comprehensively.

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ADDITIONAL READING MATERIAL (1)

Environmental influences on business. Available at: http://businesscasestudies.co.uk/business-theory/external-environment/influences-onbusinesses.html#axzz2KJFXuVVU

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Human needs and motivation. Available at: http://psychology.about.com/od/theoriesofpersonality/a/hierarchyneeds.htm

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Total quality management. Available at: http://searchcio.techtarget.com/definition/Total-Quality-Management

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An organisation as a system. Available at: http://managementhelp.org/organizations/systems.htm http://prmarketingcommunication.com/2012/02/04/organizations-as-systems/

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Globalisation. Available at: http://www.guardian.co.uk/world/2002/oct/31/globalisation.simonjeffery

CASE STUDY: PRACTICAL EXAMPLE To enable you to understand globalisation and internationalisation, we have included the case study below.

COMPETING IN A GLOBAL MARKETPLACE AN OVERSEAS TRADE SERVICE CASE STUDY Introduction The Overseas Trade Services (OTS) network is a partnership between the major government departments involved in exporting and promoting British industry abroad. The key partners are the Department of Trade and Industry, the Foreign and Commonwealth Office, Scottish Trade International, the Welsh Office Industry Department, the Industrial Development Board of Northern Ireland and the Business Links established throughout England. The aim of the Overseas Trade Services is to help UK firms compete successfully overseas. OTS can help exporters make the most of their business opportunities in around 130 countries. Of these, the top 80 export markets are where most of our resources are concentrated. The following services are available to UK manufacturers of goods or providers of services, and to other UK companies whose exporting will clearly benefit the UK: . Dedicated market support in the UK including advice and information services for initial market research. . Professional help from Export Promoters who are experienced exporters in their own right, seconded to the DTI from industry. . Information on individual methods of doing business in the country concerned, including details of opportunities and promotional activities. . Help with meeting language and cultural requirements. Help too with bringing key contacts to the UK. . Help with marketing a UK company overseas, including grants for visiting, marketing research and exhibiting also providing support for companies pursuing major projects.

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. Services for research tailored to a company’s needs provided by the FCO diplomatic posts posts can also provide on-the-ground help when that company visits the market, and this may include business briefings and local promotional support. . Access to the Export Market Information Centre at the DTI this library houses an extensive range of publications and statistics relating to businesses worldwide and may be accessed in person or by telephone, fax or e-mail. . Provision of a wide range of publications on individual countries and sectors designed to help companies build up a picture of overseas markets. A full list of these publications is provided in the OTS Export Publications catalogue.

Globalisation Many companies first enter an overseas market by chance – they may receive a single foreign order and then decide to follow it up. They may then realise that trading overseas will help them to achieve growth, particularly if the market is mature. At the start, businesses simply may be using up their surplus capacity, but over a period of time, trading overseas may help to provide: . Higher earnings. Margins in many markets overseas exceed those in the home market; . The ability to spread risks. While sales in the home market may be in decline, those in export markets may be booming; . The benefits of economies of scale. Producing larger production runs helps to cut unit costs; . A competitive edge. Organisations develop expertise which provides them with an edge over their competitors in terms of design, packaging product trends, market recognition as well as in other areas of marketing. Many people believe that the international business environment is going through a period of fundamental change. This has been called global shift. The argument is that we are moving away from national economic systems towards a system in which national markets are merging into one huge global marketplace and as we move in this direction, the tastes and preferences of consumers from different nations will begin to merge. For example, it is probably as easy to find a McDonald’s restaurant in London, Moscow and Tokyo as it is in New York. How many of you regularly drink Coca-Cola, or wear Levi’s? The following two factors have been cited as the major influences in the trend towards the globalisation of markets: . Dramatic developments in communications as well as information and transportation technologies. Global communications have been revolutionised by developments in television and the global brand, satellite and fibre-optic technologies. These allow the microprocessor to encode, transmit and decode vast amounts of information across electronic highways. At the same time, the development of super freighters and containerisation systems has simplified the transportation of goods. The speed and ease with which international operations take place today have made the globe shrink. . A decline in barriers to the free flow of goods, services and capital. The General Agreement on Tariffs and Trade (GATT) was set up in 1947 to set out trading rules to resolve disputes between countries and to create freer trade by cutting down barriers. In 1994, on the completion of the eighth round of talks to reduce barriers to trade, GATT was replaced by the World Trade Organisation (WTO). There are currently 131 member countries in the WTO, accounting for over 90% of world trade. The effects are twofold:

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. In addition to domestic competition, British businesses today have to compete with more cost-effective foreign competitors. . The movement towards freer trade opens up many opportunities for organisations to export overseas as well as to engage in activities in other countries.

The changing nature of the world As well as the movement towards globalisation, there have been massive changes in international markets over recent years. Until recently, the world economy did not really exist. The Soviet Union and its East European satellites opted out because of communism. So did China. India closed its doors to international trade on a large scale. The same was true of many other countries. Altogether, more than half the world’s population was outside the market economy. Today, many of these countries, totalling three billion people, are trying to return. They are doing so at different speeds, faced by diverse problems and with differing chances of success. The potential gains from this process are enormous. Trade and investment have the ability to revitalise the world economy and bring about a new period of growth. Already the AsianPacific is the world’s most dynamic economic area. The development of Asian economies poses both a threat and a challenge. Many activities allow for mass production at low cost (i.e. the production of computers, televisions, cars and electronics). There are also many benefits to be gained from the expansion of these markets. Never has international trade been quite so important for the survival of British companies. In this increasingly interdependent world, it has become an economic necessity. No country is self-sufficient because they are all dependent upon the imports of products from other countries. By exporting, we can help to maintain our standard of living which, in turn, makes importing possible so that consumers have as wide a choice of goods and services as they want.

International markets Trading overseas recognises that people all over the world have different needs. Organisations have to accept that differences in values, customs, languages and currencies will mean that many products will only suit certain countries and that global markets really only exist for the very large producers. Catering for such differences involves greater risk. This means that in developing products for different overseas markets, businesses have to be better prepared by engaging beforehand in careful planning and research. No organisation can hope to succeed unless unfamiliar elements are effectively catered for. By understanding all of these influences, businesses can make their products more relevant for each market they enter. So, what are these differences? Imagine some of the basic problems you might encounter if you wished to export hair dryers to a country in another part of the world. Trading overseas therefore involves much more than simply making goods or services available to people in other countries. It requires understanding some of the areas mentioned and many more. For example, there may be protocols to follow, such as diplomatic channels or negotiations between senior managers and directors. Another problem is that exporters often experience longer delays in receiving funds from their export trade than from home trade business. Catering for an overseas market and all its demands will involve considerable organisation to cope with such differences.

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Conclusion For many years, different departments and agencies were offering business organisations various types of services. Businesses were faced with a bewildering range of advice which may have deterred some businesses from seeking help. Access to OTS is available today through Business Links. Business Links was launched in July 1992 as a single point of access for business support services. Each Business Link represents a partnership between the key local enterprise support organisations, TECs, Chambers of Commerce, Enterprise Agencies and Local Authorities. About 70 to 80 Export Development Counsellors are being recruited by Business Links to offer specialist help and advice. They will work with their customers to plan and implement a suitable export strategy and develop international trade potential. There are many other services, some of which are specifically tailored to the needs of particular groups of customers. The services are used extensively. For example, in 1996/1997, OTS supported 10 500 participants in overseas trade fairs and 2 686 participants used the Outward Missions Service. The aim is to provide a comprehensive service at each stage of the export process, whether it is with the initial planning, research and development, the promotion of products, the appointment of agents or the development of further markets. Source: Adaped from The Times 100 (2013:a) ‘‘# Copyright Business Case Studies LLP. Reproduced by permission of the publisher. www.businesscasestudies.co.uk’’

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Study unit 2 The management process INTRODUCTION AND AIM In this study unit we will introduce you to the concept of management. We will explain why it is important for you, as a student or a manager, to study management. The modern organisation developed because an organisation is better able to satisfy the needs of society than individuals are. But why are managers necessary? All organisations are put together and kept together by a group of people who strive towards a common purpose or goal. These people are responsible for executing plans in order to achieve the goals. They are the managers of modern organisations and influence the success of their organisations. The outcome for this study unit is that you should be able to apply management skills, roles and functions in the wider context of the organisation as an open system. More specifically, you should be able to apply (given practical examples) management skills, roles and functions in a contemporary management environment.

STUDY CHAPTER 2 IN THE PRESCRIBED BOOK Contents of the study unit . . . . . .

Managers and management Management and the management process Levels and areas of management The role distribution of managers Managerial skills Learning to manage

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OVERVIEW

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Learning objectives After completing this topic, you should be able to: 1 discuss the importance of managers and management in modern society 2 define management and explain the management process 3 identify and explain the different levels and areas of management in an organisation 4 explain the role distribution of managers 5 discuss the various skills needed by managers 6 explain how one can learn to manage successfully

KEY TERMS Controlling Decision-making role Drive Education in management Effectiveness Efficiency Finance Goals Human resources Informational role Inputs Interpersonal role Leading Logistics Lower management Management

Management environment Management process Managerial experience Managers Marketing Middle management Objectives Operations Organising Outputs Planning Public relations Research and development Team building Technical skills Top management

2.1 MANAGERS AND MANAGEMENT Management must be able to cope with diverse challenges. These challenges arise because of the increasing globalisation of economies, technological innovations, trends towards democratisation and increasing social imbalances. Managers therefore need to keep pace with technological advances, strive to remain competitive and manage workforce diversity. To be successful in such circumstances, organisations need skilled managers who can integrate tried-and-tested management skills with new approaches. This brings us to the core of management. Throughout his module, we will be reviewing general management principles and their application in modern organisations.

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Did you KNOW? 70% of business and professional people use a ‘‘to do’’ list on a regular basis to administer their ‘‘have to’s’’. Source: Wetmore (1999)

2.2 MANAGEMENT AND THE MANAGEMENT PROCESS Management is the process of working with and through others to achieve organisational objectives in a changing environment. This definition has the following six important components: – – – – – –

management is a process working with and through others achieving organisational objectives balancing effectiveness and efficiency making the most of limited and scarce resources coping with a changing environment

These components will be discussed in more detail in the sections below.

2.2.1

Management is a process

As you know, managers need to ‘‘manage’’-whether this involves managing a division, a branch or the entire organisation. In order to fulfil this task, managers need certain ‘‘managerial’’ inputs to deliver certain ‘‘managerial’’ outputs. The transformation process (inputs to outputs) involves certain activities or functions, namely planning, organising, leading and control, also known as the management functions.

The management functions We can describe a manager’s work in terms of these four functions, all of which are aimed at achieving organisational goals. . Planning includes the formulation of the organisation’s mission and goals, and the determination of the future position of the organisation. Planning is the starting point of the management process. . Organising is the function of allocating people and materials to departments or individuals. It entails creating a structure to define duties and establish procedures in the organisation. . Leading refers to directing the organisation’s human resources and motivating them to work productively. . Control means that managers should constantly ensure that the organisation is on the right track in the attainment of its goals.

Inputs of resources Inputs are utilised by managers to achieve organisational goals. The following inputs or resources are typically found in all organisations: . people (human resources) . money (capital or financial resources) . raw materials (physical resources)

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. . . .

knowledge (information resources) technology information components

Outputs or performances Outputs are realised when managers transform or utilise inputs (or resources). Examples of outputs are goal achievement, products, services, profit, job creation and efficiency and effectiveness.

2.2.2

Working with and through others

In all cases, managers are needed to direct activities to ensure that things get done. Why? Because there needs to be one clear direction towards which all individuals in the organisation can work. Managers give direction by performing the basic managerial functions (planning, organising, leading and control) and get things done by working with and through people and other organisations.

2.2.3

Achieving organisational objectives

Organisations formulate objectives in order to achieve certain predetermined goals. These goals could be to increase net profits, to expand into a new market, to launch a new campaign or to sell a new line of products. At a later stage, organisational goals and objectives serve as measuring sticks to measure performance.

2.2.4

Balancing effectiveness and efficiency

Organisational effectiveness and efficiency must be balanced. Too much focus on only one, leads to mismanagement. . Effectiveness is achieved when the organisation formulates and pursues appropriate (or stated) goals. . Efficiency is determined by weighing the resources required to achieve an objective, against what was actually accomplished.

2.2.5

Making the most of limited and scarce resources

Resources are limited, scarce and sometimes even expensive. A challenge for managers would be to manage resources efficiently and effectively.

2.2.6

Coping with a changing environment

Changes in the environment, such as the increasing globalisation of economies and technological innovations, have an impact on management. Managers have to deal with changes that are brought about by these forces. In a constantly changing environment, successful managers are those who can anticipate and adjust to changing circumstances.

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2.3 LEVELS AND AREAS OF MANAGEMENT The following sub-sections address the levels and areas of management.

2.3.1

Levels of management

We find managers at every level of the organisation and in all functional areas. For the purpose of your studies, we will distinguish between the three levels of management depicted in table 2.1 below.

Table 2.1: Management levels Level of management

Role of management

Top management

Top management includes people such as the board of directors, partners, managing director and chief executive officer of an organisation.

Middle management

Middle management includes heads of departments such as the marketing manager or the operations manager of an organisation.

Lower management

Lower management consists of first-line managers such as section heads, supervisors and foremen/-women.

2.3.2

Areas of management

Managers can be differentiated into finance, operations, human resources, logistics, research and development, public relations and marketing. These areas are summarised in table 2.2 below.

Table 2.2: Areas of management Area of management

Role of management

The financial function

This function is responsible for obtaining and managing the necessary finances for an organisation.

The operations function

This function includes a group of activities concerned with the actual provision of goods and services to the organisation’s clients.

The human resource function

This function entails the appointment, development and maintenance of the organisation’s human resources.

The research and This function is responsible for developing new products and services development and improving old products and services. function The public relations function

This function of an organisation is to create a favourable, objective image of the organisation and to establish good relations with those directly or indirectly concerned with the business and its products or services.

The marketing function

This function is responsible for persuading the final customer and client to buy the organisation’s products or services.

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While these are specialised areas of management which require more specific and specialised skills, managers in each area still plan, organise, lead and control. Furthermore, all of these areas as a whole, help the organisation to achieve its organisational goals and objectives. The next section discusses the role distribution of managers.

2.4 THE ROLE DISTRIBUTION OF MANAGERS Managers have to fulfil several roles in order to do their work well. These roles comprise of mainly the interpersonal, informational and decision-making roles. . Interpersonal roles. Managers’ jobs are people intensive. In this category, managers perform three sub-roles, namely being a figurehead, leader and liaison person. . Informational roles. Managers often need to obtain information from colleagues, subordinates and departmental heads as well as external parties. This information would typically be used in decision making. In this category, managers fulfil the roles of monitors, analysers and spokespersons. . Decision-making roles. Managers need to make decisions, and in this particular role, fulfil the auxiliary roles of entrepreneur, resource allocator, problem solver and negotiator.

2.5 MANAGERIAL SKILLS Managers at different levels of the organisation need different skills to perform effectively. . Technical skills involve the use of education, training and experience to organise a task, job or project. There are four branches of technical skills, namely technical expertise, clarification of goals and objectives, problem solving and being imaginative and creative. . Team building involves listening carefully and communicating clearly to develop an effective team. There are four branches of team-building skills, namely listening for insight, directing and coaching, solving problems as teams, and coordinating and cooperating. . Drive involves setting goals, maintaining standards and evaluating performance to achieve effective outcomes. There are four branches of the drive skill, namely setting standards of performance, controlling details, a manager’s energy and exerting pressure. The next section addresses the ways managers can acquire management skills to become successful.

2.6 LEARNING TO MANAGE 2.6.1

Management training and development Management skills can be acquired through formal management education (such as schools, business colleges, technical universities and academic universities) or through informal management education, also referred to as continuous education (such as nondegree programmes and in-house training).

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2.6.2

Practical experience

Practical experience involves the experience gained from current and previous jobs, and facing and meeting a variety of managerial challenges. Did you KNOW? We retain 10% of what we read. We retain 20% of what we hear. We retain 30% of what we see. We retain 50% of what we hear and see. We retain 70% of what we say. We retain 90% of what we do. Source: Wetmore (1999)

SUMMARY In this study unit we’ve looked at management as a process and the management functions. We have also discussed the levels and areas or management and the role that managers play in an organisation. Lastly we looked the different types of managerial skills and how managers learn to manage.

REVIEW QUESTIONS (1) (2) (3) (4) (5) (6) (7)

(8)

Why do organisations need managers and management? What are the six components of management? Explain the management process and its various components. Differentiate between the various levels of management. Briefly explain what each of the various areas of management is. Why do managers fulfil so many roles in performing their jobs? Explain the three managerial skills (and their respective branches) that management should have. Have you applied any of these skills in your own life? List the managerial skills that you have applied in your personal, student or work life. How can you, as a potential future manager, acquire managerial skills?

ADDITIONAL QUESTIONS Please refer to chapter 2 for additional questions.

FUN ACTIVITY (1) (2) (3)

Select the multiple-choice questions from your assignment pertaining to this study unit and complete them. Select the multiple-choice questions from an old examination paper (available on myUnisa) pertaining to this study unit and complete them. Select any one of the additional reading material, and summarise the article for a fellow student. Please bold or highlight the key words for your fellow student.

REMINDER You need to be able to discuss the content of this study unit in more detail, because this is only a summary. Refer to the learning outcomes and make sure that you will be able to discuss each one comprehensively.

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ADDITIONAL READING MATERIAL (1)

The management functions. Available at: http://education-portal.com/academy/lesson/four-functions-of-management-planningorganizing-leading-controlling.html

(2)

The struggle between efficiency and effectiveness. Available at: http://www.onlinebusadv.com/?PAGE=159

(3)

Levels of management. Available at: http://www.managementstudyguide.com/management_levels.htm

(4)

Learning to manage. Available at: http://www.employment-studies.co.uk/pubs/summary.php?id=345

CASE STUDY: PRACTICAL EXAMPLE We’ve included the following cases study, in order for you to understand some of the concepts of the management process discussed in this study unit. As you read through the case study, do the following activities: – Underline the key words relating to the management process study unit, and review them by referring back to the study unit and applicable chapter in the prescribed book – Identify examples of inputs and outputs (of the managerial process) within Anglo American – Identify examples of top, middle and lower managers within Anglo American – Identify examples of a certain area of management which is applicable within a specific situation or activity in the Anlgo American case study – Identify examples of interpersonal, informational and decision-making roles of managers at Anglo American

SOCIAL AND ENVIRONMENTAL RESPONSIBILITY AN ANGLO AMERICAN CASE STUDY Introduction Anglo American is one of the largest British-based international businesses and is one of the 20 largest companies on the London Stock Exchange. Chiefly through Tarmac, it employs nearly 8 000 people in the UK. It is also one of the world’s largest mining companies. It has managed operations in over 40 countries and employs over 100 000 people worldwide. Anglo American produces five main materials and also owns a 45% non-managing stake in diamond leader, De Beers. Most of Anglo American’s work is in primary industry. Primary industry is the first stage of industrial activity. For Anglo American, this mainly means extracting materials from the ground through mining and quarrying. The ore is then processed to produce metals like copper or platinum. These materials are turned into manufactured goods during the secondary production stage. For example, coal and iron become steel at a steel works. Finished steel goes into many industrial products, including, for example, steel for ships’ hulls, car bodies, bridges or buildings. Anglo America’s CEO, Cynthia Carroll, identified the importance of sustainable development, not only as a sound business model, but also to address the social and environmental problems

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faced by society. As a result, Anglo American seeks to contribute to sustainable development by being socially and environmentally responsible. It achieves this through high performance in five overlapping areas, namely social, natural, human, manufacturing and financial.

Sustainable development Sustainable development means passing on to future generations a stock of ’capital’ that is at least as great as the one our generation inherited’’. Sustainable development is based on respect for one another, everyone who shares our planet, future generations (referred to as ‘‘inter-generational equity’’), as well as the existing generation and nature itself (plants, animals and all life forms). Exploitation of natural resources is essential for economic growth. For many poor developing countries, the development of these resources is the only means of attracting foreign investment and wider development. This in turn helps to fight poverty. Anglo American is a major provider of raw materials. To support sustainability, it must try to balance ‘‘natural’’ capital, such as iron ore, with activities that enhance skills, opportunities, health and education for local people. These may benefit them directly through community projects, or indirectly through paying taxes and royalties. Mr Michael Dante, the chief finance officer at Anglo American recently budgeted 1.2 million U.S Dollars to sustainable development programmes for the next 3 years.

Sustainability programmes At a recent conference Cynthia Carroll stated that ‘‘Anglo American places a strong emphasis on safety and health. The mining industry has major safety challenges, including a substantial number of fatalities. Anglo American is seeking to address these through creating a ‘‘zero mindset’’. This means that the total elimination of accidents and injury is the goal. There is a supporting principle of ‘‘zero repeats’’. If an accident occurs, it should never happen again. All employees are expected to follow these rules. They are simple and non-negotiable standards’’. Mr Tsipo Malalela, a supervisor at one of the mines, said that these initiatives already decreased the number of incidents and casualties experienced in his work environment. It is important to note that Anglo American works in partnership to achieve many of its projects. This means it works with both governments and private companies, and with community groups or international donors to ensure that the capacities and networks of local communities are enhanced. In South Africa, Anglo American has the largest directly-delivered workplace HIV/AIDS treatment programmes in the world. It took the lead in providing medical help for its HIV employees at a time when the government was not prepared to provide life-saving drugs. It provides free drugs to about 4 500 employees, as well as extensive community prevention and treatment programmes. Anglo American sees technology transfer and capacity building as significant elements in helping local communities to grow economically. Through intensive research Anglo American can identify certain areas where specific programmes can be launched. Examples of programmes already implemented include those in Venezuela, where experimental farms for the transfer of horticultural and agricultural knowledge have been created. In Chile, Anglo American has worked with goat farmers and beekeepers to improve techniques and product marketing. In South Africa and Chile, the company’s programmes generate new small businesses through supply chain opportunities, training, mentoring and access to finance. Due to Anglo American’s close working relationship with other organisations, it ranks these

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partnerships as important. Mrs Julie Dent, a marketing manager at Anglo American, annually attends conferences focusing on sustainable development, and reports back to her employees about the conference proceedings. These conferences also allow her to connect with other business people, and to identify possible business partners in future projects.

The pressure for social and environmental responsibility Top managers at Anglo American are encouraged to be up to date with the social and environmental pressures prevalent in their business environment. They need to constantly monitor and analyse the business environment. Pressure for social and environmental responsibility comes from two main sources, namely: . from within the business . from outside the business

Internal pressures Internal pressures are the most effective to drive change. The decision-makers at Anglo American ensure that the organisation works towards sustainability. The Board establishes the key principles for using resources in the most efficient way. The business must work closely with local communities. It must also minimise the impact of its operations on the environment. Anglo American has created a series of policies and plans that put principles into action. Shareholders are the owners of Anglo American and want the business to do well in the long term. They recognise that stability, prosperity and community confidence are vital in sustaining the business. These factors help to persuade other communities that mining can be compatible with a decent environment and social progress. Another internal pressure stems from the company’s need to recruit talented new staff and retain valued employees. Anglo American aims to attract and retain the services of the most appropriately skilled individuals. It relies on the skills, enthusiasm and commitment of its people to meet the needs of the business and to fulfil its aims and objectives. By showing that it behaves responsibly towards the environment and the communities it works in, it can attract the widest range of suitable people to the organisation.

External pressures External pressures are also important. Legislation, for example, plays a part. The UK Parliament provides minimum standards for areas such as the treatment of workers, the environment and customers. Because they have an international reputation to protect, major multi-national companies generally seek to operate within the law. In almost all countries, governments are also the ultimate owners of mineral rights and provide a mining business with its licence to operate. In some developing countries, however, governments promote laws, but do not have the mechanisms to enforce them.

