Spine 23mm
SIXTH
EDITION
The business environment changes constantly, and so too must the approaches to
managing a business organisation successfully. Among the plethora of management
theories, each proposing that it provides the best solution to optimising an organisation,
a few have stood the test of time and are considered principles that all modern managers
should know and be able to apply. Management Principles: a contemporary edition for
Africa focuses on these core management principles. It provides learners with a sound
knowledge of the business environment, how to manage scarce resources, and the
functions of planning, organising, leading and controlling. The book also highlights the
importance of sound decision-making, information management, optimising a diverse
workforce, managing different organisational cultures, managing people (individuals,
groups and teams) and business ethics.
A contemporary edition for Africa
SIXTH EDITION
EDITORS:
Management Principles: a contemporary edition for Africa is written from a South African
and African perspective. The uniqueness of this continent justifies a management
approach that reflects Africa’s realities while being sensitive to the fact that Africa is part
of the borderless world.
Management
PRINCIPLES
PJ Smit, T Botha, MJ Vrba
A unique feature of the book is its integration of relevant management knowledge and
skills and a direct focus on management values to help managers and potential managers
succeed in a world driven by innovation and change. The book further accommodates
different learning styles by providing the following features:
• Real-world business examples
• Figures and diagrams
• Concise summaries of important concepts
• ‘Time for reflection’ exercises
• Case studies
• Self-assessment questions.
Management PRINCIPLES
A contemporary edition for Africa
EDITION
A contemporary edition for Africa
Management
PRINCIPLES
SIXTH
EDITORS: PJ Smit, T Botha, MJ Vrba
www.jutaacademic.co.za
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Sixth
edition
Management
principles
A contemporary edition for Africa
Management Principles 6e.indb 1
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Management Principles 6e.indb 2
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Sixth
edition
Management
principles
A contemporary edition for Africa
Editors:
PJ Smit
T Botha
MJ Vrba
Contributor:
Hellicy C Ngambi
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Management Principles – A contemporary edition for Africa
First edition 1992
Second edition 1997
Third edition 2002
Fourth edition 2007
Fifth edition 2011
Sixth edition 2016
Juta and Company (Pty) Ltd
PO Box 14373, Lansdowne 7779, Cape Town, South Africa
© 2016 Juta and Company (Pty) Ltd
ISBN 978 1 48512 125 1 (Print)
ISBN 978 1 48512 482 5 (WebPDF)
All rights reserved. No part of this publication may be reproduced or transmitted in any form or
by any means, electronic or mechanical, including photocopying, recording, or any information
storage or retrieval system, without prior permission in writing from the publisher. Subject to
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a person may engage in fair dealing with a copy of this publication for his or her personal or
private use, or his or her research or private study. See section 12(1)(a) of the Copyright Act 98
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This book has been independently peer-reviewed by academics who are experts in the field.
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CONTENTS
PREFACE....................................................................................................... xvii
Part 1: The nature of management..................................................
chapter 1: INTRODUCTION TO MANAGEMENT...................................................
1.1 1.2 1.3 1.4 1.5
Introduction...............................................................................................................
Business organisations and managers ....................................................................
The nature of management ......................................................................................
Definition of management.......................................................................................
Different levels and kinds of management in the organisation .........................
1.5.1 Top management .....................................................................................
1.5.2 Middle management ...............................................................................
1.5.3 Lower/first-line management ................................................................
1.6 Areas of management ...............................................................................................
1.7 The role distribution of managers ..........................................................................
1.8 Managerial skills and competencies at various managerial levels .....................
1.9 Management and organisational performance.....................................................
1.10 The scope of management .......................................................................................
1.10.1 Large business organisations .................................................................
1.10.2 Small business organisations .................................................................
1.10.3 Non-profit organisations ........................................................................
1.11 The approach followed in this book .......................................................................
1.12 Summary.....................................................................................................................
References ..............................................................................................................................
Case study questions ............................................................................................................
Multiple-choice questions ...................................................................................................
Paragraph questions .............................................................................................................
