GENERAL MANAGEMENT J.A.A. Lazenby (Editor) N. Achadinha E. Benedict S. Boshoff A.P. Flotman J. Taljaard A. van der Walt A. van Noordwyk W. Vermeulen Van Schaik PUBLISHERS Published by Van Schaik Publishers A division of Media24 Books 1059 Francis Baard Street, Hatfield, Pretoria All rights reserved Copyright © 2015 Van Schaik Publishers No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording or otherwise – without the written permission from the publisher, except in accordance with the provisions of the Copyright Act 98 of 1978. Please contact DALRO for information regarding copyright clearance for this publication. Any unauthorised copying could lead to civil liability and/or criminal sanctions. Tel: 086 12 DALRO (from within South Africa) or +27 (0)11 712 8000 Fax: +27 (0)11 403 9094 Postal address: PO Box 31627, Braamfontein, 2017, South Africa http://www.dalro.co.za First edition 2015 ISBN 978 0 627 03307 0 eISBN 978 0 627 03315 5 Commissioning editor Claire Thornton Production manager Werner von Gruenewaldt Editorial coordinator Lee-Ann Lamb Copy editor Lee-Ann Ashcroft Proofreaders Alexa Barnby & Amie Robinson Cover design by Werner von Gruenewaldt Cover image by iStock Typeset in 10.25 on 13 pt Meridien by Pace-Setting & Graphics eBook conversion by Infogrid Pacific Every effort has been made to obtain copyright permission for material used in this book. Please contact the publisher with any queries in this regard. Please note that reference to one gender includes reference to the other. Website addresses and links were correct at time of publication. This book has been reviewed by independent peer reviewers. About the editor Kobus Lazenby is an associate professor at the University of the Free State. His focus is general management, strategic management and project management at both undergraduate and postgraduate level, and he also lectures in project and strategic management at the Business School at the University of the Free State. He is the editor of the book The strategic management process: A South African perspective. About the authors Naquita Achadinha is a junior lecturer in the Department of Business Management at the University of the Free State with a passion for business and teaching. She has been involved in presenting various business modules, including business functions, strategic marketing management, and consumer behaviour and branding, at both undergraduate and postgraduate level. Her research interests include e-commerce and mobile marketing. Ekaete Benedict is a lecturer at the University of the Free State. Her teaching and research interests are in general management, entrepreneurship and marketing. She also lectures in operations management and entrepreneurship at the University of the Free State Business School. She is involved in new venture creation and currently manages a small entrepreneurial venture. Salomien Boshoff is a lecturer at the University of the Free State, where she teaches general management at the Business School and sales management in the Department of Business Management on postgraduate level. Her research interest is managerial competencies and she has received awards for Teaching and Learning Excellence (2011, 2012 & 2015). Aden-Paul Flotman is a senior lecturer in the Department of Industrial and Organisational Psychology at the University of South Africa, where he lectures in organisational development, change management and coaching psychology. His research interests are in the fields of leadership coaching, change management, systems-psychodynamic consulting, somatic intelligence and neuropsychology. Jacques Taljaard has lectured in Employee Relations at the Central University of Technology Free State for the last 19 years and specialises in employee relations. He also serves as external assessor and moderator for the Business School of the University of the Free State. He has been in practice as an employment relations consultant for the last 17 years, in which capacity he supplies support services to employers in various sectors of the economy across the broad spectrum of employee relations. He is chair of the Free State Chamber of the Safety and Security Sector Bargaining Council and a member of the Human Resource Committee of Free State Agriculture. His vast experience in higher education and consulting covers aspects such as termination of employment, workplace investigations and employment equity plans. Amandi van der Walt was previously a junior lecturer in Strategic Management and Business Management at the University of the Free State and also a lecturer in General Business Management at the Business School of the University of the Free State. She has acted as a coordinator of general management in the University of the Free State’s UPP programme, which was designed to support historically disadvantaged students who do not have access to higher education studies as a result of their low admission points from school. Amandi has relocated to France where she is furthering her studies in the business management field and is currently enrolled for her MSc degree in supply chain and lean management at Toulouse Business School, France. Annemarie van Noordwyk is a junior lecturer at the University of the Free State. Her focus is management and entrepreneurship at undergraduate level. She also lectures in general management and finance for non-financial managers at the Business School at the University of the Free State. Werner Vermeulen is a senior lecturer and vice-chair of the Department of Business Management at the University of the Free State, as well as a visiting professor at Ghent University, Belgium. His focus is management, business excellence and research methodology. He also lectures in entrepreneurship at the Business School, University of the Free State. He is co-author of the book Doing research and is an editorial board member of the international journal Measuring Business Excellence. Preface I would like first of all to express my gratitude to all those people who helped and encouraged me in this project. In particular, I would like to mention Van Schaik and its publishing and editorial staff for their painstaking visits, meetings and encouragement in finalising this project. I am also deeply indebted to my wife, Maretha, for her encouragement, love and patience during this project. I would also like to thank my children, Willie and Madri, for their trust in me and their encouragement to finish this project. A project like this would never have become a reality had it not been for each and every colleague who contributed to this book. Thank you so much for bearing with me and for your timely responses when something was expected of you. This book is an attempt to explain general management in such a way that the reader understands exactly what it entails. It is also intended to instil respect for the challenging field of management. The book has been primarily designed and written for use by people who will become managers of organisations in the future, as well as for managers in practice who are attempting to master the art of management. Although it is not explicitly mentioned, managers who apply these management skills should always strive to engage the hearts and minds of their people in achieving organisational goals and objectives. The content of each chapter is enriched with Management in action case studies that give examples of how some of the theory is applied in practice. Every chapter concludes with a case study to help the reader apply the theory contained in the chapter, and with a number of management exercises. Chapter 1 introduces the concept of general management and explains the importance and relevance of management for all organisations. Chapter 2 deals with the development and history of management theories and the main contributors of these theories are introduced. The contribution these theories make to the workplace of today and the way contemporary managers are using these theories to build efficient and effective organisations are also discussed. Chapter 3 deals with the organisational environment, where the fast-paced, constantly changing world has not only affected the way in which people live but also the way in which organisations operate. Chapter 4 discusses ethics and social responsibility. Managing in an environment where the distinction between right and wrong becomes blurred, and behaving in an equivalent way, is difficult. Ethical behaviour is discussed, which managers have to make the centre of an organisation’s actions. In Chapter 5, planning as the central management task is introduced because, as the saying goes, “failing to plan is planning to fail”. In this regard it is important for the organisation to develop certain goals that will take it a step further. Chapter 6 deals with decision-making. Life is about choices and making decisions. Decision-making is therefore essential at each stage of the four basic management functions and on all the management levels. Chapter 7 describes organising as a basic management function. A plan is only as powerful as its execution. During the planning process, the objectives the organisation wants to achieve are determined. However during this process it is also important to decide how resources should be organised and coordinated in order to achieve the objectives. Chapter 8 explores the changing world of work and the need for organisations to be responsive to change. In order to survive and remain competitive in an environment marked by radical and intensive change, organisations are compelled to become flexible in their approach and responsive to internal and external forces. Chapter 9 deals with the management of diversity in the workplace. In South Africa, workplaces are characterised by diversity, thus workplace diversity will have a close link with equality or inequality. Workplace diversity is about acknowledging the value of individual differences and making the most of these differences in the workplace. Managers sometimes see workplace diversity as a challenge, but it can actually be regarded as one of the greatest organisational strengths. Chapter 10 introduces one of the most important management functions – getting people active. With change being the only constant in today’s organisational environment, people should be led to become committed to achieving the organisation’s plan. This chapter emphasises the importance of the manager’s leadership role in an organisation. Having the management ability to ensure that everything is done in the right way is not enough; leadership also has to ensure that while the organisation is doing things right, it is also doing the right things. Motivation is also sometimes called the ‘core of management’. Even with the best plan in place and an appropriate organisational structure, organisations can only be effective if their members are motivated to perform at a high level. Motivating and rewarding employees are important aspects of the activating process and are an important challenge faced by managers. This management function is discussed in Chapter 11. Chapter 12 explains the important skill of communication. Many people struggle to communicate effectively and frustration may result if messages are incorrectly sent or received. This is relevant to both personal relationships and workplace relationships. In an organisation, effective communication is important for improving operational activities and productivity and increasing employee morale. Control is the final step in the management process and is an important link in the management cycle. All organisations have to have control processes in place to ensure that they are progressing according to plan. In Chapter 13, control is explained in terms of the process whereby managers monitor and regulate how efficiently and effectively the organisation and its members are performing the activities necessary to achieve its goals. It is important to note that there are other issues besides the functions of planning, organising, leading and control that managers need to be concerned with. As can be seen from Chapter 3, today’s business environment (both internal and external) is dynamic – ever-changing and adapting to changes. Managers therefore have to be aware of the issues that could affect organisational management. These issues may change from time to time depending on the trends that are present in the business environment at any point in time. In Chapter 14, a number of contemporary management issues are discussed in terms of the challenges they present for managers in the modern workplace. These challenges include managing conflict and negotiating with various stakeholders, as well as overseeing organisational teams. The operation of organisations in the global business environment and the concept of Black Economic Empowerment in the South African context are also discussed. This chapter, and indeed the book, concludes with a discussion on the importance of health and wellness programmes in the workplace. I believe that this book will help the reader to understand the importance of the main elements of the management process. There are of course many other management issues that could have been discussed, but the purpose of this book is to introduce the reader to general management. My sincere hope is that this book will make a difference in the life and work of managers in South Africa. I thank my Almighty Father for granting me the opportunity, wisdom and grace to present this book. Kobus Lazenby April 2015 Contents About the editor Preface CHAPTER 1 Introduction to management 1.1 Introduction 1.2 What is an organisation? 1.3 What is management? 1.4 Who is a manager? 1.5 Management roles 1.6 Management skills 1.7 Challenges for managers 1.7.1 Building a competitive advantage 1.7.2 Maintaining ethical and socially responsible behaviour 1.7.3 Managing a diverse workforce 1.7.4 Managing in a global environment 1.8 Summary References and recommended reading Case study: Peter Mogorosi Management discussion exercises CHAPTER 2 Management theory 2.1 Introduction 2.1.1 Development of the need for management 2.2 Classical management theories 2.2.1 The scientific management approach 2.2.2 The bureaucratic approach 2.2.3 The administrative management approach 2.2.4 Common characteristics 2.3 Behavioural theories 2.3.1 The human relations approach 2.3.2 The human resources approach 2.4 Quantitative theories 2.4.1 Operations management 2.4.2 Information management 2.5 Contemporary management theories 2.5.1 Systems management 2.5.2 Contingency theory 2.5.3 Total quality management (TQM) 2.6 Summary References and recommended reading Case study: The mining industry of South Africa Management discussion exercises CHAPTER 3 The organisational environment 3.1 Introduction 3.2 An organisation and its environment 3.3 The micro-environment 3.3.1 Vision, mission and goals 3.3.2 Business functions 3.3.3 An organisation’s resources 3.4 The task environment 3.4.1 Customers 3.4.2 Competitors 3.4.3 Suppliers 3.4.4 Intermediaries 3.5 The macro-environment 3.5.1 Demographic factors 3.5.2 Sociocultural factors 3.5.3 Economic factors 3.5.4 Political/legal factors 3.5.5 Technological factors 3.5.6 Natural/physical/ecological factors 3.5.7 International factors 3.6 Managing the organisational environment 3.6.1 Environmental scanning 3.6.2 SWOT analysis 3.7 Summary References and recommended reading Case study: Westdene Fruiterers Management discussion exercises CHAPTER 4 Managerial ethics and social responsibility 4.1 Introduction 4.2 The forces for ethical conduct 4.2.1 Individual perspective 4.2.2 Societal norms and culture 4.2.3 Laws and regulations 4.2.4 Organisational practices and culture 4.3 Nature of managerial ethics 4.4 Ethical decision-making 4.4.1 Approaches to ethical decision-making 4.5 Importance of managers to behave ethically 4.5.1 Customer satisfaction and loyalty 4.5.2 Employees follow 4.5.3 Retain good employees 4.5.4 Develop a positive work environment 4.5.5 Improve society 4.5.6 Avoid legal problems 4.5.7 Positive stakeholders 4.5.8 Compass in a changing environment 4.5.9 Positive conscience 4.6 Code of ethics 4.7 Corporate social responsibility (CSR) 4.7.1 Approaches to corporate social responsibility 4.7.2 Criteria for evaluating corporate social responsibility 4.8 Summary References and recommended reading Case study: What is wrong with The Body Shop? A criticism of “green” consumerism Management discussion exercises CHAPTER 5 Planning 5.1 Introduction 5.1.1 What is planning? 5.2 Why do managers plan? 5.2.1 Planning and performance 5.2.2 Dysfunctional aspects of planning 5.3 How do managers plan? 5.3.1 Identify the purpose of planning 5.3.2 Establish goals 5.3.3 Develop commitment 5.3.4 Develop alternative plans 5.3.5 Evaluating the various alternative plans 5.3.6 Implementation of the plan 5.3.7 Control and evaluating the results of the plan 5.4 Important factors in planning 5.4.1 Significance 5.4.2 Increasing demand 5.4.3 Technology 5.4.4 Legal issues 5.4.5 Financing 5.4.6 Marketing 5.5 Time management 5.6 Summary References and recommended reading Case Study: City Lodge Hotels Management discussion exercises CHAPTER 6 Decision-making 6.1 Introduction 6.2 Nature of decision-making 6.3 Conditions and types of decision-making 6.3.1 Routine decisions 6.3.2 Adaptive decisions 6.3.3 Innovative decisions 6.4 Factors influencing decisions 6.5 Decision-making styles 6.5.1 Individual decision-making styles 6.5.2 Group decision-making styles 6.6 Decision-making models 6.6.1 Classical model of decision-making 6.6.2 Administrative model 6.6.3 Political model 6.7 Summary References and recommended reading Case study: Zinging Lime Management discussion exercises CHAPTER 7 Designing the organisation 7.1 Introduction 7.2 Why is organising important? 7.3 Basic elements of organising 7.3.1 Specialisation 7.3.2 Division of work 7.3.3 Centralisation and decentralisation 7.3.4 Authority 7.3.5 Chain of command 7.3.6 Span of control 7.3.7 Coordination 7.4 Contingency factors influencing the organisational structure 7.4.1 Strategy and structure 7.4.2 Size and structure 7.4.3 Technology and structure 7.4.4 Environmental uncertainty and structure 7.4.5 Communication and structure 7.5 Organisational designs 7.5.1 Simple structure 7.5.2 Departmentalisation 7.5.3 Other organisational designs 7.6 Summary References and recommended reading Case study: Stress-free work environment and organising Management discussion exercises CHAPTER 8 Organisational change and learning 8.1 Introduction 8.2 The changing world of work 8.3 Forces for change 8.3.1 Volatile forces 8.3.2 General forces 8.3.3 Systemic forces 8.3.4 Internal organisational forces 8.4 Types of organisational change 8.5 Approaches to managing the change process 8.5.1 The Lewin model 8.5.2 The action research model 8.5.3 The positive model – appreciative inquiry 8.5.4 Criticism of planned approaches 8.6 Resistance to change 8.6.1 Individual resistance 8.6.2 Organisational resistance 8.6.3 Overcoming resistance to change 8.7 Creating a learning organisation 8.7.1 Learning organisations defined 8.7.2 Learning organisations: core values and norms 8.7.3 Learning organisations: core processes 8.7.4 Distinguishing features of learning organisations 8.8 Summary References and recommended reading Case study: Gender mainstreaming needs fast-tracking Management discussion exercises CHAPTER 9 Managing diversity in the workplace 9.1 Introduction 9.2 A broader approach to workplace diversity 9.3 Diversity dimensions in the workplace 9.3.1 Physical ability 9.3.2 Gender 9.3.3 Ethnicity 9.3.4 Age 9.4 Factors effecting diversity 9.5 Implications of managing diversity in South Africa 9.5.1 Functional implications 9.5.2 Management and trade union cooperation 9.5.3 Monitoring by the Department of Labour 9.5.4 Geographic or national location 9.5.5 Different religious practices 9.6 Diversity training 9.6.1 Sensitivity and personal prejudice 9.6.2 A strategic component to diversity training 9.6.3 Diversity training programmes 9.7 Diversity management problems and challenges 9.8 Positive aspects 9.9 Diversity and the ethical challenge 9.10 Summary References and recommended reading Case study: The new employee Management discussion exercises CHAPTER 10 Leadership 10.1 Introduction 10.2 The three cornerstones of leadership 10.2.1 The leader 10.2.2 The followers 10.2.3 The situation 10.3 Nature of leadership 10.3.1 Components of leadership 10.3.2 Empowerment: a key to modern management 10.4 Leadership theories 10.4.1 Trait theory 10.4.2 Behavioural theory 10.4.3 Contingency theory 10.5 Contemporary leadership perspectives 10.5.1 Transformational leadership 10.5.2 Charismatic leadership 10.5.3 Servant leadership 10.6 Leadership and entrepreneurship 10.7 Gender and leadership 10.8 Leading through empowerment 10.9 Summary References and recommended reading Case study: The most undervalued leadership traits of women Management discussion exercises CHAPTER 11 Motivation 11.1 Introduction 11.2 What is motivation? 11.3 The motivation process 11.4 Motivation and organisational performance 11.5 Motivation theories 11.5.1 Content theory 11.5.2 Process theory 11.5.3 Learning theory 11.6 Contemporary issues on motivation 11.6.1 Pay and motivation 11.6.2 Family-friendly workplaces 11.6.3 Flexible working hours 11.6.4 Open-book management 11.6.5 Motivating the workforce 11.7 Designing motivating jobs 11.7.1 Job enlargement 11.7.2 Job enrichment 11.7.3 Job rotation 11.8 Summary References and recommended reading Case study: John’s brave decisions Management discussion exercises CHAPTER 12 Communication 12.1 Introduction 12.2 Importance of communication 12.3 The communication process 12.4 Types of communication 12.4.1 Verbal communication 12.4.2 Non-verbal communication 12.5 Organisational communication 12.5.1 Formal communication 12.5.2 Informal communication 12.6 Barriers to communication 12.6.1 Organisational barriers 12.6.2 Individual barriers 12.6.3 Noise 12.7 Skills for effective communication 12.7.1 Tactics for managers as senders of messages 12.7.2 Tactics for managers as receivers of messages 12.8 Summary References and recommended reading Case study: Amway – using communication to develop organisation opportunities Management discussion exercises CHAPTER 13 Foundations of control 13.1 Introduction 13.2 What is control? 13.3 The importance of control 13.4 Types of organisational control 13.5 Areas of control 13.6 The control process 13.6.1 Step 1: Establish performance standards 13.6.2 Step 2: Measure actual performance 13.6.3 Step 3: Evaluate deviations 13.6.4 Step 4: Take corrective action 13.7 Qualities of an effective control system 13.7.1 Integration 13.7.2 Understandability and simplicity 13.7.3 Flexibility 13.7.4 Accuracy 13.7.5 Timeliness 13.7.6 Acceptability 13.7.7 Strategic importance 13.7.8 Multiple criteria measures 13.8 When does control happen? 13.8.1 Constant control 13.8.2 Periodic control 13.8.3 Occasional control 13.9 Contingency factors in control 13.10 Contemporary issues affecting control 13.10.1 Workplace privacy 13.10.2 Employee theft 13.10.3 Workplace violence 13.11 Summary References and recommended reading Case study: G4S: proving smart systems can simplify even the most complex task Management discussion exercises CHAPTER 14 Contemporary management issues 14.1 Introduction 14.2 Managing organisational conflict and negotiation 14.2.1 Types of conflict 14.2.2 Sources of conflict 14.2.3 Conflict management strategies 14.2.4 Negotiation 14.3 Managing organisational teams 14.3.1 The advantages of teams 14.3.2 The disadvantages of teams 14.3.3 Types of teams 14.4 Management in the global environment 14.4.1 Southern African Development Community (SADC) 14.4.2 Trade with sub-Saharan Africa 14.4.3 BRICS 14.5 Black economic empowerment (BEE) in South Africa 14.6 Workplace health and wellness programmes 14.6.1 What is a workplace health and wellness programme? 14.6.2 Benefits programmes of workplace health and wellness 14.6.3 How to implement a health and wellness programme 14.7 Summary References and recommended reading Case study: Maponya: BEE kills self-reliance Management discussion exercises Index 1 Introduction to management KOBUS LAZENBY Learning outcomes After studying this chapter you should be able to do the following: Understand what an organisation is. Understand the definition and explanation of general management. Differentiate between the basic and additional management tasks. Explain the process of management. Differentiate between the different levels and kinds of managers. Identify and understand the different roles of a manager. Evaluate the different skills that a manager must have to manage effectively. Explain the different challenges that managers experience in the organisational environment. 1.1 INTRODUCTION When one thinks about management, different things and images come to mind. One of the first things that come to mind is someone who is in control. Control in an organisation determines the existence and survival of that organisation. It is common knowledge that the organisational environment is confronted with serious changes and obstacles, but people have developed specific means to overcome or survive these obstacles. That is why it is safe to say that the job of the manager has changed over the years. Although the basic tasks of the manager has remained the same over the years, the organisational environment has not. It is always changing and presenting new obstacles to overcome, and managers have to find ways to adapt. More than this, managers are increasingly working with people over whom they have little expert authority. So why does management matter? Well-managed organisations are more competitive because good management makes sure that the workforce is better trained, leading to higher levels of motivation and commitment. This in turn leads to better service for customers and so improved customer satisfaction. It is also a well-researched fact that organisations that practise good management consistently have greater sales revenues, profits and stock market performance than organisations that experience poor levels of proper management. Lastly, as already mentioned, good management ensures better trained employees which will lead to satisfied employees who, in turn, provide better service to customers. Good management can improve customer satisfaction. This is why it is important that organisations have managers who are equipped to take responsibility for the quality and quantity of the products or services that must be produced or rendered (see Management in action 1.1). Being a manager presents many challenges. It is not always easy to motivate workers and managers may find it difficult to integrate the knowledge, skills, ambitions and experiences of a diverse group of employees effectively. But being a manager can also be very rewarding. A manager can help his or her employees to find meaning and fulfilment in their work. It is through the combined efforts of motivated and passionate people that an organisation can accomplish its goals. This chapter provides an introduction to what management is, why it is important and the tasks and skills managers require. It also gives some general perspectives on management. This book will attempt to enhance managers’ performance and introduce the student of general management to the wonderful world of what constitutes a good manager. MANAGEMENT IN ACTION 1.1 What is the importance of management in the modern business world? Sound management helps to maximise output while minimising costs. It also maintains a dynamic balance between an organisation and its ever-changing environment. Good management is responsible for the creation, survival and growth of an organisation and its significance in the modern business world has increased tremendously owing to the following: Businesses are more complex and are growing in size. Work demands that specialisation is becoming increasingly important. There is tough competition in the marketplace. Labour is organising itself into unions. Technology is becoming more sophisticated and capital-intensive. Organisational decisions are becoming more complex. Organisational regulation by government is increasing. The organisational environment is turbulent and ever changing. Stakeholder interests must be integrated. Scarce resources have to be utilised optimally. Source: Adapted from http://www.preservearticles.com/201106168019/what-is-theimportance-of-management-in-the-modern-business-world.html (accessed on 11 July 2014) 1.2 WHAT IS AN ORGANISATION? Although it is accepted that one understands what an organisation is, it is important that the concept is explained as it is used in this textbook. Throughout this book, the concept of organisation will be used instead of just referring to a business or a company. Management is applicable to all kinds of organisations and therefore the generic concept of organisation will be used. In the context of this book, an organisation will be defined as an arrangement of people in a specific structure to accomplish some specific purpose. Organisations therefore have three common characteristics: 1. Each organisation has a distinct purpose. 2. Each organisation is composed of people. 3. All organisations develop some deliberate structure so that the members can do their work. 1.3 WHAT IS MANAGEMENT? There are many different types and sizes of organisations, but whether a person is a manager of a small convenience store or a multimillion rand company, and although complexity and magnitude may differ, there are some specific characteristics and tasks that must be fulfilled. In general terms, management refers to getting things done through people. Management can therefore be described as a process of coordinating work activities through the functions of planning, organising, activating (leading) and control so that these activities are completed efficiently and effectively in line with the organisational goals. The phrase “coordinating work activities” is what distinguishes a managerial position from a non-managerial one. The concepts of efficiency and effectiveness are very important in this context. Efficiency refers to the proficient use of resources – using minimum inputs to produce maximum output, i.e. doing things right. It is, however, not enough to do things right. It is also important to do the right things. Managers must ensure that the necessary activities are completed to achieve organisational goals – they must be effective. For example, one could be very efficient at manufacturing black and white televisions (minimum input and maximum output), but it would not be effective, because there is no demand for black and white televisions. Efficiency is thus concerned with the means of getting things done, and effectiveness is concerned with the ends. So actually a manager should do the right things right. Poor management is most often due to both inefficiency and ineffectiveness. Sometimes managers achieve effectiveness through inefficiency. This means that although they are doing the right things, they are not doing them right – they are wasting a lot of resources in completing the activities. This can lead to the failure of an organisation. There are four basic, essential management functions and six additional ones. These are listed in Table 1.1. Table 1.1 Management functions Basic management functions Additional management functions Planning Decision-making Organising Delegation Activating Communication Control Motivation Disciplining Coordination Planning is the function that involves the process of defining goals, establishing strategies for achieving those goals, and developing plans to integrate and coordinate activities. Organising involves the process of determining what tasks are to be done, how the tasks must be done, who must do them, how the tasks are to be grouped, who reports to whom, and where decisions are to be made. Activating (leading) is the management function that deals with how to get employees to do the work. It involves leadership and how to influence employees to be as productive as possible, and dealing with employee behaviour issues. Control is the final basic management function. It involves monitoring the actual performance, comparing the actual performance to what was planned and taking corrective action if necessary. The process of management refers to the idea that management consists of a set of ongoing decisions and actions. Management can also be seen as a process where the above-mentioned tasks or functions must be used to transform the inputs (resources) to outputs (products and services) as efficiently and effectively as possible. The additional management functions are used in combination with the basic functions, for example during activating or leading, a manager must communicate, motivate, delegate, take decisions, etc. The management process is illustrated in Figure 1.1. Figure 1.1 The management process 1.4 WHO IS A MANAGER? The ultimate purpose of an organisation is to supply quality goods or services to its customers. A manager’s job is to make sure that the organisation achieves this goal. In this sense, the definition of what a manager is can be simply stated as the person in an organisation that tells other employees what to do and how to satisfy the needs of the customers. It is however not so simple. Another explanation of a manager is that it is someone who works with and through other people by coordinating their work activities in order to accomplish organisational goals. A manager must make sure that all work activities from several different departments or people outside the organisation are coordinated in order to achieve the goals of the organisation. A manager can thus be defined as a person who coordinates and integrates all the work activities of employees in an organisation with the purpose of achieving its vision and goals. A good manager is someone who surrounds him- or herself with competent people to do this. Another way of classifying managers is by identifying the different kinds and levels of managers. The general business functions in an organisation, like production, human resources, marketing, finances, etc. identify the different kinds of managers and they can be classified into different levels. The kinds and levels of managers are illustrated in Figure 1.2. First-line managers are at the lowest level of the organisation and are responsible for the daily supervision of non-managerial employees who are involved with the production or creation of the organisation’s products and services. They can be called supervisors, line managers, office managers or even foremen. They are primarily responsible for implementing the plans of middle management and focus on the day-to-day activities in departments. As illustrated in Figure 1.2, they operate in all the different departments or business functions of the organisation. Middle managers are between the first-line level and the top level of the organisation and manage the work of first-line managers. They are responsible for finding the best ways, in any specific department, to achieve organisational goals as effectively and efficiently as possible by implementing the policies and the strategic plans formulated by top management. They see the vision at the top of the organisation and also experience the pain at the bottom, and are critical in improving overall engagement and performance. They are typically the marketing manager, the financial manager, the human resource manager, etc. Usually every department or business function in the organisation has a manager on this level. Middle managers may also make suggestions to top managers on how to increase organisational performance. As a result of restructuring and delayering in organisations, some organisations are taking away this middle management level. Top managers are at the highest level of the organisation and are responsible for making decisions and establishing goals and plans that affect the entire organisation. They are in control and have ultimate responsibility and accountability for everything that happens in the organisation. A top manager must decide how the different departments should interact and has to monitor how well the middle managers in each department utilise and allocate resources to achieve organisational goals. These individuals typically have titles such as executive vice president, president, managing director, chief operating officer or chief executive officer. 1.5 MANAGEMENT ROLES Managers fulfil different responsibilities in an organisation. Apart from direct managerial tasks or functions, they also have specific roles to perform. Henry Mintzberg (1973) identified ten different roles or behaviours and classified them into three sets (see Table 1.2): Figure 1.2 Kinds and levels of management 1. Interpersonal roles involve people and other duties that are ceremonial and symbolic in nature. These include being a figurehead, a leader and a liaison. 2. Informational roles are related to the collecting and transfer of information. The three informational roles include a monitor, a disseminator and a spokesperson. 3. Decisional roles deal with decision-making and choices and include entrepreneur, disturbance handler, resource allocator and negotiator. The higher the level of management, the more the manager performs the roles of disseminator, figurehead, negotiator, liaison and spokesperson. The leader role is particularly important at a lower level of management, because the manager is more involved with subordinates. In reality, a manager’s job is not as straightforward and logical as suggested by Mintzberg’s roles. Management requires specific skills, such as quick decision-making, and the overload of responsibilities can often be particularly challenging. To be a manager is thus not as wonderful and glamorous as many people think and desire. 1.6 MANAGEMENT SKILLS It is not enough for managers simply to know what their roles and tasks are. Every manager, regardless of his or her level, also needs certain indispensable general skills or abilities in order to perform his or her job properly (see Figure 1.3): Table 1.2 Mintzberg’s managerial roles Role Description Interpersonal Figurehead The manager is the symbolic head and performs routine duties of a legal or social nature, such as signing legal documents and cutting the ribbon when opening a new building Leader Motivates and leads subordinates to become active Liaison Maintains good relationships with all internal and external stakeholders by building good social and work relationships Informational Monitor Collects a wide variety of internal and external information to develop a thorough understanding of the organisation and its environment Disseminator Transmits all relevant information (both formal and informal) received from different stakeholders (external and internal) to all members of the organisation Role Spokesperson Description Conveys information to outsiders about the organisation’s plans, policies, actions and results Decisional Entrepreneur Constantly searches the organisation and its environment for opportunities to develop the organisational strategy and identify new programmes Disturbance handler Takes corrective action when the organisation faces unexpected disruptions and crises Resource allocator Makes or approves all significant organisational decisions and allocates organisational resources of all types Negotiator Represents the organisation at major negotiations such as negotiations with labour unions Technical skills involve specialised knowledge and proficiency in a specific field, for example accountancy or information technology (IT). Managers at a lower management level need more of these skills, because they have to show their employees how things are done during normal operational activities. Human or interpersonal skills refer to the ability to work well with other people individually and in a group. Managers with good interpersonal skills are able to get the best out of their people, because they know how to motivate, communicate and delegate. They understand their employees. Conceptual skills refer to the ability to think, conceptualise and analyse abstract and complex situations. These skills are most important at top management levels where managers need to understand how things in the whole organisation fit together in order to make better decisions. Different levels will require more or less of some specific skills, but considering that the definition of a manager is “someone who gets things done through other people”, it is clear that interpersonal skills are equally essential across all three levels. What is more, managers must have the ability to identify which skills are required when (see Management in action 1.2). Figure 1.3 Managerial skills at different management levels MANAGEMENT IN ACTION 1.2 Management skills Identify each management skill in the following situations: 1. The ability to see the interrelationships between the different departments in the organisation 2. The ability to support people to do a good job 3. The ability to enter data and other information into a computer 4. The ability to write reports 5. The ability to interview people What do organisations require from managers? Organisations need managers with the knowledge and abilities to get the job done (technical skills), who are able to work effectively in groups and be good listeners and communicators (interpersonal skills), and they must be able to assess the relationships between the different parts of the organisation and the external environment (conceptual skills) in order to position the organisation for success. The question of how relevant these skills are in the life of managers today can be asked. All skills and abilities (such as problem-solving skills) can be linked to these three basic skills. Studies have indicated a number of skills. In this textbook, the assumption is made that the basic skills of a manager remain the above-mentioned skills, but a number of management abilities can be added and obviously one can group them under these basic skills. Some of these management abilities that will help managers to cope with their work include the following: Communication skills – relate to interpersonal skills Ability to work in a team – relates to interpersonal skills Good time management – relates to conceptual and technical skills Problem-solving abilities and understanding the bigger picture – relate to conceptual skills and can also be linked to technical skills if the problem requires technical knowledge Conflict-solving abilities – relate to interpersonal skills 1.7 CHALLENGES FOR MANAGERS One of the biggest challenges facing any manager is managing an organisation in an open system. A system is a set of interrelated and interdependent parts arranged in a manner that produces a unified whole. The organisation and its environment can be regarded as an open system with dynamic interaction between the two. The environment refers to the sum total of all the factors or variables from inside and outside the organisation that may influence the continued existence of the organisation. Within this dynamic open system, in which the changing environment requires the manager to perform at higher and higher levels, managers must coordinate the various work activities so that the organisation can meet its goals. In this dynamic environment, managers are confronted with the following challenges: Building a competitive advantage Maintaining ethical and social responsibility Managing a diverse workforce Managing in a global environment 1.7.1 Building a competitive advantage A major challenge for management is to build the organisation’s competitive advantage. This is the ability of an organisation to outsmart its competitors, i.e. to do things better. Doing things better than the competition is the essence of a manager’s job. Being more efficient and more effective will lead to higher customer satisfaction. The components that will help in gaining a competitive advantage are discussed below. 1.7.1.1 Cost savings Cost savings are directly linked to efficiency, i.e. using minimum resources to produce maximum output. By reducing resources (both human and physical), the organisation can save money (see Management in action 1.3). To achieve this, a manager should aim to work with fewer people who are more productive because of their improved skills and who know exactly what to do. Customers will value lower priced products and services, which will mean improved customer satisfaction. For example, customers perceive Shoprite to have higher value than other supermarkets when measuring price of products against quality (see Management in action 1.4). MANAGEMENT IN ACTION 1.3 Implats considers mechanisation option Leeuwkop mine near Brits in North West could become mechanised if Impala Platinum (Implats) finds it is more profitable that way. “Mechanisation is one of the options we are looking at,” says Implats corporate relations group executive, Johan Theron. Implats is the world’s second-largest platinum producer. Its Mimosa, Two Rivers and Zimplats operations are all mechanised. Leeuwkop mine will take another ten years to build and in the meantime the company is weighing up all its options. “We are doing a study and upfront work, but no decisions have been made yet. What we have to factor in is what labour costs will be like 10 to 15 years down the line.” Theron says historically labour-intensive mining has been considered the lower risk and cheaper option, but this has changed in the past two to three years. “As we do design work … it is clear that a mechanised mining operation is increasingly being seen as the lower cost, low risk option.” Mechanisation could be more efficient, improve safety, have a more profitable life span and cost less, he says. “If you had to go down this path, typically the mines would hire less people but they will be higher skilled people who would be doing more sophisticated work and earning more wages.” Theron estimates that around 10 000 people could be hired at Leeuwkop mine once operations begin, but if mechanisation is carried out, that number would drop to around 3 000 people. Source: Adapted from http://www.fin24.com/Economy/Implats-considersmechanisation-option-20140328 (accessed on 16 July 2014) 1.7.1.2 Differentiating quality Customers value differentiation features in products and services. To experience competitive advantage, an organisation has to offer customers something different. Improving the skills and competencies of employees will contribute to this aspect. The challenge to managers is to make sure that employees constantly deliver quality work in producing products and services. For example, customers view Woolworths as a supermarket that delivers differentiating quality products (see Management in action 1.4). MANAGEMENT IN ACTION 1.4 Woolies tops in supermarket satisfaction Woolworths Holdings has emerged as the industry leader in a customer satisfaction survey. This is according to the South African Customer Satisfaction Index (SAcsi). South African consumers gave supermarkets an overwhelming vote of support with a customer satisfaction score of 79 out of 100, the index found. The supermarkets measured were Woolworths, Pick n Pay, Spar, Checkers and Shoprite, all of which were selected by market share. Woolworths is the leader of the pack, with a score measuring 6.2% above the industry average satisfaction rate. The overall customer satisfaction score is influenced by a number of factors, one of which is customer expectations of the brand prior to an experience with it. Woolworths customers have the highest level of expectation among those measured, which makes the retailer’s top satisfaction score even more of an achievement. The customer satisfaction score recorded for Woolworths is the highest current score for comparable supermarkets in the US (Publix: 82) and in the UK (Waitrose: 83). Another factor in the survey is the customer’s perceived value, which is a customer’s perception of the quality given the price, and the price given the quality. Interestingly, a different picture emerged on the issue of perceived value, as Checkers and Shoprite both showed higher levels of perceived value than the other supermarkets measured. Woolworths reported a high customer loyalty score, with Pick n Pay and Checkers also showing high customer loyalty ratings. Source: Adapted from http://www.fin24.com/Economy/Woolies-tops-in-supermarketsatisfaction-20130509 (accessed on 16 July 2014) 1.7.1.3 Innovation and responsiveness An organisation can achieve competitive advantage if it can bring new products and services quickly to the market. Constant innovation is important, because the competitive environment with its dynamic changes requires managers with superior abilities who can think ahead and decide what must be done and are able to organise the resources in such a way that the organisation is responsive to the changing environment. Organisations that are successful in responding to the needs of their customers will experience competitive advantage. For example, the way Google is constantly on the forefront of innovation explains the competitive advantage it experiences (see Management in action 1.5). MANAGEMENT IN ACTION 1.5 Google to wow with smart home gadgets, wearables An Android update, wearable gadgets and so-called smart home devices are just some of the innovations Google was showing off at its two-day developer conference in San Francisco. In the past, the conference has focused on smartphones and tablets, but at the recent conference Google’s Android operating system was stretched – into cars, homes and smart watches. The company is trying to adjust to an ongoing shift to smartphones and tablet computers from desktop and laptop PCs. Though mobile advertising is growing rapidly, advertising aimed at PC users still generates more money. At the same time, Google is angling to stay at the forefront of innovation by taking gambles on new, sometimes unproven, technologies that take years to pay off – if at all. Driverless cars, Google Glass, smart watches and thinking thermostats are just some of its more far-off bets. On the home front, Google’s Nest Labs – which makes network-connected thermostats and smoke detectors – announced that it has created a program that allows outside developers, from tiny start-ups to large companies such as Whirlpool and Mercedes- Benz, to fashion software and “new experiences” for its products. Integration with Mercedes-Benz, for example, might mean that a car can notify a Nest thermostat when it’s getting close to home, so the device can have the temperature at home adjusted to the driver’s liking before he or she arrives. Google was also unveiling some advances in wearable technology. In March, Google released “Android Wear”, a version of its operating system tailored to computerised wristwatches and other wearable devices. Although there are already several smart watches on the market, the devices are more popular with gadget geeks and fitness fanatics than regular consumers. But Google could help change that with Android Wear. Android, after all, is already the world’s most popular smartphone operating system. Source: Adapted from http://www.fin24.com/Tech/Companies/Google-to-wow-withsmart-home-gadgets-wearables-20140625 (accessed on 16 July 2014) To achieve a competitive advantage, organisations need managers that can use their skills and abilities to apply resources in such a way that the organisation will experience lower costs and improved efficiencies, improving the quality of products and service, and to innovate continuously. These elements will increase the organisation’s responsiveness to the needs of customers in a changing environment. Efficient use of new information technology and e-commerce will remain a major challenge for managers. 1.7.2 Maintaining ethical and socially responsible behaviour As already discussed, the ultimate purpose of good management is to achieve the goals of the organisation as efficiently and effectively as possible. This puts a lot of pressure on managers to perform. This pressure comes from top management to middle management, and filters down to lower levels. Although pressure to perform can be healthy, it can also become negative if it gets overwhelming and if goals must be achieved “at all costs”. An organisation may, for example, decrease the quality of products and services, while maintaining high prices, which is unethical. The organisation could also dump its waste into the nearest river to save costs, in utter disregard for corporate social responsibility. Corruption in the organisational world is flourishing (see Management in action 1.6). MANAGEMENT IN ACTION 1.6 Gordhan – corruption is a social problem “Corruption in South Africa has grown and become a social problem,” Finance Minister Pravin Gordhan says. Corruption is now becoming a social phenomenon and there is no use in pointing fingers, he tells reporters after delivering a lecture at the University of Johannesburg. “It [corruption] is becoming a cultural problem in South Africa.” Gordhan says that a culture of making easy money and not having to think and work hard must be stemmed. “We need to fight the culture of corruption,” he urges. “If we don’t get rid of the culture that we are now talking about, we will not be able to fight this at a technical level.” Gordhan says whoever is responsible for corruption, whether in government or the private sector, should be held to account. Source: Adapted from http://www.fin24.com/Economy/Gordhan-Corruption-is-asocial-problem-20130425 (assessed on 16 July 2014) The concept of organisational ethics will be discussed in a later chapter. The point that is emphasised in this section is that the pressure to perform puts a lot of stress on managers, which can lead to unethical and socially irresponsible behaviour. The challenge to managers globally is to maintain proper standards in doing the right thing every time. 1.7.3 Managing a diverse workforce No organisation’s employees are homogenous. Managers are confronted with a diverse workforce in terms of age, gender, race, religion, sexual preferences and socioeconomic make-up, and treating people in a fair and equitable way can prove challenging. The advantage of a diverse workforce is that different ideas, skills, preferences and experiences can increase creativity. Managers who are sensitive to and value diversity will invest in the development of their workforce to improve skills and competencies. They will reap the benefits in the long run. In South Africa, white male employees dominated the ranks of management in the past. However, women and other race groups are now also climbing the corporate ladder and organisations are beginning to realise the benefits of a diverse management workforce. There is nevertheless still a lack of women in technological industries (see Management in action 1.7). MANAGEMENT IN ACTION 1.7 Still too few women in top jobs The lack of women graduates in information technology, engineering and other technical skills is one of the reasons gender transformation is moving so slowly in South Africa, according to Sandra Burmeister, CEO of Amrop Landelahni. She admits that there has been progress over the past few years, but the advancement of women into top jobs remains slow. South Africa follows the global pattern where the number of women declines as the corporate level rises. “We need a high proportion of women at the professional and skilled levels to boost the pipeline at senior and top management levels,” says Burmeister. “However, as more women move into these professions, so the gender balance of the graduate profile is changing.” In South Africa, as well as in many other African countries, the proportion of female university graduates now exceeds that of men. According to the 2014 Employment Equity Report, the number of women in top management increased from 14% in 2003 to 21% in 2013. Women in senior management increased from 22 to 30% over the same period, while professionals increased from 36 to 43% and skilled workers from 44 to 47%. “These increases show that more women are now represented at every level in the organisation,” says Burmeister. She warns, however, that the need for employment equity should not be confused with the need for gender equity. “Correlating employment equity with gender equity simply carves up the workforce pool into ever tinier segments so as to meet targets.” The UK government is currently considering legislation that will see all new board appointments having an all-female shortlist. This suggestion has however run into opposition on the basis that it implies women need a helping hand and may in the end achieve only token representation. “Women themselves have argued that it would also devalue the achievements of those who reached their positions based on their competency in open competition with male applicants,” says Burmeister. Favouring women for technical jobs, however, makes sense only if such people are available. “In South Africa, a blanket target of 50% women will pose difficulties for sectors where two-thirds of workers are technical – such as in construction, infrastructure and information technology,” she says. “A fixed 50% target is not realistic since there simply may not be enough women to fill half the positions in all types of jobs.” Globally, there are significantly fewer women working in technical and engineering disciplines. Nowhere in the world do women represent 50% of engineers or artisans. “It is however encouraging that, according to a recent PWC survey, women are better represented in executive management and board committees in the top South African mining companies than in any other country,” says Burmeister. Source: Adapted from http://www.fin24.com/Economy/Still-too-few-women-in-topjobs-20140520 (accessed on 16 July 2014) The management of a diverse workforce emphasises the following challenges: Building an organisational culture that supports diversity. The culture in an organisation is one of the most important issues that can support diversity or work against diversity. The notion of “this is the way we do things around here” can be very supportive or can be a stumbling block to incorporating diversity in an organisation. Developing and steering the organisation in a direction that is truly supportive of diversity in all its dimensions is a major challenge for managers. Putting the necessary structures, policies and systems in place that support diversity. In this regard, it is important that organisations realise that diversity does not only refer to race and women, but also to age, physical abilities, sexual orientation, etc. Complying with the law with regard to equity and BEEE (black economic empowerment equity). Providing training for and retaining diverse employees. In the case of women, support needs to be given with regard to family needs, like day care for their children, flexible working hours, etc. All these issues reflect on policies and pose a challenge for management. Diversity is not only a major challenge for management, but also for employees who have to work with and relate to people and groups that are different from themselves. Prejudices and stereotyping can negatively influence relationships in the work environment. Diversity competency training can help overcome this. 1.7.4 Managing in a global environment Managing in the global environment not only means keeping up with innovation, which has already been discussed above, but also dealing with change. The business environment today clearly involves global competition. For example, Amazon is presenting a big challenge to local business (see Management in action 1.8). MANAGEMENT IN ACTION 1.8 The global challenge Broadcasting over the internet cannot really compete with traditional television in terms of production budgets. Big television networks can afford to spend millions on episodes of their shows that the online-only guys have trouble matching. But the traditional television networks are increasingly moving online too, making their shows available via services like Apple’s iTunes which gives viewers an alternative way to get their TV shows. This immediately makes the content international, even if the licensing of that content does not allow it. Lying to Apple about living in America makes it possible to pay for and download television shows, movies and other content anywhere in the world, circumventing the release schedules of the production houses and television networks still clinging to antiquated licensing and distribution models. This is changing the game for local content creators and television networks because they are competing with global providers, whether legitimately or otherwise. Even where consumers cannot jig the system to pay for American content, they are being helped along by pirates who make the same content available quicker, for free and at a better quality and user experience than any local pay television provider can offer. Of course getting content that way is illegal, but that does not prevent literally millions of people from doing so. It is not just broadcasters that are seeing their competitive environments go global at a rate of knots; retailers are too. Take the Amazon Kindle as an example. Since launching the product in South Africa and other countries, Amazon now ships it globally and goes directly to market. After ordering one, it is delivered in Johannesburg within a week. Amazon is good at what it does. It can get a Kindle to you in South Africa in around three days. If your Kindle breaks, they’ll send you a replacement before you even return the broken one. Will you find a local retailer who can claim that level of service? Someone recently purchased a microphone on Amazon which arrived in South Africa within two weeks. He got it for less than it is at retail in the US – yes, including shipping. The product is not available via local distribution yet. So whether your local business provides online content or physical products, the world is increasingly becoming a place in which it no longer only competes with other local businesses. There are many products the Amazons of the world will not send to South Africa – but that is only because of licensing issues that prohibit distribution to certain territories. Anything they are allowed to send to South Africa, they will. Manufacturers are also increasingly rethinking their licensing and distribution models. It is a sad fact that we readily celebrate mediocrity in South Africa. South African consumers get ripped off and face bad service from countless local businesses. But those organisations are increasingly going to face firms that focus on excellence and provide first-world service quality. So what are the locals going to do about it? Source: Adapted from http://www.fin24.com/Opinion/Columnists/Simon-Dingle/Theglobal-challenge-20110201 (accessed on 16 July 2014) Information technology and the internet are changing the business environment so quickly that managers should realise that they have to focus on speed. Fast is no longer fast enough and quality service and products are indispensible components in the organisation. The challenge for managers is to learn new things daily to keep up with the changing environment. Management must guide and instil an organisational culture of learning. 1.8 SUMMARY This chapter has provided an overview of management. A definition of management has been given, the levels, skills and roles of managers have been explained. A brief summary of the different management functions have been discussed and these management tasks or functions will be explained in the rest of this book. It was also pointed out in this chapter that managers experience many challenges. The challenges of building an organisation to experience a competitive advantage, how to maintain ethical and social responsibility, the challenge of managing a diverse workforce and the challenge to manage in a global environment have been discussed. Some of these issues will be discussed in more detail in later chapters. A case study is provided at the end of each chapter to help to apply the theoretical knowledge discussed in the chapter. REFERENCES AND RECOMMENDED READING George, J.M. & Jones, G.R. 2006. Contemporary management: creating value in organisations, 4th ed. Boston: McGraw Hill. Google to wow with smart home gadgets, wearables. http://www.fin24.com/Tech/Companies/Google-towow-with-smart-home-gadgets-wearables-20140625 (accessed on 16 July 2014). Gordhan – Corruption is a social problem. http://www.fin24.com/Economy/Gordhan-Corruption-is-asocial-problem-20130425 (assessed on 16 July 2014). Implats considers mechanisation option. http://www.fin24.com/Economy/Implats-considersmechanisation-option-20140328 (accessed on 16 July 2014). Hellriegel, D., Jackson, S.E. & Slocum, J.W. 2002. Management: a competency-based approach, 9th ed. Ohio: South-Western Thomson Learning. Lusier, R.N. 2003. Management fundamentals, 2nd ed. Ohio: Thomson South-Western. Mintzberg, H. 1973. The nature of managerial work. New York: Harper & Row. Robbins, S.P. & Coulter, M. 1999. Management, 6th ed. New Jersey: Prentice Hall. Smit, P.J. & Cronjé, G.J. de J. 1997. Management principles. A contemporary edition for Africa, 2nd ed. Kenwyn: Juta. Still too few women in top jobs. http://www.fin24.com/Economy/Still-too-few-women-in-top-jobs20140520 (accessed on 16 July 2014). The global challenge. http://www.fin24.com/Opinion/Columnists/Simon-Dingle/The-global-challenge20110201 (accessed on 16 July 2014). What is the importance of management in the modern business world? http://www.preservearticles.com/201106168019/what-is-the-importance-of-management-in-themodern-business-world.html (accessed on 11 July 2014). Woolies tops in supermarket satisfaction. http://www.fin24.com/Economy/Woolies-tops-in-supermarketsatisfaction-20130509 (accessed on 16 July 2014). CASE STUDY: PETER MOGOROSI Peter Mogorosi has a bachelor’s degree and has worked for five years as a computer programmer for an oil company. In four short years, he has more new software programs to his credit than anyone else in the department. He is highly creative and widely respected. However, Peter is impulsive and has little tolerance for those whose work is less creative. Peter does not offer to help co-workers and, because of this, they are reluctant to ask. Peter is also slow to cooperate with other departments in meeting their needs, because he works primarily to enhance his own software-writing ability. He spends evenings and weekends working on his programs. Peter is a hard-working technical employee, but he sees little need to worry about other people. Peter received high merit raises, but he was passed over for promotion and does not understand why. Case study questions 1. Can you explain why he will not be promoted to the level of manager? 2. Explain to Peter what is necessary to pass through the ranks of manager. 3. Explain to Peter the roles he will have to perform should he be promoted to a managerial position. MANAGEMENT DISCUSSION EXERCISES 1. Go to the website of any SA organisation. Identify some of the managerial challenges for this organisation. 2. You are appointed as the general manager in a newly established organisation. The CEO expects you to draft a report on how management should be executed at the different management levels. Write a brief executive summary of what management is all about after you have visited some managers in organisations to get their input. 3. Investigate the top mistakes that managers make in their jobs. 4. Describe the transition that employees go through when they are promoted to management. 2 Management theory EKAETE BENEDICT Learning outcomes After studying this chapter, you should be able to do the following: Explain the development of the need for management. Describe the classical theories of management. Describe the behavioural theories of management. Differentiate between the classical theories and behavioural theories of management. Explain the use of quantitative techniques in management. Describe the major concepts of the systems, and contingency theories. 2.1 INTRODUCTION It is a commonly held belief that management, compared to other disciplines such as medicine and philosophy, is a new discipline that arrived on the scene less than 125 years ago. Actually, this is partly true as management was not yet a field of study, neither did management jobs or careers as they are known today exist. Moreover, no one was accorded the title “manager” over any task or activity. Does this mean that management work was not being done 125 years ago? No. In fact, for thousands of years, management work was being done every day. Human tasks were being completed and economic transactions were being conducted on a regular basis. All these activities involved people and someone had to oversee the efficient running of them. The Neanderthals required managerial skills when they hunted prehistoric animals for food. The Sumerians as far back as 5000 BC kept written records of the management of their agricultural estates and how each estate was taxed. The Egyptians applied the managerial functions (as introduced in Chapter 1) of planning, organising and control to build the pyramids (see Management in action 2.1). Furthermore, the Romans were skilful and organised managers. They were able to create the vast Roman empire of the old world by organising their soldiers into cohorts, managed by senior centurions, which in turn were organised into legions and armies. Thus, management is not a new phenomenon. Management can be said to be as old as man. It has always existed, although not as a systematic or disciplined science until about 125 years ago. In this chapter, the history of management thought and theories, and the main contributors of these thoughts and theories, are introduced. The contribution of these management theories to the workplace of today and how contemporary managers are making use of these theories to build efficient and effective organisations, will also be discussed. Furthermore, this chapter will discuss the contemporary management theories and the current approaches that are being built on the foundation of the old management theories. MANAGEMENT IN ACTION 2.1 How the Egyptians built the Pyramids Approximately four thousand years , the Egyptians were building a civilization edge on the rest of the world. Very few of us can comprehend the extent to which this culture zoomed ahead of its times. If it were possible to make a reliable comparison, we would probably find that no nation in our time is as far ahead of its contemporaries as the land of the Pharaohs was between 4000 . and 525 . The most obvious demonstration of Egyptian power is the construction projects that remain even today. Without the service of cranes, bulldozers, or tea/coffee breaks, the Egyptians constructed mammoth structures of admirable precision. The great pyramid of Cheops, for example, covers thirteen acres and contains 2 300 000 stone blocks. The blocks weigh about two and a half tons each and were cut to size many miles away. The stones were transported and set in place by slave labour and precision planning. The men who built the enduring structures of ancient Egypt not only knew how to use of human resources efficiently but also knew how to manage 100 000 workers in a twenty-year project. In their business and governmental affairs, the Egyptians kept documents to show exactly how much material was received and from whom, when it came in, and exactly how it was used. The military, social, religious, and governmental aspects of Egyptian life were highly organized. There were much inefficiency, but the final task was accomplished. Three commodities, which virtually rule modern efforts, seem to have been only minor considerations along the Nile: time, money, and the satisfaction of the worker. Source: http://www.zeepedia.com/read.php? historical_overview_of_management_the_egyptian_pyramid_great_china_wall_ principles_of_management&b=54&c=1 (accessed on 29 September 2014) 2.1.1 Development of the need for management The workplace as it is known today did not exist a century and a half ago. Clocking in at 8 a.m. and working for eight hours until 4 p.m. is a development in management that started in the late 19th century. Before that time, about three centuries ago, people did not need to travel to work as work activities were conducted at home or very close to the home. This is because people were mostly farmers or engaged in agricultural activities for survival. Thus, they planted crops and reared animals for food near their homes. When they needed items that they did not produce, they traded and exchanged their products with their neighbours in transactions known as trade by barter. Even those who did not earn their living from agriculture did not commute to work. In England, as early as the 9th century, family groups of skilled artisans such as blacksmiths, furniture makers, leather goods makers and other skilled tradespeople formed trade guilds and worked out of shops in or next to their homes. Work groups were small, close-knit and usually self-organised. They determined the amount and pace of their work, and there was not a strong need for management as we know it today. This way of doing business changed dramatically from the 18th century, as the world experienced the advent of the Industrial Revolution (1750–1900). The Industrial Revolution was a period in which work and production activities previously done manually were taken over by machines. The Industrial Revolution began in Great Britain and spread to Western Europe and the United States within a few years. This change affected the agriculture, textile, metal and transportation sectors of these countries. The change also revolutionised economic policies and social structure in Western Europe and the United States. The creation and development of sophisticated machinery and equipment changed the way goods were produced. Small workshops run by artisan families or skilled crafts persons who produced hand-manufactured products were being replaced by factories housing hundreds of unskilled workers operating sophisticated machines that were able to produce the same product in larger quantities and in a shorter time. This development gave rise to two situations that changed the way work was done. First, the ability to mass produce goods created a situation in which production was based on division of labour, rather than one person making the entire product by themselves by hand, as in the past with the artisans. With division of labour, each worker using machines performed separate specialised tasks that constituted a small part of the total steps required to make a manufactured good. While workers focused on their singular tasks, the need arose for a person to coordinate the different parts of the production system and optimise its overall performance. Thus arose the need for a manager. At the time, many of the managers and supervisors in these factories were engineers whose work orientation was more of a technical nature. Second, the advent of factories led to jobs being carried out or conducted in large formal workspaces that could house hundreds to thousands of people rather than homes or small workshops. Having so many workers under one roof brought about new challenges to factory owners and employers. For instance, they were faced with the social problems that occur when people work together in large groups such as unruly behaviour, physical conflict, lateness, absenteeism and uncooperative behaviour. There arose a need for disciplinary rules to impose order and structure. A person who knew how to organise large groups, work well with employees, motivate them and make good decisions was required. Thus, the need for a manager arose again. In essence, factory owners began to search for new ways and methods to organise and manage their organisation and its resources and how to increase the efficiency of workers. It was at about this time that factory owners and supervisors experienced the need for more formalised management thoughts and theories. This can thus be seen as the beginning of the development of management theories. The management theories that have developed over time can be classified as classical, behavioural, quantitative and contemporary management theories. These are described in Table 2.1. Table 2.1 Management theories over time 3000 BC– 1776 Early management 1911–1947 Classical approaches Scientific Bureaucratic Administrative Late 1700s– 1950 Behavioural approaches 1940s–1950s Quantitative approaches Human relations Operations management Human resources Information management 1960s–present Contemporary approaches Systems approach Contingency approach Total quality management (TQM) 2.2 CLASSICAL MANAGEMENT THEORIES Classical management theory, also known as the traditional view of management, is the oldest form of management theory. It emerged during the late 19th and early 20th century after the Industrial Revolution. The theory is based on the school of management thought in which theorists try to find out the best possible way for workers to perform their tasks. This theory consists of three main approaches, namely, scientific management, the bureaucratic approach and the administrative approach. 2.2.1 The scientific management approach The scientific management approach focuses on improving economic efficiency and labour productivity. Its development began in the 1880s and 1890s as manufacturing firms became larger in size and more complex in nature. As a result, managers could no longer be directly involved with production as they were spending more of their time on administrative activities such as planning, organising and scheduling of work. Thus, it became necessary for organisations to hire operations specialists whose main job and responsibility was to focus on how to improve efficiency and maximise productivity in the firm. One such operations specialist was Frederick Winslow Taylor. 2.2.1.1 F. W. Taylor Frederick Winslow Taylor (1856–1915) was an American inventor and engineer and is widely regarded as the father of scientific management. Taylor began his career as a worker at the Midvale Steel Company in Philadelphia and later worked at the Bethlehem Steel Company (now ArcelorMittal) in Pennsylvania, USA. Over the course of his career, he rose to become the chief engineer. It was at Midvale Steel that Taylor realised that factory processes could be optimised to maximise efficiency if he could find the “best way” to complete a task. He continued his research at Bethlehem Steel Company where he supervised men who unloaded iron from rail cars and reloaded finished steel. Taylor found that with correct movement, tools and sequencing, each man was capable of loading 47.5 tons per day compared to the standard 12.5 tons. He also introduced an incentive system that paid each man $1.85 per day for meeting the new quota, an increase from the previous rate of $1.15. This caused productivity at Bethlehem Steel to rise dramatically. Taylor was the first management theorist to analyse an organisation, test his theories and ideas with experiments and record his findings. He developed four principles for increasing efficiency in the workplace, shown in Table 2.2. Table 2.2 Taylor’s four principles of scientific management First Develop a science for each element of a man’s work, which replaces the old rule-of-thumb method. Second Scientifically select and then train, teach and develop the workman, whereas in the past he chose his own work and trained himself as best as he could. Third Enthusiastically cooperate with the men so as to ensure all of the work being done is in accordance with the principles of the science that has developed. Fourth There is an almost equal division of the work and the responsibility between the management and workmen. The management take over all the work for which they are better fitted than the workmen, while in the past almost all of the work and the greater part of the responsibility were thrown upon the men. Source: Williams (2014) For easier understanding, Taylor’s four principles are summarised in Management in action 2.2. MANAGEMENT IN ACTION 2.2 Summary of Taylor’s four principles Develop a science for each element of a worker’s job to replace the rules of thumb. Job specialisation should be part of each job. Ensure the proper selection, training and development of workers. Planning and scheduling of work are essential. Standards with respect to methods and time for each task should be established. Wage incentives should be an integral part of each job. Source: Barnat (n.d.) Taylor’s scientific management theory had a significant impact on American society, and led to increases in productivity in the workplace. His theories earned him followers who built upon his ideas, most notably Frank and Lillian Gilbreth and Henry Gantt. 2.2.1.2 Frank and Lillian Gilbreth Frank (1868–1924) and Lillian (1878–1972) Gilbreth were a husband and wife team who pioneered industrial management techniques still in use today through the use of time and motion studies. Frank Gilbreth never went to college but owned a bricklaying construction business and was interested in how he could simplify the work process of bricklaying, thereby increasing the efficiency of his workers. The Gilbreths were innovative industrial engineers who used motion picture cameras to study the hand movement of bricklayers in minute details. Through this process they were able to eliminate unnecessary motions which served no purpose and were able to reduce the number of movements needed to lay a brick from 18 to five. The Gilbreths’ improvements raised productivity from 120 to 350 bricks per hour and from 1000 to 2700 bricks per day. Lillian Gilbreth is considered to be the “mother of modern management”. While her husband never went to college, Lillian had earned a university degree in literature in 1900 and was the first woman to receive a doctorate degree in industrial psychology which she used to understand better the practice of management and its effect on job satisfaction. Lillian was also the first woman to become a member of the Society of Industrial Engineers and the American Society of Mechanical Engineers. While her husband was interested in the technical aspects of worker efficiency, Lillian was interested in the human aspects of time management. Using what she had learnt during her doctoral degree programme, Lillian was one of the first contributors to industrial psychology, enacting ways to improve office communication, incentive programmes, job satisfaction and management training. Her research work also influenced the US government to pass laws concerning workplace safety, ergonomics and child labour. In summary, the Gilbreths developed a long-term interest in using motion study to simplify work, improve productivity and reduce the level of effort required to perform a job safely. The Gilbreths’ work also had an impact on medical surgery. Through the application of time and motion studies, surgeons were able to reduce the time patients spent on the operating table, thereby saving many lives and improving medical science. To understand the contribution of the Gilbreths better, watch the study video given in Management in action 2.3. MANAGEMENT IN ACTION 2.3 Study video of Frank and Lillian Gilbreth’s motion studies Watch a study video on Frank and Lillian Gilbreth’s time and motion studies at http://education-portal.com/academy/lesson/frank-and-lillian-gilbreths-motion-study.html lesson 2.2.1.3 Henry Gantt Henry Gantt (1861–1919) was an American mechanical engineer and management consultant who worked for Frederick Taylor at Midvale Steel and Bethlehem Steel, where he learnt to apply Taylor’s scientific management principles to improve labour productivity. However, Gantt is best known for developing the Gantt Chart in the 1910s. A Gantt chart is a type of horizontal bar chart that visually represents a project schedule. It was developed as a production control tool to show the start and finish dates of the different tasks required or the components of a project. Today, Gantt charts are frequently used in project management and provide a graphical illustration of a schedule that helps to plan, coordinate and track specific tasks in a project. They are beneficial in planning the duration of a project and helping to arrange the order in which the tasks need to be completed. As a result, the charts are included in most project management software and computer spreadsheets. The Gantt chart was considered a revolutionary tool when it was first introduced in the 1910s, but one of its drawbacks is that it does not indicate task dependencies. That is, it does not tell how one task falling behind schedule affects other tasks. Apart from the Gantt chart, Gantt also made other important contributions to management such as establishing quota systems and bonuses for workers who exceeded their quotas. In addition, Gantt advocated the training and development of workers. During the course of his job, Gantt discovered that workers who had undergone some form of training performed better at work. Unfortunately, supervisors were unwilling to teach workers what they knew because they were afraid that the workers they trained would become more knowledgeable than them and replace them. Gantt dealt with the unwillingness of these supervisors by offering to reward them with bonuses if they trained their workers properly. Gantt’s approach to training included the following three principles: 1. A detailed scientific investigation into each piece of work, and the determination of the best method and the shortest time in which the work could be done 2. A teacher capable of teaching the best method in the shortest time 3. Reward for both teacher and pupil/worker when the pupil/worker was successful To learn how to prepare a Gantt chart, see Management in action 2.4. MANAGEMENT IN ACTION 2.4 Study video of how to prepare a Gantt chart Watch the following YouTube study videos on how to prepare a Gantt chart: http://www.youtube.com/watch?v=sA67g6zaKOE http://www.youtube.com/watch?v=TjxL_hQn5w0 2.2.2 The bureaucratic approach At about the time scientific management was being developed as a discipline in the US, an equally important theory about how organisations should be managed and governed was being developed in Europe. The theory known as the bureaucratic approach to management was formulated by German sociologist, Maximilian Karl Emil Weber (1864–1920), popularly known as Max Weber. The main focus of the bureaucratic approach is the organisational structure. The approach involves dividing the organisation into hierarchies and establishing strong lines of authority and control. In the late 1800s, most organisations in Europe were managed on a personal, family-like basis and employees gave allegiance to individuals in the organisation rather than the organisation’s mission. This dysfunctional management practice gave rise to resources being used for individual goals rather than for organisational goals. Weber imagined organisations that would be managed on an impersonal, rational basis. He called these organisations “bureaucracies” (see Management in action 2.5). MANAGEMENT IN ACTION 2.5 Eight principles of a bureaucratic organisation i. Written rules Rules and regulations must be well standardised and well defined, and in a written form. ii. System of task relationship In an organisation, there should be an established system to achieve the task and there should be a relationship between the system and the task of the organisation. iii. Specialised training Employees should be trained according to their assigned tasks. Managers need managerial training and workers need job training in line with their duties. iv. Hierarchy of authority Authority should be assigned to managers according to their positions in the organisation’s management pyramid. v. Clearly identified duties There should be clearly identified duties for every worker. Each worker must know what he/she has to do, and to whom he/she has to report. vi. Paperwork Everything in the organisation should be written down. In this way, every system in the organisation will run systematically. vii. Fair evaluation and reward There should be a well-established system of evaluation in the organisation so that reward may be given to the workers according to their commitment and competency. viii. Maintenance of ideal bureaucracy Ideal bureaucracy should be generated in organisations and this can be done through a proper training and reward system. Source: Adapted from Mahmood, Basharat & Bashir (2012) 2.2.3 The administrative management approach The administrative management approach focuses on the organisation as a whole and was developed by Henri Fayol (1841–1925), a French mining engineer. Fayol was the managing director (CEO) of a steel company, Comambault, that owned a couple of coal and iron ore mines and employed about 10 000 workers. Fayol was initially hired by the board of directors to dissolve and liquidate the steel company because it was not profitable. However, on assuming work at the organisation, Fayol observed that if certain management practices were changed and other practices implemented, he could turn the negative situation of the steel company around. Within four months, Fayol had documented his ideas and plans and presented them to the board of directors. With nothing to lose, the board gave him the go-ahead to implement the management practices he was advocating. The success of Fayol’s management practices kept Comambault in business and Fayol was its CEO for about 30 years. Fayol documented his experience of being a CEO, and his management practices and theories in a book Administration industrielle et générale in 1916. Because the book was published in his native French, Fayol’s ideas and theories were not widely known to the rest of the world until 1949 when it was translated into English as General and industrial management. Fayol stated that when he assumed responsibility for restoring Comambault to productivity, he did not rely on his technical ability as a mine engineer, but on his administrative and organising skills in handling men. Fayol further argued that “the success of an organisation generally depends more on the administrative ability of its leaders than on their technical ability”. Through his experience as a CEO, Fayol discovered that managers needed to perform five managerial functions to be successful: planning, organising, coordinating, commanding (i.e. leading) and controlling. Furthermore, Fayol advocated that effective management is based on 14 principles, given in Management in action 2.6. MANAGEMENT IN ACTION 2.6 Fayol’s 14 principles of management 1. Division of labour. Productivity is increased when work is divided into smaller tasks and each worker specialises in completing certain tasks. 2. Authority and responsibility. A manager should have both authority and responsibility. Authority is the “right to give orders”, and this should be proportionate to the manager’s responsibility. At the same time, the organisation should put control measures in place that would prevent managers from abusing their authority. 3. Discipline. Rules and regulations that govern acceptable behaviour in the organisation should be clearly defined and employees must obey them. 4. Unity of command. Each employee should report to and receive orders from just one boss to avoid conflict and confusion. 5. Scalar chain of command. A clear line of authority should run from the top to the bottom of an organisation, demarcating hierarchies, organisational structures and unity of command. 6. Unity of direction. Organisational efforts and plans should be directed towards a common objective in a common direction. 7. Subordination of individual interests to the common good. The organisation’s goals and interests should be given preference over the goals of individuals. 8. Remuneration. Employees should be fairly rewarded for what they do, i.e. do not over- or underpay employees. 9. Centralisation. Organisations should avoid too much centralisation or decentralisation. Rather, an appropriate balance between the two should be struck depending on the goals of the organisation, its environment and employees. 10. Order. There should be a place for everything (employees, equipment, materials) and everything in its place, including people doing the jobs that suit them best. 11. Equity. All employees should be treated fairly and equally. 12. Stability of staff. Organisations should invest in skills development and retention of staff. Staff turnover should be minimised as it is disruptive and costly. 13. Initiative. Employees should be encouraged to conceive and implement new plans when existing plans are not satisfactory. 14. Esprit de corps. Managers should promote unity and team spirit among workers. This increases employee morale. Source: Jones & George, 2013. 2.2.4 Common characteristics Despite their theoretical differences, these three approaches (scientific management, bureaucratic and administrative) share common characteristics, as shown in Management in action 2.7. MANAGEMENT IN ACTION 2.7 The five characteristics of classical management theories 1. Chain of command Management is organised into three levels: top management, middle management and first-line management. 2. Division of labour Complex jobs are broken down into simple tasks to be completed by workers. 3. Unidirectional downward influence There is only one-way communication. Decisions are made at top level and flow down the chain of command to lower levels of management. 4. Autocratic leadership style Managers are expected to make all the decisions and perform other managerial functions such as directing, commanding and organising on their own. In addition, workers are strictly controlled and treated like machines to increase productivity. 5. Predicted behaviour The behaviour of workers is predicted like a machine, i.e. if a worker performs according to set standards (prediction) and meets the set targets, he/she is retained in service. If not, he/she is replaced. Source: Mahmood et al. (2012) 2.3 BEHAVIOURAL THEORIES The behavioural approaches to management arose out of the shortcomings of the classical approaches, which were accused of treating workers as machines and controlling them to increase productivity without taking into consideration their wellbeing. Behavioural theories are concerned with the social and group interactions that occur in the workplace, focusing on understanding human behaviours, needs and attitudes so as to achieve high levels of performance and increase productivity. There are two main approaches: human relations and human resources. 2.3.1 The human relations approach The second wave of the Industrial Revolution in the 1920s and 1930s was characterised by the mass production of goods. This created rapid social and cultural changes in the industrialised nations. Formerly expensive goods such as cars and electrical appliances all of a sudden became affordable and the standard of living rose for a large portion of the population. As a result, society became increasingly consumer oriented and knowledgeable and started demanding better products and better working conditions in the workplace. One of the important changes that took place during this period was the formation of unions by unskilled workers. Tired of not having a say in how their work should be organised and their sometimes appalling work conditions in factories, workers decided to unite to influence management decisions. When management did not listen to the workers, they threatened to lay down their tools and stop production. (This situation is similar to events in South Africa. See Management in action 2.8.) Management was forced to take note of grievances and set in motion necessary changes. Thus, the human relations approach highlights the importance of human needs in the workplace, and how management strategies and job design could be used to meet those needs. MANAGEMENT IN ACTION 2.8 The rise or fall of trade unions in South Africa: the Marikana incident On 16 August 2012, South Africa saw the most gruesome killing of workers in Marikana during the Lonmin mineworkers’ illegal strike. Thirty-four mine workers were gunned down by police in what will go down in history as the “Marikana massacre”. Demonstrators were calling for salary hikes from about R4000 to R12 500, and among other grievances, better working and living conditions and addressing the lack of concern for workers by management. This sad event shocked the world and stirred the debate on the role of trade unions in the country. Such a catastrophic incident could have been prevented by more responsible trade unionism. The Marikana incident has also raised questions of whether this event marks the “rise” or “fall” of trade unions in South Africa. Historically in South Africa, the function of trade unions was primarily political as organised labour was instrumental in advocating for democracy. The Congress of South African Trade Unions (COSATU), after its establishment in 1985 unifying contending unions and federations, was instrumental in the struggle against apartheid. The federation coordinated a range of paralysing wage and general strikes and drummed up support from factories and towns countrywide. COSATU is currently the largest trade union federation in South Africa, boasting 21 affiliated unions and declared membership of 2.2 million in 2012. Trade unions now have a broader role to play in national development over and above protecting workers’ rights and improving their economic status. Trade unions should promote social change and justice, and harmonious industrial relations and encourage human resource development. Disputes should be settled efficiently and effectively to avoid conflicts and industrial action that would have adverse economic consequences. Trade unions should ensure workers’ demands are justifiable and within reason and also that workers’ rights are not infringed in any way. Changes in working conditions and wages should be sustainable and should not be a financial burden to business. At the same time, trade unions should acknowledge that there is an inherent conflict of interest between labour and capital that can never be completely eroded; workers want higher wages and owners higher profits. It is the role of trade unions to facilitate a balanced consensus for the parties involved. Source: Adapted from http://www.polity.org.za/article/the-rise-or-fall-of-trade-unions-insouth-africa-the-marikana-incident-2012-10-11 (accessed on 30 September 2014) 2.3.1.1 The Work of Mary Parker Follet Mary Parker Follet (1868–1933) was an American social worker and management consultant who specialised in the disciplines of organisational theory and organisational behaviour. She was one of two leading women management experts in the early days of classical management theory (the other woman being Lillian Gilbreth). It was Follet who defined management as “getting things done by other people”, as defined in Chapter 1. Follet’s ideas on employee participation, negotiation and power were significant in the development of the disciplines of organisational studies, alternative dispute resolution and the Human Relations Movement. Follet proposed many theories that were considered radical for the time (see Management in action 2.9). MANAGEMENT IN ACTION 2.9 Four theories of Follet 1. Authority should go with knowledge and expertise, whether it is up the line or down. If workers have the relevant knowledge and expertise, then workers, rather than managers, should be in control of the particular work process. 2. Managers should behave as coaches and facilitators and not as monitors and supervisors. 3. Departments should engage in “cross-functioning”. Members of different departments should work together in cross-departmental teams to accomplish projects. 4. Power should be changeable and adaptable, and should flow to the person who can best help the organisation achieve its goals. Source: Jones & George (2013) 2.3.1.2 The Hawthorne studies: Elton Mayo The Hawthorne studies were conducted at the Hawthorne plant of the Western Electric Company in Illinois from 1924 to 1932. The studies involved investigating the effects of changes in the work environment on the productivity and performance of factory workers. The studies were carried out in a series of experiments over a period of eight years. In the initial experiment, company engineers separated two groups of six female workers (an experimental group and a control group) from the rest of the factory workers and subjected them to various lighting levels, financial incentives and work breaks to study their effect on productivity. The researchers expected to find that individual output in the experimental group would directly correlate to the intensity of the light, i.e. if the lighting was increased, productivity would increase, and if lighting was reduced, productivity would reduce. But surprisingly, they discovered that productivity in both groups varied with the level of lighting. Production levels increased whether the lighting was increased or decreased, whether workers were paid based on individual production or group production, or whether the duration of work breaks was increased or decreased. In a bid to explain the phenomenon, the company sought the expertise of a Harvard professor, Elton Mayo. Mayo came to the following conclusion about the happenings at the company. The actual level of lighting was not a factor to the workers. The workers were probably responding to other factors such as the attention that was paid to them by management and the special treatment they were receiving compared to workers in the rest of the plant. This phenomenon became known as the “Hawthorne effect”. In addition, Mayo observed that management consulted these workers before any changes were done in the study. Their suggestions were listened to and discussed and sometimes incorporated into the final decision by management. Thus, the workers developed a sense of ownership in the organisation of their work and became a cohesive social unit, and as a result, productivity increased. The important findings of the Hawthorne studies can be listed as follows: The feelings and attitude of workers affect their work. When employees are given special attention, productivity is likely to change in a positive way regardless of whether working conditions change. Social group interactions and open communication between workers and management have a significant influence on employees’ productivity. 2.3.2 The human resources approach The human resources approach is a combination of prescriptions for design of job tasks with theories of motivation. This approach recognises that workers in organisations have feelings that must be considered. Thus, the approach holds that jobs should be organised and designed in a way that is not degrading or demeaning to workers, but it should allow workers to use their full potential. Two well-known contributors to this approach were Abraham Maslow and Douglas McGregor. 2.3.2.1 Maslow’s needs theory Abraham Maslow (1908–1970) was a psychologist who proposed that people seek to satisfy five basic kinds of needs: physiological, safety, belongingness, esteem and self-actualisation. He explained that these needs were in the form of a hierarchy, shaped like a pyramid with the most basic needs (being physiological) at the base. Maslow argued that the lowest basic needs had to be met first before a person would attempt to satisfy needs higher up the hierarchy. This theory will be explained in more detail in Chapter 11. 