INTRODUCTION TO FUNCTIONAL AREAS
OF MANAGEMENT
Module Guide
Copyright© 2021
MANCOSA
All rights reserved, no part of this book may be reproduced in any form or by any means, including photocopying machines,
without the written permission of the publisher. Please report all errors and omissions to the following email address:
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This Module Guide,
Introduction to Functional Areas of Management (NQF level 5),
will be used across the following programmes:

Bachelor of Commerce in Accounting

Bachelor of Business Administration

Bachelor of Commerce in Entrepreneurship

Bachelor of Commerce in Financial Management

Bachelor of Commerce in Information and Technology Management

Bachelor of Commerce in Marketing Management

Bachelor of Commerce in Retail Management

Bachelor of Commerce in Supply Chain Management

Bachelor of Commerce in Project Management

Bachelor of Commerce in International Business
INTRODUCTION TO FUNCTIONAL AREAS OF MANAGEMENT
List of Content ......................................................................................................................................................... 1
Preface.................................................................................................................................................................... 2
Unit 1: What is Management ................................................................................................................................... 8
Unit 2: Organising Management Activities ............................................................................................................ 19
Unit 3: Management Structures ............................................................................................................................ 30
Unit 4: Marketing Management ............................................................................................................................. 38
Unit 5: Financial Management .............................................................................................................................. 53
Unit 6: Human Resource Management ................................................................................................................. 63
Unit 7: Operations Management ........................................................................................................................... 73
Unit 8: Information Management ........................................................................................................................... 89
Bibliography .......................................................................................................................................................... 97
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Introduction to Functional Areas of Management
List of Content
List of Tables
Table 1: Ten Critical Decisions Of Operations Management ............................................................................ 79
Table 2: Further Differences Between Goods And Services............................................................................. 82
List of Figures and Illustrations
Figure 1.1 classification of management .......................................................................................................... 14
Figure 1.2 Skill Type Needed by Manager Level .............................................................................................. 18
Figure 2.1 The Evolution of Specialisation........................................................................................................ 23
Figure 2.2 Line and Staff Structures ................................................................................................................. 28
Figure 3.1 Departmentalization According to location....................................................................................... 34
Figure 5.1 Different Types Markets................................................................................................................... 43
Figure 5.2: The relationship between the industry and the market ................................................................... 44
Figure 5.3 : Components of Holistic Marketing ................................................................................................. 49
Figure 5.4: The Four P Components of the Marketing Mix ............................................................................... 50
Figure 5.5: Marketing Mix Strategy ................................................................................................................... 51
Figure 5.6: Understanding Social Responsible Marketing ................................................................................ 52
Figure 6.1: Overview of HR Responsibilities ..................................................................................................... 66
Figure 6.2: Overview of Human Resource Functions ....................................................................................... 68
Figure 6.3: Competencies for Effective Human Resource Management (Yeung, et al, 1994).......................... 72
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Introduction to Functional Areas of Management
Preface
A.
Welcome
Dear Student
It is a great pleasure to welcome you to Introduction to Functional Areas of Management (IFAM5). To make
sure that you share our passion about this area of study, we encourage you to read this overview thoroughly. Refer
to it as often as you need to, since it will certainly make studying this module a lot easier. The intention of this
module is to develop both your confidence and proficiency in this module.
The field of Business Management is extremely dynamic and challenging. The learning content, activities and
self- study questions contained in this guide will therefore provide you with opportunities to explore the latest
developments in this field and help you to discover the field of Business Management as it is practiced today.
This is a distance-learning module. Since you do not have a tutor standing next to you while you study, you need
to apply self-discipline. You will have the opportunity to collaborate with each other via social media tools. Your
study skills will include self-direction and responsibility. However, you will gain a lot from the experience! These
study skills will contribute to your life skills, which will help you to succeed in all areas of life.
The module is a 15 credit module at NQF level 5
We hope you enjoy the module.
MANCOSA does not own or purport to own, unless explicitly stated otherwise, any intellectual property rights in or
to multimedia used or provided in this module guide. Such multimedia is copyrighted by the respective creators
thereto and used by MANCOSA for educational purposes only. Should you wish to use copyrighted material from
this guide for purposes of your own that extend beyond fair dealing/use, you must obtain permission from the
copyright owner.
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Introduction to Functional Areas of Management
B. Exit Level Outcomes and Associated Assessment Criteria of the Module
LEARNING OUTCOMES OF THE MODULE
ASSOCIATED ASSESSMENT CRITERIA OF THE MODULE


Conceptualise the skills managers must
acquire in their roles
Skills managers provides a comprehensive view of an
individual’s aptitude on a selection of leadership
competencies to facilitate growth in the organisation

Analyse the four primary management

tasks
Primary management tasks, planning, organising,
leading and controlling are examined to demonstrate
effective management

Differentiate between the functional areas

of management
Functional areas of management are evaluated to
understand and learn a little more about the functions of
management .

Outline the importance of each functional

area of management
The importance of functional areas of management is
acknowledged to highlight the experience required for
effective management

Identify the relationship between

functional areas of management
Functional areas of management are interrelated to
demonstrate the relationship in management
deliverables
C.
Learning Outcomes of the Units
You will find the Unit Learning Outcomes on the introductory pages of each Unit in the Module Guide. The Unit
Learning Outcomes lists is an overview of the areas you must demonstrate knowledge in and the practical skills
you must be able to achieve at the end of each Unit lesson in the Module Guide.
D.
How to Use this Module
This Module Guide was compiled to help you work through your units and textbook for this module, by breaking
your studies into manageable parts. The Module Guide gives you extra theory and explanations where necessary,
and so enables you to get the most from your module.
The purpose of the Module Guide is to allow you the opportunity to integrate the theoretical concepts from the
prescribed textbook and recommended readings. We suggest that you briefly skim read through the entire guide
to get an overview of its contents. At the beginning of each Unit, you will find a list of Learning Outcomes and
Associated Assessment Criteria. This outlines the main points that you should understand when you have
completed the Unit/s. Do not attempt to read and study everything at once. Each study session should be 90
minutes without a break
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Introduction to Functional Areas of Management
This module should be studied using the prescribed and recommended textbooks/readings and the relevant
sections of this Module Guide. You must read about the topic that you intend to study in the appropriate section
before you start reading the textbook in detail. Ensure that you make your own notes as you work through both the
textbook and this module. In the event that you do not have the prescribed and recommended textbooks/readings,
you must make use of any other source that deals with the sections in this module. If you want to do further reading,
and want to obtain publications that were used as source documents when we wrote this guide, you should look at
the reference list and the bibliography at the end of the Module Guide.
E.
Study Material
The study material for this module includes tutorial letters, programme handbook, this Module Guide, a list of
prescribed and recommended textbooks/readings which may be supplemented by additional readings.
F.
Prescribed and Recommended Textbook/Readings
There is at least one prescribed and recommended textbooks/readings allocated for the module.
The prescribed and recommended readings/textbooks presents a tremendous amount of material in a simple, easyto-learn format. You should read ahead during your course. Make a point of it to re-read the learning content in
your module textbook. This will increase your retention of important concepts and skills. You may wish to read
more widely than just the Module Guide and the prescribed and recommended textbooks/readings, the
Bibliography and Reference list provides you with additional reading.
The prescribed and recommended textbooks/readings for this module is:
Prescribed

Du Toit, Erasmus and Strydom (2013) Introduction to Business Management, 9th Edition, Oxford University
Press: Southern Africa
Recommended

Jones, G.R., George, J.M. & Hill, C.W.L (1998) Contemporary Management Issues. Massachusetts: McGraw
Hill.

Mondy, R.W., Sharplin, A. & Premeaux, S.R. (1991) Management Concepts, Practices and Skills.
Massachusetts: Allyn & Bacon.

Robbins, S.P. (1997) Managing Today. London: Prentice Hall.

Smit, P.J. & Cronjé, D.J. (2002) Management Principles, 3rd Edition Cape Town: Juta & Co.
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Introduction to Functional Areas of Management
Journals

Hofmeyer, K. (1998) “South African Managers Need To Be More Positive” People Dynamics October,
16(10), pp 16 – 20.

Mintzberg, H. (1990) “The Manager’s Job: Folklore and Fact” Harvard Business Review, Mar – Apr, pp 163 –
170.

Moss Kanter, R. (1989) “The New Managerial Work” Harvard Business Review Nov - Dec, pp 13 – 20.

Taylor, G (2000) “An ‘Empty Beds’ Policy to Manage Aids?” People Dynamics May, 18 (5), pp 20 – 24
Videos

YouTube channels:

Alanis Business Academy

Motivational Videos to Success

Lectures: Harvard Business: Managing People
Websites:
Academicearth.com
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Introduction to Functional Areas of Management
G.
Special Features
In the Module Guide, you will find the following icons together with a description. These are designed to help you
study. It is imperative that you work through them as they also provide guidelines for examination purposes.
Special Feature
LEARNING OUTCOMES
Icon
Explanation
The Learning Outcomes indicate aspects of the particular Unit you have to
master.
The Associated Assessment Criteria is the evaluation of the students’
ASSOCIATED
understanding which are aligned to the outcomes. The Associated
ASSESSMENT CRITERIA
Assessment Criteria sets the standard for the successful demonstration of
the understanding of a concept or skill.
A Think Point asks you to stop and think about an issue. Sometimes you
THINK POINT
are asked to apply a concept to your own experience or to think of an
example.
You may come across Activities that ask you to carry out specific tasks. In
ACTIVITY
most cases, there are no right or wrong answers to these activities. The
purpose of the activities is to give you an opportunity to apply what you
have learned.
At this point, you should read the references supplied. If you are unable to
READINGS
acquire the suggested readings, then you are welcome to consult any
current source that deals with the subject.
PRACTICAL
APPLICATION OR
EXAMPLES
Practical Application or Examples will be discussed to enhance
understanding of this module.
You may come across Knowledge Check Questions at the end of each
KNOWLEDGE CHECK
Unit in the form of Knowledge Check Questions (KCQ’s) that will test your
QUESTIONS
knowledge. You should refer to the Module Guide or your textbook(s) for
the answers.
You may come across Revision Questions that test your understanding of
REVISION QUESTIONS
what you have learned so far. These may be attempted with the aid of your
textbooks, journal articles and Module Guide.
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Introduction to Functional Areas of Management
Case Studies are included in different sections in this Module Guide. This
CASE STUDY
VIDEO ACTIVITY
7
activity provides students with the opportunity to apply theory to practice.
You may come across links to Videos Activities as well as instructions on
activities to attend to after watching the video.
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Introduction to Functional Areas of Management
Unit
1:
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What is Management
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Introduction to Functional Areas of Management
Unit Learning Outcomes
CONTENT LIST
LEARNING OUTCOMES OF THIS UNIT:
1.1 Introduction

1.2 Definitions of Management
 Understand and apply the general principles of management
1.3 What is Management
 Discuss the nature and some of the management processes
1.4 Percentage of time managers spend
 Understand the levels and functions of management
Introduce topic areas for the unit
on functional activities
1.5 The 10 Roles of Managers
 Discuss the role distribution of managers and the skills required
to undertake jobs
1.6 Managerial skills required at
 Discuss the skills required to undertake jobs
different managerial levels
Prescribed / Recommended Readings
Prescribed Readings:

Du Toit, Erasmus and Strydom (2013) Introduction to Business
Management, 9th Edition, Oxford University Press: Southern Africa
Recommended Readings:
 B.J. ERASMUS, S. RUDANSKY-KLOPPERS, J.W. STRYDOM (2013)
Introduction to Business Management (9th edition) Cape Town, South Africa :
Oxford University Press Chapter 6 Pages 167-180
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Introduction to Functional Areas of Management
1.1
Introduction
Whether you work in a profit or a non-profit organisation (such as a university), wherever you are in the world today,
the large companies have influence far and beyond the marketplace. They influence the lives of many thousands
of people, and sometimes even nations depend on certain big companies for employment of an important number
of their population. The running of these organisations calls for certain management skills. This section introduces
you to the concept of management.
1.2
Definitions of Management
Management can be defined as the process of planning, organising, leading and controlling the resources of the
organisation to achieve stated organisational goals as productively as possible.
To understand this more fully, let us expand on the meaning of the parts of the definition
Planning
There are two aspects of planning.
(i)
The first involves the conscious deliberation and visualisation of what the business and its departments
should achieve within a particular time in order to be successful.
(ii)
The second involves creating a plan which will spell out the activities that have to be executed and the
resources that will be needed to reach the stated objectives and goals.
ERASMUS, du TOIT, and STRYDOM consider planning to be the management function that determines the
organisation’s mission and goals; including the ways in which the goals are to be reached in the long term, and the
resources needed for this task. It includes determining the future position of the business, and guidelines or plans
on how that position is to be reached.
Organising
Organising involves developing a framework or organisational structure to indicate how people and other resources
should be deployed to achieve the goals.
It is very important that management must match the organisational structure to accommodate the particular needs
of the company.
Leading
The management art of motivating and directing employees in the organisation to achieve the goals and plans set.
Managers are responsible for getting things done through other people.
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Introduction to Functional Areas of Management
Controlling
Controlling is checking and evaluating the results of the company to make sure that the plans are being met and goals are
attained. Good managers obtain feedback from the actual performance and compare it with the standards and objectives
set during the planning process, and take corrective action.
Resources
The resources at the disposal of management are as follows:
 Human (personnel),
 Financial,
 Physical (such as plant and machinery) and
 Information (such as information from computer systems)
1.3
What is Management?
Peter Drucker, the management guru, poses the question “Is management a bag of tricks or a set of techniques?
He discusses several points of view about management, which add important dimensions to the student’s
understanding of this course.