Meeting international standards Anglo American also seeks to meet the increasing requirements of a number of international standards initiatives, including the following: . The ten principles of the United Nations Global Compact. The governments of the 30 or so leading developed countries (the Organisation for Economic Co-operation and Develop-

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ment [OECD]) have also adopted a set of guidelines. Multi-national companies are expected to comply with these wherever they operate. There is a complaints process led by governments to support the guidelines. . The International Labour Organisation. This organisation has agreed on guidelines for companies related to the treatment of employees and contractors. . A number of initiatives involving governments, NGOs and businesses working together voluntarily on issues like governance and human rights. Anglo American is party to two of these groupings whose guiding principles have become standards in practice, namely, the Voluntary Principles on Security and Human Rights and the Extractive Industries Transparency Initiative. Strong pressure in some markets may come from customers. Many customers demand high standards of ethical behaviour. There are also pressure groups such as the World Wide Fund for Nature (WWF), Oxfam or Amnesty, which seek to ensure that businesses operate in an ethical and sustainable way. There are significant business pressures for behaving responsibly. Prosperous and stable communities support long-term business success. This leads to better returns for shareholders.

Conclusion Social and environmental responsibilities are vital components of a business strategy. They are the cornerstones of successful sustainable businesses. Today, Anglo American has a strong reputation in many countries. This reputation comes from basing strategic decision making on respected social and environmental principles. This starts with senior managers and is carried through right down to grass-roots community projects. Source: Adaped from The Times 100 (2018:b) ‘‘# Copyright Business Case Studies LLP. Reproduced by permission of the publisher. www.businesscasestudies.co.uk’’

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Study unit 3 Composition of the management environment INTRODUCTION AND AIM In this study unit we elaborate on the reasons why organisations have specific relationships with the environments in which they operate. In South Africa, the business environment can be classified as dynamic, complex and fast changing. Managers have to consider many variables in their pursuit of achieving organisational objectives. Here we investigate the specific variables that constitute the business environment and explain ways in which management can respond to the environment. Because the business environment of organisations is constantly changing, managers should be proactive and take advantage of opportunities, while avoiding threats in the business environment.

STUDY CHAPTER 4 IN THE PRESCRIBED BOOK Contents of the study unit . The importance of the management environment and its impact on managerial decision making . Management theories and the management environment . The structure and dynamics of the management environment . Analysis of the management environment

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OVERVIEW

Learning objectives After completing this unit, you should be able to: 1 explain the importance of the management environment when making management decisions 2 depict diagrammatically and explain the concepts of the process, systems and contingency approaches in management 3 describe the structure and dynamics of the management environment 4 conduct a basic analysis of the environment

KEY TERMS Available substitutes Bargaining power of customers Bargaining power of suppliers Competitors Contingency approach to management Cultural environment Customer needs Customers Ecological/physical environment Economic environment Environmental analysis

Market environment Micro-environment New entrants Opportunity Organisational functions Policies Political/legislative environment Process approach to management Purchasing behaviour of customers Remote environment Resources

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Environmental profile Existing competitors Goals and objectives Intermediaries Labour market Labour unions Linear trend estimation Macro-environment Management environment

Strategies Strength Suppliers SWOT analysis Systems approach to management Technological environment Threat Weakness

3.1 THE IMPORTANCE OF THE MANAGEMENT ENVIRONMENT AND ITS IMPACT ON MANAGERIAL DECISION MAKING The following two scenarios compel you to consider the implications on the people and parties involved with them. (1)

(2)

The Gautrain, South Africa’s first world-class railway and bus service, has made travelling in and from Johannesburg and Pretoria, in Gauteng, faster and more convenient. This has affected many people travelling in this region. It has improved traffic congestion on the Johannesburg-Pretoria roads, and is an alternative (and quicker) mode of transportation for many travellers, and businesspeople. A few years ago a new regulation was enforced in South Africa that banned smoking in public places. This affected all smokers, as they needed to seek out designated areas to smoke. In addition, all restaurants and hotels needed to upgrade their facilities to include smoking sections.

Just as we are affected by our environment, so organisations are affected by their business environment. The organisation’s business environment is the environment in which it operates. Most business environments are complex and interdependent. In addition, changes within the business environment have become more rapid, discontinuous and turbulent. Within business environments, threats and opportunities emerge that managers need to take into consideration. To make better choices, and to choose feasible courses of action to perform the management functions, managers need to be able to identify the strengths, weaknesses, opportunities and threats within the business environment correctly.

3.2 MANAGEMENT THEORIES AND THE MANAGEMENT ENVIRONMENT We use contemporary management approaches to explain the complexity of the modern business organisation in relation to the environment in which it functions. These approaches are the process approach, the systems approach and the contingency approach. Refer to Study unit 1 and Chapter 1 to review these management approaches in more detail.

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. The process approach to management focuses mainly on the total organisation. . The systems approach to management views an organisation as a system. . The contingency approach to management acknowledges that every organisation is unique.

The management of talent in contemporary organisations Human resources play an important role in the success of an organisation. This is because human resources help an organisation to attain its vision, mission, goals and objectives. The management of talent (or the management of human resources) has become important, as it is an essential element in sustainable organisation performance. Organisations have realised that having the right talent, both aligned and engaged, is crucial to achieving strategic objectives. Therefore managers need to release people’s talent and give it strategic attention to obtain sustainable organisational performance. Did you KNOW? The depreciation of the South African rand (ZAR), which started in early 2012, has continued to be more pronounced since the beginning of March 2013. Although the South African Reserve Bank considers it to be a temporary trend, this development could have far-reaching effects on the country’s inflation, foreign trade, labour costs and flows of funds, among other indicators of economic health. Source: Global database team (2013)

3.3 THE STRUCTURE AND DYNAMICS OF THE MANAGEMENT ENVIRONMENT Structurally, the management environment can be divided into the micro-environment, the market environment and the remote environment. Table 3.1 summarises these environments.

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Table 3.1: The micro-, market and remote environments Micro- or internal environment (The organisation itself, over which management has full control) The strategies of an organisation The goals and objectives of an organisation The resources of an organisation The policies of an organisation Organisational functions

Macro- or external environment (The macro-environment represents the area outside of the organisation over which the manager has no control and consists of the market and remote environments) Market environment (Area outside of the organisation over which management has no control) Intermediaries

Includes wholesalers, retailers, commercial agents, brokers and financial intermediaries

Labour market

Includes labour unions and labour force

Competition

Includes all new entrants, existing competitors and available substitutes

Customers

Includes their needs, purchasing power, behaviour and bargaining power

Suppliers

Includes providers of inputs (needed to produce outputs)

Remote environment (The broader environment within which the organisation functions and which surrounds the market environment) Economic environment

Within this environment, change occurs through factors such as business cycles, interest rates, inflation, unemployment, trends with regard to the gross national product (GNP) and economic growth rate, monetary and fiscal policy, trends in the balance of payments, recessions and depressions, the influence of resources, and so on.

Cultural environment

This environment consists of people, cultural forces, values or value systems, which cause changes in the environment.

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Remote environment (The broader environment within which the organisation functions and which surrounds the market environment) Technological environment

This environment is characterised by accelerating change and innovation. It includes the knowledge, tools, actions and techniques that are used to transform ideas, information, raw materials and components into finished products and services. It also includes the physical elements of human invention and innovation.

Ecological/physical environment

This environment consists of the natural resources from which the organisation obtains raw materials.

Political/legislative environment

This environment consists of the government and its influences on organisations.

Understanding the management environment helps managers to analyse the management environment.

3.4

ANALYSIS OF THE MANAGEMENT ENVIRONMENT

A basic framework for conducting an analysis of the environment The purpose of analysing the business environment is so that it contributes to the management process in a meaningful way. The phases involved in conducting an environmental analysis are discussed below:

Phase 1: Identify key environmental variables In this step, the contingency approach becomes applicable. Managers are required to take into account the unique nature and characteristics of the organisation they serve. On this basis, a manager should identify the key variables that specifically apply to the organisation or the specific situation at hand.

Phase 2: Evaluate and select a technique for analysing the environment The technique(s) that will assist the manager in conducting the analysis of the environment must be evaluated and selected. To help the manager in this process the following criteria are important: . Explicitness. This applies when a technique is so completely specified that any individual, applying the same method and without having to make independent judgements, can come up with the same results. . Comprehensiveness. A technique must allow an overview of the maximum number of factors potentially relevant to the problem. . Simplicity. This refers to practicality when selecting a technique. Simple methods are easier to employ, ease understanding of the method and are easier to assess in terms of consistency.

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. Sensitivity to nuances. This refers to a technique that considers, or is sensitive to, nuances of a particular situation. . Timeliness. The methodology of the technique must be able to provide the manager with the required information within the set deadline. . Cost-effectiveness. Time, equipment and techniques as inputs must be related to the potential value of the information as output. Examples of techniques that comply with above criteria are the linear trend estimationand a SWOT analysis. Organisations often use these two techniques in analysing the environment. . Linear trend estimation uses regression analysis to project future trends. . SWOT analysis analyses the environment. SWOT stands for strengths, weaknesses, opportunities and threats. – Strengths are the resources and/or competencies available to an organisation which represent distinctive advantages. – Weaknesses are the limitations or deficiencies in one or more resources or competencies that hinder an organisation’s effective performance. – Opportunities are favourable situations or trends in an organisation’s external environment upon which it can capitalise to improve its position. – Threats are unfavourable situations or trends in an organisation’s external environment that are key impediments to its current or desired position.

Phase 3: Develop an environmental profile This step involves summarising the results of the analysis of the management environment in a useful and user-friendly way.

Phase 4: Monitor the variables, trends and environment continuously Once phase 3 has been completed, the identified key variables have to be monitored continuously. By monitoring the key variables, managers can ensure they are still valid, providing timely warning of changes in trends. Furthermore, managers can also identify potential new opportunities, threats, strengths and weaknesses. Did you KNOW? Regarding the rand depreciation in South Africa, the positive side is that South Africa’s exports have benefited from increased external demand due to the cheaper rand. Source: Global database team (2013)

SUMMARY In this study unit, we discussed the importance of the management environment and its impact on managerial decision making. We classified the business environment into three sub-environments, namely, the micro-environment, the market environment and the remote environment. Lastly, we identified the phases involved in conducting an environmental analysis.

REVIEW QUESTIONS (1)

Why is the management environment important? Explain its impact on managerial decision making.

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(2) (3) (4) (5) (6)

What does the business environment consist of? Differentiate between the sub-environments of the remote environment. What are the steps or phases that managers can follow in the analysis of the management environment? What are the criteria used in the evaluation and selection of a technique for analysing the environment? What does SWOT stand for? Explain these terms in your own words and evaluate your answer against the definitions provided in the study units and prescribed book.

ADDITIONAL QUESTIONS Refer to Chapter 4 for additional questions.

FUN ACTIVITY (1) (2) (3)

Select the multiple-choice questions from your assignment that relate to this study unit and answer them. Select the multiple-choice questions from an old examination paper (available on myUnisa) that relate to this study unit and answer them. Choose any one of the additional resources provided and write a short review of the article. Explain why you found it interesting and important in today’s organisation.

REMINDER You will need to discuss the content of this study unit in detail. This is a summary only, and therefore you need to study the chapter in the book thoroughly. Make sure you have achieved all the learning objectives.

ADDITIONAL READING MATERIAL (1) (2) (3)

Business and the external environment (overview). Available at: http://www.tutor2u.net/business/gcse/external_environment_introduction.htm Behavioural approach to leadership. Available at: http://knowledge.sagepub.com/view/organizationalpsychology/n21.xml SWOT analysis. Available at: http://www.tutor2u.net/business/strategy/SWOT_analysis.htm

CASE STUDY PRACTICAL EXAMPLE To help you understand the management environment and its effect on an organisation at a more practical level, we have included the case study below. As you read through the case study, do the following activities: – Underline the key words relating to the management environment in this study unit, and review them by referring back to the unit and applicable chapter in the prescribed book. – Identify and highlight examples of the micro-, market and remote environments within this case study. – List each of the changes in the political/legislative environment as experienced by Transco. How did these changes affect Transco?

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THE CHANGING ENVIRONMENT WITHIN THE GAS INDUSTRY A TRANSCO CASE STUDY Introduction Gas is the carefully controlled source of nearly half of Britain’s energy needs. And most of that gas is transported safely and reliably by a British company - Transco. All day, every day, sophisticated computer-based telemetry applications watch, record and report as the gas goes through meters, compressors, valves and governors on its way to more than 20 million homes, factories and businesses. Transco is the gas transportation arm of British Gas (BG) plc. Transco is highly information-rich. Its cutting edge computer systems and technological knowhow run the gas transportation network and underpin the competitive market in domestic, industrial and commercial gas supply. This case study focuses on changes to the gas industry in recent years.

The changing environment Few organisations exist within a market that changes almost by the hour. Transco is able to cope with changes in demand - and this is largely because its forecasting of gas demand is accurate. It is a complicated process, taking account of all aspects of the weather and the hourly gas demands of consumers. Demand forecasts are made four times a day, but more may be made if the weather forecast or demand changes significantly. Safety and security of supply have top priority. Transco monitors the system to maintain a physical balance, making sure that gas is available at the right place at the right time. Thousands of computer simulations are run each year to ensure optimum operation of the network under all operating conditions, including planned maintenance and special operations. It’s not only ensuring security of supply that’s a crucial element of Transco’s business. Making sure that all its operations are carried out safely is vital, too. As part of Transco’s commitment to safety, it operates the national 24-hour freephone gas emergency service.

Source The gas starts its journey deep beneath the North Sea and is pumped ashore on the mainland of Great Britain at one of the seven terminals - St Fergus (Scotland), Bacton (Norfolk), Barrow (Cumbria), Easington (Yorkshire), Theddlethorpe (Lincolnshire), Burton Point (North Wales), and Teesside. From the terminals, it enters the National Transmission System and eventually arrives at the customer’s meter.

Nationalisation to regulation In the past the gas industry was owned by Government, within the public sector. In 1986, gas became the first energy source in Great Britain to be regulated, three weeks after the then British Gas was privatised, with the issue of shares on the London Stock Exchange taking it into the private sector. Even though gas is in the private sector, it is still heavily regulated. Transco is the country’s nearmonopoly gas transporter and the largest of around ten public gas transporters licensed by the regulator, OFGEM (the Office of Gas and Electricity Markets) to move gas around the country. Transco’s pipeline business, because it is a monopoly, is regulated by OFGEM whose staff ensure that Transco works within the requirements of the Gas Acts and its licence conditions.

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Pricing and competition Transco’s revenues are earned within a price control linked to the rate of inflation and modified by an efficiency factor decided by the regulator who controls Transco’s revenues. The formula – RPI-X – was introduced in the mid-80s. That type of control and the regulation of profits in general, was seen as a temporary means of ‘holding the fort’ until competition arrived. Developments in the price controls in both the gas and electricity supply industries – both now regulated by a common regulator – are being looked at. Full competition in gas supply arrived in 1998, when every domestic consumer was given the opportunity to select a supplier of their choice. There is also competition in the field of gas connections and gas meter reading.

From a nationalised industry to public gas transporter 1965 In the same year that The Beatles received their MBEs, the nationalised Gas Council rebuilt and modernised the UK’s gas industry.

1967–1977 In the decade that Neil Armstrong landed on the moon, the Gas Council carried out one of the biggest civil and commercial engineering programmes ever undertaken.

1971–1972 Money went metric and the UK gas industry was transformed from a local manufacturer of gas with a distribution network to a full-scale energy company with operations that extended from exploration to marketing. In 1972, a new Gas Act restructured the Gas Council and regional gas boards into the nationwide British Gas Corporation.

1979 Margaret Thatcher’s first government was elected and, in a programme to be copied around the world, it prepared to privatise national corporations.

1986 The British Gas Corporation was privatised as British Gas plc, with 17 million customers, 4.5 million shareholders, over 89,000 employees and had annual cost operating profits of £688 million.

1988 Competition began to be felt. The South Morecambe gas field, British Gas’s first major independent find, was brought into operation. It was one of the largest gas fields on the UK Continental Shelf.

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1991 Government proposed a reduction of the monopoly threshold to 2,500 therms a year. British Gas was required to separate its transportation and supply businesses, and agreed to create the conditions to allow competitors to supply 60 per cent of the market by 1995.

1993 British Gas announced a major restructuring into five business divisions to be completed by March 1994. The Government demanded that competition in the domestic market be phased in from 1996–1998.

1996 Mad Cow Disease (BSE) and competition in domestic gas supply in the southwest hit the headlines. The Network Code, which governs relationships between gas suppliers, shippers and Transco was published and came into force.

1997 In the UK’s largest demerger, the marketing, sales and retail activities of British Gas separated to become Centrica plc. BG plc was formed and focused on the operation of the gas pipeline (through Transco) and storage systems, gas and oil exploration, international gas transportation, distribution, power generation, energy research and technology.

1998 The domestic gas market became fully competitive. Transco spent over 500 man-years to design and build the computer systems that enable the world’s largest competitive market to function.

A matter of branding The theme, ‘Transco, an essential British company, piping gas for you’, continues to be used in company advertising, along with a series of ‘We do, we don’t’ adverts which seek to emphasise that Transco pipes gas and runs the gas emergency service - but doesn’t sell gas, fit cookers, send gas bills or mend boilers. Regular surveys, carried out to track public awareness of Transco as a brand, demonstrate a steady rise.

Conclusion The gas industry has undergone enormous change in recent years. The monopoly of the former British Gas has been broken. Instead of being restricted to one supplier, all gas consumers can choose from a number of companies from whom to buy their gas. With so much change, there is understandably some confusion in the public mind as to who does what within the industry. Some people find it hard to move on from the idea of ‘the gas board’. Transco is keen for its various audiences to have a clear understanding of the role it plays in helping deliver gas across the country. With that in mind, it launched a £3.75 million nationwide advertising campaign using television, radio and the press. Source: The Times 100 (2013:c) ‘‘# Copyright Business Case Studies LLP. Reproduced by permission of the publisher. www.businesscasestudies.co.uk’’

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Topic 2 Planning INTRODUCTION AND AIM OF TOPIC The purpose of this topic is, firstly, to help you develop an understanding of planning as a management function. Study unit 4 provides an overview of planning as a management function. We describe planning and the reasons why managers should plan. We explain that planning is the axis around which other management functions revolve. In the study unit we also look at the different kinds of plans that managers formulate, namely strategic, tactical and operational plans. A logical planning process is illustrated, which enables managers to plan more effectively. The purpose of study units 5, 6 and 7 is to help you develop an understanding of strategic management, problems, solutions to problems, decision making and information management in an organisation. Managers need to choose strategies that will enable the organisation to prosper in a constantly changing environment. Managers at all levels of the organisation are also continually confronted with problems which they have to solve and opportunities on which they must capitalise. They must evaluate different solutions to problems and find ways to make the best use of opportunities. In other words, they have to make decisions. To be able to make effective decisions, managers depend on a constant stream of reliable, accurate and timely information from within, as well as outside the organisation.

Learning objectives After completing this topic, you should be able to: — give an overview of planning as a management function — differentiate between the terms ‘‘strategy’’ an ‘‘strategic management’’ — discuss the various phases in the strategic management process — differentiate between problems, problem solving and decision making — compare the different types of managerial decisions and decision-making conditions — explain the various models of decision making — describe group decision making — suggest techniques for improving group decision making — recommend tools for decision making under the various decision-making conditions

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— — — —

explain the link between decision making and information management explain what an information system comprises identify the characteristics of useful information classify information systems according to their use in operational and managerial support — explain how a management information system can support decision-making — explain the role of managerial end-users in developing an information system — develop a generic information system for managers

CONTENT Topic 2 comprises four study units:

STUDY UNIT 4: Principles of planning STUDY UNIT 5: Strategic management

TOPIC 2: PLANNING

STUDY UNIT 6: Decision making STUDY UNIT 7: Information management

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Study unit 4 Principles of planning INTRODUCTION AND AIM In this study unit we introduce you to planning as a management function. We will look at the nature and importance of planning in organisations; the benefits organisations enjoy when planning; and the costs of planning. We then address the different types of planning; why managers plan less than they should; and ways to overcome these barriers to effective planning.

STUDY CHAPTER 10 IN THE PRESCRIBED BOOK Contents of the study unit . . . . .

The nature and importance of planning The benefits and costs associated with planning The types of plans The barriers to effective planning Overcoming barriers to effective planning

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OVERVIEW

Learning objectives After completing this topic, you should be able to: 1 explain the nature and importance of planning 2 discuss the benefits and costs associated with planning 3 differentiate between the various types of plan 4 explain the barriers to effective planning 5 explain ways to overcome barriers to effective planning

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KEY TERMS A-B-C priority system Budget Contingency planning Directional plan Environmental complexity and volatility Goals Rule Individual plan Long-term plan Management by objectives Medium-term plan Mission Objectives Operational plan

4.1

Pareto principle Planning Policy Priorities Procedure Programme Project Short-term plan Single-use plan Specific plan Standing plan Strategic plan Tactical plan Values Vision

THE NATURE AND IMPORTANCE OF PLANNING We use ‘‘planning’’ in almost every aspect of our lives from planning our studies, our day, our tasks and ‘‘to-do list’’ for the day, to planning our holidays. For the purpose of illustrating the importance of planning, let’s pretend we are planning a road trip through Lesotho for a holiday (which would be our goal). Obviously, we cannot simply start driving around aimlessly. What road would we take? What do we plan to do when we arrive in Lesotho?

Thus, in order for us to achieve our goals, we need to sit down and plan this road trip. We need to determine the best dates to go, routes to take, costs, accommodation, where to fill up with petrol and food requirements. Let’s not forget the possible activities we would like to do while we are there our choices might include fly-fishing, hiking, meeting the Basotho people, horse riding, taking photos or simply enjoying the scenery. See how vital planning is for our trip? Our trip will undoubtedly fail without it! In order to attain our goals in life, we need to invest a certain amount of time and energy in planning. Planning also plays a vital role in the business environment and managers need to plan in order to achieve the organisation’s goals. . Planning. The management function that determines the organisational vision, mission and goals, identifies ways of realising the goals and finds the resources needed for the task in a complex environment. Every organisation has a purpose or a reason for its existence. The purpose of a profit-seeking organisation is to realise an above-average return for its shareholders, and to satisfy the claims of its other stakeholders. These stakeholders include employees, customers, suppliers, the community and the government. However, managers need to have plans in place to achieve such goals. Let’s look at an organisation’s vision, which is, what or where an organisations would like to be

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in the future. In order to reach that destination, an organisation needs to determine the best possible way to reach it, and to determine what resources would be needed along the way. This is what the management function of planning entails. The objective of every plan made by managers in organisations is to facilitate the attainment of a purpose. Planning occurs in all organisations and at all levels of the organisation, and is the task of all managers from top management right down to the most junior manager in the organisation. However, the kind of plans that managers at different levels of the organisation are responsible for, vary in terms of factors such as focus or time span covered. Read the excerpt below on the importance of planning. The importance of planning is illustrated by the following: . The board of directors is responsible, inter alia, for establishing a vision, mission and values for the organisation, as well as approving goals, strategy, and policy. These issues all relate to planning. . South African organisations have to survive in a revolutionary business environment. This type of environment is unpredictable and organisations therefore need to plan for the unexpected. . South African organisations comprise a diverse workforce in terms of age, gender, religion, language, ethnic background and so on. Organisations have to plan their workforce for the future to ensure that they comply with the relevant laws. . Planning also promotes cooperation between managers and workers with a diverse background. If goals are clearly formulated and plans are unambiguous, tasks and resources can be allocated in such a way that everyone is able to contribute efficiently to the realisation of the goals. Scarce resources can be channelled and utilised rationally, which is necessary for the productivity and ultimate profitability of the organisation. . South Africa and the rest of Africa face unique challenges. One such challenge is that presented by HIV/AIDS. Organisations have to plan carefully around this issue because it has a direct impact on the availability of suitably trained human resources. HIV/AIDS also has cost implications for organisations, such as the cost of high absenteeism. . Modern technology makes high demands on South African organisations. To remain competitive, organisations often have to develop products by means of complicated processes, to ensure that international standards are met. These include standards for ensuring safe and environmentally friendly products. . The increasing complexity of organisations makes planning essential.