2.3.2.2 Theory X and Theory Y Douglas McGregor (1906–1964) based his theory on two assumptions about human nature. There is the negative view of people that assumes that workers dislike work and will attempt to avoid responsibility if possible, and there is a positive view of people that assumes that workers like to work, and will seek out and accept responsibility if offered the task. McGregor called the negative view “Theory X” and the positive view “Theory Y”. Table 2.3 depicts the assumptions of both views. It is obvious from this theory that a manager that believes in Theory X will be a more autocratic leader, while a Theory Y believer will be a more democratic leader. Table 2.3 Assumptions of Theory X and Theory Y Assumptions of Theory X Assumptions of Theory Y Involves an authoritarian style of management Involves a participative style of management The average worker dislikes work and will avoid it if possible The average worker does not dislike work and is willing to work When he has to work, he will do as little as possible He will accept work and will try to do as much as he can He prefers being directed, has little ambition and wishes to avoid responsibility He can take initiative, is creative, can accept and seek responsibilities Because of his dislike for work, the average worker must be coerced, controlled and directed, or threatened with punishment to get him to put in adequate effort to achieve organisational goals Coercion and threat of punishment may not be necessary as the worker is committed and will exercise selfdiscipline and self-control to achieve organisational goals Source: Adapted from Daft & Marcic (2013) 2.4 QUANTITATIVE THEORIES Quantitative theories, also known as management science, focus on the application of mathematics, statistics, computer technology and other quantitative techniques to facilitate management decision-making, especially for vast and complicated problems. The approach emerged after World War II, when mathematical and statistical solutions developed for solving military problems during the war were adopted by business organisations. There are four basic characteristics of the quantitative approaches: 1. The primary focus is on decision-making. 2. Alternatives are based on economic criteria like costs, sales and profits. 3. Mathematical models are used to analyse problems. 4. Computers are essential to solve complex mathematical models. 2.4.1 Operations management Operations management involves the use of quantitative and mathematical techniques to find ways to increase productivity, reduce costly inventory and improve quality. Operations management techniques and tools that are commonly used and applied in managerial situations include forecasting techniques, capacity planning, quality control, productivity measurements and improvement, linear programming, scheduling systems, inventory systems, work management techniques (similar to the Gilbreths’ motion studies), project management (similar to Gantt’s charts) and cost–benefit analysis. Over the years, the operations management approach has benefitted from the contributions of Eli Whitney and Gaspard Monge: Eli Whitney (1765–1825) was an American inventor who designed the cotton gin and proposed the use of standardised, interchangeable parts for machinery. Today, because of Whitney’s ideas, most products from cars to toasters are manufactured using standardised, interchangeable parts. Gaspard Monge (1746–1818) was a French mathematician and the inventor of descriptive geometry (the mathematical basis of technical drawing), and the father of differential geometry. To manufacture standardised, interchangeable parts, manufacturers had to view the prototype of the product first. Monge’s technique and its accuracy in drawing three-dimensional objects allowed manufacturers to make standardised, interchangeable parts without first viewing the product. Currently, manufacturers utilise CAD (computer-aided design) and CAM (computer-aided manufacturing) to take three-dimensional designs straight from the computer to the shop floor. 2.4.2 Information management Information management is a system that provides organisations with the relevant data they need to manage themselves efficiently and effectively. It involves the study of how individuals and organisations assess, design, implement, manage and operate systems to generate information to improve the efficiency and effectiveness of decision-making. Centuries ago, information was costly and hard to obtain. It was also slow to obtain and it could take months or even years for important information or news to get to the relevant people. Also, information was expensive because it was laborious and time consuming to hand-copy books and manuscripts. The first technologies to transform the way organisations used information were paper and the printing press. In the 15th century, Johannes Gutenberg invented the printing press and cut the cost of information by 99.8%. Scribes who charged hefty prices to hand-copy one page of a document were no longer needed as the printing press could print more than 300 pages of the same document for the same price. Another technology that transformed information management was the manual typewriter. Before the mid-19th century, most business correspondence was hand-written and copied using a word press. This was a time-consuming process and needed expert technical skills. All that changed by the 1870s when the manual typewriter was invented. Manual typewriters made daily communication and the production of business correspondence cheaper, easier and faster. A century later in the 1980s, the typewriter was replaced by the personal computer (PC) and word processing software. Furthermore, organisations’ ongoing quest for information technologies that would speed up access to timely and relevant information led to the quick adoption of the postal services, the telegraph in the 1860s, the telephone in the 1880s and recently the internet in the 1990s. Today, information management systems (usually computer systems) are used for managing almost every facet of the organisation. To be current and to gain competitive advantage, most organisations (big and small) have adopted recent information technologies such as the internet. Through the internet, companies can reach a wide number of customers via their website, send emails to customers and interact socially with customers via their Facebook page. In addition, to share and disseminate information quicker, organisations make use of photocopiers, scanners and smartphone applications such as WhatsApp, Twitter and Instagram. 2.5 CONTEMPORARY MANAGEMENT THEORIES Contemporary management theories are an integration and expansion of the key concepts of the classical management theories. The development of the theories started in the 1960s when management researchers began to consider the happenings in the external environment of the organisation and their effects on the organisation itself. Contemporary management approaches include systems management, contingency theory and total quality management (TQM). 2.5.1 Systems management The systems management approach represents a method for solving problems that entails analysing them within a framework of inputs, transformation processes, outputs and feedback, as shown in Figure 2.1. A system is a set of interrelated and interdependent parts arranged in a manner that produces a unified whole to achieve a common goal. A system (e.g. an organisation) is made up of subsystems (e.g. the units and departments) which depend on each other. Changes in one part of the system (organisation) could affect other parts of the system. Systems can be open or closed. A closed system functions without interacting with its environment. Organisations are regarded as open systems, because they are influenced by and interact with their environment. As an open system, an organisation interacts with its internal environment, which is made up of its workers, units and departments, and different levels of management that are linked to achieve its goals. At the same time, an organisation is influenced by the external environment, which consists of its customers, suppliers, shareholders and regulatory agencies. The macroenvironmental elements also influence the organisation. This is discussed in Chapter 3. Whenever managers have to make decisions, they have to consider their effect on all the elements of their environment. Figure 2.1 The organisation as an open system Inputs are the human, material, physical, financial and information resources that can be transformed into outputs such as products, goods and services. For effective and efficient operation, the system must generate feedback. Feedback is the amount of information about a system’s performance and status. The goal of any system is to achieve synergy which occurs when two or more subsystems working together can produce more than they can working apart. This is called synergy – the sum is bigger than the individual parts (i.e. 1+1=3). Taking a university as an example of an open system, its inputs will be the students, lecturers and financial resources. The transformation process will comprise the equipment and procedures used to convert inputs into outputs, for example the lectures, assignments, tests, examinations and research papers. The output of the university will be the graduating students. Feedback for the university will be the information about the employment capabilities of its alumni. 2.5.2 Contingency theory The contingency approach (or situational approach) to management states that there are no universal management theories applicable to all situations and that the most effective method to manage an organisation would depend on the kinds of problems or situations that managers or organisations are facing at a particular time. In other words, the best way to manage would depend on the specific situation (hence, the situational approach). The contingency theory recognises that individual organisations, employees and situations are different and therefore require different ways of managing. Contingency can be described with the phrase: “if … then.” For instance, when faced with a challenge, one can say to oneself: “If this is the way the situation is, then this is the best way to manage in this situation.” In summary, the contingency approach requires managers to analyse and understand the current problematic situation, generate alternative solutions to the situation and then choose the best solution that will benefit the organisation and assist it to achieve its goals. One of the early advocates of contingency theory was Fred Fiedler, who studied which style of leadership was most effective in a given situation. This theory will be discussed in more detail in Chapter 10. 2.5.3 Total quality management (TQM) Total quality management (TQM) is an integrated, organisation-wide strategy for improving product and service quality. It involves a management philosophy that focuses on managing the total organisation to deliver better quality to meet customers’ needs and expectations. TQM involves a continuous process of guaranteeing that quality is encouraged and built in at every stage of production. W. Edwards Deming (1900–1993) is considered the “father of the quality movement”. Deming was an American whose ideas and theories on quality were not initially accepted in America, but were adopted by the Japanese after World War II as they sought to rebuild their country and economy. The Japanese modified Deming’s theories and applied them to their production and manufacturing processes. This required a movement away from an inspection-oriented approach to quality control that emphasised the involvement of employees in the prevention of quality problems. TQM is characterised by some important principles: Employee involvement means that there should be teamwork and collaboration between management and workers, across business functions, and between the organisation and its customers and suppliers. The implication of this is that to achieve better quality, everyone in the organisation has to work together to make improvements and solve problems. Giving employees power and authority to manage problems in their departments and to implement solutions to the problems is a way of empowering them. The important principle is obviously a commitment to quality. This requires an attitude of commitment to quality. Commitment to quality instils a prevention orientation and acts as motivation for an error-free approach to standards. The commitment to quality helps the organisational members to have a clear idea of what quality means from the customer’s perspective. Customer focus and satisfaction means that the entire organisation should focus on meeting the needs of customers, thereby resulting in customer satisfaction. TQM also focuses on the organisation’s business processes and through the use of scientific tools, technologies and methods managers make systematic changes in processes and products. An important principle in the total quality management approach is that suppliers are part of the process of delivering total quality to the customers and meeting their needs. A basic principle of TQM is the striving for continuous improvement. This refers to the concept of kaizen pioneered by Japanese companies that requires the organisation and all its members to improve on something every day. In honour of Deming’s contribution to the Japanese economy, Japan established the Deming prize for corporate quality in 1951. Awarded annually, the prize recognises the organisation that has attained the highest level of quality that year. In Europe, the International Organisation for Standardisation (ISO) (pronounced eye-so) issues certification for excellence to companies that adhere to high quality standards. South Africa has adopted the requirements of the ISO 9000 series. South African companies are expected to adhere to the requirements of these series and the South African Bureau of Standards (SABS) does the certification. MANAGEMENT IN ACTION 2.10 Toyota is not perfect, but it continually strives to be Although Toyota is regarded as a world leader in value-chain management, it would be a mistake to believe that its record is perfect – or anything close to it. Over the years it has made many mistakes and errors as it strives to find new methods to improve its value chain and increase innovation, quality, efficiency and customer responsiveness. It always seeks to learn from its mistakes, however, and keeps on tackling a problem until it finds a solution. On the innovation front, for example, Toyota’s Japanese engineers have often mistaken the needs of its global customers, and the first generation of many of its new vehicles such as pick-up trucks, minivans and SUVs were flops. Its first pick-up truck was too small for the US market, its first minivan was clumsy compared to Chrysler’s, and its first SUV was underpowered and lacked the comfort and features of competitors such as Ford and Land Rover. Nevertheless, Toyota’s engineers have continually learned from their mistakes and today, using the skills of its US and European designers, its new generation of pick-up trucks, minivans and SUVs are market leaders. On the quality front it has made mistakes; several times its engineers have designed parts such as air conditioning and brake systems that proved defective and led to many recalls. But they have learned from their mistakes and most problems have been corrected. Even so, it was only in 2007 that Toyota realised that it could improve quality even more if it started to collect repair information on what kinds of repair problems its vehicles suffered from after their warranty had expired. If it had taken such a long-term view earlier, then its engineers could have focused their attention on the specific problems that led to poor parts quality. On the efficiency front, cars have become more difficult to assemble because both components and work processes have become more complex. However, in the 2000s Toyota increasingly failed to realise the need to give employees more work training to prevent vehicle recalls because it had been expanding so quickly around the world. Since 2004, for example, Toyota has recalled 9.3 million vehicles in the US and Japan, almost three times the previous rate. To solve this problem Toyota has delayed the introduction of some of its new models by several months while it trains its workforce in the many intricate procedures that must be followed to achieve the high quality it demands. To help regain its high quality standards it opened “global production centres” in Kentucky, England, and Thailand to allow its engineers to train production supervisors in the advanced techniques, such as welding and painting, needed to maintain state-ofthe-art production quality. Its president, Katsuaki Wantanabe, publicly apologised in 2007 for these increasing errors and affirmed that Toyota was now back on the right track – even though it is almost always at the top of the quality list of the best global carmakers. Even the best companies have to strive to maintain – let alone exceed their high standards. Source: Jones & George (2009) 2.6 SUMMARY This chapter provided an overview of the history of management because knowledge of management theories is essential for successful management and leadership in an organisation. The different management theories were discussed, highlighting their influence on contemporary management. In brief, scientific management focuses on improving efficiency, bureaucratic management focuses on rules and procedures, and administrative management focuses on how and what managers should do in their jobs. The behavioural approaches concentrate on people, especially the psychological and social aspects of work; the quantitative approaches make use of mathematical and statistical techniques to aid managers in decision-making, and the contemporary approaches promote the use of contingencies and quality for effective and efficient management. REFERENCES AND RECOMMENDED READING A guide to classical management theory. http://www.business.com/business-planning/classicalmanagement-theory/ (accessed on 27 August 2014). Barnat, R. Strategic management. http://www.introduction-to-management.24xls.com/en125 (accessed on 2 March 2015). Daft, R.L. & Marcic, D. 2013. Understanding management, 8th ed. Stanford: Cengage Learning. Jones, G.R. & George, J.M. 2013. Essentials of contemporary management, 5th int. ed. Boston: McGraw-Hill/Irwin. Lillian Moller Gilbreth. https://www.sdsc.edu/ScienceWomen/gilbreth.html (accessed on 14 September 2014). Louw, L. 2012. The development of management thought. In Hellriegel, D., Jackson, S.E., Slocum, J.W., Louw, L., Staude, G., Amos, T., Klopper, H.B., Louw. M., Oosthuizen, T., Perks, S. & Zindiye, S., Management, 4th South African ed. Cape Town: Oxford University Press. Mahmood, Z., Basharat, M. & Bashir, Z. 2012. Review of classical management theories. International Journal of Social Sciences and Education, 2(1): 512–522. Montagna, J.A. 1980. The Industrial Revolution. Connecticut: Yale-New Haven Teachers Institute. Robbins, S.P., DeCenzo, D.A. & Coulter, M. 2015. Fundamentals of management: essential concepts and applications, 9th ed. Harlow, UK: Pearson. Williams, C. 2013a. MGMT, 6th ed. USA: South-Western Cengage Learning. Williams, C. 2013b. Principles of management, 7th ed. Canada: South-Western Cengage Learning. CASE STUDY: THE MINING INDUSTRY OF SOUTH AFRICA Mining in South Africa has been the driving force behind the history and development of Africa’s most advanced and richest economy. Large-scale profitable mining started with the discovery of a diamond on the banks of the Orange River in 1867. Other precious stones and minerals mined in South Africa include gold, platinum, chrome, manganese, zirconium, iron ore and coal. Since 1867, the mining industry has continued to grow significantly. In 2010, it generated 18.7% of the country’s gross domestic product (GDP). In 2011, it generated 94% of South Africa’s electricity, through the use of coal. In addition, mining is a major job creator as it helped create 1.3 million jobs in 2010. Despite the positive contributions of the mining industry to the South African economy, it is frequently criticised for its poor safety record and high number of fatalities through accidents that happen underground. Also, the National Union of Mineworkers (NUM) and the Association of Mineworkers and Construction Union (AMCU) have raised the following concerns relating to the exploitation of miners: the benefits of mining are not reaching the workers or the surrounding communities; the lack of employment opportunities for local youth; appalling living conditions; poor wages and growing inequalities. Failure of management to reach a consensus with the unions over the years has resulted in sporadic strikes in the industry, the most recent being the Lonmin 2012 strike in the Marikana area of the North West province, where a series of violent confrontations occurred between platinum mine workers on strike and the South African Police Service in August that resulted in the deaths of 44 people (miners, police and protestors), as well as injury to 78 miners. The Lonmin strike created a ripple effect of wildcat strikes across the South African mining industry and made 2012 the most protest-filled year in the country since the end of apartheid. Sources: Adapted from http://en.wikipedia.org/wiki/Mining_industry_of_South_Africa, http://en.wikipedia.org/wiki/Marikana_miners’_strike http://www.anglogoldashanti.co.za/NR/rdonlyres/BC6AA824-EF0F-4C9E380CF19BAE-BE4A7/0/November2012.pdf Case study questions 1. Which management theory would be applicable to solving the problems in the South African mining industry? 2. Highlight some of the principles of this theory that could be used to solve the problems in the South African mining industry. 3. Briefly discuss which contemporary management theory you would suggest the South African mining industry adopt to minimise some of the problems it is facing. MANAGEMENT DISCUSSION EXERCISES 1. Identify a South African organisation. Conduct background research and determine the type of management theory/thought that is prevalent in that organisation. 2. Go to any fast food restaurant that you know. Observe and describe the division of labour and job specialisation it uses to produce goods and services. How might this division of labour be improved? 3. What do you understand by the term “total quality management”? 4. Consider Toyota’s high profile safety problems that have been in the news (also read Management in action 2.10). What would you say are the reasons why Toyota experienced quality problems? 5. What did Toyota’s management do to solve the company’s quality problems? Discuss. 6. Assume you have been hired as a quality consultant by Toyota. Advise Toyota on ways it can improve quality in the company. 7. Assume you are the manager of a small business organisation. Which of McGregor’s theories (Theory X or Theory Y) would you adopt to manage your workers and why? 3 The organisational environment NAQUITA ACHADINHA Learning outcomes After studying this chapter you should be able to do the following: Understand the impact of environmental changes on a business. Identify the various stakeholders that have an impact on an organisation. Differentiate between each of the sub-environments that make up the organisational environment by – describing the components of the internal business environment – identifying the variables that form part of the task environment – categorising the forces of the external environment. Discuss the approaches and sources that can be used to conduct an environmental scan. Conduct an internal and external study using a SWOT analysis. 3.1 INTRODUCTION Today’s fast-paced and continuously changing world has not only influenced the way individuals live, but also how businesses operate. No business operates in isolation. It is for this reason that businesses need to consider the drastic changes occurring in the business environment before any goals, plans and strategies are established and implemented. The organisational environment, which is characterised as interrelated, uncertain, complex, unpredictable and unstable, is made up of various sub-environments, namely the micro-, task and macro-environments. See Figure 3.1. The changes occurring in these various sub-environments are constantly presenting businesses with new opportunities and threats and the only way to capitalise on the opportunities and avoid the threats is to stay abreast of all these changes. This chapter therefore aims to assist in this regard by providing up-to-date knowledge on the various sub-environments that have an impact on a business’s progress. In addition, it gives practical insight into how the various environmental scanning approaches and methods can be used to understand fully the ever-changing sub-environments and how these changes can be used to create a competitive advantage. Figure 3.1 The organisational environment 3.2 AN ORGANISATION AND ITS ENVIRONMENT If one looks at the following environmental occurrences, one can imagine what influence they will have on an organisation operating in South Africa: Employees’ four-week strike in the steel and engineering industry Consumers’ drive towards a healthier lifestyle High crime rates Increased competition due to online shopping avenues High mobile penetration rates Unreliable suppliers ISIS war crimes Ebola virus outbreaks Some of these occurrences have been the source of great organisational opportunities. Take the consumers’ need for a healthier lifestyle, for example. A company named Trace used this trend to introduce a distinctive, exclusive, black-coloured beverage which tastes like still mineral water, but contains powerful multivitamins and minerals for a consumer’s body and mind, fully satisfying his or her health needs. Other businesses have attempted to capitalise on the growing mobile penetration rates to communicate to consumers as well as sell products and services. Nedbank together with Vodacom, for example, have introduced M-Pesa, a mobile payment initiative which allows customers to store their money safely, access it easily, send money anywhere affordably and get airtime benefits. This has provided these businesses with access into new markets, resulting in new avenues for profit maximisation. However, not all of these occurrences have benefited organisations. Strikes in the steel and engineering industry, for example, have forced many manufacturing businesses, such as those in the motor industry, to cease their entire production process. With no staff, an organisation cannot produce outputs. If there are no outputs, there can be no profit. These factors have therefore contributed to the demise of some organisations and to the success of others, depending on the organisation’s stakeholders. Stakeholders include all the different people who are affected by an organisation’s policies and decisions. In a typical organisation, stakeholders include investors, employees, customers and suppliers. However, modern theory goes beyond this conventional notion to embrace additional stakeholders such as the community, government and trade associations (see Figure 3.2). Figure 3.2 An organisation’s stakeholders in different environments Source: Adapted from Ehlers & Lazenby (2008: 3) These stakeholders cannot be controlled and are constantly changing. The only way to stay abreast of these changes is to stay informed about what is happening not only outside an organisation, but also within the organisation and the marketplace. Instead of resisting change, managers need to use these changes in order to fight off competition and create a competitive edge for the organisation. The manner in which a manager deals with these environmental changes can either make or break an organisation. It is important for managers to start from within, to ensure that the business’s foundation is in place in order to survive the constant external changes. A manager can build a foundation by establishing a solid microenvironment. 3.3 THE MICRO-ENVIRONMENT The micro-environment, also referred to as the internal environment, includes all the variables within an organisation. A manager will be able to either directly or indirectly control the following variables: Vision, mission and goals Business functions Organisational resources 3.3.1 Vision, mission and goals Figure 3.3 presents the relationship between these elements. When an organisation addresses the questions indicated in Figure 3.3, a solid foundation is formed, which gives the organisation direction. In order to add value to a business, the vision and mission statements need to link to the purpose, strategy and goals of the organisation. (See Management in action 3.1.) Figure 3.3 Vision, mission, strategy and goals Source: Carpenter, Bauer & Erdogan (2009). MANAGEMENT IN ACTION 3.1 The micro-environment Can you identify to which organisations the following mission/vision statements belong? 1. “To bring inspiration and innovation to every athlete in the world” if you have a body, you are an athlete 2. “To be the most admired company in the global beer industry” 3. “Organize the world’s information and make it universally accessible and useful” 4. To find out the correct answers, click here. Sources: http://nikeinc.com/pages/about-nike-inc, http://www.sab.co.za/sablimited/content/en/sab-vision-mission-values and https://www.google.co.za/about/company/ (accessed 17 July 2014) The mission, vision, strategies and goals established by an organisation are not set in stone for eternity. These variables cannot escape the impact of the external environment. It is therefore important for managers to track the occurrences in the external environment and adapt where necessary. (See how Vodacom has incorporated the external environment in their planning in Management in action 3.2.) MANAGEMENT IN ACTION 3.2 Vodacom’s micro-environment Take a look at how Vodacom’s management has incorporated the changing external environments in their micro-environmental planning: Figure 3.4 Vodacom’s micro-environmental planning Source: http://www.vodacom.com/com/aboutus/ourstrategy (accessed 7 August 2014) 3.3.2 Business functions Business functions include all the functional departments within an organisation, such as marketing, human resources, financial management, public relations, operations, purchasing and administration. The decisions made by these functional departments are continually influenced by the external environment in which the organisation operates. For example: The marketing function is influenced by consumer buying patterns and competitors’ strategies. The financial function needs to keep an eye on the fluctuating tax and interest rates. The human resource function is influenced by the country’s employment policy, labour laws, various trade unions and strikes. It is essential for the various functional areas within an organisation to stay informed, in order to deal efficiently with the various environmental changes and operate productively. These functions will assist the organisation in achieving its desired vision, mission, strategy and goals. None of these functional departments can operate in isolation and they all require certain resources to function efficiently and effectively. 3.3.3 An organisation’s resources An organisation has various tangible and intangible resources which contribute to an organisation’s overall production: Tangible resources include raw materials (wood, water and minerals), capital, machinery and property. Intangible resources include aspects such as patents, trademarks, brand names, staff morale and even overall staff experience. Regardless of their size, organisations have access to only a limited number of resources to accomplish their objectives. With this in mind, managers need to plan how these various tangible and intangible resources can be used effectively and efficiently. An organisation should also use these resources to maximise external opportunities or eliminate possible threats presented by the external organisational environment. Not all organisations successfully adapt their use of resource and their business functions to the changes in the macro- and task environments. To understand fully the impact of poor adaptation, take a look at what happened to Kodak (see Management in action 3.3). MANAGEMENT IN ACTION 3.3 A few years ago Kodak was the “flavour” of the month. It was known for its creative technology and innovative marketing. Until the 1990s it was regularly rated as one of the world’s five most valuable brands. The introduction of digital photography, however, replaced film and the development of smartphones replaced cameras. Fujifilm of Japan also saw its traditional business become obsolete. But in comparison with Kodak, Fujifilm adapted quickly to the changes in the business environment and has transformed itself into a profitable business. Both Kodak and Fujifilm saw the changes coming, but Kodak was slow to change. Although Kodak thought that they could change the thousands of chemicals its researchers had created for use in film into drugs, its pharmaceutical operations also failed. On the other hand, Fujifilm was fast to diversify successfully. By using their chemicals more successfully, they launched a line of cosmetics. They also make optical films for LCD flat-panel screens. Fujifilm was successful in mastering new tactics and they survived. Kodak, however, like many other great companies before it, appears simply to have run its course. After 132 years it is fading away like an old photo. Unfortunately, despite how brilliant an organisation’s vision, mission, strategic plans, business functions and resources may be, success is not guaranteed. Changes occurring in the task and macro-environments are unavoidable and have either a direct or indirect impact on an organisation. An organisation’s success therefore depends on how well management adapts its micro-environment to the changing task and macro-environments. A manager must therefore have insight into both environments. 3.4 THE TASK ENVIRONMENT The task environment is the link between the organisation and the macroenvironment and comprises variables such as consumers (customers), intermediaries, suppliers and competitors. These variables directly influence the growth and existence of the organisation and cannot be controlled by management. Although it cannot be controlled, it is still important for management to regularly observe the occurrences within this environment. 3.4.1 Customers Customers play a crucial role in an organisation’s task environment, as no organisation can survive without them. Customers are the people who have particular needs to satisfy and who have the financial capacity to do so. It has become increasingly important for organisations to satisfy their customers’ needs in order to survive today’s competitive marketplace. To do this, management must gain a clear understanding of consumers and their behaviour as this determines their unique needs. Various customer classifications have been made: The consumer market: individuals, families or households that purchase products and services for own consumption or use The industrial market: individuals or organisations that purchase goods and/or services for use in their own production of other goods and services. These produced products are then sold to other parties, at a profit. The resale market: parties that buy products and sell them, without any further processing, in order to make a profit The institutional market: large-scale users (such as schools, hospitals, nursing homes, government agencies and non-profit organisations). The buying behaviour and needs of this market are similar to those in the industrial market. The international market: foreign buyers like customers, manufacturers, resellers and governments Each of these markets has its own set of needs and demands. Before deciding which ones to satisfy, a business must consider its internal goals, resources and capabilities. In addition, an organisation should calculate the overall market demand and the feasibility of entering a particular market. Once all these bases have been checked, an organisation can then implement strategies that focus on satisfying the particular market’s need and, in turn, enhance an organisation’s profitability. 3.4.2 Competitors “Keep your friends close, but your enemies closer” An organisation will not be alone in aiming to satisfy the market’s needs. There will undoubtedly be a number of organisations providing similar offerings and also competing for the market’s support. To deal effectively with this variable, managers should develop a competitive advantage, as explained in Chapter 1. Take a look at the modern-day competitive advantages shown in Figure 3.5. To develop a sustainable uniqueness, sound competitive analysis is required. This analysis begins with the identification of the real competitive threats to an organisation. The four different types of competition are summarised in Table 3.1. Figure 3.5 Examples of competitive advantages Sources: http://www.mytopbusinessideas.com/example-companies-competitive-advantage/ and http://sopinion8ed.wordpress.com/2012/11/23/the-coca-cola-business-model-and-theircompetitive-advantage/ (accessed on 1 August 2014) Table 3.1 Different types of competition Types of competition Practical example Brand competition Other brands of the SAME type of product. Classified as direct competitors because they are very similar. Samsung vs iPhone/Diet Coke vs Diet Pepsi Product competition Different types of product within a particular product category. Also referred to as product-type/product-form competition. Touch-screen vs keypad smartphones/ice tea vs a soda Generic competition Alternative product lines that are able to satisfy the same customer need. Smartphone vs tablet vs laptop/drinking water from the tap vs buying a drink Need competition Different kinds of needs for which the consumer is willing to pay. Buying textbooks vs buying a smartphone/buying a drink vs buying something to eat Once the competitors have been identified, management can then evaluate the competitors’ strengths and weaknesses, estimate their costs and profit numbers and monitor their activities within the market. Managers should remain vigilant towards competitors’ actions as these impact directly on an organisation. An informed organisation is able to adapt and, in turn, combat potential threats or maximise opportunities presented by the competitors. Take a look at how Wimpy used its competitors’ actions as a source of inspiration (see Management in action 3.4). MANAGEMENT IN ACTION 3.4 Dealing with competition On 28 December 2011, a blind woman by the name of Sanet Gouws was chased out of a McDonald’s outlet in South Africa as she was accompanied by her two-year-old black Labrador guide-dog. McDonald’s staff requested that she and her family sit outside. Sanet stated that “we would have, but there wasn’t shade outside”. McDonald’s management was not available for comment after the matter, which resulted in bad publicity for the company. Wimpy decided to use their competitors’ actions as an opportunity to let visually impaired people know that they are welcome in any Wimpy branch, by introducing braille menus in all of their restaurants. To spread the word, the company introduced braille burger buns that blind people could actually read. With the help of skilled chefs, Wimpy used sesame seeds to write braille messages on their buns. They then delivered the Braille Burgers to three of South Africa’s biggest blind institutions. These three companies have access to most of the 1 200 000 visually impaired people living in South Africa. The Wimpy Braille Burger project has rapidly moved through the global market and achieved a massive amount of public support. By making just 15 braille burgers, the company’s message was passed on to over 800 000 visually impaired South Africans informing them that Wimpy has braille menus in all restaurants. In doing this, not only did Wimpy increase their foothold amongst the visually impaired, but also built up their brand affinity amongst all South Africans. The campaign was written and spoken about in over 100 local newspapers, websites and radio stations. From there the international media picked up on it and spread it all over the world. Wimpy received over two million dollars’ worth of free media for a campaign that cost only $302. Which means their return on investment covered their total cost 6 000 times over. Click here to view the braille burger advertisement created by Wimpy: Sources: Adapted from http://www.sowetanlive.co.za/news/2011/12/28/blind-womanguide-dog-chased-out-of-mcdonalds and http://www.metropolitanrepublic.com/wimpy-braille-burger-case-study/ (accessed 12 August 2014) 3.4.3 Suppliers An organisation has the power to decide what offering it will introduce into the market. However, in order to deliver these offerings successfully, organisations depend on various suppliers. Practically every type of organisation like trading, manufacturing or contracting is dependent on some or other form of suppliers. Managers need to be meticulous when selecting these suppliers, as approximately 60% of every rand spent by an organisation goes towards supplier purchases. Organisations may need supplies such as the following: Water, electricity and communication services, which can be purchased from external suppliers such as Eskom, Telkom and Vodacom. External sources of capital, which can be supplied by various commercial banks such as Standard Bank, Absa, Nedbank and First National. Material of final products, which can be sold to customers, or used to produce products and services. Management should select suppliers that add value to an organisation and, in turn, develop long-term sustainable relationships with the selected suppliers. 3.4.4 Intermediaries Most organisations do not sell their goods directly to the end user. Between the organisation and the end users stands a set of intermediaries that performs a variety of functions. These intermediaries become important role-players in an organisation’s success, as they are able to perform certain tasks more efficiently than the organisation itself, thereby alleviating the organisation’s load of responsibilities. There are various types of intermediaries that businesses can make use of, depending on the roles the organisation would like them to fulfil: Merchants. These include wholesalers and retailers that buy, take title to and resell merchandise. Agents. These include brokers and sales agents that search for customers and negotiate on the organisation’s behalf, but do not take title to the goods. Facilitators. These include transportation companies, independent warehouses and so on that assist in the distribution process, but do not take title to goods nor negotiate purchases or sales. Since intermediaries serve as indispensable middlemen, organisations should select intermediaries that really add value by bridging the gap between organisation production and consumer consumption. 3.5 THE MACRO-ENVIRONMENT The macro-environment consists of a number of different factors, as summarised in Table 3.2. A manager will need to ask critical questions regarding each of these environmental factors to develop a clear understanding of their impact. Table 3.2 Macro-environmental factors Demographic What demographic trends will affect the market size of the industry? What demographic trends present opportunities or threats? Sociocultural What are the current or emerging trends in lifestyle, fashions and other aspects of culture? What are the implications thereof? Economic What are the trends in interest and inflation rates, trade cycles and unemployment rate for the countries in which the organisation operates? How will these affect an organisation’s strategy? Political/legal What regulations are in place that will affect a business operating in South Africa? Are there any changes to governmental regulations? What will be the impact of these changes? Technological To what extent are existing technologies maturing? What technological trends or new developments are affecting or could perhaps affect the industry? Natural/physical What are the natural resources being used by an organisation? Are there any shortages of natural resources which could affect an organisation’s productivity? International What international trends and occurrences will affect the industry? How will these alter the competitive arena? These different elements will now be discussed in more detail. 3.5.1 Demographic factors Demographic factors “paint a picture” of the market in terms of age, race, ethnicity and location of consumers. When investigating these factors, managers often consult census reports. In South Africa, a census is conducted every 10 years and the latest results are referenced to the 2011 census report. The better a manager understands the market, the easier it is to recognise potential opportunities and threats and, in turn, develop appropriate communication techniques and business strategies. It is possible to download the 2011 census report (see Management in action 3.5). MANAGEMENT IN ACTION 3.5 Census report Click here to download the 2011 census report, compiled by Statistics South Africa (StatsSA). 3.5.1.1 Population growth The South African population, which consists of four main groups, black, coloured, Indian and white, has experienced a notable increase from 40.6 million in 1996 to 51.8 million in 2011 (Statistics SA, 2011). Table 3.3 indicates the population growth of these different groups. Unfortunately, population growth is highest in countries and communities that can least afford it, so an increasing growth rate does not automatically mean growing market potential, unless there is sufficient purchasing power. These population size changes are triggered by fertility, mortality and migration processes. Managers should therefore stay informed with regard to these processes, by reviewing various trend reports and statistics, such as those indicated in Table 3.4. Table 3.3 South Africa’s Population, 1991–2011 Population Group Asians/Indians Black/African Coloured Whites Other TOTAL 1991 1996 2001 2011 Number 986 600 1 045 596 1 115 467 1 286 930 % 2.6 2.6 2.5 2.5 Number 28 396 700 32 127 631 35 416 166 41 000 938 % 75.3 76.7 79.0 79.2 Number 3 285 600 3 600 446 3 994 505 4 615 401 % 8.7 8.9 8.9 8.9 Number 5 068 300 4 437 697 4 293 640 4 586 838 % 13.4 10.9 9.6 8.9 Number – 375 203 – 280 454 % – 0.9 – 0.5 Number 37 737 200 40 583 573 44 819 778 51 770 560 % 100.0 100.0 100.0 100.0 Source: De Bruyn & Kruger (2014: 36). Based on the Census 2011 report. Table 3.4 Trends in total fertility rate and female life expectancy at birth in South Africa, 1970–2007 Total fertility rate (average number of children) Life expectancy at birth (years) 1970 4.9 57.6 1975 4.6 59.1 1980 4.3 60.6 1985 3.5 62.0 1990 3.3 63.4 1995 3.2 64.5 2001 3.0 64.8 2006 – 59.9 2007 2.7 – Source: Joubert, Udjo & Jansen van Rensburg (2009: 36) Advances in medical care allow an aging population to live longer. 3.5.1.2 Population age–gender composition Managers can use age–gender distribution information in their planning and decision-making. This information is valuable to managers because it is intrinsically linked to all aspects of the consumer’s lifecycle, for example education, marriage, childbearing, retirement, mortality, etc. Based on the Census 2011 report (Statistics SA, 2011), the proportion of females is reported to be greater than males, in the majority of age groups, except within the younger age groups, where the reverse is true. Overall, the South African population comprises 51.3% females and 48.7% males. See Management in action 3.6 for an organisation using this distribution to their advantage. MANAGEMENT IN ACTION 3.6 Using population changes as a business opportunity With reports indicating that females make up the majority of the South African population and have an increasing life expectancy, an opportunity was introduced for businesses to target this growing market. One organisation that successfully managed to do so was 1st for women, which has introduced insurance solutions specifically tailored to the needs of South Africa women. When considering the age of the population, the median age is consulted, as it indicates whether the population is young, old or intermediate. A population with a median age of less than 20 (meaning that 50% of the population is younger than 20) is classified as young. Those with medians of 30 and above are referred to as old, while the range of 20–29 is classified at intermediate. South Africa’s median age has shifted from 22 (1996), to 23 (2001), to 24 (2007), to 25 (2011), so it has remained in the intermediate stage over the years (Statistics SA, 2011). 3.5.1.3 LSM trends To understand the demographic environment in more detail, managers can also refer to the population’s LSM® (Living Standards Measurement). The South African Advertising Research Foundation (SAARF) developed the LSM® as a means to segment the South African market according to standard of living, which cuts across race and other outmoded techniques. Criteria such as degree of urbanisation and ownership of major appliances are used. The LSM® allows managers to monitor various trends in three broad socioeconomic classes and range from 1–10: LSM® 1–4 indicates people living in relative poverty. LSM® 5–7 indicates an emerging middle class. LSM® 8–10 indicates the middle to upper class. The AMPS research report indicates an increase of 45% in the LSM® 7 and 8 group, as well as an increase of 21% in the 9 and 10 LSM® groups. This signifies an improvement in the education levels, financial circumstances and purchasing power of South African consumers (Joubert, Udjo & Jansen van Rensburg, 2009: 55). This is good news for organisations wishing to exploit opportunities in the market. 3.5.1.4 Urbanisation One of the primary trends influencing the world’s population is that of urbanisation. This trend refers to the movement of people from rural areas towards cities. The percentage of people living in the urban areas had increased and is expected to rise to 70% (6.4 billion people) by the year 2050 (Strydom, 2013: 123). This trend has resulted in many organisations situated in rural areas having to shut down due to depopulation. In addition, this trend has greatly affected organisations in the areas of housing, sanitation, slum control and health services. In many of the rural settlements and small towns, customers do not find any financial facilities anymore, as banks have closed their branches. Keeping up to date with various demographic changes will reveal various opportunities and threats. Managers are therefore required to use this information to adapt their plans accordingly. 3.5.2 Sociocultural factors One of the most difficult things to forecast is the changes that can and may occur in the social and cultural dimension of the macro-environment. This is attributed to the fact that sociocultural factors revolve around people’s social behaviour. This will always be difficult to manage as there is constant transformation in people’s culture, values, lifestyle and expectations. These factors affect organisations both directly and indirectly, through staff behaviour and consumer behaviour respectively. A few sociocultural trends in South Africa which could have an impact on an organisation are as follows: Changing family structures. The “traditional” family structure has transformed as a result of many societal changes, including people getting married at an older age, fewer children per family, increased divorce rates and more women taking on full-time careers. Changing role of women. An increasing number of South African women are being appointed to high-status positions at large institutions. This has resulted in larger disposable incomes per family as well as men now taking on household responsibilities. Organisations have therefore begun targeting men when advertising household purchase items. Changing lifestyles. People’s lifestyles are changing drastically, from being ordered and predictable to being fast-paced and cluttered. Consumers are now driven by shortcuts, instant results, “me” time, community connections and time management. Many organisations have tapped into these lifestyle changes by introducing pre-prepared convenience meals, one-stop shopping centres, mobile apps, e-books and “instant fixes”. In addition, consumers are in pursuit of wellness and balance. They are looking for tangible benefits for their body and soul, through balanced health and weight management, better access to nature’s best and more fully integrated leisure time. This has given rise to new organisational offerings such as cross-fit and Zumba workouts, Salomon’s athletic performance gear and even the Tim Noakes diet (see Management in action 3.7). Need for personalisation. Modern-day consumers want something that is unique and reflects their personality. Retailers understand this and are now introducing personalised products from customised cars, furniture and even build-your-own salads and sandwiches to order. Consumerism. Consumerism is a growing trend that has affected many organisations as it revolves around consumer protection. The South African Consumer Protection Act which was initiated on 1 May 2011 has placed legal, moral, economic and even political pressure on management. MANAGEMENT IN ACTION 3.7 Cauliflowers are high in demand One of the biggest industries in the world is the slimming industry. People always want to lose weight and every new slimming diet and piece of advice is tried with enthusiasm. The same is happening now with Professor Tim Noakes’ “food revolution”. It would seem that the future is rosy for cauliflower producers and not so great for potato growers. People are replacing potato with cauliflower mash and making cauliflower rice and pizza bases. When asked about this, a number of supermarket managers explained that their supermarkets have experienced an increase in the sales of cauliflower since Noakes’ book was published. The price of cauliflowers has increased and wealthier consumers in particular have a new appetite for cauliflowers as they follow the Noakes diet, aka the Banting diet. * Author’s own research. 3.5.3 Economic factors Economic factors include all aspects which either directly or indirectly influence the disposable income and purchasing behaviour of businesses and consumers. These aspects include the following: Interest rates. This refers to the price of lending money. It is linked to the repo rate and is set by the South African Reserve Bank. An increase in the repo rate will result in an increase in interest rates. An increase in the interest rate affects organisations and consumers who make use of borrowed funds (e.g. hire-purchase financing, property bonds etc.) as it influences their ability to meet their financial repayment commitments. Inflation. This refers to the continual rise in the prices of products and services. An increase in inflation has a depressing effect on the economy, as it decreases the purchasing power of the rand, which reduces the consumer’s purchasing power. Inflation also increases the costs of exporting industries and makes it difficult for local industries to compete against cheaper imported products. Owing to the hazardous effect of high inflation rates, the South African government decided to set the South African Reserve Bank an inflation target of between 3 and 6% (see Management in action 3.8). Business cycle. All economies are subject to cyclical changes, ranging from prosperity, recession and depression to recovery. Each phase imposes its own set of demands on an organisation: – Prosperity: opportunity to manufacture and market new products, reach new markets and expand current market share – Recession/depression: less disposable income is available. Consumers buy less, resulting in a decrease in demand and fewer growth opportunities. Businesses then buy less from manufacturers. – Recovery: opportunity for economic growth. Prospects for an organisation to increase its sales and income. Value adjustments need to be made by both managers and consumers during the different economic phases, in order to adapt appropriately. Unemployment. This is one of the biggest problems in the South African economy. The unemployment rate in South Africa increased to 25.5% in the second quarter of 2014 from 25.2% in the first quarter of 2014. This is the official figure, but it may be that the figure is closer to 35%, because many people have given up looking for employment. This aspect has a direct effect on consumers’ demand for products and services as well as expenditure. In a state of unemployment, people cut back on more expensive products and postpone durable product purchases. MANAGEMENT IN ACTION 3.8 Consumer spending Take a look at the initiative implemented by Sanlam, aimed at providing consumers with a perspective on their spending habits, taking into consideration the effect of interest rates and credit etc. Click here to view the Sanlam One Rand Man episodes. Source: https://www.youtube.com/results? search_query=sanlam+one+rand+man (accessed on 1 August 2014) 3.5.4 Political/legal factors Political/legal factors include the regulations, legislation and court decisions that govern and regulate business and management practices. Management’s decisions are constantly affected by the course of politics and various legalities. Uncertainty and instability within the political/legal dimension of the macro-environment can have a detrimental effect on organisations and countries alike, as it may result in a halt in investments and even reduce tourism rates. This may cause a ripple effect, resulting in inflation, higher interest rates and lower credit ratings. Although South African organisations operate in a free-market system, government still has the final say, which affects an organisation and the manner in which its staff and customers are managed. Figure 3.6 indicates various political and legal factors that have an impact on an organisation operating in South Africa. No matter what decisions are taken by politicians (nationalisation of banks and mines, reclaiming of land etc.), individual organisations will have to comply if these decisions are passed by parliament and become law. Figure 3.6 Political and legal factors that influence an organisation 3.5.5 Technological factors Technological factors include all the scientific and technological advancements which occur within a specific industry as well as in society at large. These factors are synonymous with revolutionary changes, which have the greatest impact on the macro-environment. Organisations that fail to adapt in time could be left high and dry. Technological advancements and innovations, such as those indicated in Table 3.5, can affect the entire organisation, from its product lifecycle, operational processes, supply chain and management approach, to its position in the market. Managers need to remain vigilant in order to select and incorporate relevant new technologies that will ultimately enhance the organisation’s overall functionality. Table 3.5 Technological inventions that affect business functioning Product name Brief description Effect on organisation’s functioning SnapScan To use SnapScan, consumers download the app, add their credit card details by taking a picture of their card and finally create a pin. They then use the app to scan a QR (quick response) code – a type of barcode – in a store to make automatic payments. The retailer can get a voucher code for all SnapScan payments at the end of the day. This voucher code can be punched in at any Standard Bank ATM, or handed over at a Spar, in order to receive physical cash. Efficient distribution Better service delivery IRI Scan Mouse All-in-one scanner and mouse. When you are not scanning, it works as a regular mouse. When you would like to scan a document, a scan button is pressed. The mouse can then be swiped in any direction on a paper document and text and images appear instantaneously on your computer screen. Improvements to existing products Power Felt Power Felt is an amazing new thin and inexpensive fabric that generates electricity from the warmth of body heat. It can be used to charge a cell phone, and run home appliances, car radios and air conditioners. Researchers are hopeful that the technology will be available within the next two to three years and, once they are successful, this technology will offer a convenient, eco-friendly power source. Development of new products New markets The Payment Pebble The Payment Pebble is a compact mobile device that simply plugs into the audio jack of your compatible smartphone or tablet and, once set up, allows you to immediately start making and receiving card payments. This device enables small, medium and large business owners to accept MasterCard and Visa debit or credit card payments through a smartphone or tablet – anytime, anywhere. New markets Efficient distribution systems Better service Sources: Adapted from http://www.techcentral.co.za/inside-snapscan-sas-app-of-theyear/43230/; http://www.irislink.com/c2-2827-189/IRIScan-Mouse–-Scanner–-Mouse-ata-time-.aspx; http://www.businessinsider.com/power-felt-feeds-off-your-body-heat-togenerate-electricity-2012-8 ixzz3AkSOi8bA and http://www.absa.co.za/Absacoza/SmallBusiness/Supporting/Payment-Pebble (accessed on 17 August 2014) 3.5.6 Natural/physical/ecological factors Natural/physical factors include the earth’s natural resources which are used by people and businesses to support life and development. These resources include water, air, coal, oil, plants, animals, gold and other minerals. With approximately seven billion people all relying on the earth’s diminishing natural resources, governments and businesses have realised that this excessive use is unsustainable. Organisations, ranging from major corporations to SMMEs, are seeking new ways to provide for today’s needs and wants without depleting valuable resources. Below are some initiatives that can be implemented by organisations, in order to solve natural/physical problems: • Problem: The increasing cost of energy Solution: Investing in technological innovations to find alternative sources of energy. These include fracking (shale gas extraction in the Karoo area), ethanol production (using maize yield) as well as solar, wind, nuclear and hydroelectric power. Nedbank, for example, has opened Africa’s first wind-powered branch. Unfortunately, not all these energy innovations have a positive impact on the environment – take a look at the fracking research conducted by Jolynn Minnaar (available online at http://www.un-earthed.com/category/jolynn-minnaar-2/). • Problem: Growing cost of pollution Solution: Pollution destroys living and working space. The costs involved with remedying, preventing and legally complying on the matter can be costly to an organisation. Many organisations have therefore formed new methods for producing and packaging products to keep pollution to a minimum. The soap industry, for example, is researching the use of lessharmful chemicals. • Problem: Scarce resources Solution: A range of resources is becoming increasingly scarce (such as oil) and these shortages affect the supply of products, which can lead to severe price hikes. Organisations are thus searching for different production methods and substitute products. Management in action 3.9 shows how organisations can do a lot towards preserving the physical environment. MANAGEMENT IN ACTION 3.9 Levi’s fight against pollution Levi’s Waste<Less jeans are the company’s latest design innovation. Each of the Waste<Less Levi’s denim pieces features a minimum of 20% recycled content, from an average of 8 plastic bottles. During the spring of 2013, the company repurposed over 3.5 million recycled plastic bottles. Levi’s is committed to making more Waste<Less products in seasons to come to help minimize impact on the planet. Click here to access more information, regarding this initiative. Source: Adapted from http://explore.levi.com/news/sustainability/introducing-leviswasteless-8-bottles-1-jean/ (accessed on 20 August 2014) 3.5.7 International factors It is almost impossible for a country to be completely self-sufficient and economically independent. Even nations with the strongest economies in the world still rely on other countries for innovations, technologies, resources and support. This has resulted in one big global market, where national borders have become blurred due to advances in technology, the internet, ecommerce and communication technologies. Businesses can now operate within a country, while accessing resources from or selling products/services to another country. It is also much easier to find product suppliers than it was in the past and competition is no longer limited to local stores, with online shopping having created a whole new playing field. Managers need to keep track of international trends in terms of technologies, exchange rates, legislation, customs, ethics, culture, shortages of raw materials and political events in order to identify threats and opportunities and develop competitive advantages when it comes to international trade. The better an organisation understands its competitive advantage, the easier it becomes to maximise its full potential. For example, South Africa’s competitive advantages lie in the exporting of agricultural products, wine, natural mineral resources and other locally manufactured goods such as Sasol’s synthetic fuel and oil-from-coal technology. The international trade industry is constantly influenced by international occurrences, which, in turn, may create threats and/or opportunities for an organisation. The following international occurrences could have an impact on an organisation operating in South Africa: The US ban on oil exports from Iran Terrorist attacks and political instability in Nigeria, Egypt, Iraq, Ukraine and Russia South African businesses encountering fewer tariff and protective measures against foreign competition than in the past Brazil, Russia, India, China and South Africa having formed the BRICS partnership, an economic alliance for development, integration and industrialisation Support from the Industrial Development Corporation (IDC) as well as the Department of Trade and Industry (DTI) 3.6 MANAGING THE ORGANISATIONAL ENVIRONMENT As previously mentioned, the variables and factors within the business environment cannot be controlled. Sudden changes occurring in the task and macro-environments can throw any organisation off course. It is therefore important for managers to implement various tools and strategies to prevent crisis management situations. The more informed a manager is about the environment, the easier it becomes to manage the changes. This is where environmental scanning and analysis systems come into play. 3.6.1 Environmental scanning Environmental scanning is the process of gathering recent information about occurrences within the business environment to assist managers in identifying opportunities and threats as well as to help in the planning process (Wiid, 2014: 26). There are three approaches that managers can use to conduct an environmental scan: Ad hoc or irregular approach: only conducting an analysis once an incident takes place which directly affects the organisation Periodical or regular approach: conducting regular, up-to-date studies on specific issues that are relevant and important to the business Continuous approach: constantly assessing all key environmental factors that could affect an organisation Table 3.6 lists some sources and technologies that can be used by a manager to stay updated and informed. Table 3.6 Sources and technologies about environmental changes General media such as newspaper and magazine articles Research reports compiled by an organisation’s own staff or consultants Private organisational libraries and data banks, which store historical data Economic data published by Statistics South Africa and the South African Reserve Bank Trade shows and conferences Online sources such as: internet forums, blogs, Google Alerts etc. Managers need to find suitable information sources and an environmental scanning approach that will work best for their particular organisation and the industry in which it operates. The information obtained can be used to draft a SWOT analysis. 3.6.2 SWOT analysis One of the best-known tools for scanning and managing the environment is a SWOT analysis. It is used to identify internal strengths and weaknesses as well as the external opportunities and threats of the organisation: Strengths: an organisation’s resources, skills, expertise, knowledge, superior service or other advantages relative to competitors Weaknesses: limitations or deficiencies in an organisation’s resources, skills and capabilities that negatively affect the organisation’s performance Opportunities: favourable element/s within the external business environments (task and macro) that can be used by management for profitability, survival or growth Threats: a major unfavourable element within the external business environments (task and macro) that can lead to the failure of a product, service or the organisation itself Managers should develop a culture of continually staying informed about various environmental changes. This will empower them to make better decisions, spot threats and opportunities early on and, in turn, develop a competitive edge. It is not the strongest or the most intelligent who will survive, but those most adaptable to change [emphasis added] ~ Charles Darwin. 3.7 SUMMARY No organisation can operate in isolation because no organisation is 100% self-sufficient. An organisation depends on various stakeholders to achieve business success. An organisation and its stakeholders form part of a complex and everchanging business environment, which comprises three sub-environments, namely, the micro-, market and macro-environments. The micro-environment is the only environment which managers can control as it includes all internal organisational variables. The market environment serves as the “buffer”, which consists of suppliers, competitors, intermediaries and consumers, which are industry specific. The macroenvironment includes all external variables such as demographic, sociocultural, economic, political-legal, international, natural/physical and technological. 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CASE STUDY: WESTDENE FRUITERERS Westdene Fruiterers is a family-owned business run by brothers Carlos and Francisco Achadinha situated in the Free State’s capital city, Bloemfontein. The business started out as a conventional fruit and vegetable store located in a residential area, which provided fresh fruit and vegetables to the end consumer market. After 18 years of operation, the managers began to realise that many of the larger franchise competitors (such as Pick n Pay, Checkers, Spar and Fruit&Veg City) were dominating the market. Local competitors also served as a threat, wanting to take advantage of the growing healthy lifestyle trend. In addition, the location in which the business was situated had transformed from a residential area into a business centre hub. Taking all this into account, the managers decided to adapt their initial business strategy and model to suit the modern consumers’ needs for organic, healthy and cultural-based cuisine goods. The owners shifted away from being a conventional fruit and vegetable store into a business that specialised in natural, good-quality offerings. The business then expanded further to offer bakery and deli sections as well as convenience goods. A variety of speciality goods were added to the business’s product range. These included: Greek desserts South African, Spanish, Italian, Greek and Portuguese olive oils Cold meats and fish including delicacies such as Parma ham, cod fish and tuna fish Imported cheeses such as Gorganzola and mozzarella balls Local and imported spices and seasoning Specially made in-house pastries, such as freshly baked bread, steak and kidney pies and sausage rolls, which were a local favourite The partners brought this new strategy to life through their customer-centred employees, supplier relationships and hands-on approach to management. One strategy will not stand the test of time, as industry change is inevitable. The Westdene Fruiterers management team have developed a culture of continuous research in order to identify gaps in the market and, in turn, strengthen their competitive advantage. The brothers study newspapers and journals, consult with suppliers, customers and employees and monitor their competitors’ actions. This research nature has helped the business spot additional business opportunities that have resulted in new strategies, including the following: The identification of a brand new target market that was originally neglected by larger competitors. This new market includes local restaurants, catering companies and hotel and catering schools in the region. Westdene Fruiterers has come to the realisation that these target markets have specific product, delivery and payment needs, and has therefore introduced tailor-made services for them. These services include importing products, delivering goods and offering credit payment options. Taking advantage of being situated in the business-city hub. Westdene Fruiterers caters to many working-class consumers from surrounding office areas by offering lunch-time specials and snack meals. Catering to the growing need for convenience. More people are leaving the rural surrounding areas to work and study in the Bloemfontein region. Limited time is available to these individuals, owing to full-time work/study obligations. Westdene Fruiterers has therefore decided to offer ready-made meals in their deli. In addition, washed and sliced fruit and vegetables have been pre-prepared in smaller packages to aid in meal preparation for the health-conscious market. Incorporating technology into their business strategy. The business has used various technological advancements to assist in product manufacturing, store security and stock control and to connect and communicate with their Bloemfontein audience. Carlos and Francisco state that it is vital to remain humble and always willing to adapt where necessary. Although the original vision and mission set by Carlos Achadinha Sr has evolved over the years, one aspect has remained constant: the pursuit to keep their customers happy. Source: Adapted from http://westdenefruits.co.za/ (accessed on 27 August 2014) Case study questions 1. Identify which macro-environmental variables triggered the creation of Westdene Fruiterers’ new business strategies. Justify your answer from the case study. 2. Classify the stakeholders which have contributed towards Westdene Fruiterers’ success. Substantiate your answer by referring to the case study. 3. Explain which micro-environmental variables have been implemented by the company. 4. Discuss the sources and approaches used by Westdene Fruiterers in order to stay abreast of the environmental changes. 5. Conduct a SWOT analysis for Westdene Fruiterers. MANAGEMENT DISCUSSION EXERCISES 1. Discuss the role of the micro-environment and its components in an organisation’s success. 2. As a manager, do you think it’s important for an organisation to develop a competitive advantage in today’s business times? Substantiate your answer. 3. Provide recommendations to your educational institution as to how they can make use of technological innovations to deliver better quality service. 4. What challenges do you think the macro-environment will present for businesses operating in South Africa in the next five years? 5. Why is it important for managers to invest in environmental scanning? 4 Managerial ethics and social responsibility SALOMIEN BOSHOFF Learning outcomes After studying this chapter you should be able to do the following: Define ethical concepts. Explain the four forces that influence ethical conduct. Discuss the nature of managerial ethics. Differentiate between the different approaches to ethical decision-making. Define ethical decision-making. Illustrate the importance of ethical behaviour. Summarise the codes of ethics. Discuss corporate social responsibility (CSR). Differentiate between the two approaches to corporate social responsibility. Demonstrate the four criteria to evaluate effective corporate social responsibility. 4.1 INTRODUCTION Even though philosophers have been discussing ethics for at least 2500 years, since the time of Socrates and Plato, there are still some grey areas when it comes to this topic. It is not always easy to identify what is right and wrong. At other times it is easy to identify what is right and wrong, but to behave in an equivalent way is difficult. Also, “the right thing” is not nearly as straightforward as some books make it out to be, because in an ethical dilemma there are often grey areas when it comes to applying ethical principles. People also like to bend the rules in certain situations. Many individuals decide situationally whether something is right or wrong, or are not even aware that they are facing an ethical dilemma. Ethics and ethical behaviour are thus an essential part of good management: Ethics is the set of moral principles or values that defines right and wrong for a person. Ethical behaviour is behaviour that matches society’s accepted principles of right and wrong. An ethical issue is a situation where the actions of a manager can harm or benefit a person or group. The ethical dilemma discussed in Management in action 4.1 illustrates how complex and difficult ethical behaviour is. MANAGEMENT IN ACTION 4.1 Ethical dilemma As sales manager, you host an exciting competition for your sales representatives where the one who sells the most in the month will win a trip to Rio. Tyron, a trustworthy sales representative, needs to sell another R100 000 of merchandise to beat his strongest opponent, Precious. One of Tyron’s clients, with whom he has an excellent relationship, has always allowed Tyron free access to his inventory. Each month, Tyron counts the stock and writes out his own order. His client has never queried anything as Tyron has always done an excellent and honest job, ensuring that he has never been out of stock or overstocked. Tyron realises that by doubling this client’s order for the month, he can get the extra R100 000, which he does. As usual, no one queries the order or his judgement. Tyron makes his target and wins the trip to Rio. He has the time of his life, but when he returns, he finds out that his client has returned all the extra stock and requested credit for it. More than this, he never wants to do business with Tyron again. Tyron is quite offended as he feels that his client knew about the competition and no real damage was done. The stock would have lasted a bit longer, but they would have used it all anyway. When you call him in to discuss the case, he argues that there was no rule stating that he could not do that. What are the ethical issues in this case and how would you as manager sort out this problem? Organisational ethics is the application of ethics in the organisation. Being ethical in the organisation means applying the principles of trustworthiness, respect, responsibility, fairness and caring to relationships with colleagues, customers and other organisation-related relationships in the long term. Ethical behaviour should be at the centre of an organisation’s actions and is applicable to all types of organisations in all the different industries. Organisational ethics has different meanings for different people, but in general it is about doing the right thing and this chapter is concerned with the behaviour of managers at all levels in the organisation. Organisational ethics is an art and a science for maintaining harmonious relationships with the society in which an organisation operates, as well as the moral responsibility for conducting the right actions and behaviour when it comes to the employees and stakeholders of the organisation. 4.2 THE FORCES FOR ETHICAL CONDUCT Ethical conduct within an organisation is influenced by four forces: individual perspective, societal norms and culture, societal laws and regulations, and organisational practices and culture (Hellriegel et al, 2008: 145). 4.2.1 Individual perspective Some people believe that ethics is rooted in the moral principles of society, while others believe it depends on the situation, but ultimately it is up to the individual to decide. Each individual has his or her own sense of what is right and wrong. There are some core concepts, known as internal factors, which underlie the foundation of this individual perspective of right and wrong, namely, values, morals, integrity and character. In their book The power of ethical management, Kenneth Blanchard and Norman Vincent Peales write that it helps to ask yourself three questions when facing an ethical dilemma: 1. Is my proposed action legal? 2. Is it balanced? 3. How will it make me feel about myself? The first of these concepts is about the individual’s value system and morals, which include the actions and behaviour that an individual regards as favourable. From childhood, one is punished and rewarded for certain actions and behaviour which builds one’s values and morals. The organisation is a composite of individuals and the values of an organisation are a derivative and inference of their collective values. There are four levels of morals (Trevino & Brown, 2004: 70): Moral awareness – recognising an issue as an ethical issue Moral judgement – deciding that a specific action is right Moral motivation – the commitment or intention to take the moral action Moral character – persistence or follow-through to take the ethical action despite challenges Integrity is the second concept relating to an individual’s ethical perspective and refers to a consistent commitment to live out the right values and morals as seen by the individual. This refers to the honesty and truthfulness of an individual’s actions, i.e. not saying one thing and then doing another. In her book Integrity: doing the right thing for the right reason, Barbara Killinger defines integrity as “a personal choice, an uncompromising and predictably consistent commitment to honour moral, ethical, spiritual and artistic values and principles” (Killinger, 2010: 12). The third concept is character. Character is that thing that drives one’s actions when no one is looking and is the sum total of one’s values and morals, ethical standards, principles and integrity. Then there are some external factors that influence an individual’s perspective of right and wrong. Even if one makes the right decision, or knows right from wrong, it is often difficult to follow through as a result of external factors, such as the environment, peers, leaders and managers, family, social groups and culture. Many people are followers of ethical behaviour and are influenced by superiors. Research shows that many employees may not report misconduct as they fear being judged and ostracised by co-workers. Thus, the social context plays a crucial role in the acting out of one’s ethical standards. 4.2.2 Societal norms and culture Ethical standards develop mainly from surrounding society. What is ethical in Nigeria may be poles apart from what is ethical in America, China or Switzerland, owing to differing local standards. Managers working for international organisations should take this into account when developing and applying the organisation’s ethical standards. What applies in South Africa may not apply in Dubai, for example. Furthermore, what is ethical and legal in any society may change over time. Today one cannot imagine that people were once allowed to smoke in shopping malls, in restaurants or on airplanes. These changes in societal views are followed by legal requirements or vice versa – as a result of a change in legal requirements, the societal view changes. Another example is that in order to increase environmental awareness, supermarkets are no longer allowed to give out free plastic bags. Societal norms are also influenced by belief systems. In the 19th century, everyone accepted the Christian code of ethical behaviour, but today there are competing religious and social moral codes, especially for multinational organisations that operate in different countries and regions. Culture also affects societal norms. In South Africa one of the challenges is the diverse cultural groups and their acceptable norms and behaviour. It becomes more complicated when an organisation’s employees not only come from different cultural groups but also from different countries. 4.2.3 Laws and regulations Some will argue that ethics begins where the law ends, and that it is primarily concerned with the issues not covered by the law. Of course laws, rules and regulations influence managers’ and individuals’ behaviour to be more ethical. Laws usually stipulate what is right or wrong through a series of rules and regulations formed over time and guide managers’ and individuals’ behaviour accordingly. However, making something illegal does not necessarily stop people from doing it (e.g. committing fraud), just as operating within the limits of the law does not automatically make an action ethical (e.g. withholding vital information). A country’s legal system nevertheless does give an indication of its ethical standards. 4.2.4 Organisational practices and culture Organisational practices and culture are the system of shared meaning and beliefs held by members that distinguish the organisation from other organisations. Each organisation has its own culture based on the values that its founder wants to transmit in the workplace and can define and influence the ethical behaviour of the employees. An organisational culture should encourage ethical behaviour and discourage unethical behaviour. A strong organisational culture that supports high ethical standards may have a positive influence on the ethical behaviour of managers and employees, whilst a weak culture may do the opposite, with managers and employees relying on subcultural norms to guide their decisions and actions. Research has shown that organisational culture has the largest influence on employees’ individual ethical behaviour. Organisations can guide employees formally or informally. Formal guidance happens through rules, rituals and regulations, the organisational code of conduct, the organisation’s set of values, publications, content of the training programmes, reward systems or the disciplinary actions by the organisation (see Management in action 4.2). MANAGEMENT IN ACTION 4.2 Tata Steel Tata Steel is committed to tackling the challenges of sustainability, thus taking responsibility for both the environment and its communities through its decisions and actions. The Tata Steel sustainability policy states: “Our policy is to conduct our activities in relation to economic progress, social responsibility and environmental concerns in an integrated way in order to be more sustainable and to meet the expectations of our stakeholders.” Tata Steel has five core values which define the ethics of the organisation and are evident in its daily activities, namely, integrity, understanding, excellence, unity and responsibility. Tata Steel builds ethical and sustainable practices into all areas of its operations. It has continued to invest effort and resources in relation to the five key priorities that underpin its vision with regard to climate change. These priorities are to 1. continue to achieve emission reductions, 2. invest in longer-term breakthrough technologies for producing low-carbon steels, 3. develop new products and services that generate lower CO2 emissions through the life cycle, 4. actively engage the entire workforce in this challenge and 5. lead by example within the global steel industry. Tata Steel’s employees are guided by these principles and regulations when making a decision or taking an action. Source: Adapted from http://businesscasestudies.co.uk/tata-steel/business-ethicsand-sustainability-in-the-steel-industry/axzz3TtWmfXp2 (accessed on 4 October 2014) Informal influences happen through the actions and example of the managers, especially top management. Middle and lower management’s actions and ethical approaches can influence a department or team positively or negatively. Employees are also influenced by their colleagues and peers and the norms of the group. Management in action 4.3 shows how a manager can influence the culture of an organisation. MANAGEMENT IN ACTION 4.3 Pep Stores’ organisational culture Managing director André Labuschaigne, appointed in 1998 and a believer in General Patton’s remark that “If you tell your people where to go, but not how to get there, you will be amazed at the results”, helped initiate a new approach to his predominately black customers and staff. The vehicle he chose was Sikhula Kun Ye (we are growing together), a motto made up of green “people branches” that would permeate every aspect of Pep culture. Organisational songs were written and sung at Pep gatherings, the staff was encouraged to greet each other with a customary “high five” and new uniforms were issued. Pep also embarked on a massive retraining programme and staff members who made a difference in sales and morale were called “dynamos”. Labuschaigne also began a process of motivating the staff through various communication media: face to face meetings, workshops, email, videos, conferences, monthly information sessions, newsletters and regional and national conventions. The Pep newsletter was changed from the dreary Pep News to the Africanised Kw@PEP (at the home of Pep) – the “@” being a nod to a commitment to existing comfortably in the dot-com world. As Labuschaigne points out: “By involving all our people in formulating our vision, mission and value system, we got a lot of people on board and they helped to create the change. All future programmes stem from Sikhula Kun Ye.” What values and norms are emphasised in this culture? How are ethics addressed? Who seems to play an important role in creating the culture? How does the culture address the needs of the different stakeholder groups? Source: Adapted from Irwin (2002) 4.3 NATURE OF MANAGERIAL ETHICS The principles of organisational ethics emphasise that the means and techniques adopted to serve the organisational ends must be sacred and pure. To be seen as an ethical leader, a manager should be two things: a moral person and a moral manager. A moral person is one of good character who is honest, trustworthy and respected by employees for doing the right thing. Being a moral person will show a manager what to do when faced with an ethical dilemma, not what is expected of him or her. A moral manager will lead his or her employees to make ethical decisions and to follow through with them. This will make him or her an ethical leader. Trevino and Brown (2004) identify four guidelines that will help managers to manage ethics: 1. Understand the existing ethical culture of the organisation and society. 2. Communicate the ethical standards to all role-players. 3. Use the reward system to enhance ethical behaviour. 4. Promote ethical leadership throughout the organisation. Managers are under a lot of pressure and therefore are sometimes tempted to engage in unethical behaviour. An employee or manager may not have the courage to stand up for what is right. Sometimes people behave unethically out of greed, pressure to perform and the pressure to appear successful. Ego also plays a part in the way people behave. 4.4 ETHICAL DECISION-MAKING Ethics guides decision-making and managers have to consider the impact of their decisions in the long term. The principles of business ethics can help improve ethical decision-making by providing managers with the appropriate knowledge and tools to allow them to identify, diagnose, analyse and provide solutions to the ethical problems and dilemmas with which they are confronted correctly. All decisions should be legal, fair and effective, and if a manager cannot answer yes to all three questions, the next step should not be taken. Nestlé is an example of an organisation that uses its ethical principles to guide its decisions. One of Nestlé’s principles states that Nestlé recognises that its consumers have a sincere and legitimate interest in the behaviour, beliefs and actions of the organisation behind its brands in which they place their trust and that without its consumers, the organisation would not exist. 4.4.1 Approaches to ethical decision-making An ethical dilemma is seldom simple. Consider Management in action 4.4. MANAGEMENT IN ACTION 4.4 Sick days You work in an organisation where other employees regularly take sick leave although they are not really sick. They feel it is something that the organisation owes them and everyone else is doing it, so why shouldn’t they. Organisational policy, however, states that sick leave is only for legitimate illness. Would you 1. stick to the policy yourself, even if your colleagues do not? 2. discuss your colleagues’ dishonest behaviour with your manager? 3. cover for your colleagues so that everyone gets the most possible time off? 4. try to get the rule changed so that a formal doctor’s certificate is required to stay away from work? In ethical decision-making, different issues and parties may be involved and the decision-makers may have different views. Various approaches to ethical decision-making have been developed over the years. These models explain and describe the philosophy that an organisation or an individual (manager) may believe in and follow. Each model has a set of principles in terms of which a manager can make ethical decisions. There are six known approaches and understanding these different approaches can help a manager to assess the benefits and problems associated with these different ways of managing ethics. 4.4.1.1 Long-term self-interest A manager following this approach believes one should never make a decision or take an action that is not in the organisation’s long-term selfinterest and he or she will inspire their team to give great service to customers, leading to greater customer satisfaction and, in the long term, customer retention. A short-term self-interest approach, on the other hand, would only be concerned with making the sale, even if the customer was not happy afterwards. 4.4.1.2 Personal virtue “Do not do anything that you do not want the world to know.” A manager following the personal virtue approach will do the right and honest thing to avoid bad publicity. 4.4.1.3 Religious injunction These managers are religious and carry this aspect of themselves over into the organisation. They will never take a decision that is heartless or harmful to the community or individual in any way. They believe in working together in harmony as a team to accomplish goals and that all decisions must benefit other people. They follow a people-focused approach. 4.4.1.4 Utilitarian benefits The utilitarian approach states that whatever one decides, the outcome must increase the happiness or decrease the misery of the greatest number of people over the long term. Thus, a decision made in terms of the utilitarian approach will benefit the majority, but may harm the minority. A manager following this approach will inspire his or her employees to use the organisation’s resources in the most effective and efficient way for the organisation to be profitable while keeping to the rules and standards. All decisions will be taken in such a way that the greatest number of people (stakeholders) will receive a long-term benefit. This type of approach supports maximising profits, receiving rewards based on abilities and achievements, sacrifice and hard work. According to this approach a manager should judge whether a decision is right or wrong based on the economic consequences for the organisation. 4.4.1.5 Moral rights According to the moral rights model, a decision should be in line with the rights of the society as set out in the South African Constitution, with mutual respect as the foundation. Employees, customers and other stakeholder groups have the right not to have their lives and safety endangered or to be intentionally deceived, to have control over their privacy and to have freedom of speech. This approach places more emphasis on what an organisation should not do rather than what it should do. 4.4.1.6 Justice Justice is an elusive, yet powerful concept that is important to organisational ethics. The way a manager makes judgements about fair employee treatment will determine his or her moral authority and how much he or she is respected. Managers following the justice approach will make decisions and take actions that equally distribute the benefits and costs among individuals and groups. When taking action, it should never harm the least fortunate, like the poor, uneducated or unemployed. People should not be treated differently based on their characteristics, be they physical, biological or mental. According to the Employment Equity Act of South Africa, employers may not discriminate between employees based on gender, race, pregnancy, marital status, family responsibility, ethnic or social background, age, disability, HIV status, religion, beliefs, political opinions, culture, language or birthplace. This approach pertains to equality and fairness in the distribution of economic and social benefits. In an organisation, as in life in general, decisions resting on judgements of what is fair can result in a great deal of turmoil and unhappiness. 4.4.1.7 Combination of approaches Each of the six approaches discussed above has pros and cons. None can be regarded strictly as being the right approach and therefore the better approach would be to use a combination. For example, managers could follow the utilitarian approach in terms of maximising profits, but also believe in justice and doing the right thing for the majority of people. 4.5 IMPORTANCE OF MANAGERS TO BEHAVE ETHICALLY Operating in an ethical manner may lead to extra costs for the organisation when compared to the opposition who do not act in the same way. There are costs involved in conducting audits and working with ethical partners, and costs concerning employee and partner training. Despite these costs, managers have to be constantly aware of the value of operating ethically within the organisation. Whether an organisation operates in an office setting, a factory, a boardroom or a construction site, ethical behaviour is important. Ethics does not depend on the type of organisation. A few reasons why ethical behaviour is important are discussed below. 4.5.1 Customer satisfaction and loyalty In today’s increasingly competitive and uncertain consumerism environment, organisations have to walk the extra mile to satisfy customers’ high expectations. A good ethical reputation can lead to a positive image in the marketplace. Reasons why organisations should maintain a good ethical reputation include the following: To maintain a good reputation To keep existing customers and to attract new ones To avoid lawsuits To reduce employee turnover To avoid government intervention in the form of new laws and regulations controlling business activities To please customers, employees and society Simply to do things right Customers may be fooled once by being overcharged or treated unfairly, but they will not let history repeat itself. Therefore an organisation’s unethical behaviour may ruin its chances of a positive image in the marketplace. In this age of social networking where dissatisfied and unfairly treated customers can quickly spread information about a negative experience, organisations need to focus even more on their ethical reputation. Once customers realise that an organisation does not have high ethical ideals, they will take their business elsewhere. Unfortunately, it is easier to notice unethical actions and behaviours than ethical ones. 4.5.2 Employees follow People follow what managers do rather than listening to what they say. Organisational ethics thus begins with an ethical manager with strong leadership and moral influence. Employees who do not believe an organisation is fair will not be as dedicated to their job as they should be and might also try to cut corners wherever there is a gap. Organisations with high ethical standards take the time to train their employees about the conduct that is expected of them. Attention to ethics in the workplace helps to ensure that in times of crisis and confusion, employees retain a strong moral compass. 4.5.3 Retain good employees It is a known fact that human resources are one of the most valuable resources an organisation can have, as people buy from people. Organisations with a good ethical reputation will get talented individuals with high integrity and work ethics to work for them. These talented and ethical individuals will want to be part of an organisation that can advance their careers, where they will be promoted on a fair basis, where the organisation’s management team tells the truth and are open and fair in all dealings with the employees. 4.5.4 Develop a positive work environment Talented and ethical employees are perceived as team players that develop positive relationships with others which lead to a more positive work environment. Ethical behaviour improves the atmosphere at work and helps motivate employees. It sets a good example and evokes a sense of pride in the organisation, improving its image in the eyes of both employees and the public. An ongoing focus on the values of the organisation leads to openness, integrity and a sense of community within the organisation. 4.5.5 Improve society Not only can an organisation with good ethical principles influence employees at work, but also when they are at home or in society. Furthermore, managers trying to be ethical will take actions that are beneficial to the majority of the people. Organisations acting in an ethical manner can contribute to the community by producing good quality products and services, providing employment, paying taxes and acting as an engine for economic development. This will also help to reduce evils in society such as child labour, unscrupulous price fixing and employee harassment. 4.5.6 Avoid legal problems There are legal consequences for some ethical infractions in the workplace, such as penalties, legal fees and fines or sanctions against the organisation. Good ethical behaviour will also reduce the risk of bad publicity and negative word of mouth. 4.5.7 Positive stakeholders When an organisation acts in an ethical manner, the confidence in the brand grows. This leads to a good reputation and stakeholders are happy to be associated with the organisation. An organisation must always remember that a positive image is vital for its continued existence. 4.5.8 Compass in a changing environment During times of fundamental change in an organisation, there is often no clear compass to guide managers in their decision-making. A continuous focus on the ethical code of conduct of the organisation can guide managers and employees during these challenging times. 4.5.9 Positive conscience Building an organisation on strong and sound ethical principles will not only lead to better growth and profitability, but also the satisfaction of being able to sleep soundly at night. 