Management is about human beings. Its task is to make people capable of joint performance, to make
their strengths effective and their weaknesses irrelevant

Because management deals with the integration of people in a common venture, it is deeply embedded
in culture. What managers do in West Germany, in the United States, in Japan is exactly the same. How
they do it may be quite different. Thus one of the basic challenges managers in different countries face
is to find and identify those parts of their own tradition, history and culture that can be used as management
building blocks

Every enterprise requires commitment to common goals and shared values. The enterprise must have
simple, clear, and unifying objectives

Management must also enable the enterprise and each of its members to grow and develop as needs
and opportunities change

Every organisation is composed of people with different skills and knowledge doing many different kinds
of work. It must be built on communication and on individual responsibility

Performance has to be built into the enterprise and its management; it has to be measured – or at least
judged – and it has to be continually improved

The single most important thing to remember is that results exist only on the outside. The result of a
business is a satisfied customer. The result of a hospital is a healed patient. The result of a school is a
student who has learned something

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Managers who understand these principles and functions will be achieving and accomplishing managers
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Introduction to Functional Areas of Management
Types of Management
Managers are usually classified by either their level or their function.
Levels of Management
Top Management
Top management represents the small group of managers who control the organisation, and who have final
authority and responsibility for executing the management process.
They are responsible for the company as a whole.
Commonly known as

“The Board of Directors”,

The (CEO) Chief Executive Officer,

The Managing Director (MD),

The Management Committees,

Partners
This group of managers focus on strategic management and are concerned with long-term planning, designing the
company’s structure, leading the organisation and controlling it.
Middle Management
Middle Management is responsible for specific departments of the organisation, and is primarily concerned with
implementing policies, plans and strategies of top management.
Middle management is concerned with medium-term and short-term planning, organising functional areas, leading
by means of departmental heads, and controlling the management activities of the middle manager’s own
departments.
Middle managers are a necessary link between the upper and lower levels of the organisation.
Middle management would split into the functional areas of management:

Marketing

Human Resource Management

Operations

Finance
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Introduction to Functional Areas of Management
Lower / First-line Management
Lower or First-line management is responsible for the operational management of smaller sections or sub-departments of
the business.
The managerial functions of first-line managers are centred on the daily activities of their departments or sections,
short-term planning, and implementing the plans of middle management.
Their primary concern is to apply policies and procedures, and rules to achieve a high level of productivity, to
provide technical assistance, to motivate subordinates, and to accomplish day to day goals.
They typically spend a lot of time supervising the work of subordinates. They are the crucial link between
management and a major number of employees in the organisation.
Functions of Management
The other classification of management is to refer to them by the area of activity they manage. Every organisation
will specialise into broad functional categories, such as
Marketing, Human Resource Management, Finance, Operations, Research and Development, Purchasing.
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Introduction to Functional Areas of Management
These can be graphically depicted as:
Top Management
Board of directors
Middle Management
Marketing
Management
Human Resource
Management
Finance
Management
Operations
Management
Research &
Development
First-Line Management /Lower Management
Sales
Manager
Product
Manager
Sales
Representatives
1Figure 1.1 classification of management
THE MARKETING FUNCTION
entails the marketing of the products or services of the organisation. This includes sales management as well as
product management (i.e. brand management, advertising campaigns etc).
HUMAN RESOURCE MANAGEMENT involves acquisition and maintenance of all employees and personnel in
the organisation.
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Introduction to Functional Areas of Management
FINANCIAL MANAGEMENT includes the acquisition, use and control of the money the organisation needs to
finance its activities. The accountant reports to the financial manager.
THE PRODUCTION OR OPERATIONS MANAGER includes all activities related to the production of goods and
the conversion of raw materials and semi-finished goods into finished goods. Operations management is closely
linked to supply chain management.
RESEARCH and DEVELOPMENT is responsible for developing new products and improving old products. This is
very important in fast changing industries, such as the computer industry and the pharmaceutical industry.
ADMINISTRATIVE MANAGEMENT - Administrative, or general managers are not associated with any particular
management speciality (such as Marketing or Finance). A good example would be the Chief Administrator of a
hospital, or the Chancellor of a University. These people tend to be generalists and they have a good basic
knowledge of all the functional areas of management, rather than specialised training in one area.
1.4
Percentage of Time Spent on Functional Activities
The amount of time spent on the various functions of management differs according to the level of management.
The higher up the manager is the more time is spent on Planning and Organising. As the level of management
drops from Top managers through to Middle Management to First-line management, so more time is proportionately
Leading as the day-to-day activities dominate and less time is applied to Planning Organising and Controlling.
Top
PLANNING
ORGANISING
LEADING
CONTROLLING
28%
36%
22%
14%
18%
33%
36%
13%
15%
24%
51%
10%
Managers
Middle
Managers
First-Line
Managers
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Introduction to Functional Areas of Management
Activity
Find a manager of a large organisation. Arrange an interview to obtain
information regarding that person’ s job.
Ask the manager to identify the activities that he/she considers important and
those that are time-consuming. Break them down into the following
categories:
1.5

Importance

Time Consumed

Interpersonal Roles

Informational Roles

Decision Roles

Administrative Activities

Technical Activities

Organising Activities.
The 10 Roles of Managers
Every manager is required to use certain roles and skills, regardless of their speciality or level.
The management role, in this sense, comprises of certain things a person does, which meets certain needs in the
organisation, to fulfill his/her responsibilities.
Management skills are the talents required to perform these roles.
Interpersonal Role
ROLE
SAMPLE ACTIVITIES
Figurehead
taking visitors to dinner, attending
ceremonies
Leader
hiring, training, motivating employees
Relationship
Builder/Liaison
serving as a co-ordinator between two Groups, or
between two organisations. Maintaining good
relationships within and outside the organisation,
forming sound relationships with suppliers and
distributors
Information Role
Monitor/Analyser scanning industry reports to stay
abreast of developments, sending memos outlining
new organizational initiatives.
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Introduction to Functional Areas of Management
Disseminator
passing on information received to individuals
within the organisation who would benefit from it.
Decision-making role
Spokesperson
making a speech to discuss important issues
Entrepreneur
Developing new ideas for innovation
Problem solver
Resolving conflict between two
Employees/ dealing with problems
Resource allocator
Reviewing & revising budget
requests
Negotiator
Reaching agreement with a key
Supplier or union
(Griffin, 1990:16)
1.6
Managerial Skills Required at Different Managerial Levels.
As we have discussed, management is found at differing levels: Top management, Middle management and Lower or
First –Line management. Managers use three different kinds of skills to enforce their roles,
ie. Conceptual skills, Interpersonal skills and Technical skills.
Conceptual Skills
These skills involve the manager’s thinking ability. Managers need to be able to think about the entire
organisation “holistically” and to think strategically in “the big picture” considering all the parts of the
organisation, and not just a favourite section or division.
Interpersonal Skills
This refers to the manager’s ability to interact with people. A manager must be able to resolve conflicts
between people, understand human behaviour, and motivate groups as well as individuals. The ability to
communicate is vital.
Technical skills
These are specialised skills which are used to do something. They are particularly important for first-line
managers where these managers spend much of their time training subordinates and answering questions
about work-related problems. They must know how to perform the tasks assigned to the employees who
are assigned to them if they are to be effective managers.
As a manager is promoted, so less time is spent on technical skills, and more time is proportionately spent
on Interpersonal skills (at middle management) and then even more time is spent on Conceptual skills at
top management.
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Introduction to Functional Areas of Management
Top
Managers
Middle
Managers
Line
Managers
Conceptual
Human
Technical
Figure 1.2 Skill Type Needed by Manager Level
Source: (Jones, George & Hill, 2000:22)
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Introduction to Functional Areas of Management
Unit
2:
19
Organising Management
Activities
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Introduction to Functional Areas of Management
Unit Learning Outcomes
CONTENT LIST
LEARNING OUTCOMES OF THIS UNIT:
2.1 Introduction
 Introduce topic areas for the unit
2.2 The concept of organisation
 Explain the concepts of organising and organisational structure
structure and organising
2.3 The importance of organising
 Describe the importance of organising
 Understand and evaluate the fundamentals of organising
2.4 The Evolution of
 Explain how an organisation evolves from a single entrepreneur
Specialisation as Businesses
organisation to a large one
Grow.
2.5 Span of control Principle
 Understand the principles of span of control
2.6 Line and staff structures
 Understand the concept of line and staff relationships
2.7 Summary
 Summarise topic areas covered in unit
Prescribed / Recommended Readings
Prescribed Readings:

Du Toit, Erasmus and Strydom (2013) Introduction to Business
Management, 9th Edition, Oxford University Press: Southern Africa
Recommended Readings:

B.J. ERASMUS, S. RUDANSKY-KLOPPERS, J.W. STRYDOM (2013)
Introduction to Business Management (9th edition) Cape Town, South
Africa: Oxford University Press Chapter 8
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Introduction to Functional Areas of Management
2.1
Introduction
In the introductory section we defined Organising, as the activities, which involves developing a framework or
organisational structure to indicate how people and other resources should be deployed to achieve the goals.
It is very important that management must match the organisational structure to accommodate the particular needs
of the company.
In this section and the next we will deal with this concept more fully.
2.2
The Concept of Organisation Structure and Organising
Once the plan to achieve certain goals has been set or selected, management must combine people (Human
resources) with capital (money and machines) and raw materials in the best possible way to achieve the
organisation’s goals.
The most important of these is the task of grouping people into teams or departments to perform the activities that
will convert the plan into accomplished goals. Organising is the structured groupings and combining of people and
other resources and co-ordinating them to achieve organisational goals.
Organising means that the manager has to consider: 
Mechanisms in order to implement the plan or strategy

Activities. Arrangements must be made to determine what activities will be carried out

Resources. What resources will be employed

Who will perform the various activities.
Above all there must be communication, co-operation and co-ordination between the people, departments and
sections performing the tasks.
What is Organisational Structure?
The business’s organisational structure indicates the work to be done and the connections between the various
positions and tasks.
The organisational structure will lay out like an architectural blueprint, the reporting system of the organisation, and the
framework of the entire enterprise.
Various managerial techniques are utilised, such as
21

Job design,

the grouping of jobs (departmentalisation)

establishing chains of command,

assigning authority,

assigning co-ordination mechanisms to link activities between jobs
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Introduction to Functional Areas of Management
Organisational structure is a formal system of working relationships that separates and integrates tasks. Separation of
tasks makes clear who should do what, and integration of tasks indicates how efforts should be meshed.
Organisational structure helps employees work together effectively by:
1.
Assigning human and other resources to tasks;
2.
Clarifying employee’s responsibilities and how their efforts should mesh through job descriptions, organization
charts, and lines of authority;
3.
Letting employees know what is expected of them through rules, operating procedures, & performance
standards; and
4.
Establishing procedures for collecting & evaluating information to help managers make decisions & solve
problems.
2.3
The Importance of Organising
Organising an integral part of the management process. Without it, there cannot be successful implementation of
plans because there will be an absence of a systematic allocation of resources to execute the plans. If the business
does not clearly designate the activities of subordinates and management, or if the business does not clearly
indicate who is responsible for a project or task, leadership and control are not possible.

Organising entails a detailed analysis of work to be done and resources to be used, to accomplish the aims
of the business. Through organising the methods or procedures can be systematised

Organising divides the total workload into activities that can comfortably be performed by an individual or
group

Organising promotes the productive deployment and utilisation of resources

The related tasks are grouped together rationally in specialised departments such as marketing, finance,
operations, in which experts carry out their duties

An organisational structure results in a mechanism which co-ordinates the activities of the business as a
whole
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Introduction to Functional Areas of Management
2.4
The Evolution of Specialisation as Businesses Grow
THE SINGLE ENTREPRENEUR
Production, marketing, bookkeeping
Product development (owner-manager)
THE SMALL BUSINESS
Production, marketing
Bookkeeper
Product development
(part-time)
THE GROWING BUSINESS
Owner
Manager
THE LARGE BUSINESS
Marketing
Production
Bookkeeper (full-time)
Managing director
Marketing
manager
Finance
manager
Production
manager
Human resources
manager
3Figure 2.1 The Evolution of Specialisation
Source (Du Toit et al., 2012:196)
Job design is the determination of an employee’s responsibilities in the organisation. The job specifications which explain
what he/she are expected to do have to be drawn up, with a performance standard which is expected of the employee.
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The concept of specialization is a very old one, dating back to the economist Adam Smith. In his famous work “The Wealth
of Nations” he describes a pin factory. In the factory one man unrolls the wire, another straightens it, a third cuts it, a fourth
sharpens the tip, and so on. In this way 10 men could produce 48,000 pins a day, while one man could only produce 20
per day.
Phases of the Evolution of Specialisation as Business Grows
Phase 1
Suppose an inventor designs a machine in his/her garage. First of all, it is built at home, he/she sells it himself/herself,
keeps his/her own set of accounts and buys all the parts needed for production. If this operation is successful, the business
will soon become too big for one person to perform all these duties efficiently.
Phase 2
As an organisation grows from a small one-man inventor-owner “Single Entrepreneur “Phase 1 the entrepreneur (inventor)
requires assistance to relieve the burden of the administration, and so he/she employs a bookkeeper. This person will be
employed part-time to take care of the accounting function of the business. Thus in this phase he/she is beginning to
specialise.
Phase 3
The business continues to grow and the bookkeeper is employed fulltime, the owner becomes involved in the general
management of the business and also employs someone to run the factory as well as someone to be in charge of sales
and marketing.
Phase 4
By the time the business has expanded to Phase 4, specialists are running departments (Human Resources, Finance,
Marketing and Production) with various people reporting to them.
Other reasons for specialisation are

Individual ability. If individuals concentrate on one task they acquire a certain degree of skill in that area, and
can do it quicker, better and faster than anybody else.

Reduced transfer time. Workers who do several jobs lose time when they switch from one job to another.

Specialised equipment. When performing a particular job, specialised equipment tends to be used to get that
particular job done efficiently.

Reduced training. Specialisation reduces the cost of training because workers are trained in a particular part of
the total task.

Co-ordination
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Introduction to Functional Areas of Management
The Unity of Command Principle
A fundamental element of organising is the establishment of reporting lines among departments and positions in
departments.
For example, the Marketing Manager reports to the Managing Director
This principle states that an employee should have only one superior to whom he/she is directly responsible. Every
employee is supposed to know who is giving direction and to whom he/she reports.
Managers should minimize confusion as to who makes decisions and implements them, because employees who
are confused could lose morale and have bad job satisfaction. If there is a conflict in the unity of command principle,
a subordinate might have to cope with conflicting requests or priorities from different superiors.
Scalar Principle
This principle states that a clear and unbroken chain of command should link every person in the organization with
someone at a higher level, all the way to the top of the organization. The general idea is that every member of the enterprise
can trace his/her immediate superior all the way upward, level-by-level, until the upper reaches of the board of directors.
This helps employees know who to go to if they have a problem and to whom they are responsible. General organization
charts or Organograms are commonly drawn up to show the relationships.
The scalar principle is often incorporated into the chain of command, and the popular saying “The Buck Stops Here” is
derived from this idea – someone in the organization must ultimately be responsible for every decision.
If all communications were followed rigidly according to the chart, time and money would be wasted; in practice, informal
relationships across departmental lines spring up to facilitate problem solving and communication.
2.5
Span of Control Principle
Span of management is also called span of control and is found in the bible where Moses designates "“rulers of thousands,
and rulers of hundreds, rulers of fifties, and rulers of tens” (Exodus 18:13-26)
The essence of this is to establish the number of subordinates who report directly to a manager. This principle states that
the number of people reporting directly to any manager should be limited because one manager cannot effectively
supervise a large number of subordinates.
The Optimal Span of Control: - How Many People can report effectively?
An early writer Graicunas attempted to quantify the problems with the span of control. He noted that a manager must
deal with three kinds of interactions with and among subordinates:
1. Direct (the manager’s one –to-one relationship with each subordinate)
2. Cross (among the subordinates themselves), and
3. Group (between groups of subordinates).
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The number of possible interactions of all types between a manager and subordinates can be determined by the following
formula:
I = N 2N + N - 1
2
where I = the total number of interactions with and among subordinates
N = the total number of subordinates
Thus, if a manager has only 2 subordinates, 6 potential interactions exist.
If a manager has 3 subordinates, 18 potential interactions exist.
If there are 5 subordinates, there are 100 possible interactions
Source: (Griffin, 1990:285)
Flat and Tall Structures
For the most part, successful organisations will have flat structures, that is, few levels of management. This has
the effect of flattening the structure by reducing the number of management layers between the chief executive
officer (CEO) and the first-line managers. This broadens the span of control with a much larger number of people
reporting to each manager.
The vertical co-ordination is important to the degree to which managers can interact with and supervise
subordinates. The less subordinates, the more effective the manager can be, but the costlier the unit becomes.
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Introduction to Functional Areas of Management
NARROW OR HIGH STRUCTURE
BROAD OR FLAT STRUCTURE
Many management levels
Few management levels
Few subordinates per manager
Many subordinates per manager
Source (Du Toit et al., 2013:200)
Factors determining the best span of management
Five key factors determine the best span of management for any situation, these are:
 The competence of the manager and the employees. If a manager/employees are new to the task, they
obviously require more supervision than experienced staff. The less experienced the narrower the span of
control should be.
 The similarity or dissimilarity of tasks being supervised. A product focus means more standardization,
whereas a process focus means widely varying products.
 The incidence of new problems in the manager’s department. The more the manager knows about the
operations of the department, to understand precisely the various problems that can occur, the broader the
span of control can be.
 The extent of clear operating standards and rules. Clear rules & standards leave little to chance. The greater
the reliance on rules, the broader the span of control may be.