Did you KNOW? Surveys show that entrepreneurs with written business plans have 50% greater sales and 12% higher profit. Source: Drew and Associates (2010)

The following sections address the four components of planning: . . . .

determining the organisational vision, mission and goals identifying ways to achieve the goals finding the resources needed for the task planning in a complex environment

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4.1.1

Determining the organisational vision, mission and goals

Study unit 5 addresses the vision and mission statements in more detail. Note the following definitions: . Vision: A statement of what the organisation wants to become and where it wants to be in the future . Mission: Aligns the organisation with its vision in terms of its products and/or services, market and technology . Goal/objective: Commitment to achieve a measurable result within a given time frame

Prioritising goals and objectives Prioritising goals and objectives means that managers rank goals, objectives and activities in order of priority. The two most widely used techniques are the A-B-C priority system and the 80/20 rule. . The A-B-C priority system. In terms of this system, objectives are grouped according to those objectives that are critical to successful performance, those that are necessary for improved performance and those that are desirable for improved performance. . The 80/20 rule (Pareto principle). A minority of causes, inputs or effort tend to produce the majority of results, outputs or rewards.

4.1.2

Identifying ways to achieve the goals

Management has now determined the vision and mission statement from which the goals were formulated. However, management needs to identify ways of attaining these goals and can do so by setting objectives. The setting of objectives is a top-to-bottom process. Top management sets the broader organisational objectives, which flow down to middle-level management, and ultimately lower-level management. Working from bottom to top, lower management objectives provide the means for achieving middle-level objectives which, in turn, provide the means for achieving top-level objectives. This process is referred to as the ‘‘the ends-means chain of objectives’’.

4.1.3

Finding the resources needed for the task

The next step, after identifying the ways in reaching organisational goals, would be to identify and allocate the resources needed to attain organisational goals. Planning is not complete without finding the resources needed to attain organisational goals and objectives. Such resources include time, talent, financial, information and physical resources.

4.1.4

Planning in a complex environment

We mentioned previously that organisations operate in changing environments and that these changes influence or affect management. In the same way, managerial planning occurs in a complex, turbulent environment. In such cases, managers benefit from the adoption of a contingency approach to planning.

Contingency planning . Contingency planning. Managers formulate multiple plans based on different environmental conditions. Managers can approach contingency planning in two ways. The first would be to have an alternative plan or plans (or a so-called ‘‘Plan B’’). Each alternative plan would be based on different conditions that could occur. Which plan to choose and implement would typically be

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determined by the specific prevailing conditions. The second approach to contingency planning is based on the skill and ability for people in the organisation to think strategically and flexibly. This approach is often referred to as ‘‘the prepared minds’’ approach. Bear in mind that owing to changes in the environments (both internal and external), uncertainty, new competition, unexpected problems and emerging opportunities, planning is an on-going process. Throughout this process, organisations enjoy certain benefits. However, there are also costs associated with planning. The next section discusses the benefits and costs associated with planning.

4.2 THE BENEFITS AND COSTS ASSOCIATED WITH PLANNING The following table 4.1 depicts the benefits and costs associated with planning:

Table 4.1: Benefits and costs of planning Benefits of planning

Costs of planning

It provides direction and encourages forward It imposes rigidity. thinking. It leads to a participatory work environment. It requires management time. It reduces the impact of change.

It cannot replace intuition and creativity.

It reduces the overlapping and duplication of It can cause a delay in decision making. activities. It sets the standards for facilitating control.

The types of plans that organisations can formulate are discussed in the next section.

4.3 TYPES OF PLANS Plans can be described in terms of their: . . . .

breadth (strategic, tactical and operational plans) time frame (long-term, intermediate and short-term plans) specificity (directional and/or specific plans) frequency (single-use, standing and individual plans)

4.3.1

Strategic, tactical and operational plans

. Strategic plans. These plans are designed to ensure that the organisation as a whole is aligned with the changing external environment. They are formulated by top management and focus on the entire organisation. . Tactical plans. These plans deal primarily with the people and actions required to implement the strategic plans. The focus could be on the functional areas in an organisation, such as marketing, finance, operations, human resources, research and development, purchasing and other functions. . Operational plans. These plans are developed by middle- and lower-level managers. They

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focus on executing tactical plans to achieve operational goals. Operational plans are narrowly focused and have relatively short time horizons (monthly, weekly and day to day). Did you KNOW? Strategic planning improves the efficiencies of an organisation. Source: Wondra (2013)

4.3.2

Long-term, intermediate and short-term plans

. Long-term plans. Top managers develop long-term plans that focus on the future and extend beyond current realities. . Intermediate (medium-term) plans. Intermediate plans refer to medium-term planning by middle management for the various functional departments to realise tactical goals, which are derived from the strategic goals. These plans are developed by middle managers. . Short-term plans. Short-term plans relate to periods of no longer than a year. They are developed by lower management to achieve the operational goals. Short-term plans are concerned with the organisation’s day-to-day activities and the allocation of resources to particular individuals in accordance with particular projects, budgets, and so on, in order to achieve certain aims.

4.3.3

Specificity and directional plans

. Specific plans have clearly defined objectives. . Directional plans are flexible and set out general guidelines.

4.3.4

Single-use plans, standing plans and individual plans

. Single-use plans are used once to meet the need of a particular situation. Examples of such plans would be programmes, projects and budgets. . Standing plans provide guidance for repeated actions in the organisation. Examples of such plans would be policies, procedures and rules. . Individual plans are broader organisational plans that are translated at individual level. One approach to this is management by objectives. Managers sometimes do less planning than they should actually do. There are four barriers to effective planning as highlighted in the next section.

4.4 BARRIERS TO EFFECTIVE PLANNING The following are the four main reasons why managers do not plan as much as they should: . . . .

too time-consuming resistance to change environmental complexity and volatility reluctance to establish goals Other factors that affect effective planning: . . . .

new technology new legislation scarce resources the need for managers to understand the organisation’s strategy, goals and plans

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4.5 OVERCOMING BARRIERS TO EFFECTIVE PLANNING The following guidelines can help managers to overcome the barriers to effective planning: . effective planning should start at the top of an organisation. . management should involve employees in the decision-making process. . management should communicate throughout the planning process. . plans should not be cast in stone.

SUMMARY In this study unit we introduced you to managerial planning, which is one of the managerial functions. We discussed the nature and importance of planning in organisations and the benefits of planning for organisations. We also discussed the different types of planning in terms of their breadth, time, specificity and frequency, and why managers do not plan as much as they should. Lastly, we discussed ways to overcome the barriers to effective planning.

REVIEW QUESTIONS (1) (2) (3) (4) (5) (6)

Explain the four components of planning. Explain the benefits and costs associated with planning. List the different types of planning in terms of breadth, time, specificity and frequency, and provide practical examples of each. What is meant by ‘‘the ends-means chain of objectives’’ What is meant by ‘‘management by objectives’’? Explain why managers do not plan as much as they should, and indicate ways in which they could overcome this.

ADDITIONAL QUESTIONS Please refer to chapter 10 for additional questions.

FUN ACTIVITY (1) (2) (3)

Select the multiple-choice questions from your assignment pertaining to this study unit and answer them. Select the multiple-choice questions from an old examination paper (available on myUnisa) pertaining to this study unit and answer them. Choose any one of the additional articles (under the additional reading materials list) and write a short review of the article for a local business newspaper column. Remember to use a catchy headline.

REMINDER You will need to be able to discuss the content of this study unit in more detail because this is only a summary. Refer to the learning objectives and make sure that you are able to discuss each one comprehensively.

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ADDITIONAL READING MATERIAL (1)

Importance of planning. Available at: http://youcanwin.hubpages.com/hub/Importance-of-Planning

(2)

Advantages of planning. Available at: http://www.managementstudyguide.com/planning_advantages.htm

(3)

Types of planning. Available at: http://www.cliffsnotes.com/study_guide/Detailing-Types-of- Plans.topicArticleId8944,articleId-8871.html

CASE STUDY: PRACTICAL EXAMPLE In order for you to understand business planning in a practical way, we have included the case study below. As you read through the case study, do the following activities: – Take the aims of War Child, and transform them into plans for War Child to pursue (to reach that particular goal) – How did War Child obtain the resources needed to reach its goals/aims? – Identify a situation where a single-use and a standing plan would typically be used in the War Child case study

MAKING THE BEST USE OF LIMITED RESOURCES A WAR CHILD CASE STUDY Introduction War Child is an international aid agency dedicated to improving the lives of children affected by war around the world. War Child is involved in relief work, such as the delivery of emergency food and medical supplies into war zones or supporting those who have been forced to flee their homes because of conflict. War Child is also involved in developmental initiatives, such as the rehabilitation of war-traumatised children and ‘education for peace’’ programmes. At the heart of War Child’s philosophy is the realisation that the war-scarred younger generation is the key to a peaceful future.

The start of War Child War Child was founded in 1993 by film makers, Bill Leeson and David Wilson, as an emotional response to the plight of children caught up in the war in the former Yugoslavia. Initially raising money through entertainment events and public appeals, War Child set out to bring immediate material help to children of all ages and ethnic backgrounds. With a few old trucks and the help of a handful of unpaid volunteers, War Child began delivering food, clothing and medical equipment to wherever it was needed most. It also supplied musical instruments and CDs to young people and radio stations and initiated a diabetic programme supplying insulin and blood-testing equipment throughout Bosnia. In all, thanks to significant financial support from the general public and the music and entertainment industries, War Child provided millions of pounds worth of aid to the former Yugoslavia. The Overseas Development Agency also provided grants to War Child which were used to establish a mobile bakery.

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Extending War Child’s remit War Child has grown from a two-man organisation working out of a sitting room in North London, into an international aid agency with offices in half a dozen countries. As the fighting finally came to an end in the former Yugoslavia, the focus of War Child’s work moved from short-term emergency aid to longer-term rehabilitation and construction projects, the largest of which was the Pavarotti Music Centre in the southern Bosnian town of Mostar. ’’Pavarotti and Friends’’ concerts, staged in 1995 and 1996, helped fund the Pavarotti Music Centre in Mostar, Bosnia-Herzegovina a major rebuilding project which refurbished a devastated school to provide a purpose-built therapy centre and bring music and the arts to Bosnia’s war-traumatised children. Today, War Child is involved in numerous projects in over a dozen countries across four continents. However, its fundamental goal remains the same to advance the cause of peace by investing hope in the lives of children struggling for survival in war zones around the world. War Child interprets the term ‘‘war zone’’ to include areas of current armed conflict or where children are suffering from the devastation left by war.

Establishing aims For any business organisation to be successful, it is necessary to establish clear aims. Without clear aims, an organisation has no sense of direction and will be unable to monitor and record the progress it is making. The aims of War Child are to . . . .

focus public attention on the plight of children in war zones alleviate the suffering of children by bringing material aid into war zones support those children who have been evacuated to refugee camps initiate rehabilitation programmes once children return safely to their homes this includes identifying needs for capital reconstruction projects . be instrumental in healing the psychological damage caused to children by their experience of war The founders attempted to identify and prioritise the greatest needs of children in areas of conflict and determine how best to help them. They incorporated this into the organisation’s aims. War Child was established as both an implementing agency funding, staffing and operating its own aid programmes, such as medical programmes in Bosnia and West Africa and the mobile bakery in Mostar and as a grant-making trust, providing financial and logistical assistance to dozens of other Non-governmental Organisations (NGOs). The main advantage of this dual mode of operation is greater flexibility and a speedier response to emergency situations. It also allows War Child to avoid some of the problems that often hinder the work of the NGO community when competition takes the place of cooperation and duplication of effort (similar projects running in the same place) wastes resources.

How War Child raises its revenues War Child tends to concentrate on a fund-raising strategy of fewer, high-profile, highly profitable events, as opposed to numerous, small and less profitable events. Of course, donations of any size are always greatly appreciated, but the cost of employing extra staff to coordinate numerous small events would outweigh the money raised from these events (i.e. in economic terms, the marginal cost would be greater than the marginal revenue).

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High-profile events fit well with War Child’s strong support base in the media, music and entertainment businesses and add to War Child’s reputation for working hard to build events which are fun and unusual, while at the same time raising money for a great cause. Typical events include celebrity auctions, ‘‘Pavarotti and Friends’’ concerts, the Help CD (featuring top rock stars to raise funds for war children in the former Yugoslavia) and Club Child, a recent innovation which involves a monthly club night in London. A War Child trading company, like all charities, is bound by law from making investments involving anything other than very small risks, even if the investment promises higher yields than ’’safer’’ deals. The reasoning behind the law is that donations are not given to War Child, or any other charity, for speculative purposes instead, donors expect their money to be used directly to further the aims and objectives of the charity. Consequently, War Child is in the process of setting up a War Child trading company. This is a separate but associated commercial organisation whose sole purpose will be to sell merchandise, run fund-raising events and generally make money for War Child Trust (the charitable arm of War Child). The plan is that the War Child trading company will be established using start-up funds loaned or invested by corporate partners and donations from commercial companies, thus limiting the charity’s financial liability. Donors/sponsors will be rewarded by small dividends on their investments or interest on their loans and the knowledge that the bulk of the profits from the War Child trading company is going to War Child Trust.

How War Child allocates its expenditures Making best use of resources means spending money in the best possible way. To this end, it is necessary to establish a clear set of criteria determined by the aims of the organisation. Once projects have been chosen, specific budgets are allocated. War Child’s project team regularly meets to decide on the best way to allocate funds. The team must consider both ongoing projects and likely future commitments. By working through a network of specialist NGOs, War Child can react swiftly and effectively to a wide range of problems, while keeping the organisation’s administrative infrastructure to a minimum. War Child is proud that its current administrative overhead is less than 5%. This is an important measure of efficiency. Expenditures include material aid (food, medical supplies, etc.), transport, staff salaries and travel costs, administration and office expenses plus public awareness raising campaigns. In addition to the project budget, War Child always keeps financial reserves in the bank to cover a minimum of three months total running costs, as well as an additional fund of £50 000 in case of unforeseen emergency. The southern Sudan food airlift, for example, required £20 000 at very short notice to provide food to the areas worst hit by famine.

Conclusion This case study has highlighted how important it is for any organisation to have clear goals and strong financial accountability. As an aid agency, it is essential for War Child to work in the most efficient way possible, carefully controlling limited resources to help improve the lives of children affected by conflict throughout the world. Source: Adapted from: the Times 100 (2013:d) ‘‘# Copyright Business Case Studies LLP. Reproduced by permission of the publisher. www.businesscasestudies.co.uk’’

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Study unit 5 Strategic management INTRODUCTION AND AIM This study unit examines strategic management. Strategic management entails strategic analysis, strategic formulation, strategic implementation and strategic control. To survive in the long term, management has to focus on the future, and choose strategies that will enable the organisation to prosper in a constantly changing environment. In doing so, management has to formulate a vision and mission statement, scan the external environment for opportunities and threats, assess the organisation’s capabilities, formulate long-term goals and choose a strategy or strategies that will lead to the attainment of the long-term goals.

STUDY CHAPTER 11 IN THE PRESCRIBED BOOK Contents of the study unit . Strategy and strategic management . The strategic management process

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OVERVIEW

Learning objectives After completing this topic, you should be able to: 1 differentiate between the terms ‘‘strategy’’ and ‘‘strategic management’’ 2 discuss the various phases in the strategic management process

KEY TERMS Acquisition Boston Consulting Group growth-

Mission Objective

share matrix Business portfolio analysis

Opportunity Organisational architecture

Concentration growth strategy Corporate combination

Organisational culture Overall effectiveness

Corporate decline strategy Corporate growth strategy Cost leadership strategy

Product development strategy Product portfolio matrix Productivity

Differentiation strategy

Strategic analysis

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Diversification strategy

Strategic business unit

Divestiture

Strategic control

Environmental analysis

Strategic leadership

Focus strategy

Strategic management

Generic strategy

Strategy

Goal

Strategy formulation

Grand strategy

Strategy implementation

Harvesting

Strength

Innovation strategy

Takeover

Integration strategy

Threat

Liquidation

Turnaround

Management effectiveness

Vision

Market development strategy

Weakness

Merger

Winning strategy

5.1 STRATEGY AND STRATEGIC MANAGEMENT Most of us have dreams for example, an idea of what we would like to be in the future, or what we would like to achieve. Some of us may dream about being a successful businessperson or owning our own business. However, such dreams will only be realised if we do something about them, and work towards them. For example, to become a successful businessperson, you might need to enrol for an appropriate degree, pass your examinations, and be prepared to work hard. The above examples illustrates the terms ‘‘vision’’, ‘‘mission’’ and ‘‘strategies’’ in practical terms. The vision would be ‘‘to become a successful business person’’. The mission would be to ‘‘obtain a degree’’ and ‘‘work hard’’. The strategies would be those actions that you take in order to realise your vision and mission, such as compiling a study plan and adhering to due dates in your work environment. Now that we have introduced these concepts, we need to apply them in the business context. But we first have to understand the root of an organisation’s vision, mission and strategies, which lies in an organisation’s purpose. Each organisation has a purpose or a reason for its existence in a specific industry or market. In short, some organisations’ reasons for existence include providing services, producing and selling products or serving a greater cause (such as running a children’s home or a shelter for abandoned pets). Normally, an organisation’s purpose would be expressed in the form of a vision and mission statement. Subsequently, strategies relate to the pursuing of such a purpose. . A vision statement describes what the organisation will be in the future. It creates a ‘‘picture’’ of what the organisation wants to become, and what it wants to be in the future. The vision should provide a clear sense of what the organisation hopes to become an anchor for decision making in the organisation. The vision is the end, not the means to reaching the end. . A mission statement describes how an organisation will get to where it is heading. This statement aligns the organisation with its vision in terms of its products, market and technology.

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. Strategies describe the actions that managers and organisations take to fulfil the purpose of an organisation. Strategies are the means to an end. Did you KNOW? Many organisations combine both their present accomplishments, which would typically be found in a mission statement, together with their future aspirations in one statement. This results in them having a hybrid version of both a mission and vision statement. Source: Specimen templates (2009)

Appropriate strategies lead to organisational success, but there must be a fit between organisational strategies and the organisation’s internal and external environments. Organisational strategies should also meet the expectations of stakeholders. In addition, organisations should compete effectively and outperform their competitors in order to ensure success and sustainability. Such strategies in organisations are created, implemented, evaluated and reviewed in other words, they are managed within organisations. Strategic management involves the following: (1) (2) (3) (4) (5)

Establish a clear direction for the organisation and for every business, product and/or service. Create of a strong competitive position Implement strategies successfully to ensure performance. Ensure that the organisation is responsive to pressures for change and that strategies are improved and renewed. Determine the organisation’s success in attaining its vision, mission, objectives and goals,

This brings us to the strategic management process, which is discussed below.

5.2 THE STRATEGIC MANAGEMENT PROCESS The strategic management process consists of four phases, namely strategic analysis, strategy formulation, strategy implementation and strategy control. Each of these stages is discussed below.

5.2.1

Strategic analysis

This phase, involves determining the current position of the organisation. This entails the formulation of a vision, mission and the analysis of the management environment.

Develop a vision This step requires management to think about ways to carry their organisations into the future. The vision unites organisational staff, managers and external stakeholders towards an organisation’s purpose. The vision should provide a clear sense of what the organisation hopes to become, which then serves as an anchor for decision making in the organisation.

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Develop a mission This step aligns the organisation with its vision. An organisation’s mission is its reason for being. In essence, a mission encompasses the key performance areas (on how to reach the organisation’s vision), and should be used as a strategic tool. The vision statement of an organisation thus guides the formulation of the mission which, in turn, provides strategic direction for organisational members.

Analyse the environment In order to create value in a particular industry or market, an organisation’s mission needs to be aligned to its internal capabilities and external environment. Consequently, both these two environments need to be analysed. The analysis of these two environments also enables managers to identify strengths, weaknesses, opportunities and threats. Table 5.1 summarises the areas that should be assessed in each environment. Did you KNOW? Understanding the environment you want to do business in is key to making it in business. Source: Naijacorner (2013)

Table 5.1: Key areas to be assessed in the internal and external environment Internal environment

External environment

Products and services

Remote environment

Marketing expertise

Market environment

Operations

New trends

Human resources Financial performance

The analysis of the internal and external environments indicates whether the mission statement is realistic. The next step in the strategic management process is strategy formulation.

5.2.2

Strategy formulation

This step entails setting long-term goals and formulating corporate goals and business strategies. A mission statement is used to formulate goals and objectives that address any strategic issues or problems that were identified in the first phase (strategic analysis).

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Formulating long-term goals . Goals are the general targets to be accomplished. . Objectives determine what needs to be accomplished in singular, specific and measurable terms, with a target date. There is a tool available for managers (developed by Kaplan and Norton) known as the balanced scorecard (BSC). This tool ensures that an organisation achieves its mission, and has four groups of measures. These four measures comprise financial performance, customer service, internal business performance and learning and growth performance.

Formulating corporate and business strategies There are two strategies, namely generic strategies and grand strategies, each with its own set of sub-strategies. These strategies are summarised below.

Generic strategies Generic strategies are the core ideas about how organisations can best compete in the marketplace. These strategies are summarised in table 5.2.

Table 5.2: Generic strategies Generic strategy

The focus

Low-cost leadership

Maximise sales by minimising cost per unit and hence minimising prices.

Differentiation

Distinguish an organisation’s products or services from those of its competitors.

Focus

Focus on a specific product line or a segment of the market.

Grand strategies Grand strategies are overall corporate-level strategies of growth and decline. Growth strategies make aggressive attempts to increase in size through increased sales. Decline strategies are followed when organisations need to regroup their activities to improve efficiency, where longterm growth and profit opportunities are unavailable. Table 5.3 below summarises these strategies.

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Table 5.3: Corporate growth and decline strategies Corporate growth strategies Concentration growth strategy

This involves concentrating on improving what one is already doing. Resources are directed towards the continued and profitable development of a known product, in a known market, using a known technology.

Market development

This is a strategy according to which an organisation sells its present products in new markets by opening additional new outlets or attracting other market segments.

Product development

This implies substantial modification of existing products or additions to present products in order to increase market penetration in existing customer groups.

Innovative strategies

These involve the development of new products, services or technologies that completely replace the existing products, services or technologies in an industry.

Integration strategies

This strategy is followed by an organisation seeking increased control of its supply sources, acquiring a business nearer to the ultimate consumer or taking over similar organisations.

Diversification strategy

This involves organisations going into a related or unrelated line of business

Corporate combination

This involves mergers, acquisitions, take-overs, joint ventures and strategic alliances. Corporate decline strategies

Turnaround

This focuses on eliminating inefficiencies in an organisation.

Divestiture

This involves the sale of a business or a major component thereof to achieve a permanent change in the scope of operations.

Harvesting

This is an appropriate strategy when an organisation seeks to maximise cash flow in the short run, regardless of the long-term effect.

Liquidation

Liquidation, where the entire organisation ceases to exist, can therefore be regarded as the most extreme form of decline strategy.

Organisations need to select a strategy (or a combination of strategies) that best suits their unique circumstances. The next section deals with the selection of corporate strategies.