4.6 CODE OF ETHICS There will always be unethical behaviour, but organisations can reduce it by having a set of ethical standards, policies and regulations that indicates acceptable and unacceptable behaviour for employees across all the different levels within the organisation. A code of ethics is a formal document that states an organisation’s primary values and the ethical rules it expects employees to follow. It can be seen as an organic instrument that changes with the needs of society and the organisation. The beliefs and values stipulated in the code of ethics should become internalised by management and the employees and used in all business practices. By developing a code of ethics, an organisation prevents employees and organisational members from claiming ignorance as a defence for unethical behaviour. Organisations develop codes of ethics to address their unique business situation and also to inform the public about what the organisation stands for. The law and government policies are the starting point for any business code of ethics (see Management in action 4.5). Research suggests that formal ethics and legal compliance programmes can have a positive impact on ethical behaviour. When executives and superiors emphasise ethics, keep promises and model ethical conduct, misconduct is much lower than when employees perceive that the ethics walk is not consistent with the ethics talk. MANAGEMENT IN ACTION 4.5 Anglo American The current South African government has a policy of transferring a share of the ownership, management and benefits of the country’s mining industry to people previously excluded from the economy. Anglo American is backing the South African government in this process. This includes supporting black economic empowerment (BEE) deals. Through this process, Anglo American has sold (usually at a small discount) 26% of its assets in South Africa to BEE groups. For example, Anglo American was instrumental in the creation of Exxaro. This is now the largest blackowned and managed mining organisation listed on the Johannesburg Stock Exchange. It also aims to have at least 40% of its managers drawn from the ranks of previously disadvantaged ethnic groups. Source: Adapted from http://businesscasestudies.co.uk/anglo-american/businessethics-and-corporate-social-responsibility/why-should-a-business-actethically.html axzz3FRtLFdi3 (accessed on 4 October 2014) Where management is more directly involved in defining and implementing the codes of ethical conduct, there is better transparency and so greater public trust in the organisation. The role of top management is crucial in developing an ethical culture as they set the tone for the whole organisation. The code of ethics must be maintained during all four management functions (planning, organising, leading (activating) and control) by incorporating the organisation’s policies, rules and standards into all systems. A good code of ethics is just as important for an organisation as its marketing or business plan, or its financial strategy. Many organisations fail because their code of ethics is too vague and general, and gives no specific directives. The code of ethics should be concise and properly enforced to achieve objectives. To remain ethical is an ongoing process and requires that the organisation review and evaluate its code of ethics on a continuous basis. An ethics committee is formed in many organisations, especially bigger organisations, to raise concerns of an ethical nature, prepare the code of ethics and to resolve ethical dilemmas by following the policies and standards developed over time. Members of such a committee should be selected from people who know their industry, know the ethical code of the organisation and have a good understanding of the community’s ethical standards as well. Members should have a reputation of credibility, integrity, honesty and responsibility. The ethical committee should develop a system that deals with unethical behaviour, since if unethical behaviour is not properly dealt with, it will threaten the entire organisation’s ethical behaviour. This committee should also monitor the code of ethics on a regular basis. 4.7 CORPORATE SOCIAL RESPONSIBILITY (CSR) Corporate social responsibility (CSR) is one aspect of the overall discipline of organisational ethics. CSR has an influence on society and necessitates developing a code of conduct, updating policies and procedures, and resolving ethical dilemmas. This responsibility is reflected by ethical practices. CSR can be defined as an organisation’s sense of responsibility towards the community and the environment (economic, ecological and social) in which it operates and the obligation to maximise its positive impact on society. Social responsibility is often a way for an organisation to show its commitment to ethical behaviour and its responsibility to society. CSR became popular in the 1960s and since then organisations are no longer judged solely on their products and services, but also on their ability to have a positive impact on the environment and society in an ethical manner. Henry Ford Sr (1863–1947) summarises it in this statement: “For a long time people believed that the only purpose of industry was to make a profit. They are wrong. Its purpose is to serve the general welfare” (Daft, 2015: 172). It is part of an organisation’s responsibility to take on some of the social problems in society. This core issue has dominated the marketplace in the past few years and, like ethics, the definition is simple, but the application and implementation is much more complex. Commitment to CSR is important in managing a successful organisation and should be aligned with the organisation’s strategy and engaged with all the stakeholders. The Iron Law of Responsibility, created by Keith Davis, a pioneer of CSR, states that if an organisation does things in the long term that are not acceptable to society, it will lose its power. Research suggests that ignoring society’s demands may destroy customer trust and prompt government regulations. In June 2010, the Integrated Reporting Committee (IRC) was established in South Africa and all organisations listed on the JSE are now required to produce a report reviewing their environmental, social and economic performance along with their financial performance. 4.7.1 Approaches to corporate social responsibility The most difficult question when it comes to CSR is: to whom is the organisation responsible? There are two main approaches to this, namely, the shareholder approach and the stakeholder approach. 4.7.1.1 Shareholder approach The main focus of an organisation that follows this approach is to maximise profit. It may raise the share prices and increase the dividends that will be paid out to the shareholders. According to this approach, spending time on social causes and charity diverts time from an organisation’s main focus – making money to maximise profit. Organisations that follow this approach are Royal Dutch Shell and Falcon Oil & Gas, which are responsible for the attempt to extract gas from the Karoo through fracking (a mining process that uses chemicals toxic to both people and animals). They do not mind that the process is harmful to broader society (other stakeholders) as long as they maximise their profits. Times have changed, however, and people are becoming much more aware of the impact that certain actions may have on the environment and society. 4.7.1.2 Stakeholder approach Stakeholders are all the parties and groups that have a stake in the organisation, such as employees, customers, investors, community and the environment. Table 4.1 presents some of the stakeholders and their concerns when they evaluate the organisation’s performance. Table 4.1 Examples of stakeholders’ concerns when evaluating organisational performance Stakeholder group Owners and investors Examples of concerns Financial soundness Sustained profitability Average return on investment Timely and accurate disclosure of financial information Customers Product/service quality, innovativeness and availability Responsible management of defective or harmful products/services Pricing policies and practices Honest, accurate and responsible advertising Stakeholder group Employees Examples of concerns Non-discriminatory, merit-based hiring and firing Workforce diversity Wage and salary levels Availability of training and development Workplace safety and privacy Community Environmental sensitivity in product design and packaging Recycling of products Pollution prevention Donations Availability of facilities for community use Source: Adapted from Hellriegel et al. (2008: 124) Being socially responsible toward employees refers to treating employees fairly and meeting all legal standards, like minimum wages, a safe workplace, protection against sexual harassment, and so on. Furthermore, it means paying attention to the problems and concerns of employees. Employee-focused organisations develop a competitive advantage, as human resources are valuable and can really distinguish one organisation from another. Organisations that have a reputation for equal employment and nondiscriminatory practices perform well on the JSE and have higher profits. Socially responsible employers create a workplace environment that values their employees and rewards them according to their efforts. Organisations should also be socially responsible towards customers. The consumerism movement advocates being consumercentric, communicating honestly with customers and delivering the best possible value. The pursuit of high standards and investment in social responsibility initiatives influences customer value and retention. Consumers have a range of rights, such as the right to safety, the right to choose, the right to be informed and the right to be treated fairly. Shareholders are also important in this approach, but the focus is not on them alone. Remember that focusing on the investors is actually following the shareholder approach. CSR extends beyond the organisation’s role to the community as organisations are expected to be good corporate citizens. Part of CSR is producing products that do not harm the natural environment. In the past decade, organisations such as Toyota, Nissan and Ford have launched hybrid cars that are more fuel efficient and produce less air pollution. LG Electronics’ environmental policy is centred on its “Life’s good when it’s green” programme (see Management in action 4.6). MANAGEMENT IN ACTION 4.6 Importance of natural environment LG’s “Life’s good when it’s green” programme focuses on two areas, namely, preproduction and post-production. By 2020 LG Electronics wants to reduce greenhouse gases during both the production stages with 150 000 tons during the prestage and 30 000 000 tons during the post stage. Source: Adapted from http://www.lg.com/za/press-release/new-faces-for-lg-newstrides-for-the-environment (accessed on 10 April 2015) Another example is the outdoor wear organisation Timberland’s Green Index™ rating. This shows the customers the organisation’s environmental footprint of all its products, as many of its products contain recycled content. Timberland products have a nutrition label and product icon to show the impact that the production of the product had on the climate, and the amount of chemicals and resources used. Since 2006 Timberland has planted more than 1 000 000 trees and reduced its direct carbon emissions by 27%. Source: Adapted from http://www.mnn.com/money/green-workplace/stories/10-ecofriendly-retailers (accessed on 10 April 2015) 4.7.2 Criteria for evaluating corporate social responsibility The following criteria are used to evaluate CSR: 1. Economic. These criteria focus on profit maximisation and producing products and services that are profitable. However, it can be harmful to the organisation to focus solely on economics. 2. Legal. The organisation has an obligation to obey the law. It should fulfil its economic goals within the legal requirements of the country in which it is doing business. 3. Ethical. The organisation should be ethically responsible, which refers to behaviour that is not codified by the law or direct economic interests. Managers should make decisions that enhance trustworthiness, respect, responsibility, fairness and caring with all stakeholders in the long term. 4. Discretionary responsibility. This refers to generous, good-hearted actions that offer no remuneration and are unexpected. These actions are not mandated by economics, law or ethics. Examples of discretionary responsibility include making contributions to charitable organisations, providing benefits to employees and improving quality of life in the workplace, and using resources to operate a programme to address social problems like poverty, unemployment and HIV and AIDS. There is also another approach to corporate social responsibility, referred to as the triple bottom line: organisations should be (1) economically responsible (sustainable in economic terms), (2) socially responsible (do no harm to the community with their decisions and behaviour) and (3) use the physical environment in such a way that future generations will experience the same benefits as they experience now. 4.8 SUMMARY Ethical behaviour is defined as the right and wrong of performing activities in an organisation. The four main forces that influence ethical behaviour are a manager’s individual perspective, societal norms and culture, laws and regulations, and organisational practices and culture. Different approaches are followed by different managers and influence how they will make decisions regarding ethical issues. Making these ethical decisions is to the advantage of the organisation for several reasons. Organisations operate in a social environment where they have a responsibility to a range of stakeholders, including the wider community. Corporate social responsibility refers to the responsibility that modern organisations have to create a healthy and prosperous society. Part of this responsibility is protecting the natural environment. The benefits for an organisation of enhancing its ethical behaviour and corporate social responsibility cannot be overemphasised. REFERENCES AND RECOMMENDED READING Abratt, R. & Penman, N. 2002. Understanding factors affecting salespeople’s perceptions of ethical behavior in South Africa. Journal of Business Ethics, 35(4): 269–280. Alvesson, M. & Willmott, H. 2012. Making sense of management: a critical introduction. London: Sage Publications. Bernardi, R.A. & LaCross, C.C. 2005. Corporate transparency: code of ethics disclosure. CPA Journal, 75(4): 34–37. Blanchard, K. & Norman, V.P. (1988) The Power of Ethical Management. New York: William Morrow. Daft, R.L. 2015. The leadership experience. 6th ed. Stamford: Cengage Learning. Daft, R.L. & Marcic, D. 2013. Understanding management, 9th ed. Stamford: Cengage Learning. Felo, A.J. 2007. Board oversight of corporate ethics program and disclosure transparency. Accounting & the Public Interest, 7: 1–25. Hellriegel, D., Jackson, S.E., Slocum, J., Staude, G., Amos, T., Klopper, H.B., Louw, L. & Oosthuizen, T. 2008. Management, 4th ed. Cape Town: Oxford University Press. Irwin, R. 2002. Pep recharged. http://www.brandchannel.com/features_profile.asp?pr_id=100 (accessed on 4 March 2015). Kelly, M. & Williams, C. 2014. Introduction to Business, 7th ed. Stamford: Cengage Learning Killinger, B. 2010. Integrity: doing the right thing for the right reason. Canada: McGill-Queen’s Press (MQUP). McCann, J. & Sweet, M. 2014. The perceptions of ethical and sustainable leadership. Journal of Business Ethics, 121(3): 373–383. Nickels, W.G., McHugh, J.M. & McHugh, S.M. 2013. Understanding business, 10th ed. New York: McGraw-Hill. O’Boyle, E.J. & Sandonà, L. 2014. Teaching business ethics through popular feature films: an experiential approach. Journal of Business Ethics, 121(3): 329–340. Price, G. & Van der Walt, A.J. 2013. Changes in attitudes towards business ethics held by former South African business management students. Journal of Business Ethics, 113(3): 429–440. Trevino, L.K. & Brown, M.E. 2004. Managing to be ethical: debunking five business ethics myths. Academy of Management Executive, 18(2): 69–81. West, A. 2009. The ethics of corporate governance: a (South) African perspective. International Journal of Law and Management, 51(1): 10–16. Williams, C. 2014. Principles of management, 7th ed. Stamford: Cengage Learning. CASE STUDY: WHAT IS WRONG WITH THE BODY SHOP? A CRITICISM OF “GREEN” CONSUMERISM The Body Shop has successfully manufactured an image of being a caring organisation that is helping to protect the environment and indigenous peoples, and preventing the suffering of animals – whilst selling ‘natural’ products. But behind the green and cuddly image lies the reality – The Body Shop’s operations, like those of all multinationals, have a detrimental effect on the environment and the world’s poor. They do not help the plight of animals or indigenous peoples (and may be having a harmful effect), and their products are far from what they’re cracked up to be. The Body Shop has put itself on a pedestal in order to exploit people’s idealism. Organisations like The Body Shop continually hype their products through advertising and marketing, often creating a demand for something where a real need for it does not exist. The message pushed is that the route to happiness is through buying more and more of their products. The increasing domination of multinationals and their standardised products is leading to global cultural conformity. The world’s problems will only be tackled by curbing such consumerism – one of the fundamental causes of world poverty, environmental destruction and social alienation. Fuelling consumption at the earth’s expense The Body Shop has over 1 500 stores in 47 countries, and aggressive expansion plans. Their main purpose (like all multinationals) is making lots of money for their rich shareholders. In other words, they are driven by power and greed. But The Body Shop tries to conceal this reality by continually pushing the message that by shopping at their stores, rather than elsewhere, people will help solve some of the world’s problems. The truth is that nobody can make the world a better place by shopping. Twenty per cent of the world’s population consumes 80% of its resources. A high standard of living for some people means gross social inequalities and poverty around the world. Also, the mass production, packaging and transportation of huge quantities of goods is using up the world’s resources faster than they can be renewed and filling the land, sea and air with dangerous pollution and waste. Those who advocate an everincreasing level of consumption, and equate such consumption with personal wellbeing, economic progress and social fulfillment, are creating a recipe for ecological disaster. Rejecting consumerism does not mean also rejecting our basic needs, our stylishness, our real choices or our quality of life. It is about creating a just, stable and sustainable world, where resources are under the control of local communities and are distributed equally and sparingly – it’s about improving everyone’s quality of life. Consuming even more things is an unsatisfying and harmful way to try to be happy and fulfilled. Human happiness is not related to what people buy, but to who we are and how we relate to each other. LET’S CONSUME LESS AND LIVE MORE! Misleading the public Natural products? – The Body Shop gives the impression that its products are made from mostly natural ingredients. In fact like all big cosmetic organisations it makes wide use of non-renewable petrochemicals, synthetic colours, fragrances and preservatives, and in many of its products it uses only tiny amounts of botanical-based ingredients. Some experts have warned about the potential adverse effects on the skin of some of the synthetic ingredients. The Body Shop also regularly irradiates certain products to try to kill microbes – radiation is generated from dangerous non-renewable uranium which cannot be disposed of safely. Helping animals? – Although The Body Shop maintains that it is against animal testing, it does not always make clear that many of the ingredients in its products have been tested on animals by other organisations, causing much pain and suffering to those animals. It accepts ingredients tested on animals before 1991, or those tested since then (if they were animal-tested for some purpose other than for cosmetics). There continue to be concerns about the enforcement of its policy. Also, some Body Shop items contain animal products such as gelatine (crushed bone). Caring for our bodies? – The cosmetics industry, which includes The Body Shop, tries to make women – and increasingly now also men – feel inadequate and insecure about their bodies, and pushes the message that people need ‘beautifying’. Women especially are often put under pressure to conform to the impossible physical ideals set by moneyoriented industries and the media. Let’s appreciate everyone’s natural beauty and dignity. Low pay and against unions The Body Shop pays its store workers low wages at or near the expected minimum wage and well below the official European ‘decency threshold’ for pay. The organisation is opposed to trade unions, ensuring that it keeps labour costs down and that employees are not able to organise to improve their working conditions. None of its workers are unionised so employees are forced to channel their grievances and demands through procedures completely controlled by the organisation. This isolates workers and denies them collective bargaining power. Exploiting indigenous people The Body Shop claims to be helping some third-world workers and indigenous peoples through so-called ‘Trade Not Aid’ or ‘Community Trade’ projects. In fact, these are largely a marketing ploy as less than 1% of sales go to ‘Community Trade’ producers, and it has been shown that some of these products have been sourced from mainstream commercial markets. One such project, which has been the centrepiece of the organisation’s marketing strategy for years, is with the Kayapo Indians in Brazil. The Body Shop has claimed that by harvesting brazil nut oil (used in hair conditioner), the Indians are able to make sustainable use of the forest thereby preventing its destruction by mining and logging organisations. But only a small number of the Kayapo are involved, creating resentment and internal divisions within the community. As The Body Shop is the sole buyer of the oil, it can set any price it likes. The project does nothing to safeguard the Indians’ future interests. Furthermore, the organisation has used them extensively for PR purposes for which they have not been compensated. Such projects take attention away from the need to oppose the threats to the survival of indigenous peoples. Rather than encouraging them to be tied into the market economy controlled by foreign organisations, people should be supporting their freedom to control their own land and resources and therefore their future. One recent Body Shop advertisement extolled its commitment to indigenous peoples and the American Express card (the ultimate symbol of consumerism). At the time American Express was a major backer of a massive hydroelectric scheme due to flood vast areas of Cree Indian land in Quebec against Cree opposition. Censorship As The Body Shop relies so heavily on its ‘green’, ‘caring’ image, it has threatened or brought legal action against some of those who have criticised it, trying to stifle legitimate public discussion. It’s vital to stand up to intimidation and to defend free speech. What can you do? Together we can fight back against the institutions and the people in power who dominate our lives and our planet. Workers can and do organise together to fight for their rights and dignity. People are increasingly aware of the need to think seriously about the products we use, and to consume less. People in poor countries are organising themselves to stand up to multinationals and banks which dominate the world’s economy. Environmental and animal rights protests and campaigns are growing everywhere. Why not join in the struggle for a better world? London Greenpeace calls on people to create an anarchist society – a society without oppression, exploitation and hierarchy, based on strong and free communities, the sharing of precious resources and respect for all life. Talk to friends and family, neighbours and workmates about these issues. Source: Adapted from http://oikos-international.org/wpcontent/uploads/2013/10/oikos_Cases_2007_Body_Shop.pdf (accessed on 10 April 2015) Case study questions 1. Identify the ethical issues in this case study. 2. Write a report on how The Body Shop could be more stakeholder focused than shareholder focused. 3. Evaluate The Body Shop on the four criteria for CSR. 4. Explain to The Body Shop the advantages of being ethical and socially responsible in terms of its line of business. MANAGEMENT DISCUSSION EXERCISES 1. Think of ways that an organisation can be socially responsible towards its employees. Programmes like on-site baby care centres, sponsored day camps, services for the elderly, etc. 2. Organisations communicate their ethical principles in a variety of ways: through the behaviour of their leaders, in writing, by offering training programmes, through performance assessment methods. Choose an organisation and suggest five ways in which it could improve its way of communicating its ethical principles. 3. Research Old Mutual’s code of ethics and write a short paper listing or describing its code. How much of it relates specifically to the organisation’s business or industry? How much is related to basic human morality? 4. Find all the South African banks’ CSR policies and compare them. Determine how each bank’s CSR programme is aimed at the stakeholders involved. 5. Develop an elementary ethics game. The game can take any format (board game, quiz game, video game). 6. Identify major social responsibility issues currently in the news. 7. Go to the website of Starbucks at http://www.starbucks.com/aboutus/csr.asp. Answer the following questions: (a) Which areas do Starbucks target as important parts of its social responsibility? (b) Why do you think the organisation has chosen these areas? (c) How do these differ from other coffee restaurant chains? 8. One way that organisations can contribute to the community is by encouraging employees to participate in community activities. Pick n Pay is an example of an organisation that takes this approach. Investigate the specific types of community activities that Pick n Pay supports. Does the organisation’s approach to corporate social responsibility represent a sincere concern about its role in society or are the motives behind the activities primarily commercial? Evaluate Pick n Pay’s CSR programme based on the four criteria of CSR. 5 Planning KOBUS LAZENBY Learning outcomes After studying this chapter you should be able to do the following: Understand the importance of planning. Understand the planning process. Identify the importance of goals and the specifications for goal setting. Explain some important contemporary factors and issues in planning. Realise the importance of time management and its role in planning. 5.1 INTRODUCTION In Chapter 1, planning was introduced as one of the basic management tasks that must be performed by all managers on all levels and is an integral part of all management tasks. It is a central management task because as the saying goes “failing to plan, is planning to fail”. It is important that the organisation develop certain goals that it wants to achieve in order to take the organisation a step further. This means that managers should develop a plan (strategy) for achieving these goals. The essence of planning involves managers deciding on a plan of action in order to achieve certain goals of the organisation. It is impossible to imagine that there are still managers who do not realise the importance of planning. 5.1.1 What is planning? The process of planning involves defining what the organisation wants to achieve in the near future. This is known as the organisation’s goals. Once these goals are known, it is important to establish an overall strategy (plan) for achieving these goals. This involves a comprehensive set of plans to integrate and coordinate the organisational work. What is planning then? In short, planning can be defined as the consideration and visualisation of what the organisation or departments in the organisation should achieve within a particular time span as well as the development of a plan (or set of plans) to achieve these goals. As already stated, planning is concerned with both the ends (what must be done) and the means (how it must be done). Another important issue about planning is whether planning should be formal or informal. In some cases it can be informal. If you plan your day, you do not always write it down and do not share it with others. So with informal planning, nothing is put in writing and there is little or no sharing of goals with others in the organisation. This is more likely to happen in some smaller organisations where the entrepreneur or business owner may have a clear idea of where he or she wants to take the business in the future, but it is not written down and not always shared with the other employees. In formal planning, on the other hand, the specific goals covering a specific time period are defined and written down. All organisational members are aware of what the goals are that the organisation wants to achieve. To answer the question of whether planning should be formal or informal is difficult. Formal planning has the advantage that the goals are written down and it is shared with others; however, if the plan is not realised, then more people will be aware of the failure. In this chapter, planning will be discussed as a formal process. Formal planning involves three different phases. Without going into the details of the phases, reference is made to the activities involved. In formal planning, it is important that the organisation 1. consider the internal environment of the organisation and align it with the opportunities and threats from the external environment 2. develop goals (long term) and objectives (short term) in each area of the organisation where performance and results are expected 3. draft a feasible plan of action that indicates the activities, resources, policies, schedules, procedures and other methods that are necessary to achieve the stated goals and objectives. Planning is a therefore a thought as well as an action process. The thought process reflects on what should happen, while the action process implements the plans made during the thought process. It is also clear that planning is directed towards the future. What must be done in the future to achieve the goals? It is also clear that planning constitutes a systematic procedure. Lastly, the development of goals and objectives, as an inherent and fundamental part of the whole planning process, requires information about important variables that may possibly have an influence on the functioning of the organisation. The gathering of such information enables management to bring about changes to plans if there is a drastic change in the environment (see Figure 5.1). Figure 5.1 Relationship between the past, present and future in planning 5.2 WHY DO MANAGERS PLAN? Managers may ask why they should plan. Obviously this is a relevant question. If there is no substantive reason for planning, why should they go through the effort of formal planning? Is gut feeling not enough? Is experience not enough to base decisions on? Yes, in some instances it may be enough, but in the long term it will not. Perhaps the most important reason to plan is to take the organisation to a higher level and to obtain a competitive advantage. Competitive advantage is achieved when the organisation has, or does, something better that its competitors. To achieve this position is one thing, but it has to be sustained. This once again underlines the importance of planning. There are four reasons why planning is an important management task: 1. Planning gives direction. It does this by establishing coordinated efforts in the organisation. Planning provides the map of where the organisation is going. Every employee knows that his or her efforts will contribute to achieving the goals and objectives. 2. Planning reduces the impact of uncertainty. Circumstances sometimes indicate that an organisation must move in a new direction. When such changes are anticipated, uncertainty and resistance from employees are lessened. 3. Planning minimises lost time, wasted resources and redundancy. Clear objectives are determined with clear action plans so employees know exactly what to do and when to do it. 4. Planning is necessary for control. It sets the standards against which real performance is evaluated so that adjustments can be made if required. 5.2.1 Planning and performance Organisations operate in an unstable, dynamic and continuously changing environment. Decisions that managers make today will have specific consequences for the future. Various factors influence the relationship between planning and performance. The question can thus be asked whether it is worthwhile spending hours and hours on planning when organisations operate in changing environments. Is planning worthwhile? This is a relevant question because so many managers feel that they are not going to waste any time on planning. In Management in action 5.1, a number of good reasons are presented for planning. Studies have been done to determine whether there is any relationship between planning and performance. If there was no relationship, it would strengthen the question of whether planning is a worthwhile exercise. These studies however show that formal planning is associated with higher profits and other positive financial results. It makes financial sense to plan. Obviously the quality of the planning process and the appropriate and effective implementation of the plans play an important role in their success. Environmental issues also affect the outcome, as it was found that the relationship between planning and performance is influenced by such issues. If there is an unforeseen increase in the interest rate, for example, an organisation with a lot of long-term debt will be negatively influenced. An unexpected political decision could also harm an organisation. It can thus be argued that such occurences can sometimes nullify the best possible plan. 5.2.2 Dysfunctional aspects of planning The reasons given for planning can also be seen as advantages or functional aspects of planning. There are however some points of criticism against planning. According to some people, the following arguments can be used against planning. These arguments can also be regarded as so-called dysfunctional aspects of planning. One of the most pertinent criticisms directed at formal planning is that it may create rigidity in organisational decisions and actions. The argument is that planning creates specific goals and specific time periods in which things must happen. The most important points of criticism are that plans cannot be developed for a dynamic environment formal plans cannot replace intuition and creativity planning focuses managers’ attention on today’s competition, not on tomorrow’s survival formal planning reinforces success and this success groove may ultimately lead to failure. When organisations are successful, they think that things that worked in the past will continue to work in the future. So the thinking is that it is not necessary to plan. It is also important to note that organisations need a couple of years of systematic formal planning before the trend of improved performance is noticed. However, given the positive reasons for and advantages of planning, it seems that it makes sense for organisations to engage in planning. However, it is clear from Management in action 5.1 that the positives far outweigh the negatives. MANAGEMENT IN ACTION 5.1 Why planning is important Increases efficiency. Planning makes optimum utilisation of all available resources. It helps to reduce wastage and avoids duplication. It aims to give the highest returns at the lowest possible cost. Reduces business-related risks. Planning helps to forecast business-related risks and thus take the necessary precautions to avoid them. Facilitates proper coordination. The plans of all the departments of an organisation must be well coordinated. Similarly, the short-term, medium-term and long-term plans of an organisation must be coordinated with each other. Such proper coordination is possible only with efficient planning. Assists with organising. Organising means bringing together all available resources. Organising cannot be done without planning, because planning tells us how many resources are required, when they are required. Gives direction. Direction means giving correct information, accurate instructions and the right guidance to subordinates. Direction cannot be done without planning, because planning tells us what to do, how to do it and when to do it. Keeps good control. With control, the actual performance of an employee is compared with the plans, and deviations (if any) are found and corrected. It is impossible to achieve control without planning. Helps to achieve objectives. Every organisation has goals, objectives or targets that it works hard to fulfil. Planning helps to achieve these objectives more quickly and easily. Motivates personnel. A good plan provides various financial and non-financial incentives to both managers and employees. These incentives motivate them to work hard and achieve the objectives of the organisation. Encourages creativity and innovation. Planning encourages managers to express and/or use their creativity and innovation. This brings satisfaction to the managers and success to the organisation. Helps in decision-making. A manager can make a decision based on his plans. Source: Adapted from http://kalyan-city.blogspot.com/2012/02/importance-of-planningwhy-planning-is.html (accessed on 1 October 2014) 5.3 HOW DO MANAGERS PLAN? Planning establishes the basis for all the other functions of the manager because, without plans, there would be nothing to organise, lead or control. Therefore proceeding to the planning process will be a logical next step. Although one could explain the strategic planning process here, that is, determining the direction (vision and mission), doing environmental analysis, developing strategic goals and strategies and then implementing these strategies, the purpose here is to explain the planning process in general terms that are applicable to all organisational levels. Planning can be divided into the following practical steps, irrespective of the level of management and the complexity of the situation: Identify the purpose of planning. Establish goals. Develop commitment. Develop alternative plans. Evaluate the different plans and choose the best alternative. Implement the plan. Control and evaluate the results of the plan. 5.3.1 Identify the purpose of planning The organisation must know what it wants to achieve with its planning, for example increase organisational performance or improve competitive advantage. The first step in the planning process is thus to make a realistic diagnosis of why planning is necessary. This requires that the organisation understand its capabilities, future opportunities and challenges, and what the end result will be if it makes use of these opportunities. It is also important to anticipate what is going to happen in the external and internal environments of the organisation and plan accordingly. There must be agreement on both these expectations and the purpose of planning to ensure that all levels of management plan according to the same end result. 5.3.2 Establish goals Once the organisation is clear about the problem or purpose, it must determine the goals. Goal-setting gives direction to the organisation because it gives the organisation something to work towards. Goals are the desired outcomes for individuals, groups or an entire organisation (see Management in action 5.2). MANAGEMENT IN ACTION 5.2 Custom-made for success Setting high but realistic goals and staying hungry is what entrepreneurs need to achieve success. This is according to Bertus Coetzee, managing director of Dolphin Bay, a company that manufactures wood preservatives for the agriculture and construction industries. Dolphin Bay started off with just a small industrial building, five employees and second-hand salvaged industrial chemical equipment. The company now boasts two fully operational factories and is a major supplier of timber preservatives in South Africa. It has grown substantially since Coetzee took over the reins in 2009 from his father Flip Coetzee, who founded the company. The business started off extremely small, 100% financed by his father, Flip Coetzee. He was keen to own, rather than rent, his factories. He bought an industrial property with a small industrial building. Initially the company produced in small quantities. Profits were reinvested and more money – from finance as well as personal capital – was invested until the company grew to the point where it became self-sustaining, and its profits could finance its growth. Dolphin Bay supplies a product, and revenue comes from sales of this product. The company provides a custom-made service at no extra cost. The business is based on a few principles, which have made a large contribution to its achievements. Here are some of the secrets for success: Be innovative in meeting clients’ needs. Hire the right people. Maintain integrity. Track industry trends. Form strategic partnerships. Turn challenges into opportunities. Dolphin Bay caters to clients’ very specific needs, and structures its business to respond to them. Coetzee’s advice for young, aspiring entrepreneurs is don’t spend it – invest it. The younger generation is too eager to achieve a certain lifestyle, instead of ploughing money back into new business development and getting a return on their investment; be realistic and don’t be greedy. Greed puts you in a position where you stand to lose it all; stay away from debt if possible. The lessons he would like to share with fellow-entrepreneurs are stay hungry – always be on the lookout to improve, and don’t stay satisfied with current service levels. Challenge yourself and your staff and set high, but realistic, standards; set goals – break these into smaller goalposts, so you don’t get discouraged. Rather set smaller, more frequent goals which are achievable; always ensure you lead by example. Source: Adapted from http://www.fin24.com/Entrepreneurs/Profiles/Custom-made-forsuccess-20130805 (accessed on 19 August 2014) A goal is defined as a future desirable state of an organisation and is usually long-term oriented. This does not mean that short-term goals or objectives are not relevant in the planning process. In terms of planning, the first step in goal-setting is to determine what the organisation wants to achieve in the long term. This means that a certain future outcome is stated and everything is being done to achieve it. To achieve the long-term goal, a number of short-term goals or objectives are determined to achieve the longterm goals. Goals state the general targets the organisation wants to accomplish, for example to increase the revenue of the organisation, while objectives state what is to be accomplished in specific and measurable terms, for example to increase the net profit of the organisation by 5%. Goals are called the foundation of planning, because they provide the direction for all management decisions and form the criterion against which actual work accomplishments are measured. One of the most important things when determining goals is the follow-up and achievement of goals. A goal is no more than just words on a piece of paper if there is not a person identified to be accountable for achieving those goals. One way to describe goals is in terms of whether they are real or stated. Stated goals are official statements of what an organisation says, and what it wants its various stakeholders to believe, its goals are. An example of a stated goal is the mission statement of an organisation. Real goals are those goals that an organisation actually pursues, as defined and visible by the actions of its members. A real goal can be to improve the profitability of the organisation by 5% in the next financial year. 5.3.2.1 Approaches to establishing goals Goals can be established by traditional goal setting or by management by objectives. Traditional goal setting is an approach in which goals are set at the top organisational level and then broken down into sub-goals for each lower management level, where individual managers define the goals, applying their own interpretations and biases as they translate them into more specific objectives for their departments. Figure 5.2 presents an example of the goal hierarchy in an organisation. Management by objectives (MBO) is a management system in which specific performance goals are jointly determined by employees and their managers. The progress toward accomplishing those goals is periodically reviewed, and rewards are allocated on the basis of this progress. An important requirement with regard to MBO is that employees and management must be committed and management must have a follow-through approach. The steps in the MBO programme also highlight the essential features of it: Identify the employee’s tasks and job. Establish challenging objectives for each task. The employee must participate in this process. Prioritise these objectives. Build in a feedback mechanism to assess the progress toward achieving the objectives. Link rewards to achieving the objectives. Figure 5.2 Hierarchy of goals 5.3.2.2 Criteria for goals and objectives An important requirement in terms of goal-setting is the well-known SMART principle. Goals and objectives must be specific, measurable, achievable (acceptable), and realistic and there must be a timeframe for them. These are known as the so-called “must” criteria. See Management in action 5.3 for good examples of goals. MANAGEMENT IN ACTION 5.3 Examples of SMART organisational goals 1. Reduce overall operational costs by 10% by 20XX. 2. Increase market share by 5% by 20XX. 3. Increase revenue by 20% by 20XX. 4. Increase customer satisfaction by 5 pts by 20XX. The SMART principle can be described as follows: • Specific. Goals and objectives must be specific and should indicate clearly what they are related to. In this sense they should refer to a single end result. This will help to avoid any confusion, because only one thing should be achieved. When looking at the first goal in the examples given in Management in action 5.3, it is clear that operational costs must be reduced – nothing more and nothing less. The goal is also specific with regard to the percentage mentioned. There is no doubt that operational costs must be reduced by 10%. • Measurable. Goals and objectives must be measurable. They should therefore be stated in a way that they can be evaluated or quantified objectively. “To minimise operational costs” is not a measurable goal – it is too general. If operational costs were then reduced by a mere 1%, the goal would have been achieved. Stating “by 10%” is specific and the progress towards achieving this goal can be measured. • Achievable (acceptable). Goals and objectives should be achievable. They must however still provide a challenge to management and the employees, but they should be able to achieve them. They must have a motivating effect on the employees. Goals must therefore be set “high” enough so that they will present a challenge for managers and employees, but they must still be within reach and not be demotivating. Therefore it is important that a participatory process of setting goals is followed in order to ensure that goals are experienced as a challenge and are motivational by nature. If the goal was “to reduce costs by 20%”, it could prove to be too difficult to attain and employees would become demotivated. Using a participatory process of setting goals, i.e. getting input from employees, will ensure that employees accept an objective and commit to achieving it. If an objective is achievable, it motivates people because it is not so high that it is frustrating, but it is a challenge to strive for. To decrease the costs by 10% is achievable and acceptable. • Realistic. Goals and objectives should be realistic. This requirement is linked to achievability, because an unrealistic goal will not be achievable. • Time. A specific target date should be determined for accomplishing the goal. When employees have a deadline, they work harder to get the task done by the set time. If employees are simply told to complete a task when they can, they will procrastinate. People have a tendency to postpone anything that does not have a due date and will fill their time with anything else, except the task that has to be achieved. In this example employees know that the cost reduction of 10% must be achieved by 20XX. There are also other criteria that can be applied for goal-setting. One important requirement is that goals and objectives should be congruent with one another. The attainment of one objective should not eliminate the possibility of achieving another. For example, if the marketing department has an objective to sell 1000 units of a product, the production department should not have an objective to decrease the production of the units from 1000 to 800. This will lead to friction and conflict. flexible. Organisations do not operate in static markets and fixed environmental circumstances. The external environment constantly changes and the organisation’s goals must be able to adapt. 5.3.2.3 Types of goals Goals are usually formulated in each different business function, for example the marketing function determines the marketing goals and objectives, the financial department determines the financial goals and objectives, and so on. Top management are responsible for determining the strategic goals for the organisation as a whole in terms of the following: Profitability. An organisation wants to survive over the long term and this will depend on its ability to generate sustainable profits. Productivity. An organisation must constantly strive to use scarce resources more efficiently and so improve productivity. Market share. An organisation needs to increase market share by positioning itself better relative to other organisations and interest groups in the industry. Human resources. An organisation must develop its employees. Improving their competency levels has a positive effect on productivity and creates a healthier work relationship and culture. Technology. An organisation must make sure that it keeps up with relevant technological advances if it wants to increase its market share and improve its competitive position. Social responsibility. Organisations do not exist in a vacuum. They depend on inputs from the environment to produce outputs. In South Africa, the King III report on corporate governance requires organisations to be socially, environmentally and economically responsible. 5.3.3 Develop commitment Everyone in an organisation must be committed to the planning process and to achieving the goals once they are set. It does not help to set the goals for the organisation if managers and employees are not committed to achieving them. Although one can argue that this is not really a step that contributes to better planning, it is nevertheless an important step in the planning process. This step, which entails of inspiring commitment, has a strong link to the management functions of leadership and motivation. If managers do not lead and motivate employees to get their commitment to really accomplish the goals and objectives, they will not work harder to achieve the goals. To get commitment and buy-in from the employees to really achieve the goals, they need to understand the necessity of the goals. Only then will they be determined to achieve them. For example, if they know that the organisation is experiencing financial challenges, they will understand why it is necessary to increase the marketing efforts in order to save the organisation. If they don’t save the organisation, it could cost them their jobs. Another approach to getting commitment from employees is allowing employees to participate in goal-setting. If employees are part of the process of goal-setting, they will be more committed to accomplishing the goals. One approach to really getting commitment is to make some of the goals public. If some of the organisation’s goals are known to the public, employees will be more committed to work hard to achieve these goals if failure to do so will be public knowledge (see Management in action 5.4). MANAGEMENT IN ACTION 5.4 Nampak to invest $10m in Zim business Nampak, Africa’s biggest packing firm, will invest $10m in the next 12 months to expand its Zimbabwean business after consolidating the operations under one company, the local chief executive said on Thursday. Nampak consolidated its shares in three Zimbabwean packaging firms, Hunyani Holdings, MegaPak and Carnaud Metalbox under a new company, Nampak Zimbabwe Ltd, in which it will own 51.43%. John van Gend, Nampak Zimbabwe chief executive, said the government two weeks ago approved the company’s plan to comply with Zimbabwe’s black economic empowerment laws that require foreign firms to sell at least 51% shares to blacks. Van Gend told Reuters after a shareholders meeting: “We are looking at (investing) $10m in the next 12 months for projects that we want to be involved in.” Source: Adapted from http://www.fin24.com/Companies/Industrial/Nampak-to-invest10m-in-Zim-business-20140821 (accessed on 21 August 2014) 5.3.4 Develop alternative plans The organisation is now ready to develop a selection of alternative plans for achieving the goals and objectives that have been identified. This is done by considering the questions who, what, where, when and how. Programming will provide the answers to who, what and where, scheduling will answer the when and budgeting will answer the how, that is, what resources will be required to implement the plan. The budget will indicate whether the plan is feasible in financial terms and it ensures that resources are available to achieve the stated objectives and goals. In operational planning specifically, these questions are very important. This is the level where things must start to happen. Plans are described by their breadth, time frame, specificity and frequency of use. There is a general relationship between a manager’s level in the organisation and the type of planning done. The different levels of planning will now be discussed, but it is important to remember that different alternative plans can be developed at the different management levels. Strategic plans are applicable to the entire organisation. They establish the organisation’s overall goals, and their main purpose is to optimally position the organisation in terms of its environment. Strategic plans are the responsibility of top management. They are designed to meet the organisation’s broad goals and objectives in line with the business’s vision and mission. A plan can, for example, be designed to increase market share, as a result of the strategic long-term goal of increasing market share by 5% by the year 20XX. This can be achieved by developing a plan to open new branches of the organisation in new geographical areas. Another option is to increase the marketing budget and spend more on branding. Strategic plans have an extended time frame, usually three to five years. Obviously the time frame issue is debatable. In some industries, like information technology, long term can refer to six months or even shorter. The point is however that strategic plans have a longer-term focus than tactical and operational plans. It is also obvious that environmental uncertainty is high in the long term and that is why plans should be specific but flexible. Managers must be prepared to rework and amend plans as they are implemented. Tactical plans are designed by middle management. They have a specific focus within a functional area of the business, i.e. they define what departments and major subunits must do to implement the strategic plan. The environment for tactical planning is more stable and the time frame is shorter than for strategic planning. The research and development department could develop, for example, a tactical plan to conduct market research on the best possible areas to open a new branch. The marketing department could develop tactical plans on how to increase the sales of their products, because that will also help to increase market share. Operational plans describe the actual “doing” part, i.e. the day-to-day activities that need to take place to achieve the organisational goals. They tend to cover short periods and are the responsibility of first-line managers. The short-term objective to help sell more products (to help achieve the overall goal of increasing market share) is, for example, to process 150 sales applications each day. The supervisors, first-line managers and employees must now develop an operational plan that specifically states how to process the 150 sales applications per day. A plan to reduce overtime in the next month is also an example of a shortterm (operational) plan. There is also the so-called single-use plan that is a one-time plan specifically designed to meet the needs of a unique situation. The opening of a new branch could be a once-off happening and therefore a single-use plan could be designed. Standing plans are ongoing plans that provide guidance for activities performed repeatedly. Policies, procedures and rules are examples of standing plans: A policy is a general guideline, for example the leave policy defines the boundaries within which to make leave decisions. A rule defines the specific action to perform, for example there is a rule not to smoke in the building. A procedure is also sometimes called a “standard operating procedure” and describes a precise series of steps to achieve something, for example the procedure to apply for leave. 5.3.5 Evaluating the various alternative plans During the previous step, various alternative plans were developed. Now is the time that they must be evaluated in the light of the assumptions and goals. One possible plan may appear to increase profitability, but the cost of machinery replacement may be too high. Evaluating the various alternative plans can be a difficult task. There are various qualitative and quantitative techniques available to assist in this regard but these are beyond the scope of this book. Once evaluation has been done, the manager must select that alternative that will best achieve the stated goals and objectives. 5.3.6 Implementation of the plan The above steps demonstrate the thought process. Once the different plans have been evaluated, the best alternative must be selected and implemented. The implementation of the plan demonstrates the action process. The other management tasks now take over from planning. The work must be organised and the employees must be rallied through leadership, motivation and communication to work the plan. This is the most important step, because a plan means nothing if it is not implemented. 5.3.7 Control and evaluating the results of the plan The implementation of the plan and the results achieved must be monitored continuously and corrective action should be taken if something is not right. If the plans do not achieve the desired results, the managers must have a look at the plans and perhaps revise some of the plans (strategic, tactical and/or operational) to achieve the desired results. Control will be discussed in more detail in Chapter 13. 5.4 IMPORTANT FACTORS IN PLANNING Effective and efficient planning in a dynamic environment means developing plans that are specific but flexible, and being able to change direction if environmental conditions necessitate it. Below are some of the contemporary issues and factors that managers must consider during planning. 5.4.1 Significance The purpose or reason for an organisation’s existence is to survive and grow in its specific industry. Plans are essential to guide the entire organisation to accomplish its vision (future state). The significance of planning can never be underestimated in an organisation. Planning takes owners and managers through the process of determining exactly what needs to be done to accomplish the organisation’s goals and objectives. 5.4.2 Increasing demand As was discussed in Chapter 3, organisations face a good deal of uncertainty related to macro-environmental factors, in particular the shifting economic and sociopolitical conditions around the world and the growing population. Predicting the demand patterns of customers becomes more challenging in the face of such economic uncertainty. This affects growth and expansion plans. Proper planning is more important for organisations than ever before to ensure meeting the increasing, ever-changing demand. 5.4.3 Technology Over the past few years, new technology has been a game changer in organisations and this trend is likely to accelerate in the future. The game played yesterday looks totally different from the one that organisations have to play today. This is true in all aspects of the organisation – operations, marketing, finance, human resources, etc. New technological developments can make an established industry or organisation obsolete almost overnight. Contemporary organisations must plan to stay ahead of the technology curve. It is important that organisations have a standing plan to adapt in time to changes in technology that will affect their organisations. Good owners and managers of organisations keep abreast of new developments in technology, because they know that technology can give an organisation a competitive edge over its competitors or a disadvantage if they struggle to adapt to new customer preferences. 5.4.4 Legal issues The legal landscape has been in a state of flux since the turn of the century, as a result of new tax laws, new consumer protection legislation, new credit laws and new labour laws. These are just a few of the issues that modern organisations have to cope with and make allowances for in their operations. Organisations that do thorough environmental scanning and plan early for changes in the legal environment may be in a better position to benefit from any changes. 5.4.5 Financing The shifting economic and sociopolitical conditions around the world make financing, whether in the form of debt or investment, harder to come by than it was in the late 20th century. Today owners and managers of organisations must place a greater emphasis on planning for obtaining financing. They have to plan thoroughly to appeal to lenders and investors. Financial planning in general is thus an important issue for an organisation to survive in a turbulent economic environment. 5.4.6 Marketing An important factor and issue in today’s organisational world is the importance of marketing. The marketing issues of yesteryear are no longer important today. Today’s marketers must make innovation and true creativity the order of the day. Customers’ tastes and preferences are changing at an enormous rate and managers and owners of organisations must plan for these changes, as well as predict the future strength of existing and emerging industries and products. Being on the cutting edge of a new marketing technology or methodology can help the organisation to stand out in the eyes of potential customers, as well as potential investors in the organisation. 5.5 TIME MANAGEMENT One of the most important resources to deal with in management in general, is time. The saying “time is money” is very pertinent to the organisation’s day-to-day activities. Time is perhaps one of the most important aspects of competitive advantage. A quick response from an organisation in terms of the delivery of products and services can create a competitive advantage as a result of customers that value this quality in a service or product. Managers experience many demands on their time and have many responsibilities. Good personal time management is essential if goals and objectives are to be achieved – managers need to get more done in less time with better results. It is important that managers do some personal planning. When one evaluates the schedule of managers, and especially top managers, it is clear that there are far more demands on their time than they actually have time available. For example, meetings, phone calls, paper work, trips, etc. actually swallow all their available time. Why is it important to discuss this issue? The answer is clear, if managers are not successful in time management, they will experience difficulty in achieving the goals and objectives of the organisation. The important issue is then to determine how well managers use their time. It is important to remember that time is actually a scarce and unique resource. If time is wasted, it can never be replaced. Although people sometimes talk about methods and approaches that will save time, time cannot be saved. What actually happens is that one can do a piece of work in a shorter time. It is also important that managers identify their discretionary time and use it effectively and efficiently. Discretionary time is that time available to manage and does not include time spent responding to demands and problems from customers and/or employees. What is time management then? It refers to the techniques that a manager can apply to get more done in less time with better results. One technique that a manager can apply is keeping a daily diary or journal of his or her activities to enable him or her to track the time spent on them. Doing it for a week or two will give a good indication of what activities are the time absorbers. In this analysis of activities it is important to identify the importance and urgency of activities and the time spent on them. Table 5.1 provides a guideline on how to rate activities in terms of their urgency and importance, and prioritise them accordingly. This will help the manager to use his or her time more effectively. Obviously if an activity is rated very urgent and very important, for example, it must be done immediately. Sometimes managers keep themselves busy with very important issues, but which are not urgent. Although these activities must be done, they can happen at a later stage. Proper time management will help with prioritising activities according to their importance and urgency. Table 5.1 Importance and urgency of activities Importance Very important – activity must be done Important – activity should be done Not so important – activity may be done because it may be useful Not important – activity will not help to accomplish anything Urgency Very urgent – must happen now Urgent – should happen now Not so urgent – can be done later Not urgent – time is really not a factor The following process should be applied for good time management: Be clear about the objectives that must be achieved. Rank the objectives in terms of importance and urgency (Table 5.1). List the activities that are necessary to achieve these objectives. Assign priorities to the activities in terms of their importance and urgency. Schedule the activities that must be done according to the priorities determined in the previous step. By following this process, managers may be successful in applying the 80–20 principle. They can produce 80% of their results in 20% of their time. It is obvious that time management is an important issue in organisations and managers must learn how to manage their time efficiently and effectively. Disruptions must be minimised and this means that managers must try to insulate themselves from interruptions and use their time effectively. 5.6 SUMMARY Although planning is the fundamental management function, managers are sometimes reluctant to plan. The reason for this may be a lack of knowledge about the importance of planning. It is important that managers realise why planning is important for any organisation that is serious about improving competitive position in the marketplace. Planning is a systematic procedure and therefore the steps in the planning process are helpful. During the planning significance of planning and that it must help the organisation to meet the increasing demands of customers and to stay on the leading edge of technology. The only resource that is equally distributed and available to all managers is time. All managers have 24 hours per day in which to do their job. That is why effective and efficient time management is paramount for any manager. The identification and prioritisation of important and urgent tasks will help a manager to get more things done in a shorter time. REFERENCES AND RECOMMENDED READING Akrani, F. Importance of planning – Why planning is important? http://kalyancity.blogspot.com/2012/02/importance-of-planning-why-planning-is.html (accessed on 1 October 2014). Custom-made for success. http://www.fin24.com/Entrepreneurs/Profiles/Custom-made-for-success20130805 (assessed on 19 August 2014). George, J.M. & Jones, G.R. 2006. Contemporary management: creating value in organisations, 4th ed. Boston: McGraw Hill. Hedley, N. City Lodge to expand in East Africa. http://www.bdlive.co.za/business/transport/2014/08/18/city-lodge-to-expand-in-east-africa (accessed on 19 August 2014). Hellriegel, D., Jackson, S.E. & Slocum, J.W. 2002. Management: a competency-based approach, 9th ed. Ohio: Thomson South-Western. Hill, B. The importance of planning in an organization. http://smallbusiness.chron.com/importanceplanning-organization-1137.html (accessed on 2 October 2014). Ingram, D. Contemporary issues in planning for business. http://smallbusiness.chron.com/contemporaryissues-planning-business-2547.html (accessed on 27 August 2014). Lussier, R.N. 2003. Management fundamentals, 2nd ed. Ohio: Thomson South-Western. Mintzberg, H. 1973. The nature of managerial work. New York: Harper & Row. Nampak to invest $10m in Zim business. http://www.fin24.com/Companies/Industrial/Nampak-to-invest10m-in-Zim-business-20140821 (accessed on 21 August 2014). Pujari, S. What is the importance of planning in management? http://www.yourarticlelibrary.com/planning/what-is-the-importance-of-planning-in-management/903/ (accessed on 1 October 2014). Robbins, S.P. 2000. Managing today, 2nd ed. New Jersey: Prentice Hall. Robbins, S.P. & Coulter, M. 1999. Management, 6th ed. New Jersey: Prentice Hall. Smit, P.J. & Cronjé, G.J. de J. 1997. Management principles: a contemporary edition for Africa, 2nd ed. Kenwyn: Juta. Stack, L.M. The importance of planning and prioritizing. http://www.theproductivitypro.com/FeaturedArticles/article00017.htm (accessed on 1 October 2014). CASE STUDY: CITY LODGE HOTELS Through the vision of the City Lodge Hotel Group founder, Swiss-born Mr Hans Enderle, and the financial backing of the Mine Pension Funds, City Lodge Randburg became the catalyst for what today is one of South Africa’s large hotel chains. From the beginning, emphasis was placed on quality accommodation, homely ambience and friendly service. The City Lodge Hotel group was incorporated in July 1986 and has since substantially grown and diversified its product offering to meet different travellers’ needs. Since its inception in 1985, City Lodge Hotel Group has grown from a small industry challenger to a classic South African brand. Wherever you go in the country you see their iconic tree logo emblazoned on one of their 53 City Lodge, Town Lodge, Road Lodge or Courtyard hotels. No matter which hotel group is chosen by travellers for their stay in cities throughout South Africa, the City Lodge Family of Hotels provide great value for money while enjoying central locations in South Africa’s major cities. City Lodge invented the concept of ‘selected services’ hotels in South Africa – value-formoney accommodation you can trust. The individual hotels provide leisure, family and business travellers with comfortable accommodation and hotel services such as transfers, concierge, room service, housekeeping and others. They place emphasis on providing quality accommodation, friendly service and a homely ambience – core reasons why guests choose City Lodge hotels. Commitment to service excellence from highly motivated and dedicated staff is a common thread throughout the group´s hotels, which have developed a loyal base of regular guests over the years and an ever-growing number of new guests. In 1990, the second-tier Town Lodge concept was started and has proved highly popular. On 18 November 1992, the group successfully listed on the Johannesburg Stock Exchange. In 1995, the City Lodge Hotel Group in South Africa acquired a 50% interest in the companies associated with the upmarket Courtyard Suite Hotel chain and also opened its first Road Lodge, which is a concept targeted mainly at budget conscious travellers. With 6 Courtyard Hotels (451 suites), 11 City Lodge Hotels (1 797 rooms), 9 Town Lodge Hotels (1041 rooms) and 17 Road Lodges (1570 rooms), the City Lodge group has a total of 4 859 rooms and suites and ranks amongst the 250 largest hotel chains in the world. City Lodge Hotels are located in major cities throughout South Africa and offer guests comfortable rooms. Certain rooms provide facilities for families so that the parents can share the same room with their young children. Each room at a City Lodge Hotel provides an en-suite. Room facilities at City Lodge Hotels: Spacious air-conditioned room with double bed or twin beds Television with M-Net and selected DStv channels Bathroom with bath and separate shower Tea and coffee-making facilities Rooms with sleeper-sofa available at selected hotels on request Electronic safe large enough to accommodate a laptop Desk with lighting and plugs for easy connectivity One in fifty rooms is designed to meet the special needs of the physically disabled. Services provided at City Lodge Hotels, South Africa: Wireless Internet in restaurant and most rooms Mini gym Coffee shops Boardrooms Convenient locations, close to major routes 24-hour reception and check-in Sundowner bar 24-hour vending machines stocked with snacks and cold beverage items Fax and photocopy services available Same-day laundry and dry cleaning Sparkling swimming pool Complimentary and convenient parking City Lodge Hotels vision We will be recognised as the preferred Southern African hotel group. Through dedicated leadership, teamwork and kindness we will demonstrate our consistent commitment to delivering caring service with style and grace. We will constantly enhance our guest experience through our passionate people, ongoing innovation and leading edge technology. Our integrity, values and ongoing investment in our people and hotels will provide exceptional returns to stakeholders and ensure continued, sustainable growth. Through acts of kindness we will make a positive difference to our guests, our colleagues, our communities and our environment. City Lodge Hotels credo Our credo represents the character of City Lodge Hotels. It represents the collective qualities, mental and moral, that distinguish us in our marketplace. Whilst our hotels are constructed with bricks and mortar, it is our people, and the relationships that they build with other people, that provide the real strength that allows us to grow and prosper. City Lodge Hotels Caring We care for our country, for the property of our guests, for our company, and for our environment, with which we have been entrusted by future generations. But above all, we care for people! To care for people means that we are emotionally connected, that we feel concern and that we are sincerely interested in people’s well being and success. We care for our guests, for one another and for the communities in which we live. We care about being hospitable, about the safety and well being of our guests whom we warmly welcome into our ‘homes from home’. We care for our employees, whose work we value, respect and recognise for its worth and contribution. We care for our families and especially for our children who will represent us in the way they live out their future. We care for our shareholders, for the hard earned money that they invest in our company and for the trust that they have placed in us to grow their money wisely. We care for and respect our suppliers whom we trust to provide us with goods and services of the highest quality. Caring comes from the heart – that’s why we are passionate about what we do. That’s why we are also passionate about serving. City Lodge Hotels has also set aside R475m to build two new hotels in East Africa, and is looking for other opportunities to add hotels in capital cities across East and Southern Africa, the company said on Friday. The company last year opened its 104-room Town Lodge Gaborone, and it recently bought the 50% it did not already own in two hotels in Nairobi. Occupancies in the company’s domestic hotels rose slightly to 63% from 62%, continuing a gradual trend of improving occupancies after a post-2010 World Cup hangover in the industry. Vestact portfolio manager Byron Lotter said “the numbers look good and their expansion plans are quite exciting”. Mr Lotter said City Lodge’s Kenyan hotels generated far higher profits per room compared with its South African hotels. The company’s occupancies were historically closer to 80%, and it was “expanding in tougher times”. He expected City Lodge to reap the benefits of its expansions as occupancies recovered with a healthy tourism industry, despite competition in the hotel sector. City Lodge said in addition to buying the remaining 50% of its Kenyan joint venture, “we have made significant progress towards growing our presence in East Africa”. The company had concluded an agreement to buy land in Nairobi for the development of a 170-room City Lodge Hotel at a cost of $23m. It expected construction to start in the first quarter of 2015 and to open in mid-2016. It said it had also concluded a long-term land lease to develop a 147-room City Lodge Hotel in Dar es Salaam, Tanzania, subject to regulatory approval. The development was expected to cost $22m and was also expected to start in the first quarter of 2015. “We continue to explore additional opportunities in Nairobi as well as Kampala, Uganda. Investigations are also continuing into acquiring suitable sites in Maputo, Mozambique; in Windhoek, Namibia; and Lusaka, Zambia.” City Lodge is still developing in South Africa, where occupancies are beginning to reach more attractive levels for both South African and international hotel chains. Sources: Adapted from http://www.bdlive.co.za/business/transport/2014/08/18/citylodge-to-expand-in-east-africa (accessed on 19 August 2014; http://www.south-african-hotels.com/groups/city-lodge/ (accessed on 1 October 2014); https://clhg.com/company-profile (accessed on 1 October 2014); Hedley, N. City Lodge to expand in East Africa. Available online at http://www.bdlive.co.za/business/transport/2014/08/18/city-lodge-to-expand-ineast-africa (accessed on 19 August 2014). Case study questions 1. Explain why you think City Lodge Hotels are experiencing such success. 2. If you had to formulate some goals for City Lodge Hotels, what would they be? 3. What do you think is the role of the vision of City Lodge Hotels in its expansion plans in East Africa? MANAGEMENT DISCUSSION EXERCISES 1. Go to the website of any South African organisation and identify some of its planning challenges. 2. Write a report on how you would explain planning as a management function to a new entrepreneur. 3. Visit an organisation of your choice. Ask the manager whether it is possible to provide you with some examples of their strategic, tactical and operational goals to familiarise yourself with the different levels of goals. 4. Explore the internet and contrast formal with informal planning. 5. Write a report and explain why organisations in South Africa cannot be successful without proper planning. 6 Decision-making SALOMIEN BOSHOFF Learning outcomes After studying this chapter you should be able to do the following: Explain the nature of decision-making. Identify the different types of decisions made on different management levels. Evaluate the four types of conditions under which a manager makes decisions. Explain the three types of decisions a manager can make. Identify the factors that influence decision-making. Differentiate between the three decision-making models. Apply the six steps of the decision-making process. 6.1 INTRODUCTION People often find it difficult to make decisions. Everyone inevitably has to make decisions some time or another. Some people try to avoid making decisions by endlessly searching for more information, or getting other people to help or offer recommendations. Sometimes a decision is made by taking a vote, tossing a coin or even closing one’s eyes and jabbing a pen at a written list. Regardless of the effort that is put into making a decision, it has to be accepted that some decisions will not be the best possible choice, and almost any decision involves some conflict or dissatisfaction. The difficult part is to pick one solution where the positive outcome outweighs possible losses. Avoiding making decisions often seems easier. Perhaps this is also a decision – to avoid making a decision. Yet, making decisions and accepting the consequences are the only way to stay in control of one’s time, one’s success and one’s life. During each stage of all four management functions and on all the management levels, decision-making is an essential and fundamental additional management function for managers. Decision-making can be defined as a process of choosing the best course of action from all the available alternatives. It can also be defined as an act of choosing between two or more courses of action. During this cognitive process a manager has to go through a deliberate process of following some steps to arrive at a decision. Even if a manager does not go through the different steps of the decision-making process, he or she is actually taking the decision to do nothing about the problem. Thus, every decision-making process becomes a decision even if the manager decides to do nothing. It is also important to remember that the values and preferences of decision-makers play an important role in the decision-making process. Decision-making involves some effort both before and after the actual choice and action, thus it is not an easy task. Despite the fact that good decisionmaking is a vital part of good management in an organisation and is expected of all managers, studies have shown that most people are not as good as they think they are at decision-making. The good news is that decision-making is a skill and skills can usually be acquired and improved. As one gains more experience in making decisions, and as one becomes more familiar with the tools and structures needed for effective decision-making, one’s confidence in making decisions will improve. Watch the video about decision-making given in Management in action 6.1. MANAGEMENT IN ACTION 6.1 Ellen’s monologue on making decisions Watch the following YouTube http://www.youtube.com/watch?v=BatqV3B9hiU Discuss the following: video on decision-making: What are some of the most difficult decisions that you have had to make today? Is it better to have choices, or would you prefer the life of a caveman, where minimal choices are necessary? 6.2 NATURE OF DECISION-MAKING Each level of management is responsible for different decisions – from strategic to operational: Top-level managers look at and create strategic plans and need to make strategic decisions. They have to decide on which strategy the organisation must follow in order to enhance the long-term performance of the organisation. These decisions will be influenced by the organisation’s vision, goals and values, and the specific environment in which the organisation is operating. Middle managers create tactical plans with specific steps and actions that need to be executed to meet the strategic objective. Tactical decisions are medium term and are more changeable than strategic decisions. The first-line managers are responsible for creating and executing operational plans. Operational decisions occur on a daily basis, are often administrative in nature, can be implemented quickly and tend to carry little risk. 6.3 CONDITIONS AND TYPES OF DECISION-MAKING Managers cannot control or foresee what is going to happen in the future as a result of external, internal or personal forces. These forces can influence decisions in both the present and the future (see Management in action 6.2). MANAGEMENT IN ACTION 6.2 External and internal forces Whenever we are involved in making decisions, a number of factors can affect the process we follow and ultimately the decision we make. We can organise the factors affecting decision-making into three major groups: Perception. This can vary according to the perceiver, the object and the situation. Organisational issues. These include policies and procedures, hierarchy and organisational politics. Environmental issues. These are the external factors that affect the organisation, such as the market in which the organisation operates, the economy, government legislation and customer reaction to the organisation’s products and services. Managers and employees must make decisions under different circumstances. Based on the environmental factors that influence the circumstances under which a manager makes a decision, four conditions can be identified, namely, certainty, risk, uncertainty and ambiguity. These conditions result in three types of decisions: routine, adaptive and innovative. From Table 6.1 it is clear that the conditions under which a person makes a decision will determine the type of the decision they make. One should ask three questions and the responses (yes or no) to these questions will determine under which condition a decision is being taken. The questions are: 1. Do I know what the problem is? 2. Do I know what the alternative solution to this problem is? 3. Do I know the outcomes of the action I am taking? Table 6.1 Types of conditions and decisions Question Certainty Risk Do I know what the problem is? Yes Yes Yes No Do I know what the alternative solution to this problem is? Yes Yes No No Do I know the outcomes of the action I am taking? Yes No No No Routine Adaptive Innovative Innovative Type of decision made under this condition Uncertainty Ambiguity The resulting decisions taken under the different conditions will be discussed next. 6.3.1 Routine decisions When managers are fully informed about the problem and know the solution as well as the outcome, they make decisions under a condition of certainty. However, despite the fact that a manager can have information on operating conditions, resource costs, constraints and possible problems, few decisions in organisations are made under conditions of complete certainty. When situations occur regularly, a manager can take a decision (i.e. choose the best solution) based on past experience. For example, a manager knows to reorder inventory when stock gets below a certain level and also how much will probably be needed. A university has to decide who will receive a bursary and will follow specific criteria and procedures for allocating the bursary. These types of decisions are usually routine decisions made daily, monthly or yearly without too much thought going into them. The problems have familiar, clear-cut and obvious solutions, and a manager can anticipate them and plan to prevent or solve them. These days routine decisions are increasingly being made by computers. Routine decisions are usually directed by policies, rules and procedures that have already been put in place: Policies are a set of guidelines that direct a manager to think in a specific way. Rules are a set of clear statements of what a manager must and must not do. Procedures are a series of interrelated sequential steps that a manager can use when responding to a structured problem under certain conditions. When an employee applies for leave, for example, the manager can make a routine decision based on the leave policy and the procedures to be followed. However, managers should be careful not to make a routine decision when the problem actually needs an adaptive or innovative solution. 6.3.2 Adaptive decisions Risk is a fairly common decision condition for managers. Under risk conditions, the manager has access to good information and the alternative solutions to the problem are known, but the outcome of each alternative is not clear, owing to external influences. The decision usually needs human judgement, whereas decisions under other conditions will sometimes be supported or done by computers. Under risk conditions, managers make adaptive decisions. An adaptive decision is a routine decision that needs improvement. This type of decision is usually made by managers on higher levels and demands conceptual skills to solve the problem. For example, when Vida e Cafe wants to open a new outlet, the owners can analyse the potential customer demographics, traffic potential, supply logistics and competitors close by and the management team can come up with a reasonably good decision about where to open their new coffee shop. 6.3.3 Innovative decisions Managers face uncertainty every day. Many problems have no clear-cut solution and managers have to rely on their experience, creativity and intuition to decide what to do. In the case of uncertain conditions, managers are aware of the goal they want to achieve, but they do not have a lot of information on all the different alternatives and have to make some assumptions about the outcome. Ambiguity is when a manager has to make a decision, but the goal or the problem has not yet been identified, alternatives to solve the problem have not yet been defined and information about the outcome of each alternative is unavailable. Uncertainty and ambiguity are the most difficult conditions under which decisions have to be made. These unstructured problems need novel and creative solutions. For example when Andrew Mason founded his online store, Groupon, he made decisions under uncertain ambiguous conditions. When the solutions to the problem are ambiguous and unusual, managers are to make innovative decisions. Innovative decisions are difficult as they are often made with incomplete and fast-changing information, and results can be vastly different to what is expected. In order to obtain a creative solution, managers usually make a stream of decisions over a period of time. Management in action 6.3 provides examples of innovative decisions that were taken with outcomes unknown at great risk because a lot of money was involved. MANAGEMENT IN ACTION 6.3 The wisdom to take a decision The ability to make good decisions is arguably the single most important executive skill. Anything leaders can do to increase their ability to make good decisions will help. Yet decisions are often the outcome of wisdom, the hardest skill to learn. In 1993, Lee Kun-Hee, son of the founder of the South Korean group, Samsung, took over as chairperson. At the time, Samsung’s products were everywhere but uninspiring; they were copycat products selling at extremely thin margins. Then chairperson Lee made a decision that would reshape his organisation and create a blueprint for globalisation. He decided to send some of its brightest young employees overseas. There they were to immerse themselves in the culture, learn the language and build networks so that someday Samsung would know how to supply those markets. His executives opposed this, not only on the grounds of cost – which was close to $100 000 per candidate – but because it meant losing their finest talent for 15 months. This was significant for any company, especially one that was not particularly successful. The selected talent first spent three months in “boot camp” training for the assignment. This was followed by 12 months abroad alone; no family members were allowed to join them. Park Kwang Moo was one of the first to go on the programme. He spent a year in the former Soviet Union, “living, eating, and drinking with Russians”, learning how bribes smoothed the way for everything from airplane tickets to gasoline. In his 80-page report on the sabbatical, his manager reported: “There is nothing in this about business. It is only about their drinking and culture. But in 20 years, if this man is representing Samsung in Moscow, he will have friends and he will be able to communicate, and then we will get the payoff.” Seventeen years later, Samsung was the best-selling brand in Russia. Since 1990, some 4 700 employees have served year-long sabbaticals in 80 nations across the globe. Samsung is the best-selling brand in France and Ukraine, and the 17th most valuable brand in the world. Lee Kun-Hee’s decision reshaped his organisation and created its blueprint for globalisation. The second example is Jack Welsh, who was General Electric’s (GE’s) youngest chairperson and CEO. The global company was struggling with many underperforming companies in the group. Welsh made the decision that all GE’s companies would either be number one or two in their field, or on their way there, or be sold or closed. This led to the termination of over 100 000 employees, a decision which created outrage from many quarters. For decades, GE had operated a training centre near Crotonville, NY. Over time, Crotonville was used as little more than the venue for delivering technical instruction or companywide messages. Managers were being housed in barren quarters, four to a suite and this had the feel of a roadside motel. Welsh said: “We needed to make our own people and our customers who came to Crotonville feel that they are working for and dealing with a world-class company.” He decided to create a world-class internal business university for GE managers, and spent $50m on it at the same time as he was dismissing 100 000 employees. James Baughman, a professor from Harvard, was brought in to establish the university. All attendance at Crotonville was now by invitation only. The executive development course was so exclusive that nobody could attend without the approval of the head of human resources, the vice-chairmen and Welch. The lecturers at Crotonville are now predominantly GE insiders, who themselves were educated in GE’s methods, values and strategy at Crotonville. They were taught – as they now teach others – openness, directness, responsiveness and the GE way of doing business. Today Crotonville is rated the finest corporate university in the world, a model for others (including that of Apple) and the engine of GE’s success. This was a brilliant business decision, but it was also a tough decision. Many of the great decisions in business history were not taken once, they were decisions that had to be adhered to for a quarter-century and more. Or, put differently, remade consistently. The wisdom required for decision-making is best learned from studying the decisions of others. The more one is exposed to decision-making, the better one becomes at it – and the better an executive. Source: Mann (2013) 6.4 FACTORS INFLUENCING DECISIONS Decisions are influenced by a number of factors, such as a manager’s personal experience and decision-making style, the structure and culture of the organisation or even some decision-making biases or errors that slip in. Personal experience influences a managers decision-making behaviour, as experienced managers make decisions with more openness, diverse viewpoints and interactions with other, whereas a new manager may start with more directive, decisive and command-oriented behaviour. It is a known fact that about 50% of managers rely more on their intuition than on formal analysis. Owing to personal decision-making styles, managers do not make decisions in the same way. Managers should be aware of their personal decisionmaking style and how it will affect the employees they work with each day. Understanding how decision-making styles affect others will help a manager to make the serious leadership calls that will define him or her as a successful leader and manager. There are four types of decision-making styles that will be discussed in more detail in the next section. Another factor that will influence decision-making is biases. Some common errors or biases when making decisions are as follows: immediate gratification, anchoring effect, selective perception, confirmation, framing, availability, representation, self-serving, hindsight and overconfidence. A manager’s immediate gratification bias may lead to a decision that can save costs in the short term or lead to immediate rewards, but in the long term may be harmful to the organisation. Managers may make decisions based on the initial information that they receive about the problem, but they may exercise the anchoring effect bias if they do not value new information that follows later. Selective perception bias is when a manager makes a decision based on his own perception of the problem and alternative solutions. This is one reason why teamwork is so important, to get a broader view of the situation. With confirmation bias, managers tend to look for information that confirms their past decisions and ignore information that contradicts them. They accept and value opinions and information that confirm their ideas and disregard any opposing views. With framing bias, a manager ignores some aspects and focuses on others in a specific situation, which may lead to inaccurate reference points. Availability bias happens when managers rely on recent memory and refer solely to information that is immediately at hand when making a decision. Representation bias happens when a manager compares similar events and then bases the decision on that. Self-serving bias is when a manager is happy to take the credit when experiencing success, but refuses to take responsibility for failure, rather blaming it on outside factors. Hindsight bias occurs when a manager believes he or she “knew it all along” once the outcome of a decision becomes clear, thereby overestimating his or her predictive abilities. Sometimes a manager starts to believe in his or her opinion so much that he or she does not carefully examine all possibilities before making a decision. Being confident is important for a manager to be able to lead a team, but being overconfident can lead to mistakes. The structure and culture of an organisation have a strong influence on decision-making as they influence how and when information is communicated, and determine who gets involved in which decisions. The type of organisational design and hierarchy in the organisation influences how decisions are made. 6.5 DECISION-MAKING STYLES Strong decision-making requires the ability to assess a situation, determine the best style of decision-making and apply that style to come to a positive solution. By consistently using the correct style of decision-making, a manager will prove to be a valuable asset as a leader in an organisation. The various individual and group decision-making styles are discussed below. 6.5.1 Individual decision-making styles Individual decision-making styles have an influence on the way managers make decisions. Decision-making can be grouped into four main styles, namely, directive, analytic, conceptual and behavioural. Although no manager has a style that fits completely into just one category, he or she may have characteristics that fit, more or less, into one or two styles. Most managers use a combination of styles, but usually each manager has a dominant style. Managers with different decision-making styles look at decisions in somewhat different ways and deal with processing the information on which the decision is based differently. 6.5.1.1 Directive style Managers that have this style regard structure as very important. Such managers take charge of a situation, make quick decisions and expect those “under” them to carry out those decisions immediately, with no questions asked. This style is aggressive and expects immediate results. Managers with this style rely on their own information, knowledge, experience and judgement, and tend to follow the policies, rules and procedures. They are also excellent verbal communicators. On the negative side, with this type of style managers act quickly and often without all of the facts. They fail to consider other options when addressing a problem and focus only on short-term results instead of long-term solutions. 6.5.1.2 Analytic style An analytic decision-maker enjoys solving problems and puzzles. He or she is innovative and makes use of large sets of data and information to make decisions. Alternatives are carefully considered and the best course of action is chosen based on all the information available. He or she is adaptable and can function well even under unique or challenging situations. On the negative side, managers with this style of decision-making are slow and take a lot of time because they want to use direct observation, data and facts when coming to a decision. They also tend to want to control every aspect of the process. 6.5.1.3 Conceptual style Managers with a more conceptual decision-making style prefer to have a large amount of information available. They tend to look at problems from an artistic angle and they may ask the people involved for their inputs and base their decisions not only on the data sets, but also on the people’s opinions. Conceptual style decision-makers are extremely creative and like to look for solutions that are outside the box. They are achievement oriented and try to take a broad view, thinking far into the future when making important decisions. On the negative side, a conceptual style decision-maker may take some risks in decision-making. 6.5.1.4 Behavioural style Managers with a behavioural style are concerned about people’s opinions and so talk to people, consider their feelings and make a decision that is best for them. They are interested in making sure that everyone works well together and avoiding conflict. They can be very persuasive and are good at getting people to see things their way. They like working with a group and tend to reconcile differences and negotiate a solution that is acceptable to all parties. On the negative side, managers with this style can sometimes be too accommodating. When overdoing this style, they keep people happy, rather than focusing on task completion. 6.5.2 Group decision-making styles Group decision-making has its own set of styles. Each decision-making style affects the group in a unique way. Knowing which style to use in a particular situation can be the difference between success and failure, especially in a business environment. 6.5.2.1 Autocratic group decision-making An autocratic decision-making style is one in which the leader takes complete control and ownership of the decision. The leader is completely responsible for the outcome that results from the decision, whether that outcome is positive or negative. The autocratic leader does not ask for suggestions or ideas from the team and makes a decision that is based on his or her own internal information and perception of the situation. This will produce a fast decision for which the leader is personally responsible. While this would be the best type of decision-making in an emergency situation, it can sometimes result in less-than-desired effort from the people that must carry out the decision. If an employee or group member is affected by the decision, but he or she was not included in the decision-making process, morale may suffer. If the outcome of the decision is also not positive, group members may begin to feel aggrieved and believe that they could have done a better job themselves. This can cause the leader to lose credibility. 6.5.2.2 Democratic group decision-making Democratic group decision-making can be useful when a quick decision is needed and where it is possible to use a minimum amount of group participation. The leader in this situation gives up the ownership and control of a decision and allows the group to vote for the best course of action. In a democratic situation, majority vote will decide what action is taken. The disadvantage of this style can be a lack of individual responsibility. There is no one person in the group that can claim responsibility for the decision reached by the group. Since there is no requirement for consensus, it opens up the possibility that someone will deny responsibility for the outcome, because he or she voted against the group’s decision. 