Essay question .......................................................................................................................
1
3
4
6
7
9
11
11
11
12
13
16
17
20
21
21
21
22
22
24
25
26
26
28
29
chapter 2: The evolution of management theory ..................................
30
2.1
2.2
2.3
2.4
31
33
33
34
35
41
45
47
48
Introduction...............................................................................................................
Why study management theory?............................................................................
Understanding the different management theories.............................................
The theories of management ...................................................................................
2.4.1 The classical approaches .........................................................................
2.4.2 Contemporary approaches .....................................................................
2.5 Current and near-future management realities ....................................................
2.6 Summary.....................................................................................................................
References ..............................................................................................................................
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Case study questions ............................................................................................................
Multiple-choice questions ...................................................................................................
Paragraph questions .............................................................................................................
Essay question .......................................................................................................................
49
49
51
51
chapter 3: Managing in a changing environment ......................... 52
3.1 Introduction............................................................................................................... 53
3.2 Concepts of systems theory..................................................................................... 55
3.2.1 The organisation as a micro-system of its environment..................... 55
3.2.2 The systems approach in management ................................................. 56
3.3 The composition of the management/business environment........................... 56
3.3.1 Main characteristics of the management/business environment .... 60
3.4 The internal or micro-environment ....................................................................... 61
3.5 The market or task environment ............................................................................ 62
3.5.1 The market ................................................................................................ 62
3.5.2 Suppliers ................................................................................................... 63
3.5.3 Intermediaries .......................................................................................... 64
3.5.4 Competitors ............................................................................................. 64
3.6 The macro-environment .......................................................................................... 66
3.6.1 The composition of the macro-environment ...................................... 66
3.6.2 The technological environment ............................................................ 67
3.6.3 The economic environment ................................................................... 68
3.6.4 The socio-cultural environment ............................................................ 68
3.6.5 The ecological/natural environment .................................................... 69
3.6.6 The political environmen t...................................................................... 71
3.6.7 The international environment .............................................................. 71
3.6.8 Conclusion ............................................................................................... 71
3.7 Interfaces between the organisation and the environment ................................ 72
3.7.1 Environmental change and the organisation ....................................... 72
3.7.2 Uncertainty in the environment ............................................................ 72
3.7.3 Crises in the environment ...................................................................... 73
3.8 Ways in which management can prepare for environmental changes .............. 73
3.8.1 Information management ....................................................................... 74
3.8.2 Strategic responses .................................................................................. 74
3.8.3 Structural change ..................................................................................... 74
3.9 Summary .................................................................................................................... 74
References .............................................................................................................................. 75
Case study questions ............................................................................................................ 76
Multiple-choice questions ................................................................................................... 77
Paragraph questions ............................................................................................................. 78
Essay question ....................................................................................................................... 79
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Part 2: Planning...................................................................................... 81
chapter 4: Strategic planning .......................................................................