Select a corporate strategy Various techniques are available to management that help them in their selection of corporate strategies. One of these techniques was mentioned earlier, namely the SWOT analysis. The other three techniques are the business portfolio analysis, the product portfolio analysis and the Boston Consulting Group (BCG) growth-share matrix. . The business portfolio analysis entails a process of determining which line or lines of business (also referred to as a strategic business unit or SBU) the organisation will be in, and how it will allocate resources among them.

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. Product portfolio analysis is applied when the organisation has a single line of business . Boston Consulting Group (BCG) growth-share matrix entails plotting each of the organisation’s SBUs according to its relative market growth rate and relative market share. After the corporate strategy has been chosen or formulated, the business strategies can be developed for each business unit. The next step would be for managers to implement the chosen strategy.

5.2.3

Strategy implementation

The implementation of strategies entails functional departments setting their respective objectives for the medium and short term. Departments such as marketing, finance, production and human resources would typically develop functional strategies, which need to be implemented in order to achieve the business-level missions and goals.

5.2.4

Strategy control

This step involves monitoring the implementation of the strategic plan. It also ensures quality and effectiveness in terms of organisational performance.

SUMMARY This study unit focused on strategic management. We addressed the strategic management process, which includes strategic analysis, strategic formulation, strategic implementation and strategic control. We also discussed the formulation a vision and mission statement, scanning the internal and external environment, formulating long-term goals and choosing a strategy or strategies that will lead to the attainment of the long-term goals.

REVIEW QUESTIONS (1) (2) (3) (4) (5) (6) (7)

Differentiate between a vision and mission statement and a strategy. What does the phase ‘‘strategic analysis’’ entail? Explain how a mission statement can be used as a strategic tool? What is the difference between a goal and an objective? List the generic and grand corporate strategies. Classify and explain the goals and/or strategies that managers need to set and formulate during the strategy implementation phase. Why is the last phase, strategic control, so important in the strategic management process?

ADDITIONAL QUESTIONS Please refer to chapter 11 for additional questions.

FUN ACTIVITY (1) (2)

Select the multiple-choice questions from your assignment pertaining to this study unit and answer them. Select the multiple-choice questions from an old examination paper (available on myUnisa) pertaining to this study unit and answer them.

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(3)

Choose any one of the additional learning material articles provided, and write a short review of it.

REMINDER You will need to be able to discuss the content of this study unit in more detail because this is only a summary. Refer to the learning objectives and make sure that you are able to discuss each one comprehensively.

ADDITIONAL LEARNING MATERIAL (1)

Vision versus mission statement. Available at: http://www.diffen.com/difference/Mission_Statement_vs_Vision_Statement

(2)

Examples of business goals and objectives. Available at: http://smallbusiness.chron.com/examples-business-goals-objectives-4698.html

(3)

Grand strategies. Available at: http://smallbusiness.chron.com/examples-grand-strategies-businesses-14377.html

(4)

Generic strategies. Available at: http://www.mindtools.com/pages/article/newSTR_82.htm

CASE STUDY: PRACTICAL EXAMPLE We have included the case study below to help you understand strategic management and its role in the business environment. As you read through the case study, do the following activities: – Underline the key words relating to this strategic management study unit, and review them by referring back to the study unit and applicable chapter in the prescribed book – What type of generic strategy is applicable at Kellogg’s? – Evaluate Kellogg’s objectives against the components of a mission statement. Does Kellogg’s mission statement address all the relevant answers or components of a mission statement? – What effect did the change in Kellogg’s business environment have on Kellogg’s vision, mission and objectives?

USING AIMS AND OBJECTIVES TO CREATE A BUSINESS STRATEGY A KELLOGG’S CASE STUDY Introduction When preparing a strategy for success, a business needs to be clear about what it wants to achieve. It needs to know how it is going to turn its desires into reality in the face of intense competition. Setting clear and specific aims and objectives is vital for a business to be able to compete. This case study looks at the combination of these elements and shows how Kellogg’s prepared a successful strategy by setting aims and objectives linked to its unique brand.

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Branding One of the most powerful tools that organisations use is branding. A brand is a name, design, symbol or major feature that helps to identify one or more products from a business or organisation. Branding is powerful because the moment a consumer recognises a brand, the brand itself instantly provides a lot of information to that consumer. This helps him or her make quicker and better decisions about what products or services to buy.

The market The value of the UK cereal market is around £1.1 billion per year. Kellogg’s has a 42% market share of the UK’s breakfast cereal market. The company has developed a range of products for the segments in this market, targeted at all age groups over three years old. This includes 39 brands of cereals, as well as different types of cereal bars. Consumers of cereal products perceive Kellogg’s to be a high-quality manufacturer. As the market leader, Kellogg’s has a distinct premium position in the market. This means that it has the confidence of its consumers.

Developing an aim for a business Today, making the decision to eat a healthy balanced diet is extremely important for many consumers. More than ever before, people want a lifestyle in which the food they eat and the activities they take part in contribute equally to keeping them healthy. Research undertaken for Kellogg’s, as well as comprehensive news coverage and growing public awareness, helped its decision takers to understand the concerns of its consumers. In order to meet these concerns, managers realised it was essential for Kellogg’s to be part of the debate on health and lifestyle. It needed to promote the message: ‘‘Get the balance right’’. Decision takers also wanted to demonstrate corporate responsibility (CR). This means that they wanted to develop the business responsibly and in a way that was sensitive to the needs of all of Kellogg’s consumers, particularly with regard to health issues. This is more than the law relating to food issues requires. It shows how Kellogg’s informs and supports its consumers fully about lifestyle issues. Any action in a large organisation needs to support a business direction. This direction is shown in the form of a broad statement of intent or aim, which everybody in the organisation can follow. An aim also helps those outside the organisation to understand the beliefs and principles of that business. The aim of Kellogg’s is to reinforce the importance of a balanced lifestyle so that its consumers understand how a balanced diet and exercise can improve their lives.

Creating business objectives Having set an aim, managers make plans which include the right actions. These ensure that the aim is achieved. For an aim to be successful, it must be supported by specific business objectives that can be measured.

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Each of the objectives set for Kellogg’s was designed to contribute to a specified aim. The objectives of Kellogg’s were to: . encourage and support physical activity among all sectors of the population . use resources to sponsor activities and run physical activity-focused community programmes for its consumers and the public in general . increase the association between Kellogg’s and physical activity . use the cereal packs to communicate the ‘‘balance’’ message to consumers . introduce food labelling that would enable consumers to make decisions about the right balance of food By setting these objectives, Kellogg’s set a direction that would take the business to where it wanted to be three years into the future.

Strategy Having created an aim and set objectives, Kellogg’s put in place a process of planning to develop a strategy and a series of actions. These activities were designed to meet the stated aim and range of business objectives.

Supporting improved food labelling In the area of food labelling, Kellogg’s introduced its guideline daily amounts (GDAs) to its packaging, showing the recommended GDAs. These allow consumers to understand what amount of the recommended daily levels of nutrients is found in a serving of Kellogg’s food. Working with a group of other major manufacturers, Kellogg’s introduced a new format in May 2006, with GDAs clearly identified on brand products and packages. These GDAs have been adopted by other manufacturers and retailers such as Tesco.

Sponsoring swimming programmes For many years Kellogg’s has been working to encourage people to take part in more physical activity. The company started working with the Amateur Swimming Association (ASA) as far back as 1997, with whom it set some longer-term objectives. More than 12 million people in the UK swim regularly. Kellogg’s became the main sponsor of swimming in the UK. This ensured that Kellogg’s sponsorship reached all swimming associations so that swimmers would receive the best possible support. Kellogg’s sponsors the ASA Awards Scheme with more than 1.8 million awards presented to swimmers each year. This relationship with the ASA has helped Kellogg’s contribute in a recognisable way to how individuals achieve an active healthy balanced lifestyle. This reinforces the company’s brand position.

Promoting exercise Working with the ASA helped Kellogg’s set up links with a number of other bodies and partners. For example, Sustrans is the UK’s leading sustainable transport organisation. Sustrans looks at the different ways in which individuals can meet their transport needs in an effort to reduce the environmental impact. This provides more than 10 000 miles of walking and cycle routes on traffic-free paths

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throughout the UK. To meet its business objective of encouraging and supporting physical activity, Kellogg’s developed a promotion for a free cyclometer which was advertised on television in 2007. Walking is one of the easiest ways for people to look after themselves and improve their health. To encourage people to walk more often, Kellogg’s supplied a free pedometer through an offer on All-Bran so that individuals could measure their daily number of steps. During 2006, more than 675 000 pedometers were claimed by consumers. From a research sample of 970 consumers, around 70% said they used the pedometer to help them walk further.

Conclusion Research conducted by Kellogg as part of the 2005 Family Health Study emphasised that a balanced diet and regular exercise were essential for good all-round health and wellbeing. Kellogg’s is demonstrating good corporate responsibility by promoting and communicating this message whenever it can and by investing money in the appropriate activities. This was the broad aim. To achieve this aim, Kellogg’s set out measurable objectives. It developed a business strategy that engaged Kellogg’s in a series of activities and relationships with other organisations. The key was not only to create a message about a balanced lifestyle for its consumers. It was also to set up activities that helped them achieve this lifestyle. Source: Adapted form The times 100 (2013:e) ‘‘# Copyright Business Case Studies LLP. Reproduced by permission of the publisher. www.businesscasestudies.co.uk’’

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Study unit 6 Decision making INTRODUCTION AND AIM While performing the four fundamental management functions (planning, organisation, leading and control), managers often face opportunities and threats. As a result, managers need to address these opportunities, threats, strengths and weaknesses, which involve making decisions. Furthermore, some of these opportunities and threats are so unique, that managers often need to be creative. In this study unit, we introduce you to managerial decision making in the organisational context.

STUDY CHAPTER 12 IN THE PRESCRIBED BOOK Contents of the study unit . . . . . . . .

Decision making and the management process The relationship between problems, problem solving and decision making Types of managerial decision Decision-making conditions Decision-making models Group decision making Techniques for improving group decision making Tools for decision making under various decision-making conditions

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OVERVIEW

Learning objectives After completing this topic, you should be able to: 1 contextualise decision making in terms of the management process 2 explain the relationship between problems, problem solving and decision making 3 compare the different types of managerial decisions 4 compare the various decision-making conditions

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5 6 7 8

explain the various decision-making models discuss group decision making suggest techniques for improving group decision making recommend tools for decision making under the various decision-making conditions

KEY TERMS Bounded rationality decisionmaking model Brainstorming Break-even analysis Capital budgeting Certainty Cost-benefit analysis Decision making Decision tree Delphi technique Group decision making Group decision support systems Kepner-Fourie method

Linear programming Nominal group technique Non-programmed decisions Pay-off matrix Probability analysis Problem solving Problems Programmed decisions Queuing theory Rational decision-making model Risk Simulation Uncertainty

6.1 DECISION MAKING AND THE MANAGEMENT PROCESS Each day we are faced with decisions. For example: What time must I leave to make the movie at 8? Should I eat now or wait until supper? What car should I buy? What route should I take to avoid the traffic? These are examples of decisions, and no matter how big or small the decision, we have to make numerous decisions daily. In the business context, managers face decisions of their own kind. These decisions could stem from internal or external environments that cause problems, opportunities, threats, strengths and weaknesses which managers have to face. When an issue or opportunity arises, managers need to decide how to solve the issue, or how to benefit from the opportunity at hand. Do you remember the Fifa World Cup hosted by South Africa in 2010? Read the excerpt below.

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In 2010 South African hosted the 2010 Fifa Wold Cup There were 10 stadiums that hosted the 64 matches of the 2010 Fifa World Cup, five of which were built from scratch and one of them Soccer City (the event’s showpiece) underwent a massive upgrade to make it the largest stadium in Africa. Demolition and groundwork began in 2006, with construction of all the major facilities starting in February 2007. South Africa’s construction industry, which has substantial experience in large-scale infrastructure development, was consulted about the stadium timelines – and whether the dates were realistic. Source: Media Club South Africa (2010)

Imagine South Africa’s construction industry saying that there is no way that Soccer City would be completed in time for the start of the Fifa World Cup. What would have happened if one of the main suppliers of resources had closed down because of the global financial crisis, thus hindering the completion of the five new stadiums? What corrective actions could have been taken? What solutions could have been found? If the construction schedule had fallen behind, would it have been possible to ask for more time or use human resources more effectively? Where could they have found new suppliers? With Soccer City not being available, how could they have rescheduled the 64 matches around the other stadiums? These are the types of decisions that management need to consider when they have to still achieve the goals of a particular project – the games must go on! Whether it is planning, leading, organising or control, decision making is central to all four of these functions. In this study unit we explore decision making as part of the armoury of effective management. We must first define the concepts of problem, problem solving and decision making, and examine the relationship between these three concepts.

6.2 THE RELATIONSHIP BETWEEN PROBLEMS, PROBLEM SOLVING AND DECISION MAKING . Problem. A problem exists whenever managers perceive a difference between the actual outcomes compared with the predetermined or planned outcomes. . Problem solving. This is the process of taking corrective action that will solve the problem. . Decision making. This is the process of selecting an alternative course of action that will solve a problem. At first glance, problem solving and decision making my seem similar, but do not be confused. The core concept in problem solving is ‘‘taking corrective action’’, while the core concept in decision making is ‘‘selecting an alternative course of action’’. Managers need to attempt to solve most problems that arise because they are responsible for achieving the organisation’s goals. This can be achieved by applying a decision-making model. However, it is important for management to know what types of decisions are being made, as well as the conditions under which the decisions are being made. Both of these features form the basis of the decision-making model.

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Did you KNOW? While information (e.g. personal letters and business information) once took weeks, or even months, to travel long distances, communications are now nearly instantaneous. As a result, within the business environment, decisions can be made much quicker. Source: Wise geek. (n.d)

6.3 TYPES OF MANAGERIAL DECISIONS Decisions are either programmed or non-programmed. Decisions are programmed when they are routine-like and repetitive. Examples of such decisions in organisations would be buying stationery or procuring raw materials. These activities already have a process or policy in place because they occur on a recurrent basis. Decisions are non-programmed to the extent that they are new or different and ill-structured. Examples of such decisions in organisations would be if an organisation (for the first time) decides to merge with another organisation, or if an organisation (for the first time) decides to enter a new niche market coupled with a unique strategy.

6.4 DECISION-MAKING CONDITIONS Now that we know what type of decisions managers can make, we can distinguish between the various conditions under which managerial decisions are made, namely, certainty, risk and uncertainty. . Conditions of certainty. Such decisions are made in conditions where the available options and the benefits or costs associated with each option are known in advance. . Conditions of risk. Such decisions are made in conditions where the manager does not know the outcome of each alternative in advance, but can assign a probability to each outcome. . Conditions of uncertainty. Such decisions are made in conditions where there is a lack of information. The outcome of each alternative is unpredictable and managers cannot determine probabilities.

6.5 DECISIONMAKING MODELS There are two primary decision-making models that managers need to consider, namely, the rational model and the bounded rationality model and managers need to know which model to use, and when. In the case of the rational model, the decision maker should select the best possible solution. This is known as optimising. Managers should optimise when they are making non-programmed, high-risk decisions in conditions of uncertainty. In the case of the bounded rationality model, the decision maker uses ‘‘satisficing’’, that is,

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selecting the first option that meets the minimal criteria. When managers are making programmed, low-risk or certain decisions, they should select the first option that meets the minimal criteria in other words, they should satisfice. Fortunately, management can follow a process that assists them with decision making. This is referred to as the decision-making process, and is addressed in the next section.

6.5.1

The decision-making process

The decision-making process helps managers to increase the probability of their decisions (being optimal). This process is illustrated in figure 6.1 and discussed below.

FIGURE 6.1: The decision-making process . STAGE 1: Recognise, classify and define the problem or opportunity The first step is to recognise that there is a problem/threat or an opportunity. The problem or opportunity may be classified in terms of the type of decision (programmed or nonprogrammed), the decision-making condition (certainty, risk, or uncertainty) and the decision-making model used (the rational or bounded rationality model). Thereafter, the problem or opportunity has to be accurately defined. . STAGE 2: Set goals and criteria Generally, in programmed decisions, stages 2 to 5 are omitted because criteria have already been set for these routine decisions. However, in the case of non-programmed decisions, no goals or criteria have been set. The manager will thus be responsible for this task. He or she can make an individual decision or involve a group. . STAGE 3: Generate creative alternative courses of action Step 3 involves identifying the various courses of action or options available to deal with the situation. Bear in mind that it is impossible to identify all available options. However, a systematic effort should be made to identify as many courses of action as possible. . STAGE 4: Evaluate alternative courses of action The next step is to evaluate the options. Each option should be evaluated in terms of its

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strengths and weaknesses, advantages and disadvantages, benefits and costs. In this step, the positive and negative features are determined and evaluated (evaluation involves balancing the anticipated consequences). . STAGE 5: Select the best option Step 5 involves the selection of the best course of action or option. Each option should be evaluated carefully against the goals and criteria set during the second stage. The manager’s experience, values, internal politics and so on, influence this choice. . STAGE 6: Implement the chosen option In step 6, appropriate actions should be taken to ensure that the best option is properly implemented. Effective implementation is just as important as selecting a best option or course of action. . STAGE 7: Conduct follow-up evaluation Once a decision has been implemented, evaluation is necessary to provide feedback on its outcome. In many cases, adjustments are needed to ensure that the actual results compare favourably with the planned results.

6.6 GROUP DECISION MAKING Step 2 (set goals and criteria) and step 3 (generate creative alternative courses of action) of the decision-making process require a substantial element of creativity and innovation. Forming groups or teams to make a decision can enhance creativity and innovation. This is especially true of non-programmed decisions, where there is usually a great deal of uncertainty about the outcome. Making use of group decision making, however, has certain tradeoffs. For example, group decision making enables a team to tap into a variety of skills and specialised knowledge. However, group decision making is far more time consuming and can slow down the process. Make sure that you are aware of the benefits and disadvantages (addressed in chapter 12) of making use of groups. The next section focuses on the techniques available for improving group decision making.

6.7 TECHNIQUES FOR IMPROVING GROUP DECISION MAKING Owing to the disadvantages of group decision making, various techniques have been suggested. The aim of these techniques is to overcome the disadvantages, to capitalise on the advantages and to make group decision making more creative. The four techniques that we shall be discussing are brainstorming, the nominal group technique, the Delphi technique and the group decision support system (GDSS). Table 6.1 below summarises these techniques.

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Table 6.1: Group decision-making techniques Technique

Description

Brainstorming

Brainstorming is a technique used to stimulate creative or imaginative solutions to organisational problems where as many ideas as possible are informally generated without the evaluation by others.

Nominal group technique

This technique is a structured group decision-making technique in which discussion or interpersonal communication is restricted during the decision-making process

Delphi technique

The Delphi technique does not require the physical presence of the participants, but makes use of a series of confidential questionnaires to refine a solution.

Group decision support system (GDSS)

GDSS refers to various kinds of computer-supported group decisionmaking systems. Most GDSSs support face-to-face groups or groups that communicate via electronic media.

The previous two sections addressed group decision making as a means to help managers to be more creative in problem solving. The next section focuses on the tools available to managers to help them make decisions under various conditions.

6.8

TOOLS FOR DECISION MAKING UNDER VARIOUS CONDITIONS During the fourth (evaluate alternative) and fifth (select the best option) stages of the decision-making process, managers have various tools available to assist them. This section deals with three tools, namely, the quantitative tools for decision making, the Kepner-Fourie method and cost-benefit analysis.

6.8.1

Quantitative tools for decision making

Remember the quantitative approach to management (addressed in study unit 1)? The quantitative tools for decision making have their origins in the quantitative management school and make use of mathematical relations in solving management problems. In this section we shall address the quantitative tools under the conditions of certainty, risk and uncertainty.

Decision-making tools in conditions of certainty . Linear programming. Linear programming allocates scarce resources among competing users in order to maximise benefits or minimise losses. The resources in question may be human, financial, physical or informational. . Queuing theory. Queuing theory analyses the costs of waiting lines. The objective of queuing theory is to achieve an optimal balance between the cost of increasing service, and the amount of time individuals, machines or materials must wait for service.

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Decision-making tools in conditions of risk and uncertainty . Probability analysis. The term ‘‘probability’’ refers to the estimated likelihood, expressed as a percentage, with which an outcome will occur. . Payoff matrix. The payoff matrix is a technique for indicating possible payoffs or returns from pursuing different courses of action. Each option is pursued under different states of nature, or circumstances beyond the control of the decision maker. . Decision tree. A decision tree is a graphic illustration of the various solutions available to solve a problem. It is designed to estimate the outcome of a series of decisions. As the sequence of the major decision is drawn, the resulting diagram resembles a tree with branches. . Breakeven analysis. This technique involves the calculation of the volume of sales that will result in a profit. It requires a forecast of the sales volume and the cost of production. The breakeven point is then calculated as the level of sales where no profit or loss results. . Capital budgeting. Capital budgeting is a technique that can be used to evaluate alternative investments. It involves a process whereby each alternative investment is analysed in financial terms and placed on the capital budget. . Simulation. Simulation is a quantitative tool for imitating a set of real conditions so that the likely outcomes of various courses of action can be compared. These methods involve constructing and testing a model of a real-world phenomenon. Did you KNOW? In some cases, simulation is used as a training tool - mimicking real-life scenarios. An example of such training is pilot simulation training.

6.8.2

The Kepner-Fourie method

The Kepner-Fourie method combines the objective quantitative approach with some degree of subjectivity. The subjectivity comes from determining ‘‘must’’ and ‘‘want’’ criteria and assigning value weights to them. It is a method for comparing alternatives using the criteria selected in stage 2 (Set goals and criteria) of the decision-making model.

6.8.3

Cost-benefit analysis

Cost-benefit analysis compares the costs and benefits of each alternative course of action using subjective intuition and judgement. This method makes the minimum use of mathematics to make the decision. The advantages (which can be regarded as the benefits) and disadvantages (which can be regarded as the costs) are then identified and evaluated for each alternative.

SUMMARY In this study unit, we introduced you to managerial decision making. We distinguished between problems, problem solving and decision making. We also focused on the various decision-making models followed by group decision making and techniques for improving group decision making. Lastly, we recommended tools for decision making under various decision-making conditions.

REVIEW QUESTIONS (1) (2) (3)

Why is decision making so important in the business environment? Differentiate between a problem, problem solving and decision making. Under what conditions can decision making take place?

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(4)

(5)

(6)

(7)

Identify a problem that your organisation has recently faced (or think of a problem likely to have been experienced by managers). This problem can relate to any business function (such as the marketing, financial or human resource department). Identify the type of managerial decision that was necessary to solve the problem, as well as the decision making conditions under which the problem was solved. For the problem identified in question (4), identify the decision-making model that managers can use in order to solve the problem. Briefly explain the steps involved in the model. Describe group decision making, and list the reasons why your organisation should engage in it. Identify techniques that your organisation could implement to improve group decision making. Differentiate between the tools for decision making under various decision-making conditions.

ADDITIONAL QUESTIONS Please refer to chapter 12 for additional questions.

FUN ACTIVITY (1) (2) (3)

Select the multiple-choice questions from your assignment pertaining to this study unit and complete them. Select the multiple-choice questions from an old examination paper (available on myUnisa) pertaining to this study unit and complete them. Choose any one of the additional reading material sources provided and read the article. You will find that certain concepts addressed in this study unit correspond with the concepts addressed in the article. List and define these corresponding concepts, and write down the page numbers in both the study unit and prescribed book where these concepts were addressed.

REMINDER You will need to be able to discuss the content of this study unit in more detail because this is only a summary. Refer to the learning objectives and make sure that you can discuss each one comprehensively.