6.5.2.3 Collective group decision-making In collective group decision-making, the leader will involve the members of the organisation or group in all aspects of the decision-making process, but he or she will make the final decision alone. The leader deliberately asks and encourages group members to participate by giving their ideas, perceptions, knowledge and information concerning the situation. This gives the leader an accurate understanding of the situation and allows for better overall decision-making. Although the leader gets other perspectives on the situation, he or she maintains complete control of the final decision and is completely responsible for the decision and the results, whether they be positive or negative. This style of group decision-making requires the leader to be an excellent communicator, as well as an excellent listener. The advantage of this style is the involvement and participation of the group. The disadvantages are that this can be a very slow decision-making process and it offers less security owing to the number of people involved in the process. 6.5.2.4 Consensus group decision-making In consensus group decision-making, the leader gives up complete control of the decision. The whole group is totally involved and invested in the decision and there is no individual responsibility for the leader, because everyone has a stake in the decision’s success or failure. This style differs from the democratic style in that everyone must agree and reach consensus on the decision. If group members cannot reach total agreement, the decision becomes democratic – they vote for the best course of action. Involving everyone completely fosters strong group commitment and creates a high probability of success. It is, however, a very slow process and it can be difficult for a group to learn to work together in this manner. A group that has already been together for a long period of time and has developed a strong, long-term, professional relationship, on the other hand, will find this decision-making style advantageous. Understanding these different decision-making styles makes it possible to make adjustments according to the situation and the results the manager is working towards. Strong decision-making requires the ability to assess the situation, determine the best style of decision-making, and apply that style to come to a positive solution. By consistently using the correct style of decision-making, a manager will prove to be a valuable asset as a leader in the organisation. Try to do the exercise in Management in action 6.4. MANAGEMENT IN ACTION 6.4 Decision-making styles Consider the four management styles. Which one do you think explains your decisionmaking style the best and explain why you think so. 6.6 DECISION-MAKING MODELS There are three types of decision-making models, namely, classical, administrative and political (see Figure 6.1). The three factors that influence which one a manager chooses are his or her personal preference, the type of decision and the conditions involved. Figure 6.1 The different models of decision-making 6.6.1 Classical model of decision-making The classical model is also known as the rational model, as it is based on rational economic assumptions along with the manager’s beliefs about what an ideal decision should be. It may seem unattainable by people in real-life situations, but if a manager follows this model, he or she may make a better rational decision and minimise the influence of personal views. The underlying assumptions of this model are that decision-makers know the problem and the goals, as well as the alternative solutions and their outcomes. Decision-makers using this model choose the alternative that will lead to maximum goal achievement. This model is applicable for routine as well as adaptive decisions and makes use of the six-step decision-making process. It is true that managers mostly make decisions without considering the actual decision-making process. However, the steps in the rational decision-making process are as follows: 1. Identify the problem or objectives. 2. Set the goals and decision criteria. 3. Search, evaluate and select the best course of action. 4. Implement the decision. 5. Compare the actual and planned outcomes, objectives or goals. 6. Respond to divergences from the plan. How does this process link with the management functions? The first three steps are part of the planning phase. During the implementation step (step 4), a manager should organise his resources and lead his team in putting into action what was decided. The last two steps (5 and 6) happen during the control phase. Sometimes this process is short and easy, while at other times is may take weeks or even months. The process depends very much on the right information being available to the right person at the right time. A logical and systematic decision-making process helps one to address the critical elements that result in a good decision. By taking a systematic approach, managers are less likely to miss important factors, and they can build and add to the approach to make their decisions better and better. The rational decision-making model describes how decisions should be made in an ideal world without constraints. To make good decisions, a manager should have the ultimate resources such as correct information, time, personnel, equipment and supplies available. In practice, however, most managers have to make the best possible decision with limited resources, including budget constraints or a lack of willing and competent personnel. Managers should not begin the decision-making process unless they are aware of the gap, problem or opportunity, are motivated to reduce it and possess the necessary resources to fix it. A more detailed discussion of the six steps in the decision-making process follows. 6.6.1.1 Step 1: Identify, diagnose and analyse the problem When there is a difference between the desired state and the actual state, a problem occurs. The first step in the decision-making process is to identify that problem. If a manager identifies this incorrectly, it may cost the company a lot of time, effort and money, like Coca-Cola in 1985 when they introduced New Coke (see Management in action 6.5). MANAGEMENT IN ACTION 6.5 New Coke In April 1985, the management of Coca-Cola Co. announced its decision to change the flavour of the company’s flagship brand. Coca-Cola marketing vice president and president launched Project Kansas. They went into the field with samples of new possible drinks with taste tests, surveys and focus groups. The results of the taste tests were strong – the sweeter mixture overwhelmingly beat both regular Coke and Pepsi. Then tasters were asked if they would buy and drink it if it were Coca-Cola. Most said yes, they would, although it would take some getting used to. The end result was that they stayed with the original Coke recipe. Watch this YouTube video to find out more about whether Coca-Cola identified the real problem or not: http://www.youtube.com/watch?v=W6t7deaplgY. Source: Adapted from Schindler (1992) A successful manager should identify the problem and not its symptoms. The symptoms will show that there is a problem, but the root cause must be identified and analysed. For example, the symptom could be low employee morale, but the cause could be a lack of communication between management and employees. The lack of some important factors (Herzberg calls them hygiene factors) in the workplace are perhaps caused by systems that do not work that led to the low morale. This may be the result of employees’ interpersonal problems or the fact that they are not able to make a target as it is too ambitious. To solve a problem, the cause of the problem – the real problem – should be identified. (See Management in action 6.6). MANAGEMENT IN ACTION 6.6 Dog food After noticing that people were spending more money on their pets, a new dog food company created an expensive, high-quality dog food. To emphasise its quality, the dog food was sold in cans and bags with gold labels, red letters and detailed information about its benefits and nutrients. Yet the product did not sell very well, and the company went out of business in less than a year. Its founders didn’t understand why. When they asked a manager at a competing dog food company what their biggest mistake had been, the answer was: “Simple! You did not have a picture of a dog on the package!” Being aware of the problem or the gap is the first step to making a decision. Source: Williams (2014: 99) After managers have identified the problem, they have to diagnose and analyse the situation to determine the underlying causes or factors leading to the problem or opportunity. The real issue is often hidden behind the problem managers think they have. A number of questions can be asked to get to the root cause: What situation is affecting the organisation? (The answer to this question will identify the disequilibrium that exists in the organisation.) When did it occur? Where did it occur? How did it occur? (This question needs deeper analysis to get to the real root of the problem.) To whom did it occur? How urgent is the problem? How are the events interconnected? What are the results of these events or activities? Managers cannot solve problems if they do not know about them or if they are not addressing the right issues. These questions can help a manager to identify what happened and why, in order to address the correct problem and find alternative solutions. For example, a CEO of a large company identifies the gap in his organisation as the inability to hire enough qualified people to serve their global clients. By asking the eight questions listed above, the real problem is identified as a lack of internal collaboration and communication. The CEO finds that he can actually reduce staff if he has more efficient and effective systems in place. 6.6.1.2 Step 2: Set the goals and decision criteria Goals are what a manager wants to achieve and indicate the direction of the decisions and actions to be taken. This goal-setting step in the decisionmaking process simply involves finding the end result that will minimise or solve the problem, or will help to close the gap or use the opportunity identified. It is also important to identify the criteria that must be used to solve the problem. Decision criteria are the standards used to guide judgements and decisions, and managers should decide which criteria are more or less important. If the organisation has to decide on a new supplier, the criteria that will be used can include the reliability of the supplier, the price and quality of its products, and speed of delivery (see Management in action 6.7). The criteria are important to close the gap or resolve the problem. MANAGEMENT IN ACTION 6.7 New computers The operational manager has to purchase a new set of computers for his organisation. He should firstly identify the goal: what do the users really need – a laptop, a PC or would a tablet do? He should then decide which criteria are important, such as reliability, price, warranty, onsite services and compatibility with existing software. After identifying the criteria, the manager should decide which of these criteria are the most important, i.e. they should be weighted. In the case of selecting a new supplier, if the reliability of a supplier is more important than the price of its products, reliability must receive a higher weight. Weights are calculated using the following three factors: 1. The costs that will be incurred and how much the organisation is prepared to invest 2. Risks likely to be encountered and the chance of failure 3. Outcomes that are desired and their fit with the goals of the organisation See Management in action 6.8. MANAGEMENT IN ACTION 6.8 Franchise options An entrepreneur must decide whether she is going to buy a franchise or not. After careful analysis, she decides that the best option will be to buy a franchise. The problem is, however, which one? She identifies five criteria that are important: 1. Financial qualifications 2. Franchisor history 3. Start-up costs 4. Open geographical locations 5. Franchisor support Help her to determine how important each of these criteria is by giving them a score out of 10 (with 10 being very important and 1 not at all important). If an organisation does not set a goal to achieve and then select the decision criteria, it will be difficult to continue to the next step. 6.6.1.3 Step 3: Search, evaluate and select the best course of action The third step is to search for, evaluate and select the best alternative that may close the identified gap, problem or opportunity. This step may take longer than all the other steps owing to the amount of information that needs to be processed. The conditions under which a manager should make decisions and the type of decision also play a huge role here. Routine decisions already have a list of feasible alternatives which are available according to the policies and procedures of the organisation. However, an innovative decision needs innovative solutions. The best course of action is the one that fits best with the goals, vision and mission of the organisation and will achieve the desired result using the fewest resources, leading to increased effectiveness and efficiency. During this step, the manager’s own personality and willingness to accept risk and uncertainty comes into play. For example, Daniel L. Vasella, CEO of pharmaceutical giant Novartis, decided that the risk was too great to develop an experimental vaccine for Alzheimer’s. He felt that the disease should be better understood before he would be willing to invest time and money in such a venture. A primary cause of decision failure is limiting the search for solutions. Successful managers identify as many alternatives as possible and investigate all of them carefully before making a decision. A manager should identify real alternatives – “do it” or “don’t do it” is not a set of alternatives. The decision criteria identified in the previous step should then be used to select the best option. Managers can use qualitative methods (such as interviews, observations and group discussions) and quantitative methods (such as breakeven analysis, return on investment and the game theory) to evaluate alternative solutions. In pure quantitative decision methods, managers can use breakeven analysis, return on investment, game theory and a number of other quantitative methods to arrive at a decision. However, these methods are beyond the scope of this book and will not be discussed here. Managers should be able to compute the best decision. The idea is to use qualitative judgements to score each possible solution according to each criterion. The alternative with the best score should then “win”. Quantitative methods are used to calculate the weighted average of each option, but the decision-maker still decides on the importance of each criterion (by making qualitative judgements). Typically, the more criteria a potential solution meets, the better that solution should be. Managers can use decision criteria in one of two ways: as either absolute or relative comparisons. With absolute comparisons, managers compare each criterion to a standard or rank it on its own merits. Conversely, relative comparisons allow managers to prioritise the overall list of decision criteria. For example, managers could decide that criterion A is twice as important as B but only half as important as C. Weights are assigned to each criterion and then a score is computed for each alternative solution (see Management in action 6.9 – how a decision is reached by applying steps 2 and 3 in the decision-making process). MANAGEMENT IN ACTION 6.9 Buying a new car Consumer reports have identified nine criteria that may be important when buying a new car: predicted reliability, current owner’s satisfaction, predicted depreciation (the price you could expect if you sold the car), ability to avoid an accident, fuel economy, crash protection, acceleration, ride, front seat comfort and interior design. The first step is to identify the importance of each of these criteria. The criteria must be rated out of 10, with 10 being critically important and 1 completely unimportant. This involves giving a weight (W) to each criterion: Predicted reliability: 9 Current owner’s satisfaction: 8 Predicted depreciation: 6 Ability to avoid an accident: 7 Fuel economy: 9 Crash protection: 4 Acceleration: 3 Ride: 2 Front seat comfort: 7 Interior design: 9 Five different car models are identified as possible alternatives, based on these 10 criteria. Now they also have to be scored out of 10, with 10 being excellent and meeting the criterion completely and 1 being poor in terms of meeting that criterion. To identify the best car, multiply W (weight, i.e. importance of criterion) by P (performance, i.e. meeting of the criterion) of each car and add these totals to get the car with the highest score, which is the best choice. Car A Car B Car C Car D Car E W P Wx P P Wx P P Wx P P Wx P P Wx P Predicted reliability 9 7 63 7 63 9 81 6 54 4 36 Current owner’s satisfaction 8 9 72 8 64 9 72 4 32 3 24 Predicted depreciation 6 4 24 3 18 8 48 8 48 8 48 Ability to avoid an accident 7 8 56 6 42 4 28 3 21 4 28 Fuel economy 9 5 45 7 63 6 54 8 72 5 45 Crash protection 4 8 32 9 36 9 36 6 24 4 16 Acceleration 3 9 27 6 18 5 15 7 21 7 21 Ride 2 1 2 5 10 2 4 9 18 6 12 Front seat comfort 7 6 42 3 21 1 7 4 28 9 63 Interior design 9 4 36 6 54 8 72 9 81 4 36 Criteria Total 399 389 417 399 329 Car A Criteria W P Wx P Car B P Wx P Car C P Wx P Car D P Wx P Car E P Wx P Car model C is the best choice. Unfortunately managers do not always have the time or money to make extensive lists of important criteria and alternatives before making a decision. They often have to rely on their instincts and whatever information is available. Most of the time, managers decide on a solution that is “good enough”. Good managers will tap into the knowledge of different people within and outside the organisation. 6.6.1.4 Step 4: Implement the decision The decision is made, but if managers fail during the implementation phase, the decision may still be unsuccessful even if it was a well-chosen solution. During this step, a manager needs credibility and competency to carry out the chosen solution. The success of making a decision depends on doing it. Another crucial part of this step is to convey the decision to everyone that will be affected by it, in such a way that these individuals will buy in. Participation during the decision-making process by the parties that are affected helps a manager to get their commitment. Communication, motivation and leadership are essential management activities in this step. In a research study done, it was shown that when managers follow up on their decisions by tracking the implementation of the decision, employees are more committed to positive action. 6.6.1.5 Step 5: Compare the actual and planned outcomes, objectives or goals Implementation of the chosen course of action does not always lead to the planned outcome, objective or goal. Managers should follow up to ensure that the results are satisfactory and, if not, they should decide on a new course of action. Changing environmental factors, for example, may affect decisions and change the goals. Feedback is just as important as choosing and implementing the best course of action. 6.6.1.6 Step 6: Respond to divergences from the desired outcome As a result of environmental (internal and external) factors that change constantly, a chosen course of action may fail. When this happens, a manager should investigate the situation and decide on a new course of action. This may mean starting over, or changing just one or two things, but corrective action must be taken if needed. To really understand the steps of the decision-making process, do the exercise in Management in action 6.10. MANAGEMENT IN ACTION 6.10 New social media strategy As the marketing manager of an organisation, you have to develop a new social media strategy for the organisation. Owing to budget constraints, you only get one chance to choose a strategy that will work. Using the steps in the decision-making process, determine the best strategy possible. 6.6.2 Administrative model By recognising human limitations and the influences of the business environment, the administrative model describes how managers do make decisions, rather than how managers should make decisions under perfect circumstances. This model emphasises two key concepts: bounded rationality and satisficing. Bounded rationality refers to the limits and boundaries that managers have when it comes to rationality. These are a result of the complexity of the organisation and the decision, the external environment, limited time, and a lack of resources and information. These limits cause managers to select a good enough goal or course of action that satisfies minimal decision criteria. They do not try to optimise, but rather to satisfy, also known as satisficing. Managers using this model during decision-making engage in a limited search for the best course of action. As a result of time, money, resources and informational constraints, managers identify the goal or solution that appears to solve the problem. Some managers may choose the first best solution and others continue their search for a while longer, but eventually they will just go with the best possible course of action without exploring all possible solutions that may exist. Managers sometimes misinterpret or have insufficient information when making a decision. A manager may decide to start a social media campaign on Twitter, but does not know that the target market prefers Facebook. Managers may also make decisions based on information from the previous year when consumer behaviour has already changed. Managers may use their intuition when making decisions. Research has shown that people make good decisions under extreme uncertainty and time pressure, but this does not always work out. A manager’s intuition tends to become more accurate with experience and knowledge in the field. For example, a trauma surgeon sometimes uses his or her intuition when making an urgent decision about a patient. The first two models, the rational and the administrative models, are the two extremes in decision-making. A manager can, however, create a balanced approach, using some intuition and some rational decision-making elements. The third model is useful for unknown problems and goals. 6.6.3 Political model Decisions are made in a complex environment of diverse goals, values and interests. The political model is closest to real-life decision-making as it involves interaction with other managers and subordinates while taking the environmental factors and other events into consideration. In a business setting, information, resources, time and mental capacity are limited, which makes it difficult to follow a rational decision-making process. Coalition building is the essence of the political decision-making model. Often managers engage in coalition building by forming an informal alliance with other managers with similar goals, values and interests. A manager who supports a specific course of action, consults others informally and tries to convince them to support the decision. Coalition building may lead to faster decision-making as a consensus is obtained without too many formal meetings and discussions. 6.7 SUMMARY Managers want to make good decisions because it is in the best interests of the organisation. Decision-making is part of the everyday life of managers on all management levels and it is also essential during each of the management functions. For managers to make good decisions, they should be aware of the three different types of decisions, the conditions under which these decisions are made and the factors influencing decision-making. Understanding these and the three different models of decision-making can help managers to make better and more effective decisions. REFERENCES AND RECOMMENDED READING Daft, R.L. & Marcic, D. 2013. Understanding management, 9th ed. Stamford: Cengage Learning. Hellriegel, D., Jackson, S.E., Slocum, J., Staude, G., Amos, T., Klopper, H.B., Louw, L. & Oosthuizen, T. 2008. Management, 4th ed. Cape Town: Oxford University Press. Kelly, M. & Williams, C. 2014. Introduction to business, 7th ed. Stamford: Cengage Learning. Kepner, C. & Tregoe, B. 1965. The rational manager. New York: McGraw-Hill. Mann, I. 2013. The hardest skill. http://www.fin24.com/Entrepreneurs/Opinions-and-Analysis/Thehardest-skill-20140411-2 (accessed on 20 February 2015). Nickels, W.G., McHugh, J.M. & McHugh, S.M. 2013. Understanding business, 10th ed. New York: McGraw-Hill. Nightingale, J. 2008. Think smart – act smart: avoiding the business mistakes that even intelligent people make. New Jersey: John Wiley & Sons. Nutt, P.C. 1999. Surprising but true: half the decisions in organisations fail. Academy of Management Executive, 13(4): 75–90. Nutt, P.C. 2004. Expanding the search for alternatives during strategic decision-making. Academy of Management Executive, 18(4): 13–28. Robbins, S.O., DeCenzo, D.A. & Coulter, M. 2015. Fundamentals of management, essential concepts and applications, 9th ed. Harlow: Pearson. Schindler, R.M. 1992. The real lesson of New Coke: the value of focus groups for predicting the effects of social influence. Marketing Research, 4(4): 22–27. Williams, C. 2014. Principles of management, 7th ed. Stamford: Cengage Learning. CASE STUDY: ZINGING LIME Zinging Lime needs an extensive marketing campaign for its products. Terry Thompson realises that several media options are available to introduce a new product to the market. Instead of trusting his gut feeling, he realises that he should objectively and rationally decide on the most appropriate type of media. The possible types of media where advertisements can be placed to encourage trial of the product are cellphones (SMS), TV, magazines and radio. When deciding on advertising media, the following aspects are important for Terry and the marketing team: Reach – the number of people reached Frequency – the number of times the market can be reached Cost – the cost of placing an advertisement Suitability – the appropriateness of the type of media for the market Options within the media – the possibility of using “exciting” special effects to appeal to the market The above aspects are all important, but not to the same degree. Grading them on a scale of 1 to 10, the aspects receive the following weights in terms of importance: Reach 8 Frequency 8 Cost 6 Suitability 8 Options within the media 7 When evaluating every type of media according to the above criteria, they scored the following. The ratings scored by the alternatives on the above criteria are given next to the alternatives in the same order they are listed above: Cellphone (SMS) 9, 8, 8, 8, 3 TV 8, 7, 5, 9, 9 Magazines 6, 6, 7, 7, 8 Radio 6, 8, 8, 6, 6 Although Terry realises that a mix of the above media options can be used, he needs to know which one will be the most appropriate if only one needs to be selected. Case study questions 1. Explain and identify the different conditions under which Terry has to make a decision. 2. Use the weighted average method to select the best media option on paper. 3. Recommend a specific individual decision-making style for Terry that will best suit decisions in his organisation. MANAGEMENT DISCUSSION EXERCISES 1. Ask a manager to recall the best and the worst decisions he or she ever made in his or her organisation. Try to determine the reason why these decisions were so good or bad. 2. Why do capable managers sometimes make bad decisions? What can individual managers do to improve their decision-making skills? 3. Interview a manager and ask him or her to identify a problem or gap in the organisation and let him or her answer the eight relevant questions. 4. Analyse three decisions that you have made over the past six months. (At least one with a positive and one with a negative outcome.) Under which conditions did you make these decisions and what types of decision were they? 7 Designing the organisation AMANDI VAN DER WALT Learning outcomes After studying this chapter you should be able to do the following: Understand the role of organising in the organisation. Explain the basic elements or principles of organising. Understand each of the contingency factors influencing the organisational structure. Describe the different organisational designs. 7.1 INTRODUCTION Once the management function of planning is complete, the next step is implementing the formulated plans. This entails organising resources and coordinating activities in the most efficient way. A plan is only as powerful as the execution of it. Organising can be defined as combining activities in an orderly manner so that goals can be achieved. This management function includes classifying activities, allocating activities to specific divisions, creating job roles in these divisions, assigning employees the applicable responsibilities for their specific jobs and giving them the necessary authority to help execute plans. Every employee and manager has to know exactly what he or she needs to deliver to ensure that what was planned (the vision, mission and objectives) is achieved. This knowledge is important, because organisational resources need to be used efficiently and duplication of activities should be avoided. The importance of organising in an employee’s work environment is explained in Management in action 7.1. MANAGEMENT IN ACTION 7.1 Scientists find physical clutter negatively affects the ability to focus and process information Researchers at the Princeton University Neuroscience Institute published the results of a study they conducted in the issue of The Journal of Neuroscience that relates directly to uncluttered and organized living. Their study found that when your environment is cluttered, the chaos restricts your ability to focus. The clutter also limits your brain’s ability to process information. Clutter makes you distracted and unable to process information as well as you would have done in an uncluttered, organized, and serene environment. The clutter competes for your attention in the same way a toddler might stand next to you annoyingly repeating, “candy, candy, candy, candy, I want candy, candy, candy, candy, candy, candy, candy, candy, candy, candy …” Even though you might be able to focus a little, you would still be aware that a screaming toddler is also vying for attention. The annoyance also wears down your mental resources and you’re more likely to become frustrated. The researchers used different tools to map the brain’s responses to organized and disorganized stimuli and to monitor task performance. The conclusions were strong – if you want to focus to the best of your ability and process information as effectively as possible, it is important to clear the clutter from your work environment. This research shows also that you will be less irritable, more productive, distracted less often, and able to process information better with an uncluttered and organized office. Source: Adapted from http://unclutterer.com/2011/03/29/scientists-find-physicalclutter-negatively-affects-your-ability-to-focus-process-information (accessed on 2 September 2014) 7.2 WHY IS ORGANISING IMPORTANT? Organising is one of the four management functions. Without it, the organisation would not achieve its plan efficiently and effectively. Organising is important for the following reasons: It clarifies who reports to whom and who is responsible for what. It makes employees accountable for their actions and the outcomes of the task that has been assigned to them, whether they are positive or negative. It divides the total workload into sections, and clarifies what activities should be performed by whom. It creates synergy since everyone knows what his or her role is. It enhances efficient resource deployment since managers will know which activities need what resources and when they will be needed. Departmentalisation is created where employees’ activities are grouped together. This then ensures that people with the required skills perform specific, assigned duties in each form of departmentalisation. It ensures coordination which results in activities taking place in harmony so that the vision, mission and objectives of the organisation is achieved. McDonald’s is so successful because it is structured in such a way as to enhance its efficiency and effectiveness (see Management in action 7.2). MANAGEMENT IN ACTION 7.2 How McDonald’s is structured and operated McDonald’s is one of the biggest franchises in the world. It takes a lot of organising and proper management to achieve success on such a level. The function of organising is well implemented in the structure of McDonald’s. The McDonald’s executive organisational areas are organised as follows: At the top are the chairman and chief executive officer, and the chief operating officer. Below that, the departments are broken down into corporate affairs, marketing, human resources, national operations, regional managers, finance, information and strategic planning. Other departments within McDonald’s are legal, customer services, franchising, security, hygiene and safety, property and construction, supply chain and restaurant services. All of these areas needs to be coordinated by McDonald’s to maintain its level of excellence. Source: Adapted from http://www.mcdonalds.co.uk/ukhome/whatmakesmcdonalds/questions/running -the-business/business-operations/what-is-the-structure-of-mcdonalds-andhow-each-department-in-the-organisation-interact.html (accessed on 21 October 2014) 7.3 BASIC ELEMENTS OF ORGANISING Organisations are growing constantly in size and this is accompanied by an increase in the complexity of management. Making use of good elements of organising and establishing them in the organisation’s structure may simplify the management of the organisation for years to come. With the growth in the organisation, the work environment also changes (demographically, globally and technologically, for example) and this must be managed to stay effective. Therefore it is important that leaders and managers be innovative in their approach to organising. Organising must be seen as an ongoing process through which managers create structure. Through this structure, resources will be deployed and employees will perform all the tasks needed to work effectively to attain the vision, mission, goals and objectives of the organisation. The organising management function helps managers to assign tasks and responsibilities, and ensures that they are conducted in an orderly and effective manner. Organising helps with coordination, which prevents duplication. Duplication adds costs, wastes resources and decreases productivity. There are a few basic elements or principles that managers must apply to be effective at organising: Specialisation Division of work Centralisation and decentralisation Authority Chain of command Span of control Coordination These are discussed below. 7.3.1 Specialisation Through specialisation, work is divided into areas of experience or expertise to improve the way in which goals are achieved. This ensures that employees with distinct skills or knowledge work in a division where they can apply their knowledge and ability to the advantage of that division and the organisation as a whole. Through specialisation, jobs are broken down into steps and each step is completed by a different person who is fit to do that specific task. An example of how specialisation is applied in organising is illustrated in Figure 7.1. The marketing specialist is separate from the other functions. Figure 7.1 Specialisation of work 7.3.2 Division of work As an organisation grows in size and also geographically, the organisation will have more work to do, more products to offer, more employees to do the work and, therefore, more diversity and complexity. To simplify things, managers must introduce division of work. Dividing work into specific sections will make it easier to manage a wide variety of products, customers and geographical areas. Creating divisions for work means creating self-managing units within an organisation. Each division will have its different departments, but they will still work towards a common goal. This is also called departmentalisation and will be discussed in more detail later in the chapter. 7.3.3 Centralisation and decentralisation The way decisions are made differs from organisation to organisation. In some organisations, top management alone are responsible for decisionmaking. In other organisations, employees are also involved in decisionmaking. Decision-making responsibilities can be delegated down from top management to managers who are more directly involved. When an organisation is centralised, it means that decision-making authority remains with top management. Managers and lower-level employees have little or no say. An organisation is decentralised if decision-making power also lies with managers and lower-level employees, not solely with top management. Decentralisation of authority is related to the task of delegation. Top management might not be directly involved in the day-to-day work situations of front-line staff, therefore in some organisations, if employees are skilled and competent to make decisions, it is better if decision-making is decentralised. However, first-line managers may not always be competent to make decisions themselves, in which case decision-making will need to stay with top management. As an organisation grows, it becomes more difficult for top management to take all the decisions. Therefore organisations may need to decentralise some of the decision-making power to lower levels of the organisation. It is not possible for an organisation to be completely centralised or decentralised. Organisations would not be able to function effectively if all decisions were made only by top managers or only by lower management levels. Integration of centralisation and decentralisation must take place, based on the type and needs of an organisation. Decentralisation has the following advantages: Decisions are made faster. It is not necessary to wait for top management to make a decision, which can take a while as a result of their busy schedules. This is helpful in a rapidly changing environment. The quality of decisions improves. The managers who are making the decisions are closer to the problem and the specific situation, so more accurate decisions can be made. The workload for top-level management is lessened. It frees them to spend more time on strategic decisions instead of solving day-to-day problems. The sense of responsibility and initiative among lower-level management improves. They feel their inputs are valued and trusted, and therefore experience a greater responsibility for results. Lower levels of management will also feel more motivated to solve problems since they are directly involved. There are, however, also some drawbacks to decentralisation: Managers need to be trained more intensively before they can be given the authority to make decisions themselves. Too much decentralisation might cause top management to lose control over certain decision-making aspects. This might result in decisions being made that stray from the foundation of decision-making in the organisation. Constant feedback must be given to top management since they are still accountable for the decisions being made and the goals being attained. Therefore proper reporting lines and administrative channels must be put in place for decentralisation to work effectively. 7.3.4 Authority Authority gives someone the right to make a decision and act in situations. Authority is part of organising. By giving managers and employees authority, responsibility is delegated, productivity increases and work can be coordinated more effectively. In a centralised organisation, authority lies with top management to make decisions and it is then communicated to lower-level employees. If an organisation is decentralised, authority will be given to employees and managers to make decisions themselves. 7.3.4.1 Different types of authority in organising There are different types of authority in an organisation. This is an important concept to understand if the principle is to be applied correctly in organising: Line authority. This is the direct right to give orders that a manager has over an employee or immediate subordinates. It is authority delegated down through the chain of command. For example, the marketing manager has line authority over the advertising manager and the sales people. Staff authority. This type of authority will most likely be found among middle managers. It is the right of one manager to advise, but not to command, another employee who is not subordinate in the chain of command. For example, the manager responsible for legal matters can give legal advice to employees in different functional areas. This is a supporting function as a result of a person’s special knowledge in a particular field. It also links to the concept of staff function. A secretary in an organisation has a staff function. She supports the manager, but does not have any line authority over subordinates. Line-and-staff authority. This authority is found in a combined partnership between line managers and staff managers. Line departments need the support of staff departments to be successful. Activities that take place in manufacturing and marketing are classified under line functions. For line functions to operate properly and sell the organisation’s products, they need the support of staff functions. For example, the human resource staff function does not contribute directly to selling and manufacturing the organisation’s products, but they give an indirect form of support to the line activities that are needed for the organisation to be successful, such as organising annual leave. 7.3.4.2 Delegation of authority Delegation of authority takes place when a manager who is normally responsible for a task assigns direct authority and responsibility to a subordinate to complete it instead. The subordinate must have the same necessary tools and information available as the manager would have had, as well as equal authority and accountability. Successful delegation = authority + responsibility + accountability. Ultimate accountability can, however, never be delegated. The CEO of an organisation, for example, retains final accountability for what is happening in his or her organisation as a whole. Table 7.1 demonstrates the direction of delegation, responsibility and accountability in an organisation. Table 7.1 The direction of delegation, responsibility, authority and accountability Manager Subordinate Delegation Responsibility Authority Accountability There are some guidelines that a manager can follow to be effective in delegation: Set SMART goals and ensure that subordinates support and understand the goals and their role in achieving them. Be clear about the level of authority and responsibility assigned to the subordinate. Involve the subordinate in decision-making and daily activities. Trust and encourage employees to complete their tasks and responsibilities on their own. Train subordinates to empower themselves with the skills and knowledge to take responsibility. Give regular and accurate feedback to enable the subordinate to compare his or her performance against the set standard and to improve his or her actions where needed. Delegating work is an important management activity. The success of delegation depends on the trust between the manager and the subordinate. If there is no trust, the manager will be reluctant to delegate, because he or she will be afraid to accept ultimate accountability in the case where a subordinate is not competent to do the work. Some managers find it difficult to delegate, because they believe that only they can do the job properly. If this is the case, the manager will be overloaded with work, causing the productivity and effectiveness of the organisation to suffer. 7.3.5 Chain of command The chain of command refers to who reports to whom throughout the organisation, i.e. how the authority and power in an organisation is exerted and delegated from top management down to the lower levels in the organisation. Instructions flow downward along the chain of command and accountability flows upward. The more clarity there is in the organisation regarding the chain of command, the more effective the decision-making process will be and the greater the efficiency. When studying the chain of command, there is one aspect that is very important. It is the concept of unity of command. Each employee should have only one immediate supervisor, i.e. report to just one boss. This is called unity of command and ensures that each employee understands exactly what is expected of him or her and to whom he or she is accountable. 7.3.6 Span of control The “span of control” is the number of subordinates a supervisor or manager has and depends on the number of levels and managers in an organisation. The larger the span of control, the more efficient (costeffective) the organisation will be. A basic example is illustrated in Table 7.2. Table 7.2 Span of control Span of control of 5 means = 156 managers and 625 non-managerial employees Managers Span of control of 25 means = 26 managers and 625 non-managerial employees 1 Managers 5 25 1 25 VS 125 Non-managerial employees Less efficient 625 Non-managerial employees 625 More efficient From Table 7.2 it is clear that a larger span of control of 25 means fewer hierarchical levels of management for the same number of non-managerial employees as a span of control of five. This is more cost-effective for an organisation. The type of work that takes place in an organisation will determine the span of control needed to be more effective and efficient. When the work that takes place is complex and variable, the span must be less than when work is fixed and involves mainly routine. The most efficient span of control will also depend on the manager. If he or she is capable of managing and supervising a large number of employees, it will improve efficiency. If a manager cannot handle the responsibilities of having a larger number of subordinates under his or her supervision, effectiveness will drop. Assigning too many subordinates to a manager can lead to poor performance and lack of control. Therefore it is important to look at the type of work and the manager’s competency before determining the span of control used in the organisation. There are five key factors that will influence the span of control in an organisation: 1. The competence of the managers and the employees 2. The complexity of tasks being supervised 3. The frequency of new problems in the manager’s department, and the skills and knowledge of the manager regarding how to deal with them 4. The clarity of procedures, rules and standards 5. The complexity of the subordinate’s job Although the tendency is to have a wider or larger span of control in an organisation, it is important to determine what span of control will be most effective and ultimately most efficient in a particular organisation. A larger span will lead to reduced costs and quicker decision-making, but may be difficult for a manager to cope with, thus influencing its effectiveness. A larger span of control will benefit the organisation if the employees are properly trained and empowered. 7.3.7 Coordination Managers should ensure that coordination takes place to integrate the different tasks and thus help achieve the primary objectives of the organisation. Coordination forms part of structuring. It ensures that the right employees are doing the right job in the right way. It also prevents duplication of activities between different departments. Basically, managers divide all the tasks of the organisation into smaller units, ensuring that specialisation takes place to achieve the goals more effectively. To make sure that there is still cohesion amongst the different departments, coordination is used to link the activities of the different departments in the organisation into a single, integrated unit. Coordination creates congruence by integrating goals and tasks throughout the organisation. Departments need to share resources and information, and work together to achieve organisational goals. The greater the interdependence between departments, the more important effective coordination will be. Coordination is needed to ensure that all departments work to each other’s strengths and stay focused on the vision and mission of the organisation. Management in action 7.3 demonstrates using a simple example why coordination is important in an organisation. MANAGEMENT IN ACTION 7.3 Coordination in sport The basic principle of coordination can be understood when looking at sport. All the muscles and senses of someone playing sport must work together in order to be effective. The brain is controlling the physical actions and it will be impossible to perform some actions without the control of the brain. For example a golf player must hit the little ball. The concentration and all the actions must take place in an organised manner. If coordination of all the muscles does not take place, the player will miss the ball. The same principle is found in coordination in an organisation. The manager (the brain) must make sure that all the different departments work together fulfilling their role at the right time in the correct manner for the organisation to “hit the ball”. If this coordination does not take place, the organisation will not achieve its goals and objectives. 7.4 CONTINGENCY FACTORS INFLUENCING THE ORGANISATIONAL STRUCTURE It is impossible to fulfil the function of organising if the structure of the organisation is not developed in such a way that it optimises strategy execution. Organisational structure should enable the execution of the plans formulated during the planning phase in the organisation. Structure is the map of all the formal relationships between responsibilities, tasks and individuals in the organisation, and there are a few contingency factors that influence these relationships. These are discussed below. 7.4.1 Strategy and structure An organisational structure can be defined as the vertical and horizontal configuration of departments, authority and jobs within an organisation. Figure 7.2 illustrates all the aspects that need to be fulfilled when designing organisational structure. It is important to have the foundational aspects of the organisation in place, i.e. vision, mission, objectives and strategic plans. This will indicate the direction the organisation wants to go. The structure must fit the strategy to ensure that it is possible for the organisation to move in this direction. After the plans have been set, each individual should understand which tasks he or she will have to perform toward this end. As soon as employees know what activities and tasks will be their responsibility, jobs must be created and assigned. Relationships and dependencies between employees and jobs must also be clarified. Once this has been done, the organisational structure must be designed. It is during this activity that the organigram is developed. This includes grouping employees into departments that will function as a whole. Coordination will then glue the different work groups (departments) together in order to work towards the achievement of the vision, mission, objectives and strategy. Figure 7.2 Activities in creating structure Without people working together purposefully in efficiently designed work groups in a coordinated manner, the organisation will not achieve its desired goals. The important lesson to be learnt is that “Structure follows strategy”. An organisation’s direction (strategy) will determine the type of organisational structure. 7.4.2 Size and structure The bigger an organisation, the more complex it is to manage. With more employees, more things can go wrong and more tasks must be managed and coordinated. Therefore the size of an organisation plays an important role when designing its structure. As the organisation grows, more divisions will be created and more coordination will be needed to create synergy. Managers should design their organisational structure in such a way that it increases the efficiency of the organisation without draining resources. Structure should be strategically planned and designed to optimise resources and allow for growth. Organisational structure is thus influenced by the scale, scope and complexity of operations in an organisation. A smaller organisation, for example, will not benefit from functional, product or matrix departmentalisation since it will not be needed, but a larger organisation will. 7.4.3 Technology and structure Never before in history have businesses been influenced so much by technology. Technology constantly changes the way an organisation produces products, delivers services, communicates with customers and evaluates the changing environment. It is constantly shifting the goal posts. The business world has become boundary-less and global. An organisation’s competitors are no longer only national, but international as well – market share is influenced by competitors worldwide. Technology is therefore an ever-changing force that needs to be taken into consideration. An organisation should embrace technology and incorporate it into its structure to ensure that it remains flexible enough to adapt to changes in the environment. 7.4.4 Environmental uncertainty and structure The main purpose of structure is to facilitate the implementation of strategies and plans. Because strategy is affected by the ever-changing external environment, daily operations will be as well. The value of structure will therefore lie in its ability to adapt activities in the organisation to cope with this uncertainty. The external environment creates uncertainty and it is important that an organisation is able to cope with this uncertainty. There is, however, no one structure that is better than another; the value of a structure is determined by the way it matches the uncertain environmental situation and the activities in the organisation. The environment in which an organisation operates is definitely an important determining factor when designing an organisational structure, because the environment has an influence on the organisation’s strategy, and as already mentioned, structure must follow strategy. 7.4.5 Communication and structure The success of any plan depends largely on communication, because it is through communication that the coordination of tasks and activities will happen. The structure of an organisation will influence the efficiency with which the communication process takes place. A complex hierarchy will hinder effective communication from lower-level employees to top management. Top management will not be able to make informed decisions regarding the strategy of the organisation unless they have all the facts. Managers face problems on a daily basis. Low-complexity problems are those that are routine and predictable, and are managed by using a standard set of procedures that lead to programmed decisions. Communication to top management is less important and, in some cases, unnecessary. Communication becomes vital, however, in situations where problems are more complex and may influence restructuring and strategy. This type of information has to reach top management quickly and accurately. Delays will mean that timely decisions cannot be made or that decisions are made according to wrong information. The structure of the organisation must enable and ensure the fast and efficient flow of information. 7.5 ORGANISATIONAL DESIGNS An organisation’s structure will define how the organisation will function. It will dictate how employees, departments and divisions work with each other, and how work will be channelled through the organisation. Some organisational structures work better than others when applied to different organisations. Therefore it is important to consider how well the structure will work in a specific organisation, taking the influencing factors and principles into consideration. Part of creating a structure in an organisation is forming different departments. Organisational design refers to the creation of the organisational structure for the whole organisation. There are many challenges that accompany organisational design. Methods of control must be decided on, coordination of tasks through the different departments must take place and people must be motivated to perform these tasks to the best of their ability to create value. Decisions like these and the division of work have to be made on a daily basis. It is also important that managers re-evaluate the design of the organisation based on changes in the environment and technology. In Management in action 7.4 it is clear that the organisational structure will have a big influence on the effective and efficient functioning of an organisation. MANAGEMENT IN ACTION 7.4 McDonald’s The organisational structure of McDonald’s has a big impact on helping the restaurant maintain an effective performance and also by helping it meet its objectives. McDonald’s is serving thousands of customers every day. It is important that it is well equipped with food products and packaging for the food so that it can run successfully and not have customers complain about the lack of food. If McDonald’s does not have an effective organisational structure, this ideal will not be achieved. The production department helps McDonald’s by ensuring that there is enough food products, packaging for food (cups, boxes, bags etc.) in order for the restaurant to operate each day. The different departments must work together to make sure that McDonald’s orders the food that it needs from the suppliers in bulk whenever needed and on time. This way the customers’ needs are met because they would get the food they order. Source: Adapted from http://www.markedbyteachers.com/gcse/businessstudies/how-the-organisational-structure-of-mcdonalds-affects-itsperformance-and-helps-it-to-meet-its-objectives.html (accessed on 10 October 2014). The different organisational designs will now be discussed. 7.5.1 Simple structure In a simple structure the managers have a large span of control. Authority is usually centralised to a single person, most often the owner of the organisation. A simple structure is often a flat structure where direct control and supervision are found. Another characteristic of this structure is that it is most widely practised in smaller businesses where the coordination of work is easily structured. The simplicity of a simple structure makes it easier to predict and react to changes in the environment and to coordinate activities in the organisation. As the organisation grows bigger, this structure becomes less effective, since it will be no longer possible to coordinate work around a narrow set of activities and decision-makers. An organisation that operates in dynamic and turbulent environments needs to specialise and formalise the organisational structure to spread the coordination responsibilities of top management. As an organisation grows in size and complexity, it becomes important to differentiate activities and products into subtasks and to ensure that specialised people are employed to manage and perform the required tasks, in these sub-areas, in the place of what used to be the owner’s responsibility. Figure 7.3 illustrates the design of a simple structure. Figure 7.3 The simple structure 7.5.2 Departmentalisation Departmentalisation is created when the activities of employees are grouped together according to the skills needed to perform specific assigned duties. Departmentalisation can therefore be defined as an organising action where jobs, based on their characteristics and the specific skills required, are grouped together to accomplish the organisational goals. A short description of the different types of departmentalisation is given in Table 7.3. Table 7.3 The focus of the different forms of departmentalisation Type of departmentalisation Focus Functional Different business functions or expertise (e.g. marketing) Product Specific skills needed to produce different products (e.g. children’s clothing vs women’s clothing under the same label) Customer Customer needs (e.g. individual customers vs large companies) Type of departmentalisation Focus Geographic Geographical areas being served (e.g. regional offices) Matrix Combination of different departmentalisation types 7.5.2.1 Functional departmentalisation Functional departmentalisation organises work and workers into separate units which are responsible for particular business functions or areas of expertise. This includes areas such as production, human resources, marketing and finance. For example, tasks like consumer behaviour analysis, market research, advertising, public relations and sales will be grouped together under marketing. This increases efficiency, because it means that the organisation is doing things right. This form of departmentalisation is often used by organisations that focus only on one product and therefore the tasks are divided into specific specialist functional areas. The challenge for a general manager is to ensure coordination between the different departments. Each department will look at opportunities and threats only from their perspective, but a combined effort is required. The different functions vary from organisation to organisation based on scope, product and size. A service-oriented organisation does not have a production department, but it will need at least a marketing department, a finance department and a human resource department. An example of functional departmentalisation is illustrated in Figure 7.4, and Table 7.4 lists some advantages and disadvantages. Figure 7.4 An example of functional departmentalisation Table 7.4 Advantages and disadvantages of functional departmentalisation Advantages Disadvantages It reduces duplication and costs. Cross-departmental coordination can be difficult. It gives superiors and subordinates the opportunity to share expertise. Conflict regarding product priorities can develop. It makes communication and coordination easier. It may lead to slower decisionmaking. It centralises decision-making. Managers become specialists in specific fields. It allows work to be done by highly qualified specialists. Emphasis is on routine tasks. 7.5.2.2 Product departmentalisation Product departmentalisation organises work and workers into separate units that are responsible for producing specific products or services. As an organisation grows, more product lines will be added to the organisation and coordinating all these associated activities can become challenging. During product departmentalisation, each major product is grouped and placed in control of a manager who is a specialist in that specific product line. This manager will be responsible for everything that is linked to that product. Table 7.5 lists some advantages and disadvantages to this form of departmentalisation. Table 7.5 Advantages and disadvantages of product departmentalisation Advantages Disadvantages Employees can specialise in one area of expertise. There can be duplication. It simplifies the process of performance assessment. Coordination across different product departments is difficult. It creates a focus on the customer’s demands. It limits problem-solving to a single product. Decision-making is faster. Employees are not specialised in other product lines. The logic behind dividing the organisation based on products is that marketing, manufacturing and the type of employee involved in the different types of products differ. This way, the decisions regarding these products are made by individuals who are specialists in that product category. For example, children’s clothing will have a different marketing approach to women’s clothing and will therefore need different specialists (see Figure 7.5). Figure 7.5 Example of product departmentalisation During product departmentalisation, activities are structured around the production of the different products. It is mostly used by larger organisations where products and/or services are varied and big enough to benefit from the greater efficiency that product departmentalisation provides. 7.5.2.3 Customer departmentalisation This method of departmentalisation organises work and workers into separate units according to responsibility for the organisation’s different kinds of customers and their needs, which are the focus of the organisation. The different customer groups of the organisation have different needs and it therefore makes business sense to focus on these customers and their special needs. For example, it would make sense for Eskom to have customer departmentalisation, because an agricultural business has different needs to residential customers. An example of customer departmentalisation is illustrated in Figure 7.6. Figure 7.6 Example of customer departmentalisation Although each department has its own goals for profits and for satisfying customers, these different goals must still be aligned to the overall goals and strategic plans of the organisation. Some advantages and disadvantages of this form of departmentalisation are given in Table 7.6. Table 7.6 Advantages and disadvantages of customer departmentalisation Advantages Disadvantages Customers experience greater satisfaction since the organisation focuses on customer needs. Duplication of resources may occur. Key customers are identified. Problem-solving is restricted to a single type of customer. Advantages It allows companies to specialise in products and services that customers need. Disadvantages Workers might become too focused on pleasing the customers, at the expense of the organisation. 7.5.2.4 Geographic departmentalisation Geographic departmentalisation organises employees and their work into separate units responsible for doing business in specific geographical areas. This type of departmentalisation is suited for an organisation that manufactures and sells goods in various cities or provinces. Some larger organisations have regional offices in different provinces, for example (see Figure 7.7). Managers of the various geographic areas get autonomy, which is needed for decision-making and customising. Table 7.7 gives some advantages and disadvantages of this form of departmentalisation. Table 7.7 Advantages and disadvantages of geographical departmentalisation Advantages Disadvantages It helps organisations to respond to different geographical markets. There is duplication of resources since every area has its own functional departments. Managers develop skills to solve problems that may occur in that specific area. Coordinating the goals of different geographical locations with the overall corporate goals can be challenging. Managers are informed and aware about customers’ problems. It is difficult to coordinate departments. It reduces costs and saves time, since equipment used is all in the same place. Figure 7.7 Example of geographical departmentalisation 7.5.2.5 Matrix departmentalisation Matrix departmentalisation make use of a combination of methods to meet the requirements of the organisation. It has the big advantage of being able to overcome the drawbacks of any single method. For example, geographical departmentalisation might mean that each area’s specific customer needs are properly addressed, but there is duplication within the organisation as a whole. Having one central human resources department in the organisation instead of one in each geographical area (i.e. functional departmentalisation) could help overcome this. Matrix departmentalisation incorporates two structures, functional and product departmentalisation, to benefit from the advantages of both simultaneously. It may be created for a once-off project or be permanent. For example, a motorcycle manufacturer may develop and create certain models as projects using specialist project managers so that the advantages of functional specialisation are gained without affecting the rest of the organisation. In matrix departmentalisation, a project manager, or matrix manager, is appointed and backed with the necessary skills from another functional area. The only barrier here is that there will be more than one manager who can exercise authority, the project manager (matrix manager) and the manager of the functional department. This could create a unity-of-command problem, with subordinates finding themselves trying to please two bosses. The advantages and disadvantages of this form of departmentalisation are presented in Table 7.8. Table 7.8 Advantages and disadvantages of matrix departmentalisation Advantages Disadvantages It enables an organisation to manage complex projects. Each employee reports to two superiors, leading to divided authority. More skills, experience and knowledge are combined to manage a project. It increases overhead costs as it creates more management positions. It makes good use of functional expertise. There can be confusion about who is ultimately responsible for strategy implementation. It enhances creativity and diversity. An example of matrix departmentalisation is illustrated in Figure 7.8. Figure 7.8 Example of matrix departmentalisation 7.5.3 Other organisational designs 7.5.3.1 Team-based structure Team-based structures have become more and more popular as a method of organising. The reason for this is that teams provide an easier way to delegate authority, allocate responsibility and empower lower-level management and employees. Team-based structures make an organisation more flexible. Decision-making happens faster because the organisation becomes more horizontal, breaking the long vertical chain of command and the departmental barriers. Teams take full responsibility for operational issues and all of this enables the organisation to respond to the competitive environment more accurately and effectively. Figure 7.9 illustrates a teambased structure. Figure 7.9 The team-based structure 7.5.3.2 Boundary-less structure A boundary-less organisation is a modern approach in organisational design. A boundary-less organisation is not defined by, or limited to, the horizontal, vertical or external boundaries imposed by a predefined structure. Boundaryless organisations transcend the rigid lines of bureaucracy and divisional boundaries and ignore the borders where the organisation itself is separated from its markets, customers and stakeholders. This type of structure welcomes and thrives on change, focusing on fluid and adaptive behaviour. An informal managerial style is well suited for complex and non-standard work. There are no barriers between the organisation and the external environment. A boundary-less organisation is highly adaptable, creates rapid innovation and is a perfect structure for an organisation that finds itself in the growing technology industry. A boundary-less organisational structure may also involve eliminating the barriers separating employees, such as traditional management layers or barriers between different departments. Structures such as self-managing teams create an environment where employees coordinate their efforts and change their own roles to suit the demands of the situation, as opposed to insisting that something is “not my job”. There are different types of boundary-less organisations. The first type is the virtual organisation (also sometimes called the network or modular organisation) where all the major and/or non-essential supplementary functions are outsourced. The purpose with this format is to preserve only the value-generating and strategic functions in-house, while the rest of the operations are given over to suppliers. Organisations like Nike and Reebok are just two of the thousands of organisations worldwide that do business without owning manufacturing facilities. A typical bureaucratic organisational structure has many vertical levels of management, while the virtual organisation outsources many of its functions and focuses only on its core competencies. The advantage of the virtual organisation is its flexibility. An organisation can become a major competitor without owning all the different activities in its value chain. The disadvantage is that virtual organisation reduces management control over some of the activities of its business, because it has to rely on outsiders. Figure 7.10 illustrates a virtual organisation. Figure 7.10 A virtual organisation The second type of virtual organisation is the strategic alliance. This is similar to a joint venture, where two or more companies find an area of collaboration and combine their efforts to create a partnership that is beneficial for both parties, except there is no sharing of ownership. This may result in the traditional boundaries between two competitors being broken. 7.6 SUMMARY For the management function of planning to realise its full capacity, organising must be done to create structure. Through this structure, tasks and activities must be performed in order for goals and objective to be accomplished. These tasks and activities must be controlled and coordinated in various ways by creating departments. Without proper and accurate organising activities, the organisation will not be coordinated and driven to achieve its goals. REFERENCES AND RECOMMENDED READING Brevis, T. & Vrba, M. 2014. Contemporary management principles. Kenwyn: Juta. Erasmus, B., Strydom, J. & Kloppers, R.S. 2010. Introduction to business management, 8th ed. Cape Town: Oxford University Press. Factors to consider in organisation design. https://www.boundless.com/business/textbooks/boundlessbusiness-textbook/organisational-structure-9/factors-to-consider-in-organisation-design67/organisation-size-318-10761/ (accessed on 21 October 2014). Griffin, D. The structure of a boundaryless organisation. http://smallbusiness.chron.com/organisationalstructure-communication-3815.html (accessed on 10 October 2014). Guide to promoting health & wellbeing in the workplace. http://www.healthierwork.act.gov.au/__data/assets/pdf_file/0004/309280/Guide_to_Promoting_Healt h_and_Wellbeing_in_the_Workplace.pdf (accessed on 21 October 2014). Hellriegel, D. et al. 2008. Management, 3rd South African ed. Cape Town: Oxford University Press. Hellriegel, D., Jackson, S.E. & Slocum, J.W. 2002. Management: a competency-based approach, 9th ed. Ohio: South-Western Thomson Learning. Lusier, R.N. 2003. Management fundamentals, 2nd ed. Ohio: South-Western Thomson Learning. McDonald’s. http://www.mcdonalds.co.uk/ukhome/whatmakesmcdonalds/questions/running-thebusiness/business-operations/what-is-the-structure-of-mcdonalds-and-how-each-department-in-theorganisation-interact.html (accessed on 21 October 2014). Robbins, S.T. 2000. Managing today, 2nd ed. New Jersey: Prentice Hall. Strydom, J. (Ed.). 2011. Principles of management, 2nd ed. Cape Town: Oxford University Press. The importance of delegation. http://www.managementstudyguide.com/importance_of_delegation.htm (accessed on 21 October 2014). What is a simple organizational structure? http://www.businessmate.org/Article.php?ArtikelId=183 (accessed on 21 October 2014). Widhiastuti, H. 2012. The effectiveness of communications in hierarchical organisational structure. International Journal of Social Science and Humanity, 2(3). Williams, C. 2013. Principles of management. Mason, Ohio: South-Western Cengage Learning. CASE STUDY: STRESS-FREE WORK ENVIRONMENT AND ORGANISING A happy employee is usually a productive employee. Many things play a role in whether employees are happy or not. It begins with employees having a healthy job environment. A healthy job is likely to be one where the pressures on employees are appropriate in relation to their abilities and resources, to the amount of control they have over their work, and to the support they receive from people who matter to them. A healthy working environment is one in which there is not only an absence of harmful conditions but an abundance of health-promoting ones. If the work environment does not support employees, it may cause work-related stress. This will have a negative effect on an employee’s productivity. What is work-related stress? Work-related stress is the response people may have when presented with work demands and pressures that are not matched to their knowledge and abilities and which challenge their ability to cope. Stress is often made worse when employees feel they have little support from supervisors and colleagues, as well as little control over work processes. There is often confusion between pressure or challenge and stress, and sometimes it is used to excuse bad management practice. Work-related stress can be caused by poor work organisation, poor work design, poor management, unsatisfactory working conditions, and lack of support from colleagues and supervisors. Research findings show that the most stressful type of work is that which values excessive demands and pressures that are not matched to workers’ knowledge and abilities, where there is little opportunity to exercise any choice or control, and where there is little support from others. Employees are less likely to experience work-related stress when demands and pressures of work are matched to their knowledge and abilities control can be exercised over their work and the way they do it support is received from supervisors and colleagues participation in decisions that concern their jobs is provided. Pressure at the workplace is unavoidable owing to the demands of the contemporary work environment. Pressure perceived as acceptable by an individual may even keep workers alert, motivated, able to work and learn, depending on the available resources and personal characteristics. However, when that pressure becomes excessive or otherwise unmanageable it leads to stress. Stress can damage an employee’s health and business performance. Source: Adapted from http://www.who.int/occupational_health/topics/stressatwp/en/ (accessed on 21 October 2014) Case study questions 1. What can managers do to create a save and healthy work environment in their organisations? Base your answer on the theory of organising. 2. Can an organised work environment decrease stress? Substantiate your answer. 3. What can employees do to improve their work environment and be more productive? 4. Explain the impact of the centralisation of authority and the decentralisation of authority on creating a healthy work environment. MANAGEMENT DISCUSSION EXERCISES 1. What are the different forms of departmentalisation? Explain the types and draw diagrams to illustrate how they are structured. 2. Why is it important for an organisation to be organised? Discuss your answer referring to theory on organising. 3. Why would you prefer to work in a virtual organisation? 4. Visit an organisation. Ask the manager/owner why he or she has decided on the specific organisational structure of the organisation, and what influenced his or her decision. 8 Organisational change and learning ADEN-PAUL FLOTMAN Learning outcomes After studying this chapter you should be able to do the following: Understand and explain the changing world of work. Discuss the concept of the organisation as a dynamic social system. Diagnose various types or areas of change. Identify and discuss the triggers and forces of change within a multidimensional environment. Describe and contrast three major models of planned change. Explore the nature of organisational change and the reasons for resistance to change at a personal and organisational level. Outline the definition, evaluate the benefits and discuss the characteristics and the relationship between organisational learning and performance. 8.1 INTRODUCTION Organisations find themselves in an environment marked by radical and intensive change. In order to survive and remain competitive, organisations are compelled to become flexible in their approach, and responsive to internal and external forces. After organisations have planned, they have to develop an organisational structure that supports the plan. This can also mean that change will or must happen in the organisation – changing the existing organisational structure may mean that people are moved to new positions in the organisation or lose their jobs. Restructuring the organisation often lies at the heart of change. This chapter commences by exploring the changing world of work and the need for organisations to be responsive to change. Forces exerting pressure on organisations to change present themselves in the form of volatile, general, systemic and internal organisational forces. It has therefore become incumbent on managers to be able to manage change. Three major theoretical approaches to planned change are explored, namely, Lewin’s three-step model of change, the action research approach, and the positive model of change. Resistance is a normal human response to change. This phenomenon is discussed both from an individual and an organisational perspective. Strategies that managers can use to manage resistance constructively are also explored. One way of becoming resilient, and change fit, is to strive to become a learning organisation. The ability of the organisation to learn has become the new competitive edge. This chapter thus concludes with an overview of a learning organisation and its distinguishing features. 8.2 THE CHANGING WORLD OF WORK The rapid pace of technological, socioeconomic, political and global development has resulted in change becoming an all-encompassing, inevitable and persistent distinguishing feature of organisational life. It is evident that the unpredictability, impact and magnitude of change will become greater than ever before. The premise is that organisations will have to acquire the capacity to anticipate and become responsive to internal and external influences, in order to remain sustainable over the long term. The inability or reluctance of some organisations to be responsive to change implies that they will be relegated to the periphery of the business world, where they will ultimately perish. Organisations have to continually find ways of renewing themselves in an attempt to enhance productivity, contain operating costs and increase their competitive agility. All organisations are influenced by internal and external forces in a unique way. These factors originate from both inside and outside the organisation. External influences range from political and economic, to technological and sociocultural. Notable external forces are illustrated in Figure 8.1 and include fierce and innovative competitors, sophisticated suppliers, increasing consumer demands, higher stakeholder expectations, stringent government regulations, increasing intergovernmental agreements, communities, trade union movements and society at large. The different organisational environments were discussed in detail in Chapter 3. Organisations are also being confronted by industry-specific technological advances and a change in the demographics of the workforce. There has been a shift from a workforce dominated by baby-boomers, to one which is younger, in the form of generation X and Y employees. While developing economies like South Africa have a relatively young workforce, developed economies are confronted with the challenge of a rapidly shrinking and ageing workforce. One of the advantages of globalisation in this regard is the opportunity for labour mobility. Employees with a specific skill set and experience are prepared to leave their country of birth, to exploit employment opportunities across the globe, sometimes holding more than one job at the same time. This ever-changing world of work is having a direct impact on individual, team and organisational behaviour, the level of uncertainty, anxiety and control, managerial decision-making and philosophies, the need for work–life balance, and the importance of life-long learning as a critical survival mechanism within this turbulent work and business environment. However, research suggests that organisations invest heavily – through power, emotion and resources – in the existing organisational status quo, and are more likely to fine-tune those structures than engage in complete transformational change. Large-scale change occurs as a result of the following disruptions: Industry discontinuities – revolutionary changes in political, economic or technological conditions Product life cycle shifts – requiring different business strategies or models Internal company dynamics – changes in the size, strategy or turnover Figure 8.1 The organisational environment These “winds of change” blowing through organisations are being exacerbated by the notion of the organisation as an open system. A typical definition of an organisation is that it is a social entity, that has a specific purpose, with a set boundary (inside vs outside), governed by patterns of processes and activities, resulting in a recognisable structure. Figure 8.2 reflects this notion of the organisation as a system of dynamically connected subsystems, which is situated and functions within the context of other systems such as the environment, providing inputs and subsequent outputs to deliver on its purpose (also refer to Chapter 1). Most organisations consist of a formal subsystem (organisational strategy, management groupings, organisational goals, structure, operations and technology), as well as an informal subsystem (political behaviour, leadership and followership, culture, etc.). Within the context of the internal and external forces discussed above, these subsystems dynamically interact with one another, which often results in an unpredictable, complex social system exhibiting a unique pattern of individual and organisational behaviour. Figure 8.2 The organisation as a dynamic social system 8.3 FORCES FOR CHANGE Change happens. It is a normal feature of social and organisational life and cannot be studied in isolation. Change has a cognitive, emotional and behavioural component, and should be managed at different levels. It can be planned or imposed, dramatic or it can gradually sneak up on the organisation. Such is its pervasive nature that it has been observed that “Change is alive and well!”. Change is real, it is radical and it is applicable to every organisation every day. In the following sections, forces of change are discussed according to their nature and potential impact. 8.3.1 Volatile forces These forces are primarily external to the organisation and create everchanging conditions. It is important that organisations are aware of their influence: Unpredictable economic and business environment. Changes on the economic front, in the form of increased inflation or an economic recession, could force organisations to rethink the way in which business is done. Fierce competition, challenges and opportunities presented by globalisation. Transportation, advances in information technology and the rise of multinationals have resulted in more competition for markets, clients and resources, with the accompanying opportunities to be exploited. Government intervention in the economy. An example of government intervention is its involvement in competitive and critical industries, such as the mining and pharmaceutical industries. Demanding labour union agendas, particularly in the SA context. Unions have to ensure that the rights and interests of their constituencies are always protected. Divergent political interests. Sociopolitical interest groups with divergent needs and expectations exercise pressure to ensure that their interests are met. Fight for scarce, limited resources. In the context of limited, particularly natural resources, such as coal, organisations need to manage current energy needs and think about more sustainable energy sources. The rapid advances in technology. Today’s technology could be obsolete tomorrow. This has resulted in more agile organisations, in order to be more responsive to rapid technological advances. 8.3.2 General forces Consumers are becoming more knowledgeable, more demanding and more quality conscious. Organisations rely on consumers to buy their products. Competition for the loyalty of customers has become extremely fierce. More flexible work structures have resulted in varied patterns of management. Another influence on organisations is how work is structured and the subsequent impact on managerial practices. Change in the composition (demographics) of the workforce has an influence on the organisation. A younger workforce has placed increasing emphasis on generational values, expectations and attitudes toward work (see Management in action 8.1). Organisations are diverse, living, dynamic systems which often leads to internal tension and conflict. MANAGEMENT IN ACTION 8.1 Influence of changing demographics Change is the only constant. It is a fact that projections for Africa are indicating that 1.8 billion babies will be born in the next 35 years and that Africa’s population is expected to double from 1.2 billion people in 2015 to 2.4 billion by 2050. This changing demographic situation in Africa can transform the continent into an economic force to be reckoned with, given that this youthful population will be educated and entrepreneurial. This kind of population will be attractive as an investment destination for the rest of the world because of its natural resources, but Africa will also be attractive as a consumer market. These changing demographics will demand from African countries the use of their labour forces to drive economic growth and to increase their prosperity. In South Africa, organisations are already experiencing the influence of the changing composition of the work force as they experience the changes of organisational values and general attitudes towards work. The different values of the different generations cannot be ignored by managers of organisations. 8.3.3 Systemic forces The variety of outsourcing models available. Certain outsourcing models have a direct impact on workflow, structures and processes. A consistent struggle to determine the “core business” of the organisation. Changes in the external environment could also have an impact on the strategic intent of the organisation. Fragmentation of work and its subsequent impact of alienation and meaninglessness. The way in which work is divided can also lead to a change in the status quo. Managing the negative impact of technology on employment. Adopting technology may lead to the loss of employment. 8.3.4 Internal organisational forces The challenge of ageing organisations. This could be in the form of buildings, equipment, employees, etc. thus compelling the need for change. Inadequate human resource planning as well as inadequate training and staff development. Organisations are obliged to respond to these challenges. The temptation of “doing more with less”. This often happens when employees have been retrenched or dismissed, and the employer refuses to appoint new employees. Change fatigue in the absence of change flexibility. Organisations will then become unsustainable. Survival compels them to bring about realistic changes. 8.4 TYPES OF ORGANISATIONAL CHANGE Organisational change is an attempt to enhance organisational efficiencies. This is done by applying a number of change types or strategies. Change can be effected by implementing a new strategy, structure, technology or behaviour, or a combination of these (an integrated approach): Strategic change can emanate from a need for the organisation to reposition itself in the face of changing market conditions. Major strategic changes often have an impact on the organisation’s structure, systems, processes and even culture. Structural change involves the organisation’s design, workflow, reporting relationships, etc. Examples of structural changes are downsizing, decentralisation by providing smaller organisational entities (departments) with more decision-making autonomy, or centralisation, where critical decision-making takes place at head office level. Technological change introduces new technologies, such as manufacturing equipment and computerised information systems. For example, a university could implement a new computerised information system to expedite online application and registration processes. Behavioural (or people) change involves the optimal use of human resources in the form of optimising an organisation’s talent. Organisational performance is enhanced by raising people’s job satisfaction, motivation and commitment levels. An integrated approach to organisational change involves a revised strategic, structural, technological and behavioural strategy. These strategies target the organisation’s purpose, structures, design, manufacturing or service methodologies, attitudes and values. The focus is on a new strategic direction, relationships, processes and behaviours, which result in improved organisational performance. 8.5 APPROACHES TO MANAGING THE CHANGE PROCESS Organisations are always evolving and effective change management has therefore become closely linked to the organisation’s ability to compete successfully. To this end, the concept of planned change has dominated organisation development literature. However, planned change has also come under severe criticism in the current world of rapid and turbulent fluctuation and evolution. This section will explore some of the major theories of planned change, namely, Lewin’s three-step model, the action research approach, and the more recent positive appreciative model. 8.5.1 The Lewin model Lewin attempted to resolve primarily social tension through behavioural change. At the centre of Lewin’s theory is the interaction of dynamic forces which result in stable systemic behaviour. Two sets of behavioural forces are always at play: (1) those working against change to maintain the status quo, and (2) those working against the status quo to bring about change. A “quasistate equilibrium” is achieved when these forces are equal in strength. Change is therefore effected by the following: Enhancing the forces pushing for change Undermining the forces maintaining the status quo, or A combination of both An effective change strategy, according to Lewin, is to decrease the restraining forces (striving to maintain the status quo), rather than increasing the pushing forces (striving for change). The assumption is that an increase in the pushing forces would result in higher levels of resistance to change. Lewin’s fundamental contribution to organisational change is his three-step model: STEP 1: UNFREEZING The first step involves reducing the forces in favour of the current situation. This is often achieved by communicating information indicating a discrepancy between the current state of the organisation and its desired state; in other words, by making it known that the current way of operating is no longer viable and would result in the organisation becoming less competitive, unproductive and unsustainable over the long term. The desired behaviours and modified organisational activities would make the organisation more competitive, more productive and more sustainable. This would be beneficial to individuals and the organisation as a whole. This kind of thinking would result in members becoming inspired to engage in new organisational behaviours and activities. STEP 2: MOVING This step involves the alteration of individual, group and organisational behaviour to new behaviours in line with the desired state. This intervention could involve the introduction of a new strategy, values, attitudes, ways of working, structures, technology, etc. One of the key challenges of this phase is learning to live with the discomfort introduced by these changes by unlearning and relearning new sets of thinking and behaving. However, without reinforcement, the new state cannot stick, hence the importance of the last phase. STEP 3: REFREEZING This is the final step and involves the stabilisation of the organisation at the new level. Regression is always a possibility, so the refreezing will ensure that the change is not short-lived. It is critical that the environment of the individual in the form of group norms and activities reflect the new way of doing things. Other forms of refreezing to be considered are management setting the example through their behaviour; recognising and rewarding new behaviours; instituting supporting structures, and providing ongoing training to entrench the new competencies required. In the absence of significant support, people will simply return to the comfort of their “old behaviours”. A notable extension of Lewin’s three-step model is Kotter’s eight-step process which involves the following: 8.5.2 The action research model Action research has been modified to become more applicable to planned change within an organisational context. It involves a collective, collaborative, yet iterative process with all stakeholders, from data collection and analysis to action planning, implementation and evaluation. Initial research findings are assessed and then applied to inform subsequent activities. There are eight main steps to action research. STEP 1: PROBLEM IDENTIFICATION This stage commences when there is an awareness of certain challenges, also expressed as a “felt need” that the organisation can no longer proceed in the same fashion. An intervention is therefore required to assess the presenting problem and to address the underlying causes. STEP 2: CONSULTATION WITH A RELEVANT EXPERT This awareness leads to a consultation with a relevant expert. In the first meeting, client and consultant will build a relationship by sharing experiences, histories, expectations and frames of references. It is critical that a transparent, credible relationship is formed. This will result in an atmosphere of trust and collaboration, which is invaluable to the success of the project. STEP 3: DATA COLLECTION AND INITIAL ASSESSMENT The practitioner, for example an organisation development (OD) consultant, normally takes the lead during this phase, with the support of all relevant stakeholders. It is critical to note that the intervention has already started in terms of influence and impact. Data is collected through observation, interviews, surveys and the scrutiny of organisational records. This information will help to determine the underlying causes of the presenting problem. STEP 4: FEEDBACK TO CLIENT A feedback session is arranged and the data is discussed with the client or client grouping. This will give the client an idea of the current status of the organisation. New observations may have been uncovered and existing perceptions could be confirmed. Confidentiality should be protected at all times and the information should be conveyed with consideration for ethical and other implications. Sometimes the client is not ready for the “news” and could become resistant to the process. This phase should be handled in a sensitive, yet firm manner. STEP 5: JOINT PROBLEM DIAGNOSIS This phase relies heavily on the client–consultant relationship. Data is further diagnosed and interpreted, problems are identified and priorities decided upon. The consultant must not enter with a preconceived solution. The diagnosis must be approached as a collaborative process. It is critical that the client understands and accepts (i.e. buys into) the final diagnosis. STEP 6: JOINT ACTION PLANNING The nature of the problem, the current organisational internal and external environment, and the desired end-state will determine the actions in the form of interventions to be implemented. This is done collaboratively between the consultant and the client grouping/stakeholders. STEP 7: ACTION A transition period is entered where specific actions are initiated in the form of new methods, technologies, procedures, behaviours, structures, etc. Action is thus taken to implement the change. STEP 8: POST ACTION DATA COLLECTION To close the process, data is collected to assess the impact, gaps are identified, and feedback is presented. This reflects the iterative nature of the model, resulting in a process of re-diagnosis and new actions to be initiated. This model can be applied in small entrepreneurial settings to large multicorporate settings, and is increasingly being applied in social settings. The attractiveness of this model lies in its collaborative nature, resulting in clients feeling involved which inspires ownership and learning throughout the process. Multidisciplinary collaboration is also nurtured by the pooling of diverse expertise. 8.5.3 The positive model – appreciative inquiry Lewin’s model and the action research approach are primarily deficit based, i.e. they focus on what is wrong, what the problems are and how these negatives can be eliminated. The positive model emphasises what is going right in the organisation. What are its strengths? What does the organisation look like when it functions optimally? Positive expectations create an anticipation of positive outcomes. This in turn generates energy, excitement and motivation. This approach feeds off the positives of the organisation to strengthen it even more. The appreciative inquiry (AI) process is an application of the positive model. AI looks at change through a positive lens and stresses collaborative engagement, a shared vision and positive potential. The five phases of the AI process are discussed below. PHASE 1: INITIATE THE INQUIRY This phase involves the identification of the subject of change. It must be an issue that is real and critical to members and which they are eager to address. The nature of the change will spark positive energy throughout the process. PHASE 2: INQUIRE INTO BEST PRACTICES This phase involves the collection of data regarding the organisation when it functions at its peak. Individual stories and anecdotes are collected via interviews regarding experiences when individuals felt highly engaged and appreciated. These individual findings are then collated to provide a colourful description of the characteristics of an organisation which values its members. PHASE 3: DISCOVER THE THEMES This phase involves the scrutiny of the stories from phase 2, which are then translated into themes. Examples of themes could be authentic engaging leadership nurturing trust, consistent organisational support which leads to innovative thinking, organisational recognition and the willingness to walk the extra mile, etc. These themes are reflective of attractive future possibilities. PHASE 4: ENVISION A PREFERRED FUTURE Stakeholders subsequently explore the themes, collectively envision the organisation’s future, describe a compelling future in the form of “provocative possibility propositions”, and identify processes to be aligned and support to be championed in order to “give birth” to this envisioned future. PHASE 5: DESIGN AND DELIVER WAYS TO CREATE THE FUTURE The final phase involves the identification and description of plans and activities to deliver this new future. Actions are monitored and adjustments made by engaging in positive conversations about the imminent compelling future. 8.5.4 Criticism of planned approaches Planned approaches to change have been criticised because of their questionable application to organisations within a rapidly changing environment. Newer perspectives on change, such as continuous improvement and organisational learning, have been suggested as being more effective under dynamic conditions and circumstances. There is also a strong argument that downplays these approaches to change and rather emphasises the creation of an organisational climate and structure that facilitates experimentation, learning and a positive appetite for change, known as change resilience. Table 8.1 lists some actions for effective change. Table 8.1 Actions to introduce effective change 1. Analyse the organisation and its need for change. Stakeholders need to understand the nature and rationale for the change. 