The complexity of the subordinate’s job. The more complex the job, the fewer subordinates that the
manager should supervise.
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Activity
Consider the following: A young company, providing internet services to the
corporate clients, is influenced by the following forces affecting organisational
design:

High task complexity requiring intensive use of technology;

Constant change within the technological environment;

High skills levels, and a need for challenging work, amongst the company’s
staff;

Management views the environmental change positively and believes in
empowering employees.
In the light of these forces, what organisational design would be most
appropriate for this organisation? A flat structure or a tall structure?.
COMMENT ON ACTIVITY
A flat structure would be most appropriate for the young internet company, in that it would provide for a wide span of
management and few hierarchical levels, which would allow for empowerment of the employees and the meeting of their
needs. This in turn would provide for the flexibility necessary for the organisation to adjust to the pace of change brought
about by its environment.
2.6
Line and Staff Structures
General
Manager
Marketing
Finance
Production
Human Resources
Sales Manager
Industrial
Quality
Plant
Purchasin
Relations
Control
Supervisor
g Manager
Source: Source (Du Toit et al., 2013)
Line Authority
Staff Authority
4Figure 2.2 Line and Staff Structures
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Line authority belongs to managers who have the right to direct and control the activities of subordinates. This authority
flows downwards through managers to the people who report to them on the organisational chart. Thus, the production
manager has a span of control of four, and the Industrial Relations Director, Quality Control Director, Plant Supervisor and
the Purchasing Manager all report to him/her. This is Line Authority.
Staff Authority belongs to those who advise, recommend, research and offer technical expertise. These relationships are
designated by dotted lines on the organisation chart. Thus, Human Resources is a staff function and supports Production
as can be seen in the above organisation illustration. It can also be seen to be supporting Marketing (In this case the Sales
Manager).
The chain of command determines the role of the staff specialist in the organisation. I.e. who will advise and provide
information without having authority over the work of a line manager’s employee/ subordinate. There are often conflicts
between line managers and staff managers.
2.7
Summary
In this section you have been introduced to the concept of specialisation, the importance of organising and the concept of
organisation structure. We have also looked at Span of Control and Chain of Command and how this is applied to Line
and Staff relationships.
The next section will expand on these themes by examining some of the more popular types of management structures
used in business.
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Unit
3:
MANCOSA
Management Structures
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Introduction to Functional Areas of Management
Unit Learning Outcomes
CONTENT LIST
LEARNING OUTCOMES OF THIS UNIT:
3.1 Introduction

3.2 Types of organisational structures
 Understand and evaluate the different popular types of
Introduce topic areas for the unit
organisational structures
3.3 Functional organisational structures
 Understand and the concepts of functional organisational
structures
3.4 Geographic organisational structures
 Understand the general assumptions underlying geographic
organisational structures
3.5 Product organisational structures
 Understand the general principles underlying product
organisational structures.
3.6 Customer departmentalization
structures
 Understand the general principles underlying customer
departmentalisation organisational structures
Prescribed / Recommended Readings
Prescribed Readings:

Du Toit, Erasmus and Strydom (2013) Introduction to Business
Management, 9th Edition, Oxford University Press: Southern Africa
Recommended Readings:

B.J. ERASMUS, S. RUDANSKY-KLOPPERS, J.W. STRYDOM (2013)
Introduction to Business Management (9th edition) Cape Town, South
Africa: Oxford University Press Chapter 8
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3.1
Introduction
The essence of organising a business into departments, is to create specialists. These specialists can perform a
job much more efficiently than a group of generalists who are not trained to do a particular job. (e.g. an accountant)
As we have seen, in the previous section, as soon as a business grows a reaches a particular size, it becomes
impossible for the owner-manager to supervise all the employees. He/she then creates a series of managerial
positions and groups the organisation logically to achieve its goals.
3.2
Types of Organisational Structures
The various departments form the organisational structure. In this section we will examine various types of
organisational structures.

Functional structures

Geographic structures

Product structures &

Customer based structures
3.3
Functional Organisational Structures
Managing
Director
Marketing
Manager
Financial
Manager
Production
Manager
Human Resources
Manager
Source (Du Toit et al., 2012:172)
The functional organisation structure is the most basic structure type. Activities belonging to each management
function are grouped together.
Therefore, under the Marketing Function are grouped activities such as: (i)
Advertising
(ii)
Marketing Research
(iii)
Sales
(iv)
Public Relations
This specialisation is necessitated by the logical grouping of activities, which belong together, which split the
management process into smaller more manageable units.
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Introduction to Functional Areas of Management
Advantages of a Functional Organisation Structure

Promotes skill specialization

Enhances career development & training within the department

Promotes high-quality technical problem-solving

Reduces duplication of resources & increases co-ordination within the functional area

Centralizes decision making
Disadvantages of a Functional Organisation Structure

Emphasises routine tasks

May create conflict over product priorities

Focuses on departmentalization rather than organizational issues & goals

Reduces communication between departments

May make interdepartmental scheduling difficult

Develops managers who are experts in narrow fields (Hellriegel et al., 2001:205)
Functional Departmentalization- Toyota S.A.
Managing
Director
Marketing
Manager
Financial
Manager
Production
Manager
Human Resources
Manager
Research Manager
Debtors
Supervisor - Yaris
Sales Manager
Creditors
Supervisor - Run X
Advertising
Accountant
Supervisor - Tazz
Adapted from: (Hellriegel et al., 2001:205)
The above example illustrates how an organization could split up the various functions and assign responsibilities
within the parameters of its business operations. In this case the production is split into the different production
runs for the three different types of vehicles. Marketing is split into Research, Sales and Advertising and Finance
is split into debtors, Creditors and an Accountant. This is a simplistic approach, to illustrate how large organisations
use this technique.
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3.4
Geographic Organisational Structures
Departmentalization according to location
Managing
Director
Manager
Western Cape
Manager
Eastern Cape
Manager
Gauteng
Manager
Kwa-Zulu Natal
Marketing
Manager
Financial
Manager
Production
Manager
Human Resources
Manager
5 Figure 3.1 Departmentalization According to location
Source (Du Toit et al., 2013:198)
This is a logical structure for a business that manufactures and sells its goods in different geographic regions, for example,
all over the country as well as internationally. This structure gives autonomy to area management, which is necessary to
facilitate decentralised decision-making and to adjust to local business environments.
Companies such as Unilever and Holiday Inns have set up regional and district offices. Multinational firms often use this
form of departmentalization to address cultural and legal differences in various countries.
Advantages of Geographic Departmentalization

Equipment used for products is all in one place, saving time and costs

Managers know customer’s problems

Managers develop expertise in solving problems unique to one location

Method is suited to multinational companies

Production might find it useful to locate near to suppliers/ raw materials
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Introduction to Functional Areas of Management
Disadvantages of Geographic Departmentalization

All functions-accounting, purchasing, manufacturing, customer service- are duplicated at each location, very costly

May cause conflicts between each location’s goals and corporate goals

May require extensive rules and regulations to co-ordinate and ensure uniformity of quality among locations (e.g.
McDonald’s)
3.5
Product Organisational Structures
Managing
Director
MANAGER
Consumer Goods
MANAGER
Industrial Products
Marketing
Human
Marketing
Human
Manager
Resources
Manager
Resources
Manager
Manager
Financial
Production
Financial
Production
Manager
Manager
Manager
Manager
Source (Du Toit et al., 2013:197)
Product Departmentalisation
In this model all activities are grouped together in product sections, where all the specialists associated with the product
are grouped. So, for example, the specialists in marketing, financing and personnel for the production of aircraft engines
will be grouped together because their needs are totally different from the marketing, financing, personnel and production
needs for (FMCG) Fast Moving Consumer Goods such as Coca-Cola.
Advantages of Product Departmentalisation

Suited to Fast changes in a product

Fosters a concern for customer demand

Develops managers who can think across functional lines

Allows greater product viability
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Disadvantages of Product Departmentalisation

May not use skills and resources effectively

Fosters politics in resource allocation

Limits career mobility for personnel outside their product line

Doesn’t foster co-ordination of activities across product lines

Restricts problem-solving to a single product
Departmentalism according to Customers
Managing
Director
Manager Retail
Manager Wholesale
Manager International
Source: (Hellriegel et al., 2001:210).
When an organisation splits up its organisation according to its customers, this is very close to the Marketing
Concept “The Customer is King”. In this way the organisation sends out the signal which factor is most important.
Product, Place or Customer and by structuring according to customers, the company is adapting to their needs,
which is the essence of good marketing.
3.6
Customer Departmentalisation Structures
Managing
Director
Manager
Manager
Electronic Equipment – TV
Electronic Equipment – SA Air
Industry
Force
Source (Du Toit et al., 2013:198)
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Introduction to Functional Areas of Management
This type of structure is adopted particularly where a business concentrates on a special segment of the market.
The above two diagrams illustrate this structure. It has the same advantages and disadvantages according to
product or geographic structure.
Advantages of Customer Departmentalization

Allows greater customer focus

Suited to understanding customer needs

Clearly identifies key customers

Develops managers who become customer advocates
Disadvantages of Customer Departmentalization

Doesn’t foster co-ordination between customers

Employees feel pressure from customers to give them privileges

Fosters politics in resource allocation

Restricts problem solving to a single type of customer
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Unit
4:
MANCOSA
Marketing Management
38
Introduction to Functional Areas of Management
Unit Learning Outcomes
CONTENT LIST
LEARNING OUTCOMES OF THIS UNIT:
4.1 What is marketing?
 Define marketing
4.2 What is marketed?
 Identify various industries that can be marketed with their
goods and services.
4.3 Who markets
 Determine what is marketed and who markets
4.4 Eight demand states
 Discuss the eight demand states
4.5 Marketplaces, marketspaces and
 Examine the difference between a marketplace, marketspace,
meta markets
and metamarkets
4.6 Different Types of Markets
 Discuss the different types of markets with their connecting
flows
4.7 Core marketing concepts
 Distinguish between the different core marketing concepts
4.8 Company orientation towards the
 Discuss company orientation towards the market place
market place
4.9 The marketing mix
 Distinguish between the 4 P’s and 4 C’s of the marketing mix
4.10 Internal marketing and social
 Discuss the marketing mix strategy
responsible marketing
4.11 Shifts in marketing management
 Understand shifts in marketing management
Prescribed / Recommended Readings
Prescribed Readings:

Du Toit, Erasmus and Strydom (2013) Introduction to Business
Management, 9th Edition, Oxford University Press: Southern Africa
Recommended Readings:

B.J. ERASMUS, S. RUDANSKY-KLOPPERS, J.W. STRYDOM (2013)
Introduction to Business Management (9th edition) Cape Town, South
Africa: Oxford University PressChapter 13
39
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4.1
What is Marketing?
Marketing is about identifying and meeting human and social needs. One of the shortest good definitions of
marketing is “meeting needs profitably”. When eBay recognised that people were unable to locate some of the
items the desired most, it created an online auction clearing house. When IKEA noticed that people wanted good
furniture at a substantially low price, it created knock down furniture. These two firms demonstrated marketing
knowledge and turned a private or social need into a profitable business opportunity.
Marketing has been defined as an organisational function and a set of processors for creating communicating, and
delivering value to customers and for managing customer relationships in ways that benefit the organisation and
its stake holders. Coping with these exchange process calls for a considerable amount of work and skill. Marketing
management takes place when at least one party to a potential exchange thinks about the means of achieving
desired responses from other parties. Thus we see marketing management as the art and science of choosing
target markets and getting, keeping, and growing customers through creating, delivering, and communication
superior customer value.
We can distinguish between a social and a managerial definition of marketing. A social definition shows the role
that marketing plays in society; for example, one marketer has said that marketing’s role is to “deliver a higher
standard of living”. A social definition is: marketing is a societal process by which individuals and groups obtain
what they need and want through creating, offering, and free exchanging products and services of value to others.
4.2
What is Marketed?
Marketing people market ten types of industries: goods, services, events, experiences, persons, places, properties,
organisations, information and ideas. Let’s take a quick look at these categories.
Goods
Physical goods constitute the bulk of most countries production and marketing ethics. Each year, companies market
countless numbers of fresh canned, bagged, and frozen food products and millions of cars, refrigerators, television
sets, machines, and various other main stays of a modern economy. Not only do companies market their goods,
but thanks in part to the Internet, even individuals can effectively market goods.
Services
As economies advance, a growing proportion of their activities focuses on the production of services. For example,
the US Economy today consists of a 70-30 services-to-goods mix. Services includes the work of airlines, hotels,
car rental firms, barbers and beauticians, maintenance and repair people, and accountants, bankers, lawyers,
engineers, doctors, software programmers and management consultants. Many market offerings consist of a
variable mix of goods and services. At a fast food restaurant, for example, the customer consumes both a product
and service.
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Introduction to Functional Areas of Management
Events
Marketers promote time based events, such as major trade shows, artistic performances, and company
anniversaries. Global sporting events such as the Olympics and the world cup are promoted aggressively to both
companies and fans.
Experiences
By orchestrating several services and goods, a firm can create, stage, and market experiences. Disney theme
parks represent this kind experiential marketing, allowing customers to visit a fairy kingdom, a pirate ship, or a
haunted house. There is also a market for customised experience, such as spending a week at a baseball camp
playing with retired baseball greats, conducting the Chicago Symphony Orchestra for five minutes, or climbing
Mount Everest.
Persons
Celebrity marketing is a major business. Artists, musicians, CEO’s, physicians, high profile lawyers and financiers,
and other professionals all get help from celebrity marketers. Some people have done a masterful job of marketing
themselves- think of David Beckham, Oprah Winfrey, and the Rolling Stones. Management consultant Tom Peters,
himself a master at self-branding, has advised each person to become a “brand”.
Places
The cities, states, regions, and whole nations compete actively to attract tourists, factories, company headquarters,
and new residence. Place marketers include economic development specialists; real estate agents, commercial
banks, a local business association, and advertising and public relations agencies.
Properties
Properties are intangible rights of ownership of either real property (real estate) or financial property (stocks and
bonds). Properties are bought and sold, and these exchanges require marketing. Real estate agents work with
property owners or sellers or the buy and sell residential or commercial real estate. Investment companies and
banks market securities to both institutional and individual investors.
Organisations
Organisations actively work to build a strong, favourable, and unique image in their minds of their target publics.
Universities, museums, performing arts organisations, and non-profits all use marketing to boost their public images
and compete for audiences and finds.
Information
Information is essentially what books, schools and universities produce, market, and distribute at a price to parents,
students and communities. Magazines such as Road and Track, PC World and Vogue supply information about
the car, computer and fashion worlds, respectfully. The production, packaging, and distribution of information are
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Introduction to Functional Areas of Management
some of the world’s major industries. Even companies that sell physical products attempt to add value through the
use of information. For example, the CEO of Seimans Medical Systems, Tom McCausland says “our product is not
necessarily an X-ray or an MRI, but information. Our business is really healthcare information technology, and our
end product is really an electronic patient record: information on lab tests, pathology, and drugs as well as voice
dictation.
Ideas
Every market offering include a basic idea. Charles Revson of Revlon once observed: “In the factory, we make
cosmetics; in the store we sell hope.” Products and services are platforms for delivering some idea or benefit.
4.3
Who Markets?
Marketers and Prospects
A marketer is someone who seeks a response- attention to a purchase, a vote, a donation- from another party,
called the prospect. If two parties are seeking to sell something to each other, we call them both marketers.
Marketers are indeed skilled at stimulating demand for their company’s products, but that’s too limited a view of
the tasks they perform. Just as production and logistics are responsible for supply management, marketers are
responsible for demand management. Marketing managers seek to influence the level, timing, and composition of
demand to meet the organisation’s objectives.
4.4
Eight Demand States
 Negative demand - consumers dislike the product and may even pay a price to avoid it
 Non-existent demand - consumers may be unaware of or uninterested in the product
 Latent demand - consumers may share a strong need that cannot be satisfied by an existing product
 Declining demand - consumers begin to buy the product less frequently or not at all
 Irregular demand - consumer purchases vary on a seasonal, monthly, daily, or even an hourly basis
 Full demand - consumers are adequately buying all products put into the marketplace
 Overfull demand - too many consumers would like to buy the product that can be satisfied
 Unwholesome demand - consumers may be attracted to products that have undesirable social consequences
(Kotler and Keller, 2009:48)
4.5
Marketplaces, Marketspaces, and Meta Markets
The marketplace is physical; the market space is digital. Sawhney (2001) has proposed the concept of metamarkets to describe a cluster of complementary products and services that are closely related in the minds of
consumers but are spread across a diverse set of industries. An example is the motor car industry that consists of
physical locations (car dealers) and marketspace locations (Internet locations) that consumers use in deciding what
car to purchase. Figure 1.1 depicts the forces that impact on the changing nature of businesses and markets.
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Introduction to Functional Areas of Management
4.6
Different Types Markets
Traditionally, a “market” was a physical place where buyers and sellers gathered to buy and sell goods. Economists
describe a market as a collection of buyers and sellers who transact over a particular product or product class
(such as the housing market or the grain market).
6
Figure 5.1: Different Types Markets
Five basic markets and their connecting flows are shown in figure 5.1. Manufacturers go to resource markets (raw
materials markets, labour markets, money markets), buy resources and turn them into goods and services. The
government collects tax revenues to buy goods from resource, manufacturer, and intermediary markets and uses
these goods and services to provide public services. Each nation’s economy, and the global economy, consists of
complex interacting sets of marketers linked through exchange processors.
Marketers often use the term Markets to cover various groupings of customers. They view sellers as constituting
the industry and buyers as constituting the market. They talk about need markets (the diet-seeking market), product
markets (the shoe market), demographic markets (the youth markets), and geographic markets (the French
market); or they extend the concept to cover other markets, such as voter markets, labour markets, and donor
markets.
Figure 5.2 shows the relationship between the industry and the market. Sellers and buyers are connected by four
flows. The sellers send goods and services and communication such as ads and direct mail to the market; in return
they receive money and information such as customer attitudes and sales data. The inner loop shows an exchange
of money for goods and services; the outer loop shows an exchange of information.
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7Figure 5.2: The relationship between the industry and the market
Consider the following key customer markets: consumer, business, global and non-profit.
Consumer markets
Companies selling mass consumer goods and services such as soft drinks, cosmetics, air travel, and athletic shoes
and equipment spend a great deal of time trying to establish a superior brand image. Much of brand’s strength
depends on developing a superior product and packaging ensuring its availability, and backing it with engaging
communications and reliable service.
Business Markets
Companies selling business goods and services often face well-trained and well- informed professional buyers who
are skilled at evaluating competitive offerings. Business buyers buy goods in order to make or resell a product to
others for a profit. Business marketers must demonstrate how their products will help these buyers achieve higher
revenue or lower costs. Advertising can play a role, but the sales force, price and the company’s reputation for
reliability and quality may play a stronger one.
Global Markets
Companies selling goods and services in the global marketplace face additional decisions and challenges. They
must decide which countries to enter; how to enter each (as an exporter, licenser, joint venture partner, contract
manufacturer, or solo manufacturer); how to adapt their product and service activities to each country; how to price
their products in each country; how to adapt their communications to fit the different cultures. They make these
decisions in the face of different requirements for buying, negotiating, owning, and disposing of property; different
culture, language, and legal and political systems; and currencies that might fluctuate in value. Yet, the payoff for
doing all this additional legal work can be huge.
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Introduction to Functional Areas of Management
Non- profit and governmental markets
Companies selling their goods to non-profit organisations such as churches, universities, charitable organisations,
and government agencies need to price carefully, because these buyers have limited purchasing power. Lower
selling prices affect the features and quality the seller can build into the offering. Much government purchasing
calls for bids, and buyers often favour the lowest bid in the absence of extenuating factors.
4.7
Core Marketing Concepts
To understand the marketing function, we need to understand the following core set of concepts:
Needs, Wants and Demands
Needs are the basic human requirements. People need air, food, water, clothing and shelter to survive. People
also have strong needs for recreation, education and entertainment. These needs become wants when they are
directed to specific objects that might satisfy the need. A consumer in South Africa needs food but may want a
hamburger and a soft drink. A person in Mauritius needs food but may want a mango, rice, lentils, and beans.
Wants are shaped by our society. Demands are wants for specific products backed by an ability to pay. Many
people want a Mercedes; only few are willing and able to buy one. Companies must measure not only how many
people want their product, but also how many would actually be willing and able to buy it.
Target Markets, Positioning, and Segmentation
A marketer can rarely satisfy everyone in a market. Not everyone likes the same cereal, hotel room, restaurant,
automobile, college, or movie. Therefore, marketers start by dividing the market into segments. They identify and
profile distinct groups of buyers who might prefer or require varying product and service mixes by examining
demographic, psychographic, and behavioural differences among buyers.
Offerings and Brands
Companies address needs by putting forth a value proposition, a set of benefits they offer to customers to satisfy
their needs. The intangible value proposition is made physical by an offering, which can be a combination of
products, services, information, and experiences. A brand is an offering from a known source. A brand name such
as McDonalds carries many associations in people’s minds that make up the brand image; hamburgers, fun,
children, fast food, and convenience. All companies strive to build a strong, favourable, and unique brand image.
Value and Satisfaction
The offering will be successful if it delivers value and satisfaction to the target buyer. The buyer chooses between
different offerings based on which she perceives to deliver the most value. Value reflects the perceived tangible
and intangible benefits and costs to customers. It primarily a combination of quality, service and price (“qsp”), called
the “customer value triad”. Value increases with quality and service and decreases with price, although other factors
can also play an important role in our perception of value.
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Value is a central marketing concept. We can think of marketing as the identification, creation, communication,
delivery, and monitoring of customer value. Satisfaction reflects a person’s judgements of a product’s perceived
performance (or outcome) in relationship to its expectations. If the performance falls short of expectations, the
customer is dissatisfied and disappointed. If it matches expectations, the customer is satisfied. If it exceeds them
the customer is delighted.
Marketing Channels
To reach a target market, the marketer uses three kinds of marketing channels. Communication channels deliver
and receive messages from target buyers and includes newspapers, magazines, radio, television, mail, telephone,
billboards, posters, fliers, CDs, audio tapes, and the Internet. Beyond these, just as we convey messages by our
facial expressions and clothing, firms communicate through the look of their retail stores, the appearance of their
Web sites, and many other media. Marketers are increasingly adding dialogue channels such as email, blogs, and
toll-free numbers to familiar monologue channels such as ads. The marketer uses distribution channels to display,
sell or deliver the physical product or service(s) to the buyer or user. They include distributers, wholesalers,
retailers, and agents. The marketer also uses service channels to carry out transactions with potential buyers.
Service channels include warehouses, transportation companies, banks, and insurance companies that facilitate
transactions. Marketers clearly face a design challenge in choosing the best mix of communication, distribution,
and service channels for their offerings.
Supply Chain
The supply chain is a longer channel stretching from raw materials to components to final products that are carried
to final buyers. The supply chain for women’s purses starts with hides and moves through tanning, cutting,
manufacturing, and the marketing channels to bring products to customers. Each company capturers only a certain
percentage of the total value generated by the supply chain’s value delivery system. When a company acquires
competitors or expands upstream or downstream, its aim is to capture a higher percentage of supply chain value.
Competition
Competition includes all the actual and potential rival offerings and substitutes a buyer might consider. Suppose
an automobile company in Japan is planning to buy steel for its cars. There are several possible levels of
competitors. The manufacturer can buy steel from Nippon Steel or from a foreign steel firm, it can buy from a foreign
firm in Korea, it can buy from a minimill, or it can buy aluminium from the U.S based firm Alcoa for certain parts to
reduce the car’s weight or engineered plastics from Saudi Basic Industries Corporation (SABIC), purchases of GE
Plastics, for burners instead of steel. Clearly Nippon Steel would be thinking to narrowly about its competition if it
thought only of other integrated steel companies. In fact, in the long run Nippon Steel is more likely to be hurt by
substitute products than by other steel companies.
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Marketing Environment
The marketing environment consists of the task environment and the broad environment. The task environment
includes the actors engaged in producing, distributing, and promoting the offering. These are the company,
suppliers, distributors, and dealers, and the target customers. In the supplier group are material suppliers and
service suppliers, such as marketing research agencies, advertising agencies, banking and insurance companies,
transportation companies, and telecommunication companies. Distributers and dealers include agents, brokers,
manufacturer representatives, and other who facilitate finding and selling to customers. The broad environment
consists of six components; demographic environment, economic environment, physical environment,
technological environment, political legal environment and social cultural environment. Marketers must pay close
attention to the trends and developments in these environments and made timely adjustment to their marketing
strategies.
4.8
Company Orientation Towards the Market Place
The Production Concept
The production concept is one of the oldest concepts in business. It holds that consumers will prefer products that
are widely available and inexpensive. Managers of production orientated businesses concentrate on achieving high
production efficiency, low costs, and mass distribution. This orientation makes sense in developing countries such
as China, where the largest PC manufacturer, Lenovo, and domestic appliances giant Haier take advantage of the
country’s huge and inexpensive labour pull to dominate the market. Marketers also use the production concept
when a company wants to expand the market.
The Product Concept
The product concept proposes that consumers favour products that offer the most quality, performance, or
innovative features. Managers in these organisations focus on making superior products and improving them all
the time. However, these managers are sometimes caught up in a love affair with their products. They might commit
the “better mouse trap” fallacy, believing that a better mouse trap will lead people to beat a path to their door. A
new or improved product will not necessarily be successful unless its priced, distributed, advertised, and sold
properly.
The Selling Concept
The selling concept holds that consumers and businesses, if left alone, won’t buy enough of the organisations
products. The organisation must, therefore, undertake an aggressive selling and promotion effort. The selling
concept is expressed in the thinking of Sergio Zyman, Coca Cola’s former vice president of marketing who said;
“the purpose of marketing is to sell more stuff to more people more often for more money in order to make more
profit.”
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The selling concept is captured most aggressively with unsought goods, goods that buyers normally do not think
of buying, such as insurance, encyclopaedias, and cemetery blocks. Most firms also practice the selling concept
when they have over capacity. Their aim is to sell what they make, rather than make what the market wants
however; marketing based on hard selling bares high risk. It assumes that customers who are coaxed into buying
a product will like it, and if they don’t, they not only won’t return or bad mouth it or complain to consumer
organisations, but they might even buy it again.
The Marketing Concept
The marketing concept emerged in the mid-1950s. Instead of a product centred, “make and sell” philosophy,
businesses shifted to a customer centred “sense and respond” philosophy. The job is not to find the right customers
for your products, but to find the right products for your customers. Dell computer doesn’t prepare a perfect
computer for its target market rather, it provides product platforms on which each person customises the features
he desirers in the computer.
The marketing concept holds that the key to achieving organisational goals is being more effective than competitors
in creating, delivering, and communication superior customer value to your chosen target markets.
The Holistic Marketing Concept
Without question, the trends and forces defining the 21st century are leading business firms to a new set of beliefs
and practices. Today’s best marketers recognise the need to have a more complete, cohesive approach that goes
beyond traditional applications of the marketing concept. “Marketing memo: Marketing Right and Wrong” suggests
where companies go wrong- and how they can get it right- in their marketing.
The holistic marketing concept is based on the development, design, and implementation of marketing
programmes, processors, and activities that recognise their breadth and interdependencies. Holistic marketing
recognises that “everything matters” in marketing- and that a broad, integrated perspective is often necessary.
Holistic marketing is thus an approach that attempts to recognise and reconcile the scope and complexities of
market activities. Figure 5.3 provides a schematic overview of four broad components characterising holistic
marketing: relationship marketing, integrated marketing, internal marketing, and performance marketing.
Successful companies will be those that can keep their marketing changing with the changes in their marketplaceand marketspace.
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8Figure 5.3 : Components of Holistic Marketing
Relationship Marketing
Increasingly, a key goal of marketing is to develop deep, enduring relationships with people and organisations that
could directly or indirectly affect the success of the firms marketing activities. Relationship marketing aims to
build mutually satisfying long-term relationships with key constituents in order to earn and retain their business.
Four constituents for relationship marketing are customers, employees, marketing partners (channels, suppliers,
distributors, dealers, agencies), and members of the financial community (shareholders, investors, analysts).
Marketers must respect the need to create prosperity among all these constituencies and develop policies and
strategies to balance the returns to all key stakeholders. To develop strong relationships with these constituencies
requires an understanding of their capabilities and resources, as well as their needs, goals and desires.
The ultimate outcome of relationship marketing is a unique company asset called a marketing network. A
marketing network consists of the company and its supporting stakeholders- customers, employees, suppliers,
distributors, retailers, ad agencies, university scientists, and others- with whom it has built mutually profitable
business relationships. The operating principal is simple: build an effective network of relationships with key
stakeholders, and profits will follow. Following this reasoning, more companies are choosing to own brands rather
than physical assets. They are also increasingly subcontracting activities to outsourcing firms that can do them
better and more cheaply, while retaining core activities.
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4.9
The Marketing Mix
Integrated Marketing
The marketer’s task is to devise marketing activities and assemble fully integrated marketing programmes to create,
communicate, and deliver value for consumers. Figure 5.4 depicts the marketing mix variables that can be
integrated into the marketing programme.
9Figure 5.4: The Four P Components of the Marketing Mix
Source: Kotler and Keller (2009). Marketing Management. (13th Edition). Upper Saddle River, New Jersey:
Prentice Hall. pp 63.
Mullins, Walker, Boyd and Larrèchè (2006:18) describe the marketing mix as the combination of controllable
marketing variables that a manager uses to carry out a marketing strategy in pursuit of the firm’s objectives in a
given target market.
Marketing mix decisions must be made for influencing the trade channels as well as the final consumers. Robert
Lauterborn (1990:6) suggests that the seller’s 4P’s correspond to the customers’ 4C’s:
4P’s
4C’s
Product
Customer solution
Price
Customer cost
Place
Convenience
Promotion
Communication
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Many different marketing activities are employed to communicate and deliver value. All marketing activities are
coordinated to maximise their joint efforts. Figure 5.5 shows the company preparing an offering mix of products,
services, and prices and utilising a communications mix of sales promotion, advertising, sales force, public
relations, direct mail, telemarketing, and interactive marketing to reach the trade channels and the target customers.
10Figure 5.5
Marketing Mix Strategy
Source: Kotler and Keller. (2009). Marketing Management. (13th Edition). Upper Saddle River, New Jersey:
Prentice Hall. P64.
4.10
Internal Marketing and Social Responsible Marketing
Internal Marketing
Kotler and Keller (2009:64) confirm that holistic marketing incorporates internal marketing, ensuring that everyone
in the organisation embraces appropriate marketing principles. Internal marketing must take place on two levels:
At one level, the various marketing functions (sales force, advertising, customer services, product management,
and marketing research) must work together.
Secondly, the other departments must embrace marketing—they must “think customer.” Marketing is not a
department so much as a company orientation.
Social Responsible Marketing
Holistic marketing incorporates social responsibility marketing and understanding broader concerns, and the
ethical, environmental, legal, and social context of marketing activities and programmes. Van der Walt, Strydom,
Marx and Jooste(1996:24) identify four main areas of social responsibility depicted in Figure 1.6.
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Contribute to the welfare of society
Do what is right and avoid anything detrimental to
society
Adhere to laws, rules and regulations of
government
Be profitable – this is the basis of all business
11Figure 5.6 – Understanding Social Responsible Marketing
Source: Van der Walt, Strydom, Marx and Jooste (1996) p24.. Marketing Management. (3rd Edition). Epping :
Juta and Co, Ltd.
4.11
Shifts in Marketing Management
A number of important trends and forces are eliciting a new set of beliefs and practices on the part of business
firms. These fourteen major shifts according to Kotler and Keller (2006:27-28) are:

From marketing does the marketing to everyone does the marketing

From organisation by products units to organising by customer segments

From making everything to buying more goods and services from outside

From using many suppliers to working with fewer suppliers in a “partnership”

From relying on old market positions to uncovering new ones

From emphasising tangible assets to emphasising intangible assets

From building brands through advertising to building brands through performance and integrated
communications

From attracting customers through stores and salespeople to making products available online

From selling to everyone to trying to be the best firm serving a well-defined target market

From focusing on profitable transactions to focusing on customer lifetime value

From a focus on gaining market share to a focus on building customer share

From being local to being “global”- both global and local

From focusing on the financial scorecard to focusing on the marketing scorecard

From focusing on shareholders to focusing on stakeholders
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Unit
5:
53
Financial Management
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Unit Learning Outcomes
CONTENT LIST
LEARNING OUTCOMES OF THIS UNIT:
5.1 Introduction

5.2 Financial function
 Understand the financial function
5.3 Financial management
 Understand financial management
5.4 Important concepts in financial
 Distinguish between certain concepts in financial management
Introduce topic areas for the unit
management
5.5 Summary

Summarise topic areas covered in unit
Prescribed / Recommended Readings
Prescribed Readings:

Du Toit, Erasmus and Strydom (2013) Introduction to Business
Management, 9th Edition, Oxford University Press: Southern Africa
Recommended Readings:

B.J. ERASMUS, S. RUDANSKY-KLOPPERS, J.W. STRYDOM (2013)
Introduction to Business Management (9th edition) Cape Town, South
Africa: Oxford University Press Chapter 14
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5.1
Introduction
Without any knowledge of what financial management is, and in the absence of an independent financial division,
it would be impossible for a business enterprise to function effectively. Sound principles of financial management
must be followed to enable a business to grow and survive.
This chapter aims at providing financial management principles according to which the financial activities of a
business enterprise should be managed.
5.2
Financial Function
A business enterprise must have necessary assets such as land, buildings, machinery, vehicles, equipment, raw materials
and trade inventories at its disposal if it is to function successfully.
An enterprise needs funds, also called capital, to obtain the required assets. The people or institutions (which includes the
owners) expect compensation for the funds that they make available to the enterprise (as well as a repayment of funds
lent to the enterprise), when the enterprise starts to generate funds through the sale of products or services it produces.
Therefore, there is a continual flow of funds to and from the enterprise.
The Financial Function is concerned with this flow of funds, in particular with:

determining the capital requirements of the enterprise, which is known as the investment decision;

establishing the best possible way to finance these requirements, which is known as the financing decision; and,

recording all transactions and reporting on financial matters for the sake of planning and control.
5.3
Financial Management
The main purpose of financial management is to ensure success in the performance of financial activities of an enterprise
through the effective use of funds. Every enterprise must strive for an optimal capital structure that will provide for the
optimal use of assets.
In pursuing this objective, the financial manager must answer certain questions such as:
55

What type and quantity of assets must be acquired?

How must these assets be financed?

What sources must be used to obtain capital?

What is the relationship between assets and liabilities, and how does it affect the rest of the firm?
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Financial management never takes place in isolation. All the managerial functions are indispensable to the effective
functioning of the enterprise. The financial manager is an important link in the top management of the firm. In the execution
of his function, he must be sensitive about proper co-ordination with the production, marketing, personnel and other
functions of the enterprise.
5.4
Important Concepts in Financial Management
The most important concepts in financial management are the following:

Capital

Capital requirements

Money market and capital market

Financial structure

Investment

Financing

Liquidity

Solvency

Profitability
Capital
Capital can be described as the monetary value of the assets of the enterprise at a specific time.
A business enterprise needs capital for investment in non-current assets like land and buildings, vehicles, machinery and
equipment. Non-current assets have a relatively long life and so can be used for relatively longer periods by the enterprise.
We refer to this capital used to obtain non-current assets as fixed capital.
Capital is also required by a business enterprise to obtain current assets like inventory. Current assets are assets that
can be turned into cash within a short period (normally less than one year), or may already be in the form of cash. The
current assets are used to put the non-current assets to work. (The machinery and equipment cannot be used without raw
material/inventory). The capital that is used to obtain the current assets is known as working capital.
Capital that is made available to an enterprise may take one of the following forms:

Short-term capital – this capital is normally available for a period of one year.

Medium-term capital – capital available for a period of between one and five years.

Long-term capital – the capital is made available for a period of longer than five to ten years.
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Capital is provided by:

The owners of the enterprise. The capital that is made available by the owners of the enterprise is known as
own capital or equity.

Non-owners of the enterprise.
This includes:
-
commercial banks and other financial institutions that provide borrowed capital (loan capital). This capital is made
available to the enterprise at a particular price called interest, e.g. a loan or overdraft facility at a bank.
-
Suppliers of stock/raw material provide trade credit (a form of borrowed capital whereby stock/raw materials are
provided on credit, normally interest- free provided the account is paid within the agreed period.
Knowledge Check Questions
What do you understand by each of the following:

-
Capital

Fixed capital

Working capital

Long-term capital

Medium-term capital

Short-term capital

Own capital

Borrowed capital.
Capital requirements
The capital requirement of an enterprise is the need for funds/money for the purchase of fixed assets and current
assets (goods and services) with which the enterprise can do business so as to obtain income. We distinguish
between fixed capital needs and variable capital needs.

Fixed capital needs – this is a need for that part of capital, which the enterprise constantly needs. It arises from a
need for both fixed and current assets.

Variable capital needs – this refers to capital, which the enterprise occasionally does not need. At times the
enterprise requires more and at times less capital
Example
Pip Suppliers manufacture and retail school uniforms. In January of each year there is a high demand on Pip Suppliers for
school uniforms for the new-year. Pip Suppliers need to have more stock at these times, and this, influences the need for
capital-the capital need is greater. The additional capital need is a variable capital need.
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
Money market and Capital market
 The money market refers to the market where the demand and supply of short-term funds are brought together.
Short-term refers to periods shorter than one to three years, for example, a 12-month overdraft facility at a bank.
 The capital market refers to the market where the demand and supply of medium- to long-term funds are brought
together. Medium to long-term loans refers to periods longer than three years, for example, a mortgage bond
(loan on fixed property) over 20 years from a financial institution.

Financial structure
The financial structure of an enterprise which is graphically depicted in the form of a balance sheet is made up of two
components:
 Assets (possessions)
 Liabilities (claims)
The assets side reflects all the possessions of the enterprise, together with their respective values as at balance sheet
date. Assets are normally divided into two broad categories in the balance sheet, namely:
 Non-current assets such as land and buildings, machinery, vehicles and other equipment.
 Current assets such as cash in the bank, as well as other possessions of the enterprise that can be
converted into cash within one year during the normal course of business, such as marketable securities,
debtors and all inventories.
 The liability side reflects the claims of persons or institutions that provided the funds (capital) for the purchase
of the assets. Liabilities are normally divided into two broad categories in the balance sheet, namely:
 Long-term funds which is further subdivided into:
 Shareholder’s interest is made up of ordinary share capital, reserves, undistributed profits and preference
share capital. Shareholders interest that do not have ordinary share capital or preference shareholders - for
example, sole proprietorships, partnerships and close corporation – is replaced by a capital account Noncurrent debt is made up of mortgage bonds and long term credit.
 Short-term funds are also referred to current liabilities and represent all debts or credit that is normally
repayable within one year. Examples of these funds are bank overdrafts and trade creditors
The favourable difference between the current assets and current liabilities represents the net working capital or that
portion of the current assets that has been financed from long term funds.
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A diagrammatic representation of a balance sheet
ASSETS
(Possessions)
Non-current assets
LIABILITIES
(Claims)
Shareholder’s interest
- owner’s equity
- preference share capital
Non-current debt
- mortgage bond
- loans
--------------------------------------------------------------------------------------------------------------------Net working capital
Current assets
Current liabilities
-------------------------------------------------------------------------------------------------------------------investment/application of
funds/asset structure

financing/ supplier of
funds/ capital structure
Investment
This is the use of capital to acquire fixed assets like land and buildings, machinery as well as current assets like stock
in order to generate an income.

Financing
Refers to the way in which a firm can attract capital, for example, bank overdraft, in order to meet the capital needs of
the enterprise.

Liquidity
Refers to the ability of the enterprise to make all payments on a continuous basis, regularly and on time. Examples of
such payments include payment to creditors, interest payments, wages, salaries and rent.

Solvency
Refers to the ability of the enterprise, by means of liquidation to meet its debts and satisfy any claims against it.
The total liabilities of the enterprise must be covered by a realistic value of the total assets. Should total liabilities be
greater than a realistic value of assets, the enterprise is considered technically insolvent.
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
Profitability
Profitability refers to the ratio (expressed as a percentage) between the net income earned during a particular period
and the capital used in that period to generate the income.
Profitability = Net income earned
100
Total capital
X
1
We distinguish between enterprise profitability and profitability of own capital
 Profitability of the enterprise: this refers to the profit earned during a specific period on the total capital invested in
the enterprise.
 Profitability of own capital: this refers to the profit earned on the capital invested by the owners of the enterprise,
and excludes borrowed capital in the calculation. The net income after interest payment is regarded as income earned
with the aid of own capital.
Example
Capital invested in a business was R 32 000 of which R 20 000 was own capital and the other R 12 000 was borrowed
from a bank at 16% interest per year. A year later the enterprise generated a net income of R 8 000 before payment of
interest of R 1 600
Profitability
(enterprise) =
net income earned before interest
X 100 %
total capital invested
=
8 000
X 100
32 000
=
1
25%
Profitability
(own capital) =
net income after interest
X
100%
own capital invested
=
6 400 (8 000 – 1 600) X 100
20 000
=
1
32%
In the example above, profitability on own capital is higher than the profitability of the enterprise.
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Reason: because of the financial leverage effect (the influence of the effect of borrowed capital in the long term)
Financial leverage effect: If the profitability of the enterprise is greater than the interest rate on borrowed capital, the
increase in the profitability of own capital will be caused by the use of borrowed capital. An enterprise therefore uses
borrowed capital in the hope that it will cause profitability of own capital to rise. However, if the interest rate on borrowed
capital is greater than the profitability of the enterprise, the profitability of own capital will drop.
5.5
Summary
In this chapter you learned about the nature of the financial function and the task of financial management. Various
concepts generally used by financial management, as well as certain techniques employed in financial management were
explained. Knowledge of these concepts is essential to the effective management of the financial activities in an enterprise.
Knowledge Check Questions
1.Define the concept of financial function and financial management in one
sentence.
2. John needs R 100 000 to start a business. He has R 25 000 saved and
applies to a

financial institution for the remainder.