ADDITIONAL READING MATERIAL (1)

Decision-making process in management: problem solving. Available at: http://kalyan-city.blogspot.com/2010/06/decision-making-process-in-management.html

(2)

Conditions that influence decision making. Available at: http://www.cliffsnotes.com/study_guide/Conditions-that-Influence-Decison-Making.topicArticleId-8944,articleId-8864.html

(3)

Organising team decision making. Available at: http://www.mindtools.com/pages/article/newTED_86.htm

(4)

Decision making with quantitative tools. Available at: http://www.cliffsnotes.com/study_guide/Decision-Making-with-Quantitative-Tools.topicArticleId-8944,articleId-8866.html

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CASE STUDY: PRACTICAL EXAMPLE In order for you to understand decision making at a more practical level, we have included the case study below. As you read through the case study, do the following activities: – Underline the key words relating to the decision making study unit, and review them by referring back to the study unit and applicable chapter – Identify the steps in the decision-making process as followed by Chevron – Identify and explain the decision-making tool(s) used by Chevron

DECISION MAKING IN AN UNCERTAIN WORLD A CHEVRON CASE STUDY Introduction This case study focuses on the way in which the oil company, Chevron, developed flexible solutions to enable it to cope with the environment of change. In particular, it shows how Chevron has successfully developed flexible decision making for the development of its North Sea Alba Field which lies 130 miles north east of Aberdeen (on the coast of Scotland).

Introduction to the oil company The study emphasises the way in which Chevron has progressed from a slow-moving system of communications, based on functional lines in sequential stages, to an improved way of working, based on decision making in empowered interdisciplinary teams. This approach allows quick, incisive thinking and adoption of appropriate technical solutions to oil extraction.

Vision Chevron Europe is part of a global organisation, Chevron Corporation, which is the sixth largest oil and gas company in the world. The Corporation employs 40 000 people worldwide and produces over 1.4 million barrels of oil and liquids per day (1 barrel of oil = 42 US gallons or 159 litres). Chevron (jointly with Texaco) was the first company to drill in the North Sea, in 1964. Its vision is to be the petroleum company of choice in countries where it has significant operations, namely, the UK, Norway and Ireland. Chevron Europe has to be successful because, like any other part of a large organisation, it needs to compete for investment funds against projects in other locations such as Kazakstan and West Africa.

Introduction to Alba North Sea fields are rarely developed by a single operating company. The cost of exploration and development alone generally makes this unfeasible. However, joining forces with other oil companies is not solely a matter of cost. The collective wealth of experience and ideas that can be shared by forming a joint venture helps to ensure that fields are brought on stream efficiently and cost effectively. Alba is a joint venture between a number of companies. These are: . . . . .

Chevron UK Limited (Operator) Fina Petroleum Development Limited Petrobras UK Limited Statoil Exploration (UK) Limited Union Texas Petroleum Limited a subsidiary of Atlantic Richfield Company (ARCO)

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Chevron’s current share in the venture is just over 20%. Chevron discovered Alba in 1984 and was given government approval for development in May 1991. The field first came into production in January 1994 and has estimated recoverable reserves of up to 400 million barrels of oil.

Development After its discovery in 1984, it was clear that drilling for Alba’s oil was not going to be easy. The geology of the area was particularly difficult and the total 750 million barrels of crude oil in the field were held in loose, unconsolidated sands. To make matters worse, the reservoir was long, thin and shallow, with a large volume of water underlying the oil. However, nearly 400 million barrels of the original reservoir oil were deemed recoverable which was fairly good by industry standards. With the drilling technology of the day, one way to reach into both the southern and northern extremities of the field would have been to construct a vast central platform and then face uncertainties over the ability to produce the heavy, sluggish oil from the furthermost points. Chevron decided on a phased development process because of uncertainties about the performance of the oil reservoir and the processing of Alba fluids.

Phase I: Northern Platform and FSU Phase I involved the installation of a platform with integrated production, drilling and living quarters, Alba Northern Platform (ANP), over the northern part of the field, together with the FSU. ANP was expected to produce 227 million barrels of oil from 20 production wells (of the then estimated total 385 million barrels recoverable from the whole field). The oil was to be extracted by conventional angled and horizontal wells. This was to be supported by the use of submersible electrical pumps. Meanwhile a number of highly deviated (i.e. at a high angle from vertical) wells were used to inject water from the platform to maintain the pressure in the reservoir and help drive the crude oil to the surface. Chevron’s initial plan was to complement the Northern Platform with a Southern Platform which would be installed five years later. By operating from two platforms it would be possible to reduce the angle of the wells and this would reduce costs. Technology at the time would, anyway, limit the drilling radius to only 9 500 feet (under two miles).

Building an interdisciplinary team It was at this time that Chevron decided to build a small interdisciplinary team with the brief to take a thorough look at the available options. This approach was consistent with the newly adopted Chevron Project Development and Execution Process (CPDEP). The team would provide Chevron with a creative approach it would not simply plough ahead with predetermined ideas. The team of five was given an open brief, namely, to examine all the available options. The approach adopted by the team was known as decision-risk analysis. This is a methodology that helps to make decisions in uncertain conditions by examining the probabilistic outcomes. In simple terms, this involves setting out decision trees with all the risks for each alternative decision. The importance of each decision is derived from the impact each variable has on the success measure (e.g. net present value). The forecasted price of oil typically comes out on top. These risks are set out as mathematical probabilities. This new way of organising is now being adopted by Chevron worldwide and involves uniting all the disciplines involved in a particular

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project at the same time and empowering them to evaluate a wide range of development options. This is in contrast to the traditional way of working, which would have been on functional lines, beginning with the geologists, then moving through the reservoir engineers to facilities and process engineers and finally operations.

Changing the nature of phase II Phase II of the Alba project could have involved building the Southern Platform. However, work performed by the project team using decision-risk analysis techniques indicated that there was a range of other options worth considering. In an industry in which technology is constantly changing, it was also clear that new approaches would present themselves as viable alternatives in the course of time. A spreadsheet-based computer model was central to the process used for the Alba Phase II studies. This enabled the team to simulate the range of outcomes for each of the different development options from installing a second platform to doing nothing. In between these two extremes lay a host of imponderables. Could the southern area be accessed via sub-sea wells, drilled by a semi-submersible rig and then tied back by pipeline to the Northern Platform, etc? The team evaluated many technical solutions in search of the solution that would add the greatest value to Alba’s second phase development. This was achieved by grouping them into a few basic development scenarios representing a wide range of different investment and business strategies. All of these needed to be weighed up to find the optimal solution. A further problem at this time was that the price of oil was at a low level, which meant that certain options would have been uneconomic. However, developments in technology meant that it would be feasible for Chevron to consider drilling wells in the southern area of the field from the existing Northern Platform, using extended reach drilling (ERD) techniques. ERD is the single most significant advance in technology that has shaped the thinking of the Alba Phase II team (which had grown to 15 people with complementary skills in petroleum engineering, geology, facilities design, production and economics). As ERD has developed, so has the distance over which it can operate, enabling more oil to be accessed from the same platform.

Chevrons’ project development and execution process Chevron created a process for project development and execution. Chevron was able to use this approach in the development of Phase II of the Alba field. In analysing this phase, the project team was able to narrow down a range of alternatives into an optimum solution: . . . . .

Twenty-one options were identified for further study. Four failed on the grounds of technical feasibility. Nine were favoured. Four failed the economic hurdle. Five remained for further study, including a floating production vessel and building a sub-sea production centre.

Phase II was divided into two stages, IIa and IIb, in order to introduce new platform facilities. Phase IIa of the Alba project involved installing a new 300 tonne production module. This was carried out in July 1996. Phase IIb was planned for completion in December 1998. This would sustain production levels and lessen the rate of decline by increasing fluid handling capacity from 240 000 barrels to 390 000 barrels per day. This phase involved adding additional modules to the Northern Platform. It also included improvements in the technology employed to ensure the minimisation of environmental problems.

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Conclusion: assessing risk Risk assessment is the key to effective business decision making for any large business organisation. In assessing the risks associated with oil production, because there are a number of controllable variables, ranges of outcomes are easier to estimate. In developing the Alba field, it was essential to consider the distinctive features of the oil itself. Alba oil has a high specific gravity (i.e. heavy) and acidity and therefore costs more to refine. Its market price is therefore lower. In summary, the interdisciplinary team found a more economical approach to producing Alba’s oil than installing a second, fully equipped platform. By successfully identifying and minimising the risks associated with developing the field, production was accelerated and costs reduced, enhancing the overall value of the field. Source: Adapted from The Times 100 (2013:f) ‘‘# Copyright Business Case Studies LLP. Reproduced by permission of the publisher. www.businesscasestudies.co.uk’’

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Study unit 7 Information management INTRODUCTION AND AIM It is imperative for managers to understand the uses of information management in today’s business environment. In this study unit, we introduce you to ways of managing information which are used in the decision-making process.

STUDY CHAPTER 13 IN THE PRESCRIBED BOOK Contents of the study unit . . . . . . .

Information management and the decision-making process Managing information to sustain a competitive advantage The basic functioning of an information system The characteristics and costs of useful information Organising information systems Classification of information systems Developing an information system

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OVERVIEW

Learning objectives After completing this topic, you should be able to: 1 contextualise information management in terms of the decision-making process 2 explain the importance of managing information to sustain a competitive advantage 3 explain the basic functioning of an information system 4 identify the characteristics of useful information 5 explain the organisation of information systems in modern organisations 6 classify information systems in terms of their use in operational and managerial support 7 develop a generic information system for managers

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KEY TERMS Business-to-business e-commerce Business-to-consumer e-commerce Business unit strategy Competitive advantage Consumer-to-consumer e-commerce Corporate strategy Decision support system (DSS) Digital citizenship Electronic commerce Electronic mail (e-mail) Executive information system (EIS) Expert system (ES) Extranet File transfer protocol (FTP) Functional strategy Hardware

Information Information reporting system (IRS) Information system (IS) Information systems strategy Internet Intranet Management information system (MIS) Operations information system Software Systems analysis Systems design Systems implementation Systems investigation Sustainable competitive advantage Telnet World wide web

7.1 INFORMATION MANAGEMENT AND THE DECISION-MAKING PROCESS Open your internet browser, go to the Google search page and ‘‘google’’ the following question: ‘‘How fast can google search?’’ Note how quickly the search engine takes to display a vast amount of information relating to your search! Today, information is available in almost all formats, all the time and to almost everybody. Information is extremely useful for decision making in the business environment. Remember that the decision-making process involves ‘‘selecting possible actions’’ (so that you can eventually select the ‘‘best’’ option or course of action). Although there are a variety of actions to choose from, information helps to narrow down such actions. The particular information that we are referring to in the business environment emerges from an organisation’s internal and external environments. An information system transforms data from these environments into information that managers require to make decisions. So why do managers have to ‘‘manage’’ information? In a complex business environment, the issues or problems are also more complex. A vast number of options are available to managers, and the cost of errors can be expensive. It is considered unwise and risky to rely on trial-anderror when making decisions. Consequently, managers need to manage information in order to maintain (or sustain) the organisation’s competitive advantage. Did you KNOW? In most cases Google will return the results of a search to the end user within half a second, on average it’s around a third of a second. Most of us are used to typing a phrase into the search box and almost instantly see results. Source: Google. (n.d)

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7.2 MANAGING INFORMATION FOR A SUSTAINABLE COMPETITIVE ADVANTAGE . Competitive advantage. This is the ability of an organisation to provide greater value to customers than its competitors can. . Sustainable competitive advantage. An organisation has a sustainable competitive advantage when another organisation or competitor cannot successfully duplicate this advantage. In an ever-changing environment, information is vital because it can assist organisations to maintain their competitive advantage. In order to sustain a competitive advantage through information technology, organisations need to ask themselves the following three questions: (1) (2) (3)

Does the use of information technology create value for the organisation by lowering costs or providing a better product or service? Is the information technology the same or different across competing organisations? Is it difficult for another organisation to create or acquire the information technology used by the organisation?

When it comes to managing information technology, the key is to continuously improve and support the organisation’s core business and functions. In order for you to understand the ‘‘management’’ of information, and how it can assist managers in the decision-making process, we are going to discuss the basic functioning of an information system in the sections below.

7.3

THE BASIC FUNCTIONING OF AN INFORMATION SYSTEM

The basic functioning of an information system can be best described by first defining the term ‘‘information system’’ and then looking at its basic components.

7.3.1

Definition of an information system

Bear in mind that data and information are different. Note the following definitions: . Data. Data is raw, unanalysed numbers and facts about events or conditions from which information is drawn. . Information. Information is processed data that is relevant to a manager. . Management information. This is information presented in a timely, accurate and relevant manner to a particular situation. Do you remember what a system was? We defined a system in study unit 1 as a setup comprising subsystems that form a whole. An information system thus includes the people, procedures and other resources used to collect, transform, and disseminate information in an organisation.

7.3.2

The basic components of an information system

The components of the information system can be illustrated as such:

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FIGURE 7.1: Basic components of an information system Throughout this entire process, the information system makes use of hardware, software, and human resources to perform the basic activities as depicted in figure 7.1. These resources contribute to the information-processing activities.

. Hardware resources Hardware resources include the physical components of a computer system. The four main categories of components that are used in computer system are presented in table 7.1 below.

Table 7.1: Hardware resources Components

Examples

Input devices

Keyboard, camera, mouse and microphone

Central processing Circuit boards unit Output devices

Printers, speakers and monitors

Auxiliary storage

External hard drives, USB flash drive. CDs and DVDs

. Software resources Software resources are the programs or detailed instructions that operate computers. These include the following: (1) (2) (3)

system software which manages the operations of a computer application software which performs specific data-processing or text-processing functions such as a word-processing package or a payroll program procedures that entail the operating instructions for users of an information system

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Did you KNOW? The first computer ‘‘bug’’ was a real bug. In 1947, engineers found a moth in Panel F, Relay #70 of the Harvard Mark 1 system. The computer was running a test of its multiplier and adder when the engineers noticed something was wrong. The moth was trapped, removed and taped into the computer’s logbook with the words: ‘‘first actual case of a bug being found.’’ Source: Facts-facts: (n.d)

. Human resources The term ‘‘human resources’’ refers to people. In this context, human resources would be the people required for the operation of an information system. A typical example of the people needed would be specialists and end-users. Specialists are people who develop and operate information systems, such as systems analysts, programmers and computer operators, while end-users are people who use the information produced by a system. In the business context, managers would be the end-users of information. To recap: Data generated from an organisation’s environment are processed (via an information system, making use of hardware, software and human resources) into information. This information is then presented to management and assists them with decision making. But is all managerial information useful? It is only useful information that helps managers (the endusers) with effective decision making. The next section focuses on the characteristics and costs of useful information.

7.4 CHARACTERISTICS AND COSTS OF USEFUL INFORMATION Table 7.2 below lists the characteristics, and the costs of useful information.

Table 7.2 Characteristics and costs of useful information Characteristics

Costs

Information needs to be accurate (quality)

Cost of obtaining data and/or information

Information needs to be relevant (relevance) Cost of processing data into usable information Information needs to be sufficient (quantity)

Cost of physically or electronically storing information

Information needs to be timely (currency)

Cost of accessing data and information that have already been stored and processed Cost of transmitting data and information from one place to the other

On the basis of the sections addressed above, we are now going to examine how organisations organise information systems, so that management (the end-users) can access information that is accurate, relevant, sufficient and current.

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7.5 ORGANISING INFORMATION SYSTEMS Each divisional or business unit in an organisation has functional strategies (such as the marketing strategy or the financial strategy). These functional strategies are based on (and aligned with) the overall corporate strategy of an organisation. This is also the case with information systems. One of an organisation’s functional strategies includes information system strategies, each comprisingvarious sub-strategies. The next section deals with the classification of an information system.

7.6 CLASSIFICATIONS OF THE INFORMATION SYSTEM Information systems perform operational and managerial support roles in organisations. These form the primary classifications of an information system, namely operations information systems and management information systems. However, we shall also be discussing ‘‘other’’ types of information classifications. Table 7.3 below summarises these classifications.

Table 7.3: Classifications of the information system 1 Operations information systems (OIS) TPSs record and process data resulting from business transactions. Transaction processing system (TPS) Process control system

Process control systems make decisions in terms of the adjustment of physical production processes

Office automation OASs transform traditional manual office methods and paper system (OAS) communications media. 2 Management information system (MIS) Informationreporting system (IRS)

IRSs provide managerial end-users with the information reports they need for decision making.

Decision support DSSs are a natural progression from transaction-processing systems system (DSS) and information-reporting systems. Executive information system (EIS)

EISs are management information systems that are tailored to the strategic information needs of top management.

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3 Other classifications of information systems Expert system (ES)

ESs are a decision-making and/or problem-solving package of computer hardware and software that can reach a level of performance comparable to that of humans.

Business function Business function information systems are specific ISs that directly information support a particular business function in an organisation. system The internet

The internet is a web of thousands of corporate, educational and research computer networks around the world.

The extranet

The extranet is a network that links an organisation’s employees, suppliers, customers and other key stakeholders electronically.

The intranet

The intranet is a semi-private internal network where access is limited to an organisation’s employees.

Electronic commerce (e-commerce)

Electronic commerce is the process of buying and selling goods and services electronically by means of computerised business transactions.

The last section in this study unit relates to the development of an information system.

7.7 DEVELOPING AN INFORMATION SYSTEM An information system is usually conceived, designed and implemented through a systematic development process. This process consists of four phases, namely, systems investigation, systems analysis, systems design and systems implementation, maintenance and security. Information systems are designed on the basis of the unique information required by an organisation or a department in the organisation. A systems development life cycle thus emerges.

The information system development life cycle Phase 1: Systems investigation – Determine the nature and scope of information needed. – Conduct a feasibility study in order to evaluate different systems, analyse the costs and benefits of each option and propose the most feasible system for development. – Present the findings (of the feasibility study) in a written report and submit it to management for approval before development begins. Phase 2: Systems analysis – Conduct a study of the information requirements of an organisation and its end-users. – Understand the current system that has to be improved or replaced and determine the importance, complexity and scope of the problem at hand. – Determine the system requirements for a new or improved information system.

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Phase 3: Systems design – Design the logical and physical activities. – Implement the proposed system that has been designed. Phase 4: Systems implementation, maintenance and security – Acquire hardware and software; develop software; test programs and procedures, using both artificial and live data; develop documentation and perform a variety of other installation activities (systems implementation). – Monitor, evaluate and modify or enhance a system once it is up and running (systems maintenance). – Address any issues in the design and implementation stages (systems security).

SUMMARY In this study unit, we introduced you to the management of information. We explained the link between decision making and information management as well as the components of an information system. We identified the characteristics of useful information and classified information systems according to their use in operational and managerial support. We explained how a management information system can support decision making. In conclusion, we examined the role of managerial end-users in developing an information system and the stages in this development.

REVIEW QUESTIONS (1) (2) (3) (4)

Explain how an organisation should use information in its decision-making processes. Explain what the information system in your organisation comprises. Classify the various information systems utilised in your organisation according to their use in operational and managerial support. Suppose your organisation needs to update and/or revise its current information system. Describe the steps that should be followed to ensure that the new information system meets the information requirements of end-users.

ADDITIONAL QUESTIONS See Chapter 13 for additional questions.

FUN ACTIVITY (1) (2) (3)

Select the multiple-choice questions from your assignment pertaining to this study unit and answer them. Select the multiple-choice questions from an old examination paper (available on myUnisa) pertaining to this study unit and answer them. Choose any one of the additional resources provided and write a short review of the article, explaining why you found it significant in today’s business environment.

REMINDER You will need to discuss the content of this study unit in more detail because this is only a summary. Refer to the learning objectives and make sure that you are able to discuss each one comprehensively.

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ADDITIONAL READING MATERIAL (1)

Sustainable competitive advantage in e-commerce and the role of the enterprise system. Available at: http://www.academia.edu/897450/Sustainable_Competitive_Advantage_in_E-Commerce_and_the_Role_of_the_Enterprise_System

(2)

Characteristics of information. Available at: http://www.jhigh.co.uk/Intermediate2/Using%20Information/12_charact_of_ info.html

(3)

Types of information systems. Available at: http://www.mbaknol.com/management-information-systems/types-ofinformation-systems/

CASE STUDY: PRACTICAL EXAMPLE To help you understand the use of information systems in organisations, we have included the case study below. As you read through the case study, do the following activities: – Underline the key words relating to the information management study unit, and review them by referring back to the study unit and applicable chapter – Identify examples of the basic components of an information system (software, hardware and human resources) – There are various classifications of information systems. Identify situations or examples where certain types of information systems are applicable/can be used within the case study.

INTEGRATING INFORMATION SYSTEMS: SEEING THE WHOLE PICTURE A CANON CASE STUDY Introduction Information and communications technologies (ICTs) help modern organisations to be better organised and to meet their objectives more effectively. Good ICT solutions enable an organisation to: . . . .

handle much larger quantities of information and other resources achieve much higher accuracy levels (make fewer mistakes) reduce the costs of all their processes improve the services offered to internal and external customers

This case study illustrates ways in which organisations such as schools and businesses can become more efficient by integrating their ICT effort. This may well require them to enlist the services of an integrated ICT provider that can help such organisations to control costs and reap the benefits of utilising IT systems and multifunctional devices in an integrated way.

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The Canon story Canon was founded in Japan in 1933, and first made its name in the 1930s as a producer of cameras. It became associated with high levels of innovation and product development, and in 1964, branched out to produce the Canola 130, the world’s first ten-key electronic calculator. During the 1960s, Canon became a truly international company with exports accounting for 50% of sales. In 1968, the company moved into photocopying, and by the mid-1970s, was producing laser printers. During the 1980s and 1990s, the company continued to innovate, developing high-grade computer systems and more sophisticated cameras, copiers and digital imaging systems. The company has increasingly focused on developing environmentally friendly technologies and producing recyclable copiers and other equipment. Today Canon is known for providing state-of-the-art integrated IT and office solutions, as well as top-class photography and imaging systems. In the UK, Canon is an industry leader in imaging products and services for digital environments, both in the office and at home. Canon’s technology is designed to enable companies and individuals to achieve their goals an objective that is encapsulated in the company’s "You Can" philosophy.

Operating the core business Companies which endeavour through their products and services, to help other companies become and remain efficient operators, need to be at the forefront of innovation and good practice themselves. Canon prides itself on the research it conducts in developing new technologies. It has research centres located in Europe (e.g. France), the UK, the USA and Japan. The company operates in a highly competitive environment. It recognises the importance of managing its processes in ways that ensure that its new products come to market quickly, are to the highest technical specifications and can be competitively priced. Key to this is Canon’s appreciation that an effective information management strategy is an essential component of business success. Today’s businesses are faced with a mass of documentation, emails and other paperwork circulating around them. Canon has developed skills and technologies to take control of this potential information overload, the know-how to manage it and the ability to share it throughout the organisation and beyond. Canon has used its technology, understanding and systems integration skills to help improve its own business processes-helping it to become more efficient, productive and profitable. Because it understands the important contribution of information and communications systems to effective working, Canon is well placed to help other organisations improve their own information management systems. With its history of technological innovation in the fields of state-of-the-art integrated IT, office and imaging systems, Canon seeks to continually provide solutions that best meet customer requirements. For today’s digital networked offices, this means providing a range of information technology and communications solutions built around a core set of digital products.

Strategic management Strategic management involves making long-term plans that are clear and well thought out, instead of simply reacting to problems when they arise. In business, we distinguish between a reactive and a proactive organisation. A proactive organisation is the one that plans ahead. Unfortunately, many UK companies are forced to operate reactively, particularly in the area of developing an information management strategy. The problem is that, as companies grow,

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they need to deal with their customers in more complex ways and their current information management systems need to be updated. Some add individual components to their existing systems (helping them to maximise the value of their previous investments), while others start from scratch. Whatever route a business takes, it makes sense to think strategically and, in particular, to examine ways of integrating the various compatible components of information systems (e.g. copiers, computers and printers).