2. Create a shared vision and a common direction. A credible, competent team must provide inspirational leadership in support of the change. 3. Separate from the past. Stakeholders need to move out of and away from their comfort zone. It cannot be business as usual. 4. Create a sense of urgency. What is in it for me? What are the consequences of not changing? 5. Support a strong leader role. 6. Line up political sponsorship. One of the critical contributors to successful change is effective sponsorship. 7. Craft an implementation plan. Adopt a project management approach to change. 8. Develop enabling structures. In the absence of structures to contain anxieties and provide support during this uncertain phase, people will tend to return to the familiarity of the comfort zone. 9. Communicate, involve people and be honest. 10. Reinforce and institutionalise change. Make change stick by celebrating successes and rewarding positive behaviours. 8.6 RESISTANCE TO CHANGE Change has the capacity to unleash waves of resistance, not only in people but also in organisations. Resistance is generated by fear and anxiety, irrespective of whether it stems from perception, or is firmly grounded in objective evidence. Resistance to change (i.e. the thinking processes regarding the impact of the change) has become a common characteristic of organisational life. Fears could emanate from perceptions around job security, working conditions, the instability associated with uncertainty (not knowing), power and influence, remuneration, the acquisition of new competencies, or simply discomfort as a result of potential inconvenience and disruption. On an organisational level, there is also a vested interest in the status quo. The way in which current arrangements operate (such as current work flow and reporting lines, policies and procedures) are often beneficial to certain powerful stakeholders. Changes in these arrangements create tension. When tension arises, managers are more familiar with the operational component of the business and not necessarily the human side of the business. An effective change strategy is necessary and should make provision for this eventuality. 8.6.1 Individual resistance As creatures of habit, change can generate significant anxiety for people when they have to move from the security and comfort of the known, to the insecurity and discomfort presented by the unknown. Research has revealed some reasons for individual resistance to change in an organisational setting. 8.6.1.1 Change uncertainty Human beings do not tolerate uncertainty well. The status quo brings comfort and predictability. So anything that poses a threat to routine and the familiar will be met with resistance. People often say: “If it ain’t broke, don’t fix it.” Uncertainty regarding change therefore creates insecurity. However, a certain degree of discomfort needs to be created in order to effect critical changes in organisations. 8.6.1.2 Selective perception People interpret environmental stimuli in a unique way. These interpretations can be accurate or inaccurate. What is critical is that this view or perception becomes “reality” for an individual. The change that follows a period of industrial action could quite easily be interpreted as “punishment for our actions”. 8.6.1.3 Fear of the unknown Closely associated with the uncertainty regarding change is fear of the unknown. The insecurity of the unfamiliar, for example the introduction of new technology, creates anxiety, the defence against which is being resistant to the new changes. This is why communication is so critical during a change process. People fill any information vacuum with speculation, paranoia and scepticism. 8.6.1.4 Attraction of habit and the disruption of routine Habits provide comfort, familiarity, confidence and security. Changes without any clear benefits are likely to be resisted. Resistance will be even stronger if habitual routines have resulted in positive, successful outcomes. Under these circumstances, change will be viewed as an inconvenience and an annoying disruption. 8.6.1.5 Loss of freedom and other benefits If the change is likely to result in the reduction of freedom, the loss of control and rewards, or any other significant benefit, it is likely to be resisted. The change must be seen to be of benefit to the recipients. Only then will it be accepted. People often want to know: “What is in it for me?” The more the personal benefits that are derived, the better the chances of the project being supported and accepted. 8.6.1.6 Threat to power, social networks or security Any change that results in the loss of influence, jobs, opportunities for advancement, friendships and other networks will be strongly resisted. People often have a vested interest in group cohesion, status and prestige. Change may also be beneficial at organisational level, but perceived as a threat at personal and individual level. 8.6.2 Organisational resistance Resistance is not only confined to the individual level. Organisations often have a vested interest in the status quo, and will resist any perceived efforts aimed at disrupting its routine. Organisational culture is also created over time in order to deal satisfactorily with certain factors in its internal and external environment. This culture is sustained because things are done in a particular fashion in the organisation which has worked well in the past. There are some common reasons for organisational resistance to change. These are discussed below. 8.6.2.1 Political resistance: threats to power, influence and stability Groups of people often invest and become comfortable with the way in which things are done in the organisation. This later becomes the norm, or their “undisputed right” to specific resources, responsibilities, decisionmaking or organisational intelligence. Change may therefore be perceived as a threat to their power and influence, thereby disrupting the status quo. This status quo provides stability and predictability, particularly in large bureaucratic organisations. These dynamics will make organisations less responsive to change. 8.6.2.2 Cultural resistance: organisational norms and culture Sometimes an existing organisational culture, commonly expressed as “the way things are done around here”, can also facilitate resistance to change. Organisational norms, value systems, patterns of behaviour, language, attitudes and interactions develop gradually over time, and the nature of these organisational idiosyncrasies is difficult to change. Individuals and subgroups are subsequently coerced to behave in a certain way. 8.6.2.3 Technical resistance: mutual trade, working arrangements and agreements To enter into contracts and other forms of agreement is a normal feature of organisational life. The nature of these agreements could inhibit the introduction of certain changes. In the South African context, a notable example could be agreements with trade unions regarding technologies and restructuring practices. 8.6.2.4 Dynamic resistance: long-term investments Long-term investments in, for example, infrastructure and technology could also serve as an inhibitor of change. Organisation-wide change projects often require significant financial and other resources. Prior commitments would make it difficult for organisations to alter an existing approach, or to divert resources to alternative projects in the short term. 8.6.3 Overcoming resistance to change As change unfolds, the coping capacity and resilience of employees, managers and the organisation as a whole are relentlessly tested. This emotionally changed environment can evolve into an overwhelmingly unsettling experience. Resistance will manifest through covert and overt conflict, disagreements, hostility, questions regarding the nature and consequences of the change, passive-aggressive behaviours and even sabotaging of the change initiative. Often managers are expected to deal with this resistance when they also have to come to terms with the change, and are therefore ill-equipped from an emotional and change management perspective to deal with the human side. The following strategies can be considered to manage resistance to change positively. 8.6.3.1 Motivate commitment Central to the challenge of resistance to change is motivating commitment to the change. A felt need for change must be created by making people uncomfortable with the status quo. This will motivate employees to explore new ways of behaving. Individuals need to know and experience that the current state is no longer viable, and that a new desired state should be embraced. Staff therefore need to understand fully the reasons for the change and “what is in it for me”. 8.6.3.2 Understand the human response to change Organisations need to understand that human beings tend to deal with change in an emotional way. Resistance should be viewed as a normal human response, and it should to be welcomed as an opportunity for engagement and learning. Space therefore needs to be created for people to “voice” their emotions, by processing their unique, subjective experiences of the change process on an emotional and cognitive level. When people feel understood, and that their experience of the change is regarded as important, it is likely that their resistance to change will diminish. 8.6.3.3 Show empathy and support An environment of relative safety and trust is created by displaying genuine empathy and proactive support. This is done by showing interest (remaining close to people), identifying the areas of concern, suspending judgement (since people are dealing with situations in their own unique way) and ensuring that management delivers on their promises. 8.6.3.4 Ensure consistent communication Uncertainty creates speculation, anxiety and defensive, paranoid behaviours. Managers must find effective ways of delivering information. These can range from emails and posters, to more personal forms of communication such as departmental meetings, short presentations and “coffee and muffin” sessions. These sessions provide individuals with the opportunity to engage, ask questions, eliminate misconceptions and receive support from their colleagues. It is often said that even if there is “nothing” to communicate, say it. The importance of honesty in communication can never be overstated. 8.6.3.5 Foster individual involvement Organisations do not change, people change. The focus should therefore be on individual involvement throughout the change programme. Full participation of members in the organisation must be encouraged right from the inception and conception of the whole change process. People often identify critical details, innovative ideas and unforeseen pitfalls. By involving people, trust, motivation and commitment are instilled. 8.6.3.6 Management must play a containing role Change can be a painful, uncomfortable, disruptive process. This is when management is expected to play an invaluable containing function. Fears and anxieties are limited through appropriate management of expectations and by supporting individuals in the roles they have to take up during this turbulent time. Organisational realities such as structures, guidelines, information, checklists, roles, etc. often create comfort. When the things to which people have become accustomed are suddenly dismantled and they have to move into the unknown, fear and anxiety are created. Management should limit this through effective communication. Managers, however, often wrestle with the dilemma of what to communicate, how much and when. Leadership requires being honest with your people. Trust is irrevocably damaged when people discover that they have been lied to and deceived by management (see Management in action 8.2). This in itself could be a source of resistance. Management needs to set the tone in terms of what is prioritised, how it is communicated and what must be rewarded. Conditions need to be created that will minimise the threat and discomfort of change, and maximise the level of acceptance. People need to feel that they are included and respected and are the co-owners of the change, as opposed to being bullied into a change project. MANAGEMENT IN ACTION 8.2 Honest leadership We have a huge trust deficit in our country, or perhaps in society at large. Labour does not trust business; business does not trust labour; business and labour does [sic] not trust government; many employees do not trust management; and frankly far too many managers do not trust their employees; many of our compatriots do not trust the President of our country; and there is probably a strong case for the President not trusting his people; most would attest that they simply do not trust politicians. The unnecessary outcome is that decisions are questioned, surreptitiously or even blatantly; buy-in to decisions are [sic] therefore slow and much needed action is delayed, and when implemented, it is not necessarily with the best attitude and even full grasp of the original message, because why will someone listen effectively when there is little or no trust. There are more consequences to distrust, but as a leader carefully consider the dire implications of just this alone. While distrust may result from several reasons, one clear cause is the perception or reality of dishonesty, in whatever guise, shape or form. Truly great leaders are authentic – their behaviour predominantly matches their words; their motives generally are also in sync with their actions; their actions reflect their values. Let’s be honest, many political, corporate and other leaders struggle to be authentic; they are ‘boxed’ in, saying what is politically correct rather than what they really believe; following agenda’s [sic], rules, procedures, plans that are forced upon them rather than what they believe will truly lead to success. Hence, it is reasonable to question whether or not we still have a lot of good leaders left in South Africa, and perhaps globally. History and our own experience seem to counter this though, because it reflects that inside a difficult environment great leaders emerge. South Africa is a very difficult place to lead in and should therefore by default be breeding great leaders. You see, being honest in every respect makes one authentic – honest with yourself; honest with others; honest about what is happening around you; honest in how you address the reality; honest in your agenda. If we therefore want an authentic environment it must be honest! Then the ground will be fertile to grow leaders that are real and that will rise to the occasion to achieve the extraordinary. Source: Adapted from Groenewald (2014) 8.7 CREATING A LEARNING ORGANISATION The global competitive environment has forced organisations to change their approach to doing business by being responsive to what is required. The current competitive edge has often been defined as the ability to anticipate change and to be responsive. 8.7.1 Learning organisations defined In order to remain competitive and sustainable, organisations therefore need to be flexible and responsive. They need to be transformed into learning organisations. The need for life-long learning has been contextualised as follows: This imperative for continual change and improvement translates into one key capability, the need for continuous organisational learning. It is something every business needs to excel at and the lessons come from making mistakes, learning from industry leaders and from competitors, customers, suppliers, academic partners, and other sectors (Modena, 2003: 34–35). Organisational learning has been defined in a variety of ways. It is aimed at creating a culture in which all employees are ready, willing and able to engage in continuous learning. Brown (2014: 395) defines a learning organisation as: “A continuous state of self-directed learning that will lead toward positive change and growth in the individual, team, and organisation.” Another notable contribution comes from Senge (1990), who defines it as a place where people continuously expand their capacity to meet organisational objectives, where new and expansive patterns of thinking are encouraged and nurtured, where collective organisational aspiration is set free, and where people are continually learning together. Knowledge is continually created in the interest of organisational objectives. Organisational processes are also geared towards knowledge acquisition, sharing and general application. In this context, it is critical for managers to set the tone by being active learners themselves. At the centre of the learning organisation are a shared vision, systems thinking, team learning and a heightened consciousness of how and why things are done in a particular fashion. This inevitably results in a deep sense of confidence and capability. Learning organisations know that it is about managing variables and activities which are within their sphere of influence. Entrenched in a learning organisation is that a “blaming culture” is replaced with a “culture of ownership”, a culture of learning, identifying challenges and opportunities. Thinking therefore becomes a collective organisational activity. Learning is organisational in so far as it is done to result in organisational purpose and objectives, it is distributed throughout the organisation and the outcomes are entrenched in the organisation’s processes, structures and systems, thereby eventually becoming part of its culture. 8.7.2 Learning organisations: core values and norms Organisational theorists agree that at the centre of learning organisations is a set of values and behavioural norms. These characteristics have become part of the culture of the organisation and are responsible for its continued competitive edge and sustainability. These core values have a positive role to play in a learning organisation: They support the firm belief that every member of the organisation has untapped human potential. They appreciate the diverse forms of knowledge and learning styles. They support the explicit development of creative thinking. They adopt a non-judgemental approach to others and their ideas. They actively break down traditional barriers. They reduce the distinctions made between organisation members (leaders vs followers). They encourage perspectives. dialogue between stakeholders with different They support the firm belief that everyone is a leader – lead from where you stand. This kind of approach breaks down traditional silos and discourages unhealthy competition and rivalry. It also increases the thinking capacity of the organisation and values ownership as a core leadership characteristic. Learning organisations are able to apply learning more effectively than their competitors. What is unique to learning organisations is that the learning remains in the organisation, even if members should decide to continue their careers elsewhere. This emphasises the direct relationship between organisational learning and organisational outcomes. 8.7.3 Learning organisations: core processes The relationship between organisational learning and performance also reflects the interrelated activities that are at the core of organisational learning. These activities are discovery, invention, production and generalisation: Discovery is when a discrepancy between the actual and the desired state is detected. For example, evidence may suggest that there is a significant gap between actual and projected sales targets throughout the organisation. An invention (intervention) is then devised to address this discrepancy. The problem must be diagnosed and an appropriate strategy put in place to solve it. Solutions are implemented through the process of production. Finally, the beauty of learning organisations is that lessons learnt from specific initiatives are reflected upon and applied to similar situations in other areas throughout the organisation. This is known as generalisation and lies at the core of learning organisations. 8.7.4 Distinguishing features of learning organisations There is a set of common characteristics at the core of the learning organisation that is responsible for its ongoing success and profitability. Knowledge is disseminated throughout the organisation, all employees feel empowered and resources are deployed in the interest of organisational learning and performance. Some of these common characteristics are as follows: There is consistent, deliberate collaboration throughout the organisation and across all boundaries. There is constant action, structured reflection, and modifications are made, informed by evaluations. There is active thinking, collective contribution and improvised implementation. There is access to real-time data, and therefore the best possible knowledge, to effect relevant changes. There is continuous planning, re-examination of planning and the changing of plans, which is made known to all throughout the organisation. There is value in learning, so all employees are encouraged to learn. The concept of organisational learning is opposed to the kind of thinking that proclaims that “some people think and others simply execute”. Thinking becomes an organisational activity. Notable examples of organisations that have successfully implemented aspects of the learning organisation are General Electric (GE), Lafarge, SABMiller and the South African Revenue Service. The advantages are that there is inevitable growth on individual, team and organisational level. The result is a positive influence on the performance of the organisation and its sustainability over the long term. In Management in action 8.3, it is clear that BMW SA realised the importance of becoming a learning organisation. MANAGEMENT IN ACTION 8.3 A learning organisation: BMW SA’s competitive edge “The only thing that gives an organisation a competitive edge, is what it knows, how it uses what it knows, and how fast it can know something new.” This drives BMW to become a learning organisation and has focused our efforts to: Ensure complete integration of training and development with organisational objectives. Ensure managers have the tools and incentives to actively develop staff. Ensure everyone has access to development. We promote co-responsibility for development, an empowering partnership entrenched in our values system “We at BMW”. We also aim to have all our training initiatives accredited as either externally recognised qualifications or contributing towards these qualifications. Source: Adapted http://www.bmw.co.za/products/automobiles/bmw_insights/learning.asp (accessed on 14 August 2014) from 8.8 SUMMARY In this chapter, the dynamic intricacies of the modern world of work were presented. As a result of rapid technological changes, traditional sources of competitive advantage are no longer sustainable. Internal and external forces pushing organisations to change were discussed as well as the approaches to manage planned organisational change, notably Lewin’s three-step model, the action research approach and the more recent positive model. As creatures of habit, change evokes fear and anxiety in people. This phenomenon of individual and organisational resistance was discussed as well as ways to manage the resistance to change. The chapter concluded with a discussion on the importance of creating and nurturing learning organisations. REFERENCES AND RECOMMENDED READING Brown, D.R. 2014. An experiential approach to organisational development, 8th ed. New York: Pearson Higher Education. Burnes, B. 2009. Managing change, 5th ed. New York: Prentice Hall. Cummings, T.G. & Worley, C.G. 2015. Organisation development and change, 10th ed. Mason, Ohio: South-Western Cengage Learning. Edmonson, J. 2008. The learning organisation. New York: Harcourt. Greiner, L. & Cummings, T. 2009. Dynamic strategy making: a real-time approach for the 21st century leader. San Francisco: Jossey-Bass. Groenewald, A. 2014. Honest Leadership = Authentic Leadership. http://www.leadershipplatform.com/honest-leadership-authentic-leadership/ (accessed on 22 October 2014). Jamieson, D. & Worley, C. (Eds). 2008. Handbook of organisation development. Thousand Oaks, CA: Sage. Kotter, J. 2012. Leading change. Boston: Harvard Business School Press. Marais, J. 2014. Could Africa be the next China? Sunday Times, 17 August: 12. McKenna, E. 1994. Business psychology and organisational behaviour. Newark: Doubleday. Modena, M. 2003. A matter of balance. Professional Manager, 12(4): 34–35. Mullins, L.J. 2010. Management and organisational behaviour, 9th ed. Portsmouth: Prentice Hall. Robbins, S.P. & Judge, T.A. 2009. Organisational behaviour, 13th ed. New York: Pearson Prentice Hall. Schreyogg, G. & Sydow, J. 2010. Organising for fluidity? Dilemmas of new organisational forms. Organization Science, 21: 251–262. Senge, P. 1990. The fifth discipline. New York: Doubleday. Senior, B. & Swailes, S. 2012. Organisational change, 4th ed. New York: Prentice Hall. CASE STUDY: GENDER MAINSTREAMING “NEEDS FASTTRACKING” According to Unesco, Gender Mainstreaming was defined by the United Nations Economic and Social Council in 1997 as “a strategy for making women’s as well as men’s concerns and experiences an integral dimension of the policies and programmes in all political, economic and societal spheres so that women and men benefit equally and inequality is not perpetuated”. SA women make up 45% of entry-level professionals, against 53% in the US, but representation is the same at executive level. Although women are making a significant contribution to the economy, more could be done to fast-track their progress through companies, says an expert in the recruitment industry. “The business case for gender diversity must be recognised and supported from the very top of the organisation,” said Sandra Burmeister, CEO of Landelahni Recruitment Group, earlier this week. “Management needs to recognise that companies that celebrate diversity are best-placed to develop a flexible organisation that can maximise business opportunities. Transformation and diversity are not a ‘nice-to-have’. They are a business imperative.” A recent report by advisory firm McKinsey on women in the economy found that in the US, structural blocks and embedded institutional mindsets play a major role in limiting women’s opportunities. Lifestyle issues such as the desire for work–life balance and individual mindsets also tended to hold women back. “SA’s legislative framework in terms of black economic empowerment and the advancement of women has had a significant effect in addressing structural issues and influencing corporates to be more gender and equity sensitive,” Ms Burmeister said. Although many barriers had been addressed by legislation, when it came to lifestyle issues and personal beliefs, women themselves needed to make the shift, she said. “Women need to recognise and value their own capabilities and experience, and keep their knowledge current through training and leadership development programmes. They need to seek sponsors who can help them further their career, and to take advantage of any coaching and mentoring opportunities.” She said it was also important for them to want to feel that their development as professionals was as important to their organisations as it was to them. “They want to feel part of a team, they want to be acknowledged for the work they do, and they want to feel they are being paid what they are worth.” Yusuf Boda, a legal manager at legal insurance company Legal & Tax, said that the laws had undoubtedly helped to change life for the better for SA’s women. Yet the realities that many women lived with day-to-day did not reflect the progressive laws that were in place to protect women and their rights. Women needed to inform themselves of the rights they had under the law, Mr Boda said. He said there were too many women who worked in companies where they were discriminated against or were unaware of their rights or too scared to enforce them. “Mainstreaming” most generally refers to a comprehensive strategy that involves both women-oriented programming and the integration of women/gender issues into overall existing programmes, throughout the programme cycle. The critical success factors in implementing any Gender Mainstreaming process involve a political and technical process with an obligation to produce results, not merely provide the means, calling for: Political will at the highest level; Support and commitment, including at the individual level; The existence of specific policies relating to equality of the sexes and egalitarian laws; The involvement of women in the decision-making process; Partnership with and the involvement of NGOs which defend women’s interests Time-bound strategies to implement the policy; HR practices that are sensitive to gender interests. Source: Adapted from Business Day, 3 August 2011 Case study questions You are approached by Legal & Tax to implement a pilot gender mainstreaming project in the company. This pilot will act as a benchmarking exercise to show how gender mainstreaming should be applied in practice. 1. What are some of the political, economic, social, technological, legal and ecological factors which are exerting pressure on Legal & Tax as an organisational system? 2. What type of change (strategic, structural, technological, people, etc.) is applicable to Legal & Tax? Substantiate your answer. 3. You have been approached by the managing director at Legal & Tax. She informs you that she is experiencing resistance to her latest change initiatives, both from a personal and an organisational perspective. What advice would you give her to manage the resistance? 4. Select any of the models of planned change. Discuss the model, and explain what you would do at each phase/step of the model you have selected. MANAGEMENT DISCUSSION EXERCISES 1. What is management’s role during the implementation of a change programme? 2. What are the common mistakes managers make during organisational change? 3. Identify any South African organisation. Identify its change philosophy, approach, strategy and lessons learnt from recent organisational change initiatives. 4. Discuss the forces pushing for organisational change within the South African context. Provide relevant examples. 5. Give examples of forces that will significantly influence the way organisations operate over the next 10 years. 6. What are the implications of having a young workforce from a managerial perspective? 7. What strategies might be considered by management in gaining acceptance for a change programme? 8. Think of a time when you had to change (in your personal or work life). How did this change situation make you feel? Why was it such a daunting experience/welcoming experience? 9. Identify a South African organisation which has successfully implemented some aspects of a learning organisation. Which features of a learning organisation are applicable to this organisation? 9 Managing diversity in the workplace JACQUES TALJAARD Learning outcomes After studying this chapter you should be able to do the following: Understand the broader approach to diversity management. Identify and discuss the different dimensions of diversity. Evaluate the factors that affect diversity. Comprehend the implications of diversity management in South Africa. Understand and comprehend the importance of diversity training in the workplace. Distinguish between the different diversity training models. Comprehend the possible problems and challenges of diversity management and training. Explain the positive aspects of diversity in an organisation. Understand the relationship between diversity and the ethical challenge. 9.1 INTRODUCTION When observing people, one thing is evident: while people may look more or less the same in terms of number of limbs or fingers and toes, there are also a lot of differences between them. This realisation is fundamental to the concept of diversity. Diversity could therefore be described as the realisation and understanding of the individual differences that exist between people. Workplace diversity is about acknowledging the value of individual differences and making the most of these differences in the workplace. Managers sometimes see this as a problem or challenge, but it can actually be regarded as one of the greatest strengths of an organisation. Embracing diversity in the workplace means creating an environment that values and supports the contributions of all people. South Africa, like many countries in the world, has a diverse population. Eleven languages are recognised by the Constitution, representative of the different ethnic groups found here. However, the diverse nature of South Africa is not limited to the classification of the population as recognised by the Employment Equity Act, i.e. African or black (79.6% of the population), coloured people (8.9%), Indian/Asian people (2.5%) and white people (8.9%). Statistics SA reports that according to the 2011 census, about 2% of South Africa’s population is made up of migrants in terms of the United Nations definition, which considers an international migrant as being a person who changes his country of permanent residence for a period of 12 months or more. To manage diversity in the workplace, a manager should understand how the workplace population is compiled. The workplace population will be a product of the community, area or region from where it is drawn (see Management in action 9.1). MANAGEMENT IN ACTION 9.1 Awareness of diversity in the community Divide participants into groups to discuss the occurrence of diversity in the community where they grew up, with emphasis on the cultural groups/population groups represented in the organisation’s immediate external environment. 9.2 A BROADER APPROACH TO WORKPLACE DIVERSITY In terms of the Employment Equity Act, the workplace must reflect the demography of the community and this has become the subject of many provincial and national debates in terms of the application of Employment Equity principles (discussed later in the chapter). However, workplace diversity is not only limited to the demographic composition of society. Workplace diversity in South Africa has been influenced by the historical development of the country and is therefore strongly linked to issues of equality. Section 6 of the Employment Equity Act (55 of 1998) states that “no person may unfairly discriminate, directly or indirectly, against an employee in any employment policy or practice, on one or more of the arbitrary grounds including race, gender, pregnancy, marital status, family responsibility, ethnic or social origin, colour, sexual orientation, age, disability, religion, HIV status, conscience, belief, political opinion, culture, language, and birth”. These factors represent the core of the diverse environment of organisations and can present significant challenges for managers (see Management in action 9.2). Although humans are the same in terms of some common traits, they are fundamentally different when referring to the arbitrary grounds mentioned in the act. This creates major individual differences. These fundamental individual differences must be managed in the diverse work environment in an organisation and it poses significant challenges for managers. MANAGEMENT IN ACTION 9.2 Defining the elements of diversity To gain a better understanding, do some internet research on each of the elements of diversity mentioned in the Employment Equity Act: race, gender, pregnancy, marital status, family responsibility, ethnic or social origin, colour, sexual orientation, age, disability, religion, HIV status, conscience, belief, political opinion, culture, language, and birth. Individual tolerance and the willingness to accept the differences between people are the first step towards successful diversity management in South Africa, commonly known as the “rainbow nation”. Successful diversity management will be evident if staff retention is good and it will lead to increased motivation, creativity and innovation from employees. Acknowledging that people are different is a personal attitude towards diversity and the first successful step on a journey to personally understanding and managing diversity. Recognising different internal and external factors that contribute to individual differences will be the foundation of this understanding of diversity. An organisation is an open system, in constant interaction with its environment. Not only does the organisation serve a diverse community, but its very existence is directly related to how well it does so. 9.3 DIVERSITY DIMENSIONS IN THE WORKPLACE In order to be able to manage diversity in the workplace it is firstly important to be able to identify the diversity dimensions in the workplace. Workforce diversity implies that an organisation will include different people with different qualities belonging to different cultural groups. Race, gender, ethnicity, age, culture, physical ability and sexual orientation are aspects about themselves that people cannot control or influence. These are the primary dimensions of diversity. They are the inborn differences that will have an ongoing effect on a person’s life. These are also the basic elements through which people shape their self-image and develop a worldview. The primary dimensions of diversity are influenced by the secondary dimensions of diversity, namely, education, religion, income, parental status, marital status, difference in geographical locations and work experience. These factors have an influence on the beliefs, orientation and viewpoints of an individual. The challenge for a manager is to synergise these dimensions in the diverse work team to ensure that all role players contribute towards the shared objective and vision of the organisation. Some of the primary dimensions are discussed below. 9.3.1 Physical ability Physical ability is considered a primary dimension of diversity. It relates to seeing, hearing, walking, communicating, self-care, remembering and/or concentrating. The World Health Organization (WHO) defines disability as a physical or mental handicap that lasts for six months or more, and which prevents the person from carrying out his or her daily activities independently or from participating fully in educational, economic or social activities. Measuring disability can, however, be difficult because it in many cases relies on subjective opinion (e.g. saying that one cannot remember or concentrate) rather than science. Another aspect of disability is employability. The inherent requirements of the position could disqualify a person with a disability for employment. A visually impaired person will have difficulty in a data-capturing position and a hearing-impaired person will have difficulty in a receptionist position where telephone use is essential. Management must therefore be well acquainted with the requirements of a position when determining who to employ. The disability can become the major consideration for employment and not the skills required when selection is done. 9.3.2 Gender The 2011 South African census indicates that about 51% of the population is female. More than this, women are specifically identified as a designated group in terms of the Employment Equity Act. However, the Employment Equity Commission reports of 2013 indicate that only 45.2% of the workforce in South Africa is female, which is demographically incorrect. As part of diversity and affirmative action interventions, managers will therefore have to place specific emphasis on recruitment of women in the workplace in the near future if equity targets are to be met. The higher levels in organisations also show a significant under-representation of women (see Management in action 9.3). MANAGEMENT IN ACTION 9.3 Women, diversity “key” to SA’s tech industry More women need to be actively supported to pursue careers in the male-dominated South African technology scene, says an industry expert. “Creating a greater awareness of the career opportunities for woman in tech is important, however a supportive environment and forums which provide a platform for networking and support can be very effective,” CiTi CEO Ian Merrington told Fin24. Merrington is concerned about the lack of women and diversity in the ICT industry. “Our VeloCiTi Woman in Business programme is focused on getting female entrepreneurs to grow their business through the effective use of technology.” According to advocacy organisation Women in Tech, only 23% of tech jobs in SA are held by women. Gender patterns in SA mirror those in Silicon Valley where a number of tech firms including Facebook, Google, Yahoo and Microsoft have made commitments to expand diversity in the sector. Merrington said that the VeloCiTi Woman in Business programme was part of a broader strategy for the organisation. Source: Adapted from Alfreds (2015) 9.3.3 Ethnicity Ethnicity is fundamental to diversity in the workplace and is the one dimension of diversity that is most commonly experienced. Every day, as part of the interaction between employees, the “language barrier” and differences in culture are evident during the execution of work. According to South African statistics, isiZulu is the most spoken first language in the country (22.7%), while English is only the fifth most spoken home language (9.6%). Despite this, English is the generally accepted business language in South Africa. This means that many employees are forced to communicate in what could be their second or even third language. This creates challenges in the workplace. 9.3.4 Age Difference in age is an important primary dimension of diversity. A 55-yearold white male and grandfather of two is perceived very differently to a black female aged 25 with one young child. Their career expectations will probably differ and organisations should value the unique strengths and contributions that each person, despite these differences, might bring to the workplace. The employment of the youth in South Africa has received a lot of attention in recent time. In 2013, the national government passed the Employment Tax Incentive Act, commonly known as the youth subsidy, to make it attractive for employers to generate positions for young employees under certain conditions for a period of two years. The aim of this was to encourage the employment of young workers and to create capacity in specifically identified economic zones. This tax incentive will take some time to filter into the workplace and for any effects on the labour force in general to show. From a diversity point of view, it can be anticipated that the effect will be twofold in nature: (1) the number of young people in specific economic zones could increase dramatically, but because the tax incentive is only applicable for a maximum period of two years, it is possible that (2) employers will hire people for two years and then replace them with new employees. This may lead to a high employee turnover that will also have an impact on diversity in an organisation. 9.4 FACTORS EFFECTING DIVERSITY The following factors have an effect on diversity: Geographical origin of workers. Managing diversity can become that much harder when people from different countries are also part of the work team. Migrant workers can have a completely different perception of what is expected of them, and they often differ from South African workers in terms of their life orientations and viewpoints. This will have to be carefully managed so that people understand each other’s roles and perceptions. Diverse compilation of work teams. Constant interaction between members of the same work team requires members to be tolerant of each other. Members will need to understand diversity and how it influences their work. The diverse compilation of other work teams. Although workers might not have direct contact with people from other sections or work teams on a regular basis, it will still be necessary to be considerate toward other people working in the organisation. Personality. Managers need to be sensitive toward personal differences between members of their own work group as well as those of members of different work groups or sections. Personality and personal position are major determinants of behaviour. Management will be required to make colleagues aware of the different ways people respond in different situations based on their diverse nature. Stereotyping. Stereotyping is a personal impression, belief or predisposition that is formed as a result of previous experiences or upbringing. It influences the way an individual responds to a situation. For example, it is a common belief that short managers tend to be more dominant in their behaviour in the workplace, so any manager who happens to be short will automatically be assumed to be like this, whether or not it is true in his or her individual case (see Management in action 9.4). Prejudice. This is a negative feeling associated with a specific group on the basis of, for example, gender, race or sexual orientation. In an organisation, one section might be prejudicial towards another because they think that they are better qualified, for example. Prejudice is based on attitude and consists of three components, namely, belief, judgement and behaviour (see Table 9.1). MANAGEMENT IN ACTION 9.4 More men happy to be “house husbands” More than four in ten women are now the main breadwinner in their home and they claim that the men in their lives are happy to merely stay at home. A survey done shows that about 41% of women now earn more than the men in their lives. It is also interesting to note in this survey that more than 70% of women believe more men are happy to take on the role of house husband or stay-at-home dad. Interestingly, 6% of men openly resent earning less than their female partners and about 10% of those men who earn less than their partners actually still tell other people that they earn more. An important reason for men being unemployed is the economic crisis. It seems that the steoreotype that men should always be the breadwinner and that women should stay at home to raise the children is changing. In South Africa the 2011 census showed that the number of women breadwinners is increasing, but that the average South African household is still headed by a man. Source: Adapted from http://www.fin24.com/Economy/More-men-happy-to-be-househusbands-20130719 (accessed on 5 March 2015) Table 9.1 Components of prejudice Belief Evaluative judgemental predisposition Behavioural predisposition Negative stereotype, e.g. short managers are dominant and autocratic A negative feeling towards the short manager on a continuous basis Unwillingness to approach a manager because the employee expects a negative response from the manager concerning a specific work-related matter Positive stereotype, e.g. when a manager wears a specific blue shirt he or she is in a good mood Employees equate the shirt with the manager being in a good mood, so on the day the specific shirt is worn, the manager is approached to obtain certain favours Over-consciousness in the business unit relating to the colour of the shirt that a manager is wearing at a given time It is obvious that prejudice can be a source of serious conflict between colleagues. Prejudicial attitudes could also lead to negative consequences for people’s careers. As a result of prejudicial attitudes, either blatant or subtle, people could be overlooked for promotion or not even hired at all. 9.5 IMPLICATIONS OF MANAGING DIVERSITY IN SOUTH AFRICA Some of the key aspects of the implications that diversity, stereotyping and prejudice can have in the workplace are highlighted below. 9.5.1 Functional implications Management of the organisation must focus on the efficient functioning of the organisation’s business. As part of this process, managing the diverse internal community of the business must be a high priority. Not only will management have to manage the composition of the workforce in relation to the external community, but he or she will also have to be able to identify which interventions are required in the business to increase efficiency. Top organisations make assessing and evaluating their diversity process an integral part of their management system. The steps to follow in order to increase functional efficiency are as follows: Identification of the problem. The functionality of the organisation and possible negative consequences attached to diversity issues will become evident as the members of a workgroup or different sections interact with each other during daily activities. Compilation of a plan for intervention. After the nature of the problem has been identified, the intervention activity can be determined. Members to participate in the intervention activity, as well as the implications for the work performance and deadlines, can be determined during the preparation phase. Thereafter the actual intervention activity can be compiled to ensure that the intervention is properly planned. If an intervention needs to be made between different workgroups, the compilation of the plan could be more complicated. As a safe rule, the intervention plan should first involve one group as an isolated group and then later the intervention could be between the different groups. The actual intervention. This is the step in which the actual intervention will take place. Monitoring the implementation and consequences after the intervention. As in every management activity, monitoring and control are important for identifying whether the desired outcome has been achieved. The aim of the intervention is to improve the performance of a single work group or alternatively to increase cooperation between different work groups. A single question needs to be answered: “What is the result of the intervention – is it positive or negative?” If the monitoring process identifies limitations or room for improvement, further steps can be taken. 9.5.2 Management and trade union cooperation Employment Equity and subsequent diversity management in the workplace is a matter of great importance for any trade union. Workplace regulation and training are also high priorities. The setting of targets for an organisation’s employment equity plan is to be done in consultation with trade unions as stipulated by the Employment Equity Act. The handling of these issues will impact heavily on cooperation between management and trade unions. 9.5.3 Monitoring by the Department of Labour Organisations in South Africa have to report annually on the status of its employment equity targets to the Department of Labour. Provision is made in the legislation for high monetary penalties if a business is seen to be lagging. This is an ever-present external organisational issue that will be on the minds of management and a constant consultation matter between the union and management. 9.5.4 Geographic or national location The population composition from one province/region to the next differs substantially and according to the employment equity principles it is to be reflected in the workplace. It must be noted that at the time of the compilation of this chapter a Constitutional Court ruling was pending regarding the national versus geographical population numbers to serve as a basis for the implementation of equity principles and affirmative action. However, this is not only a numbers game. For an organisation to manage workplace diversity, especially on a national basis, the intricacies of the differences in the population composition from one region to the next is significant. As an example, KwaZulu-Natal has a higher number of Indian people in a workplace, as opposed to the Free State, which has a higher number of Africans, and the Western Cape which has a higher representation of coloured people. The management of any diversity programme in an organisation must account for these differences in the population composition. 9.5.5 Different religious practices Workplace procedures and rules can be formulated to accommodate certain religious practices, but this can lead to conflict. Some people in the workplace may perceive it as favouritism if people are given time off to practise their religion. On the other hand, if management takes a non-adaptive approach to specific religious groups, it can be regarded as religious discrimination. Management must therefore try to be as fair as possible when dealing with this issue. 9.6 DIVERSITY TRAINING Training may help employees to gain a better understanding of the concept of diversity and how people with differences should be treated. It will increase cooperation and understanding between the members of a work team and also lessen any individual prejudices that might exist. This will in turn lead to a shift in organisational culture as sensitivity to diversity factors and dignity awareness increases. 9.6.1 Sensitivity and personal prejudice The aim of any diversity training programme is to address the problems or challenges inhibiting organisational performance. A comprehensive need analysis will lay the foundation for the content included in the training programme. A very important element to ensure the success of training will be the willingness of the parties to be forthcoming about personal prejudice and then dealing with it with sensitivity. Personal prejudice that leads to problems in the workplace will require employees to do some serious introspection. Internal tension will be generated when the employee is in the process of addressing a personal belief or prejudice that has existed for a long time. Only when an employee comes to this realisation will diversity training be successful. Sensitivity in addressing these challenges will be extremely important as the aim of the training is to erase the inhibiting factors of cooperation within an organisation and not to strengthen them. If the training goes in the wrong direction, it could further damage interpersonal relationships instead of improving them. 9.6.2 A strategic component to diversity training The success of any strategy is vested in the contribution that human resources make towards achieving it. During implementation, the human resource department must ensure that the correct people are at the correct place at the correct time doing the correct things in order to ensure that organisational units achieve their objectives and contribute to the attainment of the strategic goals. Diversity training can play an important role in the organisational strategic human resource strategy. The ideal situation is to use talent management as the driving force, because an over-emphasis on employment equity targets does not always contribute to the correct talent being recruited. Without in any way trying to undermine the importance of equity targets within the existing legal framework of the Employment Equity Act, the importance of hiring the right people at the right time to do things right should always be the ultimate goal of human resource management. 9.6.3 Diversity training programmes Diversity training can primarily be divided into awareness training, interworkgroup training and skills-based training. A person must first attend to his or her own personal issues before cooperation within and between workgroups can be addressed. 9.6.3.1 Awareness-based diversity training Awareness-based training aims at addressing the personal underlying assumptions that people may have about other people on a cognitive level. It makes people aware of their own prejudices and where they originate. The training model is presented in Figure 9.1. Figure 9.1 Awareness-based diversity training model Each person has certain assumptions that could limit interpersonal interaction. Once a person has acknowledged these limiting factors and worked through them, improved interaction will follow. A clearer understanding of people and why they behave as they do will increase morale in the workplace. The end result will be renewed commitment to achieving strategic goals. 9.6.3.2 Inter- and intra-workgroup diversity training After awareness training has taken place, employees should have a much better understanding of their own beliefs, stereotypes and orientations as well as those of others. The next step is to give them the skills to cope with diversity in group settings. During training, individual members will need to confront their own personal issues while at the same time learning to respect those of other people within the same workgroup (intra-workgroup training) and deal with conflict with people from other groups (inter-workgroup training). In intra-workgroup training, everybody gets an opportunity to present their views on diversity-related aspects that could inhibit cooperation between group members. Problem identification is done and a session of “brainstorming” for solutions follows. The facilitator should not to be too active in the discussion as it is important for the group members to identify their own solution and accept ownership and responsibility for it. Implementation follows after a solution has been identified and the success or limitation(s) of the solution must then be monitored. The facilitator needs to keep control over the session, because if not correctly managed, it could create more conflict instead of resolving the problems. Inter-workgroup training is much more complex (see Figure 9.2). It also starts with individual workgroup members confronting their own issues of orientation, prejudice or stereotypes. A group session with each workgroup is then separately facilitated following the process described above. The aim is to identify what each workgroup regards as the inhibiting factors that impact negatively on cooperation between the workgroups. The facilitator initially fulfils a passive role by merely collecting information from each workgroup. This information is then analysed and when the two (or more) workgroups meet, forms the centre of discussion. The number of participants can differ, but the bigger the groups are, the more difficult it will be for the facilitator to maintain control. Problems with interaction identified during the sessions with each workgroup are put on the table for discussion to identify potential solutions. Once the most acceptable solutions are found, methods for implementation are determined. Again it will be important to monitor the implementation in order to facilitate any shortcomings or new problems. 9.6.3.3 Skills-based diversity training It is common in a workplace to have employees from various cultural and racial backgrounds working together in one department. Skills-based diversity training aims at developing people’s abilities to manage these differences, and its benefits are not confined to the workplace because people have to interact every day with diverse members of society in their private lives as well. Figure 9.2 Inter-workgroup diversity training model The starting point is, once again, awareness-based diversity training, followed by sensitivity training with regard to different cultural habits and beliefs. See Figure 9.3. Figure 9.3 Sensitivity training model Diversity is a fact of life and a reality in all organisations. Harmonious relationships contribute to increased morale, a feeling of belonging and mutual caring. The above training models have the objective of improving positive interaction between people in the workplace with the ultimate goal of enhancing efficiency and effectiveness. 9.7 DIVERSITY MANAGEMENT PROBLEMS AND CHALLENGES It is important to highlight some problems and challenges with regard to diversity management. Although it is impossible to accommodate all the challenges that exist in diversity training, some problems and barriers directly linked to the diversity training models will be discussed. Problems and barriers in diversity training are usually personal in nature and are trainee or trainer related. These include the following: Commitment. People may go through the motions during training, but fail to follow through with applying what they have learnt in their immediate workplace owing to work pressure or lack of support. People could also lack commitment during training because they have a high workload and are stressed about being away from the workplace. Communication. Perceptual, cultural and language barriers need to be overcome for diversity programmes to succeed. Ineffective communication of key objectives results in confusion, lack of teamwork and a low morale. Resistance to change. There are always employees who will refuse to accept the fact that the social and cultural make-up of their workplace is changing. The “we’ve always done it this way” mentality silences new ideas and inhibits progress towards accepting the advantages of a diverse workforce. This can be overcome by involving employees in formulating and executing diversity initiatives in the workplace. Employees must be encouraged to express their ideas and opinions to instil a sense of equal value for all employees. Prejudice. Trainees may feel as if they have done something wrong and are being labelled troublemakers. This is especially true if training is being done as a remedial action and can lead to a lack of commitment to implementing what has been learnt. Training must never have an “I am right and you are wrong” approach. This can alienate employees and increase conflict in the workplace. Politics. Little attention was placed on the politicising of diversity. Unfortunately it is a fact that diversity will always have a close link with people’s political interpretation. Allegations of politically orientated discrimination are often the reason why diversity training becomes a necessity. Discrimination and so-called “reverse discrimination” are issues that are bound to be thrown into the discussion during training. This will raise conflict levels and may impact negatively on future work relationships between colleagues. Both trainers and trainees must do their utmost to prevent any training session from turning into a political debate. Implementation. Diversity training alone is not enough. Armed with all the results of employee assessments and research data, managers still need to build and implement a customised strategy to maximise the effects of diversity in the workplace itself. 9.8 POSITIVE ASPECTS There are however also positive outcomes of diversity in an organisation. As working populations are getting older, the numbers of women and people from different cultural and ethnic backgrounds entering the workforce are increasing and it becomes more important to value diversity. An organisation’s success and competitiveness largely depends on its ability to embrace diversity and to realise its benefits, which include the following: Maximising productivity. Organisations that encourage diversity in the workplace inspire all their employees to perform to their highest ability. Having a variety of different skill sets increases productivity. Enhancing creativity. A diverse workforce means a broader range of perspectives, ideas and insights. Increase in the loyalty of employees. Feeling part of an organisation and appreciated within an organisation increases loyalty and a feeling of belonging. Obtaining a competitive advantage. Attracting and retaining diverse talent in an organisation can give it a competitive edge. Different talents (think language abilities and cultural understanding) propel an organisation towards competing more successfully globally, as well as increasing the diversity of its customer base. Decision-making is improved. Individuals will bring in their own way of thinking, operating and solving problems which will lead to more viable solutions and better decision-making. Satisfaction of diverse needs of customers. A workforce that reflects the diversity of the community it serves understands the needs of its clients better, enabling more efficient and responsive service delivery. 9.9 DIVERSITY AND THE ETHICAL CHALLENGE Personal culture is bound to create an organisational culture challenge because a person is brought up with a set of moral perceptions and judgements that do not always align with those of the organisation. “I am the most important person in my own world” makes it sometimes difficult to fit into the organisation. The diversity dimensions discussed earlier in this chapter are responsible for the creation of the moral perception and moral judgement of an individual. When a person enters the organisation as an employee, he or she is confronted with the alignment of his or her own perceptions and judgement with what the organisation requires. Organisations formulate an ethical code that is responsible for the establishment of core values, such as responsibility, integrity, respect and competence. These are the “easy” values, because they form the fundamental expectations of most people. The stickier issues are religion, sexual orientation, cultural diversity and the presence of foreigners in the workplace (diversity dimensions) which can create conflict between personal perception and judgement, and organisational expectations. Continued employment at an organisation requires the matching of personal and organisational values. A perfect fit will never be achieved, but the closer the fit, the easier it will be to ensure continued employment. Within a diverse workgroup, the different perceptions of people lead to different perceptions of ethical behaviour. This creates a challenge for an organisation and its managers, who are tasked with dealing with these perceptions in such a way that there is cohesion with the ethical code. 9.10 SUMMARY Diversity in the workplace will always be present and will require specific attention from managers. Interaction between people is imperative and necessitates mutual understanding. South Africa has a very diverse society. The need to focus more on diversity in the workplace is paramount because diversity is legally imposed and managed through the Employment Equity Act and annual equity reports that are expected of large organisations. Diversity challenges can be better managed if employees understand the advantages of a diverse workforce. Diversity training must always focus on addressing the problems directly related to a particular diverse workgroup or the interactions between diverse workgroups, while being careful not to aggravate these issues. It is also a manager’s task to deal with the challenges and the perceptions of employees in such a way that there is cohesion with regard to the ethical code of the organisation. The personal commitment of executive and managerial teams is imperative because attitudes toward diversity originate at the top and filter downward. Leaders and managers must incorporate diversity policies into every aspect of the organisation’s function and purpose. Management cooperation and participation is required to create a culture conducive to strategic success. REFERENCES AND RECOMMENDED READING Alfreds, D. 2015. Women, diversity “key” to SA’s tech industry. http://www.fin24.com/Tech/News/Women-diversity-key-to-SAs-tech-industry-20150130 (accessed on 5 March 2015). Business Day. 2014. Youth wage subsidy comes into effect. http://www.bdlive.co.za/economy/2014/01/01/youth-wage-subsidy-comes-into-effect (accessed on 25 March 2015). Census 2011. Highlights of key results. Pretoria: Statistics South Africa. Commission for Employment Equity. Annual report 2012–2013. http://www.labour.gov.za (accessed on 25 March 2015). Cummings, T.G. & Worley, C.G. 2008. Organisational development and change. Hampshire, UK: South-Western Cengage Learning. Documented immigrants in South Africa. Statistical release P0351.4. Statistics South Africa. Pretoria: South Africa. Greenberg, J. (n.d.). Diversity in the workplace: benefits, challenges and solutions. http://www.multiculturalad-vantage.com/recruit/diversity/diversity-in-the-workplace-benefitschallenges-solutions.asp (accessed on 6 March 2015). Grobler, P.A., Wärnich, S., Carrell, M.R., Norbert, F.E. & Hatfield, R.D. 2011. Human resource management in South Africa, 4th ed. Hampshire, UK: South-Western Cengage Learning. More men happy to be ‘house husbands’. 19 July 2013. http://www.fin24.com/Economy/More-menhappy-to-be-house-husbands-20130719 (accessed on 5 March 2015). Republic of South Africa. Constitution of South Africa Act (108 of 1996), as amended. Pretoria: Government Printer. Republic of South Africa. Employment Equity Act (55 of 1998). http://www.labour.gov.za (accessed on 25 March 2015). Robbins, S.P., Judge, T.A., Odendaal, A. & Roodt, G. 2009. Organisational behaviour. global and South African perspectives. Cape Town: Pearson Education. Sabharwal, M. 2014. Is diversity management sufficient? Organizational inclusion to further performance. Public Personnel Management, 43(2): 197. Statistics South Africa. 2012. South African Statistics. Pretoria: Government Printer. Statistics South Africa. 2013 Documented immigrants in South Africa. Statistical release P0351.4. Pretoria: Government Printer. Statistics South Africa. 2013. Mid-year population estimates 2013. Statistical release P0302. Pretoria: Statistics South Africa. CASE STUDY: THE NEW EMPLOYEE Everything at Honest Joe’s Retailers was going well. The workgroups in the different departments of the retail store were functioning with very few problems. The employer had very strict rules regulating the basic conditions of employment and employees knew that they had to work according to the rules governing time off. And then the new employee Ali was appointed. Ali was Muslim. On the first Friday after he was appointed, he went to the supervisor and asked to have time off from 11:30 to 14:00 because he had to go to the mosque for the weekly prayer. The supervisor refused, saying that Ali was only allowed 45 minutes for lunch per day. Ali was very disturbed by this. After deliberations between Ali and the management of Honest Joe’s Retailers, it was decided that Ali would only take 30 minutes for lunch Monday to Thursday so that he could make up the time to go to the mosque on Fridays from 11:30 to 14:00. The other employees were very unhappy and decided to approach their trade union about this. Case study questions 1. Discuss the conduct of the supervisor who refused to allow Ali time off work to go to the mosque. 2. As the trade union official, how would you advise the employees? MANAGEMENT DISCUSSION EXERCISES 1. From a personal perspective, critically evaluate your own prejudices and stereotypes that influence your impressions and opinions about other groups. Critically consider their sources. 2. Visit an organisation of your choice. Ask the manager about their diversity training programmes and the challenges they experience. Develop a report on your findings. 10 Leadership AMANDI VAN DER WALT Learning outcomes After studying this chapter you should be able to do the following: Understand what leadership is. Understand what the components of leadership are. Understand the nature of leadership. Differentiate between and explain the different leadership theories. Explain some contemporary perspectives on leadership. Understand various leadership issues. 10.1 INTRODUCTION Managing an organisation involves the four management functions of planning, organising, activating (leading) and control, as introduced in Chapter 1. The ability to manage is crucial at all levels in the organisation. However, for an organisation to truly excel, the execution of the different management functions will not happen without good leadership. Management focuses on doing things right while leadership focuses on doing the right things. The importance of management has clearly been stated earlier in this book, but why is leadership so important in an organisation? Why is the role of management alone not enough? The idea that a leader will do the right things makes it clear that being a leader in today’s turbulent organisational environment with the many diverse factors that influence and change the playing field, is making leadership a challenge. With change being the only constant in today’s organisational environment, leading the organisation to achieve its plan can be challenging. It is not enough to have only management abilities that ensure that everything is done in the right way, leadership is also needed to ensure that while the organisation is doing things right, the organisation is also doing the right things. All organisations need a leader who can steer the organisation through the storms in the organisational world to a place of sustainable competitiveness. The difficulty lies in the fact that being a manager does not automatically make a person a good leader. The role of good managers who are also good leaders is more important today than ever before. A great leader is someone who possesses social intelligence, an enthusiasm for change, and above all, a vision that enables him or her to make choices based on things that are truly important in the midst of a turbulent organisational environment. Leadership can have different definitions in different societies, but in general it can be defined as influencing others to achieve the organisation’s goals by inspiring them and directing their actions toward reaching the goals of the organisation. An organisation will only succeed if the workforce is led effectively. To ensure employees follow the leadership in the organisation, there must be an interpersonal relationship based on trust and a mutual understanding of where the organisation is heading and what each and every employee’s role is. Leaders are not only found in senior management; they are found at all levels of an organisation. A leader does not need to be in top management to influence others. Some people are natural leaders who have the ability to influence others from any level in the organisation. Leadership can also be developed through training and education. Although management is different from leadership, organisations need them both. Management in action 10.1 discusses what makes a good or a great leader. MANAGEMENT IN ACTION 10.1 What makes a good or a great leader? There are leaders all around us; in class, at the university, at home, on the sports field and in government. Leaders have a responsibility to lead their followers well and to be a good example to them. When we study leaders, their achievements and their mistakes, we can learn from them to be better leaders ourselves. Throughout history, there have been many leaders who have influenced people and events. When we study history, we often study the people who were important leaders. It is important to know about the leaders of your country, and those who were important in history. But it is also important to remember that it is not only the most obvious leaders who make history happen the way it does. There are and have been many other men and women who played an important role in history. Their names might not be on the list of the greatest leaders in history, but in a small or big way their lives could have influenced others to make a difference. When we study them, we can learn a lot from them. Their actions and values can serve as an example to us. So it is important to know what makes a good leader, so that we can recognise good leaders and learn from them. What makes a good leader? There is no a specific set of rules for good leaders, or pointers as to what a good leader should be and do. But there are some basic principles that many people feel a good leader should follow. A good leader: 1. Listens to people 2. Is a servant of the people and works for the good of others 3. Works with a team 4. Has courage 5. Is brave 6. Is dedicated and is wholeheartedly committed to his or her beliefs 7. Is dedicated and is wholeheartedly committed to others 8. Is prepared to sacrifice or give up something for the sake of others. So being a leader does not only mean people have to listen to you, or that you are popular and important. These things may be true, but being a leader also means that you have to work hard and live a life of integrity. Source: Adapted from http://www.sahistory.org.za/article/leaders-grade-4-southafrican-history-online (accessed on 11 August 2014) 10.2 THE THREE CORNERSTONES OF LEADERSHIP Leadership is a complex process with components in a system of give and cornerstones are discussed below. Some this chapter will take all three aspects leadership, while other theories will individually. three cornerstones of interacting take (see Figure 10.1). These theories that will be discussed in into consideration when studying look at some of the aspects Figure 10.1 The interactive framework of leadership 10.2.1 The leader The leader is the person who is active in the leadership process and starts the process of taking the lead and influencing followers. Every leader is different in terms of personality, experience, interest, position in the organisation and his or her approach, i.e. each has his or her own style (leadership styles will be discussed later in the chapter). A person will not be a leader if he or she does not influence someone to follow in a given direction. 10.2.2 The followers Followers are the subordinates in the organisation who perform the actions required for goal achievement. Leaders influence their subordinates to achieve the organisational goals and implement the plan. Leadership is therefore not a one-way process, but rather an interaction between leader and followers. A leader will not be effective if the follower is not willing or ready to follow. Some of the variables that will influence the way followers respond to leaders include the following: Perception of the situation and the ability of the leader The values that will guide followers’ actions The motivational level of followers Expectations about the situation and outcome Experience and ability of the follower The interaction between the leader and the followers takes place in a specific context. 10.2.3 The situation This refers to the set of circumstances in which the leader must lead the followers. Factors that influence the situation can be both internal (inside the organisation) and external (outside). A leadership style that is highly effective in one situation will not necessarily be effective in another. A leader therefore must be able to “read” the situation in order to apply effective leadership. 10.3 NATURE OF LEADERSHIP There are many different definitions of leadership. The most common definition explains leading as the process of influencing employees to such an extent that they willingly work towards the achievement of the organisational goals. The components of leadership and the role of empowerment in leadership are discussed below. 10.3.1 Components of leadership There are five components to leadership: authority, power, responsibility, delegation and accountability. Authority and power are regarded as the two basic components of leadership. 10.3.1.1 Authority It is the responsibility of managers to make sure that employees work together towards achieving the organisational goals. Authority gives managers the right to instruct, delegate work and perform certain actions within specific guidelines. Authority gives the right to influence the behaviour of employees. Without authority, managers will not be able to evaluate the work done by employees or discipline them if they lack performance. Authority is based on a manager’s level in the organisational hierarchy. The higher the level, the more authority the manager has. The final authority always lies with the owners or the shareholders. 10.3.1.2 Power Power is the leader’s ability to influence his or her followers to achieve organisational goals. In order to influence others, leaders need to exercise power in a way that motivates followers because any suggestion of abuse of power can result in an unwillingness to follow the leader. There are five types of power: 1. Legitimate power. Legitimate power is given to a leader based on the leader’s formal position in the organisation’s hierarchy. The CEO of an organisation has certain powers because of the office he or she holds. Legitimate power, like most other powers, is based on both reality and perception: the reality that an individual is in a specific position in the organisation, and the perception of employees of this person’s authority over them. The power of the position the manager holds will always be regulated and controlled by organisational rules, which adds to legitimate power. Possessing legitimate power ensures compliance with a manager’s instructions, but it does not guarantee that an employee will have loyalty towards the manager or the organisation. To help build loyalty and enhance legitimate power, a leader must combine it with other forms of power. 2. Reward power. This power develops if the leader has the ability to satisfy a follower’s needs through tangible or intangible rewards. Leaders can influence behaviour if followers believe that they will be rewarded if they achieve the desired results. Tangible rewards include monetary awards in the form of wage or salary increases and bonuses, plaques, certificates and gifts. Examples of intangible rewards are praise, positive feedback, recognition and more responsibility. 3. Coercive power. When a leader obtains obedience from his or her subordinates through threat of punishment or fear, the leader is exerting coercive power. For example, employees may think that they will be retrenched if they do not perform according to set standards. The fear can be psychological or emotional. True commitment and loyalty towards an organisation and the leader cannot develop by using this kind of power. 4. Referent power. This power is based on the followers’ personal respect and relationship with the leader. The influence of the leader is determined through the pleasant characteristics that make him or her attractive to employees. These can include integrity, good interpersonal skills, work-related skills or prior achievements or may simply be admirable personal characteristics. Managers with referent power have the power to influence others more effectively, because followers have a positive connection with them. 5. Expert power. If a leader has distinct expertise, knowledge or specialised skills, this will give him or her expert power. Followers will rarely follow someone who is incompetent and who does not have any knowledge in the field. Part of earning respect from followers and setting the foundation to influence them is having expert power. Expert power can be found all over an organisation. Any employee who is an expert in his or her field or who has a high level of knowledge possesses expert power. 10.3.1.3 Responsibility A leader is responsible for ensuring that the organisation is doing what it is meant to do, and that the employees are doing the right things, in the right way, i.e. performing the right activities, to achieve organisational goals. A leader is responsible for everything that takes place in an organisation and will therefore be held accountable for everything that happens, good or bad. 10.3.1.4 Delegation Delegating entails giving employees tasks and responsibilities. This is not always easy for a manager, because it means giving some control and responsibility over to someone else. A manager cannot be effective and efficient without delegation because he or she simply cannot do everything. To ensure that delegation is accurate and effective, it should be done according to the chain of command. Employees should be assigned responsibility and authority for achieving organisational goals with the support of their leader. One way to develop an employee’s competence and confidence is to delegate responsibility to him or her. 10.3.1.5 Accountability Managers are accountable for the outcomes of the departments or sections they are managing. If the department or section is performing badly, the manager in charge is accountable. Managers can delegate authority and responsibility within their different departments, but they can never delegate their accountability. At the end of the day, it is the manager who will have to explain why his or her department is succeeding or failing. Accountability must be driven from the top of the organisation. 10.3.2 Empowerment: a key to modern management An important function of being a leader is to activate employees toward achieving organisational goals. Part of this process involves empowering employees by increasing their decision-making discretion. The right to make decisions increases the responsibility that employees feel toward the role they play in organisational success. An example of empowerment is giving front-line employees the authority to make decisions once set aside only for managers. Delegation goes hand in hand with empowerment. Empowerment typically results in employees feeling a stronger sense of ownership and value. When they are entrusted to make important decisions themselves, their sense of self-worth increases, which in turn leads to an increase in productivity because decisions can be made faster. This decisionmaking discretion gives employees the freedom to judge situations themselves and manage their own list of priorities. This is important since the leader cannot take sole responsibility for all actions and outcomes. In today’s modern approach to management, organisations want employees to be more involved in the organisational processes and take more responsibility. This must, however, be approached with care. Giving more power and responsibility to an unmotivated and insensitive employee can do more harm than good to an organisation. Management in action 10.2 illustrates how empowering employees leads to an increase in customer satisfaction and employee engagement. MANAGEMENT IN ACTION 10.2 Employee empowerment at Google It’s all well and good to promote employee innovation in your company, but without engaged personnel you won’t get very far. Empowering employees improves employee engagement. Motivated, engaged and active personnel are the key success factor of innovative companies since they are involved in all stages. The most perfect example of employee engagement is Google. The way Google engages its employees has been remarkable from the start of the company and it is ever expanding. One of the reasons that Google became such a huge company with extremely motivated and happy personnel is because of the many perks that the company offers. Employees get breakfast and lunch of good quality. Other perks are free fitness with personal trainers, a free birthday massage, sleeping pods, volleyball courts, a free on-campus doctor, free laundry and free use of cars at work. This freedom however does come with an expectation of delivering innovative ideas. If that is not enough, Google offers its employees so-called “20% time”, which is an informal methodology that allows the employees to work on something they are really passionate about. This leads to motivated and creative employees that feel empowered and thus work better. According to a Google employee, “just about all the good ideas have bubbled up from 20% time, like Google News, Google AdSense and Gmail”. As a company you need to challenge the individual in order for them to release their creativity. Freedom in the innovative process leads to higher creativity than when the job is narrow. This is because people work better and with higher productivity when they are challenged and feel supported. It is not an individual’s level of creativity, but rather the organisational expectations that have a crippling effect on the employee’s innovative drive. Companies that allow employees to judge situations themselves are more successful than companies that keep their employees on a short leash with little to no leeway. In the service industry in particular, it is almost unavoidable to empower employees to make decisions because they constantly need to change their behaviour for each service encounter in order to meet the customer’s need. Employee empowerment does not only take pressure off the manager, but also shows trust in the employees, leading to an increase in engagement. Source: Adapted from http://employee-driven-innovation.weebly.com/employeeempowerment–incentives.html (accessed on 11 August 2014) The benefits associated with empowering employees include the following: Relief of management stress. There are fewer worries for managers if employees help with decision-making. Less chance of employees looking externally to unions for support. Empowered employees will have more say in everyday operations and therefore they will feel more valued. Employees who feel they are empowered do not need to look to labour unions for support. The following risks may be present during employee empowerment: Ineffective empowerment. Empowering employees must be seen in the actions of managers and not only in their words. Some organisations believe they are empowering employees when in fact they are not. Employee empowerment should be implemented properly by all levels of management. Unclear management roles. Empowering employees does not mean that managers have a less important role to play. Managers still have certain responsibilities that need to be fulfilled and must still play distinctive value-adding roles throughout the organisation. Employees not ready for empowerment. Not all individuals are seeking more responsibilities and some employees may simply not be ready. Employees must be completely prepared for and properly informed about their new responsibilities before they are empowered. 10.4 LEADERSHIP THEORIES Throughout history various studies have been conducted to try and define a leader based on characteristics, leadership style, behaviour patterns, etc. The major leadership theories established and developed over time to define leadership are trait theory, behavioural theory and contingency theory (see Figure 10.2). Figure 10.2 Leadership theories 10.4.1 Trait theory Trait theory is also known as the “great person” theory, because early forms state that leaders are born, not made – a person either has what it takes to be a leader, or not. Trait theory is based on the inherent characteristics needed to be a successful leader, such as psychological motives or consistent patterns of behaviour. The theory assumes that if a person is not born with these characteristics, there is no way to acquire them later. These traits can be defined as relatively stable characteristics. Many studies have been done to try and define the “blueprint” of a leader. These studies have tried to identify and link the following characteristics with a leader’s effectiveness: Physiological (appearance, height and weight) Demographic (age, education and socioeconomic background) Personality (self-confidence and aggression) Intellectual (intelligence, decisiveness, judgement and knowledge) Task-related (achievement drive, initiative and persistence) Social (sociability and cooperativeness) While successful leaders definitely have different personalities and outlooks on life to less effective leaders, it is still difficult to make any accurate assumptions based on the above variables. People are too complex and diverse to determine a standard picture of what a leader should be like and what specific characteristics he or she should have. Nevertheless, a few characteristics have been identified as being found in most successful leaders and are thus seen as prerequisites for leadership potential: Drive. Most leaders are success driven. They exert high levels of effort to achieve organisational goals. This drive leads to high levels of motivation, energy, resilience and a die-hard attitude towards goal achievement. Desire to lead. Leaders want to lead others; they want to be in charge and influence others in terms of what should and should not be done. Honesty. People will not follow a leader whom they cannot trust. Followers tend to overlook other shortcomings if they feel their leader is trustworthy. Integrity. This is about “walking the talk”. Leaders may have all the other characteristics, but if they do not deliver on what they have promised, followers will not trust them or have respect for them. Self-confidence. If leaders do not believe in themselves, neither will followers. Self-confidence leads to decisiveness, assertiveness and the ability to convince others to follow. Being self-confident does not imply arrogance, however. It also means being able to admit to making mistakes and learning from them. Emotional stability. Things will not always go according to plan. In challenging situations, leaders must remain calm, confident and optimistic. They must never try to lay blame elsewhere because this will damage their credibility. This characteristic refers to emotional intelligence – the ability to be in control of one’s emotions at all times. Strong cognitive abilities. A leader must have the ability to analyse and make sense of large amounts of complex information. He or she must see patterns, opportunities and threats, and make accurate assumptions based on this information. Good knowledge of the organisation’s environment. Leaders must understand the industry and the macro-environment and how these will influence their organisations. Once it became clear that traits vary from one leader to another and cannot really be used to define a good leader, attention turned instead towards the behaviour (leadership styles) of people who make good leaders. Management in action 10.3 shows what we can learn about leadership when looking at athletics. MANAGEMENT IN ACTION 10.3 What athletics can teach about the characteristics of great leaders A retired basketball coach and corporate public speaker realised that after 44 years of coaching basketball, there are lessons learned in athletics that can be valuable for leaders in any organisation. Among the many lessons athletics can teach about leadership, three stand out: setting an example, listening and developing a strong failure quotient (or FQ). 1. Setting an example. The saying “Preach the Gospel; if necessary, use words” may convey the most important lesson any manager can learn about leadership: Certainly what the coach says to his team is important, but the values he stands for and the daily example he sets far outweigh his words. A coach will never sell his team on hard work if he is not prepared for practice every day. He may address the importance of hard work, but if he’s not demonstrating that value, his words will fall on deaf ears. The example set by the leader of any team or in any organisation will always be pre-eminent. 2. Listening. Athletics is a great venue to learn how to listen. Both coaches and players must develop the ability to listen. Critical information must be absorbed by players during time-outs, particularly at the end of a game. A team he coached once had a championship game that was tied with 2 seconds to go. If one player did not listen attentively during the time-out and therefore didn’t execute his responsibility on the play diagrammed, the team would have lost. The players did listen and scored, sending the game into overtime, only to lose in double overtime. But he could not have been more proud of the team. They listened and they executed. Leaders in organisations must develop the ability to listen if their teams are to execute. Listening can be examined at another level. Listening is respect. When someone is actively listening to another person, he or she is bestowing the highest form of respect. Great leaders are great listeners. 3. Developing the failure quotient. One of the greatest lessons of sport is that a player’s failure quotient or FQ is more important than the IQ. How often does an athlete fail and still have the resiliency to get back up? Athletes have to develop short memories when it comes to failure. They simply have to get back up and perform. The coach has put a tremendous amount of time preparing for the game – watching film work, readying for practices, developing a game plan – only to lose. Naturally, the coach is down, but he knows if the team is to perform better, he must arrive at practice after that loss prepared and passionate. Organisation leaders also fail sometimes. Leaders must develop strong failure quotients with the resiliency to get back up from failure. Setting an example, listening and a strong FQ are essential qualities leaders can learn from athletics. Source: Adapted from http://www.entrepreneur.com/article/236922 (accessed on 29 August 2014) 10.4.2 Behavioural theory Subsequently, attention in leadership studies moved from trait theory to the behaviour of leaders with the focus on trying to identify what types of leadership behaviour successful leaders display. Behavioural theories of leadership focus on the study of specific behaviours of a leader and make the assumption that leaders can be distinguished from non-leaders when examining their behaviour (leadership style). Amongst some of the behaviours they examined, was how successful leaders delegate, communicate, motivate and act in certain situations. Various studies are discussed below. Research on leaders’ behaviour tried to identify the kinds of behaviour that differentiate effective leaders from ineffective leaders. Researchers conducted research on what specific behaviour a leader would use to help improve subordinate satisfaction and performance. Hundreds of leadership behaviours were examined and two distinct behaviours stood out in all these studies. Two of these studies at different universities identified two basic leader behaviours that are central to effective leadership – initiating structure and consideration. It is important to note that these two basic behaviours form the foundation of many of the leadership theories discussed in this chapter. 10.4.2.1 Ohio State University studies Researchers at Ohio State University asked employees to describe the behaviour of their leaders. Based on the information they received, they defined two types of leadership style: the initiating structure leadership style and the considerate leadership style. INITIATING STRUCTURE LEADERSHIP STYLE This style refers to the degree to which a leader is likely to define and structure his or her role, and the roles of group members in the process of goal attainment. This includes setting deadlines, giving directions, setting goals and assigning tasks. This style is characterised by an active execution of the four management functions of planning, organising, leading and control. Some of the behaviours of a leader who initiates structure include the following: Standardising of job performance Good communication with employees about job requirements Scheduling the responsibilities of employees Encouraging the use of uniform procedures Good organising by specifically placing employees in particular positions This leadership style is focused mainly on what should be done and not on who is doing it. If this style is used as the only approach, it may lead to an increase in employee turnover, low motivation and low satisfaction in employees. However, if employees perceive the leader to be considerate towards them, they may yet be satisfied, because they feel the leader cares about their needs. If employees perceive their leaders to be focusing only on initiating structure without being concerned for their wellbeing, this leadership style becomes ineffective. Employees may feel as if they are being micro-managed and evaluated continuously. CONSIDERATE LEADERSHIP STYLE This leadership style is characterised by a concern by the leader for the people who are his or her followers. A leader with this style is concerned for the wellbeing of employees. He or she wants employees to be happy and to feel they are valued. Some of the behavioural actions of a leader with this style include the following: Concern for employees’ personal problems (they try to help where they can) Friendliness and openness Giving rewards for a job well done Showing appreciation and gratitude for employees who do their job well Realistic expectations from employees Leaders with a considerate leadership style create a pleasant atmosphere of friendliness. They assume that there is no need to implement strong structures, since they believe employees are willing to give their best for the organisation. These leaders try to avoid micro-managing their employees. They treat employees with respect and believe the best of employees. Followers are more willing to follow a leader with this leadership style and they are usually more motivated and productive when they work under this type of leadership, because they have a good working relationship with the leader. 10.4.2.2 University of Michigan studies The University of Michigan determined two dimensions of leadership behaviour, namely, employee-oriented and production-oriented behaviour: Leaders who are employee-oriented are described as being focused on interpersonal relationships. They have a personal awareness of the needs of their followers and lead followers with consideration for these differences. They also accept and show respect for individual differences among group members. Their employees have higher productivity and higher job satisfaction. Production-oriented leaders tended to focus more on the technical or task aspects of the job. These leaders set clear standards and expectations. They closely evaluate employees’ work and are results driven. These leaders focus mainly on accomplishing their groups’ tasks, and regard group members as a means to that end. 10.4.2.3 University of Iowa studies Three leadership styles were identified in a study done by Kurt and Lewin at the University of Iowa in 1939: Autocratic leadership style. When a leader has this type of style, the leader wants to be in full control at all times. The leader dominates employees or his or her team members and uses unilateralism to achieve an objective. Leaders with this style centralise authority, set out clear guidelines for work methods and limit employee participation. Participative leadership style. A leader with this style is much more engaged with employees and makes decisions by consulting the team. The leader will delegate authority and encourages participation from employees in all areas. Laissez-faire leadership style. A leader with a laissez-faire leadership style exercises little control over followers. These leaders give the group complete freedom to make decisions and complete the work in whatever way they see it fit. Although the researchers at all three universities agreed with the assumption that initiating structure and consideration were basic leader behaviours, they could not come to an agreement about how these behaviours related to one another and which one was necessary for effective leadership. The differences in the conclusions of Ohio State University and the University of Michigan are illustrated in Table 10.1. Table 10.1 Differences in the conclusions of Ohio State University and the University of Michigan Ohio State University They found that consideration and initiating structure were not dependent on one another. In other words, a leader can initiate structure and be considerate at the same time. They found that strong leaders are effective in initiating structure and being considerate. vs University of Michigan Their studies indicated that the two main behaviours of consideration and initiating structure were mutually exclusive. If a leader wanted to be more considerate, it would entail decreasing structure and vice versa. They concluded that only employee-centred (consideration) behaviours would result in effective leadership. 