The finance is approved in the following way:
-
R 50 000 bond over his fixed property.
-
R 20 000 repayable over a period of 60 months.
-
R 5 000 on overdraft
2.1. Which amounts represent own capital and borrowed capital?
2.2. State with reasons which amounts have been financed by: short-term
capital, medium-term capital and long-term capital.
3. What does it mean when we refer to the variable capital needs of the
enterprise?
4. Define the concept of net working capital.
5. What does it mean when an enterprise is referred to as technically insolvent?
6. Briefly explain the following groups of decisions when extending a business
interest:
6.1. Investment decision
6.2. Financing decision
7. What does each of the following concepts mean?:
7.1. Liquidity
7.2. Profitability.
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Unit
6:
63
Human Resource Management
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Introduction to Functional Areas of Management
Unit Learning Outcomes
CONTENT LIST
LEARNING OUTCOMES OF THIS UNIT:
6.1 Introduction

6.2 What is human resource management
 Define human resource management
6.3 Human resource management
 Understand what responsibilities a human resource manager
responsibilities
Introduce topic areas for the unit
has
6.4 Human resource management
functions
 Discuss the functions of a human resource manager
 Discuss legislation that impacts on human resource planning
activities
6.5 Human resource management
 Understand human resource management competencies
competencies
6.6 Summary

Summarise topic areas covered in unit
Prescribed / Recommended Readings
Prescribed Readings:

Du Toit, Erasmus and Strydom (2013) Introduction to Business
Management, 9th Edition, Oxford University Press: Southern Africa
Recommended Readings:

B.J. ERASMUS, S. RUDANSKY-KLOPPERS, J.W. STRYDOM (2013)
Introduction to Business Management (9th edition) Cape Town, South
Africa: Oxford University Press Chapter 12
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6.1
Introduction
This section examines the various Components of Human Resource Management through addressing the following
areas:

What is Human Resource Management?

Human Resource Management Responsibilities

Human Resource Management Functions

Human Resource Management Competencies
6.2
What is Human Resource Management (HRM)?
Various definitions of Human Resource Management exist. Some of these are provided below.

“Human Resources Management is the process through which an optimal fit is achieved among employee,
job, organisation and environment so that employees reach their desired level of satisfaction and performance
and the organisation meets its goals”.

“Human Resource Management includes activities that managers engage in to attract and retain employees
and to ensure that they perform at a high level and contribute to the accomplishment of organisational goals”.

“Human Resource Management refers to the policies, practices and systems that influence employees’
behaviour, attitudes and performance”.

“The organisation’s human resource management function is that part of the management process that
specialises in the management of people in the organisation. It consists of practices that help to achieve the
organisation’s objectives and thus to gain and sustain competitive advantage”.

Human Resource Management “is the process of managing human talent to achieve an organisation’s
objectives”.
These five definitions of Human Resource Management not only have similarities but also place an emphasis on
different aspects of people management. From the above definitions the following is evident about Human
Resource Management:

The focus of Human Resource Management is the management of people or human talent.

Human Resource Management ensures fit or congruency between the employee, job, organisation and
environment.
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
People are managed in such a way so as to ensure that employees are satisfied and the organisation achieves
its goals and attains competitive advantage.

Human Resource Management involves policies, practices, systems and activities directed towards the
management of people.
6.3
Human Resource Management Responsibilities
Human Resource professionals need to work together with line management in the management of the
organisation’s human capital. The Human Resource professionals’ key responsibilities in this regard are to
formulate and implement policy, advice and counsel, render a service, control personnel affairs, communicate, as
well as be an employee advocate.
Employee
Advocate
Formulate &
Implement
Policy
Communicate
HR
RESPONSIBILITIES
Advise
&
Counsel
Control
Personnel
Affairs
Render
a
Service
12Figure 6.1 : Overview of HR Responsibilities

Formulate and Implement Policy: Human Resource professionals draft policies and procedures relevant to
the organisation’s people management. Once accepted by management these policies and procedures then
need to be implemented together with line management. The Human Resource department is responsible for
monitoring the implementation of HR policy by line departments. They also assist line management in the
interpretation of the policies.

Advice and Counsel: The Human Resource professional acts as an internal consultant to employees,
supervisors, managers and executives. Their knowledge of internal people management issues and the
dynamics of the external environment allow the Human Resource professional to provide invaluable advice for
the making of organisational decisions.
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
Render a Service: Human Resource professionals provide a range of services such as recruiting, selecting
and training. The services offered by HR should be directed towards facilitating the achievement of the
organisation’s goals.

Control Personnel Affairs: The Human Resource professional monitors and controls the implementation of
Human Resource related policies and procedures. Examples of control functions which Human Resource
professionals perform include the following:
o
Analysis of employment related data (e.g. recruitment, training, promotion statistics) to identify the degree
to which employment equity goals are being achieved.
o
Analysis of data from performance appraisals for the purposes of determining whether performance
management is being fairly conducted.
o

Analysis of absenteeism and grievances to determine problem areas.
Communicate: Communication is critical to the effective functioning of any organisation, and Human
Resource professionals play a critical role in the designing and implementing companywide communication
strategies. Examples of types of communication methods which the Human Resource department facilitates
are:

o
New employee orientation
o
Bulletin boards
o
Communication meetings
o
Newsletters
o
Employee handbooks
o
Surveys.
Employee Advocate: An important responsibility of the Human Resource professional is to be an employee
advocate. This involves actively listening to employees’ concerns and addressing these with management. In
this way, Human Resource professionals can facilitate greater fit between the employees and the organisation
and in so doing promote employee satisfaction.
6.4
Human Resource Management Functions
The Human Resource department performs a number of functions which may either be categorised as providing
for Human Resource provision or Human Resource retention. While Human Resource provisioning provides for
bringing human capital into an organisation, Human Resource retention involves strategies and practices to
maintain the existing human capital within the organisation while tapping into their full potential.
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Human Resource Functions
HR Administration
Labour Relations
Remuneration & Benefits
Performance Management
Training & Development
Human Resource Retention
Incorporation
Placement
Recruitment & Selection
Job Analysis
HR Planning
Human Resource Provisioning
13Figure 6.2: Overview of Human Resource Functions
The Human Resource functions may be performed exclusively by the Human Resource department, or in
conjunction with other departments within the organisation.
Human Resource Provisioning Functions
The functions involved in Human Resource Provisioning include human resource planning, job analysis,
recruitment and selection, placement and incorporation. Each of these will be discussed below.

Human Resource Planning
Human Resource Planning may be defined as “the process of anticipating and making provision for the
movement of people into, within and out of an organisation”. For Human Resource Planning to be effective, it
is critical that it is linked to the organisation’s strategic goals. Forecasting the number of Human Resources
required in the short, medium and long term is influenced by factors such as:

the current and future profile of the existing workforce (e.g. retirements, skills levels)

the current strategic plans of the company (e.g. planned restructuring, planned future expansions)

the external environment (e.g. economic climate, technological advancement).
What piece of employment related legislation has a significant impact on the Human Resource Planning activities
of companies?
The Employment Equity Act of 1998 has a considerable impact on the Human Resource Planning initiatives of
South African organisations. This piece of legislation requires that organisations put in place an employment equity
plan with goals to increase the representivity of their workforce. South African workforces need to transform to
reflect the economically active population in terms of race and gender.
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Job Analysis & Design

Job analysis may be defined as “the systematic process of collecting, evaluating and arranging of information
about tasks, duties and responsibilities of a job”. Job analysis results in the generation of two types of
documents:
o
Job description, which outlines the tasks, responsibilities and duties of a particular job.
o
Job specification, which details the competencies required of the incumbent who is to hold the position.
Job analysis and design is an important component of Human Resource Management, in that well designed
jobs, which provide a sufficient level of challenge, can contribute considerably to an employee’s satisfaction
and motivation, thereby influencing productivity and contributing to the achievement of organisational goals.
Recruitment and Selection

While recruitment involves the search for a variety of qualified candidates to fill a particular position, selection
involves a process of choosing the most suitable individual from a group of applicants.
Sources that are used to attract and recruit candidates for a particular job include newspaper advertisements,
electronic recruitment sites, unsolicited applications (e.g. walk in candidates who drop off their CVs) and
educational institutions. Legislation, particularly the Employment Equity Act and Labour Relations Act, impact
significantly on recruitment practices.
Selection follows recruitment activities. A typical selection process may entail a preliminary selection interview,
the completion of an application form and application assessments, the checking of references, a final interview
and a medical examination. Following this, a choice of candidate will be made and an offer of employment will
be extended to him / her. If the candidate accepts the offer, this will result in appointment. The Human
Resource department will fulfil a staff role in the selection process – they will coordinate the process, screen
the applicants and make a recommendation as to who they believe is the most suitable candidate. Unions and
workplace forums may be involved in the interests of transparency, but it is the line manager who makes the
final decision on the candidate to be appointed.
Placement

Placement involves the process by which a newly appointed employee is placed in an organisation, or where
existing employees are transferred to new positions, demoted or promoted. So as to ensure that the employee
contributes to the achievement of the organisation’s goals it is imperative that there is “fit” between the new
job incumbent and the job itself. If “fit” is achieved between the job incumbent and the position, there should
be lower turnover and more motivated and productive employees.
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
Incorporation
The process of incorporation is important to ensure that the new employee settles into his / her new position
and socialises effectively into the work environment. Incorporation is facilitated by the following initiatives:
o
Orientation, where the employee is provided with information regarding the organisation and its culture.
o
Induction, where information specific to the employee’s position and his / her department is provided.
Orientation is usually implemented by the Human Resource department and induction by the employees’ new
supervisor.
Human Resource Retention
The functions involved in maintaining and retaining an organisation’s Human Resources include training and
development, performance management, remuneration and benefits, job design and re-design and HR
administration. Each of these are discussed below.

Training and Development
While training is the “planned systematic and organized process of providing employees with the specific
knowledge and skills needed for them to perform their present jobs effectively”, development refers to the
“systematic, planned experience to provide employees with knowledge, skill, abilities, insights and attitudes to
prepare them to perform jobs the organisation will need in the future”. Therefore, training has a short term
objective, while development has a long term objective.
Some training and development methods include job rotation, programmed instruction, videos, simulation,
role-playing and interactive media.

Performance Management
Performance management provides information that guides the training and development function in an
organisation. Performance appraisal may be defined as “the process of systematically evaluating every
employee’s job-related strengths, developmental needs, and progress toward achieving goals, and then
determining ways to improve the employee’s job performance”. The appraisal process involves:
o
Setting agreed work standards
o
Assessing the employee’s work performance against the agreed work standards
o
Giving feedback to the employee about his / her performance in relation to the work standard with the aim
of improving the employee’s existing performance.

Remuneration and Benefits
Employees receive remuneration in return for their services. The remuneration package is both financial
(monetary) and non-financial (e.g. amount of leave, type of working environment). Remuneration is
determined after conducting a job analysis followed by job evaluation. Comparisons are also made with
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remuneration packages offered by other companies. Following this, the remuneration package of the job is
determined. Remuneration may or may not be increased following performance appraisal.
Benefits, also known as indirect compensation or indirect remuneration, are what employees receive over and
above their wages or salaries. They are generally not linked to performance and are usually accepted as part
of the conditions of service.
South African legislation compels organisations to provide certain benefits, such as workmen’s compensation
and unemployment insurance. In order to attract the best employees, a company may decide to offer additional
benefits such as group insurance and housing subsidies.
Labour Relations

Labour relations is concerned with “the relations (primarily collective but also to a lesser extent individual)
between employer(s) (and / or manager(s) as the representatives of the employer) and workers (and/or their
representatives such as trade unions) which develop from employment relationships and which are essentially
concerned with balancing the various interests of, and regulating the levels of cooperation and conflict
between, the parties involved. In all of this, the government and its relevant representatives, institutions,
structures, systems and laws play an important, though secondary role” (Swanepoel, Erasmus, Van Wyk and
Schenk, 2003: 616).
Labour unions as well as South Africa’s labour legislation has a considerable impact on the drafting and
implementation of Human Resource policies and procedures.
The following pieces of legislation impact on all the functions of the Human Resource department:
o
Labour Relations Act
o
Basic Conditions of Employment Act
o
Unemployment Insurance Act
o
Occupational Health and Safety Act
o
Compensation for Occupational Injuries and Diseases Act
o
Employment Equity Act
o
Skills Development Act
o
Skills Development Levies Act
HR Administration

The Human Resource department is also responsible for the administration of personnel affairs, such as
updating records, calculating and paying wages and salaries, administering benefits, and recording leave. In
recent years HR’s administrative tasks have become streamlined and more efficient as a result of the
implementation of Human Resource Information Systems (HRIS).
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6.5
Human Resource Management Competencies
Yeung, Brockbank and Ulrich (1994) assert that the Human Resource Professional requires four sets of
competencies in order to effectively fulfill his / her role in the organisation. These sets of competencies are
diagrammatically presented below.
HUMAN RESOURCE MANAGEMENT COMPETENCIES



BUSINESS
MASTERY
Business acumen
Customer focus
External relations





HUMAN
RESOURCE
MASTERY
Staffing
Performance
management
Remuneration &
Reward
Communication
Organisational
Design




PERSONAL
CREDIBILITY
Trust
Relationships
with others
Live values
Courage




CHANGE
MASTERY
Interpersonal
skills
Influence
Problem solving
skills
Creativity
14Figure 6.3: Competencies for Effective Human Resource Management (Yeung, et al, 1994)
As the diagram above shows, Human Resource professionals require a variety of competencies:

Business Mastery skills are required as the Human Resource professional must know and support the
organisation for which he / she works for

Human Resource Mastery skills are required so that the Human Resource professional may effectively carry
out all of the Human Resource functions (e.g. recruitment, selection, training, etc.)