The whole picture The key to successful information management is to link the various components of an information system. For example, once connected, a central copier replaces a host of desktop printers. Also, in a properly integrated system, staff can access fax services directly from PCs.

Information handling: providing the solutions The elements of an information management system are as follows: . peripherals: black and white and colour copiers, laser and bubble jet printers, scanners and faxes . networks: servers, PCs, cabling, firewalls and so forth . document management: software that supports the products and enables users to scan, file and retrieve documents while saving valuable storage space As a major provider of these solutions, Canon has played a significant role in helping a range of business and non-business organisations to develop better information management systems. It has also developed a tailored suite of ICT solutions for the education market. These are designed to keep costs down and minimise teachers’ administration time, thus allowing them to focus on their real job.

Conclusion Sophisticated information and communications technology systems contribute to the efficient running of organisations. An integrated system such as the one outlined above enables all of the separate parts of the organisation to pull in the same direction. Canon has a long history of providing appropriate technological systems to businesses. The company is now helping educational organisations to operate in a business-like way through the development of strategically focused information management systems. Source: Adapted from The Times 100 (2013:g) ‘‘# Copyright Business Case Studies LLP. Reproduced by permission of the publisher. www.businesscasestudies.co.uk’’

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Topic 3 Organising INTRODUCTION AND AIM OF TOPIC The aim of this topic is to explain the management function of organising, which comprises the concepts of organising, delegating, communication and negotiation. With its plans and goals clearly formulated, an organisation must decide on how to organise its resources optimally. To implement plans, someone in the organisation must perform the necessary tasks to ensure that organisational goals are achieved. Management must determine an effective way of dividing the major task into subtasks, combining these and coordinating them. Organising is the function most visibly and directly concerned with the systematic coordination of the many tasks performed in an organisation and, consequently, the formal relationships between the people who perform them. This topic deals with the principles and the process of structuring an organisation in such a way that it aligns with its plans and goals.

Learning objectives After completing this topic, you should be able to: — explain the concepts of organising, organisation and organisation structure — explain how the organisation uses its structure to implement its strategic plans and goals — expound on the importance of organising in achieving the organisation’s goals — describe the steps to follow in designing an organisational structure — comment on how the principles are applied in the different types of organisation structure — explain the ‘‘structure follows strategy’’ adage — propose recommendations regarding the design or redesign of jobs as a motivational factor — design and provide implementation guidelines for a delegation process

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CONTENT Topic 3 comprises one study unit:

TOPIC 3: ORGANISING

STUDY UNIT 8: Principles of organising

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Study unit 8 Principles of organising INTRODUCTION AND AIM This study unit focuses on organising, which is the second managerial function. Organising is concerned with creating a structure for the organisation to enable its people to work effectively towards its vision, mission and goals. In this study unit, you will learn about the differences between organise, organising and organisational structure, you will examine the reasons why organising is important. You will learn how to design an organisational structure and about the principles of organising. Lastly, we will introduce you to authority, departmentalisation, job designing and delegation.

STUDY CHAPTER 15 IN THE PRESCRIBED BOOK Contents of the study unit . . . . . . . .

Organising, organisation and organisational structure Importance of organising Designing an organisational structure Principles of organising Authority The departmentalisation approach to organisational structure Designing jobs that motivate Delegation

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OVERVIEW

Learning objectives After completing this unit, you should be able to: 1 differentiate between the concepts of organising, organisation and organisational structure 2 expound on the importance of organising in achieving the goals and objectives of the organisation 3 describe the steps to follow in designing an organisational structure 4 explain the principles of organising that should be considered in designing an organisational structure 5 explain the term ‘‘authority’’ 6 describe the departmentalisation approach to organisational structure 7 propose recommendations regarding the design or redesign of jobs as a motivational factor 8 design and provide implementation guidelines for a delegation process

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KEY TERMS Accountability Authority Centralisation Chain of command Coordination Decentralisation Delayering Delegation Departmentalisation Division of work Downsizing High involvement Job design Network structures New venture units Organisation

Organisational chart Organisational design Organisational structure Organising Pooled interdependence Power Product departmentalisation Reciprocal interdependence Responsibility Sequential interdependence Span of control Specialisation Standardisation Team approach Unity of command Virtual network organisation

8.1 ORGANISING, ORGANISATION AND ORGANISATIONAL STRUCTURE Organising is the second managerial function that follows naturally after planning. As mentioned before, planning is the function that is concerned with identifying ways to reach organisation goals. Once those ways have been determined, the next step would be to ‘‘organise’’. In our Lesotho road trip example used earlier, a practical example of ‘‘organising’’ would include activities such as appointing a leader (normally it would be the person whose idea it was), and allocating specific tasks to specific people. For example, one person might be responsible for finding and booking accommodation and another might be responsible for buying the groceries. Consequently, everyone knows what is expected of them, and who to contact if there is a problem. In essence, we have built a little structure among ourselves – we have ‘‘organised’’! Within the business environment, managers ‘‘organise’’ by creating a structure within the organisation, and allocating people and materials to specific departments. . 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. . Organisation refers to the result of the organising process. . Organisational structure is the basic framework of formal relationships between responsibilities, tasks and people in the organisation. . Organisational chart is a graphical representation of the way an organisation is put together (in other words, the organisational structure).

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8.2 IMPORTANCE OF ORGANISING The following are reasons why organising is important. These reasons also direct an organisation towards achieving its vision, mission and goals. . Allocation of responsibilities. Organising leads to an organisational structure that indicates clearly who is responsible for which tasks. . Accountability. This implies that the responsible employees will be expected to account for outcomes, positive or negative, related to that portion of the work directly under their control. . Establishing clear channels of communication. This ensures effective communication and that all information required by managers and employees at all levels of the organisation to perform their jobs effectively, reaches them through the correct channels. . Resource deployment. Organising helps managers to deploy resources meaningfully. . The principle of synergy enhances the effectiveness and quality of the work performed. . Division of work. The total workload is divided into activities to be performed by an individual or a group of individuals. . Organising entails systematically grouping a variety of tasks, procedures and resources. This is possible because the organising process also entails an in-depth analysis of the work to be done, so each person is aware of his or her duties. . Departmentalisation. The related tasks and activities of employees are grouped together meaningfully in specialised sections, departments, or business units so that experts in various fields can deal with their specialised tasks. . Coordination. The organisation structure is responsible for creating a mechanism to coordinate the activities in the entire organisation. Did you KNOW? 48% of American executives admit to having a messy desk but claim to know where everything is. In contrast, 12% say although their desk appears organised, they have no idea where to find anything. Source: Organised Solutions (n.d)

8.3 DESIGNING AN ORGANISATIONAL STRUCTURE Managers can follow a process or phases in designing an organisational structure. The starting point, however, is to review the vision, mission, goals and strategies of the organisation. Then, managers can follow these phases: . . . . .

Outline tasks and activities. Design jobs and assign to employees. Define worker relationships. Develop an organisational design. Implement a control mechanism.

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8.4 PRINCIPLES OF ORGANISING Table 8.1 briefly summarises the principles of organising.

Table 8.1: Principles of organising Principle of organising

Definition

Unity of command

Each employee should report to only one supervisor.

Unity of direction

All tasks and activities should be directed towards the same mission and goals.

Chain of command

A clear unbroken chain of command should link every employee with someone at a higher level, all the way to the top of the organisation.

Span of control

The number of subordinates reporting to a manager.

Division of work

Divide workload among business units, departments, sections and individual employees.

Standardisation

Develop uniform practices that employees need to follow in doing their jobs.

Coordination

All business units, departments, sections and individuals should work together to accomplish organisational goals and objectives.

Responsibility

The obligation to achieve goals by performing required activities.

Authority

The right to make decisions, issue orders and use resources.

Accountability

The evaluation of how well individuals meet their responsibilities.

Power

The ability of an individual to influence the behaviour of others in the organisation.

Delegation

The process by which managers assign a portion of their workload to one or more subordinates.

Downsizing

Managerial activity aimed at reducing the size of the workforce.

Delayering

Reducing the number of layers in the vertical management hierarchy.

Flexibility

The ability to adapt to changing circumstances.

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8.5 AUTHORITY Authority naturally stems from an organisational structure. The person higher in the organisational structure will have more authority. For example, the owner of an organisation has the final authority. However, authority can also be passed down the hierarchy. Authority is the right to make decisions, issue orders and use resources. For managers to structure an organisation to align with its mission and goals, they need to understand the different types of authority. These are formal and informal authority, line and staff authority, and centralised and decentralised organisational authority, as depicted in Table 8.2.

Table 8.2: Types of authority Type of authority

Definition

Formal authority

Authority defined by the specified relationships among employees, as illustrated by the organisational chart.

Informal authority

Authority defined by the patterns of relationship and communication that evolve as employees interact and communicate.

Line authority

This authority type entails the responsibility to make decisions and issue orders down the chain of command.

Staff authority

This authority type entails the responsibility to advise and assist other personnel.

Centralised authority

Top managers make important decisions.

Decentralised authority

Middle and lower management also make important decisions.

Centralised and decentralised authority In deciding whether to centralise or decentralise authority, the following factors are important to consider: . . . . .

the the the the the

external environment history of the organisation nature of the decision strategy of the organisation size and growth rate of the organisation

Table 8.3 depicts the advantages and disadvantages of decentralising authority.

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Table 8.3: The advantages and disadvantages of decentralising authority Advantages of decentralisation

Disadvantages of decentralisation

Top managers have reduced workloads, There is a danger of loss of control. enabling them to devote more attention to developing strategies. Decision making improves because decisions There is a danger of duplicating tasks. are closer to the core of action and there is no wasting of time because there is no need to refer decisions to a higher authority. There should be improved morale and in- Decentralisation of authority requires more itiative at the lower levels of management. expensive and more intensive management training and development to enable managers to execute delegated tasks. Decentralisation of decision making renders it Decentralisation also demands sophisticated faster and more flexible. planning and reporting methods. Decentralised authority fosters a competitive climate in the organisation.

8.6 THE DEPARTMENTALISATION APPROACH TO ORGANISATIONAL STRUCTURE There are different ways to structure an organisation. However, the challenge sometimes is to decide how to structure the organisation to best suit the unique capabilities and characteristics of an organisation coupled with prevailing environmental circumstances. . Organisational design is the arrangement of positions into work units or departments and the interrelationship among them within an organisation. . Departmentalisation is grouping related activities into units or departments. Table 8.4 summarises the different types of departmentalisation.

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Table 8.4: Types of departmentalisation Type of departmentalisation

Definition

Functional departmentalisation

This most basic structure in which the activities belonging to each management function are grouped together.

Product departmentalisation

In this structure, all activities concerned with manufacturing a specific product, or group of products, are grouped together in product sections.

Location departmentalisation

This is a logical structure for a business that manufactures and sells its goods in different geographical regions.

Customer departmentalisation

This structure is appropriate when an organisation concentrates on a particular segment of the market or group of consumers, or, in the case of industrial products, where the organisation sells its products only to a limited group of users.

Multiple departmentalisations

A combination of the functional, product, location or customer departmentalisation structures: . Matrix departmentalisation combines functional and product departmental structures. . Divisional departmentalisation is departmentalisation in semi-autonomous strategic business units. . A network structure describes an interrelationship between different organisations. . New venture units consist of groups of employees who volunteer to develop new products or ventures for the organisation. . The team approach is an organisational structure where a number of people take accountability for pursuing a common purpose, achieving performance goals and improving interdependent work processes. . The virtual network approach is an organisational structure where people are spread out in remote locations but work as though they were in one place.

8.7 DESIGNING JOBS THAT MOTIVATE The other aspect of organising, is the allocation of people to work effectively towards the organisation’s vision, mission and goals. Thus managers need to design a job that motivates employees. Managers can use the following methods to design jobs within the organisational structure: . Job design is the process of combining the tasks that each employee is responsible for. . Job specialisation is narrowing down activities to simple, repetitive routines.

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. Job expansion is the process of making a job less specialised. There are three ways in which a job can be expanded: – Job rotation Performing different jobs for a set period – Job enlargement The same job carries a wider range of activities of approximately the same skill level – Job enrichment The process of combining the tasks that each employee is responsible for

8.8 DELEGATION After allocating employees to different departments or sections, managers need to work with them and through them to achieve the organisation’s goals. Managers therefore need to rely on their subordinates to perform certain functions and activities on their behalf. This is where delegation comes in. Delegation is the processin which managers assign part of their total workload to others. However, when delegating a specific task, the manager will still remain accountable for the completion of the job. When a manager assigns the responsibility for a task to be performed, he or she must also give the subordinate the full authority to perform the task. This is known as the parity principle. Did you KNOW? White collar workers waste an average of 40% of their workday. Not because they aren’t smart, but because they were never taught organising skills to cope with the increasing workloads and demands. (Wall Street Journal) Source: Organised Solutions (n.d)

8.8.1

Principle of effective delegation

The following are principles that managers can use as guidelines to help them become more effective delegators: . . . . . . .

Explain the reason(s) for delegating. Set clear standards and goals. Ensure clarity of authority and responsibility. Involve subordinates. Request the completion of tasks. Provide performance training. Provide feedback to the subordinate.

8.8.2

Advantages of delegation

Delegation has several important advantages when applied properly: . Managers who train their staff to accept more responsibility are in a good position themselves to accept more authority and responsibility from higher levels of management. . Delegation encourages employees to exercise judgement and accept accountability. . Involving employees who are ‘‘closer to the action’’ and know more about the practical execution of tasks often results in better decisions.

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. Quicker decision making takes place.

8.8.3

Obstacles to effective delegation

Personal and psychological barriers that may hamper the delegation process include the following: . A manager may fear that his or her own performance evaluation will suffer if subordinates fail to do a job properly. . The manager may also feel that the subordinate will not do the job as well as he or she can do it. . Managers are often too inflexible or disorganised to delegate, or sometimes they feel that it takes too long to explain to subordinates how to do the job and that they may as well do it themselves. . Managers may also be reluctant to delegate because they fear their subordinates will do the job better than they can.

8.8.4

Overcoming obstacles to effective delegation

Managers could use these guidelines to overcome the obstacles to effective delegation: . . . . . . .

Create a culture of continuous learning. Realise that there is more than one way to deal with a situation. Clearly state the outcome that the subordinate must deliver. When mistakes occur, assist the subordinate in finding solutions to the problems. Improve communication between subordinates and managers. Train the subordinates to understand their responsibilities, authority and accountability. Make the subordinates aware of the extent of their contribution in achieving the goals of the organisation. . Analyse the organisation’s goals and task requirements and determine to what extent employees are capable of performing the task they wish to delegate. . Trust their employees and have faith in their ability to complete the task successfully.

8.8.5

The delegation process

The following represents the steps in the delegation process: . . . . . .

Decide which tasks should be delegated. Decide who should perform the tasks. Provide sufficient resources for carrying out the delegated task. Delegate the assignment. Be prepared to step in, if necessary. Establish a feedback system.

SUMMARY We differentiated between organise, organising and organisational structure, we identified the reasons why organising is important and we discussed how to design an organisational structure and the principles of organising. We focused on authority, departmentalisation and job designing and ended the study unit with delegation.

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REVIEW QUESTIONS (1) What do you understand by organising? (2) List and explain the benefits of organising. (3) Read carefully through the principles of organising. Close the page/book and write down the principles that you can remember. (4) What is the difference between pooled, sequential and reciprocal interdependence? (5) Explain the five types of power. (6) Explain ‘‘scope of authority’’. (7) What is meant by ‘‘micro-management’’? (8) Explain the advantages and disadvantages of decentralising authority. (9) Differentiate between the types of multiple departmentalisations. (10) How can managers ‘‘expand’’ a job? (11) Illustrate the steps in the delegation process.

ADDITIONAL QUESTIONS Refer to chapter 15 for additional questions.

FUN ACTIVITY (1) (2) (3)

Select the multiple-choice questions from your assignment pertaining to this study unit and answer them. Select the multiple-choice questions from an old examination paper (available on myUnisa) pertaining to this study unit and answer them. Choose any one of the additional resources provided and write a short review of the article, and explain why you found it to be of importance in today’s business environment.

REMINDER You will need to discuss the content of this study unit in more detail because this is only a summary. Refer to the learning objectives and make sure that you can achieve each one.

ADDITIONAL READING MATERIAL (1)

Types of organisational designs. Available at: http://www.emaytrix.com/mgmt307/section3.php

(2)

Types of power. Available at: http://changingminds.org/explanations/power/french_and_raven.htm

(3)

Types of authority: line and staff roles. Available at: http://managementinnovations.wordpress.com/2008/12/18/types-ofauthority-line-staff-roles/

(4)

Delegation of authority meaning, importance and principles. Available at: http://www.managementstudyguide.com/delegation_of_authority.htm

CASE STUDY PRACTICAL EXAMPLE To enable you to understand organising at a more practical level, we have included the case study below. As you read through the case study, do the following activities:

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– Underline the key words relating to the organising study unit, and review them by referring back to the study unit and applicable chapter – By referring to the case study, name and explain the departmentalisation structure of Departmental stores, the UK government and The Forestry Commission. – By referring to the case study, identify cases where centralised and decentralised decisionmaking is taking place at Forrest Commission.

FACTORS AFFECTING ORGANISATIONAL STRUCTURE A FORESTRY COMMISSION CASE STUDY Introduction The Forestry Commission has a huge responsibility. It cares for 827 000 hectares of sustainably-managed woods and forests and plants more than 17 million trees a year. Its mission is: ‘‘to protect and expand Britain’s forests and woodlands and increase their value to society and the environment’’. The Forestry Commission is a government department which employs over 3 000 workers across Britain. Its goal is to ensure that Britain can use its forests to contribute positively to as many of the nation’s needs as possible, both now and in the future. To do this, it works with a range of partners such as landowners, local authorities, communities and national businesses. Its responsibilities cover timber production, research, recreation, education and managing the national forest estates. All of this is done as sustainably as possible without affecting the future use of resources. Climate change is one of the biggest challenges facing the world today. Britain’s trees and forests have an important contribution to make in addressing climate change. There are two ways to reduce the level of carbon dioxide in the atmosphere: . Reduce the amount we produce . Develop ways to capture and store the emissions we cannot avoid. Trees have the unique ability to do both.

Organisational structure Organisational structure refers to the way that roles are organised within a firm. The structure is often represented in a diagram called an organisation chart (organogram). Many organisations are typically set up in a hierarchical structure. This is where workers are divided into management layers, with those in the top levels having greater authority than those in lower levels. Instructions are passed down through the layers along the chain of command. An organisation’s structure should be designed to deliver goals and use resources in the best possible way. Organisations may be structured by product, function or geography. Department stores, for example, are structured according to menswear, cosmetics, home wares. UK government departments are structured according to Health or Education. The Board of Commissioners is responsible for overseeing the work of the Forestry Commission across Great Britain as a whole. However, there are national committees for each of Scotland, England and Wales. This structure has two main advantages. Firstly, it creates a regional base allowing decisions in Scotland, Wales and England to be made and managed at a regional level. This takes into account local conditions, needs and expertise. The Forestry Commission delegates decision-making down the hierarchy. Each country is engaged in:

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. Forest management activities on the government’s forest estate, such as planting and harvesting trees, recreation or education . Conservation activities for the protection and re-planting of trees and nature sites owned by private sector landowners While forest policy differs between the three countries, some internal policy decisions are still made at the top of the hierarchy. This ensures consistency, where necessary, throughout the whole of the Forestry Commission, for example, making certain that Britain adheres to international rules for sustainable forest management. This also provides benefits from economies of scale, for example, byhaving central departments to provide shared services, including Human Resources, Finance and Information Services.

Flat organisation structures Some hierarchies have many layers within them. This often leads to a narrow span of control. This means that each manager is responsible for only a small number of people. These tall organisations allow for tighter control and supervision but may stifle motivation or the creativity of workers. This sort of structure does not fit with the work carried out at the Forestry Commission. The Forestry Commission has a flat organisational structure. This has fewer layers and larger spans of control. Communication is generally quicker in this structure and enables creative approaches and the freedom to explore new options. Employees at the Forestry Commission work together to find better ways of using forest resources by: . . . . . .

protecting what we already have reducing deforestation restoring the world’s forest cover using wood for energy replacing other materials with wood ‘planning to adapt to our changing climate’

For this structure to be effective, workers need to be able to take responsibility for their decisions. Forestry Commission employees work within a flat organisation structure. Their skills and experience are used effectively to share ideas about ways in which sustainable forestry can help to combat climate change. The Copenhagen Accord, agreed in December 2009, gave international backing to a number of commitments for global action on climate change. The Accord added weight to recent UK initiatives including those related to sustainable forests. The Forestry Commission is actively working to support these initiatives.

Conclusion The Forestry Commission’s goal is to ensure that Britain’s forests contribute positively to protecting the environment. It does this while sustaining this great resource for the future. To achieve this, the Forestry Commission combines both a centralised structure for Britain-wide decision-making and a decentralised structure for the management of local forests and woodland resources. In addition to this, matrix teams are used to develop the projects with which the Forestry Commission is involved. The Forestry Commission provides a wide range of interesting jobs. It has adopted an organisational structure that allows workers to contribute and take responsibility for their actions. Working for the Forestry Commission enables people to make a real difference. Source: Adapted from The Times 100 (2013:h). ‘‘# Copyright Business Case Studies LLP. Reproduced by permission of the publisher. www.businesscasestudies.co.uk’’

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Topic 4 Leading INTRODUCTION AND AIM OF TOPIC The aim of this topic is to provide you with an overview of how managers lead individuals in the organisation towards achieving goals. Managers lead by instructing, directing and persuading; they also create a motivating environment for employees, so that they can engage in the activities needed to achieve organisational goals.

Learning objectives After completing this topic, you should be able to: — — — — — — — — —

explain the concept of leadership as a management function expound on the nature and importance of leadership in an organisation differentiate between leadership and management explain the components of leadership critically evaluate the trait, behavioural and situational approaches to leadership explain what leaders really do explain what motivation involves illustrate and explain the motivation process differentiate between content theories, process theories and reinforcement theories of motivation — present arguments for and against the use of money as a motivation — make recommendations regarding job designs that motivate workers

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CONTENT Topic 3 comprises three study units:

STUDY UNIT 9: Individual behaviour in the organisation TOPIC 4: LEADING

STUDY UNIT 10: Principles at leading STUDY UNIT 11: Workforce motivation

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Study unit 9 Individual behaviour in the organisation INTRODUCTION AND AIM The behaviour and management of people in the organisation influence the success of contemporary organisations. The focus of this study unit is to examine individual behaviour in organisations and to determine how managers can manage human resources effectively.

STUDY CHAPTER 17 IN THE PRESCRIBED BOOK We will send this study unit in an additional tutorial letter.

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Study unit 10 Principles of leading INTRODUCTION AND AIM In this study unit, our focus is on the leadership that managers should provide to all organisational levels, on a daily basis. Managers’ leadership styles and behaviour are essential elements of their leading function.

STUDY CHAPTER 19 IN THE PRESCRIBED BOOK Contents of the study unit . . . . . . .