10.4.2.4 Blake and Mouton’s managerial grid The Blake and Mouton managerial grid identifies two leadership behaviours, namely, concern for people (i.e. consideration) and concern for production (i.e. initiating structure). Their two-dimensional grid of these leadership behaviours and five resultant leadership styles is shown in Figure 10.3. Figure 10.3 Blake and Mouton’s managerial grid Source: http://www.lacpa.org.lb/Includes/Images/Docs/TC/TC409.pdf October 2014) (accessed on 21 On this managerial grid, both behaviours were rated on a 9-point scale, with 1 representing “low” and 9 representing “high”. The scores of the five different leadership styles are summarised in Table 10.2. Table 10.2 Scores of the five leadership styles Team management style (9, 9 score): This is identified as the best leadership style. Leaders having this style show a high concern for production (9) and for people (9). Authority compliance leadership style (9, 1 score): Leaders with this style have a high concern for production and a low concern for people. Country-club leadership style (1, 9 score): These leaders create a friendly, enjoyable work environment. However, they do not pay much attention to production or performance in the organisation. Impoverished leadership style (1, 1): This is the worst leadership style. This leader will show little concern for production and people. He or she takes no initiative and only does what is necessary to keep his or her job. Middle-of-the-road leadership: This style is found in leaders when they show a reasonable amount of concern for both people and production. They do not have a definite preference for either. 10.4.2.5 Theory X and Theory Y Assumptions about employees and what will motivate them influence the way leaders will behave towards them. Theory X and Theory Y, developed by Douglas McGregor, contrast the conventional view of leadership in organisations. McGregor suggested that a Theory X manager takes a command-andcontrol view of management. Because people are by nature lazy, lack ambition, dislike responsibility and prefer to be led, a manager will take responsibility for directing the employee’s efforts. Subordinates must be persuaded, rewarded and punished and have their activities controlled at all times. A Theory Y manager takes a leadership-and-empowering view of management. People are not by nature lazy and passive, and a manager should create opportunities, thus releasing the potential of employees and encouraging growth. The task of the manager is to arrange conditions in the organisation so that employees can achieve their own goals by directing their efforts to achieving the organisational objectives. After nearly 50 years of research into what the best leadership style is, it is evident that there is no single best leadership style. A leadership style is the best if it fits the situation. Therefore the situation must be considered in determining the best leadership style to use. 10.4.3 Contingency theory Contingency theory takes the view that there is no one best leadership style and that the effectiveness of any leader is found in the way that he is able to match his own leadership style to the specific requirements of a situation. The three contingency approaches that will be discussed in more detail below are Fiedler’s contingency theory, path-goal theory and Hersey and Blanchard’s situational leadership theory. These leadership theories assume that the effectiveness of a leader is found in the way that he generally behaves towards his followers in a given situation. These theories also assume that a leader will only be effective if his or her leadership style matches the specific requirements of a situation. Fiedler assumes that a leader’s leadership style is consistent and change will be a challenge. His theory therefore says that because leaders cannot change their leadership style, they need to be matched to the right situation to be effective. Path-goal theory and Hersey and Blanchard’s theory, in contrast, assume that leaders are capable of changing and adapting their leadership style to fit the specific situation. 10.4.3.1 Fiedler’s contingency theory This theory proposes that performance is dependent on a proper match between the leader’s leadership style and the extent to which the situation allows the leader to take control and to influence his or her followers. Leaders will thus be more effective if they are matched to the right situation. Fiedler’s theory also proposes that it is not possible for a leader to change or adapt his or her leadership style to a specific position because it is tied to his or her underlying needs and personality. When Fiedler refers to a leadership style, he means the way that leaders normally behave towards their followers. He believes that leaders have either a task-oriented or a relationship-oriented leadership style. Leadership style refers to the way the leader behaves towards his or her followers. As mentioned earlier, Fiedler assumes that a leader’s style is linked to his or her personality and a person’s personality is usually very stable. Therefore leaders are usually incapable of changing their leadership style. If a leader is someone who blames the employees for everything that goes wrong, and screams and shouts at them, that is probably the way the leader will always behave. The same can be said about a leader who micromanages the work of others and insists that all decisions must first be approved by him or her – that is probably the way the leader will behave in all situations. To measure a leader’s style, Fiedler developed the least preferred co-worker (LPC) questionnaire. The questionnaire is based on the principle that a person considers all the people with whom he or she has ever worked and then chooses the one person with whom he or she worked least well. This does not mean that the person is not liked; it refers to the person with whom one had the most difficulty getting the work done. The questionnaire then asks a few questions that must be answered keeping that person in the back of one’s mind. See Management in action 10.4. MANAGEMENT IN ACTION 10.4 Fiedler’s least preferred co-worker (LPC) measure Instructions Think of the person with whom you work least well. He or she may be someone you work with now or someone you knew in the past. That person does not have to be the person you like the least, but should be the person with whom you had the most difficulty in getting a job done. Describe this person as he or she appears to you by circling the appropriate number for each of the following items: 1. Pleasant 87654321 Unpleasant 2. Friendly 87654321 Unfriendly 3. Rejecting 12345678 Accepting 4. Tense 12345678 Relaxed 5. Distant 12345678 Close 6. Cold 12345678 Warm 7. Supportive 87654321 Hostile 8. Boring 12345678 Interesting 9. Quarrelsome 12345678 Harmonious 10. Gloomy 12345678 Cheerful 11. Open 87654321 Closed 12. Backbiting 12345678 Loyal 13. Untrustworthy 12345678 Trustworthy 14. Considerate 87654321 Inconsiderate 15. Nasty 12345678 Nice 16. Agreeable 87654321 Disagreeable 17. Insincere 12345678 Sincere 18. Kind 87654321 Unkind Scoring interpretation Your final LPC score is the sum of the numbers you circled on the 18 scales. If your score is 57 or below, you are a low LPC, which suggests that you are task motivated. If your score is within the range of 58 to 63, you are a middle LPC, which means you are independent. People who score 64 or above are called high LPCs, and they are thought to be more relationship motivated. Because the LPC is a personality measure, your score is believed to be quite stable over time and not easily changed. Low LPCs tend to remain low, moderate LPCs tend to remain moderate, and high LPCs tend to remain high. Research shows that the test–retest reliability of the LPC is very strong. Source: Fiedler & Garcia (1987) A score of 64 on the questionnaire describes a least preferred co-worker in a positive way which indicates that the person has a relationship-oriented leadership style. In other words, despite the fact that this co-worker prevented that person from doing his or her job effectively, he or she could still find it possible to not develop a dislike of the co-worker. A score of 57 or less describes the least preferred co-worker in a negative way – meaning a dislike for working with this co-worker because he or she makes it difficult to do a job effectively. This indicates a task-oriented leadership style. The second important element in Fiedler’s model is the situation. The situation must allow the leader to take control and have an influence over the employees. If a situation is highly favourable, leaders will find that their actions positively influence employees. On the other hand, leaders will have little or no success in influencing employees in highly unfavourable situations. Fiedler identified three situational dimensions that have an influence on a leader’s effectiveness: Leader–member relations. This refers to the degree of confidence, trust and respect employees have for their leader. Positive leader–member relations will result in followers trusting their leader. This factor is the most important situational factor. Task structure. This refers to the degree to which employees’ job responsibilities are official and clearly specified. If there is high task structure, it is easier to influence followers, because they know what is expected from them and they have clarity about the responsibilities, rules and procedures. Position power. This refers to the power to influence. Power-based activities include hiring, firing, disciplining, promoting and giving salary increases. The more influence leaders have in these areas, the greater their power and efficiency will be. Table 10.3 illustrates some scenarios or situations where specific leadership styles will be effective. Table 10.3 Situations of leader effectiveness LPC score Leadership style The situation High Relationship oriented (RO) Moderately favourable The leader is somewhat liked, tasks are partly structured and the leader has some position power. In this situation, the leader will improve leader–member relations, morale and performance. Low Task orientated (TO) Highly favourable Unfavourable Leaders are liked, tasks are structured, and the leader has power. In this situation, the leader focuses on performance and sets the goal for the group which then motivates employees. Leaders are disliked, tasks are unstructured and the leader does not have the power to hire, fire, reward and punish. In this situation, the leader sets goals, brings in structure and turns the attention to performance and goal achievement and overcomes low task structure. Moderate Somewhat relationship oriented and somewhat task oriented All types of situations These leaders will do fairly well in all situations because they can adapt their leadership style to the situation. They will not perform quite as well as a leader whose style is well matched to the situation, but at least they can meet the situation half way. Leaders need to be matched to the right situation or develop the skills to change the situation because, as stated above, Fiedler believes that it is not possible for leaders to change their leadership styles. 10.4.3.2 House’s path-goal theory This theory states that the responsibility lies with the leader to assist his followers in the path to achieve the goal. Leaders should provide direction or support, because employees will find only the leadership style of the leader acceptable if they view it as an immediate source of satisfaction or as a means of future satisfaction. There are two situations that will determine how followers experience the leader’s behaviour: 1. The leader’s behaviour makes the satisfaction of subordinates’ needs dependent on their effective performance. This means that the leader expects effective performance, and effective performance is a prerequisite for employees to experience needs satisfaction. 2. The leader’s behaviour provides the instruction, guidance, support and rewards necessary for the effective performance of employees. House identifies four leadership styles which help employees to achieve their goals: Directive leadership style. Leaders with this style are clear about what is expected from subordinates. They have work schedules and give direct guidance as to what tasks are to be accomplished and how to accomplish them. Supportive leadership style. Leaders with this style are concerned with the needs of their followers and have a good, friendly relationship with most of them. Employees feel supported, which leads to improved satisfaction and performance. Followers experience less job stress and there is a relationship based on trust between leaders and followers. Participative leadership style. Leaders with this style consult employees and use their inputs before making decisions. If employees participate in decision-making, they understand the goals better and what they have to do (the paths) to accomplish them. They are also more committed to them since they had inputs in them. Achievement-oriented leadership style. A leader with this style challenges followers to perform to their highest possible ability. He or she expects and believes that employees will give their best and focus in achieving the challenging goals he or she has set for them. These leaders are focused on achievement. The following factors or characteristics will influence the behaviour of employees and indicate the leadership style with which they are most comfortable: Perceived ability. If employees believe that they have the ability and competency to do what is required, they will be dissatisfied with a directive leadership style. Experience. If employees are experienced and know how to do their jobs, they do not need a manager with a directive leadership style. On the other hand, if employees have little experience, directive leadership is needed. Locus of control. If an employee believes he or she has control over what happens in his or her life (internal locus of control), a participative leadership style will be more effective, because he or she will want to contribute to the outcome. However, if an employee believes he or she has no control over what happens in his or her life (external locus of control), a directive leadership style will work better since it will provide the needed structure and guidance. The following environmental factors play a role in the relationship between a follower and a leader: Task structure. In a high task structure, the requirements of the tasks are specified and there is clarity about how the task must be performed. Directive leadership is not needed. If task structure is low, on the other hand, directive leadership will be needed to set the structure and to guide employees. If tasks are difficult and stressful, a leader who is supportive will be more effective. The formal authority system. When procedures, rules and policies are unclear in the organisation, directive leadership will be needed to guide and to set boundaries. If the formal authority system is clear and employees are aware of all the procedures, rules and policies, directive leadership will be ineffective. Work group. If members of a workgroup provide little emotional support to each other and there is no participation, supportive leadership from the manager’s side will be needed. If tasks are complex and there is little participation between employees, participative leadership will be effective. If tasks are stressful and frustrating, supportive leadership will be more effective. The influence of all these factors will identify what subordinates will experience. The leader’s leadership style, together with the influencing environmental factors and the subordinate’s characteristics must lead to higher performance and higher satisfaction. 10.4.3.3 Hersey and Blanchard’s theory Hersey and Blanchard believe that the level of directive and supportive leadership behaviour should be based on the level of maturity or readiness of the followers, and a leader can and should adapt his or her leadership style accordingly. This is in contrast to Fiedler, who believes a leader cannot change his or her leadership style. Hersey and Blanchard identify two behaviour types: 1. Directive or task behaviour (production centred). The leader sets out clear guidelines, duties and responsibilities. Followers know exactly what is expected from them, when and how they should do it. 2. Supportive or relationship behaviour (people centred). The leader communicates with followers and followers give their input. Followers are involved in decision-making. This theory states that the followers’ level of readiness or maturity will determine which one of the above-mentioned leadership behaviours will be most effective in leading. Level of readiness or maturity refers to the ability to set task-related goals that are challenging and attainable (i.e. task-related ability) and the willingness to accept responsibility to achieve these goals. People are on different levels of readiness based on their goals and experience. The four quadrants shown in Figure 10.4 indicate the level of directive and/or supportive leadership that is needed to lead a specific follower. The readiness of the follower ranges from low to high. A new employee will not be able to perform the tasks needed to the standard that is expected from him or her immediately, will first need to be trained and led in the right direction. A directive or task behaviour leadership style will be required to clarify what is expected and to set clear guidelines until the employee becomes more mature. When employees have this lower level of maturity, decision-making should at all times be in the hands of the leader. Employees are not ready to make decisions by themselves (R1). In this case the leader’s approach is a telling approach (S1). It is important that leaders adopt the right leadership style in these early stages to ensure that followers learn the necessary skills to perform at the expected level. Leaders need to praise employees for every step they take in the right direction. When employees feel they are growing in their position, they become more confident and willing to accept responsibility, but they are still unable to do the job unsupervised (R2). Here the leader’s approach is a selling approach (S2). Figure 10.4 Hersey and Blanchard’s theory High maturity R4: Followers are talented (able), selfassured and willing to accept responsibilities. They take responsibility for decisions and implementation. Modest maturity R3: Followers are able, but not confident and willing. Ideas are shared and they participate in decisionmaking. R2: Followers are unable, but they are self-confident or willing to accept responsibilities. Leaders explain decisions and also provide the opportunity to gain clarity about the decisions. Low maturity R1: Followers are unable, not confident and unwilling to accept responsibilities. Leaders need to provide specific instructions and supervise performance closely. The moment employees are ready to make decisions themselves they can move over to the other side of the diagram. At first the employee might not feel ready to take on so much responsibility (R3) and therefore might need some supportive behaviour from the leader to increase confidence. The leader will therefore follow a participating approach (S3). As the follower’s confidence increases, he or she will need less supportive behaviour from the leader (R4). The leader now needs to ensure that the employee has all the necessary resources to get the job done without obstacles. This is where delegating leadership behaviour happens (S4). 10.5 CONTEMPORARY LEADERSHIP PERSPECTIVES Leaders are increasingly described as those who are responsible for articulating a vision and leading followers toward that vision no matter how difficult it might be to achieve. Leaders who have the skill to communicate the vision to their employees or followers and have the ability to inspire and motivate their followers beyond the normal levels of performance can be classified as charismatic and transformational leaders. 10.5.1 Transformational leadership There are many factors that make leadership a challenge. A transformational leader has the ability to instil trust, admiration, loyalty and respect among followers and to “transform” a situation, because followers are willing to go above and beyond what the leader expects them to do. Abraham Lincoln and Martin Luther King were transformational leaders. Not only were they successful within their different environments, but they transformed their worlds. Transformational leaders raise their followers to a higher level of morality and motivation. Transformational leaders lead with trust, which is the lubricant for continued smooth and effective interactions. To be trusted, leaders must have character (respect, honesty, service, fairness, quest for truth, integrity) and competence (task related, interpersonal and organisational). Trust allows leaders to inspire employees to excel in their work. Some advantages of transformational leadership are that it increases employee satisfaction and motivation and therefore productivity, decreases employee turnover and creates a culture of trust. 10.5.2 Charismatic leadership With charismatic leadership, the leader uses his or her charm to get the admiration of his or her followers. These leaders show concern for their people and look after their people’s needs. A manager with charismatic leadership characteristics creates a comfortable and friendly atmosphere for his or her employees by listening to them and making them feel that they have a voice in the decision-making. Famous examples of charismatic leaders are Winston Churchill, Bill Clinton, Mother Teresa and Ronald Reagan (see Management in action 10.5). MANAGEMENT IN ACTION 10.5 Ronald Reagan as an exemplar of charismatic leadership Reagan was able to capture the trust and admiration of his followers. Reagan is ranked as one of the top three charismatic American presidents in the twentieth century. Followers believed in him and expressed admiration for his candid honesty. Reagan displayed courageous convictions and was willing to sacrifice his own political career in order to pursue what he perceived (and his followers likewise) as right and true. Reagan’s ideas were perceived by his followers to be genuine and deeply held. Reagan did deeply believe in his own ideals and often told advisors not to mention “political risks” when advising on options or consequences related to a pending decision. Perhaps his most memorable act of integrity was when he addressed the nation from the Oval Office in March 1987 and took ultimate responsibility for the Iran Arms and Contra Aid controversy. Even though he had not personally authorized the unpopular action, he did take responsibility for actions conducted by his administration’s officials. This was an act that restored trust and contributed to his followers’ perceptions of his integrity. Reagan was well known for demonstrating courage and conviction. He used his personal strength and conviction to impress his values on followers and persuade them that his vision was best for the nation. Ronald Reagan is remembered historically as “The Great Communicator”. This is more than just a nickname or passing compliment. Reagan was a very effective communicator, and his communication style was perceived as charismatic. President Reagan displayed expertise in managing his administration by utilizing delegation, because he was regarded as an expert delegator of tasks. Reagan was not interested in increasing his personal power base, but felt a strong personal conviction for his vision and subsequent policies. Therefore, it was often said that Reagan’s approach to managing his White House staff and other administration officials was a very positive approach. As Reagan campaigned for president in the late 1970s, the nation was suffering through a severe economic downturn where unemployment, gasoline prices, and interest rates were soaring. President Carter, his predecessor, was seen as a capitulator and a weak foreign policy president. The USA citizenry was very dissatisfied and eager for change and Reagan perceived this and articulated his visionary platform well by appealing directly to people’s core convictions. Reagan promised a new vision that included a small federal government, strong military, and a booming economy. He understood the timing of his political rise and used the country’s eagerness for change to help him gain the presidency. Source: Bell (2013) Charismatic leaders in general have high self-confidence, vision, a holistic approach to leading and are passionate about achieving the vision of the organisation. They engage in extraordinary behaviours and display substantial expertise. There seems to be a strong positive relationship between charismatic leaders and the performance of employees. Crisis situations in an organisation create an atmosphere that is conducive for the emergence of charismatic leadership. Charismatic leaders have a deep belief in their mission, and are strongly convinced that they and their followers will succeed. Through this conviction of success, the leader manages to convince followers as well. Therefore these followers are usually obedient and loyal, whether the leader is succeeding or not. Effective communication is an essential quality for a leader whatever his or her leadership style. For charismatic leaders, effective communication requires more than merely the dissemination of information. They believe that in order to be effective, they have to include emotional appeals in their rhetoric by using dramatic, symbolic and metaphoric language that lends credibility to the communication. Ideas, thoughts and concepts are articulated in an inspirational and motivating manner. Establishing a trust relationship with followers is also crucial for charismatic leaders. 10.5.3 Servant leadership This concept of leadership originates from the bottom-up approach to leadership where leadership actually starts with the followers’ needs. It is a leadership approach that makes serving others the number one priority. It is based on the assumption that work exists for the development of the employee as much as the employee exists to do the work. These leaders motivate and influence followers because they want to fulfil the needs and goals of the employees as well as achieve the organisation’s larger mission. Servant leadership is about the following: Service to others. Servant leadership begins when a leader assumes the position of being a servant in interactions with followers. Leadership arises not from the exercise of power or self-interested actions, but from a fundamental desire to help others first. Holistic approach to work. Servant leadership challenges organisations to rethink the relationship between people, organisations and society as a whole. Individuals should be encouraged to be who they are in both their professional and their personal lives, because it will benefit the long-term interests and performance of the organisation. Promoting a sense of community. A sense of community among followers helps an organisation to succeed in its objectives, because groups of individuals are liable for themselves and each other, individually and as a unit. Sharing of power in decision-making. Effective servant leadership nurtures participatory, empowering environments and encourages the talents of followers. The result is a more effective, motivated workforce and, ultimately, a more successful organisation. In order to be effective, servant leaders require the following personal characteristics and skills: Listening – a critical communication tool necessary for accurate communication and for actively demonstrating respect for others Empathy – seeing things from other people’s point of view Healing – recognising the human desire to find wholeness and to support it in others Awareness – staying alert for opportunities to lead followers Persuasion – building group consensus through gentle but clear and persistent persuasion, without abusing one’s position of power Conceptualisation – conceiving solutions to problems that do not currently exist Stewardship – being concerned for both individual followers and the organisation as a whole, as well as the organisation’s impact on and relationship with all of society Commitment to the growth of people – being able to appreciate and encourage other people Building community – uniting individuals in society 10.6 LEADERSHIP AND ENTREPRENEURSHIP Research suggests that there is a significant relationship between leadership, change and entrepreneurship. Many charismatic and transformational leaders are by nature entrepreneurial and change oriented. Charismatic leadership has also been associated with innovation. There is some empirical evidence to suggest that active behaviour (which includes demonstrating initiative, taking action and persisting until goals are achieved) is associated with transformational and charismatic leadership and, therefore, it could be argued that transformational and charismatic leadership are associated with entrepreneurship. 10.7 GENDER AND LEADERSHIP Research shows that women executives, when rated by their peers, employees and bosses, score higher than their male counterparts on a wide variety of measures. Placing more woman in leadership positions is currently a hot topic in terms of equity in the workplace. Men and women differ in their approach to leadership in the following ways: Men are generally more task oriented, while women focus more on relationship building. Men tend to be more dominant and forceful than women. Men are less flexible, while women are more open to change. Men are more likely to use a directive and autocratic leadership style, while women use a more participative and democratic approach. Flexibility, teamwork and partnering, trust and information sharing are rapidly replacing rigid structures, competitive individualism, control and secrecy. The best managers and leaders listen, motivate and support their people. They inspire and influence rather than control, and women’s leadership styles seem to fit this new profile better than their male counterparts for the time being. 10.8 LEADING THROUGH EMPOWERMENT Empowerment involves increasing the decision-making discretion of workers. Millions of individual employees and employee teams are making the key operating decisions that directly affect their work. If organisations are to compete successfully in a dynamic global economy, employees will have to be able to make decisions and implement changes quickly. Leaders should encourage and lead through empowerment. 10.9 SUMMARY Good leadership is crucial for setting people in motion – to start them doing the right things right. For any organisation to be effective, it needs good leadership and good management. If there is no strong leadership, it is almost impossible to increase performance levels. Leaders can make the difference in any organisation. For any organisation to be effective, the organisation needs good leadership and good management with neither being more important than the other; both are very important for achieving the vision of an organisation. In today’s complex, ever-changing global environment, with both internal and external factors continuously influencing an organisation’s effectiveness, good leadership is becoming ever more important and can mean the difference between success or failure. The search for the characteristics or traits of leaders has been ongoing for centuries. Different components, theories and perspectives of leadership have been discussed in this chapter. Reading through this chapter, it is, however, clear that as people change, leadership will have to change. REFERENCES AND RECOMMENDED READING Bell, R.M. 2013. Charismatic leadership. Case study with Ronald Reagan as exemplar. Emerging Leadership Journeys, 6(1): 166 –74. Brevis, T. & Vrba, M. 2014. Contemporary management principles. Kenwyn: Juta. Chatman, J.A. & Eunyoung Cha, S. 2003. Leading by leveraging culture. California Management Review, 20–33. Erasmus, B., Strydom, J. & Kloppers, R.S. 2010. Introduction to business management, 8th ed. Cape Town: Oxford University Press. Eyal, O. & Kark, R. 2004. How do transformational leaders transform organisations? A study of the relationship between leadership and entrepreneurship. Leadership and Policy in Schools, 3(3): 211–235. Fiedler, F.E., & Garcia, J.E. 1987. New approaches to effective leadership: cognitive resources and organizational performance. New York: John Wiley & Sons. Hellriegel, D., Jackson, S.E. & Slocum, J.W. 2002. Management: a competency-based approach, 9th ed. Mason, OH: South-Western Thomson Learning. Hellriegel, D. et. al. 2008. Management, 3rd South African ed. Cape Town: Oxford University Press. How successful people handle toxic people. http://www.forbes.com/sites/travisbradberry/2014/10/21/how-successful-people-handle-toxic-people/ (accessed on 30 March 2015). Lazenby, K. (Ed.). 2014. The strategic management process: a Southern African perspective. Pretoria: Van Schaik. Lusier, R.N. 2003. Management fundamentals, 2nd ed. Mason, OH: South-Western Thomson Learning. Rukmani, K., Ramesh, M. & Jayakrishnan, J. 2010. Effect of leadership styles on organisational effectiveness. European Journal of Social Sciences, 15(3): 365 –370. O’Reilly, C.A., Caldwell, D.F., Chatman, J.A., Lapiz, M. & Self, W. 2010. How leadership matters: the effects of leaders’ alignment on strategy implementation. The Leadership Quarterly, 21: 104 –113. Smith, C. 2005. Servant leadership: the leadership theory of Robert K. Greenleaf. Info 640 – mgmt of info. Orgs. http://www.carolsmith.us/downloads/640greenleaf.pdf (accessed on 11 March 2015). Strydom, J. (Ed.). 2011. Principles of management, 2nd ed. Cape Town: Oxford University Press. Williams, C. 2013. Principles of management. Mason, OH: South-Western Cengage Learning. CASE STUDY: THE MOST UNDERVALUED LEADERSHIP TRAITS OF WOMEN It’s impossible to respect, value and admire great leadership if you can’t identify what makes a leader great. While the tide is changing and more women are being elevated to leadership roles, there is still much work to do. Men have fulfilled many more leadership roles than woman. As proof, as of July 2013, there were only 19 female elected presidents and prime ministers in power around the globe. In the business world, women currently hold only 4.6% of Fortune 500 CEO positions and the same percentage of Fortune 1000 CEO positions. As women continue their upward progression in the business world, they have yet to be fully appreciated for the unique qualities and abilities they bring to the workplace. It can be difficult for a man to understand how women think, act and innovate unless he has been closely influenced by women in his life. Many will agree that women may process things differently and in general a woman’s approach to leadership differs slightly from that of men. Women tend to have different decision-making processes. The dynamics and subtleties of their personality and style, and other special character qualities that women possess, create a different perspective on problems and decisions. The best women leaders in organisations have globular vision that enables them to be well-rounded people. For example, they have their finger on the pulse of the culture and can talk to you about the latest pop-culture news – but then easily switch gears to give you their perspective on what is taking place in the economy and the business world. Women have run the show for years both at home and in the workplace. These women are masters in multi-tasking and highly collaborative (though not afraid to get territorial to protect their domain). They enjoy their own space to test themselves and find their own rhythm. Women leaders are like scientists: many of them want to make new discoveries or get solutions for problems where others have failed. Great women leaders don’t stop pursuing until the job gets done. Good women leaders are good collaborative leaders – not afraid of trial and error as long as they continue to build the resource infrastructure around them that gets them closer to accomplishing their goals. Good women leaders invest in themselves and become knowledge seekers. They are not afraid to ask questions when given a safe platform to express themselves. One thing is certain – good women leaders understand survival, renewal and reinvention. They are not afraid to fight for what they believe in or seek an opportunity to achieve something of significance. They believe in what they stand for, but that doesn’t mean they won’t put their ideas and ideals to the test. For them, doing more with less is simply a matter of knowing how to activate those around them strategically. While women leaders have their productivity secrets, it’s not secret where they come from. The leadership traits that women leaders naturally possess are the most undervalued. 1. Opportunity driven When confronted with a challenge, good women leaders look for the opportunity within. They see the glass as half-full rather than half-empty. They push the boundaries and, when faced with adverse circumstances, they learn all they can from it. Optimism is their mindset because they see opportunity in everything. An example of such a leader is found in the story of Estée Lauder, the child of Hungarian immigrant parents. She was quite the opportunist in the cosmetics industry. During the post-war consumer boom, women wanted to start sampling cosmetic products before buying them. Lauder noticed and responded to this shifting dynamic by pioneering two marketing techniques that are commonly used today – the free gift and the gift-with-purchase. It’s exactly this type of inventiveness that other women use to pursue the opportunities in front of them. 2. Strategic Women see what others don’t see. A well-known statement reads as follows: “A woman’s lens of scepticism oftentimes forces them to see well beyond the most obvious details before them. Many women are not hesitant to peel the onion in order to get to the root of the matter.” Women leaders don’t allow their egos to stand in the way of good business. They have a mindset of getting things done for the betterment of a healthier whole. They think strategically. 3. Passionate While historically women in general were viewed and stereotyped as emotional leaders by men, they are actually just passionate explorers in the pursuit of excellence. When women leaders are not satisfied with the status quo, they have the drive to make things better. Good women leaders get things done and avoid procrastination. Many women have learned not to depend on others for their advancement and thus have a tendency to be too independent. A woman’s independent nature is her way of finding her focus. When these women leaders are locked into what they are searching for – move out of the way. Their passionate pursuits allow them to become potent pioneers of new possibilities. No wonder minority women represent the largest growing segment of entrepreneurs. 4. Entrepreneurial Entrepreneurship is just a way of life for many women. They can be extremely resourceful, connect the dots of opportunity and become experts in developing the relationships they need to get the job done. Many women leaders find excitement and motivation by being extremely creative and resourceful when completing tasks and other duties and responsibilities. 5. Purposeful and meaningful Many women leaders enjoy inspiring others to achieve. They know what it’s like to be the underdog and work hard not to disappoint themselves and others. Women leaders in particular often have high standards and their attention to detail makes it difficult for others to cut corners or abuse any special privileges. Women leaders with a nurturing nature are actually good listeners and excellent networkers/connecters. They enjoy creating ecosystems and support a collaborative style that melds the thinking and ideas of others. 6. Traditions, family and teamwork Whether at home, or at work, women are often the glue that keeps things together. When they sense growing tensions that can lead to potential problems or inefficiencies, the most successful women leaders enjoy taking charge before circumstances force them to do so. Women are usually the ones to secure the foundational roots of the family and to protect family and cultural traditions from wavering. They provide the leadership within the home and in the workplace to ensure that legacies remain strong by being fed with the right nutrients and ingredients. The most successful women leaders are big believers in team building and the enforcement of mission, goals and values to ensure that everyone is on the same page with the same intentions. This secures a sense of continuity and makes it easier for everyone to have each other’s backs. No wonder women are assuming more management and leadership roles in family-owned businesses. Source: Adapted from http://www.forbes.com/sites/glennllopis/2014/02/03/the-mostundervalued-leadership-traits-of-women/ (accessed on 21 October 2014) Case study questions 1. Based on the traits theory and this case study, find a woman in a leadership role that possesses most of these traits. Explain why this woman can be regarded as a good leader. 2. What leadership style relates to women in leadership. Substantiate your answer from the case study. 3. In what way does the leadership style of women differ from that of men? Substantiate your answer. 4. In your opinion, is there a role for women in leadership positions? Substantiate your answer. MANAGEMENT DISCUSSION EXERCISES 1. Based on the leadership theories discussed in this chapter, give advice to a manager on how to deal with the following employees: a) A new employee who has recently graduated from university. He or she has no prior work experience but is well qualified. b) Sara who has eight years of relevant work experience and is newly employed. c) John who has a lot of personal issues and financial stress that is starting to have a negative effect on his work performance. d) An employee who has been working for the organisation for many years and is not getting along with the strict and directive manager of the department. It is so bad that he is threatening to leave the company. 2. Are there any challenges in South Africa with regard to leadership? Based on theory, what can be done and implemented to solve these issues? 11 Motivation WERNER VERMEULEN AND KOBUS LAZENBY Learning outcomes After studying this chapter you should be able to do the following: Explain what motivation is, and why managers need to be concerned about it. Understand the motivation process. Explain how goals and needs motivate people. Discuss and explain each of the early theories on motivation. Explain and apply each of the contemporary theories of motivation. Discuss how managers can improve the motivation of staff. Identify how to design motivating jobs. Understand some current issues in motivation. 11.1 INTRODUCTION Motivation is part of the activation process in management – getting employees to do their job. Motivation is also sometimes called the “core of management”. Even with the best plan or strategy in place and an appropriate organisational structure, an organisation will be effective only if its members are motivated to perform at a high level. Motivating and rewarding employees effectively can be challenging. In the past it was believed that an adequate salary or wage would be enough, but today it is recognised that people do not work for money only. Other factors, like job satisfaction and empowerment, also play important roles in motivation. Poorly motivated employees can nullify the soundest organisation. Motivation will evolve from a motive, an inner state that energises or moves, and that channels behaviour towards the achievement of goals. This motive depends on forces either within or external to a person that arouse enthusiasm and persistence to pursue a certain course of action. Employee motivation affects productivity, and part of a manager’s job is to channel motivation into the achievement of organisational objectives. It is therefore important to understand what triggers people to take action, what influences their choice of action, and what motivates them to continue with that action over time. Motivated employees will be eager and willing to achieve organisational objectives or to go beyond the call of duty. People primarily do what they do as a result of the motive to meet their (or in this case, the organisation’s) wants or needs. Understanding that people are driven by self-interest is an important key to understanding motivation as a whole. Generally, a motivated employee will try harder than an unmotivated one to do a good job. Motivation is not the only important contributor to productivity and performance, however. Abilities, skills and the right equipment are also indispensable (see Management in action 11.1). MANAGEMENT IN ACTION 11.1 Motivation and communication are crucial for any organisation to succeed, says Jack Welch Jack Welch, the former CEO of General Electric, was a key speaker at a recent talk titled Lessons in Leadership at the Wits Business School. Talking via satellite Welch shared his belief that most employees needed encouragement and motivation from management. Employees want to see what is in it for them so that they can put in more effort and work together as a team. He stressed the importance of communication and honesty with employees. Employees do want to hear what they are doing well and where they can improve. Employees must understand that they are only as good as their performance is for the moment, and not forever. He also highlighted the importance of a value system in the organisation and specifically mentioned trust to help the organisation in the search for innovation. Communication in an organisation is crucial and it will allow an organisational culture that is open to change and learning. Source: Adapted from http://www.leader.co.za/article.aspx?s=6&f=1&a=529 (accessed on 11 March 2015) An important part of motivating employees is to be a motivated manager, because enthusiasm is contagious. If employees see that their managers are enthusiastic about their job, they are more likely to be enthusiastic about their own job. This chapter will present several theories of motivation in the workplace and provide specific approaches to motivating employees. 11.2 WHAT IS MOTIVATION? Motivation means “to move” and is derived from the Latin word movere. It is that state of an individual’s point of view which represents the strength of his or her tendency to apply some particular behaviour. Motivation is thus an internal vigour which stimulates, regulates and upholds a person’s actions and determines whether and how he or she will behave. Motivation is the inner drive that directs a person’s behaviour towards the achievement of goals. Motivation can therefore be defined as a process which initiates, directs and sustains human behaviour. It refers to a person’s desire to do the best possible job or to put forth the maximum effort to perform the assigned tasks. It is clear from this definition that motivation is directed at behaviour towards goal achievement. People often think that a “happy” employee is also a “motivated” employee. However, although there may be a relationship, motivation is the level of desire employees feel to perform, regardless of their level of happiness. Motivated employees will be more productive and more engaged and will feel more invested in their work. This will then lead to a “happy” employee. When employees experience these things, it helps them and the organisation to be more successful. Read Management in action 11.2 and see how important an engaged employee is for the performance of an organisation. MANAGEMENT IN ACTION 11.2 Fired-up staff key to successful firms Organisations with committed and motivated employees can significantly increase their operating income, according to a survey done by professional services firm Towers Watson. It found that companies with motivated employees had seen a 19% increase in operating income over a 12-month period. Employees who are mentally and emotionally unhealthy are the main reason why organisations struggle to improve their productivity and their customer service levels. Employees are the ones in the organisation who transform the inputs into outputs and interact with the customers. Their loyalty and commitment to the organisation will determine their effort in the whole process. It is also clear that loyalty and commitment have a direct impact on productivity and customer loyalty. It is only when an employee is happy and committed to the organisation, that such an employee will take care of customers and go the extra mile to deliver a superior product or service. To improve employee engagement is not as daunting as it may appear. Employees in general actually want to be productive and want to progress and learn new skills. What is required is that management must engage the employees through motivation and continuous communication. This will create a meaningful work environment where the workers will feel included and cared for and where they can enjoy doing their best. Source: Adapted from http://www.fin24.com/Entrepreneurs/Fired-up-staff-key-tosuccessful-firms-20120719 (accessed on 11 March 2015) If a manager is successful in using motivation, he or she can effectively blend organisational and individual goals and improve this feeling of engagement in an employee. 11.3 THE MOTIVATION PROCESS In its simplest form, the motivation process begins with an unsatisfied need, which creates tension and drives an individual to search for goals to fulfil it. If these goals are achieved and the individual experiences gratification, the need is satisfied and the tension will be reduced. Figure 11.1 The motivation process The motivation process, as shown in Figure 11.1, can be explained as follows: Unsatisfied need. This is the first element in the process of motivation. The individual perceives a deficiency that can be activated by an internal stimulus (such as hunger) or an external stimulus (such as an advertisement). The employee might, for example, feel the need for more challenging work, for higher pay, for time off, or for the respect and admiration of colleagues. Tension is created. The unsatisfied need creates tension in the individual. Such tension can be physical, psychological or sociological. It creates a strong internal stimulus that calls for action and leads to thought processes that guide the individual’s decision to satisfy these needs and to follow a particular course of action. Action or behaviour to satisfy the need. This stage involves the action of the individual to satisfy the need. The individual will engage in action to satisfy the needs and motives that will lead to tension reduction. Different alternatives are available and the individual will decide on an action to take that will lead to satisfaction, for example putting in some overtime to earn extra money to pay for a holiday. Satisfaction. This stage involves goal accomplishment. The indivudual’s course of action or behaviour has satisfied his or her needs and motives. If an employee’s chosen course of action results in the anticipated outcome and reward, the person is likely to be motivated by the prospect of a similar reward and will act in the same way in the future. However, if the employee’s action does not result in the expected reward (dissatisfaction or punishment is experienced), he or she is unlikely to repeat the behaviour or will modify his or her behaviour to experience rewards in the future. Ultimately a specific goal is accomplished. Feedback. The reward or punishment acts as a feedback mechanism to help the individual to evaluate the consequences of the behaviour when considering future action. Feedback provides information for revision, improvement or modification of behaviour or a redefining of needs if necessary. Depending on how well the goal is accomplished, the needs and motives can be adapted. Drastic environmental changes sometimes necessitate the revision of needs. 11.4 MOTIVATION AND ORGANISATIONAL PERFORMANCE The link between employee motivation and organisational performance seems to be quite obvious, but it is a lot more complex. Although an individual will fulfil a task with a high level of dedication and enthusiasm when the task is important and valuable to him or her, everyday duties can become tedious and repetitive. Managers therefore constantly need to find creative ways to keep their employees motivated. Motivation is very important for every organisation owing to the benefits that will result in increased organisational performance. The benefits of motivation to an organisation include the following: Human capital management. An organisation can only achieve its full potential if it exploits fully all the financial, physical and human resources at its disposal. These resources motivate employees to accomplish their duties to the best of their ability. Meeting personal goals helps an employee to stay motivated and to continue to produce. Reaching personal goals leads to self-development and when an employee realises the link between effort and results, he or she will be motivated to keep striving for the next goal. Greater employee satisfaction. Employee satisfaction influences the progress or regress of an organisation. Motivated employees are eager to fulfil their tasks and feel a personal sense of satisfaction when they achieve them. Raising employee efficiency. An employee’s efficiency level is not only related to abilities and qualifications, but also to willingness, which depends on motivation. Motivating employees will make them more willing to work harder, which will lead to an increase in productivity, lower operational costs and an overall improvement in efficiency. An increased chance of meeting the organisation’s goals. Every organisation has goals, which can be achieved only when there is proper resource management and employees are motivated and directed by their objectives. Better team harmony. A proper work environment that is focused on cooperative relationships is highly important for an organisation’s success. It will increase stability and profits, and employees will also adapt more easily to changes. Workforce stability. Employees will stay loyal to an organisation if they experience a sense of support and participation from management to develop their abilities and effectiveness. Workforce stability creates a positive public image in the job market which attracts more competent and qualified individuals to the organisation. These benefits highlight the importance of motivation. If managers want to inspire personnel, they need to provide an organisational environment that infuses positive energy. Employees should feel that they are integral contributors to the organisation’s overall success. Self-discipline is a crucial part of motivation. Self-discipline is a deeply rooted, core passion or emotion that sustains an individual’s goal-striving actions or behaviour over a long period of time, allowing him or her to persist and persevere until his or her goals are achieved. The seven-step process of learning self-discipline as a skill is explained in Management in action 11.3. MANAGEMENT IN ACTION 11.3 The neuropsychology of self-discipline This seven-step process will teach you how to build the power of self-discipline and motivation into your life. The first four steps are motivational – they provide the fire, drive and emotional energy to complete your goal. The final three steps are actionable – they detail what must be done to succeed: 1. Create a purpose. Define exactly what you want to accomplish. This will give you a cause, a reason for making the effort. It will light a small spark inside you that will soon begin to burn as your emotion and drive increase. 2. Find role models. Seek out others who have achieved a similar goal. They will provide two key ingredients: (a) the belief that the goal can be accomplished, instilling a sense of possibility, and (b) a template or plan to follow. The sense of possibility combined with a defined purpose will further feed your emotional fire. 3. Sensory vision. When you can vividly see yourself reaping the rewards of achieving your goal, the vision will come alive. You must be able to see, touch, feel and smell it. “I think I can do it” will change to “I know I can do it”. 4. Emotion. The vision becomes atomic, charging every cell of your body with emotion and passion. With this passion, you will now be motivated to complete the action steps four, five and six. 5. Planning. Determine exactly what you need to do to reach your goal and how long it will take. This step will further fuel your passion by turning your vision into a concrete plan. 6. Knowledge and skills. Acquire the skills and knowledge necessary to implement the plan. Develop your confidence to learn. Every time you master a new skill, your confidence in your ability to succeed will increase, you will get closer to your goal, and the passion from which motivation is drawn will increase in energy. 7. Persistence and perseverance. Hold onto your vision and see it through to its completion no matter how long it takes or how difficult it is. Fight through physical and emotional pain, setbacks and hardships. Once effort starts to bring someone closer to his or her goal, a self-perpetuating spiral of vision, belief, emotion and effort will be created which has the ability to change someone’s life. Source: Adapted from http://www.sybervision.com/Discipline/sixsteps.htm (accessed on 11 March 2015) 11.5 MOTIVATION THEORIES The essence of motivation theories is to discover what drives individuals to work towards a specific goal or outcome. Managers are interested in discovering what will motivate employees, because motivated employees are more productive and this leads to more economic use of resources. Most motivation theories differentiate between intrinsic and extrinsic factors. Intrinsic factors are concerned with an individual’s interest, pleasure and willingness to participate in an activity. People with self-confidence and a belief that their abilities will lead to success are more likely to have high levels of intrinsic motivation. Extrinsic motivation focuses on the outcome of the activity. It implies that individuals are driven by the outcome rather than the activity itself. Researchers have developed a number of different theories to explain motivation. Each theory tends to be rather limited in scope, but contributes to a better understanding of motivation as a whole. Three major categories of motivation theories will be discussed below: content theories, process theories and learning theories. 11.5.1 Content theory Content theory emphasises employee’s needs and identifies those needs that will motivate them to act in a specific way. The key to achieving organisational objectives is then to design reward systems that will meet the needs of employees and direct their behaviour towards the achievement of the organisational goals. Three examples of content theory are Maslow’s hierarchy of needs, Herzberg’s two-factor theory and McClelland’s needs theory. 11.5.1.1 Maslow’s hierarchy of needs theory Abraham Maslow developed his hierarchy of needs theory in 1943. His theory emphasises various psychological factors that are responsible for particular behaviour aimed at satisfying the needs of individuals. His basic assumptions about human behaviour are as follows: Man always wants more and is actually a “wanting” being. A satisfied need is no longer a motivator of behaviour – only unsatisfied needs motivate and influence one’s behaviour. A person’s needs are arranged at different levels, i.e. in a hierarchy of importance. As soon as needs on the lower levels are met, those on the next, higher level will demand attention. The hierarchy of needs is presented in Figure 11.2. Figure 11.2 Maslow’s hierarchy of needs According to Maslow, it is essential that the needs of the employee are given substance and for the manager to be able to perceive the most important need at any given moment: Physiological needs (i.e. food, water, warmth) can be satisfied by making sure that there is adequate heat, air and a basic salary for employees to ensure their survival. Safety needs (i.e. personal security) can be satisfied by providing a working environment that is both physically and psychologically safe. This includes having good fringe benefits and job security. Social needs (i.e. intimate relationships and friends) can be satisfied by managing the relationships between co-workers and supervisors. Working in groups and teams will also satisfy this need. Esteem needs (prestige and the feeling of accomplishment) can be satisfied by giving recognition when due and increasing responsibility and status of employees. Self-actualisation needs (achieving one’s full potential) can be met by providing opportunities for growth, creativity and training for challenging assignments and advancement (see Management in action 11.4). MANAGEMENT IN ACTION 11.4 The characteristics of a self-actualising individual according to Maslow The self-actualized person has more efficient perception of reality and more comfortable relations with it. Such a person can accept the good and the bad, the highs and the lows, and he can tell the difference. Acceptance of self, others, and nature. The self-actualizing person sees reality as it is and accepts responsibility for it. The self-actualizing person has spontaneity, simplicity and naturalness. In other words, this kind of person is not hung up on being as others think he should be. He is a person who is capable of doing what feels good and natural for himself, simply because that’s how he feels. He does not try to hurt others, but he has respect for what is good himself. Problem centering. The self-actualizing person is someone who is concerned with the problems of others and the problems of society, and is willing to work to try to alleviate those difficulties. The need for privacy. The self-actualizing person has a need to be by himself or a need for solitude. He enjoys times for quiet reflection and doesn’t always need people around him. He can be with a few people and not need to communicate with them. Their presence is enough. Autonomy, independence of culture and environment. The self-actualizing person can do things for himself and make decisions on his own. He believes in who and what he is. Continued freshness or appreciation. The self-actualizing person experiences a joy in the simple and the natural. Sunsets are always beautiful and he seeks them out. He can still enjoy playing the games he played as a child and having fun in some of the same ways he did many years before. Interpersonal relations. Self-actualizing people have deeper and more profound interpersonal relations than other people. They are capable of fusion, greater love and more perfect identification, and they generally tend to have relatively few friends, but those relationships are deep and very meaningful. The democratic character structures. Self-actualizing people tend to believe that every individual has a right to a say and that each person has his strengths and weaknesses. Discriminating between means and ends, between good and evil. Selfactualizing people know the difference between means and ends and good and evil and do not twist them in a way that hurts themselves or others. Philosophical and unhostile sense of humour. Self-actualizing people tend to enjoy humour. They like to laugh and like to joke, but not at the expense of others. They are generally seen as good natured, even though they are capable of being very serious. Creativeness. Self-actualizing people are capable of being highly creative in writing, speaking, playing, fantasising, or whatever. A self-actualizing person does have creative moods. The imperfections of self-actualizing people. Self-actualizing people are individuals who are aware of the fact that they are not perfect and that there are always new things to learn and new ways to grow. The self-actualizing person, although comfortable with himself, never stops striving. Source: http://www.selfcounseling.com/help/personalsuccess/selfactualization.html (accessed on 12 March 2015) The five basic needs of an individual form a hierarchy. The higher-level needs are not considered important by an individual until the lower-level needs are satisfied at least to some extent. Once a need is satisfied, the person becomes concerned about the next level of need in the hierarchy. Citizens of different countries vary in terms of the needs they seek to satisfy through work. People in Greece and Japan are especially motivated by safety needs. People in Denmark, Sweden and Norway are motivated by belongingness needs. In developing countries with low standards of living, physiological and safety needs are likely to be the prime motivators of behaviour. As countries become wealthier and have higher standards of living, needs related to personal growth and accomplishment become more important as motivators. 11.5.1.2 Herzberg’s two-factor theory Frederick Herzberg’s two-factor theory, also known as the motivation– hygiene theory, postulates that there are certain factors in the workplace that cause job satisfaction, as well as a separate set of factors that cause dissatisfaction. According to Herzberg, motivators such as challenging work, recognition and responsibility produce employee satisfaction. A person is thus either satisfied (motivator is present) or not satisfied (motivator is absent). Hygiene factors, including status, job security, salary and fringe benefits – if absent – produce dissatisfaction. Thus a person is either dissatisfied (hygiene factor is absent) or not dissatisfied (hygiene factor is present), but these factors cannot motivate a person (see Table 11.1). Table 11.1 The factors in Herzberg’s two-factor theory Hygiene factors Motivators Company policy and administration Achievement Supervision Recognition Relationship with supervisor The work itself Working conditions Responsibility Salary Advancement Relationships with co-workers Growth Hygiene factors Motivators Personal life Relationship with subordinates Status Security If management wishes to increase job satisfaction, it should be concerned with the nature of the work itself. Management must present opportunities to employees for gaining status, assuming responsibility and achieving selfrealisation. If management wishes to reduce dissatisfaction, then they must focus on the work environment. This will include looking at policies, procedures, supervision and working conditions. The implication of this theory is that if there is a problem with supervision for example, the employee will feel dissatisfied. If everything is positive with regard to the hygiene factors, an employee will feel not dissatisfied, but this does not mean that he or she will feel satisfied and therefore be motivated. It is only when all the hygiene factors are positive (actually a prerequisite) and motivators are also present, that an employee will be satisfied and motivated. To ensure a satisfied and productive workforce, managers must give attention to both sets of factors. Herzberg’s theory appears to have a relationship with Maslow’s needs hierarchy. The higher-level psychological needs according to Maslow relate to the motivators, namely, Herzberg’s achievement, recognition, responsibility, advancement and the nature of the work itself. The lower level of Maslow’s needs corresponds with the factors that cause dissatisfaction (hygiene factors), such as organisational policies, supervision, technical problems, salary, interpersonal relationships on the job and working conditions. This two-factor model of motivation is based on the notion that the presence of one set of job characteristics or incentives leads to employee satisfaction, while another, separate set of job characteristics leads to dissatisfaction. Satisfaction and dissatisfaction are not on a continuum, but are independent phenomena. Figure 11.3 clearly illustrates this. Figure 11.3 Herzberg’s two independent factors What, then, does this mean for managers? It means that if the hygiene factors are not all positive and present, employees will be dissatisfied with their jobs. From Figure 11.3 it is clear that if the hygiene factors are present and positive, job dissatisfaction will decrease. However, it will not necessarily improve an employee’s satisfaction. To increase satisfaction (and motivate someone to perform better), the manager must address motivation factors. It is clear that motivation according to this theory requires a two-fold approach – eliminating the so-called dissatisfiers and enhancing the satisfiers. The contribution of this theory to management is that it focuses attention on the importance of “the work itself” in the motivation of employees. This has an important implication for job enrichment. 11.5.1.3 Acquired needs theory This theory of motivation was developed by social psychologist David McClelland. It proposes that people acquire different types of needs during their lifetime as a result of their life experiences. McClelland’s theory suggests that a person’s early development will determine whether these needs are present: If an individual has developed a warm and loving relationship with his or her parents, such a person may develop the need for affiliation. This is a desire to create close personal relationships with others and avoid conflict. Those with a need for affiliation value building strong relationships, admire belonging to groups or organisations, and are sensitive to the needs of others. This type of person is a team player and wants to be respected and liked. If the same individual was encouraged to act independently and was rewarded for success as a child, he or she may have acquired the need to achieve. This is a drive to compete, meet high standards of excellence and succeed. Those with a high need for achievement are attracted to situations offering personal accountability, set challenging, yet attainable, goals for themselves, and desire performance feedback. If this person enjoyed bossing and controlling other children as a child, he or she may have developed a need for power. This is the drive to control, be responsible and have authority over others, and to influence others. Individuals with a need for authority and power desire to influence others, but do not demonstrate a need to simply have control. These individuals possess motivation and the need to increase personal status and prestige. The contribution of this theory to management is that when a manager knows what an employee’s needs are, he or she can match that employee with the correct type of job. Someone with a need for achievement will typically want to work on challenging matters either alone or with a group of high achievers. A person with the need for affiliation will work best in close groups and will enjoy customer interaction. They are also excellent in coordinating the work in several departments in an organisation. If someone has a need for power, he is best suited for management or in a position where he or she has power over others. In summary then, the content theories emphasise employees’ needs and identify the needs that will motivate them to act in a specific way. Managers must assign and design work in such a way that it will meet these needs and thus motivate them. 11.5.2 Process theory Process motivation theories focus on understanding how employees choose different behavioural actions to meet their needs. They are more complex than content theories as the latter focuses simply on identifying and understanding employees’ needs. Process motivation theories go a step further as they attempt to explain why employees have different needs, why their needs change, and how and why they choose to satisfy their needs in different ways. It also explains the mental process that employees go through as they understand situations and how they then evaluate their need satisfaction. Three examples of process motivation theory, namely, equity theory, goalsetting theory and expectancy theory, are discussed below. 11.5.2.1 Equity theory The way employees support their experience of job satisfaction is to make comparisons between themselves and their co-workers. If an employee notices that a co-worker is getting more recognition and rewards for his or her contributions, even when both have done the same amount and quality of work, it would cause the employee to be dissatisfied. This dissatisfaction would result in the employee feeling under-appreciated and perhaps worthless. The essence of the equity theory is that employees will always compare their jobs with those of other employees and, in so doing, may perceive themselves as either under-rewarded or over-rewarded. This will compel them to try to reach equity. Equity is measured by comparing the ratio of contributions and benefits of one person with the contributions and benefits of another person in the same organisation. In this theory, where the essence is about comparison, these two people are called partners. Partners do not have to receive equal benefits (outcomes), such as receiving the same amount of money, or make equal contributions (inputs), such as investing the same amount of effort or time, as long as the ratio between these outcomes and inputs is similar. Individual factors will affect each person’s assessment and perception of this relationship. When an employee experiences underpayment inequity, he or she will experience anger, while guilt is induced with overpayment equity. Payment for employees is the main concern and therefore the cause of equity or inequity in most cases. An employee will consider that he or she is treated fairly if he or she perceives the ratio of his inputs (efforts) to his outcomes (rewards) to be equivalent to those around him. The idea of the equity theory is to have the rewards (outcomes) directly related with the quality and quantity of the employee’s efforts (inputs). Inputs are defined as the contributions of an employee that entitle him or her to receive a reward, for example time, effort, loyalty, hard work, ability, enthusiasm, skill and commitment. Outcomes are defined as the positive and negative consequences that an individual perceives, such as job security, salary, employment benefits, expenses, recognition, praise, sense of achievement stimuli and responsibility. The comparable ratio between outcomes and inputs is measured as follows: Equity = Outcomes of self Inputs of self R100 2 hours work R50/hour Outcomes of partners = = = Inputs of partners R200 4 hours work R50/hour If both employees in this comparable partner relationship experience the same ratio between outcomes and inputs, i.e. experience equity, they will consider the organisation to be fair, observant and appreciative. Employees who perceive themselves as being in an inequitable situation will seek to reduce the inequity by distorting inputs and/or their outcomes in their own minds (known as “cognitive distortion”), or directly altering their inputs and/or outputs, or leaving the organisation. According to this theory, it would then be acceptable for a more senior colleague to receive higher compensation, since the value of his experience (and input) is higher. Equity theory has several practical implications for managers: People measure the ratio of their inputs and outcomes. This explains why a working mother will accept lower monetary compensation in return for more flexible working hours. Different employees assign personal values to inputs and outcomes. Two employees of equal experience and qualifications performing the same work for the same pay may have quite different perceptions about the fairness of the situation. Employees are able to adjust for purchasing power and local market conditions. This means that a manager in Kimberley may accept lower compensation than his colleague in Johannesburg if his cost of living is lower. A manager in a remote African village may accept a totally different pay structure. An employee who believes he is overcompensated may increase his effort as a result of a feeling of guilt. However, he may also adjust the values that he ascribes to his own personal inputs. He may perhaps also start to experience a sense of superiority and actually decrease his efforts. The theory also explains why people can be happy and motivated by their situation one day, and yet with no change to their terms and working conditions, become very unhappy and de-motivated if they learn that a colleague (or an entire group) is enjoying a better reward-to-effort ratio. In any position, employees want to feel that their contributions and work performance are being rewarded through fair pay. If an employee feels underpaid, the employee will begin to feel hostile towards the organisation and perhaps also co-workers, which may result in the employee not performing well at work anymore. Just the idea of recognition for the job performance and the mere act of thanking the employee will result in a feeling of satisfaction and therefore help the employee feel worthwhile and have better outcomes. 11.5.2.2 Goal-setting theory Goal-setting theory began with Kurt Lewin’s work on levels of aspiration in the 1940s and has since been primarily developed by Dr Edwin Locke, who began his goal-setting research in the 1960s. This research reveals a definite link between goal setting and the improved performance of employees. A goal is what a person consciously desires to achieve or obtain through an action or task. The source of motivation according to this theory is therefore the desire and intention to achieve the goal. If employees find that their current performance is not achieving the desired goals, they will typically become motivated to increase their effort or they will change their strategy. The dissatisfaction of an employee with his or her current performance levels will motivate the person to set a goal that will change his or her behaviour in order to achieve the set goal. Goal-setting theory predicts that an employee will channel his or her efforts toward accomplishing his or her goals, which will in turn influence the performance. There is a strong relationship between the difficulty of the goal, the level of performance and the effort involved. As long as the person is committed to the goal, has the required ability to achieve it, and there are no conflicting goals, the relationship between goal setting and performance is positive. The following conditions are particularly important in successful goal achievement by an employee: goal acceptance and commitment, goal specificity, goal difficulty and feedback. GOAL ACCEPTANCE AND COMMITMENT Accepting or approving a goal is the first step in creating motivation. This is, however, not enough. An employee must also be committed, or devoted, to the goal. Goal devotion is the level of determination that an employee will use to achieve the accepted goal. Two factors will help to improve goal commitment: importance (how badly an employee wants to achieve the goal) and self-efficacy (the belief that the goal can be achieved). Employee participation in goal setting results in a higher rate of acceptance owing to the feeling of control over the process. If objectives are clearly explained to participants, motivation increases. GOAL SPECIFICITY Goals must be specific and measurable (see the SMART principle in section 5.3.2.2 of Chapter 5). Vague goals (like “doing better”) often have little effect on motivation. The more specific the goal, the more explicitly performance will be influenced. Specific goals lead to higher task performance by employees than do vague or abstract goals. A person can set a general goal to sell more cars per month. However, setting a goal to sell two cars per day for the next thirty days is more specific and therefore more effective. These goals will be more motivating and people will be more dedicated to reaching their goals. Goal specificity does not, however, ensure performance at an exceptional level. Performance also depends on the intellect and abilities of each individual. Just because a goal is specific does not guarantee that an individual will put in an increased effort to attain the goal. Management must also make sure that goals are not below the actual performance of a specific individual. In such a case an individual may lower his or her performance to remain consistent with other employees. GOAL DIFFICULTY Goals have been proven to be an effective motivation tactic if they are set high enough to encourage better performance, but still low enough to be achievable. Management must therefore ensure that goals match the performance capability of an employee: if goals are too hard to reach, the employee will feel overwhelmed; if they are too easy, the employee will slack off. Challenging goals affect motivation in two ways: (1) they get people to increase their effort (e.g. if a sales employee wants to receive a higher bonus, he or she has to sell more products), and (2) they help people to focus their inputs in the right direction. FEEDBACK Feedback is necessary for goals to remain effective and to sustain employee commitment. Without feedback, people are unable to measure their progress and it becomes difficult to determine the level of effort required to pursue the goal effectively. Feedback also helps employees to identify any weaknesses in current goals and to make modifications. Effort and productivity will increase when performance falls short of achieving the goal (e.g. if a salesperson receives feedback that he or she will fall short of the sales target for the month unless he or she works harder after the first fortnight, corrective behaviour can be applied). Feedback can either be process or outcome oriented. Process-oriented feedback provides specific processes that must be performed to achieve the desired outcome. Outcome-oriented feedback is focused on the performance of the goal. When these types of feedback are combined, it will give a clear sense of how someone is performing, and what they can do differently in order to perform better. By receiving feedback, employees will know that their work is being evaluated and that their contributions are being recognised. 11.5.2.3 Expectancy theory Vroom’s expectancy theory explains how management can motivate their employees. This theory is also classified as a process theory of motivation, because it emphasises the process of individual perceptions of a person’s environment and the behaviour that arises as a consequence of these personal expectations. The basic idea behind the theory is that people will be motivated because they believe that their decision will lead to a desired outcome. The theory suggests that the way an individual perceives the outcome of a specific behaviour will determine his or her level of motivation, or put another way, that motivation comes from a person’s trust that certain behaviour will get him or her certain rewards. The theory postulates that the motivation to put a lot of effort into one’s work is dependent on this perceived association between performance and outcomes. Individuals will therefore modify their behaviour based on their calculation of the anticipated outcomes. The theory states that employees have different sets of goals and can be motivated if they believe that there is a positive correlation between their efforts and performance a favourable performance will lead to a desirable reward, and the reward will satisfy an important need. Vroom theorised that the essence of motivation is a function of three components or variables: 1. Expectancy – that increased effort will lead to better performance (effort– performance linkage). This can be explained by the thinking of “If I work harder, I will do something better”. Conditions that enhance expectancy include having the correct resources available, having the required skill set for the job at hand, and having the necessary support from management and co-workers to get the job done correctly. 2. Instrumentality – that performing at a particular level is instrumental in attaining the desired outcome (performance–reward linkage). Aspects that help instrumentality include having a clear understanding of the relationship between the performance and the outcomes, having trust and respect for people who make the decisions about who gets what reward, and experiencing transparency in the process of giving rewards. 3. Valence – that the reward will be worth the effort. Valence means “value” and refers to the desirability and attractiveness of the outcome to the employee. It considers both the goals and the needs of the individual. For example, a bonus will not increase motivation for an employee who values formal recognition or a promotion more. Vroom states that motivation must be seen as a function of these three concepts, as follows: Motivation = valence × expectancy × instrumentality These components are illustrated in Figure 11.4. Figure 11.4 Basic concepts of expectancy theory Although this theory is not a model for motivation, it provides managers with a foundation on which to build a better understanding of how to motivate subordinates. High motivation will result if employees believe that they can do the work that is required (high expectancy), have confidence that they will achieve the outcome if they do the work well (high instrumentality), and if they really want the outcome (high valence). 11.5.3 Learning theory Learning theory, as applied to an organisation, holds that managers can increase employee motivation and performance by the way they link the outcomes (or rewards) that employees receive to performance or desired behaviours (the attainment of goals) in an organisation. Learning therefore takes place in organisations when employees are directed towards performing certain behaviours in order to receive certain outcomes. This will lead employees to work faster or come to work earlier, for example, because they are motivated to obtain the outcomes that result from these behaviours, such as a pay rise or praise from a supervisor. Two learning theories, namely, reinforcement theory and social learning theory, are discussed below. 11.5.3.1 Reinforcement theory The reinforcement theory of motivation proposed by Skinner and his associates states that an individual’s behaviour is a function of its consequences. The theory focuses on the “law of effect”: an individual will tend to repeat behaviour he or she finds to have positive consequences, and avoid behaviour associated with negative consequences. The external environment of the organisation plays an important role in the motivation of an employee and needs to be designed effectively to have a positive effect on an employee. Managers can use the following methods for controlling the behaviour of the employees: Positive reinforcement. A positive response is given to an individual after a positive and required behaviour is perceived, which leads to repetition of this behaviour. For example, the immediate praising of an employee for coming to work early will increase the probability that this behaviour will occur again. Reward can be a positive reinforcement, but only if the employee’s behaviour has improved. To be really effective, positive reinforcement should be spontaneous. Negative reinforcement. This refers to avoidance learning and involves rewarding employees by removing negative or undesirable consequences. For example, constantly nagging employees to be more productive will create an unpleasant and irritating situation that will encourage employees to work to achieve the desired productivity level just so the nagging stops. Punishment. This is applying undesirable consequences for showing undesirable behaviour, which lowers the probability of the undesirable behaviour recurring, for example forcing an employee who arrives late during the week to work overtime on a Friday afternoon to make up the lost time. Extinction. This is ignoring certain behaviour until it goes away by itself. For example, a disruptive employee may lose interest in playing the fool when he or she no longer receives any attention, either positive or negative, for doing so. This can also entail withdrawing a reward for certain behaviour so that employees gradually stop doing it and begin to focus their attention elsewhere. This theory explains in detail how an individual learns behaviour. Managers can make use of it by applying the following principles: Set clear and reasonable expectations. The use of reinforcement to motivate employees should be a positive experience for both the manager and the employee. Unclear task expectations and evaluation standards frustrate employees and reduce the tendency to achieve the desired behaviour. Rewarding only impossible or extremely difficult tasks may lead to irritation and a sense of helplessness. It may result in an employee performing worse than before, because the employee will reason that there is no way of getting a reward. Identify strong motivators. It is important to work with employees and to identify personalised motivators, or reinforcements, because these are most likely to produce the desired results. For example, a vegetarian employee will not appreciate a gift voucher from a steakhouse. An employee might exceed the manager’s expectations while attempting to earn the reward that she has chosen. Motivating rewards are essential to the success of an organisation because they will reinforce efforts by employees to change their behaviour. Encourage desirable behaviours. Most managers want to encourage positive employee behaviour such as punctuality, strong teamwork and delivering quality service. According to reinforcement theory, it is wise to choose one positive attribute to target and reinforce at a time. Reinforcement theory can also be linked to the extinction of negative behaviour that can help turn desirable traits into strong work habits over time. For example, a manager might offer a paid seven-day holiday for exceeding the annual sales target, and a long weekend for just meeting the target. Withholding both the holiday and the long weekend helps with the extinction of the negative behaviour of not achieving the target. Use reinforcement effectively. The timing of reinforcements is important. Consistently rewarding excellent performance will quickly result in repeated high performances. However, rewarding the same behaviour irregularly often yields even better results and is more likely to facilitate a lasting change in behaviour as employees work harder in case the bar has been raised. Intermittent reinforcement decreases an employee’s dependence on reinforcement and will help to turn the desired behaviour into a habit. 11.5.3.2 Social learning theory Social learning theory proposes that motivation results from a person’s thoughts and beliefs, and from his or her observations of other people’s behaviour and not only from the direct experience of rewards and punishment. There are three important elements of the social learning theory that relate to motivation, namely, explicit learning, self-control and selfefficiency. EXPLICIT LEARNING Explicit learning is also known as vicarious or observational learning, and is a powerful source of motivation. It occurs when an individual sees other employees performing certain behaviours and getting rewarded. It also takes place when employees observe more experienced members of an organisation performing specific behaviours properly. In this way, for example, salespeople can learn how to be more helpful to customers and subordinates can learn how to be managers. This learning takes place as follows: The employee notices the desirable behaviour, accurately observes the behaviour, memorises the behaviour, has the necessary skills to perform the behaviour, and sees that the behaviour is rewarded by the organisation. SELF-CONTROL The second element of this theory is self-control or self-reinforcement. This refers to an individual that is able to motivate him- or herself by setting goals and determining ways to achieve them, and then providing positive selfreinforcement when the goals are achieved. Factors that can serve as selfreinforcement include going to the movies or theatre, dinner out or taking time out for exercising or a hobby. When employees of an organisation control their own behaviour through selfreinforcement, managers do not need to spend as much time as they normally would trying to motivate and control employees’ behaviour, because employees are controlling and motivating themselves. Read the eight tips for self-motivation in Management in action 11.5. MANAGEMENT IN ACTION 11.5 Self-motivation Here is a simple generic list of how to motivate yourself: 1. Start simple. Keep motivators around your work area – things that can give you that initial spark to get going. 2. Keep good company. Make more regular encounters with positive and motivated people. 3. Keep learning. Read and try to take in everything you can. The more you learn, the more confident you become in starting projects. 4. Stay positive. See the good in bad. When encountering obstacles, you want to be in the habit of finding what works to get over them. 5. Stop thinking. Just do. If you find motivation for a particular project lacking, try getting started on something else. Something trivial even, then you’ll develop the momentum to begin the more important stuff. 6. Know yourself. Keep notes on when your motivation sucks and when you feel like a superstar. There will be a pattern that, once you are aware of, you can work around and develop. 7. Track your progress. Keep a tally or a progress bar for ongoing projects. When you see something growing you will always want to nurture it. 8. Help others. Share your ideas and help friends get motivated. Seeing others do well will motivate you to do the same. Write about your success and get feedback from readers. Source: http://www.lifehack.org/articles/productivity/8-steps-to-continuous-selfmotivation.html (accessed on 14 March 2104) SELF-EFFICIENCY Self-efficiency can be defined as an individual’s belief in his or her ability to successfully accomplish a specific task or outcome. Henry Ford used to say: “Whether you think you can or think you can’t, you are usually right”. This relates to the idea that someone’s beliefs can shape his or her motivation. Managers can increase self-efficiency in employees by ensuring that they receive the necessary training, skills and resources they need to perform. By expressing confidence and trust in their employees’ abilities, managers can enhance their self-efficiency. It must always be the task of managers to strive to motivate people to contribute their inputs to an organisation, to focus these inputs in the direction of high performance and to ensure that employees receive the outcomes they desire when they perform at a high level. A manager must identify which of these different theories will be applicable to a specific individual and the situation by thinking about the exercise in Management in action 11.6. MANAGEMENT IN ACTION 11.6 Matching the theory to specific individuals and situations 1. Compare the three major theories of motivation. List the similarities and differences. 2. Which motivation theory would be more applicable to the following occupations? Teacher Administrative clerk Nurse Managing director Salesperson Student Domestic worker 11.6 CONTEMPORARY ISSUES ON MOTIVATION Some contemporary motivation issues facing today’s managers include motivating a diversified workforce, pay for performance programmes, motivating minimum wage employees, motivating professional and technical employees, and flexible work schedule options. These issues will be discussed briefly below. 11.6.1 Pay and motivation All employees need to feel valued by their managers and the organisation. Pay is a crucial part of every employee’s motivation and plays an important role in the retention of employees. The amount of pay is not all that is important. In reality the structuring of compensation is sometimes more important, because employees have a constant need to feel that their efforts are being noticed and appreciated by management. A year-end bonus does little to help employees to remain engaged. More important is a mix of both long- and short-term rewards, because these motivate employees to stretch beyond their comfort zone. Short- and long-term targets and associated rewards mitigate the risk of misunderstandings, because they decrease the good or bad surprises when it is time for reviews. The time to reward is immediately after an employee does something great – not months later because the calendar says that is the time. This issue is an integral part of employee retention. Annual reviews and compensation are sometimes very frustrating and de-motivating for employees and also risky for the employer, because they give the employee time to think that his or her work and excellent performance are going unnoticed. Even worse is that they may start to think that they might be better treated elsewhere. Monetary rewards are a big motivator and also an appropriate measure in the relationship between an employer and an employee. Setting compensation correctly and applying it effectively should always be linked to the balance between inputs and outputs. 11.6.2 Family-friendly workplaces Employees have the need to balance their family and work life. A familyfriendly workplace or employer creates a place in which it is possible to find this balance, and where it is possible to fulfil both family and work obligations. This is a highly motivating factor for employees. Family-friendly workplace policies can take many forms. The most common is the provision of in-house day care for children. This makes it easier for mothers to work, especially if they are still breastfeeding. This type of facility is, however, almost entirely restricted to large organisations, because it is expensive, and requires permits and licensed premises and staff. Organisations nevertheless need to identify which policies they can adopt to help employees to balance work and family life. 11.6.3 Flexible working hours A system of flexible working hours gives employees some choice over the actual times they work their contracted hours. Such a system can be a good way of recruiting and retaining staff since it provides an opportunity for employees to work hours consistent with their other commitments (e.g. childcare). Many organisations have developed flexible working schedules that recognise different needs. Some of these flexible working schedules include the following: Compressed work week. A work week in which employees work longer hours per day but fewer days per week. Flexible work hours. A scheduling system in which employees are required to work a certain number of hours per week but are free, within limits, to vary the hours of work per day. Job sharing. The practice of having two or more people split a full-time job. This is especially important for mothers who can then work half days and so have time with their children. Telecommuting. A job approach in which employees work at home and are linked to the workplace by computer and modem. This saves on infrastructure costs for an organisation. Most flexible working hours schemes have a period during the day when employees must be present. This is known as core time. A typical core time would be 10:00 to 15:00. During this time, employees must be in the office, but they may choose when they start and finish work within flexible bands at the beginning and end of each day. There is wide scope for variation depending on the core time, the hours the workplace is open and the nature of the organisation. With flexible work schedules, employees experience these benefits: Flexibility to meet family needs and personal obligations Reduced commuting time and fuel costs Avoidance of rush hour Personal control over work schedule and environment Less chance of burnout due to overload Working when they accomplish most, feel freshest and enjoy working (e.g. a morning person who can wake up early and start to work vs a night person who prefers to work late at night). Fewer external childcare hours and costs 11.6.4 Open-book management There are many misconceptions of what open-book management is and what it means to practise open-book management. Many people believe that it is simply about sharing financial information with employees and maybe teaching them what that information means. However, open-book management goes far beyond simply ‘opening the books’. If an organisation follows this approach, it involves its employees in workplace decisions by opening up the financial statements, for example. It shares this information with the employees to motivate them to make better decisions about their work and to be able to understand the implications of what they do, how they do it, and the ultimate impact on the bottom line. It teaches employees the goals of the organisation and how they can make a difference, both individually and as part of a team. Open-book management works because employees get a chance to act and to take responsibility rather that just “do their job”. Each employee knows enough about the organisation to understand how their actions will affect the outcome. Open-book management is therefore about empowering every single employee in the organisation with the tools, education and information they need to act and take responsibility. Open-book management is not a spectator sport – it is not just about showing people all the numbers; it is also about understanding and taking responsibility. Transparency is great, but following an open-book management approach is also about taking charge and accepting responsibility, as well as accountability, collaboration and taking initiative. It is about looking forward and working together as a team to win. 11.6.5 Motivating the workforce Different sections of the workforce will respond better to different forms of motivation. 11.6.5.1 Motivating professionals When working with professionals, a manager must think carefully about the approach he or she will follow to motivate them. Motivating professionals will be different from motivating non-professional workers. Professional people have a strong and enduring commitment to their field of expertise. Money and other hygiene factors (Herzberg’s theory) are important for nonprofessional employees, while they are typically low on the priority list of professional people, who are usually well-paid and high-ranked employees. What will motivate them then? Developing challenging jobs tends to be ranked high, with the main reward being achievement of goals. The work itself is thus a motivating trigger and managers must make sure that the challenges of the job remain high for professional people. 11.6.5.2 Motivating contingent workers Contingent or part-time workers do not experience the protection or stability that permanent employees experience in an organisation. They are also not so committed and loyal to the organisation. The question is thus: how will a manager motivate these employees, because they do not identify with the organisation? In addition, their insecurity makes it a challenge for managers and the organisation to motivate them. A possible motivating approach would be giving employees the opportunity to become permanent and to work hard to prove themselves to the organisation. Another would be providing the opportunity for training. 11.6.5.3 Motivating low-skilled, minimum-wage employees To motivate low-skilled, minimum-wage employees is more or less the same as motivating non-professional employees. Hygiene factors are important for them. Some other motivating approaches will include employee recognition programmes, like being nominated for the employee of the month award. Celebrating a major accomplishment of an employee can be also an effective motivator. These types of programme serve the purpose of singling out those employees whose work performance has been of the type and level the organisation wants to improve its competitive position. It is also encouraging for employees. 11.7 DESIGNING MOTIVATING JOBS Managers are primarily interested in how to motivate individuals on the job, therefore it is important to look at ways to design motivating jobs. Managers should design jobs that reflect the demands of the changing environment, as well as the organisation’s technology, skills and abilities, and the preferences of its employees. 