Change Mastery skills are required to enable the Human Resource professional to assist individual employees
and the organisation to deal with and harness change

Personal Credibility is essential to the Human Resource professional being accepted and trusted by both the
organisation’s employees and management (Yeung, et al, 1994)
6.6
Summary
This section explored the various components of Human Resource Management. Definitions of Human Resource
Management were examined and the responsibilities which the Human Resource professional is required to fulfill
were explored. The various Human Resource Management functions were studied, as were the competencies
required of the Human Resource professional.
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Unit
7:
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Operations Management
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Unit Learning Outcomes
CONTENT LIST
LEARNING OUTCOMES OF THIS UNIT:
7.1 Introduction

7.2 The history of operations
 Understand the history of operations management
Introduce topic areas for the unit
management
7.3 Reasons to study Operations
Management
7.4 The functions and duties of an
 Define Operations management
 Discuss the importance of operations management
 Understand the duties and functions of operations managers
operations manager
7.5 Operations and productivity
 Understand the relationship between operations and
productivity
7.6 Exciting new trends in operations
management
 Identify new trends
 Identify the different challenges that an operations manager
encounters with the ever evolving field of Operations
Management
7.7 Operations in the service sector
 Discuss operations in the service sector
 Distinguish between goods and services
7.8 Productivity
 Understand the difference between productivity and
production
7.9 Factors that affect productivity
 Discuss the factors affecting productivity
7.10 Improving productivity
 Explain how productivity may be improved
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Prescribed / Recommended Readings
Prescribed Readings:

Du Toit, Erasmus and Strydom (2013) Introduction to Business
Management, 9th Edition, Oxford University Press: Southern Africa
Recommended Readings:

B.J. ERASMUS, S. RUDANSKY-KLOPPERS, J.W. STRYDOM (2013)
Introduction to Business Management (9th edition) Cape Town, South
Africa: Oxford University Press Chapter 11
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7.1
Introduction to Operations Management
Production is the creation of goods and services. Operations Management (OM) is the set of activities that creates
goods and services through the transformation of inputs into outputs. Activities creating goods and services take
place in all organizations. In manufacturing firms, the production activities that create goods are usually quite
obvious. In them, we can see the creation of tangible products such as a TV or a motor vehicle. In organizations
that do not create physical products, the production function may be less obvious. It may be hidden from the public
and even from the customer. An example is the transformation that takes place at a bank, hospital, airline office,
or college.
Often when services are performed, no tangible goods are produced; instead the product may take such forms as
the transfer of funds from a savings account to a cheque account, the transplant of a liver, the filling of an empty
seat on an airline, or the education of a student. Regardless of whether the end product is a good or a service, the
production activities that take place in the organization are referred to as operations or operations management.
7.2
The History of Operations Management
The field of Operations Management (OM) is relatively young, but its history is rich and interesting. Our lives and
the OM discipline have been enhanced by the innovations and contributions of numerous individuals. We introduce
a few of these people in this section: and a summary of significant events in operations management is shown
below: Eli Whitney (1800) is credited for the early popularisation of interchangeable parts, which he achieved through
standardization and quality control in manufacturing. Through a contract he signed with the U.S. government for
10 000 muskets, he was able to command a premium price because of their interchangeable parts.
Frederick W Taylor (1881), known as the father of scientific management, contributed to personnel selection,
planning and scheduling, motion study and the now popular field of ergonomics. One of his major contributions
was his belief that management should be much more resourceful and aggressive in the improvement of work
methods. Taylor and his colleagues, Henry L. Gantt and Frank and Lillian Gilbreth were among the first to seek
the best way to produce using systematic methods.
Another of Taylor’s contributions was the belief that management should assume more responsibility for:
(i)
Matching employees to the right job.
(ii)
Providing the proper training.
(iii)
Providing proper work methods and tools.
(v)
Establishing legitimate incentives for work to be accomplished.
By 1913, Henry Ford and Charles Sorensen combined what they knew about standardized parts with the quasiassembly lines of the meatpacking and mail-order industries and added the revolutionary concept of the assembly
line where men stood still and material moved.
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Quality control is another historically significant contribution to the field of OM. Walter Shewhart (1924) combined
his knowledge of statistics with the need for Quality Control and provided the foundation for statistical sampling in
quality control. W. Edwards Deming (1950) believed, as did Frederick Taylor, that management must do more to
improve the work environment and processes so that quality can be improved.
SIGNIFICANT EVENTS IN THE FIELD OF OPERATIONS MANAGEMENT
Division of labour (AdamSmith, 1776, and Charles Babbage, 1852)
Standardardized parts (Whitney, 1800)
Scientific management (Taylor, 1881)
Coordinated assembly line (Ford /Sorensen/Avery, 1913)
Gantt charts (Gantt, 1916)
Time and Motion study (Frank & Lillian Gilbreth, 1922)
Quality control (Shewhart, 1924; Deming, 1950)
Computer (Atanasoff, 1938)
CPM/PERT (DuPont, 1957)
Material requirements planning (Orlicky, 1960)
Computer - aided design (CAD, 1970)
Flexible mfg.system (FMS, 1975)
Baldrige Quality Awards (1982)
Computer integrated mfg (CIM, 1990)
Globalization (1992)
Internet (1995)
Systems Theory
Source: Heizer et al (2008:9)
Operations management will continue to progress with contributions from other disciplines, including industrial
engineering and management science. These disciplines, along with statistics, management, human resource
management and economics, have contributed substantially to greater productivity. Innovations from physical
science (biology, anatomy, physiology, chemistry, and physics) have also contributed to advances in OM.
These advances include new adhesives, chemical processes for printed circuit boards, gamma rays to sanitize
food products, and molten tin tables on which to float higher-quality molten glass as it cools. The designing of
products and processes often depends on the biological and physical sciences.
An especially important contribution to OM has come from the information sciences, which we define as the
systematic processing of data to yield information. The information sciences are contributing in a major way toward
improved productivity while providing society with a greater diversity of goods and services.
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Decisions in operations management require individuals who are well versed in management science, in
information science, and often in one of the biological or physical sciences. In this chapter, we take a look at the
diverse ways a student can prepare for careers in operations management.
7.3
Reasons to Study Operations Management.
We study OM for four reasons:
1. OM is one of the three major functions of any organization, and it is integrally related to all the other business
functions. All organizations market (sell), finance (account), and produce (operate), and it is important to know
how the OM segment functions. Therefore, we study how people organize themselves for productive
enterprise.
2. We study OM because we want to know how goods and services are produced. The production function is
the segment of our society that creates the products we use.
3. We study OM to understand what operations managers do. By understanding what these managers do, you
can develop the skills necessary to become such a manager. This will help you explore the numerous and
lucrative career opportunities in OM.
4. We study OM because it is such a costly part of an organization. A large percentage of the revenue of most
firms is spent in the OM function. Indeed, OM provides a major opportunity for an organization to improve its
profitability and enhance its service to society.
7.4
The Functions and Duties of Operations Managers
All good managers perform the basic functions of the management process. The management process consists
of planning, staffing, leading, organising and controlling. Operations managers apply this generic management
process to the decisions they make in the OM function. Managers contribute to production and operations through
the decisions shown in the Table 1. To address each of these decisions requires planning, organizing, staffing,
leading, and controlling.
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1TABLE 1: TEN CRITICAL DECISIONS OF OPERATIONS MANAGEMENT
DECISION AREA
ISSUES
1. Quality Management
1. Who is responsible for quality?
2. Service and Product design
How do we define the quality we want in our service
or product?
3. Process and capacity design
2. What product or service should we offer?
4. Location
How should we design these products or services?
5. Layout design
6. Human resources and job design
3. What equipment and technology is necessary for
these processes?
7. Supply chain management
4. Where should we put our facility?
8. Inventory, MRP, JIT
9. Intermediate, short-term and project scheduling
5. How should we arrange our facility?
6. How do we provide a reasonable work
10. Maintenance
environment?
11. Returns
7. Should we make or buy a component?
How many suppliers should we have?
8. How much of inventory should we keep?
9. Is subcontracting production a good idea?
10. Who is responsible for maintenance?
11. How do we deal with returned goods?
Adapted: Heizer and Render (2008:7).
7.5
Operations and Productivity
There is a strong inter-relationship between the four major functions within an organization:
Marketing, which generates the demand, or at least takes the order for, a product or services (nothing happens

until there is a sale)

Production/operations, which creates the product

Finance/accounting, which tracks how well the organization is doing, pays the bills, and collects the money

Human resource management, which attempts to motivate employees to do their jobs
Universities, churches, temples, mosques or synagogues, and businesses all perform these functions. Any
institution, even a volunteer group such as the Boy Scouts of America is organized to perform these three basic
functions.
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7.6
Exciting New Trends in Operations Management
One of the reasons why OM is such an exciting discipline is that the operations manager is confronted with an
ever-changing environment. Consequently, both the approach to and the results of the 10 OM decisions are subject
to change. These dynamics are the result of a variety of forces, from globalisation of world trade to the transfer of
ideas, products and money at electronic speeds. We now introduce some of the challenges that Operations
Managers need to identify and act upon:

Global Focus: The rapid decline in communication and transportation costs has, of course, made global markets more
accessible. However, at the same time, resources in the form of materials, talent, and labour have also become global.
Contributing to this rapid globalization are countries throughout the world that are vying for economic growth and
industrialization.
Operations managers are responding with innovations that generate and move ideas, parts, and finished
goods rapidly, wherever and whenever needed.

Just-in-Time performance: Vast financial resources are committed to inventory. Inventory impedes the
response of dynamic changes in the marketplace. Operations managers are slashing inventories at every
level, from raw materials to finished goods.

Supply-chain partnering: Shorter product life cycles, as well as rapid changes in material and process
technology, require more participation by suppliers. Suppliers usually supply up to 80% of the value of
products. Consequently, operations managers are building long-term partnerships with critical players in the
supply chain.

Rapid product development: Rapid international communication of news, entertainment, and lifestyles is
dramatically chopping away at the life of products. Operations managers are responding with design
technology that is faster and design management that is more effective.

Mass customization: Once we begin to consider the world as the marketplace, then the individual differences
become quite obvious. Cultural differences, in a world where consumers are increasingly aware of options,
places substantial pressure on firms to respond. Operations managers are responding with production
processes that are flexible enough to cater to individual whims of consumers. The goal is to produce individual
products, whenever and wherever needed.

Empowered employees: More sophisticated employees and a more technical workplace have combined to
require more competence at the workplace. Operations managers are responding by moving more decision
making to the individual worker.
7.7
Operations in the Service Sector
The service sector is defined differently by different people. Because definitions vary, much of the data and statistics
generated about the service sector are inconsistent. However, we will define services as including repair and
maintenance, government, food and lodging, transportation, insurance, trade, finance, Real Estate, education,
legal, medical, entertainment, and other professional occupations.
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Difference between goods and services
According to Heizer and Render (2008:10), some of the differences between goods and services are as follows:

Services are usually intangible (for example, your purchases of a ticket in an empty airline seat between two
cities) as opposed to tangible goods

Services are often produced and consumed simultaneously: there is no stored inventory. For instance, the
beauty salon produces a haircut that is “consumed” simultaneously, or the doctor produces an operation that
is “consumed” as it is produced. We have not yet figured out how to inventory haircuts or appendectomies

Services are often unique. Your mix of financial coverage, such as investments and insurance policies, may
not be the same as anyone else’s, just as the medical procedure or a haircut produced for you is not exactly
like anyone else’s

Services have high customer interaction. Services are often difficult to standardize, automate, and make as
efficient as we would like because customer interaction demands uniqueness. In fact, in many cases this
uniqueness is what the customer is paying for: therefore, the operations manager must ensure that the product
is designed so that it can be delivered in the required unique manner

Services have inconsistent product definition. Product definition may be rigorous, as in the case of a vehicle
insurance policy, but inconsistent because policyholders change cars and mature

Services are often knowledge-based, as in the case of educational, medical, and legal services, and therefore
hard to automate

Services are frequently dispersed. Dispersion occurs because services are frequently brought to the
client/customer via a local office, a retail outlet, or even a house call
There are additional differences between goods and services that impact on OM decisions. Although service
products are different from goods, the operations function continues to transform resources into products. Indeed,
the activities of the operations function are often very similar for both goods and services.
For instance, both goods and services must have quality standards established, and both must be designed and
processed on a schedule, in a facility where human resources are employed.
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2TABLE 2: FURTHER DIFFERENCES BETWEEN GOODS AND SERVICES
ATTRIBUTES OF GOODS
ATTRIBUTES OF SERVICES
(Tangible product)
(Intangible product)
Product can be resold.
Reselling a service is unusual.
Product can be inventoried
Many services cannot be inventoried.
Site of facility is important for cost.
Site of facility is important for customer contact.
Often easy to automate.
Service is often difficult to automate.
Revenue is generated from the tangible product.
Revenue is generated from intangible services.
Some aspects of quality are measurable.
Many aspects of quality are difficult to measure.
Selling is distinct from production.
Selling is often a part of the service.
Product is transportable.
Provider, not product, is often transportable
Source: Heizer and Render (2008:10)
7.8
Productivity
The difference between production and productivity:
Production is the conversion of raw materials into finished goods that can be used by the customer, whereas
Productivity is a ratio of
Output
Input
Productivity of land
By improving methods of planting, fertilisation and harvesting of crops, we can increase the harvest tonnage from
1 to 1.5 tons per hectare. We can then say that the productivity of the land will have increased by 50%.
Productivity of materials
A team of skilled carpenters with accurate equipment uses 4 metres of timber to construct a dining room suite. A
second group of carpenters uses 4.5 metres of timber to produce the same dining room suite. Which group has
the higher material productivity?
Productivity of machines
A forming press has a process time of 7 minutes and a load and unload time of 3 minutes. Therefore, for every
hour 6 units can be produced. If we had to improve the method of loading and unloading, we may be able to reduce
this time to 1 minute. We can now produce 7.5 units per hour. Our machine productivity has now increased by 25%
(7.5/6).
Productivity of labour
A bricklayer can lay 500 bricks per day. After improving the method, he can now lay 700 bricks per day. This is an
increase of 40%.
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Now let us identify some outputs and inputs:
COMPANY
OUTPUTS
INPUTS
Bakers Bread
Bread, cakes, biscuits
Man hours, machine hours
Toyota
Cars, bakkies
Man hours, machine hours
Accounting Dept.
No. of accounts processed
Hours spent processing
Example:
Bakers Bread produces 10 000 loaves of bread per day. The factory has 500 workers, each working 8 hours per
day.
Remember our definition of productivity -
Output
Input
Therefore, our output is bread which equals 10 000 loaves
And our input is man hours which is 500 worker’s x 8 hours per day = 4000 man hours
So if you calculate
10 000
4 000
=
the answer is
2.5
This means nothing at this stage, unless you have something to compare it with e.g.
Bakers Bread plans to produce 12 500 loaves of bread per day using 480 workers each working 8 hours per day.
Therefore, the Plan Productivity is 12 500
3840
Actual versus plan
=
=
3.26
2.5
x
3.26
=
100
1
76.6 %
Activity
Calculate the productivity using the information below.
Firstly, let us plot our production figures on a graph.
 Analyse the graph and comment on our performance.
 Now calculate the productivity
 Plot the productivity on a separate graph
 Now analyse the performance.
What can you conclude?
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SOLUTION:
Output
Input
Productivity
2 508 000
3 207 000
3 759 000
4 056 000
40 0000
504 000
702 800
809 600
6.27
6.36
5.35
5.01
Remember by using productivity ratios, you will be able to identify problem areas and thereby take any action if necessary.
2006
2007
2008
2009
Fridges produced per annum
2 508 000
3 207 000
3 759 000
4 056 000
No.of workers
200
250
350
400
Hours per day
8
8
8
8
Working days per year
250
252
251
253
7.9
Factors That Affect Productivity
Several factors can affect productivity and these include:
Methods; Capital; Quality; Technology and Management
You have to type a lengthy report. If you are a typist of average speed, you can possibly complete three pages per
hour. How then can you improve your productivity?
 Enrol on a short course to improve your typing skills
 Replace your typewriter with a computer
 Outsource the typing
A common mistake that people make is that they believe workers are the main determinant of productivity.
According to that theory, productivity gains are achieved by getting employees to work harder. However, many of
the productivity gains have come from technological improvements e.g.
 Paint rollers, power lawn mowers, copying machines, microwave ovens, washing machines, calculators,
computers, email, and many other electric and electronic items/goods.
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7.10
Improving Productivity
There are a number of ways to improve productivity:
 Develop productivity measures for all operations; measurement is the first step in managing and controlling an
operation
 Consider the system as a whole in deciding which operations to concentrate on. Find bottleneck operations in
the system and try to improve them
 Develop methods for achieving productivity improvements such as getting ideas from the workers, studying
how other companies have improved productivity and re-examining the way work is done
 Establish reasonable goals for improvement
 Obtain support of top management
 Measure improvements and publicize them
Knowledge Check Questions
Activity 1
Mance Fraily, the Production Manager at Ralts Mills, can currently expect his
operation to produce 1000 square yards of fabric for each ton of raw cotton. Each ton
of raw cotton requires 5 labour hours to process. He believes that he can buy a better
quality raw cotton, which will enable him to produce 1200 square yards per ton of raw
cotton with the same labour hours.
What will be the impact on productivity (measured in square yards per labour-hour) if
he purchases the higher quality raw cotton?.
Knowledge Check Questions
ACTIVITY 2
C. A. Ratchet, the local auto mechanic, finds that it usually takes him 2 hours to
diagnose and fix a typical problem. What is his daily productivity (assume an 8-hour
day)?
Mr. Ratchet believes he can purchase a small computer trouble-shooting device,
which will allow him to find and fix a problem in the incredible (at least to his
customers!) time of 1 hour. He will, however, have to spend an extra hour each
morning adjusting the computerized diagnostic device. What will be the impact on his
productivity if he purchases the device?.
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Knowledge Check Questions
ACTIVITY 3
Joanna French is currently working a total of 12 hours per day to produce 240
dolls. She thinks that by changing the paint used for the facial features and
fingernails that she can increase her rate to 360 dolls per day. Total material
cost for each doll is approximately R3.50; she has to invest R20 in the
necessary supplies (expendables) per day; energy costs are assumed to be
only R4.00 per day; and she thinks she should be making R10 per hour for her
time. Viewing this from a total (multifactor) productivity perspective, what is her
productivity at present and with the new paint?
Knowledge Check Questions
ACTIVITY 4
How would total (multifactor) productivity change if using the new paint raised
Ms. French’s material costs by R0.50 per doll?.
Knowledge Check Questions
ACTIVITY 5
If she uses the new paint, by what amount could Ms. French’s material costs
increase without reducing total (multifactor) productivity?.
7.12
Answers to Knowledge Check Questions
ANSWERS TO SELF-ASSESSMENT ACTIVITIES
Answer to Self-Assessment Activity 1
Current labor productivity =
New labor productivity =
1000 sq yds
 200 sq yds per hour
1 ton*5 hours
1200 sq yds
 240 sq yds per hour
1 ton * 5 hours
Productivity improves 20% = ( 240 - 200 ) / 200 = .2
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Answer to Self- Knowledge Check Questions 2
Current productivity =
8 hours per day
 4 problems per day
2 hours per problem
Productivity with computer =
7 hours per day
 7 problems per day
1 hour per problem
74 3