Towards a definition of leadership Leadership and management Components of leadership Leadership approaches The behavioural approach to leadership Leadership contingency theory The contemporary approaches to leadership

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OVERVIEW

Learning objectives The outcomes of studying this chapter on leadership are that you should be able to: 1 2 3 4 5 6 7

define the concept of leadership as a management function differentiate between leadership and management discus the components of leadership explain the trait theory compare the behavioural leadership theories with each other discuss the contingency theories of leadership describe the emerging approaches to leadership

KEY TERMS Achievement-oriented leadership behaviour

Job maturity

Leader-member relations Least Preferred Co-worker

Advocacy Authoritarian management

Legitimate power Loyalty

Autocratic leadership style Behavioural leadership theories

Managerial grid Middle-of-the-road management

Charismatic leadership Competence

Openness

Concern for people

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Participative leadership behaviour Path-goal model Physiological maturity Position power Referent power Country club management Delegating Democratic leadership style Directive leadership behaviour Emotional intelligence Employee-centred leader behaviour Expert power Hersey and Blanchard’s model Impoverished management Initiating structure Inquiry Integrity Inventing Job centred leader behaviour

Concern for production Connecting Consideration Consistency Contingency leadership models Reward power Sensemaking Servant leadership Situational leadership theory Supportive leadership behaviour Task structure Team management The change signature The path-goal theory of leadership Trait theory Transactional leadership Transformational leadership Trust Visioning

10.1 TOWARDS A DEFINITION OF LEADERSHIP We encounter leadership in various ways. Examples of leadership include the captains of rugby or soccer teams, project leaders, our team leaders or the president of a country. We define leadership as the process by which a person exerts influence over other people and inspires, motivates and directs their activities to help achieve group or organisational goals. A leader’s influence manifests in his or her ability to affect the actions of others, and affects the relationship between leaders and followers. However a leader must develop a leader-follower relationship in order to have followers. Once this leader-follower relationship is established, an effective leader can focus the energy of individuals and groups towards achieving organisational goals. The following section differentiates between leadership and management.

10.2 LEADERSHIP AND MANAGEMENT . Leadership. Leaders cope with change . Management. Managers cope with complexity John Kotter states that leaders deal with change stemming from business environments characterised by major, on-going change. The result of on-going change is that organisations become more complex. Managers, on the other hand need to deal with this complexity in their organisations.

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However, it is important for managers to be good leaders, especially when organisations are competing in a highly competitive global business environment. We view leading as one of the management functions, and part of the management process.

10.3 THE COMPONENTS OF LEADERSHIP Leaders influence others because they possess power. Power is the potential to influence behaviour, to change the cause of events, to overcome resistance, and to get people to do things they would not otherwise do. We have already discussed the types of power in more detail in study unit 8, chapter 15 (in the prescribed textbook). The types of power are: . . . .

Legitimate power Reward power Referent power Expert power

In addition to power, the other components of leadership include: . . . .

Authority Responsibility Delegation Accountability

We have also discussed these components in more detail in study unit 8, chapter 15.

10.4 LEADERSHIP APPROACHES In numerous studies, researchers have attempted to determine the key characteristics and behaviour patterns of a strong leader. The major categories of leadership theories are trait theory, behavioural theory and contingency theory.

10.4.1

Trait theory

The first organised research into leadership involved the analysis of personal qualities and characteristics of successful leaders. This approach suggested that strong leaders have certain basic traits that differentiate them from people who are not leaders. However, findings were inconclusive, as traits vary from one leader to another, while some traits only develop after an individual assumes a leadership position. Despite the inconclusive findings, new research conducted within this field identified vital traits that successful leaders seem to share. These traits are self-confidence, honesty/integrity and drive. Furthermore, managers cannot be effective leaders if their employees don’t find them trustworthy. In order to be trusted, leaders need to display the following traits: . Integrity . Competence

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. Consistency . Loyalty . Openness Did you KNOW? Leadership can be learned. We all have leadership potential, just as we have some ability to sing or run. Some people may be better than others, but each of us has a starting point to build on with training and practice. You do not have to be officially designated as a leader of a group to be an effective leader. Source: DeKlein (2011)

10.5 THE BEHAVIOURAL APPROACH TO LEADERSHIP Behavioural approach researchers attempted to determine how successful leaders act. Specific studies within this approach include:

.

.

.

.

. Kurt Lewin and his associates at the University of Iowa identified two leadership styles, namely, the autocratic and democratic leadership styles. The autocratic leader centralises authority, dictates work methods and makes decisions on his/ her own, and limits employee participation. The democratic leader delegates authority, encourages participation in deciding work methods and goals, uses feedback to coach employees and involves employees in decision making. Robert Tannenbaum and Warren Schmidt expanded on the work of the researches at lowa. Tannenbaumand Schmidt suggested that leadership styles could be explained on a scale ranging from ‘autocratic’ to ‘democratic’ leadership styles. Ohio State University identified two independent dimensions of leadership, namely, initiating structure and consideration. Initiating structure refers to the extent to which a leader defines and structures his/her role and the roles of employees to attain organisational goals. Consideration refers to the extent to which a leader has job relationships characterised by mutual trust, respect for employee’s ideas, and regard for their feelings. Researchers at the University of Michigan identified two basic forms of leadership behaviour, namely job-oriented leader behaviour and employee-oriented leader behaviour. Job-centred leader behaviour occurs when a leader focuses on the job and work procedures involved with that job. Employee -centred leader behaviour occurs when a leader develops cohesive work groups and ensures employee satisfaction. Blake and Mouton developed the leadership grid, which is an instrument that assists in identifying the ideal leadership style. The grid has a two-dimensional view of leadership style, based on concern for people versus concern for production. Drawing these two scales at right angles to each other creates a grid emphasising five major leadership styles. Refer to your textbook and review these leadership styles.

Another leadership theory that emerged from researching leadership, was the contingency or situational approached to leadership. The following sections addresses the contingency approached to leadership.

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10.6 LEADERSHIP CONTINGENCY THEORY This approach acknowledges that predicting leadership success is more complex than isolating a few traits or behaviours. The contingency or situational approach aimed at determining the best leadership style for a given situation. The most prominent models based on the contingency or situational approach to leadership are: . Least Preferred Co-worker (LPCW theory) was developed by Fred Fiedler. The LPCW theory describes how the situation determines the relationship between leadership effectiveness and a trait measure called ‘the least preferred co-worker (LPC)’’ score which measures whether a leader is task-oriented or relationship-oriented. Fiedler identified three situational criteria that organisations can manipulate to create a proper situational match with the behaviour orientation of the leader: – Leader-member relations – Position power – Task structure . Robert House developed the path-goal theory. This theory states that the leader should help his/her followers in attaining their goals by providing the necessary direction and support to ensure that their goals are compatible with the organisation’s overall goals. House identified four leadership behaviours that managers can use in different situations. Refer to your textbook to review these leadership styles. . Paul Hersey and Kenneth Blanchard’s situational leadership theory states that the most effective leadership style for a particular situation is the task maturity of the subordinates. The maturity of subordinates can be categorised in terms of job maturity and physiological maturity. Furthermore, their leadership theory uses two dimensions of leadership behaviour, namely task behaviour and relationship behaviour. By combining these two elements, Hersey and Blanchard identified four basic leadership styles, namely: – – – –

Telling Selling Participating Delegating

Researchers have started investigating new perspectives on leadership and there has been a shift in leadership research from the traditional function of leadership, called transactional leadership, to contemporary leadership perspectives.

10.7 THE CONTEMPORARY APPROACHES TO LEADERSHIP The contemporary approaches to leadership take a more practical view of leadership. Contemporary views on leadership include the following:

10.7.1

Charismatic leadership

A Charismatic leader is a leader who often has traits such as self-confidence, vision, the ability to articulate the vision, strong convictions about the vision, unconventional behaviour and environmental sensitivity.

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10.7.2

Transactional leadership

A transactional leader is a leader who motivates his/her followers by appealing to their selfinterest. Transactional leaders display behaviour associated with three transactional styles as defined by Bass and Avolio: (1) (2) (3)

Contingent reward leaders Management-by-exception (active) leaders Management-by-exception (passive) leaders

10.7.3

Transformational leaders

Transformational leaders appeal to followers’ values and their sense of a higher purpose. They do this by identifying and communicating organisational (or societal) problems and articulating a compelling vision of how the organisation (or society) can improve. Bass and Avolio, identified five leadership styles associated with transformational leadership, namely: (1) (2) (3) (4) (5)

idealised behaviour inspirational motivation intellectual stimulation individualised consideration idealised attributes

10.7.4

Emotional intelligence and transformational leadership

The Emotional Competence Inventory (ECI) developed by Daniel Goleman is a competencybased emotional intelligence model, designed specifically for workplace application. The ECI instrument measures the following emotional competencies of managers: (1) (2) (3) (4)

Self-awareness Self-management Social awareness Relationship management

10.7.5

Servant leadership

Servant leaders transcend self-interest to serve the needs of others, help others grow and develop and provide opportunity for others to gain materially and emotionally. Refer to the textbook and review the basic principles of servant leadership.

10.7.6

The MIT Leadership Center’sLeadership Framework.

This framework integrates a number of leadership theories and is relevant for leaders functioning in the contemporary business environment. There are four assumptions that underpin the leadership framework, namely: – – – –

Leadership does not pertain to top managers only It is personal and developmental It is a process to create change Leadership skills develop over time

The Leadership Framework comprises four key leadership capabilities and the leader’s change signature. These capabilities are sensemaking, relating, visioning and inventing. A leaders’ change signature refers to the leader and his/her unique characteristics, experiences and skills.

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10.7.7

Empowerment

Leaders empower employees at all levels by giving them the power to make decisions, be responsible for their outcomes, improve quality and cut costs. Did you KNOW? ‘‘The servant-leader is servant first It begins with the natural feeling that one wants to serve, to serve first. Then conscious choice brings one to aspire to lead.’’ Source: Greenleaf (n.d)

SUMMARY The objective of this study unit was to point out that, to be successful, organisations need not only good managers but also good leaders. The different components of leadership emphasise the nature of management’s leadership task. A study of the various leadership models should improve your understanding of leadership theory, plus the fact that every situation calls for a different leadership style. New perspectives on leadership focus on the current research and leadership needs of organisations.

REVIEW QUESTIONS (1) (2) (3) (4) (5)

Define leadership in your own words, and then compare your definition with the one in the study guide, and in the prescribed book. Differentiate between leadership and management. Explain the behavioural approach to leadership and the specific studies that contributed to this approach. What is meant by the contingency approach to leadership? Explain the models that were based on the contingency approach to leadership. Differentiate between the contemporary approaches to leadership.

ADDITIONAL QUESTIONS Refer to chapter 19 for additional questions.

FUN ACTIVITY (1) (2) (3)

Select the multiple-choice questions from your assignment pertaining to this study unit and answer them. Select the multiple-choice questions from an old examination paper (available on myUnisa) pertaining to this study unit and answer them. Choose any one of the additional reading articles and write a short review of it for a local business newspaper column. Remember to use a catchy headline!

REMINDER You will need to discuss the content of this study unit in more detail because this is only a summary. Refer to the learning objectives and make sure that you can achieve each one.

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ADDITIONAL READING MATERIAL (1)

Five different types of leadership styles. Available at: http://smallbusiness.chron.com/5-different-types-leadership-styles-17584.html

(2)

Behavioural approach to leadership. Available at: http://knowledge.sagepub.com/view/organizationalpsychology/n21.xml

(3)

What is the difference between traditional and contemporary leadership? Available at: http://stupidstuffsfordummies.wordpress.com/2011/08/26/what-is-thedifference-between-traditional-and-contemporary-leadership/

(4)

Trust and leadership. Available at: http://www.citeman.com/724-trust-and-leadership.html

CASE STUDY PRACTICAL EXAMPLE To enable you to understand leadership at a more practical level, we have included the case study below. As you read through the case study, do the following activities: – Underline the key words relating to the leadership in this case study, and review them by referring back to the study unit and applicable chapter in the textbook. – By referring to the behavioural approach to leadership, identify the leadership approaches of Berian, Stephen and Martin in the case study. – Apart from the behavioural approaches of Berian, Stephen and Martin, what other leadership theory is applicable at Tesco?

DEVELOPING APPROPRIATE LEADERSHIP STYLES A TESCO CASE STUDY Introduction Tesco is a customer-orientated business. It aims to offer products that provide value for money for its customers and to deliver high-quality service. Tesco has more than a 30% market share of the UK grocery market, nearly double that of its nearest rival. In its 2009/2010 financial year, Tesco earned revenues of £38.6 billion in the UK and employed more than 280 000 people. To keep at the top of its game and to maintain its number one spot in the market, the company needs skilled staff at all levels and in all roles.

Roles in Tesco Roles in Tesco range from business development, supply chain management and marketing, to finance, store operations and personnel management. Each area of expertise requires leadership and management skills. Tesco aims to develop the leadership qualities of its people throughout the organisation, from administrators and customer assistants to the board of directors. It adopts a similar approach to leadership development for staff at all levels. This is in line with Tesco’s employment philosophy: ‘‘We believe in treating each other with respect, with everyone having an equal opportunity to get on, ensuring Tesco is a great place to work.’’ The purpose of sharing this case study with you is to show how Tesco’s leadership framework is fundamental to developing the qualities of leadership needed at every level in the business.

Management and leadership There is a difference between management and leadership. Management is about getting things done. Managers organise human and physical resources to achieve business aims and

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objectives. Leadership is about influencing, motivating and inspiring people. It is about coaching and developing people, treating them with respect while challenging them. Leaders seek to create strong teams, filled with people committed to the organisation’s overall goals. The process of managing starts with the target or objective to be achieved. A manager must decide on the appropriate approach for reaching that target. The manager then needs to communicate this approach clearly to his or her team and to allocate tasks to each team member. Task allocation and delegation of responsibility is part of the management function. However, other factors will also have an influence on whether the target is achieved, including the task in hand, the skills of the team and the style of leadership. The style of leadership can vary depending on the task. Some managers allow teams to take charge of their own decision-making for many tasks. Team leaders will set the objectives but empower team members to decide how these objectives are achieved. This has several advantages: It helps to motivate individuals in the team and it draws on the expertise of the members of the team.

Berian is a bakery manager Berian manages a team of 17 in a Tesco in-store bakery. One of the key challenges of Berian’s job is to ensure that his team produces the right products to meet demand at key times. His usual management approach is to allow the team to take responsibility for achieving the desired result. In this way, the team not only buys into the activity, but also develops new skills. For example, when the bakery expanded its product range and Berian needed to ensure that all the products would be on the shelves by 8.00 am, rather than enforce a solution, he turned to the team for ideas. The team solved the problem by agreeing to split break times so that productivity could be maintained. Berian’sapproach produced a positive outcome and increased team motivation. Tesco’s leadership framework sets out not just the skills and competencies but also the personal characteristics and behaviours it expects of its leaders. Tesco looks for managers who are positive, confident and genuine, with the capacity to inspire and encourage their teams. A key part of Tesco’s programme for building leaders is encouraging self-review and reflection. This allows staff to assess their strengths and find ways of demonstrating the characteristics that are vital to the long-term development of the business.

Stephen is a Tesco store manager Stephen is the manager of a medium-sized Tesco store. He has been with the company for over 10 years and his first job was filling shelves in the dairy section. He is currently working towards the Tesco foundation degree. Stephen directly manages a team of around 20 departmental managers, who between them are responsible for almost 300 people. Stephen’s leadership style is usually to allow his managers to make most operational decisions. However, if, for example, an accident occurs in the store, Stephen may take control to ensure a prompt and co-ordinated response. Stephen consults widely as he feels that the employees reporting to him respond better to this leadership approach. For example, when planning a major stock reduction programme, he encourages his managers to put forward ideas and develop plans. This increases team motivation and encourages creativity. Some mistakes may be made, but they are used as a learning experience. However, as a store manager, Stephen deals with many different situations. Some may be critical for the business and it is important that he responds to these in the most appropriate way. In such situations, Stephen may need to adapt his leadership approach and exert more authority.

Martin is Tesco’s Programme Manager for Education and Skills Martin is Tesco’s Programme Manager for Education and Skills in the UK. He has a range of

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responsibilities associated with people, processes and standards. Martin often uses a specific leadership approach when setting training budgets. Managers would suggest ideas to make cost savings and they can jointly discuss their proposals with Martin. By empowering his managers, he gets them to take ownership of the final agreed budget. A laissez-faire leadership style is at the other end of the continuum from autocratic leadership style, according to Tannenbaum and Schmidt’s categories of leadership styles. A laissez-faire manager takes a ‘‘hands-off’’ approach and trusts teams to take appropriate decisions or actions within broad agreed boundaries. For example, Martin might leave an experienced departmental manager to develop a budget. This could be because he trusts that the manager has a good knowledge of the needs of the department and of the business.

Leadership styles in action Although each person will have their own preferred leadership style, the most effective leaders adopt his/her style approach. They will consider several factors in deciding which style to use: . The task – Is it business critical? Must a decision be made immediately? What will be the potential impact on the business? . The team – Does it have the right skills and resources? Is it used to making decisions? . Tradition – What has been the norm in the past? For example, Martin uses a more authoritarian style if something needs achieving in a particular way or in a very quick timeframe. Sometimes budgets need to be reduced quickly in order to make cost savings. Martin will tell managers what needs to be done and by when, so that they can then resubmit their budgets in line with expectations. Stephen regards inspiring, guiding and influencing his staff as an important part of his role. Sometimes he may need to inform his teams about a new in-store innovation or corporate initiative. Even though this is a ‘‘tell’’ situation, Stephen aims to ‘‘sell’’ the idea. He tries to ensure that his staff members understand why it is necessary to do something. His reasoning is that if his people are able to give their opinions, it is more likely that they will readily support the initiative. Managers have to be aware of the possible consequences of using the wrong style in a particular situation. For example, Berian would not adopt a laissez-faire approach with a new member of the bakery team. If the employee is not given proper instruction before operating the baking equipment, the bread might burn. Employees might also injure themselves if they don’t use the equipment properly. In this situation, it is essential to adopt a more directive approach.

Conclusion Tesco leaders need to be inspirational, creative and innovative, ready to embrace change and with a long-term vision for achievement. Effective leaders manage by example and in doing so, develop their teams. Tesco encourages all its managers to lead by example. It requires leaders who can motivate, problem solve and build great teams. Tesco employs people in a wide range of roles and provides a career structure which allows employees to progress through the organisation. Tesco’s process of 360-degree feedback allows its employees to reflect on their own progress and improve. Even if someone starts working in store filling shelves as did Stephen they can progress through the organisation into positions of authority and responsibility. Source: adapted from The times 100 (2013:j) ‘‘# Copyright Business Case Studies LLP. Reproduced by permission of the publisher. www.businesscasestudies.co.uk’’

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Study unit 11 Workforce motivation INTRODUCTION AND AIM Motivated employees render high levels of job performance (which in turn leads to the organisation meeting its goals). This is why a large portion of a manager’s leadership task consists of inspiring employees to improve their job performance. Consequently, managers need to know what motivates employees and how to maintain employee motivation. This study unit focuses on motivation, and how managers can utilise it to increase the work performance of employees.

STUDY CHAPTER 20 IN THE PRESCRIBED BOOK Contents of the study unit . . . . .

Nature of motivation The motivation process The motivation theories Money as a motivator Designing jobs that motivate

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OVERVIEW

Learning objectives After completing this unit, you should be able to: 1 explain what motivation encompasses 2 illustrate and explain the motivation process 3 differentiate between content theories, process theories and reinforcement theories of motivation 4 discuss the content theories 5 discuss the process theories 6 discuss the reinforcement theories 7 present arguments for and against the use of money as a motivator 8 explain how managers can use job design to motivate workers

KEY TERMS Acquired needs

Job context

Autonomy

Job enlargement

Avoidance

Job enrichment

Esteem needs

Motivators

Equity

Need for achievement

Expectancy

Need for affiliation

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Existence needs Extinction Feedback Growth needs Hygiene factors Hierarchy of needs Higher-order needs Hygiene factors Instrumentality Job characteristics model Job content

Need for power Negative reinforcement Physiological needs Positive reinforcement Relatedness needs Self-actualisation needs Skill variety Social needs Task identity Task significance Valence

11.1 NATURE OF MOTIVATION Think of a few ways to finish the following sentence: ‘‘I need to’’ Your need may be a basic one, such as the need to satisfy your hunger or thirst, or a more advanced one, such as the need to pass this module, get a promotion or run the Comrades Marathon. When we have needs, we adjust our behaviour to satisfy them. In other words, we become motivated to satisfy our unsatisfied needs. Examples are working harder or working overtime to get a promotion, sticking to the training programme to be fit enough for the Comrades, or getting in the car to go buy yourself lunch. Can you think of a recent need you had? What motivated you to satisfy that need? In essence, motivation is what drives people to behave in certain ways and to do whatever is best for them. It is an inner desire to satisfy an unsatisfied need. Managers have realised that they can capitalise on the power of motivation in the organisational context. If managers can link an employee’s best interest to the interest of the organisation, then the employee will probably be more motivated to reach the goals of the organisation. As a result, managers can increase organisational productivity. . Motivation (in the context of organisations and managers) is the willingness of an employee to achieve organisational goals. Did you KNOW? Motivation is individual and diverse! Some people work for love; others work for personal fulfilment. Others like to accomplish goals and feel as if they are contributing to something larger than themselves, something important. Some people have personal missions they accomplish through meaningful work. Others truly love what they do or the clients they serve. Some like the camaraderie and interaction with customers and coworkers. Other people like to fill their time with activity. Some workers like change, challenge and diverse problems to solve. Source: Heathfield (2013)

11.2 THE MOTIVATION PROCESS The motivation process consists of interdependent elements: . need

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. . . . .

motive behaviour consequences satisfaction/dissatisfaction feedback

If managers understand what motivates employees, then they can influence the employees’ work performance. However, there are other variables that also affect the work performances of employees, namely ability and opportunity. The following represents the variables that influence performance: motivation x ability x opportunity = performance The theories of motivation provide management with a good indication of how people might behave in various circumstances.

11.3 THE MOTIVATION THEORIES There are three motivation theories, namely, the content, process and reinforcement theories.

11.3.1

Content theories

–6

This theory focuses on the needs of people – people have needs that they wish to satisfy, and this in turn directs their behaviour towards satisfying these needs. There are four content theories, which we discuss below.

11.3.1.1

Maslow’s hierarchy of needs

Maslow based his hierarchy of needs theory on two assumptions: (1) (2)

A need that has been satisfied is not a motivator; thus only unsatisfied needs can influence behaviour. People’s needs form a hierarchy in the order of the importance of their needs – when one need is partially satisfied, the next one will dominate.

The five levels in Maslow’s hierarchy of needs are as follows: . . . . .

physiological needs (food, water and warmth) security needs (security and protection) social needs (love, friendship, acceptance) esteem needs (need for self-respect and recognition by other people) self-actualisation needs (challenging jobs)

11.3.1.2

The ERG theory

Clayton Alderfer built on Maslow’s work, and suggested that more than one level of need can motivate a person at the same time. He refined Maslow’s theory into three broader categories: . existence need (encompasses physiological and physical needs) . relatedness (corresponds with social needs) . growth (relates to esteem and self-actualisation needs)

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Alderfer also added the aspect of frustration–regression referring to a person getting frustrated when a need remains unsatisfied, and thus reverting to satisfying a lower level need.

11.3.1.3

Hertzberg’s two-factor theory

This theory focuses on the relationship between job frustration and productivity, and is based on the work of Frederick Herzberg. The two-factor theory distinguishes between factors that lead to job satisfaction (motivator factors) and job dissatisfaction (hygiene factors). Hygiene factors relate to the job context and include factors such as salary and working conditions. Motivators are job content factors, such as recognition and achievement.

11.3.1.4

Acquired needs model

The acquired need model or McClelland’s achievement motivation theory postulates that different needs predominate in different people. Identifying the predominant need in an individual may help managers to motivate individual employees. McClelland distinguishes between three different needs: . the need for achievement . the need for affiliation . the need for power

11.3.2

Process theories of motivation

The focus of process theories of motivation is on how motivation actually occurs, with an emphasis on individual goal setting and the evaluation of satisfaction after the achievement of goals. The two process theories that we will be considering are the equity theory and the expectancy theory.

11.3.2.1

Equity theory

According to this theory, individuals must be able to perceive a relationship between the reward they receive and their performance. The individuals perceive this relationship by comparing the input-output ratio between themselves and someone else whom they regard as their equal. Comparing their own situation with another compatible worker’s situation can lead to one of three conclusions. They either perceive themselves as being under-rewarded, over-rewarded or equitably rewarded. If individuals perceive themselves as being under-rewarded or overrewarded, then they will try to restore the equity.