11.7.1 Job enlargement Although specialising in a job can improve proficiency and organisational performance, one of the drawbacks is boredom and fatigue. One way to overcome this is horizontal expansion by increasing the job’s scope. Job enlargement means that the number of different tasks required in a job and the frequency with which those tasks are repeated is increased. It also changes the division of labour. For example, a waiter is taught to both prepare and serve the food. 11.7.2 Job enrichment Vertical expansion of a job combats boredom and fatigue by adding highlevel motivators such as planning and evaluation responsibilities, and opportunities for growth, learning and achievement. Job enrichment increases job depth and the degree of responsibility and control that employees have over their jobs. Specifically, job enrichment provides the following benefits not only to the employee, but also to the organisation: It empowers employees to be more innovative. It facilitates employees to develop new skills and abilities. It allows employees to make their own decisions on specific issues owing to their greater responsibilities. Employees monitor and measure their own performance. The rationale behind job enrichment is that if an employee’s responsibility is increased, he or she will be more involved in his or her job. Such a person will also pay more attention to the quality of the products and services for which he or she is responsible. 11.7.3 Job rotation Job rotation involves moving the employee from one job to another, increasing the opportunity to learn a number of different tasks, without increasing the complexity of any one job. This provides variety and stimulation for employees and improves their skills and abilities. This can be motivating because it also combats boredom. 11.8 SUMMARY Motivation has been defined as the motives within a person that will determine the direction of his or her behaviour in an organisation. Motivation will determine a person’s level of effort and persistence in his or her job. Managers strive to motivate employees to increase their inputs in the organisation and to focus these inputs on increased organisational performance. It is also the responsibility of managers to ensure that their employees receive the relevant rewards they desire when they do perform at a high level. Different motivation theories have been discussed. Each of these theories has elements that can be applied in the organisation. A manager must know his or her employees and understand that what will motivate one employee will not necessarily motivate another. Taking a holistic approach to motivation and taking into consideration all the relevant issues in all the theories can contribute to effective motivation. A few contemporary issues of motivation were also discussed. It is important that managers take note of these issues and apply them in their organisations. REFERENCES AND RECOMMENDED READING Boyum, R. Characteristics of a self-actualising person. http://www.selfcounseling.com/help/personalsuccess/selfactualization.html (accessed on 12 March 2015). Changing policies. http://ctb.ku.edu/en/table-of-contents/implement/changing-policies/organisationgovernment-family-friendly/main (accessed on 15 July 2014). Childs, C. 8 steps to continuous self-motivation. http://www.lifehack.org/articles/productivity/8-steps-tocontinuous-self-motivation.html (accessed on 14 March 2014). Contemporary issues in motivation. http://www.citeman.com/9846-contemporary-issues-inmotivation.html ixzz-39VbMvhFP (accessed on 12 August 2014). Daft, R.L. 2012. New era of management, 10th ed. China: South-Western Cengage Learning. Daft, R.L. & Marcic, D. 2004. Understanding management, 4th ed. Ohio: South-Western Thomson Learning. DuBrin, A. 2012. Management essentials, 9th ed. Canada: South-Western Cengage Learning. Equity theory – modern views on motivation. https://www.boundless.com/business/textbooks/boundlessbusiness-textbook/motivation-theories-and-applications-11/modern-views-on-motivation-76/equitytheory-360-3209/ (accessed on 28 July 2014). Heathfield, S.M. Advantages and disadvantages of flexible work schedules? http://humanresources.about.com/od/employeebenefits/f/flex_schedules.htm (accessed on 5 August 2014). Kelley, S. What is motivation in management? Definition, process and types. http://educationportal.com/academy/lesson/what-is-motivation-in-management-definition-process-and-types (accessed on 27 July 2014). Kellogg’s motivation of staff. 2012. http://www.academia.edu/6663093/Kellogs (accessed on 31 July 2014). Kreitner, R. & Cassidy, C.M. 2011. Principles of management, 12th ed. China: South-Western Cengage Learning. Lussier, R.N. 2008. Management fundamentals: concepts, applications, skill development, 8th ed. Massachusetts: South-Western Cengage Learning. Maroney, J.P. Employee motivation – the 5 master keys for success. http://www.jpmaroney.com/FreeArticles/employee-motivation.htm (accessed on 21 July 2014). McClelland’s need theory. https://www.boundless.com/management/textbooks/boundless-managementtextbook/organizational-behavior-5/employee-needs-and-motivation-46/mcclelland-s-need-theory238-1041/ Meyer, E., Ashleigh, M., George, J.M. & Jones, G.R. 2007. Contemporary management, European ed. Berkshire: McGraw-Hill. Motivation and communication are crucial for an organisation to succeed, say Jack Welch. Article in leaders.co.za 27 March 2008. http://www.leader.co.za/article.aspx?s=6&f=1&a=529 (accessed on 11 March 2015). Open-book management. http://open-bookmanagement.com/ (accessed on 10 August 2014). Process of motivation. http://notes.tyrocity.com/chapter-7-process-of-motivation-organisation-studiesxii/ixzz38B-hGHUsp (accessed on 10 August 2014). Rao Sree, R. 2010. Creating a family-friendly workplace. http://www.parentfurther.com/parenting/work/family-friendly-workplace (accessed on 12 July 2014). Redmond, B.F. 2014. Goal setting theory. https://wikispaces.psu.edu/display/PSYCH484/6.+Goal+Setting+Theory (accessed on 29 July 2014). The neuropsychology of self-discipline. http://www.sybervision.com/Discipline/sixsteps.htm (accessed on 11 March 2015). Vroom, V.H. & Yago, A.G. 1978. On the validity of the Vroom-Yetton model. Journal of Applied Psychology, 63: 151–162. What are motivational theories? http://www.hrzone.com/hr-glossary/motivational-theories-definition (accessed on 24 July 2014). CASE STUDY: JOHN’S BRAVE DECISIONS It is a well-known fact that organisations are realising that in order to be successful they should not only focus on profits and other financial figures, but also on fostering their human capital and motivating their employees to achieve their goals. If organisations demonstrate commitment to their workforce and cultivate long-term and fruitful relationships with it, it is attractive to all stakeholders. These are the organisations that offer the most sustainable results and that seem more resilient in troubled times. Organisations that consider their human resources their most valuable asset are more successful than those that still concentrate solely on profit figures and do not pay much attention to the happiness and advancement of their employees. The South African labour market is plagued with high rates of unemployment. It is also associated with a shortage of specific skills and employers are increasingly faced with the need to become ever more innovative when rewarding their people and keeping them stimulated and engaged in their businesses. John realises that employers cannot afford to lose their valued employees as a result of unsatisfactory working conditions and limited prospects. John also realises that clients, suppliers, investors and job seekers are increasingly favouring organisations that take responsibility for the welfare of their workers. He recognises that he has to start thinking about the importance of engaging, retaining and motivating his employees in an effort to achieve operational and business objectives. He calls his 20 employees together and tells them that from now on they must feel that they are co-owners of the business and not that he is the only owner. He further states that from now on, they are all bosses. They have to decide what they are worth to the business and tell the pay office what they deserve as a salary. They can decide which days of the week they want to work and what hours of the day, as long as they work at least 40 hours per week. They have thus an increased choice in terms of their own career development, but at the same time they must understand that it is associated with increased responsibilities and risk. They now take responsibility for their own career movement and professional development. They identify their own needs and how the business might fulfil these needs, and steer the course of their own careers. John even goes one step further and points out that they now have an open petty cash system and that it is available to anyone that needs some cash. They can take the cash, but must leave a note indicating the amount and their names. John’s employees are amazed at this new approach. A few employees arrange a higher salary for themselves, but soon realise that they have to increase their productivity when they compare themselves with some of their co-workers. John finds that his employees are improving their service delivery to customers and that they are taking better and informed decisions. John also emphasises the values of honesty, integrity, loyalty and service orientation to his employees. He believes that by encouraging every employee to live by these values he can create an organisational culture of ownership. He believes that employees will take ownership of their own goals and strive for continuous improvement and industryleading results. These values will influence the behaviour of the employees within the workplace and make the business a positive place to work. Employees are encouraged to speak positively about each other and focus on their strengths. This involves listening to others and accepting their right to their own views regarding the workplace. John introduces a few new safety measures at his business as well. He urges his employees to take responsibility for observing these health and safety rules and practices. He introduces weekly meetings in which employees can request to receive information on any part of the organisation. This helps strengthen the workers’ sense of belonging. He encourages an open approach to communication and seeing the best in every colleague. To support this open approach in his business, he introduces a suggestion box scheme to generate ideas and improve productivity. He introduces a wellness programme in the form of a monthly social event. Every last Friday afternoon of the month, employees take part in a 3 km fun walk, ending with a braai during which they share the success stories of the month. *This is a fictitious case study. Case study questions 1. Give examples of how John applies Maslow’s hierarchy of needs. 2. Which other motivation theories does John apply to motivate his employees? 3. What contemporary motivation approaches does John apply? 4. Do you think that making everyone feel like a “boss” is a good motivating approach? MANAGEMENT DISCUSSION EXERCISES 1. Interview four people who have the same kind of job and determine what kinds of needs they are trying to satisfy at work. 2. Interview a manager of an organisation and determine what motivation strategies are applied by the organisation to keep staff motivated. 3. Complaints are often heard about employees who spend much of their time at work using smartphones to send and receive text messages and access the internet. What programme might be effective in motivating these time-wasting workers to spend more time working? 4. Hundreds of programmes for motivating employees are described on the internet. Find one motivational programme of interest to you and determine which theory of motivation underlies the work of the programme. 5. Research any well-known organisation in South Africa and determine how it keeps its staff motivated. 12 Communication ANNEMARIE VAN NOORDWYK Learning outcomes After studying this chapter you should be able to do the following: Understand why communication is important in an organisation. Understand the importance of the communication process. Identify the different types of organisational communication. Evaluate the formal and informal communication in an organisation. Explain the barriers to communication. Discuss the skills or tactics that managers need to communicate effectively. 12.1 INTRODUCTION Communication is an integral part of management. Managers have to communicate with their subordinates in order to plan, organise, activate and control, as well as to motivate and lead. Motivating and leading the subordinates would be impossible without some communication. It is a known fact that the largest part of each workday is spent on communication. Around 75% of each work day consists of communication in some form, be it verbal, non-verbal or written. Communication can therefore be seen as an important skill that managers should possess. That is why it is important to know and understand the communication process. Communication is one of the things in life that many people struggle with and that can lead to frustration if the message is not correctly sent or received. This is not only the case for personal relationships, but also in the workplace because communication is very important for organisations to improve operational activities and productivity. Communication’s primary role is the transfer and understanding of meaning. Managerial communication includes both interpersonal communication (between two or more people) and organisational communication (via the communication systems in place). Employees can experience an increase in morale, productivity and commitment if they are able to communicate well with co-workers and management. In this chapter, the importance of communication will be explored, as well as the communication process, different types of communication and barriers to communication. 12.2 IMPORTANCE OF COMMUNICATION No day passes without someone communicating with someone. Although it sounds easy, it is a very difficult task for many people, since communication can happen in different forms. It can happen in words or verbally (facts, ideas, concepts, opinions), while non-verbal communication can take place through beliefs, attitudes and emotions. Think about the manager who, on returning to his office after a day out, sees that there are dozens of email messages and voice-mails waiting for his response. It is clear that there is no escape from workplace communication or everyday personal communication. Communication is important in an organisation because without it, managers would not be able to lead employees or ensure excellent job performance, organisations would not be able to market their products or services, and customers would not be able to make their needs known. Communication therefore performs the following functions: Informs. Employees need data and information to perform their jobs effectively. Communication informs them about organisational rules and procedures, and eliminates job uncertainty. This is a two-way process, because managers also receive feedback and information from subordinates. Persuades. Persuasion is the ability to change someone’s attitude or behaviour. To persuade a customer to buy something, the customer must experience the following three things: – Source credibility. A trusted person must be used to transmit the information. A customer is more likely to believe a message delivered by the CEO than by the floor salesperson. – Emotional appeal. Sentiment is used to persuade others instead of objective facts. Organisations can use emotional appeals when delivering bad news. A CEO can explain that it is emotionally devastating for him and the organisation to enter a process of retrenchments. The emotional appeal however is that it will be in the best interests of the organisation. – Social and ego needs. Employees need to have a sense of belonging and acceptance (social needs) as well as self-worth (ego needs and self-importance). A manager who compliments his employees on their work performance and makes them feel valued is more likely to persuade them to work late to get a job finished on time. Motivates. Motivation differs from persuasion in that it stimulates an action, whereas persuasion changes an attitude or behaviour. Motivation is the ability to stimulate a desire in employees and consists of words of appreciation, recognition and support. Managers need to motivate their employees on a daily basis in order to get results (see Management in action 12.1). MANAGEMENT IN ACTION 12.1 Words and phrases that inspire, motivate and persuade at work Words are powerful, because they have the ability to inspire, motivate and persuade; or discourage, dismiss and dissuade. “With your words, you wield the power to plant seeds of either success or failure in the mind of another, and in the process you reveal who you are, how you think, and what you believe,” says Darlene Price, author of Well said! Presentations and conversations that get results. It’s important in organisations to choose words correctly because this has an influence on someone’s attitude. “In the workplace, a positive collaborative mind-set can mean the difference between landing a job or losing out; winning a customer or wasting an opportunity; developing teamwork or destroying trust,” Price says. “Actions may speak louder than words, but words and thoughts are the seeds of those actions. Words announce to the world how you feel and what you think about important workplace values like respect, commitment, accountability, gratitude, initiative, service, and excellence. According to research, some of the most persuasive words also happen to be the shortest and oldest,” Price explains. “Look at any advertisement, and you’re likely to see one or more of these words.” Words that can persuade you include: affordable, best, convenient, discover, easy, enjoy, fast, free, guarantee, more, new, power, reduce, results, safe, save, time. “These words help your customers visualize how good they’ll feel and what they’ll gain when they own your product or use your service,” Price says. Deliberately crafting these words to communicate value transforms them into power phrases which actually trigger buying behaviour. Think about how motivating and persuasive the following sound: “It’s affordable, while giving you all the power, performance, and speed you need.” “Best of all, you’ll save time, save money, and get immediate results.” “It’s fast, easy, and convenient. Plus it reduces your costs.” “Words matter,” Price concludes. “Rudyard Kipling said that words are the most powerful drug used by humanity, and whether we use that drug to heal or harm lies in the power of the tongue.” Source: http://www.forbes.com/sites/jacquelynsmith/2013/03/26/words-and-phrasesthat-inspire-motivate-and-persuade-at-work (accessed on 19 January 2015) 12.3 THE COMMUNICATION PROCESS Communication is a lot like breathing. One does it giving little thought to the process or the way information is exchanged. One does it constantly and therefore one tends to forget how to do it, because it becomes second nature. It is, however, important that communication happens regularly and that the information provided is a true reflection of what is happening. In Management in action 12.2 it is clear that Eskom should be more effective in its communication. MANAGEMENT IN ACTION 12.2 ANC urges Eskom to improve load shedding plan Since 2008, South Africa has experienced challenges with regular disruptions in the supply of electricity. The South African public are concerned about “the current and serious” load shedding programme being undertaken by Eskom and the ANC has said that Eskom should communicate its load shedding schedule more effectively. Although load shedding may be a necessity as a means of conserving energy as per the explanation provided by Eskom, the ANC urges the power utility to communicate these schedules better with the intention of minimising inconvenience and the inevitable disruptions to businesses and households alike. Source: Adapted from http://www.fin24.com/Economy/ANC-urges-Eskom-to-improveload-shedding-plan-20141209 (accessed on 31 March 2015) The communication process starts with a purpose or reason. This purpose is to formulate a message that someone wants to send to another person. To formulate the message one must: Understand the objective – why is the communication important? Understand the receiver with whom communication will take place Plan the contents of the message It is important that one must also remember that the entire process is disposed to noise – disturbances that interfere with the transmission, receipt, or feedback of a message. These disturbances can also be regarded as barriers, which will be discussed in more detail in a later section. The sender initiates the communication and translates the information into representations or symbols (encoding) so that the message can have meaning to the receiver. This is the transformation of thoughts into a form that can be sent, such as words or body language. A communication channel has to be selected by the sender for transmitting the message. This can be verbal, non-verbal or written communication. Noise, either external (e.g. a telephone ringing) or internal (e.g. disliking the sender) can interfere with the transmission of the message. The receiver is the person who receives the message, but it is important that he or she translates the message meaningfully. The receiver decodes the message, i.e. mentally processes the message in order to understand the contents. If the receiver can’t decode it, the message will fail. Sending a message in a foreign language that is not understood by the receiver probably will result in decoding failure. Decoding is a two-step process: the receiver must (1) receive the message, and (2) interpret it. Aspects like past experiences can have a major influence on the decoding process. Sometimes the receiver is expected to give the sender feedback, which is a message sent by the receiver back to the sender. Since communication involves a continued dialogue between senders and receivers, a feedback loop is created. This feedback loop ensures that a message has been properly received and interpreted by the other party. In the workplace, feedback is important. A manager needs to be confident that messages are sent, received and interpreted correctly to ensure appropriate actions from employees. Proper feedback makes the communication process effective and efficient. Figure 12.1 explains the communication process in detail. Figure 12.1 The communication process The communication process can be summarised as follows: A sender who wants to send a message and encodes information. The sender selects a channel of communication through which to send the message. The receiver receives the message and decodes it. The receiver may provide the sender with feedback. The process can start over again. Management in action 12.3 stresses the importance of effective communication, because miscommunication can lead to problems. MANAGEMENT IN ACTION 12.3 Communication in action Nthabi and her brother, Nkosi, decide to sell homemade pies to help them earn some money for their brother’s operation. After a long day of selling, their earnings amount to R2000. They are overjoyed and cannot wait to tell their family about their success. On the way home, a thief snatches Nthabi’s bag and runs away down the street. Nthabi has to act fast to catch the culprit and get their money back. As she waits for help to arrive, she formulates her message. She knows that she must provide the correct information about the incident. When the police arrive, she begins to convey her message to the sergeant verbally. The sergeant receives the message from Nhtabi, but at the same time he thinks about his children playing soccer. The sergeant realises that he must concentrate so that he can listen effectively to Nthabi’s message and get the information that he needs to catch the thief. Once the sergeant receives Nthabi’s message, he asks a series of confirmatory questions to ensure that a shared understanding of the situation is reached. Once confirmed, the sergeant springs into action, and after a successful chase he catches the thief and returns the money to Nthabi. Without the effective communication between the sergeant and Nthabi, this could have had a sad ending. 12.4 TYPES OF COMMUNICATION Communication types can be analysed and compared on the basis of feedback potential, confidentiality, encoding ease, decoding ease, time-space constraint, cost and degree of formality. The communication method a manager ultimately chooses depends on the needs and ability of the sender, the attributes of the message, the attributes of the channel, and the needs and ability of the receiver. 12.4.1 Verbal communication Verbal communication simply involves sending a message using a language that is understood by both the sender and the receiver of the message. Verbal communication thus encompasses the use of words in delivering the intended message. Verbal communication makes the process of conveying thoughts and concepts easier and faster. Although it remains the most successful form of communication, it makes up only about 7% of all human communication. The majority of human communication happens through non-verbal communication. There are two major forms of verbal communication: written and oral. 12.4.1.1 Written communication Written communication includes traditional pen and paper or typed letters and documents, emails and SMSs and is indispensable for formal organisational communications. The effectiveness of written communication depends on writing style, grammar, vocabulary and the clarity of the message, as well as the language ability of the parties involved. The advantages of written communication include the following: Fast and economically feasible. A manager can communicate a message quickly to individuals despite their geographical location. For example, email is less expensive than long-distance phone calls and certainly less than travel expenses. Efficient and accurate. Written communication allows time for reflection, affording a manager the opportunity to refine a message and reformulate it for correctness. Flexible. A manager can send a message whenever he or she wants to and the receiver has the flexibility to review it at a time that is convenient for him. Official. Written communication can be filed and thus provides a formal record of messages being sent and received. Disadvantages of written communication include the following: There can be a lack of confirmation as to whether the message was actually received by the intended recipient. It depends on the reading and writing skills of both the sender and receiver. 12.4.1.2 Oral communication Oral communication is about the spoken word, either face to face or via telephone, voice calls using a computer or video conferencing. The importance of video conferencing is highlighted in Management in action 12.4. MANAGEMENT IN ACTION 12.4 Online video conferencing set to spike Online video will soon become the preferred method of communication for businesses as it allows for more efficient collaboration over distance. As the speed of the internet increases, many organisations have identified video conferencing as a growth driver for data consumption. The Cisco Visual Networking Index forecasts a huge increase in internet data consumption in SA and shows that video traffic online will jump to 53% of all data traffic on the internet in 2013. Some companies have included video conferencing in their consumer services. According to data from Ericsson’s Mobile Data Traffic Growth report for 2013 to 2019, South Africa’s data appetite is huge and expected to grow at 65% to 2019 and beyond. Put into perspective, mobile data in the region was at 37 000 terabytes (TB) per month in 2013, and that will jump to 76 000 TB by the end of 2014, on its way to a mammoth 764 000 TB by the end of 2019. The government has set a deadline of 2020 for 100% broadband coverage in SA and it is expected that the majority of new broadband connections will be wireless. Source: http://www.fin24.com/Tech/News/Online-video-conferencing-set-to-spike20140610 (accessed on 31 March 2015) Oral communication can be informal, such as the grapevine or rumours, and formal, such as lectures and business conferences. The effectiveness of oral communication depends on the clarity of speech, pitch, volume of voice, speed and non-verbal communication such as body language and visual cues. 12.4.2 Non-verbal communication Non-verbal communication entails the sending and receiving of messages without using any words. Every oral communication has a non-verbal message behind it that conveys the emotions behind the words. The saying ‘it is not what you say, but how you say it’ is important in the whole communication process. Managers send, receive and interpret non-verbal messages the same way they would oral or written communication. Non-verbal communication involves the following elements: Vocal cues, e.g. pitch, inflection, tone, volume, speed of speech, quality, non-word sounds, pronunciation, enunciation, even silence Body movement and gestures, e.g. leaning forward to show interest, a clenched fist to indicate anger, crossing arms as a defensive posture Facial expression, e.g. smiling, crying, rolling one’s eyes Space, e.g. territorial space (an area a person feels belongs to him or her in some way) and personal space (a three-dimensional space surrounding a person that he or she does not like other people to enter) Touch, is often considered as positive and reinforcing action e.g. patting someone on the back or touching someone reassuringly Clothing and artifacts send a clear message, e.g. a doctor’s white lab coat indicating status or a punk hairstyle indicating rebellion 12.5 ORGANISATIONAL COMMUNICATION Organisational communication is essential for creating and maintaining a competitive advantage. Without communication in the organisation, it is difficult to understand what an organisation stands for, why it exists, who its customers are, how work is completed, who has authority over others and so on. The mission statement of an organisation clearly conveys the message of who its customers are, what products or services the organisation is providing and how it will be done. There are formal and informal communication channels in any organisation. 12.5.1 Formal communication Formal communication involves the formal communication channels in an organisation. Formal communication takes place via the prescribed organisational work arrangements. If a manager asks an employee to complete a certain task, he or she is communicating formally and uses the communication channel of the organisation. Formal communication can move vertically, horizontally and diagonally in an organisation. 12.5.1.1 Vertical communication Vertical communication flows downward or upward in an organisation: Downward communication moves from superiors to subordinates and usually consists of orders or updates. It is used to inform, direct, coordinate and evaluate the employees in the organisation. A typical example will be if the CEO sends out an email to all his middle managers to inform them that the negotiated salary adjustment for the following year will only be 6.5% and not 8.5% as originally requested by the unions. Upward communication is information that moves from lower-level employees to their superiors and usually consists of feedback or reports. Upward communication facilitates employee involvement, shared decision-making and the building of positive working relationships between managers and their employees. For example, employees may be asked for their input during the budgeting process. 12.5.1.2 Horizontal communication Horizontal or lateral communication is information that flows from worker to worker or manager to manager on the same hierarchical level and usually consists of reports or data. When a co-worker informs his or her colleague about an upcoming marketing event, horizontal communication is taking place. 12.5.1.3 Diagonal communication Diagonal communication happens when employees on different hierarchical levels and in different departments come together to solve specific problems and to coordinate work. Coordination in any project is critical for its success. Diagonal communication needs to take place to ensure that everything is going according to plan. It is facilitated by the use of email. 12.5.2 Informal communication Not all the communication in an organisation is formal. Informal communication between employees happens outside the formal communication structure and arrangements of the organisation, often during lunch or tea breaks. The topic can be organisation related, but it does not need to be. The grapevine is an excellent example of informal communication and goes in every direction – up, down and laterally. Management does not have any control over it and it is usually difficult to stop rumours once they have started. The grapevine can give management important feedback about employee attitudes and can strengthen group cohesion. However, it can also spread false information. South Africa’s supermarket chain Pick n Pay has denied industry speculation and rumours that it might be ripe for a takeover by a foreign retailer such as the UK’s Tesco. This rumour started after Walmart entered South Africa. A discussion about a worrying decrease in sales between two managers overheard by an employee could, for example, be distorted into a rumour that layoffs are going to occur because the organisation is having financial problems. There is, however, also a positive side. If a manager wants to test the waters, he can start a rumour about a plan to see how employees will react. If there are no serious objections, he can go ahead with it. If they respond badly, he can say that there was no truth in it and abandon the idea. 12.6 BARRIERS TO COMMUNICATION Many organisations develop internal difficulties as a result of communication issues. These difficulties are called barriers to communication and are specific items that can mislead or prevent effective communication in an organisation. If they are identified and dealt with, this can lead to more effective working conditions and organisational culture. Barriers can be divided into two groups: organisational and individual barriers. 12.6.1 Organisational barriers The communication channels for both formal and informal communication depend largely on organisational design. If the organisation has a deep hierarchical structure or a scattered geographical departmentalisation, the influence of some of these barriers will increase: Physical barriers. These occur when people are not in the same area, town or even the same country. Technology, such as emails, phone calls, video conferencing and webcams, can help to overcome this problem. (Read about the influence of physical distance on an organisation in Management in action 12.5.) MANAGEMENT IN ACTION 12.5 Barrier to effective communication A product development specialist in Kenya came up with a new idea for one of his organisation’s existing products. He emailed the marketing director in South Africa about the idea and product description. The marketing director struggled to obtain answers to some of her questions back from the person in Kenya. The email response from the marketing director was however interpreted by the person in Kenya as that she did not like the new idea. In fact, the marketing director was excited about the idea, but only had some concerns about the influence on the price of the product. It is clear that both parties got frustrated. The marketing director suggests a regular meeting via a video conferencing system to iron out the details of the new idea for the product. Once they were able to talk face to face, the product idea was able to move forward into finalisation. It is clear that the physically-separated work environment led to difficulty in understanding and the finishing of the new idea. Status differences. Differences in organisational hierarchy can cause difficulty with regard to communicating either up or down the corporate ladder. If the status difference is low, interaction between executives and their subordinates is easier. Organisations with high status differences are very hierarchical in nature and have severe differences in authority. This creates a barrier for communication. This can, however, be eliminated by managers who relate well to their employees. The following example illustrates this barrier. Yamamoto, a Japanese businessman, would never consider asking his employees for their feedback on his managerial style or ideas. Jack, however, wanted to clinch a deal with Yamamoto and made a big mistake when he asked his workers for their thoughts on his business ideas. Yamamoto did not sign the contract with Jack when he heard that Jack had consulted his employees. Jack did not realise how segregated the power structure is in Yamamoto’s company with its high status differences. Different goals. If there is no cohesion of goals in an organisation and each department or business unit has different goals, it will make effective communication difficult. This becomes especially problematic if the departments or business units are rewarded for ultimately achieving their own goals at the expense of the organisation’s. Filtering. This is the manipulation of information to make it appear more favourable to the receiver. It occurs when the manager as the sender of a message withholds part of the information because he or she thinks that the receiver does not need to know all the information. Filtering sometimes happens when the message contains bad news. It also tends to be a function of the number of vertical levels in the organisation. The more vertical hierarchical levels there are, the more opportunities there are for filtering. 12.6.2 Individual barriers Many managers experience difficulties in communicating with others as a result of the following: Gender differences. Men and women tend to communicate differently. Men prefer to sit side by side and are more aware of personal space, while females enjoy a face-to-face exchange and a more personal setting for communicating. Men and women also take their communication styles for granted and they do not realise that when they are talking to someone of a different gender that their differences in style actually lead to ineffective communication. See Management in action 12.6. MANAGEMENT IN ACTION 12.6 Gender differences as barrier Male managers sometimes behave in a way that can be regarded as rude by female managers. If men distance themselves from female employees in a meeting, it is because of the preference for personal space. A female manager may experience some rudeness if a male manager is taking a seat furthest away from her at a conference table. This may influence communication and the trust in the conversation. The point of understanding in such a situation is that it is all about different preferences with regard to personal space. Cultural diversity. Different cultures see and experience things differently. North America and Western Europe are generally considered to have low-context cultures as employees here are individualistic and tend to base their decisions on facts. They want specifics noted in contracts and may have issues with trust. High-context cultures such as those in the Middle East, Asia and Africa, on the other hand, are collectivist and employees here focus on getting to know the person they are conducting business with to get a gut feeling on decision-making. They may be more concerned with group success than individual achievement. The employees of the Spanish office of Coca Cola take two-hour siestas, or breaks, during the day to re-energise. This has led to frustration in the South African office when they call and have to wait hours for an answer. Language. Different countries may speak the same language, but have different terms for the same things, for example Americans have “elevators” and “traffic lights”, whereas South Africans have “lifts” and “robots”. Marlboro is well known for its American cowboy sitting on a horse, symbolising the spirit of the frontier area in America but it symbolises a low-status labourer in Hong Kong. Employees who work in different departments for the same organisation often have different jargon. They use specialised terminology or technical language that others do not understand. Selective perception. People selectively interpret what they see or hear on the basis of their own interests, background, experience and attitudes which may be vastly different from the sender of the message. Emotions. The same message can be interpreted differently, depending on whether a person is happy or distressed. Extreme emotions are likely to hinder effective communication. Information overload. An employee may be so overwhelmed that any further information he or she receives exceeds his or her capacity to process. Defensiveness. When people feel threatened, they tend to go on the defensive which reduces their ability to listen and understand the message and thus the ability to achieve mutual understanding. 12.6.3 Noise In the discussion on the communication process, reference was made to noise. Noise is any interference that can cause a disruption between the sender and receiver in the communication process, such as barking dogs, the ringing of the telephone, car alarms or internal issues like stress or dislike of the manager. Noise can be psychological, physical, physiological or semantic: Psychological noise refers to the things going through your mind as you engage in the communication process, such as wondering what to make for dinner or why a friend has not called. Personal dislike can get in the way of accepting what the manager is saying. Physical noise is the actual physical sounds in the environment that make it difficult to hear someone’s message, like the loud laugh of a co-worker nearby when another employee is trying to take an order from a client on the telephone. Physiological noise comes from inside a person’s body, such as hunger, fatigue, headache, stress or anything that prevents someone from giving his or her full attention to the message. Semantic noise occurs when someone finds it difficult to understand the words, language or grammatical structure of a message. For example, using “LOL” in a SMS to someone unfamiliar with textese may cause a lot of confusion. This also includes the language barriers discussed above. 12.7 SKILLS FOR EFFECTIVE COMMUNICATION It is clear that effective communication is very important in an organisation. The following tactics can be used to develop the skills of managers to improve organisational communication. 12.7.1 Tactics for managers as senders of messages It is important that managers send messages effectively to organisational members as well as to other stakeholders. The following skills or tactics can be learnt by managers on all levels to improve organisational communication: Use feedback. A manager should be aware of the tendency to just talk and then walk away. It is important to give an opportunity for feedback, either verbal or non-verbal, to make sure that the receivers of the message understood it well. Communication problems can be directly attributed to misunderstandings and inaccuracies. When a manager does not use a feedback loop in the communication process, these problems are likely to occur. In his or her communication it is a good idea for the manager to state that he or she is expecting a response from the receiver. This feedback can be verbal or non-verbal and will ensure that the message is well heard and understood. Simplify the language and send clear and complete messages. Managers should consider their audience and choose words and structure their messages in ways that will make them clear and understandable. The truth is that everybody cannot be on same page when it comes to vocabulary. Therefore, to be effective in your communications with your team members, use words that can be easily understood and that are not ambiguous. Precious time will be wasted if the manager has to explain him- or herself. Use the appropriate tone of voice. A word can take on different meanings depending on how it is said, for example in a different tone of voice. Also, emphasising the wrong word can change the meaning of a sentence. Make sure you use the appropriate tone of voice to communicate your message to your team so that you won’t be misunderstood and discourage or de-motivate members or cause them to shut down completely out of fear. Be humorous. Using friendly and appropriate banter when communicating with employees will help to pass on a message in a more relaxed way. This is especially useful when stress levels are high and the atmosphere is tense in the organisation. Avoid mumbling. When a manager is communicating with his employees, it is important that they are able to hear him or her clearly. It is important not to speak indistinctly or too quickly on the assumption that the subject is clear to everyone. Use gestures. Using hand movements and signals to demonstrate the message will establish the seriousness of the subject matter. Be aware of over-exaggerating, though, which may have the opposite effect. Be appreciative. After conveying a message, thank listeners for their time. It costs nothing and will convey courtesy. Avoid filtering and information distortion. A manager should provide all the important and relevant information, and avoid leaving out what he or she personally thinks will have no value for the receiver. Select the right communication medium. A manager should convey his or her message through a medium that is accessible to the receiver. Sending a written message to someone who cannot read the language well, for example, will be pointless. One cannot assume that the receiver has access to all communication media or that they will read/listen to different media. Control emotions and subjectivity. An overly emotional manager may fail to communicate his or her outgoing messages clearly and accurately. Subjectivity can jeopardise a good message. Focus on non-verbal cues. The effective communicator watches his or her non-verbal cues to ensure that they convey the desired message. Body language is an important sender of messages. Ways to improve communication through body language include standing/sitting up straight, smiling, a firm handshake and making eye contact. 12.7.2 Tactics for managers as receivers of messages Equally important for a manager is the skill to receive messages. The following can assist in this regard: Listen actively. An effective listener pays attention so that he or she can take in the full meaning of the message without making premature judgements or interpretations. This demands total concentration and attention. Restrict emotions. An effective listener remains calm. Someone who is emotionally upset over an issue is more likely to miscomprehend incoming messages. Interpret non-verbal cues. An effective listener watches for non-verbal cues to ensure that he or she interprets the message correctly. Be empathetic. An effective listener does his or her best to understand the message from the sender’s perspective instead of from his or her own point of view. 12.8 SUMMARY In an organisation it is important that all employees understand the importance of working as a team. This means that they have to share ideas and boost productivity in the organisation. When communication is not effective in the organisation, it can interfere with the entire goal and purpose of the organisation. Communication is the sharing of information between two or more individuals to reach a common understanding. Effective communication is essential for an organisation to gain a competitive advantage. A manager must therefore understand the communication process, be aware of the different types of communication, recognise the roles of formal and informal communication, analyse the barriers to successful communication, and be able to apply some skills as the receiver and sender of messages to enhance organisational communication. Managers should work hard at achieving the skills to steer clear of confusion and to ensure that everyone in the organisation is on the same page. REFERENCES AND RECOMMENDED READING Alfreds, D. 2014. http://www.fin24.com/Tech/News/Online-video-conferencing-set-to-spike-20140610 (accessed on 31 March 2015). ANC urges Eskom to improve load shedding plan. http://www.fin24.com/Economy/ANC-urges-Eskomto-improve-load-shedding-plan-20141209 (accessed on 31 March 2015). Barriers to effective communication. https://study.com/academy/lesson/barriers-to-effectivecommunication-definition-examples.html (accessed on 19 January 2015). Erasmus, B.J., Strydom, J.W. & Rudansky-Kloppers, S. 2013. Introduction to business management, 9th ed. Cape Town: Oxford. Ferrell, O.C., Hirt, G.A. & Ferrell, L. 2011. Business, 2nd ed. New York: McGraw Hill. George, J.M. & Jones, G.R. 2006. Contemporary management: creating value in organisations, 4th ed. Boston: McGraw-Hill. Hartzell, S. Organizational communication. https://study.com/academy/lesson/organizationalcommunication.html (accessed on 11 November 2014). Hartzell, S. The communication process. https://study.com/academy/lesson/the-communicationprocess.html (accessed on 12 November 2014). Hartzell, S. Types of communication: interpersonal, non-verbal, written & oral. https://study.com/academy/lesson/types-of-communication-interpersonal-non-verbal-written-oral.html (accessed on 11 November 2014). Hellriegel, D., Jackson, S.E. & Slocum, J.W. 2002. Management: a competency-based approach, 9th ed. Ohio: South-Western Thomson Learning. Jones, G.R., George, J.M. & Hill, C.W.L. 2000. Contemporary management, 2nd ed. Boston: McGraw Hill. Kelly, M. & Williams, C. 2013. Introduction to business, 7th ed. Stamford: South-Western Cengage Learning. Lombardo, J. Barriers to effective communication: Definitions & Examples. https://study.com/academy/lesson/barriers-to-effective-communication-definition-examples.html (accessed on 11 November 2014). Lombardo, J. Formal communication networks vs. the grapevine: definition & contrast. https://study.com/academy/lesson/formal-communication-networks-vs-the-grapevine-definitioncontrast.html (accessed on 11 November 2014). Lombardo, J. What are the functions of communication? https://study.com/academy/lesson/what-arethe-functions-of-communication-definition-examples.html (accessed on 12 November 2014). Lombardo, J. Workplace communication: importance, strategies & examples. https://study.com/academy/lesson/workplace-communication-importance-strategies-examples.html (accessed on 12 November 2014). Williams, C. 2014. MGMT principles of management, 7th ed. Mason OH: South-Western Cengage Learning. Words and phrases that inspire, motivate and persuade at work. http://www.forbes.com/sites/jacquelynsmith/2013/03/26/words-and-phrases-that-inspire-motivate-and-persuade-at-work (accessed on 19 January 2015). CASE STUDY: AMWAY – USING COMMUNICATION TO DEVELOP ORGANISATION OPPORTUNITIES The importance of communication Amway began in Ada, Michigan in the 1950s. The founders Jay Van Andel and Rich DeVos coined Amway as an abbreviation for “American Way”. Amway is more than an income opportunity or a company with products. The important goal is to put people in control of their lives and to connect people to a better way of life. It is about connecting people to others who share their goals and aspirations, and supporting people in their efforts and acknowledging their achievements. Amway is thus about people. Amway is simply the best and most rewarding business opportunity in the world today. It offers world-class products and a great support system. It offers global networks and the latest trends in business. There are no special skills required to begin and operate an Amway business. The only thing you need is commitment. Amway South Africa is an active member of the Direct Selling Association of South Africa. The company is also a founder member of Ethics SA – an independent, non-partisan, non-profit organisation which promotes ethical practices in South Africa in all professions, business and public policy. For more than 50 years, Amway has been recognised all over the world for its expertise in the field of home care products. With a long heritage of performance and strength, the home care product range from Amway tackles the toughest household cleaning challenges and its products and brands continue to be built upon the same foundation as the original home care products, with quality being the most important factor. Clear communication is, however, essential when managing activities. That is why Amway needs to communicate regularly with all its distributors in order to help them prepare for their increasingly challenging role. This case study focuses on how Amway uses a range of communication methods and processes to help individual distributors develop their own business opportunities. The objectives and benefits from a welldeveloped communication system include the providing and gathering of information and, perhaps very important, to clarify issues and points. It is common knowledge that communication is only successful when the intended result is achieved. This effectiveness of communication depends on the choice of receiver, the clarity of the message and the choice of communication medium. It would be inefficient and wasteful for Amway to send a message to every distributor regarding every single issue, particularly if some issues only concern a few individuals. An important principle in organisational communication is not to overload employees with information. If there are too many messages from Amway, distributors may simply stop reading them. This could mean that they may miss important messages. Effective communication at Amway, therefore, involves making prior decisions about who needs to receive the message. Sometimes it is necessary to repeat a message. For example, in a classroom a lecturer will attempt to explain a task in clear and simple terms, but if students are unsure about the message, he will rephrase it until the students understand. Repeating messages through a different communication channel can also help the receiver to understand the message. Messages to Amway’s distributors should, therefore, be as clear and direct as possible, limiting the areas in which misinterpretation could arise. A good understanding of the audience and using terms and language they are familiar with, is vital. Choosing the communication channel The choice of the communication channel used by Amway depends on what needs to be communicated. The way in which a message is delivered has an important effect upon how it is received. For example, certain publications which are specifically targeted at top distributors are used when Amway wishes to communicate very specialised information that is of value only to this level. Amway thus uses different communication channels: • Corporate Events Corporate events include specially arranged functions, such as product fairs, conferences and seminars, which distributors at different levels are invited to attend. Face-to-face communication at a range of events helps Amway and its distributors to get to know each other. They also provide an opportunity for distributors to get to know each other and are useful for relaying messages, giving advice and generating personal discussion. Participation in these events enables distributors to contribute ideas and solutions to problems encountered. The relationship between Amway and its distributors can, therefore, take place in an atmosphere of mutual trust and respect. • Training Training builds the skills and knowledge of distributors and therefore improves competence levels. It is important for Amway to identify the skills and knowledge necessary for distributors to carry out their role. Acquiring product knowledge is an important aspect of training and preparation. Amway distributors are provided with a training manual. As Amway relies on the personal service of its distributors and the quality of its products, it is essential that distributors not only know how to use products, but also how to merchandise them to their best advantage. Entrepreneurship education and teaching of business skills are important for encouraging young adults to found of their own business. • Lines of sponsorship Amway is essentially a people-based organisation – without people, the organisation cannot expand. The organisation of each distributor grows via new customers and through the sponsorship of new distributors. Established distributors are involved in helping newly sponsored associates to merchandise Amway products. Distributor groups meet to discuss organisational procedures and their goals. The groups also discuss new product launches and promotions, and the administration of their organisation. A major purpose of these group meetings is to support new and existing distributors. • Publications Written communication is useful and serves as a permanent source of reference. Amway uses a range of written communication. This includes the Amagram, a magazine that is mailed directly to all Amway distributors in the UK, the Republic of Ireland and the Channel Islands. Amagram is used to communicate information about new products, promotions, community news, distributor events and recognitions, as well as news of other affiliates throughout the Amway world. Occasionally, Amway designs a brochure or leaflet which is used to address a particular change or launch, e.g. a new car care product range. • Other communication channels The circumstances under which a organisation communicates change constantly. Organisations have to constantly review their communication systems to ensure the correct messages are transmitted in the correct way to the required audiences. For Amway, this means that different communication media are required for a range of purposes. For example direct distributors are targeted via a monthly mail-out and packing slips have short messages printed on them. Perhaps the most rapidly developing global communication forum is the internet. For an organisation like Amway, with distributors all over the world, the potential of the internet, as a communication mechanism, is enormous. The internet serves as an important information source and offers the Amway Corporation a platform to define ‘Amway’, its opportunities, products and association. The Amway South Africa website is interesting and informative, containing many different facts about the Amway organisation. Amway news is communicated through the website. Amway distributors can also use other usual communication channels to further develop and improve their product knowledge and obtain key information, such as product updates. Product ranges Developing a new range of skin care and cosmetics products is a costly process. It is important to co-develop the distribution network, thus giving key advantages over other products in the marketplace. A few of the fantastic product ranges available from Amway include: NUTRILITE™ – part of the world’s top selling brand of vitamin, mineral and dietary supplements. ARTISTRY™ – among the world’s top five, largest-selling, premium skin care brands. This is a complete line of skin care and cosmetics, to make the clients look and feel the best that they possibly can. Amway is one of the few cosmetics organisations in the world with its own manufacturing plant, so the organisation can retain control over quality and follow hygiene guidelines which are stricter than those required by law. eSpring™ – the world’s largest-selling brand of kitchen water treatment systems, available exclusively from Amway. The best of all is that Amway products are of such a high standard that they back every one of their products with their famous 180-day 100% Satisfaction Guarantee. Clarifying organisation opportunities Acceptable organisational procedures must be developed when a large number of distributors representing a single organisation all work independently. It is important that communications from Amway provide a moral direction for its distributors but, at the same time, allows them to develop their own identity. Amway’s values and corporate social responsibility communicate how it wants to do business. Its six enduring values are: Partnership Working in trust and confidence with each other to maximise everyone’s long-term success. Integrity Measuring success not only in economic terms, but also by the respect, trust and credibility one earns. Personal Worth Treating people fairly, respecting their unique qualities and giving them opportunities to reach their full potential. Achievement Encouraging and recognising creativity, innovation, excellence and accomplishment in all we do. Personal Responsibility Helping people to hold themselves accountable for achieving personal, team and corporate goals. Free Enterprise Advocating freedom and free markets as the best way to improve standards of living worldwide. Amway makes it clear that it believes that being a successful company means more than just selling high-quality products. Therefore Amway’s corporate responsibility is based on three pillars: people, products and performance. People are the heart of Amway’s business. It gives employees and business owners the opportunity and support they need to realise their ambitions and balance their professional and personal lives. It aims to improve people’s lives outside of the company with programmes such as the Amway™ One by One campaign, which helps disadvantaged children. Products – Using the core competencies of its innovative brands, it tackles the issues affecting the societies it works in, from battling malnutrition to providing clean water. Performance – At Amway, they believe that understanding the environment is the key to a sustainable future. Every year, it expands its programmes with innovative, thoughtful and impactful efforts to preserve the world for this generation and the next. Sources: Adapted from https://www.amway.co.za/Content/Article?PageCode=ZAOurCompany&c=EN-ZA (accessed on 30 March 2015); http://organisationcasestudies.co.uk/amway/using-communications-todevelop-organisation-opportunities/direct-selling.html axzz3VZXLlwGP (accessed on 26 March 2015) Case study questions 1. Draw a diagram of the communication process displayed in Amway. 2. Do you agree with Amway’s communication network? Why? 3. Amway uses formal and informal communication. Explain each term and give examples from the case study for each. 4. What barriers to communication could Amway experience? 5. Explain the role of communicating Amway’s vision and corporate social responsibility to its distributors as well as to its clients. MANAGEMENT DISCUSSION EXERCISES 1. Interview a manager in an organisation of your choice and draw up a report about how he or she communicates: who the manager communicates with on a daily basis, what communication media the manager uses, and any barriers or problems the manager experiences. 2. Explore the advantages and disadvantages of using the internet as a way of communication in the business world. 3. Explain why differences in language and semantics can lead to ineffective communication in an organisation. 4. Explain why you think some people find it difficult to be good listeners. 13 Foundations of control KOBUS LAZENBY Learning outcomes After studying this chapter you should be able to do the following: Define control in an organisational context. Explain why control is so important. Differentiate between the different types and forms of control. Identify the different areas where control should happen. Discuss and apply the steps in the control process. Explain the requirements or qualities of control systems. Understand why frequent control should take place. Discuss some contingency factors of control. Evaluate the importance of some contemporary issues of control. 13.1 INTRODUCTION Control is the last and final step in the management process and is an important link in the whole cycle of the management process. Every organisation must have some control procedures in place to ensure that the organisation is progressing according to plan. The concept “control” implies that the behaviour of individuals can be influenced in the course of activities and events. If things are under control, they are proceeding as they should, but if not, they become unmanageable and problems can arise. Control is the process whereby managers monitor and regulate how efficiently and effectively an organisation and its members are performing the activities necessary to achieve organisational goals. Management can be very precise in their forecasting and development of plans, but if there is no control to identify whether employees are carrying out these plans, there can be no guarantee that plans and objectives will be achieved. During planning and organising, managers develop the organisational strategy and structure that allow the organisation to use resources most effectively. Activating sets the organisation in motion to achieve the organisational goals. Although the most brilliant plans and objectives may be planned, impressive structures may be designed and people may be motivated to achieve these objectives, if no control is implemented to make sure that everything is actually proceeding according to what was planned, problems will arise. In controlling, managers must monitor and evaluate whether the organisation’s plan and structure are working as intended how the plan could be improved how the plan might be changed if it is not working. Successful management is dependent on sound planning and effective control, because the control process informs management whether activities are proceeding according to plan, activities are not proceeding according to plan or whether the whole situation has changed and new plans have to be devised. 13.2 WHAT IS CONTROL? The aim of control is to keep the deviations from the planned activities to a minimum. Control involves a systematic process through which managers can compare the real performance of activities with the plans, standards and objectives and take corrective action if deviations occur. It is a regulatory task of management in that it allows action to tie in with plans. Control is an important guide in the execution of plans and it measures the performance of the entire organisation. Control bridges the gap between the formulation of objectives during the planning process and the achievement of these objectives. Control ensures that activities are performed as they should be. Control complements planning, because when deviations are encountered, plans and even objectives need to be revised. Successful management cannot happen without sound planning and effective control. The control process informs the manager that (a) activities are proceeding according to plan – the existing plan should be continued, or (b) activities are not proceeding according to plan – the existing plan should be adjusted, or (c) the whole situation has changed – new plans must be devised. There are three approaches to control: 1. Market control emphasises the use of external market mechanisms, such as price competition and relative market share, to establish the standards used in the control system. Managers can compare the profits and prices of competitors to determine the efficiency of their own organisation. 2. Bureaucratic control emphasises organisational authority and relies on administrative rules, regulations, reward systems, procedures and policies to influence employee behaviour and to assess organisational performance. 3. Clan control represents almost the opposite of bureaucratic control, because it relies on values, beliefs, traditions, rituals, corporate culture, shared norms and informal relationships to regulate employee behaviour and facilitate the reaching of organisational goals. This requires trust, as employees are given minimal direction and it is assumed that they will perform well, because of shared norms and values that are in line with the organisation’s goals and objectives. 13.3 THE IMPORTANCE OF CONTROL Planning can be done, organisational structure can be created and employees can be motivated, but still there is no assurance that activities will happen as planned. That is why control is important. The specific value of the control function lies in its relation to planning and delegating activities: Control determines how efficiently the organisation is using its resources. Managers must be able to measure accurately how many units of inputs are being used to produce a unit of output in order to assess how efficiently the organisation is producing goods and services. Organisational control gives managers feedback on product quality. Effective managers create a control system that consistently monitors the quality of goods and services so that they can make continuous improvements. Managers must ensure that their organisations are responsive to customers. They have to develop a control system to evaluate how well customer-contact employees are performing their jobs. Monitoring employee behaviour can help managers to find ways to increase employees’ performance levels. When employees know that their behaviour is being monitored, they have a greater incentive to be helpful to customers. Controlling can raise the level of innovation. Innovation takes place when managers create an organisational setting in which employees feel empowered to be creative and in which authority is decentralised. Deciding on the appropriate control systems to encourage risk taking is an important management challenge. Control enables management to cope with change and uncertainty, because environmental change can result in activities not being carried out according to plan. Changes can happen over the short term and organisations need to respond timeously. Internal control systems should be flexible enough to reflect the new goals and standards of performance. A successful free-market system gives rise to more active competition. In order to remain competitive and sustain competitive position and competitive advantage, the organisation must exercise stricter quality and cost control. Control facilitates delegation and teamwork. If a manager wants to make sure that the work which is delegated to a subordinate is done properly, a control system is necessary. The progress of employees cannot be measured without a control system. 13.4 TYPES OF ORGANISATIONAL CONTROL There are three broad primary types of organisational control: 1. Strategic control. The process of evaluating the strategy is practised both after the strategy is formulated and after it is implemented. 2. Management control. This functions within the framework established by the strategy. Typical management control measures will include return on investment (ROI), income, costs and product quality. These control measures are essentially a summary of all the operational control measures. If things are not happening as they should, corrective action may involve minor or very major changes in the strategy. 3. Operational control is designed to ensure that the day-to-day activities are consistent with the established plans and objectives. The differences between strategic and operational control are mainly in terms of measurement and analysis, and are indicated in Table 13.1. Table 13.1 Differences between strategic and operational control Strategic control Operational control Strategic control Operational control Uses data from very few sources and relates to internal operating factors. Requires data from more sources and decisions are taken with regard to the external environment. Concentrates on day-to-day activities, with control data giving rise to immediate decisions that have immediate effects. Oriented to the future. More concerned with the quantitative value of the outcomes of the decisions. More concerned with measuring the accuracy of the assumption on which the decision is based. Deals with a particular period of time, for example output per week, profit per quarter, and so on. Relies on reporting intervals. Generally very precise in the narrow domain in which it is applied. Models are less precise. Models are more formal because they deal with actual day-to-day activities. Models are more intuitive and therefore less formal. Efficient quantitative computation is usually most desirable. The key need in analysis is model flexibility. The formal review of outcomes requires the ability to do technical, even statistical, analysis of the data received. The key skill required for management control analysis is creativity. The question can now be asked: What is the best way to carry out control? There are three basic forms of control: 1. Feed-forward control. Also called preliminary control, pre-control or preventive control, this is the most desirable form because it aims at preventing anticipated problems and takes place before activities or projects get underway. It however requires timely and accurate information that is often difficult to obtain. It focuses on the control or regulation of inputs (human, material and financial resources that flow into the organisation) to ensure that they meet the standards necessary for the transformation process (e.g. materials must be of good quality and be available before the work starts). 2. Steering or concurrent control. This takes place while an activity is in progress and occurs primarily at a supervisory level. It involves the regulation of ongoing activities that are part of the transformation process to ensure that they conform to organisational standards, and is designed to ensure that employee work activities produce the correct results. It is sometimes called screening or “yes–no” control, because it often involves checkpoints at which determinations are made about whether to continue as is, take corrective action or stop work altogether on products or services. Because it involves regulating ongoing tasks, it requires a thorough understanding of the specific tasks involved and their relationship to the desired end product. The major advantage of this type of control is that problems can be corrected on the spot, before they become costly and have far-reaching consequences. An important principle in steering control is that no activity may move to the next step before the present step has been satisfactorily completed. The bestknown form of concurrent control is direct supervision. 3. Post-control or feedback control. Sometimes called post-action or output control, this is the most popular form of control and focuses on the outputs of the organisation after the transformation process is complete. It is often used when feed-forward and concurrent controls are unfeasible or too costly. Its biggest disadvantage is that by the time the manager has the information that something is wrong, the damage has already been done. However, it has two advantages over feed-forward and concurrent control: (a) it provides managers with meaningful information on how effective the planning effort was. If little variance between the set standard and actual performance is detected, this is evidence that planning was generally on target. If the deviation is great, a manager can use this information when formulating new plans to make them more effective. (b) It can enhance employees’ motivation. Postcontrol can be regarded as an action where future activity is directed by past results. Feed-forward, concurrent and feedback control methods are not mutually exclusive forms of control. They are usually combined into a multiple control system. Managers design control systems to define standards of performance and acquire information feedback at strategic control points. When organisations do not have multiple control systems in place that focus on strategic control points, they often experience difficulties that can cause managers to re-evaluate their control processes. 13.5 AREAS OF CONTROL To understand the importance of control and the different forms of control is one side of the coin. The important question remains, however, what should be controlled? The organisation’s activities should be controlled at strategic control points. Management must identify the key areas or departments responsible for the effective functioning of the entire organisation, i.e. those activities that are especially important for achieving strategic objectives. These include the following: Financial situation. If an organisation wants to succeed in business, managers must be able to work with budgets and manage with financial discipline. The ultimate purpose of an organisation is to survive over the long term and to generate sustainable profits. Goals set in terms of profit margins and profitability must be carefully controlled. The regulation of budgets and other financial controls will add to the importance of using profitability as a key strategic control area. Productivity. The optimal functioning of the organisation depends on the attempts to improve its productivity constantly, since resources are limited. The goals and plans to increase productivity must be controlled. Competitive position. The organisation possesses specific goals with regard to its future market position. It is important to exercise control over this to make sure that the organisation will achieve the desired competitive position. Human resources. Managers accomplish the goals of the organisation by integrating the work of employees. Employees are important in achieving the organisation’s goals. That is why effective control measures are of the utmost importance with regard to the behaviour of employees. The development of the organisation and the extension of competitive advantage therefore require that employees develop accordingly. The training requirements of employees must be controlled to make sure that a healthier and more productive work environment and culture is established. Technological leadership. A critical decision that an organisation must make all the time is whether it wants to be a leader in the market or not. This decision implies that the organisation must take a critical look at its technology in order to determine what technology upgrades it needs to obtain and/or maintain its competitive advantage. Public responsibility. The organisation takes inputs from the environment and, in return, gives outputs to the environment. Therefore the organisation must ensure that it behaves responsibly towards the environment. Control with regard to public responsibility is important to meet the requirements of corporate governance. 13.6 THE CONTROL PROCESS The control process ensures that resources are meaningfully deployed so that the mission and objectives of the organisation can be achieved. This process comprises four steps (see Figure 13.1). Figure 13.1 The control process 13.6.1 Step 1: Establish performance standards Performance standards are a projection of expected or planned performance. The establishing of standards of performance at the mentioned strategic points is an important first step in management control. Because of the said interrelationship between planning and control, it is logical to say that control starts as early as the planning stage. Managers usually base their major controls on the organisational mission, goals and objectives developed during the planning process. What is a performance standard? It is the projection of expected or planned performance. There is a particular relationship between standards of performance and the establishing of objectives, because setting performance standards is actually the formulation of objectives. Goals and objectives developed during the planning process are translated into performance standards by making them measurable. For example, an organisational goal to increase market share may be translated into a top management performance standard to increase market share by 10% within a 12-month period. To make control possible and meaningful, these performance standards must be realistic, attainable and measurable. There are four main types of performance standards: Profit standards – how much profit the organisation wishes to make Market share standards – what market share the organisation is aiming to achieve Productivity standards – what outputs are expected with what inputs Human resources standards – rates of staff turnover, absenteeism, training, etc. Management in action 13.1 provides some examples of performance standards. MANAGEMENT IN ACTION 13.1 Performance standards of General Electric The following eight types of standards have been set by General Electric: Profitability standards. These standards indicate how much profit General Electric would like to make in a given time period. Market position standards. These standards indicate the percentage of total product market that the company would like to win from competitors. Productivity standards. These production-oriented standards indicate various acceptable rates at which final products should be generated within the organization. Product leadership standards. Product leadership standards indicate what levels of product innovation would make people view General Electric products as leaders in the market. Personnel development standards. Personnel development standards list acceptable levels of progress in this area. Employee attitude standards. These standards indicate attitudes that General Electric employees should adopt. Public responsibility standards. All organizations have certain obligations to society. General Electric’s standards in this area indicate acceptable levels of activity within the organization directed toward living up to social responsibilities. Standards reflecting balance between short-range and long-range goals. Standards in this area indicate what the acceptable long- and short-range goals are and the relationship among them. http://www.strategic-control.24xls.com/en146 (accessed on 7 April 2015) 13.6.2 Step 2: Measure actual performance Using the standards set in step 1, actual performance must now be determined and evaluated. In some organisations, this may require only visual observation, while in others more precise determinations may be needed. Actual performance can be measured in physical, quantitative and/or qualitative terms. (In Management in action 13.2 it is clear that organisations can set targets and can then fail to achieve them.) MANAGEMENT IN ACTION 13.2 SPAR South Africa sets out ambitious growth plans for 2015 SPAR, which services independent retailers trading under the SPAR, Tops at SPAR, Build It and Savemore brands, plans to open 35 new SPAR stores in 2015 and renovate 180, CEO Graham O’Connor said in the group’s latest annual report, end December 2014. In the year to September, retail trading conditions were tough as consumers were under pressure and competition increased. Spar would have to be more innovative in future in securing greenfields sites, but there were still opportunities, especially in the informal market, Mr O’Connor said. In the past year the group opened 19 SPAR stores, below the target of 23, and closed 17 that either failed to meet standards or for financial reasons. The group opened 51 new Tops at SPAR stores, well ahead of the target of 35. Build It added 18 new stores in the past year but these retailers came under pressure from labour unrest, imported cement, and competition from small foreign-owned stores in outlying areas. Source: http://www.spar-international.com/news-press/worldwide-spar-news/sparsouth-africa-set-out-ambitious-growth-plans-for-2015.html (accessed on 25 March 2015) The five aspects of the actual performance that can be managed and controlled are quantity, quality, time, cost and behaviour. Collecting data and reporting on actual performance are ongoing activities. This is a difficult step because managers need to know what to measure, how to measure and when to measure. Data should be absolutely reliable, valid and linked to the organisation’s objectives and goals. If any data is inaccurate, control will not be effective. The organisation must also determine how much deviation from targets will be acceptable, i.e. what its tolerance variance will be that will be acceptable from the targets as defined in the first step of control. The next step of the control process cannot be effective if these tolerances are not determined. One approach that a manager can use to measure and evaluate real performance is management by walking around (MBWA). This entails a manager being out into the work area, interacting directly with employees and exchanging information about what is happening at ground level. A manager can pick up facial expressions and tones of voice that may be missed by other sources. This helps with the behavioural aspect of control. The use of computer systems that are tied in to organisational networks has made it possible for managers to obtain up-to-the-minute status reports on a variety of quantitative performance measures. Managers should be careful to observe and measure performance accurately before moving on to the next step. 13.6.3 Step 3: Evaluate deviations Actual performance must now be compared with the set standards as objectively as possible. When the first two steps of the control process have been executed well, this step should be straightforward, but behavioural standard deviations can be challenging. As an organisation grows, the principle of control by exception comes into play. This means that only exceptional differences between actual performance and planned performance are communicated to top management, while subordinates deal with minor deviations on their own. Management must decide whether the differences are significant enough to merit further attention. The nature and scope of deviations and their causes must be determined. Some deviations from the standard may be justified because of changes in environmental conditions. It is also important to make sure that discrepancies are genuine – the performance standards and the actual performance should be objectively set and observed. Management must decide whether the differences are significant enough to merit further attention. That is why the tolerances in the previous steps were determined to set the upper and lower limits for each deviation, so that only differences outside these limits are investigated. The important question is thus to ask “why does performance deviate from the standards?” The organisation needs to know whether the deviations are due to internal shortcomings, or external changes beyond the organisation’s control. The following is a general checklist of questions to ask when evaluating deviations: Are the standards appropriate for the stated objectives and plans? Are the objectives and corresponding plans still appropriate in light of the current environmental situation? Are the plans for achieving the objectives still appropriate in light of the current environmental situation? Are the organisation’s structure, systems (e.g. information) and resource support adequate for successfully implementing the plans and therefore for achieving the objectives? Are the activities being executed appropriately for achieving the set standards? The cause of the deviation, either internal or external, has different implications for the implementation of corrective action. 13.6.4 Step 4: Take corrective action The point in the control process has now been reached to determine the need for corrective action. Once a performance evaluation has been done, managers will have three options: 1. It will not be necessary to do anything. Maintaining the status quo is preferable when performance essentially matches the standards. 2. Actual performance will have to be improved to attain the set standards. 3. The performance standards will have to be lowered, or raised, to make them more realistic in the circumstances. Corrective action aims to improve performance to ensure that future deviations do not occur. When standards are not met, managers must carefully assess the reasons for this and take corrective action with great care. It is, however, very important to check the performance standards periodically to ensure that the standards and the associated performance measures are still relevant for the future. However, the real cause of any deviation must first be found before corrective action can take place. This can range from unrealistic objectives or standards to the wrong strategy being selected to achieve the organisational objectives. Different causes will require different corrective action. There are four general types of corrective action: 1. Revise the standards. It is possible that the performance standards are not in line with the objectives and plans selected. Changing the standards is necessary if the standards were set too high or too low from the outset. In such cases, it is the standard that needs corrective action and not the performance. 2. Revise the objective. Some deviations from the standard may by justified because of changes in the environmental conditions. In these circumstances it is necessary to adjust the objectives, because it is more logical and sensible than adjusting performance. 3. Revise the plans. Deciding on internal changes and taking corrective action may involve changes in the plans. A specific plan that was originally appropriate can become inappropriate because of environmental changes and trends. 4. Revise the structure, system or support from management. The performance deviation may be the result of an inadequate organisational structure, system or support in terms of resources. A change in any of these may align the performance with the set standards. This is the most common corrective action. Additional coaching by management, additional training, more positive incentives, improved scheduling, training programmes, the redesign of jobs or the replacement of personnel can do a lot to help the organisation to align the performance with the set standards. Corrective action in any of the above areas may require adjustments in one or more of the other areas. For example, adjusting the objectives is likely to require different plans and will need a different support structure from the organisation. 13.7 QUALITIES OF AN EFFECTIVE CONTROL SYSTEM To manage an organisation without an effective control system in place is actually the abdication of management’s responsibility. Managers are responsible and accountable for the actions of employees in the organisation and must ensure that activities are being executed as planned. These characteristics will vary according to the organisation and the environment, but the following general qualities are associated with an effective control system. 13.7.1 Integration The control process must be integrated with the planning process, because control feedback provides the necessary inputs for the planning process. When deviations occur, plans and objectives often have to be revised. This usually boils down to a question of whether the objectives should be lowered or the plan of action be revised. 13.7.2 Understandability and simplicity The techniques used in the control process must be easily understandable. If control systems are interpreted incorrectly or are too complicated, mistakes will occur and results will be inaccurate. Employees will also get frustrated and begin to neglect this part of their job in the long term and will tend to ignore the importance of control. Simplicity is thus a key concept in the design of a control system. 13.7.3 Flexibility The control system should be able to accommodate change and take advantage of new opportunities that may appear. The organisational environment is one of constant change and flexibility will allow for revisions to be made so that deviations can be avoided. No organisation is operating in a stable environment. The control system must be flexible so the in-time adjustments to objectives or plans can be made. This flexibility in the control system leads to a condition that is seen as revision rather than deviation. 13.7.4 Accuracy An effective control system should be reliable, valid and accurate, and provide an objective reflection of the organisation’s position. Errors and deviations should not be included in the data. Any corrective action implemented on the basis of false information will not only fail to improve the situation, but may in fact make it worse. 13.7.5 Timeliness Collecting control data should be an ongoing process so that at any point in time, managers can evaluate the organisation’s position and, if necessary, take corrective action quickly to avoid more serious consequences for the organisation. Trying to get all the information needed hastily and at the last minute can lead to mistakes and prevent the manager from making preventive decisions. 13.7.6 Acceptability A control system should contribute to the improvement of individual and organisational performance. It must stimulate productivity and growth, and it must lead to greater independence and responsibility among management and subordinates. If managers and employees do not accept the control system as reasonable and doable, it will be difficult to implement. 13.7.7 Strategic importance It is impossible to control everything in an organisation. The cost of control compared to any benefits may, in some cases, not be justifiable. This necessitates being selective and ensuring that control is focused on those areas that are most strategic and important to the organisation. 13.7.8 Multiple criteria measures There should always be more than one criterion being measured by a control system. For example, if an organisation focuses too much on productivity, managers and employees may do their utmost in this area and work quickly but at the expense of quality, which is not being controlled as strictly. This narrow focus does not fulfil the effectiveness criterion for the organisation. 13.8 WHEN DOES CONTROL HAPPEN? Although it was stated that control is a continuous process, it is important to note that some control methods are applicable in some frequency categories. There are three categories of frequency in the control process: constant, periodic and occasional. These are discussed below. 13.8.1 Constant control Constant control happens on a continuous basis. It includes the following: Self-control. This is the ideal organisational condition – employees take responsibility for their own work behaviour. If employees are responsible, committed and motivated, it is not necessary for the manager to impose as much control. Clan control. This relies on the culture and norms of the organisation, and happens when groups exercise control over each other. A positive organisational culture and climate will therefore benefit the organisation. If the organisational culture supports productivity, clan control can be very effective. Standing plans. These are the policies, rules and procedures in place in an organisation. Employees are required to function within these boundaries in the workplace. 13.8.2 Periodic control Periodic controls happen on a fixed schedule, i.e. weekly, monthly, quarterly or annually. Examples are as follows: Regular reports. These are common to any organisation and can be verbal (e.g. meetings) or written (e.g. business briefs). They can be feed-forward, concurrent or feedback controls. Budgets. A budget determines the standard against which financial performance will be measured. During the financial year, it is used as a concurrent form of control – to measure the progress of financial performance. At the end of the financial year, it is used to evaluate whether performance was within budgetary constraints. This is an example of feedback control. Audits. There are two types of audit – internal and external. Internal auditing is exercised by a person or a department that periodically controls whether the assets of the organisation are being applied and reported accurately. External auditing is usually done through an accounting firm to verify that the organisation’s financial statements are a true reflection of its financial performance. 13.8.3 Occasional control The following are examples of occasional control: Observation. This can be used on a sporadic basis when the manager suspects that something is wrong, such as installing video cameras or tapping the telephone lines. Management by walking around is another example. Special reports. These are usually used when a specific problem or opportunity is recognised. A manager can request a special report from a specific department or an external consultant to identify the cause of a problem and why a deviation from expected performance is being experienced, and to suggest a proposed corrective action. 