Productivity improves 75% 
  .75 
4
 4

Answer to Knowledge Check Questions 3
Currently
Using the new paint
Labour
12 hrs * R10
= R120
12 hrs * R10
= R 120
Material
240 * R3.50
= R840
360 * R3.50
= R1260
Supplies
= R 20
= R 20
Energy
=R 4
=R
Total Inputs
= R984
= R1404
Productivity
240/984
= 0.24
360/1404
4
= .26
Answer to Knowledge Check Questions 4
If the material costs increase by R0.50 per doll:
Using the new paint
Labour
12 hrs * R10
= R 120
Material
360 * R4.00
= R1440
Supplies
=R
20
Energy
=R
4
Total Inputs
= R1584
Productivity
87
360/1584
= 0.23
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Introduction to Functional Areas of Management
Answer to Knowledge Check Questions 5
From the answer to Problem 3 we know the following:
Currently
Using the new paint
Labour
12 hrs * R10
= R120
12 hrs * R10
= R 120
Material
240 * R3.50
= R840
360 * R3.50
= R1260
Supplies
= R 20
= R 20
Energy
=R 4
=R
Total Inputs
= R984
= R1404
Productivity
240/984
= 0.24
360/1404
4
= .26
We want to know how high the material cost could go, using the new paint, before the productivity drops to the
current level of 0.24. In mathematical terms we make the material cost a variable (X), set the new multifactor
productivity value to the current level, 0.24, and solve for X.
360/((R12x10) + 360 R(X) + R20 + R4) = 0.24
360 = 0.24(R120 + 360R(X) + R20 + R4)
360 = R28.8 + 86.4R(X) + R4.8 + R.96
MANCOSA
It follows then that the new paint could
raise Materials cost by no more than
approximately R0.27 (the difference
between R3.77 and R3.50) before Ms.
325.44 = 86.4R(X)
French would experience a decrease in
R(X) = 325.44/86.4 = R3.7666  R3.77
multifactor productivity.
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Unit
8:
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Unit Learning Outcomes
CONTENT LIST
LEARNING OUTCOMES OF THIS UNIT:
8.1 Introduction

Introduce topic areas for the unit
8.2 Three monumental changes in the

Understand the three monumental changes due to the
information age
information age
8.3 Where computers work

Identify areas where computers are used
8.4 Systems and organisations

Discuss the link between systems and organisations
8.5 The value chain model of a business

Explain the five primary activities in the value chain

Understand what an information system is

Explain the benefits of an information system

Understand how information systems are used in business
organisation
8.6 Information systems
transactions
8.7 Social responsibility in the information

Understand social responsibility in the information age
age
Prescribed / Recommended Readings
Prescribed Readings:
 Du Toit, Erasmus and Strydom (2013) Introduction to Business
Management, 9th Edition, Oxford University Press: Southern Africa
Recommended Reading:

Laudon K.C. and Laudon J.P. (2007). Management Information Systems
(11th Edition) Pearson Education. Upper Saddle River : New Jersey.
Chapter 1
Chapter 2
Chapter 3
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8.1
Introduction
Into the information age
Before the twentieth century, humanity experienced at least two major paradigm shifts—changes in thinking that
result in a new way of seeing the world—the agricultural revolution and the industrial revolution.
8.2
Three Monumental Changes
Prehistoric people were mostly nomadic hunters and gatherers.
The Agricultural Economy
The transformation to an agricultural economy took place over several centuries around 10,000 years ago. The
result was a society in which most people lived and worked on farms, exchanging goods and services in nearby
towns. The agricultural age lasted until about a century ago, when technological advances triggered what has
become known as an industrial revolution.
The Industrial Economy
By the end of the nineteenth century, the world was dominated by an industrial economy in which more people
worked in urban factories than on farms. Increasingly, more wealth was in the hands of fewer people. As towns
grew into cities, crime, pollution, and other urban problems grew with them.
The Information Economy
Twentieth-century information technology produced what’s been called a second industrial revolution, as people
turned from factory work to information-related work. In today’s information economy (sometimes called a postindustrial economy), clerical workers outnumber factory workers, and most people earn their living working with
words, numbers, and ideas. Instead of planting corn or making shoes, most of us shuffle bits in one form or another.
Technology was central to each of these transformations. The agricultural economy grew from the plow, machines
sparked the industrial revolution, and the information age is so dependent on computers that it’s often called the
computer age.
Today, approximately 70 percent of workers in the U.S. economy are information workers whose jobs require
them to create, process, use, or distribute information. There are two types of information workers: knowledge
workers and data workers.
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8.3
Where Computers Work
It’s becoming harder all the time to find jobs that haven’t been changed in some way by computers. Consider these
examples:
8.4

Entertainment

Publishing

Medicine

Airlines

Science
Systems and Organisations
Information technology is at the centre of the information revolution. However, the role and impact of information
technology in business can be complex and confusing without the help of clearly defined concepts.
Anatomy of a System
A system is a set of interrelated parts that work together to accomplish a purpose. To accomplish its purpose, a
system performs three basic functions: input, processing, and output. A system has two additional functions:
feedback and control. Every system has a boundary that defines its limits; anything outside the system’s boundary
is part of the system’s environment. A system can be a part, or a subsystem, of a larger system.
Robots as Systems
Another example of a system is the robot. A robot is a computer-controlled machine designed to perform specific
manual tasks. A robot’s central processor is functionally identical to the processor found in a personal computer, a
workstation, or a mainframe computer. A robot is, in effect, a computer with exotic peripherals. The most important
differences between robots and other computers are the input and output peripherals.
Business Organisations as Systems
A business organisation is a system designed for the purpose of creating products and services for the consumer.
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8.5
The Value Chain Model of a Business Organisation
According to the value chain model, an organisation performs a series of activities to provide products and
services for customers. There are five primary activities in the value chain:

Inbound logistics receives and stores supplies and materials from the firm’s environment and distributes them
when and where they are needed in the organisation

Operations use the supplies and materials to create or manufacture the organisation’s products and services

Outbound logistics delivers the products and services when and where needed by customers

Marketing and sales investigates customer needs and promotes the value of and sells the products and
services in the environment (marketplace)

Service maintains and enhances the product or service usefulness to customers through, for example, training
and maintenance
The value chain model includes four support activities of an organisation to ensure that the primary activities can
function efficiently and effectively:

Management and other administrative services such as accounting, finance, and
legal

Human resources

Research and technology development

Procurement
Each of the primary and support activities can be viewed as a subsystem of the organisation. The specific
combination of primary and support activities an organisation uses to accomplish a specific objective is often
referred to as a business process.
8.6
Information Systems
An information system is a set of interrelated parts that work together to produce, distribute, and use information
products and services. It uses people, hardware, and data resources for input, processing, output, storage, and
control activities to produce valuable information for users.
Information Systems in Context
An information system is a set of information technologies that enables people in an organisation to accomplish
tasks effectively by providing access to information.
People
All members of an organisation need to use information to perform their jobs. As a group, these people are referred
to as information system users or end users. The structure and design of an information system is defined by
another group of people—the system designers. Another group of people in the organisation—managers—decides
how money, time, and other resources should be allocated to design, implement, and maintain the organisation’s
information systems.
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Tasks
Tasks can be categorised into four areas: tasks related to communication among people in the organisation, tasks
related to making decisions within the organisation, tasks related to the operations of the organisation, and tasks
related to strategic management of the organisation.
Information
As a commodity, information refers to facts, statistics, or other data that are valuable or useful to a person for
accomplishing a task. These valuable pieces of information are organised and represented in some physical or
digital form.
Organisation
A business or other organisation can be defined by its purpose, the tasks or activities that it performs, and its
structure.
Environment
The global, competitive business environment presents problems and opportunities that a business organisation
must cope with to thrive.
Information Technology
In the context of business, these technologies perform five information functions:

Acquisition is a process of capturing data about an event that is important to the organisation

Processing is an activity that manipulates and organises information in ways that adds value to the information
so it is useful to users

Storage and retrieval is an activity that systematically accumulates information for later use and then locates
the stored information when needed

Presentation is the process of showing information in a format and medium useful to the user

Transmission is the process of sending and distributing data and information to various locations
Benefits of Information Systems
A firm can reap the following benefits:

High-quality information

Access to information

Utilisation of information

Perform organisational work efficiently

Better communication and decision-making

Better products and services for customers
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Information Systems for Business Transactions
A transaction is an event that occurs in any of the primary activities of the company. A transaction processing
system (TPS) is a firm’s basic accounting and record-keeping system that keeps track of routine daily transactions
necessary to conduct business. Transaction processing systems typically involve large amounts of data stored in
large databases; they require high processing speeds to manipulate large volumes of data. A transaction
processing system must ensure a high level of accuracy and security of the data.
Competitors
Stockholders
Management
Suppliers
Customers
Information Systems
People
Materials
Money
Knowledge
Labour Unions
Production
Marketing
Finance
Personnel
Research
Government Agencies
Products
Services
Payments
The community
Financial organizations
The Transaction Processing Cycle
Transaction processing is a cyclical process with five steps:

Entering the data. This involves online data entry or transcribing paper source documents. Data entry can also
use electronic data interchange (EDI) to electronically exchange business transactions

Processing the data. Data can be processed in two ways: batch processing or real-time processing

Storing and updating the data. This step involves storing the transaction data in database files. Many large
organisations use data warehousing software to create and maintain very large databases containing data
on all aspects of the company

Document and report preparation. A transaction processing system produces several types of action
documents and reports. An action document initiates an action by the recipient or verifies for the recipient
that a transaction has occurred

User inquiry. Managers and other workers can use a database query language to ask questions and retrieve
information about any transaction activity
Enterprise Resource Planning
Transaction processing systems exist in all functional areas of a business. Each subsystem is itself a transaction
processing system. The subsystems exchange information; the output of one subsystem is the input to another
subsystem. Many managers in organisations look for ways to create cross-functional information systems by
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reengineering, or combining and integrating, two or more transaction processing systems. This approach of
creating information systems to support an organisation’s operational business processes is referred to as
enterprise resource planning (ERP).
Automated Information Systems for Design and Manufacturing
Computer-Aided Design (CAD)
Product designers and engineers use computer-aided design (CAD) with computer workstations and software to
draw product or process designs on the screen. CAD is used in a wide variety of industries, but a prime example
of the importance of CAD is its use in the design of the Boeing 777, the first commercial aeroplane to be designed
entirely with CAD software.
Computer-Aided Manufacturing (CAM)
Computers and other information technology are used to automate the manufacturing process with computeraided manufacturing (CAM). The software in a CAM system retrieves the design specifications of the product
from the CAD database; controls specific tools, machines, and robots on the factory floor to manufacture the
product; and monitors the overall physical process of manufacturing the product.
Computer-Integrated Manufacturing (CIM)
Computer-integrated manufacturing (CIM) is a concept, or management philosophy, emphasising the coordination of CAD and CAM systems along with other information systems in the company.
8.7
Social Responsibility in the Information Age
Social responsibility refers to both legal and ethical behaviour. Laws define a society’s proper, or legal, behaviour
and outline the actions a government can take in response to improper behaviour. Ethics are sets of principles or
moral standards that help guide behaviour, actions, and choices.
Social responsibility applies to a company as a whole as well as to individuals. Regarding its own employees, a
company is obliged to treat them with personal respect, healthy working conditions, fair wages, and employment
continuity.
Some additional guidelines that were developed by Donn B. Parker, a leading expert on computer ethics:

Informed consent.

The “higher ethic.”

Most restrictive action.

Universality rule.

“Change in” rule.

Owner’s conservative rule.

User’s conservative rule.
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
Academicearth.com

Alanis Business Academy

Du Toit, Erasmus and Strydom (2013) Introduction to Business Management, 9th Edition, Oxford
University Press: Southern Africa

Hofmeyer, K. (1998) “South African Managers Need to Be More Positive” People Dynamics October,
16(10), pp 16 – 20.

Jones, G.R., George, J.M. & Hill, C.W.L (1998) Contemporary Management Issues. Massachusetts:
McGraw Hill.

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
Mintzberg, H. (1990) “The Manager’s Job: Folklore and Fact” Harvard Business Review, Mar – Apr, pp
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
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