11.3.2.2

Expectancy theory

The expectancy theory is based on the work of Victor Vroom, and argues that people will act according to: . the perception that their behaviour will lead to a certain outcome . how much they value the outcome

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The expectancy theory suggests that an individual’s work motivation is determined by the following: . expectancy (effort-performance relationship) . instrumentality (performance-reward relationship) . valence (rewards-personal goals relationship) Did you KNOW? A recent survey by BNET (which is now part of CBS MoneyWatch) asked the question, ‘‘What motivates you at work?’’ The results showed that doing something meaningful is more important than money or recognition to your employees. Twenty nine per cent of respondents said that doing something meaningful was the most motivating thing about work. Money motivated 25% and recognition 17%. Source: Lavinsky (2012)

11.3.3

Reinforcement theory

Behaviour modification is the basis of reinforcement theories. It refers to the systematic effort to shape employees’ behaviour. Organisations reward desired behaviour positively and discourage undesirable behaviour through punishment and extinction. Ways to reinforce behaviour include: . positive reinforcement . avoidance . negative feedback

Scheduling reinforcement Effective reinforcement (of behaviour) depends on when the reinforcement takes place. The strategies of reinforcements are depicted in table 11.1:

Table 11.1: Strategy of reinforcement Strategy of reinforce- When it takes place ment Continuous reinforcement

When managers reinforce all desired behaviour

Fixed interval schedule

Provides reinforcement at fixed times, regardless of behaviour; based on time (e.g. once a week)

Variable interval schedule

Provides reinforcement at scheduled times; based on time, but the intervals differ

Fixed ratio schedule

Provides reinforcement after a fixed number of performances

Variable ratio schedule

Influences the maintenance of desired behaviour the most by varying the number of behaviours required for reinforcement

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11.4 MONEY AS A MOTIVATOR There is evidence that money influences people’s work performance, and is considered a motivator, under certain conditions. People have different needs, which are satisfied in different ways, and therefore managers should use a balanced reward system.

11.5 DESIGNING JOBS THAT MOTIVATE In attempting to motivate employees, managers can design their jobs so that there is scope for personal achievement and recognition. Table 11.2 summarises how managers can use job design to motivate employees.

Table 11.2: Job design and motivation Job design

Definition

Job enlargement

A variety of tasks are added to a job to make the job larger; hence the term ‘‘enlargement’’. It involves horizontal work loading.

Job enrichment

The person responsible for the actual job now does the planning and control of work previously done by people at the higher levels of management. It involves vertical work loading.

Job characteristics model

Certain job dimensions create critical psychological states that lead to several beneficial personal and work outcomes. The five core dimensions in the model are: – – – – –

skill variety task identity task significance autonomy feedback

The three critical psychological states are: – meaningfulness of the work – responsibility for outcomes of the work – knowledge of the actual results of the work activities

SUMMARY The focus in this study unit was on how managers can use motivation as a powerful tool to increase work productivity. We discussed the nature of motivation, the motivation process and motivation theories. Lastly, we discussed money as a motivator and how managers can design jobs that motivate.

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REVIEW QUESTIONS (1) (2) (3) (4) (5)

Explain the nature of motivation and apply it to your own (personal or work) life. Illustrate, by means of a sketch, the motivation process. Differentiate between the three motivation theories, by referring to the sub-theories, the particular theorist/s involved and the focus area/s. Can money be considered a motivator? Justify your answer. How can managers design jobs that motivate?

ADDITIONAL QUESTIONS Refer to chapter 20 for additional questions.

FUN ACTIVITY (1) (2) (3)

Select the multiple-choice questions from your assignment pertaining to this study unit and answer them. Select the multiple-choice questions from an old examination paper (available on myUnisa) pertaining to this study unit and answer them. Choose any one of the additional reading articles provided and read it. Assuming you are going to become a manager, make a list or summary of how you would like to motivate your employees, based on the content of the article.

REMINDER You will need to discuss the content of this study unit in more detail because this is only a summary. Refer to the learning objectives and make sure that you can achieve each one.

ADDITIONAL READING MATERIAL (1)

Motivation theories. Available at: http://ozgurzan.com/management/management-theories/theories-aboutmotivation/

(2)

Money as a motivator. Available at: http://www.entrepreneur.com/blog/225041

(3)

Job design and motivation. Available at: http://edweb.sdsu.edu/people/arossett/pie/Interventions/jobdesign_2.htm

CASE STUDY PRACTICAL EXAMPLE To enable you to understand motivation at a more practical level, we have included the case study below. As you read through the case study, do the following activities: – Underline the key words relating to the motivation study unit, and review them by referring back to the study unit and applicable chapter – Identify motivator and hygiene factors, as per Herzberg’s two factor model. – Identify examples of employee needs, as per Maslow’s hierarchy of needs.

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MOTIVATION HOW EGG UNLEASHED THE POWER OF PEOPLE AN EGG CASE STUDY Introduction Egg is the world’s largest pure online bank, established in 1998. It has a reputation for innovation in financial services and was set up in response to consumer demand for a more flexible approach to banking. Today it has more than 3.7 million customers. Egg is best known for its credit card business, but it also offers loans, savings accounts, investments, mortgages and insurance.

Benefits of motivating people Egg’s enduring purpose is ‘‘to revolutionise customers’ experience of financial services driven through unleashing the power of people’’. This is like a mission statement, in that it defines the way the company carries out its business. Egg knows its performance will determine its success in winning and keeping the confidence of its customers. It is apparent from Egg’s enduring purpose that it believes in the ‘‘power of people’’. First-rate performances by Egg employeesoffer a first-rate service to its customers. When customers receive a great service, they will tend to buy more. This in turn will lead to greater shareholder value. Egg believes it is advantageous to build a strategy of motivation into its culture. Motivation is seen as essential and has been made part of the fabric of the company, known as ‘‘Egg DNA’’.

What is motivation? In essence, motivation is the art of getting people to do things because they want to, or because they see some benefit. At its most crude, motivation in the workplace is linked to pay. It has subsequently been proved that pay is not the only motivator and in certain circumstances does not act as one at all. For Egg, motivation is about creating an environment where its employees: – are involved in planning, performing and achieving for themselves, customers and Egg – have a great relationship with their manager who knows what they want to achieve in their working life – feel empowered and ‘‘unleashed’’, so they have the power to create change, reach their potential and deliver excellent customer service – enjoy their work and have opportunities to improve themselves and their role – are recognised and rewarded for the effort they put into making Egg successful However, Egg also recognises that all the ‘‘hygiene factors’’ which affect motivation need to be in place and work effectively. For example, great emphasis is placed on creating an atmosphere which is conducive to working creatively and powerfully and ensuring that employees’ salaries are paid on time. Egg also provides employees with comprehensive medical and pension benefits. Egg aims to understand its employees as much as possible and to get the best out of them. By meeting the needs of the individual – and giving them ownership and the power to make decisions – Egg ensures that the needs of the business are met.

Motivational theory Over the years, many theorists have tried to discover what motivates people. The most well-

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known are Taylor (1856-1917), Mayo (1880-1949), Maslow (1908-1970), McGregor (19061964) and Herzberg (1923-2000). Of course, motivation is so important that new theories are constantly being developed (Egg, for instance, uses McClelland’s Three Social Motives) but these are all built on the work of the early theorists.

Motivation in practice Mayo’s theories and conclusions are particularly important at Egg. He went from the idea that the better the relations between management and their teams, the more efficient the business would be. Working agreeably is linked to being content, and satisfaction comes from the employee knowing that he or she is appreciated. This is why Egg places so much emphasis on managers knowing their staff well so that they enjoy their work and put in every effort because they want to. Egg believes that to motivate people it is important to balance the needs and wants of the company with those of the individual.

‘‘I want’’ This refers to what the individual wants from their working life. It is discussed in a Know Your People conversation between the manager and the employee. This conversation is an important opportunity for the employee to talk about what motivates them, what they enjoy doing and what their future aspirations are. Egg endeavours to ensure these needs can be met by, wherever possible, matching them into a role which takes account of what they want to achieve and thus ‘‘unleashing their power’’. Each person has different levels of aspiration. For example, an ambitious graduate may have different goals and needs from a part-timer with young children or someone nearing retirement. This is something each manager knows through the dialogue they have with theirstaff. Taking this approach leads to Egg being a motivated organisation with motivated staff members.

‘‘Egg wants’’ Egg believes that the aims of the company (known at Egg as the Egg Game) can be delivered through clear responsibilities and targets (known as accountabilities and objectives). When the accountabilities and objectives have been formulated by the manager he or she will have a further conversation with each team member to agree these. They talk about what the employee brings to the job and the knowledge he or she can acquire and use. Egg recognises that everyone has different training and development needs and ambitions which will enable them to be successful in their particular role, and at Egg in general. Egg plans to enhance and improve these qualities and skills through training and coaching individuals to be the best they can in the role they are undertaking. Egg hopes that motivated employees who enjoy their work will encourage their family and friends to apply for jobs when they become available. It runs a scheme which rewards people financially for this, called Bring a Friend to Egg.

Conclusion The success of Egg is connected to the way it treats its people. Its enduring purpose sets out what it wants to provide as an organisation and where its targets lie. This includes having satisfied and well-motivated people who strive to deliver an excellent

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service for customers, thus achieving greater shareholder value. By achieving these aims, both the organisation and its people get what they require. This is what Mayo described as a psychological contract- at Egg it is called 10/10. Source: Adapted from The times 100 (2013:k) ‘‘# Copyright Business Case Studies LLP. Reproduced by permission of the publisher. www.businesscasestudies.co.uk’’

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Topic 5 Control INTRODUCTION AND AIM OF TOPIC The aim of this topic is to focus on control, which is the final management function component that integrates the entire management process. The control function compares actual performance against predetermined objectives and standards. Thus, control as a management function ensures that the organisation deploys its resources in a meaningful way to achieve its goals and mission.

Learning objectives After completing this topic, you should be able to: — given practical examples, demonstrate an understanding of the control process and the focus of control in organisations — explain the characteristics of an effective control process — describe the areas that control should focus on in the organisation — differentiate between control at different levels of the organisation — present recommendations on the design of a control system

CONTENT Topic 5 comprises one study unit:

TOPIC 5: CONTROL

STUDY UNIT 12: Principles of Control

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Study unit 12 Principles of Control INTRODUCTION AND AIM Control is the process by which management ensures that the actual organisational activities are compatible with the predetermined objectives and planned activities. Therefore, control enables management to measure the actual performance against the set standards. As a final stage in the management process, control serves to answer the following questions: Have we achieved what we set out to achieve? If not, what can we learn from the experience? Furthermore, what corrective action should we take?

STUDY CHAPTER 21 IN THE PRESCRIBED BOOK Contents of the study unit . . . . .

Definition of control The importance of control The steps in the control process The levels of control¨ Functional area control systems The characteristics of an effective control system

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OVERVIEW

Learning objectives After completing this unit, you should be able to: 1 define control 2 explain the importance of control 3 implement the steps in the control process in an organisation 4 distinguish between the various levels of control 5 explain the various functional area control systems 6 identify and explain the characteristics of an effective control system

KEY TERMS Budget Concurrent control Control levels Control process Control system Damage control Economic ordering quantity (EOQ) Feedback control Financial audit

Human resources control Information control Inventory control Just-in-time (JIT) Material requirements planning (MRP) Operations control Performance measurement Physical resources control Preliminary control

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Financial control Financial ratio Financial statement

Quality control Rework control Strategic control

12.1 DEFINITION OF CONTROL We often apply the function of control in our lives. For example, as an MNG2601 student, you may have decided to use a study plan to help you work through this module. You have carefully planned the study plan around your personal and work circumstances, as well as your times available to study. When you miss a study session or two, through unforeseen circumstances (in other words, you have deviated from the study plan), then you need to adjust the original study plan to accommodate the deviation. You might consider studying more content during the remaining study sessions, or decide to work in an extra study session. You are doing this because of the initial plan of working through the module throughout the semester. In essence, you have applied control over your studies. The function of control is used for similar reasons in the business context. Control is the regulatory task of management that determines whether there has been a deviation in the plans, so that managers can take steps to prevent and rectify errors. Control is a continuous process that integrates with planning, organising and leading. Without effective control, an organisation will most likely not reach its goals.

12.2 THE IMPORTANCE OF CONTROL Why is control so important? . It ensures that all activities at all levels of the organisation are in accordance with the organisation’s overall objectives. . It ensures that the organisation’s resources are deployed in such a way that it achieves its objectives. . It results in better quality and enables management to cope with environmental change and uncertainty. . Control measures are needed to ensure that costly mistakes are avoided in complex organisations. . To compete, organisations need to be tightly run, and control is necessary for this. . It facilitates delegation and teamwork. Did you KNOW? Today’s environment brings heightened threats from natural disasters, financial scandals, workplace violence, supply chain disruptions, security breaches and even possible terrorist attacks. Managers must have plans in place to protect the organisation’s employees, facilities, data and infrastructure. Having comprehensive controls and back-up plans will help ensure minimal work disruptions. Source: Mangunsong (2012)

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12.3 THE STEPS IN THE CONTROL PROCESS Control is the process management uses to ensure that the organisation achieves its objectives and that actual performance meets predetermined standards. The control process entails four steps: Step 1: Establish standards of performance. This step involves planning, which includes formulating objectives. Step 2: Measure actual performance. This step involves collecting data and reporting on actual performance. Step 3: Evaluate deviations. This step involves determining whether performance matches standards by evaluating differences between actual performance and the predetermined standards. Step 4: Take corrective action. This final step entails taking corrective action with the aim of achieving or improving on the performance standard, thus ensuring that differences do not recur in future.

12.4 THE LEVELS OF CONTROL The two basic levels of control are the following: (1) Strategic control is exercised at top management level and entails a close study of the organisation’s total effectiveness, productivity, management effectiveness and organisational maturity. . Total effectiveness refers to the extent with which and the way in which an organisation has reached its goals. The balanced scorecard is a tool which an organisation can use to measure the achievement of its goals. . Productivity refers to the relationship between inputs and outputs. This relationship indicates how effectively organisational resources have been deployed. . Management effectiveness refers to the management audit of the organisation’s main success factors. . Organisational maturity refers to the organisation’s ability to achieve the strategic objectives through effective management and leadership principles, effective processes and systems with a stable and competent workforce. (1)

Operations control. Operations control is concerned with the organisation’s processes that entail transforming resources into products and services. This control is exercised at different points in the transformation process, namely, when inputs are made, when transformation takes place and when outputs are produced. The different types of operations control are applied at various stages of the transformation process. The types of operations control are as follows: . Preliminary control refers to the control over the resources obtained from the external environment. . Concurrent control refers to the control over the transformation process. . Rework control refers to the control over resources after the transformation process.

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. Damage control (customer/stakeholder satisfaction) refers to the control over negative impacts of faulty outputs. . Feedback control refers to the measurement of the organisation’s achievement of its mission. In addition, organisational system control can be applied to all major organisational functions, which we will discuss below.

12.5

FUNCTIONAL AREA CONTROL SYSTEMS

The major functional areas in the organisations are finance, human resources, physical resources and information.

12.5.1

Financial control

Financial control is the control over financial resources, as they flow into the organisation, are held by the organisation and flow out of the organisation. Financial control can be provided by budgets, financial statements, ratio analysis and financial audits. Did you KNOW? A government budget is a legal document that forecasts the government expenditures and revenues for a specific period. The period covered by a budget is usually a year, known as a financial or fiscal year, which may or may not correspond with the calendar year. A government budget is often passed by the legislature, and approved by the chief executive or president. Source: Trading economics (2013)

12.5.2

The control of human resources

Control over human resources, an organisation’s main resource, can be provided by performance measurement, coaching, counselling and disciplining.

12.5.3

Control over physical resources

Physical resources refer to an organisation’s tangible assets. We focus on three control systems for physical resources, namely inventory control, operations control and quality control.

12.5.4

Control of information resources

In Study unit 7, we referred to the importance of information management. Relevant and timely information is vital for managers to perform the tasks of planning, organising, leading and control. Information needs to be controlled to ensure that the information that management receive is useful (see study unit 7 for the characteristics and costs of useful information).

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12.6 THE CHARACTERISTICS OF AN EFFECTIVE CONTROL SYSTEM An effective control system has a direct impact on the success of an organisation. An effective control system has certain specific characteristics, which include the following: . . . . .

It It It It It

should should should should should

be integrated with planning. be flexible. be accurate. be timely. not be too complex.

SUMMARY Control is a management function that we can describe as a process through which management ensures that actual performance is in line with the predetermined objectives. The steps in the control process and the characteristics of an effective control system form the crux of this study unit.

REVIEW QUESTIONS (1) (2) (3) (4) (5) (6)

In your own words, define control and explain what control means to you. Refer back to the definition we gave in this unit and compare your answer with it. Why is control important to managers? Illustrate the steps in the control process. What does each step entail? Explain what strategic control and operations control entail. How can managers control financial, human, physical and information resources? What are the characteristics of an effective control system?

ADDITIONAL QUESTIONS Refer to chapter 21 for additional questions.

FUN ACTIVITY (1) (2) (3)

Select the multiple-choice questions from your assignment pertaining to this study unit and answer them. Select the multiple-choice questions from an old examination paper (available on myUnisa) pertaining to this study unit and answer them. Choose any one of the additional reading articles provided, and write a short review of it. Supplement your review with additional notes from the study guide and/or prescribed book.

REMINDER You will need to discuss the content of this study unit in more detail because this is only a summary. Refer to the learning objectives and make sure that you can achieve each one.

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ADDITIONAL READING MATERIAL (1)

Characteristics of effective control systems. Available at: http://www.strategic-control.24xls.com/en234

(2)

Four main steps in the control process in management. Available at: http://www.preservearticles.com/2012051932638/4-main-steps-in-control-process-inmanagement.html

(3)

Control: techniques for enhancing organisational effectiveness. Available at: http://highered.mcgraw-hill.com/sites/0073381489/student_view0/chapter16/

CASE STUDY PRACTICAL EXAMPLE To enable you to understand the importance of control at a more practical level, we have included the case study below. As you read through the case study, do the following activities: – Underline the key words relating to control in this case study, and review them by referring back to the study unit and applicable chapter. – Identify the steps in the control process as followed by Kraft Foods. – Evaluate the effectiveness of Kraft Foods’ control system.

BUDGETING AND STRATEGY A KRAFT FOODS UK CASE STUDY What is a budget? A budget is a financial plan that sets out, using figures, an organisation’s expected future results. By creating budgets, managers can: . . . . .

set out a clear plan, involving target figures for defined periods of time communicate their targets clearly motivate employees to achieve these targets control performance by monitoring actual outcomes against planned targets meet the organisation’s objectives

This case study illustrates how Kraft Foods uses budgets to enable it to meet business objectives related to financial performance with a view to achieving its vision: to become the undisputed global food leader. Budgets help Kraft to meet these objectives in a planned forward-thinking way. Budgets are created through consultation with all areas of the business, to achieve a shared understanding about objectives for the future visions of their teams. The Finance team supports and contributes to the work generated by other business functions to build and secure their support for the budget. To be effective, Kraft recognises that a budget must be challenging but also realistic, so that people feel it can be achieved and is worth working towards. One important element is to identify cost savings that can be re-invested to continue to grow Kraft’s powerbrandsand to develop its people. Reducing costs by eliminating waste is vital in the modern food industry which is driven by price competition and consolidation in the retail sector.

Kraft’s income and expenses budget A typical budget:

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. relates to a defined time period (usually twelve months) . is designed and approved well in advance of the period to which it relates . shows expected income and expenditure – income is the amount of money a business receives from its sales . includes all capital expenses likely to be incurred in furthering the organisation’s objectives expenses are the costs incurred in order to make those sales To help control expenditure the Finance team collates the costs of the business in relevant groups called cost centres, so that analysis can be meaningful and also well controlled by those directly responsible for authorising the spend. Many companies, including Kraft, use cost centres that relate to particular factories or production units. Within Kraft, each manager is assigned clear responsibility for governing the costs which are allocated to his/her cost centre. The budgeting process enables Kraft to make clear plans for individual cost centres, which build the budget for the whole organisation. The whole purpose of this exercise is to quantify the likely future costs of the whole operation, whilst always maintaining focus on the future plans for the company. Kraft sells its wide portfolio of products to a variety of different customers; ranging from the corner shop, to the cash-and-carry and large multinational supermarket chains. In doing so, it incurs: . . . .

raw material costs and production costs to manufacture the products to sell marketing expenses associated with any promotional activity, including media advertising selling expenses involved in selling its goods into supermarkets and other customers distribution expenses when transporting the products from its European and UK factories to the customer

The starting point for building a budget is to forecast the likely sales based on historical information in conjunction with Kraft’s and third-party understanding of the business environment. This indicates what quantities of products need to be produced and the timing of manufacture. With these figures in place, budgets can then be allocated for costs relating to sales, marketing and administration, and figures established for the likely costs of storing and transporting the goods (i.e. distribution). These details provide data for relevant departments (e.g. sales, administration, etc). Figures can then be inserted for likely capital expenses. The final stage is to construct a budgeted profit and loss account and balance sheet. Once the budget has been set and agreed by the management teams within Kraft, it becomes the mechanism through which managers monitor progress on a particular business component (for example, a brand, or factory) or on total company performance.

The importance of feedback The budgeting process is a cycle of on-going review and monitoring. Every month, Kraft uses variance analysis to identify deviations within the monthly result. A variance is the difference between the budgeted figure and the actual figure. Variances can be favourable or adverse. For example, if actual sales income was greater than budget, this would be a favourable variance. On the other hand, if actual expenses were greater than budget, this would be an adverse variance. By monitoring performance monthly, it is possible to alert cost centre managers to variances so that they can take appropriate corrective action or justify the new level of spend. At all stages, the Senior Management team of Kraft is fully aware of any material variances that are derived from comparing actual spend vs budgeted figures. Periodic reviews which are organised by the Budget Accountant, allow for a forum within which any feedback can be given on current actual spend vs plan, to ensure that it is possible to reforecast the plan or alter current activity.

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. Single loop feedback involves making corrections to current activities in order to ‘‘get back on course’’. – Double loop feedback involves amending the original plans so that they more accurately reflect the current business reality.

Advantages and disadvantages of expense budgeting Budgeting provides organisations with detailed analysis of future and current proposed spending patterns, enabling much better control (by responding to variances). Performance can be analysed quantitatively (in numbers), making it possible to measure financial success. Measurement of results can serve as a motivational tool for many employees. Budget analysis also makes it possible to identify unnecessary costs that can be removed, so as to focus funds on value adding activities. Kraft uses budgetary control to remain focused on the hard (quantitative) and soft (qualitative) benefits of re-distributing spend. However, it is important to keep sight of the organisation’s long term goals to avoid the risk that budgeting might lead to short-term focus on financial results. This could foster cost cutting exercises at the expense of strategy. In the worst case, individual managers may pursue exclusively their own narrow goals rather than business-wide ones. If individual managers are not happy with the budget, they may co-operate poorly, so it is important to have detailed discussions to achieve collective agreement. This is why Kraft as an organisation retains a consultative approach to constructing budgets.

Conclusion The world food market is dynamic and highly competitive. To succeed, Kraft recognises the need to build in flexibility that enables it to seize appropriate opportunities into its planning activities. Kraft’s budgeting process is based on consensus and shared understandings. By using rigorous but flexible budgeting arrangements, the various components of Kraft are best able to contribute in a coordinated way to delivering strategic objectives. Source: Adapted form The Times 100 (2013:l) ‘‘# Copyright Business Case Studies LLP. Reproduced by permission of the publisher. www.businesscasestudies.co.uk’’

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