13.9 CONTINGENCY FACTORS IN CONTROL The contingency factors that influence the design of an organisation’s control system include organisational size, level in hierarchy, the degree of decentralisation, organisational culture and an activity’s importance. As organisations grow in size, direct supervision alone becomes ineffective and has to be supplemented by more formal control measures. The higher an individual is in the organisational hierarchy, the greater the need for a multiple set of control criteria – a narrow focus of control is not effective. If an organisation is decentralised, managers need to receive frequent feedback about their performance. Performance feedback is only possible if an effective control system is in place. Organisational culture plays an important role in the way an organisation functions. With a positive organisational culture where trust, autonomy and openness flourish, an informal self-control system can work well. However, in an organisational culture that is characterised by fear, retaliation and mistrust, a more formal control system becomes essential. A manager must operate in such a way that a positive, supportive organisational trust can develop. The importance of a specific activity in the organisation is directly proportional to the level of control that needs to be exerted over it. If deviations associated with an activity are highly damaging to the organisation, extensive controls need to be implemented no matter what the cost. 13.10 CONTEMPORARY ISSUES AFFECTING CONTROL 13.10.1 Workplace privacy Using the organisation’s computer resources to send and receive private emails may influence an employee’s productivity, so managers could find they need to restrict this. While employers are able to read employees’ emails and can monitor their computers, this creates an ethical dilemma because employees may regard some emails as private and personal. Employees also regard computer monitoring as a sophisticated form of eavesdropping or a technique to catch people slacking off on the job. Controlling these issues may create a hostile work environment and is a major concern for both employers and employees. Managers can minimise employees’ concerns by developing and communicating clear policies regarding the use of email and computers at work. 13.10.2 Employee theft Employee theft is defined as any unauthorised taking of company property by employees for their personal use, even small items such as pens or paperclips. It can also apply to the unauthorised use of organisation property, such as using a company motor vehicle for a personal errand or the photocopy machine for a child’s school project. Over time, it can add up to a considerable cost and therefore it is important to deter or reduce it. (The consistency in managing employee theft is highlighted in Management in action 13.3.) MANAGEMENT IN ACTION 13.3 Be consistent when dealing with employee theft One would think that dismissing an employee for theft is always defensible at the CCMA. It is not quite that simple, though. An employer who has not been consistent in dealing with theft cases might just have to reinstate a thieving employee. The Labour Court has been quite clear in its condemnation of theft, irrespective of the value of the item being stolen. The basis of this approach has in one case been stated as follows: “It is one of the fundamentals of the employment relationship that an employer should be able to place trust in an employee. A breach of this trust in the form of conduct involving dishonesty is one that goes to the heart of the relationship and is destructive of it.” There are however certain situations where an employer might consider making an exception due to the particular circumstances of the case. The employee might, for example, have been a loyal employee for many years and might be genuinely remorseful. The employer might feel that the employee deserves another chance. The important question is however what happens if another employee steals and expects to remain in employment, due to the leniency demonstrated towards the first employee? The question is now: “Can the employer distinguish between two cases involving theft?” It is a well-established principle that an employer has to be consistent in the application of discipline. However, the employer also has an obligation to consider mitigating circumstances before dismissing an employee. This means that allowance can be made for an employer to exercise discretion in each individual case. But how much allowance is made for the employer to distinguish, at the risk of being found to have been inconsistent in the application of discipline? The Labour Court in South Africa has on occasion found that where two employees have committed the same wrong and there are no clear distinguishing circumstances, they ought generally to be treated in the same way. Employers are not necessarily legal experts and some grounds that they might use to distinguish between two matters may be regarded as invalid or irrelevant by the CCMA or Labour Court. Exercising discretion becomes dangerous territory, particularly when one looks at some CCMA decisions where employees have been reinstated, even in situations where it was common cause that they had stolen. The reason for reinstatement in these cases was simply that the CCMA, perhaps correctly, differed from the employer about the reason for giving one dishonest employee a final warning while dismissing another employee. Another difficult question is whether the employer may pardon an employee who participated in theft, but who has decided to come clean and assist the employer by providing evidence against his fellow transgressors in disciplinary hearings – much the same as the state does with criminals that become state witnesses. It might seem like a reasonable proposition to assist such an employee by keeping him in his job, but this can also be a minefield. In view of the above, an employer would be setting a bad precedent if a thieving employee is pardoned or given a penalty short of dismissal. The best approach is to have a clear policy that any form of theft or other form of gross dishonesty is likely to lead to summary dismissal. This policy should be implemented consistently, except where there are compelling reasons not to do so. Source: http://southafrica.smetoolkit.org/sa/en/content/en/54585/Be-consistent-whendealing-with-employee-theft (accessed on 26 March 2015) 13.10.3 Workplace violence Increasingly, it is important that employers prevent workplace violence before it occurs and in particular they must be equipped to deal with it. Violent crime has become instilled in the South African culture. The likelihood of an employee becoming a victim of workplace violence, owing to increased tensions across various ethnic groups and cultures, is high. According to studies, it was found that more than 70% of South Africans had experienced workplace bullying. Employers must do what they can to prevent workplace violence before it occurs, while being equipped to deal with it if and when it does happen. Workplace violence is violence or the threat of violence against another employee and it can occur at or outside the workplace, usually ranging from threats and verbal abuse, to physical assault and even homicide. Workplace violence is costly for businesses and should be deterred or reduced. Employee stress is a major contributing factor, caused by long hours, information overload, daily interruptions, unrealistic deadlines and uncaring managers. Even office layout designs with small cubicles where employees work amid the noise and commotion from those around them have been cited as adding to the problem (see Management in action 13.4). MANAGEMENT IN ACTION 13.4 Workplace violence awareness Most people think of violence as a physical assault. However, workplace violence is a much broader problem. It is any act in which a person is abused, threatened, intimidated or assaulted in his or her employment. Workplace violence includes: Threatening behaviour – such as shaking fists, destroying property or throwing objects Verbal or written threats – any expression of intent to inflict harm Harassment – any behaviour that demeans, embarrasses, humiliates, annoys, alarms or verbally abuses a person and that is known or would be expected to be unwelcome (This includes words, gestures, intimidation, bullying, or other inappropriate activities.) Verbal abuse – swearing, insults or condescending language Physical attacks – hitting, shoving, pushing or kicking Rumours, swearing, verbal abuse, pranks, arguments, property damage, vandalism, sabotage, pushing, theft, physical assaults, psychological trauma, anger-related incidents, rape, arson and murder are all examples of workplace violence. … Mobbing includes such behaviour as making continuous negative remarks about a person or criticizing them constantly; isolating a person by leaving them without social contacts; gossiping or spreading false information. In Sweden, it is estimated that mobbing is a factor in 10 to 15 percent of suicides. Source: http://www.workinfo.com/free/downloads/95.htm (accessed on 26 March 2015) 13.11 SUMMARY Control is one of the four basic management functions and although it is the final step in the management process, it is at the same time the starting point for planning and strategic development. Control is a relatively simple process, but its implementation demands great care and even a degree of experience. It narrows the gap between planned performance and actual performance by setting standards in the right places. Control aims at every activity or group of activities in the organisation, but normally it is aimed at physical, financial, information and human resources. The broad general types of control have been discussed, while the different forms of control have been identified and examined. To manage an organisation without an effective control system in place is tantamount to the abandonment of management’s responsibility. The qualities of an effective control system have been stressed. Although it was stated that control is a continuous process, the importance and applicability of some control methods for certain different frequency categories have been identified. The chapter concluded with some contingency factors affecting control and the discussion of a number of contemporary issues that are important in organisations with regard to control. REFERENCES AND RECOMMENDED READING Cunniff, L. & Mostert, K. (n.d.). Prevalence of workplace bullying of South African employees. http://www.sajhrm.co.za/index.php/sajhrm/article/view-File/450/497 (accessed on 26 March 2015). George, J.M. & Jones, G.R. 2006. Contemporary management: creating value in organisations, 4th ed. Boston: McGraw-Hill. Hellriegel, D., Jackson, S.E. & Slocum, J.W. 2002. Management: a competency-based approach, 9th ed. Mason, OH: South-Western Thomson Learning. Lusier, R.N. 2003. Management fundamentals, 2nd ed. Mason, OH: South-Western Thomson Learning. Proving smart systems can simplify even the most complex task. http://www.g4s.co.za/~/media/Files/South%20Africa/G4S%20Case%20Study%20-%20Mining%20%20Technical%20Partnerships.ashx (accessed on 27 March 2015). Robbins, S.P. 2000. Managing today, 2nd ed. New Jersey: Prentice Hall. Robbins, S.P. & Coulter, M. 1999. Management, 6th ed. New Jersey: Prentice Hall. Smit, P.J. & Cronjé, G.J. de J. 1997. Management principles: a contemporary edition for Africa, 2nd ed. Kenwyn: Juta. Truter, J. Nd. www.labourwise.co.za. Consistent when dealing with employee theft, in http://southafrica.smetoolkit.org/sa/en/content/en/54585/Be-consistent-when-dealing-with-employeetheft (accessed on 26 March 2015). Watkins, B. Workplace violence awareness and prevention: is there a legal duty on employers to take appropriate steps to prevent exposing employees to workplace violence? http://www.workinfo.com/free/downloads/95.htm (accessed on 26 March 2015). CASE STUDY: G4S: PROVING SMART SYSTEMS CAN SIMPLIFY EVEN THE MOST COMPLEX TASK Mining in South Africa has been the driving force behind the history and development of Africa’s most prestigious economy. Gold mining in South Africa accounted for 15% of the world’s gold production in 2002 and 12% in 2005, although South Africa produced as much as 30% of world output as recently as 1993. Despite declining production, South Africa’s gold exports were valued at £2.5 billion in 2005. Almost 50% of the world’s gold reserves are found in South Africa. South Africa also possesses two of the deepest mines in the world with the Tau Tona in Carletonville drilled to a record-breaking depth of 3.9 km and the shallower Mponeng gold mine drilled to a depth of 3.4 km. Global mining houses and local mining companies throughout Africa employ well over 450 000 people across all the extraction sectors and platforms. The logistics involved in their daily operations are often very complex and require reliable and innovative systems to ensure control of the various aspects of their day-to-day business processes. G4S Secure Solutions South Africa (then under the Skycom banner) became involved with projects aimed at enhancing business support systems, especially in the HR & Payroll sectors of their mining operations business. Different projects were initiated and aimed at replacing time and access management system hardware and software as well as the interfaces, which had become outdated and unsuited to modern business practices. One of the new solutions implemented in many operations was the replacement of outdated time and access management systems with a solution better suited to the business environment and its needs. The new system was purpose built in accordance with the customer’s exact requirements and specifications. The G4S system has allowed the site management to exercise both easy and efficient control over access, time recording, Health and Safety requirements, movement patterns and environmental situations. The intention was to create software that allowed ease of use for both the end user and management. From the employee clocking into work to the HR team collating reports and gathering management information, the system is seamless and practical. The overall successes of the solution across South Africa have led to implementation in other customer operations across Africa, including Ghana, DRC and Zambia. As a direct outcome of the success of the initial projects with large multinational mining houses, a Technology Partnership was formed between G4S and a number of the big mining companies. The aim was simple, to develop well-suited, efficient technology solutions in accordance to specific requirements at various global mining sites with the use of the Time and Access Management systems. The High End Security plant systems were also converted to XTIME which was custom developed for many of the Mining and Industrial sector customers that had a need for a high security environment such as gold plants and high risk areas. The XTIME system handles full search facilities with intelligent routines which are set up by users of the system to cater for different conditions that occur in the plant. The Graphical Maps feature available provides control and situational awareness from a single screen. This ultimately results in the business being able to view the various platforms in one single view. The solutions G4S-Skycom have subsequently offered to global mining companies include: Complete rewrite of the entire T&A Management System (Skycom Xtime 900®) Introduction of Proximity Based Card Readers® Introduction of Facial Recognition Biometrics® Introduction of Fingerprint Technology Biometrics® UPS/power supplies developed with our mining customers for the turnstiles Xtime Command Centre Software® for the gold plants and high security areas for proactive error reporting Xtime Generic Sync® (HR & Payroll interface) (SAP, Oracle, Pal Pay, etc.) Meal issuing & control through facial recognition biometrics at canteens at various accommodation facilities Automated protein dispensing (MorVite) for underground workers Portable Proximity Reader® solutions for mass gatherings. The G4S-Skycom systems have now been running across various mining and industrial sites for a number of years. A number of company representatives have been quoted as saying that they are delighted with the systems and the revolution it has caused in their business environment. The flexibility of XTIME® software allows it to be easily integrated into other commonly used systems. As a consequence, G4S-Skycom solutions are suitable for use in a wide range of contexts where biometric recognition can substantially improve business processes and improve operational efficiencies. These contributions include: Access Control (Site, mining shafts, heavy vehicle operation) Mines are often targeted by illegal miners and for asset thefts such as machinery or copper cable. XTIME® is able to offer high calibre access control systems through a variety of biometric readers and fingerprint identity measures. G4S uses state-of-the-art biometric fingerprint and facial recognition hardware to provide cutting-edge technology in order to secure mining assets. Shift Attendance and Payment (Certified integration into systems such as SAP®) Optimization and efficiency is core to mining operations, and XTIME900® allows managers to identify key trends in staff attendance, lost productivity through absence, and lost time due to sickness and absenteeism, etc. The type of view provided by XTIME900® allows analysis to clearly identify key trends for the first time, leading the mine to significantly improve mining efficiency and keeping overtime and absenteeism down to a minimum. Equally important to this analysis ability is the ability to control the legal Health & Safety requirements which need to be met and constantly monitored on large site operations. Shift Work/Group Access Management Mining and extraction inefficiency can often be caused by work teams not having the correct mix of skills. This leads to delays or the prevention of deployment down the shafts, often resulting in lost productivity. XTIME900® is able to manage these group requirements through integrated level control functionality as well as being able to access recorded and instant skill databases, which provide immediate decision-making possible on the deployment of shift and gangs. This ensures maximum productivity from the deployment of miners. Health & Safety Management (HSE certificates, medical certificates, licence, training etc.) Safety in mining is key and all pervasive, and when it goes wrong it can result in mine closures, often legal action, and significant loss of revenue. XTIME900® allows managers at all levels to govern access to the site or specific areas with feedback to the employees via the reader as well as the management of safety critical training and medical prerequisites to mention a few. These systems follow a strict certification process that can even go as far as certifying licensing for qualified drivers to activate heavy and underground vehicles via a starting management reader on the units. Contractor Management Many of the mining, processing and extraction clients manage their operations with a high percentage of sub-contractors, whose more transient nature requires equally high levels of access control, particularly safety management, to that of the permanent workforce. XTIME900® is able to offer the ability to manage these contractors and maintain critical safety standards for the company while giving clear and concise reports of absenteeism, hours worked, etc. It also manages contract expiry dates as well as certification of safety areas per contract. Visitor Management Ad hoc visitors to any mine can pose a significant risk. The management and monitoring of access, movement around the mine as well as their exit, is as important as that of any member of the permanent workforce. XTIME900® allows accurate entry and exit management and ensures that all mandatory entry conditions are kept on record and adhered to. XTIME900® also controls regulated search procedures for all scenarios to ensure that the risk of loss of company assets is adequately mitigated. Fuel Management Fuel is an ever value-increasing commodity to all companies. Due to their considerable usage losses, G4S has designed a highly effective fuel management system into XTIME900® that allows the vehicle, the driver and fuel dispenser to be uniquely tied to fuel transactions. The information made available through XTIME900® reports and implemented control measures help to show direct cost savings simply by creating transparency and control. Canteen Catering Management To prevent the unauthorised issuing of meals to “illegal miners” positive identification needs to be exercised in a quick and efficient manner. Through the introduction of XTIME900® and Facial Recognition Biometrics, G4S has managed to provide exactly such a solution. The solution prevents unwanted persons from entering canteen areas and “sharing” food with the workforce. As a direct result, massive savings have led to improved food standards which have led to an overall improvement in morale and a more effective workforce. The advantage is that “illegal miners” can be kept out of the canteens, and as a result of them not being able to access the food, they also don’t try to sneak in to get free accommodation either. Lamp Room Solutions Lamp rooms are one of the most important areas in any mining operation and this is no exception when it comes to the XTIME900® lamp room module. The system checks to make sure the correct equipment is allocated to the correct employee, contractor and visitor, it checks the lamp, employee’s rescue kit and expiry dates. The system will also check to see if methonometers are allocated and have been calibrated before they proceed underground. This is all done online from the XTIME900® system. Building Alarm and Security Management Through the XTIME900® Command Centre Software any input or output can be remotely monitored, and in some cases controlled, on a site by site mimic panel. Devices, inputs and outputs are displayed on the Command Centre GUI and are configured to supply information or trigger alarms in accordance with a predefined rule set. Alarms are acknowledged, rules are set in motion and a range of reports are available for audit purposes. The XTIME900® Command Centre really gives a “hands on” feeling to alarm and device monitoring and it also acts as an early warning device for system failure if peripherals go offline where it is displayed in the command centre. G4S and its mining and industrial sector customers’ technical partnerships have been a formidable success for both the customers and the service provider. Through its investment, G4S has ensured that its customers’ business will grow from strength to strength with the Skycom XTIME® systems that will keep pace with the changing needs of the business for many years to come. The tailored high tech system now in place has created a Resource Monitoring System which has proved to be worth its weight in gold. Source: http://www.g4s.co.za/~/media/Files/South%20Africa/G4S%20Case%20Study% 20-%20Mining%20-%20Technical%20Partnerships.ashx (accessed on 27 March 2015) Case study questions 1. In this case it is clear that control measures are very important in any organisation. What type and form of control are exercised through all the measures discussed in this case study? 2. Which external environmental factors are major issues that influence management control in this case study? 3. Do you think that all these control measures pose a threat to the employees in the mining sector? MANAGEMENT DISCUSSION EXERCISES 1. Ask a manager to list the main performance measures that he or she uses to evaluate how well the organisation is achieving its goals. Ask the same manager to list the main forms that he or she uses to monitor and evaluate employee behaviour. 2. You are the production manager in a business that produces bookshelves. The workshop consists of four working teams: A, B, C and D. All teams have an equal number of employees. Each team uses its own material and machinery to produce the bookshelves. The owner is away on holiday for one month. You have to report on the month’s production. Assume a month has only four weeks. The production standard for each team is 84 bookshelves per month. You have received the following production report from an administrative clerk. You are expected to compile a 3–5 page evaluation report on the situation. WEEK 1 2 3 4 TOTAL A 18 17 19 32 86 B 22 14 24 21 91 C 27 18 31 26 102 D 15 12 14 16 57 TOTAL 82 61 88 95 336 3. As with every business it is important for Peter to see that his business is running smoothly. He has a fabric shop and he really wants to make sure that everyone is pulling his or her weight in the business. Therefore he set the following standards: Cutters must cut at least 25 pieces per day. Seamstresses are expected to complete at least four units per day. The quality controller must make sure that not more than 0.5% of quality mistakes are made. State what further steps Peter should take to exercise proper control. 14 Contemporary management issues EKAETE BENEDICT Learning outcomes After studying this chapter, you should be able to do the following: Identify the types and sources of conflict in organisations, and describe conflict management strategies that managers can use to resolve it. Explain the importance of organisational teams. Discuss South Africa’s position and role in the global business environment. Understand and explain the concept of black economic empowerment (BEE) in South African organisations. Describe the benefits of health and wellness programmes in organisations. 14.1 INTRODUCTION In Chapter 1, you were introduced to the concept of management and learnt about its history in Chapter 2. You also learnt, and now understand, the different functions a manager engages in and the importance of these functions. At this stage, it is important to also learn that there are other issues besides the functions of planning, organising, leading and control; there are several contemporary management issues that leaders in today’s modern organisational environment have to learn to deal with in order to be effective. As you have learnt in Chapter 3, today’s business environment (both internal and external) is dynamic – ever changing and adapting to changes. Therefore, a business manager has to be aware of the issues that could affect the management of an organisation. These issues may change from time to time depending on the existing trends in the business environment at any point in time. There are certain issues that are relevant in today’s organisational environment and affect the management of organisations. These issues, known as contemporary management issues, refer to the challenges and problems in the workplace that today’s managers have to deal with. In this chapter, some of the challenges managers have to contend with in the workplace will be introduced. These challenges include how to manage conflict and negotiate with different stakeholders, and how to oversee organisational teams. The chapter also considers the way organisations operate in the global business environment and the impact of black economic empowerment (BEE) in the South African context. Lastly, the importance and benefits of health and wellness programmes in the workplace are introduced. 14.2 MANAGING ORGANISATIONAL CONFLICT AND NEGOTIATION Conflict in organisations is inevitable as different stakeholders (both individuals and groups) have different goals, ideas or interests that are often not compatible. Organisational conflict can produce either positive or negative outcomes, depending on the cause of the conflict and how it is handled. 14.2.1 Types of conflict Different types of conflict that occur in the workplace are as follows: Interpersonal conflict. This occurs between individual members in an organisation when they disagree over organisational goals or values. Intragroup conflict. This happens within a group, team or department. For example, members of the finance department may disagree over how their budget should be allocated. Some of the members want the money to be allocated to departments based on need, while others want the money to be allocated based on output or the amount of revenue the department has brought in. Intergroup conflict. This occurs between groups, teams or departments. The sales department, for example, may disagree with the marketing department about the marketing plans. Inter-organisational conflict. This happens across organisations. For example, a manager in one organisation might accuse a manager of another organisation of being corrupt or employing unethical business practices. 14.2.2 Sources of conflict Conflict in organisations can arise from different sources (see Figure 14.1): Different goals and target dates. An organisation is made up of different departments and units, each of which has its own goals and time horizon which may not coincide. For instance, sales and marketing departments have to work closely with each other. If the sales department has a time horizon of three months to compile its sales targets for the year, but the marketing department needs the sales target information to write up its new marketing strategy in two months’ time, conflict may arise. Overlapping authority for the same tasks. Conflict will probably occur when two or more departments, units or managers claim authority for the same activities and tasks. If the manager of the marketing department expects the leader of the sales force to report to him or her and not only to the sales department manager, conflict could result. Interdependency of tasks. Most departments in organisations are interdependent, because they rely on another department to complete their tasks and achieve their goals. This increases the potential for conflict. For example, the sales department is dependent on the marketing department to draw up a strategy to meet its sales targets, while the marketing department is dependent on the sales department to give feedback so it can assess and adjust the strategy if necessary. No alignment of reward systems. Different departments evaluate and reward their workers in different ways. The marketing department may evaluate and reward its workers for signing up more customers, while the sales department may evaluate and reward its workers for meeting their sales target, irrespective of the number of customers. Scarce resources. Limited resources (such as finance, people, stock, office supplies, and so on) may cause conflict as departments battle for a larger share. Preference biases. Another source of conflict could be status inconsistencies. This occurs when some departments, units, teams or individuals within an organisation are given preference over others in terms of the allocation of resources, respect, pay rises and promotions. Figure 14.1 Sources of conflict in organisations 14.2.3 Conflict management strategies There are two main categories of strategies that can be employed to manage conflict in an organisation, namely functional conflict resolution and nonfunctional conflict resolution. For an organisation to achieve its goals, conflict must be resolved in a functional manner. Functional conflict resolution involves compromise or collaboration between the conflicting parties: Compromise. Each party is not only concerned about its own goal, but is also concerned about the goal of the other party and is willing to engage in negotiations and to make concessions until an acceptable solution to the problem is reached. This involves a give-and-take exchange in which each party agrees to meet the other half way, otherwise known as a 50/50 exchange. Collaboration. This does not require either party to make concessions, but rather requires both parties to put forward a resolution that would be mutually beneficial. Non-functional conflict resolution entails accommodation, avoidance and competition. These are ineffective methods of resolving conflict as the parties involved do not cooperate with each other: Accommodation. This involves one party (usually the weaker one) giving in to the demands of the other party (usually the stronger party). The stronger party pursues the attainment of its goals at the expense of the weaker party, which is forced to accommodate it. This form of conflict resolution may cause the weaker party to find ways to get back at the stronger party in future. Avoidance. In avoidance conflict resolution, the two or more parties involved in the conflict do nothing to resolve the conflict by either ignoring the problem, or failing to address it. This is an ineffective way to resolve conflict since the main cause of the conflict is not dealt with. Conflict is likely to continue and may escalate to further negativity. Competition. Each party tries to maximise its own gain and achieve its own goals with little consideration for the other. The conflict usually worsens as each party focuses on “winning” the battle rather than working together to arrive at a mutually beneficial solution. 14.2.4 Negotiation Negotiation is an important conflict resolution technique in which the parties to a conflict have equal levels of power and try to come up with a solution acceptable to all by considering various alternative ways to allocate resources to each other. It involves a dialogue between two or more parties with the aim of resolving the differences and thereby reaching a consensus. South Africa has a history of workplace disputes and unlawful strikes, usually led by its powerful and influential trade unions. The 1996 Constitution of South Africa recognises that any individual has the right to join a trade union and that unions can collectively bargain on behalf of their members for better economic benefits as well as declare strikes. About 25% of the South African formal workforce (more than 3 million people) belong to a trade union. Therefore, the art and skill of negotiation is a vital capability that contemporary managers need to possess. There are different forms of negotiation. Conflicting parties can either deal directly with one another or call in a third-party negotiator. Third-party negotiators are neutral (i.e. not directly involved in the conflict) and have the skills and expertise to conduct conflict-solving discussions. Their task is to facilitate the finding of an acceptable resolution by acting as a mediator or an arbitrator: A mediator listens to each party’s argument and assists with negotiations, but has no authority to impose a solution. An arbitrator listens to the merits of each aggrieved party’s arguments and then decides the outcome by imposing what he or she thinks is a reasonable/impartial solution to the conflict and all parties are expected to abide by the outcome. There are two major types of negotiation, namely, distributive and integrative bargaining: 1. Distributive bargaining. Two (or more) conflicting parties assume that they have a “fixed pie” of resources to divide and try to claim the maximum amount of value for themselves while conceding as little as possible. This form of negotiation is characterised by a win–lose outcome, because one negotiating party will unavoidably lose something, and the other will gain. This form of negotiation is commonly used in situations where the parties involved do not have a relationship in the present and do not expect to have one in the future, so they do not care about the fallout. For example, customers argue/negotiate with the seller over the price of a product they want to purchase. 2. Integrative bargaining. This involves collaboration and/or compromise. Also called “interest-based bargaining”, it is characterised by a win–win outcome. It is commonly used in situations where the conflicting parties have a relationship they want to preserve. In integrative bargaining, cooperative negotiations take place and the conflicting parties work together to reach a resolution that is beneficial to both parties. Organisational conflict is a reality in any organisation. It is thus paramount that managers learn how to manage and resolve conflict. 14.3 MANAGING ORGANISATIONAL TEAMS A team can be defined as a group of people with complementary skills who work together in close cohesion to achieve a common goal or objective. An organisation’s workforce can be made up of different teams which focus on different objectives and goals within the organisation. Teams are important in present-day organisations as they can help organisations solve specific problems and challenges. In addition, teams can improve an organisation’s performance over more traditional management approaches. Using teams has advantages and disadvantages, as discussed below. 14.3.1 The advantages of teams There are several advantages to be derived from using teams in an organisation: Improved customer satisfaction. Teams can improve customer satisfaction if they are trained to meet the needs of specific customers. Improved product and service quality. Teams take direct responsibility for the quality of products and services they produce and sell, unlike in traditional organisational structures (with no teams) in which management is responsible for organisational outcomes and performance. Increased job satisfaction. Teams give employees opportunities to improve their skills through cross-training, which occurs when team members are taught how to carry out most of the jobs performed by other team members. This is advantageous to the organisation because when one team member is absent, quits or is transferred, the team can continue to function as normal. The advantage of cross-training is that it expands the skills of workers and increases their competencies, while also making their work interesting. Unique leadership responsibilities. Team members are given the opportunity to lead the team or oversee certain projects or activities. Such leadership responsibilities are not normally available in traditional organisations. Diversity of viewpoints. A team is able to view problems from diverse perspectives, because a team is usually made up of people with different skills, abilities and experiences. Better quality of decisions. The increased knowledge and information available to teams makes it easier for them to solve complex problems as they are able to generate more alternative solutions to a problem. 14.3.2 The disadvantages of teams Using teams in an organisation has the following disadvantages: High employee turnover. Not everyone can fit into and work in a team. Some employees may dislike the responsibility, effort and learning required in team settings and may prefer to leave the team. Social loafing. This refers to the behaviour in which team members withhold their efforts and fail to perform their share of the work. They are actually relying on the other employees to do the work and hide behind them for their own performance. Groupthink. This refers to a pattern of thought characterised by forced consent and conformity to group values and ethics so as to approve a proposed solution, even though it appears as if there is consensus. It results in poor decision-making because opinions that are contrary to the majority of group members are suppressed. Waste of time/inefficiency. Team decision-making can take a lot of time. Meetings may become lengthy, unproductive and inefficient. Minority domination. A situation may be created where just one or two people dominate team discussions and prevent the consideration of alternative solutions. Taking these advantages and disadvantages into consideration, there are situations in which teams will function better than in others. Table 14.1 presents a list of conditions for when to use teams and when not to use teams. Table 14.1 When to use and when not to use teams Use teams when … Don’t use teams when … there is a clear, engaging reason or purpose there is not a clear, engaging reason or purpose the job cannot be done unless people work together the job can be done by people working independently rewards can be provided for teamwork and team performance rewards are provided for individual effort and performance ample resources are available the necessary resources are not available Source: Williams (2014: 202) From Williams. SE MGMT 6E, 6E. © 2014 South Western, a part of Cengage Learning, Inc. Reproduced by permission. www.cengage.com/permissions 14.3.3 Types of teams Organisations form different types of groups and teams to enable them to achieve their goals, respond to customers’ needs quickly and motivate employees. These can include the following: Top management team. The top management team (as you have learnt in Chapter 1) is composed of the CEO, managing director and the heads of the most important departments in the organisation. Research and development (R&D) teams. A research and development team consists of members who have the skills, technical know-how and capabilities necessary for developing new products. R&D teams are common in computer, pharmaceutical and electronic companies. They can also be cross-functional teams with members from various departments such as marketing, production, engineering and finance joining the members of the research and development department, for example. Cross-functional teams. A cross-functional team is made up of employees from different functional departments with different specialities whose aim it is to resolve mutual problems. Cross-functional teams are normally used in conjunction with matrix and product organisational structures (see Chapter 7). Self-managed work teams. In a self-managed work team, members are empowered to manage and control their own work activities and monitor the quality of the goods and services they produce without first getting approval from management. Virtual teams. A virtual team uses telecommunication technologies to link members who are geographically and/or organisationally spread in order to effect change and complete organisational tasks. As organisations are becoming more global, it becomes vital for companies to use technology to accomplish organisational tasks. Members of virtual teams do not necessarily meet face to face, but can use video conferencing, email and group communication software to interact with each other. An advantage of virtual teams is their flexibility, as time zones and the physical location of members are not restricting factors. Project teams. Project teams are established for the purpose of implementing specific tasks within a set period of time. Members of project teams are usually skilled workers who belong to different departments and functions and only come together to complete a particular project. A project team is usually headed by a project manager whose responsibility it is to coordinate and manage the different activities of the team towards the completion of the project. Teams must be healthy. If a team becomes dysfunctional, the disadvantages mentioned above will outweigh any advantages. Management in action 14.1 spells out how important a healthy team in an organisation is. MANAGEMENT IN ACTION 14.1 Why organisational health trumps everything else in business What is a healthy organisation? It is an organisation that is whole, consistent and complete; that is, its management, operations, strategy and culture fit together and make sense. Structured in this way it would have a minimal amount of politics and confusion. It would have high levels [sic] of morale and productivity, and very low levels of valued employees leaving the organisation. Achieving this state of health requires a set of disciplines. First among all of these disciplines is a cohesive leadership team. This is followed by creating and sharing the clear objectives, values, and direction of the organisation. To create a leadership team that is healthy does not happen by itself. It requires concerted, thoughtful effort, and the adoption of a few critical, non-bureaucratic systems to keep it cohesive. The leadership team will need to be a small group of people who all feel collectively responsible for achieving a common objective for the organisation. It will comprise three to nine people. If they are more, it is usually problematic. When a team is small, people use their time together to ask questions and get clarity, much like a real conversation. They know they will be able to regain the opportunity to share their opinions as the meeting progresses. With a large group, members have only one, unsatisfactory chance to say and ask everything they need to. There is undeniable evidence that many executives do not genuinely understand the critical importance of leadership team cohesion. This is undoubtedly the difference between a “working group” and a real leadership “team”. The distinction is best understood when you see the former as golf and the latter as soccer. In a cohesive team no one would say: “Well, I did my job. Our failure isn’t my fault,” even if one member is in Finance and the other in Operations. Key to achieving this real team is “vulnerability-based trust”. This occurs when members are completely comfortable being transparent and honest with one another, where they say and genuinely mean: “I made a mistake”, “I need your help” or “Your idea is better than mine”. This level of team cohesion requires effort to achieve, and vigilance to maintain. However, this is not all. There are other behaviours that are also important to develop this cohesion in a team. They are ability of mastering conflict, achieving commitment among members, embracing accountability and an intense focus on results. While leadership team effectiveness is only one aspect of a healthy organisation, it is undoubtedly the single most important factor. The organisation also requires clear, unequivocal direction from the top, well communicated and unambiguously understood. These messages need to be adopted and executed by all. Source: http://www.fin24.com/Entrepreneurs/Opinions-and-Analysis/Business-healthin-focus-20141014 (accessed 17 October 2014) 14.4 MANAGEMENT IN THE GLOBAL ENVIRONMENT In this section, the environment in which an organisation operates will be examined from an international or global perspective. For organisations to survive and grow in today’s contemporary environment, managers have to be aware of the factors that have an influence on survival and growth. Apart from the task and general environment (which were introduced in Chapter 3), the global business environment is also made up of economic trading blocs and regional development associations that may have an influence on an organisation. There are three important trading blocs that managers in South Africa have to be aware of and which are discussed below: the Southern African Development Community (SADC), sub-Saharan Africa and BRICS. 14.4.1 Southern African Development Community (SADC) The Southern African Development Community (SADC) is an intergovernmental organisation that consists of 15 African countries in the southern African region. The organisation was originally known as the Southern African Development Co-ordination Conference (SADCC) and was formed in Lusaka, Zambia in 1980 with the goal of fostering socioeconomic development and political and security cooperation among its member states. The headquarters of the organisation is in Gaborone, Botswana. Member states of the SADC are Angola, Botswana, Democratic Republic of Congo, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe. These member countries cover a total area of 9 882 959 km², and have a population of 277 million people. The total gross domestic product (GDP) of member states was estimated to be US$1 193 billion in 2013. The main working languages for member states include English, French and Portuguese. The SADC operates through a formalised structure, which includes the Summit of the Heads of State, the Council of Ministers, and the Standing Committee of Senior Officials. The organisation also functions through 27 legally binding protocols or treaties dealing with issues such as energy, defence, tourism, illicit drug trade, free trade, health, gender and development and the movement of people. South Africa joined the SADC in August 1994 after the first democratic elections and has since taken a leading role in the region to promote stronger collaborations and economic integration among member states. This includes the establishment of a free trade area in the region known as the SADC Free Trade Area (FTA). The SADC FTA was established in 2000 with the aim of promoting intraregional trade in goods and services ensuring efficient production contributing towards the improvement of the climate for domestic, crossborder and foreign investment enhancing the economic development, diversification and industrialisation of the region. It is expected that promoting free trading in the region will create a larger market for organisations, releasing the potential for trade among the different citizenry; aid the economic growth of member states, and create employment in the different countries. The benefits of the SADC FTA are listed in Management in action 14.2 MANAGEMENT IN ACTION 14.2 Benefits of the SADC Free Trade Area Increased domestic production Greater business opportunities Higher regional imports and exports Access to cheaper inputs and consumer goods Greater employment opportunities More foreign direct investment and joint ventures The creation of regional value chains Source: http://www.sadc.int/about-sadc/integration-milestones/free-trade-area/ (accessed 10 December 2014) 14.4.2 Trade with sub-Saharan Africa Sub-Saharan Africa refers to the geographical area of African countries that are situated south of the Sahara Desert. This consists of all African countries except those in the northern part of Africa, which are mainly considered to be part of the Arab world (Egypt, Algeria, Morocco, Tunisia, Libya and Sudan). In the early 21st century, the population of sub-Saharan Africa was 800 million and the United Nations (UN) estimates that the population may increase to 1.5 billion by 2050. In addition, the region is the most diverse in terms of languages of any region in the world (more than 1000), but the main languages or official languages are English, French and Portuguese. Africa is one of the fastest developing regions in the world. In the past 10 years, six of the world’s 10 fastest growing economies have been subSaharan African countries, with the remaining four being East and Central Asian countries. It is postulated that within the next five years the economic growth rate of the average African country will surpass that of an average Asian country. The growth in African economies has been attributed to the rise in prices for its abundant mineral resources such as oil, platinum, gold, iron ore, copper and zinc. Furthermore, the region has the fastest growing middle class in the world, signifying an increase in disposable incomes and an increasing demand for housing and lifestyle products. Notable sub-Saharan African countries with fast growing economies include Ethiopia, Ghana, Rwanda, Mozambique, Nigeria, Zambia, DRC, Tanzania, Chad, Burkina Faso, Niger and Angola. The importance of these countries is that they create opportunities for South African companies to expand and acquire new markets for their products and services. For instance, South African companies such as MTN, Shoprite, Nando’s, Mr Price, Game, SAB Miller, Tiger Brands, Multichoice and Protea Hotels already have markets in sub-Saharan Africa (see Management in action 14.3). MANAGEMENT IN ACTION 14.3 Retail in Nigeria is “not for sissies” but there is plenty of opportunity Although Woolworths has cancelled its three-store pilot project in Nigeria, citing a mismatch with the Nigerian consumer and climate, Broll Nigeria says this need not deter South African retailers from profiting in the country. Broll expects more South African retailers to seek opportunities in the Nigerian market in the future. “Yes, doing business in Nigeria is a challenge. But if you can offer middle-class Nigerians the right price, product, service, quality and choice, the sky is the limit,” says Norman Sander of Broll Nigeria, who manages Ikeja City Mall in Nigeria. Shoprite is notching up exceptionally strong trading at Ikeja City Mall, says Sander. He urges South African retailers to change their models for Nigerian consumers if they want to gain a firm foothold in a marketplace in a country where consumers are brand loyal and where they value good service. Good service is in short supply. He says the Nigerian market is vastly different from that of South Africa and neighbouring countries. “Research is essential to understanding this set of consumer needs and norms, before venturing into this exceptional territory.” Broll is increasingly being called on for its professional property services and insights to support retailers and property owners alike seeking to unlock the many retail opportunities in Nigeria. “The market and spend needed for retail success is here and growing. Retailers wanting to crack this market need to customise their models to meet the specific consumer needs and aspirations.” He also notes that the call of the mall is gaining the support of more Nigerian shoppers. “Nigerians enjoy a First World shopping environment that is pleasant, safe, cool, unrushed and offers a complete retail experience from shopping to relaxing at the food court. Dwelling times in the malls are increasing and foot counts are growing.” He also says there is little, if any, brand recognition for South African retailers in Nigeria, where consumers are more familiar with US and European retailers. This requires a marketing strategy that goes beyond advertising a new store opening and extends to launching a new brand. Buying patterns are different from what South African retailers [are] used to. For fashion, there is no seasonal shopping – Nigeria is hot all year. Sizes are different from Europe and South Africa. About 50 percent of men’s shoe sales are sizes larger than 10. Prices noticeably above those of Europe aren’t tolerated. With the cell phone boom in Nigeria, and an increasingly tech-savvy population, digital and social media marketing are effective tools for retailers. “Offering guarantees and sticking to these promises is a tremendous way of growing customer loyalty. We’ve also found that giveaway events enjoy great participation at Ikeja City Mall. At first, journalists were genuinely surprised to find that these were fair and above board.” Despite all these opportunities, Sander cautions that retail in Nigeria is not for sissies. “Mall rentals are high because of infrastructure and development costs which, in turn, demands high turnovers. Infrastructure is poor, red tape is plenty and officials often interfere. The supply chain also takes far greater focus, with a host of potential obstacles to be navigated.” Sander says retailers need excellent warehousing to overcome shipping issues in Nigeria, where goods don’t move as fast as they do in South Africa. Source: Adapted from “Retail in Nigeria is not for sissies but there is plenty of opportunity”. Business & Property. 11 January 2014, p. 16. 14.4.3 BRICS BRICS is an international organisation of the five emerging economies of Brazil, Russia, India, China and South Africa. The acronym “BRICs” was originally coined by Jim O’Neill in 2001, who was then chairman of Goldman Sachs asset management. The acronym originally referred to the countries of Brazil, Russia, India and China. Using gross domestic product (GDP) and purchasing power parity (PPP) calculations, O’Neill posited that by the middle of the 21st century (i.e. 2050), the economies of these four countries would be larger and better off than most of the current major economic powers that make up the so-called Group of 7, commonly known as the G7. The G7 are the seven wealthiest, leading industrialised/developed countries by national net wealth or GDP: Canada, France, Germany, Italy, Japan, the UK and the US. O’Neill further theorised that in the coming decades, the world’s main suppliers of manufactured goods and services would be China and India, while the main suppliers of raw materials would be Brazil and Russia. O’Neill’s “BRICs” theory was quickly noticed by world leaders, including the leaders of the original four emerging economies that he purported would grow more than some present-day developed countries. In September 2006, the foreign ministers of the four countries met to discuss the possibility of actually forming such an economic association/organisation. In June 2009, the organisation was officially launched and hosted its first summit in Russia. Thus, what started as a theory in an investment bank’s research paper metamorphosed into a real economic organisation. In 2010, South Africa was invited to join the organisation after being recognised as the major leading economy in Africa. The organisation was renamed BRICS – with the “S” representing South Africa. In March 2013, South Africa hosted the organisation’s 5th summit in Durban. 14.4.3.1 The significance and importance of BRICS In 2014, the five BRICS countries represented 18% of the world economy and accounted for 40% of the world’s population, which roughly translates to three billion people with a combined nominal GDP worth 20% of the world GDP. The significance of BRICS can be summarised as follows: BRICS seeks to encourage commercial, political and cultural cooperation between member nations. It promotes economic integration and funds development projects in member states. It encourages the creation of a strong middle class. It emphasises a greater exchange of information, knowledge, skills and expertise in the sectors of finance, information technology, process education, financial education and investor literacy, which could assist in capacity building and sustained growth. Small and medium enterprises (SMEs) are the dominant forms of business in the BRICS nations. Therefore it is important for them to have access to finance, capital markets and other forms of resources. The BRICS Development Bank has been established. The role of South Africa in BRICS is discussed in Management in action 14.4. MANAGEMENT IN ACTION 14.4 South Africa in BRICS South Africa’s comparative advantage within BRICS pertains to the country’s considerable non-energy wealth in the form of natural minerals. In a report commissioned by the US-based Citigroup bank, South Africa was ranked as the world’s richest country in terms of its mineral reserves, worth an estimated US$2.5 trillion. South Africa is the world’s largest producer of platinum, chrome, vanadium and manganese, the third-largest gold miner, and offers highly sophisticated mining-related professional services, contributing significantly to the BRICS resource pool. The demand from BRICS countries for these commodities has been a critical source of support for growth on the continent. South Africa’s export structure to BRICS member countries shows significant diversification and the negative trade balance has also narrowed over the last four years, that is from R57 billion in 2008 to R22.8 billion in 2011. South Africa’s trade export with the BRIC partners grew from 6.2% of the total in 2005 to 16.8% in 2011, whereas its imports from the BRIC countries represented 13.6% of total imports in 2005 and 20% in 2011. The Minister of Trade and Industry, Dr Rob Davis, has emphasised that in 2011 alone, trade between South Africa and the BRICS countries grew by 29%, which is considerable. Source: Adapted from http://www.brics5.co.za/about-brics/south-africa-in-brics/ (accessed on 3 January 2015) 14.4.3.2 Implications for South African managers With the growth in trade between South Africa and the BRICS member states, it is important that managers of South African companies be aware of certain implications that could affect their business. These influences can either be opportunities or threats: International trade. South African companies can engage in various forms of international trade. China is renowned for manufacturing goods at low prices due to its lower labour and production costs. India is a world leader in software designs and precision engineering and also has low labour costs. Brazil has abundant natural resources and is one of the world’s leading suppliers of raw materials, along with Russia. Bigger market. Being a member of BRICS gives South African companies the opportunity to expand their markets beyond Africa and into the larger parts of the world, such as South America (via Brazil), Europe (via Russia) and Asia (via India and China). China is the most populous country in the world with approximately 1.3 billion people. India follows closely behind with 1.2 billion people and Brazil is the most populous country in South America with a population of 200 million people. Russia’s population of 144 million makes it the most populous country in Europe. Thus, South African companies have access to larger markets. Language and culture. The official languages of BRICS member states include Afrikaans, English, Portuguese, Mandarin and Cantonese (standard Chinese), Hindi, and Russian. Thus, it may be beneficial for a manager to learn the basics of at least one of these languages and be conversant with the prevailing business and social cultures of the countries. 14.5 BLACK ECONOMIC EMPOWERMENT (BEE) IN SOUTH AFRICA Another contemporary issue that managers in South Africa have to consider is black economic empowerment (BEE). The black economic empowerment (BEE) policy of South Africa is one of the most complicated and sensitive topics in the country’s public debate. The policy was enacted by the African National Congress (ANC) when it came into power in 1994 after the first democratic elections in the country. The decades before democratic rule were characterised by racial segregation known as apartheid. During this period, African, Indian and coloured people were systematically excluded from any meaningful economic participation in the country. Thus, BEE was enacted with the aim of redressing the past injustices committed during apartheid. The main purpose of BEE is to increase black (African, Indian and coloured) participation at all levels of the economy by transforming the economy through the transfer of business ownership, management and control to the majority of its citizens. The main objectives of BEE are given in Management in action 14.5. MANAGEMENT IN ACTION 14.5 BEE objectives Through its BEE policy, the government aims to achieve the following objectives: Empower more black people to own and manage enterprises. Enterprises are regarded as black owned if 51% of the enterprise is owned by black people, and black people have substantial management control of the business. Achieve a substantial change in the racial composition of ownership and management structures, and in the skilled occupations of existing and new enterprises. Promote access to finance for black economic empowerment. Empower rural and local communities by enabling their access to economic activities, land, infrastructure, ownership and skills. Promote human resource development of black people through mentorships, learnerships and internships. Increase the extent to which communities, workers, co-operatives and other collective enterprises own and manage existing and new enterprises, and increase their access to economic activities, infrastructure and skills. Ensure that black-owned enterprises benefit from the government’s preferential procurement policies. Assist in the development of the operational and financial capacity of BEE enterprises, especially small, medium and micro-enterprises (SMMEs) and blackowned enterprises. Increase the extent to which black women own and manage existing and new enterprises, and facilitate their access to economic activities, infrastructure and skills training. Source: http://www.southafrica.info/business/trends/empowerment/bee.htm .VD_V17EaKUk (accessed 15 October 2014) Despite the good intentions of BEE, it has been critisised for its shortcomings and was cited as the most constraining factor in the development of small businesses. Critics have said that the government’s overemphasis on BEE initiatives hamper entrepreneurship rather than facilitating it. The policy has had a negative impact on economic growth, job creation and poverty as it has failed to tackle the root problems of low entrepreneurial activity, a failing education system and an inadequate skills development programme. Critics also blame improper implementation for its failure, saying that BEE did not create entrepreneurs, but took political leaders and politically connected people and gave them assets which they were unable to manage. The taking of assets from people who were managing them and handing them properly to people who could not manage them did not add value but in fact destroyed it. These arguments against BEE prompted the government to amend the policy and formulate an integrated and more current, inclusive socioeconomic policy called broad-based black economic empowerment (BBBEE). The purpose of the new integrated policy is to encourage transformation by “broadening the beneficiaries” of BEE. These beneficiaries include black women, youth, workers, people with disabilities and people living in rural areas. The BBBEE Act (53 of 2003) and the subsequent BBBEE Codes of Good Practice (CoGP) of 2009 clearly set out the requirements for organisations that wish or need to transform in order to benefit from government procurement and projects. These codes involve seven elements under which companies have to be rated and compliant (see Management in action 14.6). MANAGEMENT IN ACTION 14.6 The seven elements of the BBBEE codes Ownership. This is direct empowerment. It refers to the number of black persons with ownership in the company/organisation/business. Companies earn more points for having black females in ownership than having black males. Management control. This is direct empowerment. It involves evaluating the management levels in an organisation for the number of black persons who have a say in the business. A company earns more points if it has black females in management. Employment equity. This is direct empowerment. It refers to the representativeness of the South African population in the labour force of a company, and their job grade levels, that is, how much influence black people have in the company. Again, the presence of black females will earn a company higher points than black males. Training and development. This is direct empowerment. It involves evaluating which population groups in the company benefit from training and development initiatives, be they formally recognised courses at tertiary institutions, continued professional development, on-the-job training or informal employee development programmes held in-house. Again, black females who benefit from training and development initiatives earn higher points than black males. Preferential procurement. This is indirect empowerment. It entails evaluating whether a company’s suppliers are BBBEE compliant or not. Enterprise development. This is indirect empowerment. It has to do with evaluating whether an enterprise/company and its employees extend a helping hand to the entrepreneurial ventures of black people. This includes favourable payment terms, financial or tangible investments in such enterprises, assistance in the form of shared expertise or offering the entrepreneur a space on their premises from which they can conduct their business operations. Socioeconomic investment. This is indirect empowerment. It involves evaluating whether an enterprise invests back into the community; or reaches out to less privileged communities, individuals or groups (also known as corporate social investment). Source: Knowledge Resources (2014) The specific arguments against BEE are as follows: It limits the growth and development of small and medium enterprises (SMEs). The prerequisites and requirements for businesses to attain BEE status may be too cumbersome for some SMEs and this may cause them to fail. It hampers entrepreneurship. BEE takes away the incentive to start new businesses, as people prefer to pursue empowerment deals in which they are allocated shares in an already established business. It has a negative impact on economic growth, job creation and poverty. The transfer of a certain percentage of shares in an already established business to previously disadvantaged persons does not necessarily create new jobs. There has been improper implementation. The ideals and principles of BEE have not been executed properly. There are dysfunctional and unproductive business practices. Businesses that do not meet BEE criteria or are excluded from bidding for certain government contracts have resorted to “fronting” (having black business partners in name only). Other businesses and individuals capitalise on their BEE status and engage in corruption and “tenderpreneurship” (procuring government contracts, commonly known as tenders, through political connections and not necessarily through business merit). It has led to the failure of legitimate businesses. Owing to policies and rules, such as preferential procurement, certain legitimate businesses do not qualify for government tenders and have been forced to downsize their operations, or worse, close their doors. Only South African-owned companies are required to comply with BBBEE codes. Companies operating under foreign-based holding companies are exempt. Companies with annual revenues of R5 million or less are also not required to comply with the codes and are classified as exempt micro enterprises (EMEs). Companies with annual revenues of R5 million and above, but less than R35 million are required to choose any four out of the seven elements on which they can be rated. These companies are classified as qualifying small enterprises (QSEs). Companies with annual revenues of R35 million and above are required to comply with all seven elements of the BBBEE codes. In spite of the amended BBBEE policy, there is an ongoing debate whether the policy is the appropriate medium for sustainable empowerment, economic growth and poverty eradication in the country. This is because the policy has given rise to dysfunctional and unproductive business practices such as the high cost of compliance, fronting, corruption and “tenderpreneurship”. 14.6 WORKPLACE HEALTH AND WELLNESS PROGRAMMES The success of an organisation depends largely on the productivity of its employees. Employee productivity refers to the efficiency of a worker or group of workers and it is usually evaluated in terms of the output of an employee in a specific period of time. Productive employees tend to be healthy people. Healthy people are generally more efficient, work harder and are happier. Health conditions that affect productivity include back and neck pain, stress, migraines, arthritis, diabetes, respiratory illnesses and depression. Every organisation should view health and wellness programmes as a strategic necessity, because healthy employees cost organisations less money. In the past few years, the workplace has been recognised as an important site for introducing health and wellness programmes targeted at employees. The reason for the focus on wellness is the increased prevalence of noncommunicable diseases (NCDs) in the workplace, communities and societies. NCDs are chronic medical conditions which are non-infectious. In South Africa, lifestyle-related chronic diseases are the second leading causes of death and disability after HIV and AIDS. The World Health Organization (WHO) reports that in 2014, 38 million people died worldwide from NCDs. Of the 608 000 deaths recorded in South Africa during the same period, 43% (261 440) was as a result of NCDs. Non-communicable diseases affect a large proportion of the working-age population, therefore having an impact on the workforce and the productivity levels of the country. The five main NCDs identified in South Africa are cardiovascular diseases (heart attack and strokes), diabetes, cancers, chronic respiratory diseases (asthma, bronchitis) and mental illness. Research shows that unlike communicable disease (which a person can get by coming into contact with an infected person), NCDs are mainly caused by unhealthy behaviours such as not eating a healthy diet, not participating in regular exercise/physical activity, using tobacco (smoking) and abusing alcohol. These give rise to metabolic risk factors and diseases such as obesity, high blood pressure (hypertension), high blood glucose (diabetes) and high cholesterol. Furthermore, the WHO estimates that the probability of South Africans between the ages of 30 and 70 years dying from NCDs is 27%. At the same time, it maintains that 10% of NCD deaths can be prevented if certain measures and policies which reduce risk factors for NCDs are implemented. This projection highlights the need for organisations to establish workplace health and wellness programmes (WHP) to encourage their employees to seek and adopt a healthy lifestyle. 14.6.1 What is a workplace health and wellness programme? A workplace health and wellness programme (WHP) is a programme that is organised and sponsored by employers to engage and support employees (and sometimes their families) in adopting and sustaining lifestyle behaviours that reduce health risks and thereby improve quality of life, which enhances personal effectiveness and benefits the organisation financially. Examples of workplace health and wellness programmes include the following: Health-related educational services (e.g. nutrition education) Individual health risk identification (e.g. confidential health risk assessments) Health risk reduction services (e.g. health counselling and support groups) Preventative health services (e.g. immunisations) Treatment health services (e.g. care at medical clinics situated within the workplace) Health-related regulations (e.g. workplace non-smoking policy) The manager of an organisation can do a lot to improve the general health and wellness of his or her employees. Initiatives need not be expensive or burdensome. Management in action 14.7 provides some examples of what organisations can do to improve the general health and wellness of employees in the organisation. MANAGEMENT IN ACTION 14.7 Examples of wellness initiatives The following are simple, cost-effective ways in which organisations can offer wellness initiatives to employees: 1. Provide filtered/purified water canisters in the staff kitchen, offices or reception area. 2. If the organisation has a canteen, ensure that a healthy menu is offered. 3. If the organisation has a tuckshop, ensure that healthy options such as fruit and salads are available and certain harmful products such as alcohol and cigarettes are banned. 4. Establish a gym at work that employees can make use of during their lunch break. Alternatively, a cheaper option would be to arrange for an exercise instructor (e.g. yoga or Pilates) to give classes during employees’ lunch hour for a minimal fee. 14.6.2 Benefits of workplace health and wellness programmes It makes sense that managers recognise their roles in the general health and wellness of employees. Some of the benefits of implementing these types of programmes in organisations are as follows (also see Management in action 14.8): Improve the general health of workers. Employees who make use of their organisations’ health and wellness programmes tend to adopt healthy behaviours and are less prone to suffer from NCDs. Lower organisational costs. Workplace health programmes can achieve a positive return on investment for both medical- and absenteeism-related costs. Implementing wellness programmes can save an organisation on healthcare costs as healthy employees cost less. Increased productivity. Healthy employees are less likely to be absent from work due to illness (less absenteeism). Employees are also less likely to come to work, but underperform because of illness or stress (called presenteeism – an employee is present, but his or her productivity is low). Improved worker morale. Participation in wellness programmes could assist employees to manage and balance their work–life relationship better. This in turn helps strengthen the organisation’s culture, build employee trust and commitment to the organisation, and reduce employees’ stress levels. Positive organisation branding. Organisations that provide health and wellness programmes for their employees record lower turnover rates, as employees tend to be loyal, stay on with the organisation and give a good report about the organisation when asked. Therefore, the organisation retains talented individuals who are crucial for performance. MANAGEMENT IN ACTION 14.8 Healthy employees make sound business sense Healthier companies show lower absenteeism rates and more productivity levels than their unhealthier competitors, according to the 2014 Healthy Company Index. Prioritising the health of the workforce is good for business and critical for society, according to Dr Craig Nossel, head of Vitality Wellness. “A trend that emerged from 2014 is that we’re seeing a significant shift in how employee health is viewed by companies globally. There is increasing focus on improving and managing health and wellbeing and how this is affecting their bottom line.” According to Nossel, this is largely due to the worsening and alarming general state of health around the world, in particular with chronic diseases of lifestyle. The risks of chronic diseases of lifestyle – including diabetes, cardiovascular disease, chronic respiratory conditions and certain cancers – play a significant role in employee illness and absenteeism, as well as reduced levels of workplace morale, engagement and productivity. Research has shown, though, that these diseases of lifestyle can be largely mitigated through tailored interventions to promote a healthier diet, increased levels of physical activity and regular health checks. Since people spend a great deal of their lives at work, and work significantly affects stress and lifestyle, employers have a unique opportunity to positively influence their employees’ ability to make healthy choices and help them to manage stress and reduce illness. This year, Discovery partnered with the University of Cambridge and Rand Europe, who have offered a global perspective on corporate wellness. Christian van Stolk, director of employment and social policy at Rand Europe, said the Healthy Company Index provides employers with critical information on the health and wellbeing of employees. Successful wellness initiatives are those that encourage a culture of health in the workplace and motivate individuals to take control of their own health. As a consequence, there is a strong business case for companies to look at health and wellbeing more closely and invest in improving employee health. The results of the 2014 Discovery Healthy Company Index showed that there are some important improvements in employee health. The average Vitality Age, for example, a measurement of health risk-related age, was 5.8 years older than the average real age in this year’s results compared to 6.4 years older in 2012. “Although still not ideal, it indicates that people are more physically active, are managing stress better and have a lower smoking rate now than two years prior,” said Van Stolk. “The Healthy Company Index showed that South Africans suffer an 11.4% loss in working days due to suboptimal health, which equates to 25 working days per employee. When compared to the UK, SA employers have a 2.3% higher productivity loss rate due to employees being unhealthier and taking more sick days.” Based on this year’s index results, recommendations for a healthier workplace include implementing canteens that offer healthy, affordable food and drinks that are subsidised where possible. In addition, having flexible work hours to allow employees to be active before or after work and recruiting health ambassadors or advocates to champion corporate wellness goals will help an organisation to lead the way when it comes to the health and wellbeing of their staff. Source: http://www.fin24.com/Entrepreneurs/News/Healthy-employees-make-soundbusinesssense-20141112 (accessed on 18 March 2015) 14.6.3 How to implement a health and wellness programme There are specific steps that an organisation can take to develop and implement a health and wellness programme: Step 1: Determine the needs of the employer and the employee. First find out what employees need and how those needs fit with the goals of the employer. This can be done by conducting a survey, an open one-on-one interview and/or using a suggestion box. A survey, for example, might reveal that employees would like their employer to provide health insurance. Step 2: Get support from everyone. All levels of management, important stakeholders (e.g. unions) and individuals must buy into the idea. Step 3: Analyse the data and create a plan. Study all the information that has been gathered and determine what elements will work within the existing organisational culture. Step 4: Implement the plan. Put the plan into action by (1) appointing a wellness officer, and (2) communicating the programme to everyone in the organisation. This can be done via email, bulletin boards, flyers, pamphlets or posters around the workplace, as well as meetings. Step 5: Monitor, evaluate and maintain the programme. Track the progress of the programme. Identify what elements are working or are popular with employees and what elements are not working. See Management in action 14.9 for the health and wellness plan implemented by Volkswagen South Africa. MANAGEMENT IN ACTION 14.9 Health and wellness – Volkswagen Group South Africa Volkswagen Group South Africa acknowledges that the management of employees’ well-being has emerged as a priority due to increasing recognition that the health and wellness of employees directly affects the productivity of the entire organisation. As employees are fundamental to the success of an organisation, it is essential to help them produce at their optimal levels. Volkswagen Group South Africa has committed itself to invest R1 million annually to support its employees and the broader community. The company’s Health and Wellness Programme follows a holistic and integrated approach which focuses on both primary (avoid the risk or condition) and secondary (minimize the effects of the condition) prevention. The Health and Wellness Programme consists of the following components: Comprehensive Occupational and Primary Health Care, HIV and AIDS programme, Employee Wellness Programme and Health and Wellness Interventions. Comprehensive Occupational and Primary Health Care Comprehensive Occupational and Primary Health Care in the work place entails the prevention, treatment and management of infectious diseases, occupational injuries, minor injuries and ailments, disability and occupational diseases in an attempt to reduce the burden of illness and disease on the individual and the organisation. This programme also endeavours to promote early entry into disease management programmes in order to enhance productivity. In 2013, Volkswagen Group South Africa opened a R30-million PeoplePavilion for its employees. The PeoplePavilion is a sports, recreational, rehabilitation and community facility for the benefit of all Volkswagen Group South Africa employees and their families. The facility has a gym which is managed by a qualified Biokineticist and is open to all Volkswagen employees to use for a nominal membership fee. The gym is also used for the rehabilitation of injured Volkswagen employees and is equipped with purpose-built gym equipment. There is also an indoor multi-purpose hall which is used for indoor sports as well as a main field where soccer, rugby and cricket leagues are played. HIV and AIDS programme The company’s HIV/AIDS Programme follows an integrated approach, tackling the epidemic on all fronts with various initiatives and campaigns that include education and awareness, comprehensive health care, risk management, community involvement and monitoring and evaluation. Volkswagen has spent more than R6 million since the programme’s inception in 2001. Its success has been recognised internationally, receiving an award for Business Excellence in the Workplace from the Global Business Coalition on HIV/AIDS. Volkswagen Group South Africa is also a member of the South African Business Coalition on Health and AIDS (Sabcoha). Employee Wellness Programme (EWP) The EWP is the company’s resource that utilises specific core principles to enhance employee and workplace effectiveness through prevention, identification, and resolution of personal and work related issues. The EWP is a programme designed to assist management, employees and their dependants and various stakeholders within the company in addressing productivity and absenteeism issues and to resolve personal concerns, including, but not limited to, health, marital, family, financial, alcohol, drug, legal, emotional, stress, or other personal issues that may affect work performance and attendance, in a confidential and effective manner. The company has also partnered with Careways, a health support services company, to achieve its goal. Health and Wellness Interventions This covers areas that address the entire spectrum of psychosocial stressors in the workplace, lifestyle diseases and work-life balance in order to enhance individual and organisational wellness. These interventions include health risk assessments, education and awareness which is linked to national health calendar days (such as World Diabetes Day, World Aids Day) and other interventions aimed at improving the overall health status of our employees and the quality of their lives. Another key element of Volkswagen Group South Africa’s internal Corporate Health Services is its focus on identifying sicknesses like tuberculosis (TB). The medical centre has a registered national treatment centre since 2002. The national treatment protocol and Directly Observed Treatment, Short Course Chemotherapy (DOTS) is followed and provided at no cost by Corporate Health Services. The centre is a National Treatment Centre for TB, with a 93 per cent cure rate. Source: http://www.vw.co.za/en/volkswagen_groupsouthafrica/corporate_citizenship/he alth.html (accessed on 15 October 2014) Media Release: Volkswagen Group officially opens R30-million PeoplePavilion for its employees (issued 6 December 2013) 14.7 SUMMARY This chapter has provided an overview of the contemporary issues that affect management today. Owing to the wide scope of issues affecting businesses, it is difficult to cover all of them but it is essential that business managers in South Africa are aware of some of these issues. Managers should be able to identify types and sources of conflict in their organisation and know how to resolve it. They should know how to plan and lead teams, as well as understand the wider global environment and see how best they can position the organisation to seize the opportunities offered by economic trading blocs to expand and grow their business. In addition, managers should understand the concept of BEE in South Africa and how to correctly apply and implement it. Finally, a healthy workforce translates to greater productivity, thus managers should put in place a progressive health and wellness programme that would be beneficial to employees. REFERENCES AND RECOMMENDED READING 4 steps to implementing a successful employee wellness program. http://www.forbes.com/sites/theyec/2012/11/28/4-steps-to-implement-a-successful-employeewellness-program/ (accessed on 15 October 2014). Barron, C. 2012. Maponya: BEE kills self-reliance. Sunday Times Business & Careers, 9 December, p. 3. Berry, L.L. & Mirabato, A.M. 2011. Partnering for prevention with workplace health promotion programs. Mayo Clinic Proceedings, April, 86(4): 335–337. Berry, L.L., Mirabato, A.M. & Baun, W.B. 2010. What’s the hard return on employee wellness programs? Harvard Business Review, December: 104–112. Bradshaw, D., Steyn, K., Levitt, N. & Nojilana, B. 2011. Non-communicable diseases: a race against time. South African Medical Research Council. http://www.mrc.ac.za/policybriefs/raceagainst.pdf (accessed on 3 December 2014). Brazil, Russia, India and China. http://www.investopedia.com/terms/b/bric.asp (accessed on 17 March 2015). Canadian Centre for Occupational Health and Safety. 2009. Workplace health and wellness program – getting started. http://www.ccohs.ca/oshanswers/psychosocial/wellness_program (accessed on 15 October 2014). Daft, R.L. & Marcic, D. 2013. Management: the new workplace, 8th ed. Canada: South-Western Cengage Learning. Elibiary, A. 2010. The pitfalls of addressing historic racial injustice: an assessment of South Africa’s Black Economic Empowerment (BEE) policies. Background paper. Friedrich Naumann Stiftung für die Freiheit, Regional Office Africa. http://edoc.vifapol.de (accessed on 18 June 2013). Endeavour SA. 2009. The entrepreneurial dialogues: state of entrepreneurship in South Africa. FNB/Endeavour SA in association with the Gordon Institute of Business Science. http://www.gibs.co.za/SiteResources/documents/The%20Entrepreneurial%20Dialogues%20%20State%20of%20Entrepreneurship%20in%20South%20Africa.pdf (accessed on 15 October 2014) Herrington, M., Kew, J. & Kew, P. 2010. Global entrepreneurship monitor 2010 South African report. Cape Town: Graduate School of Business, University of Cape Town. Jacobs, H. 2009. Resource requirements and legal related aspects. In G. Nieman & C. Nieuwenhuizen (Eds), Entrepreneurship: a South African perspective, 2nd ed. Pretoria: Van Schaik, 125–154. Jones, G.R. & George, J.M. 2013. Essentials of contemporary management, 5th ed. New York: McGraw-Hill/Irwin International. Knowledge Resources. 2014. African human capital and labour report: South Africa. Randburg: Knowres Publishing (Pty) Ltd. Management at work editor. 2008. What is distributive negotiation? http://management.atworknetwork.com/2008/06/16/what-is-distributive-negotiation/ (accessed on 18 March 2015). Merriam-Webster. Groupthink. http://www.merriam-webster.com/dictionary/groupthink (accessed on 5 January 2015). Nieman, G. 2009. Growth strategies and options. In Nieman, G. & Nieuwenhuizen, C. (Eds), Entrepreneurship: a South African perspective, 2nd ed. Pretoria: Van Schaik. Oosthuizen, T.F.J. 2012. Contemporary issues in management. In Hellriegel, D., Jackson, S.E., Slocum, J.W., Louw, L., Staude, G., Amos, T., Klopper, H.B., Louw. M., Oosthuizen, T., Perks, S. & Zindiye, S. 2012. Management, 4th ed. Cape Town: Oxford University Press. Patel, D., Goetzel, R.Z., Beckowski, M., Milner, K., Greyling, M., Da Silva, R., Kolbe-Alexander, T., Tabrizi, M.J. & Nossel, C. 2013. The healthiest company index: a campaign to promote worksite wellness in South Africa. Journal of Occupational and Environmental Medicine, 55(2): 172–178. Prasad, B.R. BRICS and the global economy. http://www.brics5.co.za/assets/BRICS-and-the-GlobalEconomy.pdf (accessed on 10 December 2014). Robbins, S.P., DeCenzo, D.A. & Coulter, M. 2015. Fundamentals of management: essential concepts and applications, 9th ed. Harlow: Pearson. Simrie, M., Herrington, M., Kew, J. & Turton, N. 2011. Global entrepreneurship monitor 2011 South African report. Cape Town: Graduate School of Business, University of Cape Town. South Africa in BRICS. http://www.brics5.co.za/about-brics/south-africa-in-brics/ (accessed on 3 January 2015). Southern African Development Community (SADC). Free trade area. http://www.sadc.int/aboutsadc/integration-milestones/free-trade-area/ (accessed on 10 December 2014). Southern African Development Community (SADC). History and present status. http://www.dfa.gov.za/foreign/Multilateral/africa/sadc.htm (accessed on 10 December 2014). Williams, C. 2013. Principles of management, 7th ed. Mason, OH: South-Western Cengage Learning. Williams, C. 2014. MGMT, 6th ed. Mason, OH: South-Western Cengage Learning. Why is teamwork important? http://www.the-happy-manager.com/articles/why-is-teamwork-important/ (accessed on 17 October 2014). World Health Organization (WHO). 2014. Noncommunicable diseases – country profiles 2014. WHO: Geneva. CASE STUDY: MAPONYA: BEE KILLS SELF-RELIANCE One of South Africa’s greatest entrepreneurs, Richard Maponya, blames the country’s lack of entrepreneurial activity on black economic empowerment (BEE). He says BEE fostered a culture of entitlement and expectation that has robbed matriculants and university graduates of the incentive to start their own businesses. Maponya, 86, was raised in Limpopo and trained as a teacher before starting small grocery stores in Soweto in the early 1950s, which became the foundation of a remarkable business empire. Nothing symbolised his success more than the 65 000m2 Maponya Mall he built in Soweto in 2007, which was voted no. 1 shopping centre in Gauteng and no. 2 in South Africa in 2012. Maponya has won many awards, among them the 2012 Africa entrepreneurship lifetime award by the African leadership network and philanthropic investment firm Omidyar Network. Maponya voices his observations about the damaging effect of BEE on the spirit of entrepreneurship in post-apartheid South Africa. He says that while BEE was designed to empower black people, it has, in a sense, done the reverse by taking away the incentive to start their own businesses. “Our youngsters are growing up with the idea of having everything for free. It’s an entitlement attitude. That sense of entitlement has killed the initiative of our youngsters.” While BEE has promoted it, he says the entitlement culture was borne out of an attitude that began growing from 1976 where young people believed that a majority rule would entitle them to grab whatever belonged to a white man and give it to the black people. As a result, when 1994 came along, the “do it yourself” attitude that had driven his generation to start businesses was largely absent. Maponya agrees that BEE was necessary, even if it did have negative unforeseen consequences. “BEE was created to empower the majority of our people, unfortunately it was abused and misused so that it empowered the few who were connected.” It has left a sense of resentment and “a feeling that the government owes us”. Maponya advocates that BEE in its present form should be scrapped. Even preferential procurement, a central pillar of BEE, has only helped “the very few who are connected. It has not helped the majority”. Those who, in spite of BEE, are motivated to start their own businesses are being held back by excessive red tape, he says. There was a lot of red tape when he started in business, but he succeeded because “I never took no for an answer. I wanted to achieve what I wanted to achieve”. Young people no longer have that never-say-die attitude, he says. “They think government must do everything for them. That’s the problem. Also the empowerment thing where you are given so many shares does not really create anything. You are allocated some shares in an organisation that has been in existence. That doesn’t create a single extra job.” Maponya, says “we need to cut the red tape and educate youngsters to have selfconfidence and desire to start up things on their own. Government funding mechanisms have largely failed. Thousands of young people matriculate and graduate, and when they want to go into business they have no collateral to put forward and cannot access funding.” Maponya suspects that BEE, and above all the tender system which rewards loyalty, has created a situation in which too many business leaders feel they have too much to lose if they make trouble for the government. He is of the opinion that if the government cut the red tape, provided accessible funding and a more business-friendly environment for entrepreneurs, then BEE would not be necessary at all. Maponya has recently set up the Maponya Institute to educate young people to start and run their own businesses, so that when they matriculate or graduate they don’t just look at being employed but rather seek to create employment for themselves and others. Maponya was the founding president of the National African Federated Chamber of Commerce and Industry (Nafcoc), which was started in 1964 to serve the interests of small businesses. Source: Adapted from Barron (2012) Case study questions 1. Why does Richard Maponya blame South Africa’s lack of entrepreneurial activity on black economic empowerment (BEE)? 2. Mention some of the criticisms Maponya levels against BEE. 3. How has Maponya contributed to the advancement of entrepreneurship in South Africa? MANAGEMENT DISCUSSION EXERCISES 1. Why do managers have to possess good negotiation skills? 2. Why are compromise and collaboration preferred as strategies for managing conflict rather than accommodation, avoidance and competition? 3. Conduct a Google search on all the 15 member states of SADC. In a tabular format, list their population, GDP, main exports and main imports. 4. Briefly discuss the role and importance of BRICS in the global business environment. 5. What do you understand by the term “black economic empowerment (BEE)”? 6. Visit any large organisation in your town and enquire about its BEE policy and scorecard. 7. Go to any large organisation that you know and enquire about its health and wellness programme. Does it have one? What does the programme entail? 8. Assume that you are the manager of a small business organisation. What type of health and wellness initiatives would you implement in your organisation? Index A Abraham Lincoln 225 acceptability 294 accommodation 310 accountability 143, 208 accuracy 294 action research 169 activating 4 age 189 agents 53 Amway 278 Anglo American 82 appreciative 276 appreciative inquiry 170, 171 arbitrator 311 authority 28, 142, 206, 222, 244 delegation 143 line 142 staff 142 avoidance 310 awareness 227 awareness-based training 194 B bargaining 311 distributive 311 integrative 311 BBBEE 322 BEE 321, 322 BEEE 14 belief systems 74 Bill Clinton 225 Blake and Mouton’s managerial grid 216 BMW 180 Body Shop 88 bounded rationality 133 BRICS 318 budgeting 104 business cycle 59 business functions 48 C Census report 54 centralisation 28, 141 chain of command 29, 144, 208 change 164, 285 behavioural 167 effective 172 fatique 166 forces for 164 general 165 internal 166 systemic 166 volatile 164 process 167 resistance 172, 197 cultural 174 dynamic 175 individual 173 organisational 174 overcoming 175 political 174 technical 174 strategic 166 structural 167 uncertainty 173 technological 167 character 73 City Lodge 110 coalition building 134 cognitive 212 collaboration 310 commitment 37, 83, 98, 103, 175, 197, 227, 247, 248 communication 176, 197, 226, 234, 263–277 barriers 271 individual 273 organisational 272 channel 266 diagonal 271 downward 270 formal 270 functions 264 horizontal 271 importance 264 informal 271 lateral 271 non-verbal 269, 276 elements 269 oral 269 organisational 270 process 265 skills 275 types 268 upward 270 verbal 268 vertical 270 written 268 competitive advantage 9, 11, 51, 63, 95, 108, 198, 270, 285, 288 competitive position 288 competition 51, 165, 310 brand 51 generic 51 need 51 product 51 competitors 51 compromise 310 conceptualisation 227 conflict 308, 309 intergroup 308 interpersonal 308 inter-organisational 308 intragroup 308 management 309 resolution 309 functional 310 non-functional 310 solving 9 sources 308 congruence 102, 145 consideration 213, 216 consumerism 58, 80, 84 consumer(s) 50, 57, 165 spending 59 contemporary management 307 contingency theory 36, 218 Fiedler’s theory 218 Hersey and Blanchard’s theory 223 House’s path-goal theory 220 control 4, 283–299 approaches 284 bureaucratic 284 clan 284, 295 market 284 areas of 288 by exception 291 categories of frequency 295 constant 295 occasional 296 periodic 295 forms 286 concurrent 287, 295 feed-back 287, 295 feed-forward 286, 295 post-control 287 steering 287 importance 285 contingency factors 296 process 289 self 295 system 293 types 286 management 286 operational 286 strategic 286 coordination 145 core time 255 core values 178 corporate governance 288 corporate social responsibility 83, 84 approaches 84–85 criteria 86 corrective action 292, 293 corruption 12 COSATU 30 cost savings 9 creativity 198 cultural diversity 273 culture(s) 74, 273 high-context 273 low-context 273 customers see also consumers, 50, 80, 84, 285 satisfaction 312 D decentralisation 141 decisional roles 6 decision(s) 118, 141 adaptive 118 criteria 128 factors influencing 120 innovative 119 operational 116 routine 118, 130 strategic 116 tactical 116 decision-making 115–134, 141, 198 bias(es) 121 conditions 117 ambiguity 117, 119 certainty 117, 118 risk 117, 118 uncertainty 117, 119 models 125 administrative 125, 132 classical 125 political 125, 133 rational 125 nature 116 process 126 steps 126–132 styles 121, 122 analytic 122 autocratic 123 behavioural 123 collective 124 conceptual 123 consensus 124 democratic 124 directive 122 individual 122 group 123 types 117 decoding 266 defensiveness 274 delegation 143, 208, 285 Deming, W.Edwards 37 departmentalisation 138, 140, 150 customer 150, 153 functional 150, 151 geographic 150, 153 matrix 150, 154 product 150, 152 desire 211 deviations 291, 292 differentiation 10 disability 187 discrimination 197 disposable income 58 dissatisfaction 236, 242, 245 disseminator 7 disturbance handler 7 diversity 14, 185, 312 challenges 197 dimensions 187 ethical challenge 198 factors effecting 189 implications 191 positive outcomes 198 training 193 programmes 194 division of labour 28, 29 drive 211 E eavesdropping 297 effective 3 efficiency 3, 138, 237 functional 191 efficiently 285 emotional 211 intelligence 212 emotions 274, 276 empathy 227, 276 employee theft 297 Employment Equity Act 185, 186, 192, 199 Employment Tax Incentive Act 189 empowerment 208, 210, 228 empowering 256 encoding 266 entrepreneur 7 entrepreneurship 228, 323 environment, see micro-environment, task environment and macro-environment environmental scanning 64 equity 28 Eskom 266 ethical behaviour 12, 71, 79 code 199 conduct 72 decision-making 77, 79 dilemma 72 issue 71 manager 80 reputation 80 standards 74 ethics 71 code of 82 committee 83 managerial 76 ethnicity 189 expectancy 249 experience 222 explicit learning 252 extinction 250 extrinsic 239 F facilitators 53 family-friendly 254 Fayol, Henry 27 feedback 236, 248, 266, 275 loop 266 outcome-oriented 248 process-oriented 248 fertility rate 55 figurehead 7 filtering 273, 276 financial situation 288 flexibility 294 flexible working hours 255 Follet, Mary Parker 31 followers 205 Ford 85 G G4S 300 Game 317 Gantt, Henry 25 gender 188, 228 differences 273 General Electric 180, 290 gestures 276 Gilbreth, Frank and Lillian 24 global environment 15, 315 goal(s) 98–103, 128, 153, 237, 246, 272, 288, 289, 308 acceptance 247 achievement 126, 247 commitment 247 criteria 100 difficulty 247 real 100 specificity 247 stated 100 Google 11, 209 grapevine 271 groupthink 312 H Hawthorne studies 31 Health and wellness programme 325–328 Herzberg, Frederick 242, 256 honesty 211 human relations approach 30 human resources 103, 288 approach 32 humorous 275 hygiene factors 242 I Implats 10 individual tolerance 187 Industrial Revolution 21, 30 industry discontinuities 163 inflation 58, 59 information management 34 initiating structure 213, 216 initiative 28 informational roles 6 information distortion 276 overload 274 innovation 11, 285 instrumentality 249 integration 293 integrity 73, 211 interest rates 58 intermediaries 53 interpersonal roles 6 intervention 179, 191, 192 inter-workgroup training 195, 196 intra-workgroup training 195 intrinsic 239 intuition 133 J job enlargement 257 enrichment 243, 257 rotation 258 satisfaction 312 sharing 255 justice 78 K knowledge 178 Kodak 49 Kotter 168 L language 274, 275 law of effect 250 laws 74, 82 leader(s) 7, 205 approach 223 delegating 224 participating 224 selling 223 telling 223 employee-oriented 215 member relations 220 production-oriented 215 leadership 176, 203–229 charismatic 225 components 206 nature 206 perspectives 224 servant 226 styles see leadership styles technological 288 theories 210 behavioural 210, 213 contingency see also contingency theory, 210, 217 trait 210, 211 transformational 225 leadership styles 213 achievement-oriented 222 authority compliance 217 autocratic 215 considerate 214 country-club 217 directive 221, 223 impoverished 217 initiating structure 214 liassez-faire 215 middle-of-the-road 217 participative 215, 221 relationship-oriented 218, 220 supportive 221 task-oriented 218, 220 team management 217 learning organisation 177 core processes 179 distinguishing features 179 least preferred co-worker questionnaire 218, 219 legal issues 107 level of maturity 223 Levi 62 Lewin Kurt 246 Lewin model 167 moving 168, 169 refreezing 168, 169 unfreezing 168, 169 LG Electronics 85 liaison 7 Locke, Edwin 246 locus of control 222 internal 222 external 222 LSM 56 M macro-environment 53 demographic 54, 56 ecological 62 economic 54, 58 international 54, 63 legal 60 natural 54, 62, 85 political 54, 60 sociocultural 54, 57 technological 54, 60 inventions 61 management 3, 176 first-line 8, 105 functions 3, 4, 115, 138 kinds 6 middle 8, 105 principles of Fayol 28 process 4 roles 5, 7 science 33 skills 6, 8 communication 8 conceptual 7, 8 human 7, 8 technical 7, 8 time 108 top 8, 105, 141, 142, 144, 148 management theory 20, 22 administrative 27 behavioural 29 bureaucratic approach 26 classical 22 contemporary 35, see also contemporary management scientific management 22 quantitative 33 manager 2, 4, 94, 128, 143 challenges 9 first-line 5 middle 5, 142 top 5 Marikana 30 market 50 consumer 50 industrial 50 institutional 50 international 50 resale 50 share 103, 289 marketing 108 Martin Luther King 225 Maslow, Abraham 32, 239 Mayo, Elton 31 MBO 100 MBWA 291 McClelland, David 243 McDonalds 139, 149 McGregor, Douglas 33, 217 mediator 311 merchants 53 micro-environment 46 minority domination 313 mission 46, 47 Mintzberg 6 Monge, Gaspard 34 monitor 7 moral 74 manager 76 person 76 rights 78 Mother Theresa 225 motivating contingent workers 257 jobs 257 low-skilled workers 257 professionals 256 motivation 233–258, 264 and pay 254 and organisational performance 237 benefits 237 contemporary issues 254 process 235 theories see motivation theories motivation theories 239 content 239 Acquired needs theory 243 Maslow’s hierarchy of needs theory 239, 243 Herzberg’s two-factor theory 242 learning 250 reinforcement theory 250 social learning theory 251 process 244 Equity theory 244 Expectancy theory 248 Goal-setting theory 246 motivators 242 M-pesa 45 Mr Price 317 MTN 317 Multichoice 317 mumbling 276 N Nampak 104 Nando’s 317 need for affiliation 243 need for power 244 need to achive 244 needs 240 esteem 240 physiological 240 safety 240 self-actualisation 240 social 240, 264 negotiation 310 negotiator 7 Nigeria 317 Nissan 85 noise 266, 274 physical 274 physiological 274 psychological 274 semantic 275 norms 74 O observation 296 Ohio State University studies 213 open-book management 256 operations management 34 organisation 3 modular 156 virtual 156 organisational change 161, see also change conflict 308, see also conflict culture 174, 296 designs 149 boundary-less 156 departmentalisation, see departmentalisation simples structure 149 team-based 156 hierarchy 296 learning 161 negotiation 308 structure 146, 147 influencing factors 146 teams 311, see also teams resources 46, 49 intangible resources 49 tangible resources 49 organising 3, 137–157 elements 139 principles 139 authority 142 centralisation 141 chain of command 144 coordination 145 decentralisation 141 division of work 140 span of control 144, 149 specialisation 140 output control 287 overpayment 245 over-rewarded 245 P Pep Stores 76 people centred 223 perceived ability 222 performance 95 actual 290 standards 289, 290, see also standards personality 190 persuasion 227, 264 physical barriers 272 planning 3, 93–109 formal 94 importance 97 informal 94 plans 104 alternative 106 operational 105 single-use 105 standing 105, 295 strategic 104 tactical 105 policy 105, 118 politicising 197 pollution 62 population 54 age-gender 55 growth 54 position power 220 positive model 170 power 207 coercive 207 expert 207 legitimate 207 referent 207 reward 207 predisposition 190 behavioural 191 judgemental 191 preference biases 309 prejudice 190, 193, 194, 197 components 191 problem-solving 9 procedure 106, 118 product life cycle 163 quality 285 profitability 103 programming 104 production 179 centred 223 productivity 103, 198, 288, 326 employee 324 prosperity 59 Protea Hotels 317 public responsibility 288 punishment 250 Q qualitative 130 quantitative 130, 291 R receiver 266, 276 recession 59 recovery 59 reinforcement 250, 251 relationship behaviour 223 religious practices 193 remuneration 28 repo rate 58 resource allocator 7 responsibility 143, 208 responsiveness 11 restructuring 161 reward systems 309 Ronald Reagan 225 rule(s) 105, 118 S SABMiller 180, 317 SADC 315 satisfaction 236, 237, 242 satisficing 133 scheduling 104 selective perception 173, 274 self-confidence 211 self-control 252 self-discipline 238 neuropsychology 238 self-efficacy 247 self-efficiency 253 self-motivation 252 self-reinforcement 252 sender(s) 266, 275, 276 shareholders 84, 85 Shoprite 9, 317 significance 106 simplicity 294 situation 206, 220 situational approach 36 skills-based training 195 Skinner 250 SMART 100, 143, 247 social behaviour 57 loafing 312 responsibility 103 spokesperson 7 stakeholders 46, 81, 84, 85 standards 292, 293 human resource 289 market share 289 of performance 289 profit 289 productivity 289 status differences 272 stereotyping 190 stewardship 227 strategic alliance 157 control points 288 importance 294 structure and communication 148 environmental uncertainty 148 size 147 strategy 146 technology 147 sub-Saharan Africa 317 suppliers 52, 53 SWOT 64 synergy 36, 147 system 35 closed 35 open 35 systems management 35 T tactics 275, 276 task behaviour 223 task environment 50 task structure 220, 222 Tata Steel 75 Taylor, Frederick 22, 23 teams advantages 312 disadvantages 312 types 313 cross-functional 313 project 314 self-managed 314 virtual 314 technology 103, 107, 165 telecommuting 255 tenderpreneurship 323 Theory X 33, 217 Theory Y 33, 217 Tiger Brands 317 timeliness 294 Total Quality Management 37 Toyota 38, 85 trade by barter 21 trade union 192, 310 trading blocs 315 triple bottom line 86 trust 143, 225, 273, 284 U underpayment 245 under-rewarded 245 unemployment 59 unethical behaviour 13 unity of command 28, 144, 155 unity of direction 28 University of Iowa studies 215 University of Michigan studies 215 urbanisation 57 utilitarian 78 V valence 249 values 73, 284 virtual organisation 156, 157 vision 46, 47, 106 Vodacom 45, 47 Volkswagen 328 Vroom 248 W Weber, Max 26 wellness 324 Westdene Fruiteries 67 Whitney, Eli 34 Wimpy 52 Winston Churchill 225 Woolworths 10, 317 workforce stability 237 workplace diversity, see diversity health 324, 325 privacy 297 violence 298 World Health Organisation 187