83
4.1
4.2
4.3
Introduction............................................................................................................... 84
Strategic planning: what it encompasses............................................................... 86
The strategic planning process ................................................................................ 90
4.3.1 The vision .................................................................................................. 90
4.3.2 The mission statement............................................................................. 91
4.3.3 Assessing the internal environment ...................................................... 94
4.3.4 The external environment ...................................................................... 102
4.3.5 Translating the mission into long-term goals ...................................... 105
4.3.6 Choosing a strategy ................................................................................. 107
4.4 Grand strategies ........................................................................................................ 107
4.4.1 Growth strategies..................................................................................... 108
4.4.2 Decline strategies ..................................................................................... 112
4.4.3 Corporate combinations ........................................................................ 114
4.5 The selection of grand strategies............................................................................. 117
4.6 Factors affecting strategic choice ............................................................................ 119
4.7 Summary..................................................................................................................... 121
References .............................................................................................................................. 121
Case study questions ............................................................................................................ 123
Multiple-choice questions ................................................................................................... 123
Paragraph questions ............................................................................................................. 125
Essay question ....................................................................................................................... 126
chapter 5: Planning ........................................................................................... 127
5.1
5.2
5.3
5.4
5.5
5.6
5.7
5.8
Introduction............................................................................................................... 128
The nature and importance of planning ................................................................ 129
Kinds of organisational plan.................................................................................... 130
5.3.1 Strategic plans........................................................................................... 131
5.3.2 Tactical plans ............................................................................................ 132
5.3.3 Operational plans .................................................................................... 133
The time frame for planning .................................................................................... 136
5.4.1 Long-term plans ....................................................................................... 137
5.4.2 Medium-term plans (tactical plans)...................................................... 137
5.4.3 Short-term plans (operational plans).................................................... 137
Steps in the planning process .................................................................................. 137
Barriers to effective planning .................................................................................. 140
Planning tools ............................................................................................................ 142
5.7.1 Forecasting................................................................................................ 142
5.7.2 Budgeting .................................................................................................. 143
5.7.3 Scheduling and monitoring ................................................................... 144
Goal formulation ...................................................................................................... 147
5.8.1 The focus areas ......................................................................................... 147
5.8.2 Properties of well-formulated goals ...................................................... 149
5.8.3 The degree of openness........................................................................... 150
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5.9 The process of goal setting ....................................................................................... 151
5.10 Techniques for goal setting ...................................................................................... 152
5.11 Summary..................................................................................................................... 155
References .............................................................................................................................. 156
Case study questions ............................................................................................................ 158
Multiple-choice questions ................................................................................................... 158
Paragraph questions ............................................................................................................. 160
Essay question ....................................................................................................................... 160
chapter 6: Managerial decision-making .................................................... 161
6.1
6.2
6.3
Introduction............................................................................................................... 161
The relationship between problems, problem solving, and decision-making. 163
Types of managerial decisions ................................................................................ 163
6.3.1 Programmed decisions............................................................................ 164
6.3.2 Non-programmed decisions .................................................................. 164
6.4 Decision-making conditions ................................................................................... 164
6.4.1 Certainty ................................................................................................... 165
6.4.2 Risk ............................................................................................................ 165
6.4.3 Uncertainty ............................................................................................... 165
6.5 Decision-making models ......................................................................................... 167
6.5.1 The decision-making process ................................................................. 168
6.6 Group decision-making ........................................................................................... 170
6.7 Techniques for improving group decision-making ............................................. 171
6.7.1 Brainstorming........................................................................................... 172
6.7.2 Nominal group technique ...................................................................... 173
6.7.3 Delphi technique...................................................................................... 173
6.7.4 Group decision support systems ........................................................... 174
6.8 Tools for decision-making ....................................................................................... 175
6.8.1 Quantitative tools for decision-making................................................ 176
6.8.2 The Kepner-Fourie method.................................................................... 180
6.8.3 Cost–benefit analysis............................................................................... 181
6.9 Summary..................................................................................................................... 181
References .............................................................................................................................. 182
Case study questions ............................................................................................................ 183
Multiple-choice questions ................................................................................................... 183
Paragraph questions ............................................................................................................. 186
Essay question ....................................................................................................................... 186
chapter 7: Information management ......................................................... 187
7.1
7.2
7.3
Introduction............................................................................................................... 188
The link between decision-making and information........................................... 189
What is an information system? ............................................................................. 191
7.3.1 A definition of an information system .................................................. 191
7.3.2 The basic components of an information system ............................... 192
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7.4
7.5
7.6
Characteristics of useful information .................................................................... 193
Organising information systems ............................................................................ 194
Classification of information systems .................................................................... 194
7.6.1 Operations information systems ........................................................... 195
7.6.2 Management information systems (MIS) ........................................... 196
7.6.3 Other classifications of information systems ...................................... 198
7.7 Developing an information system ........................................................................ 201
7.7.1 Systems investigation .............................................................................. 201
7.7.2 Systems analysis ....................................................................................... 202
7.7.3 Systems design ......................................................................................... 203
7.7.4 Systems implementation, maintenance, and security ........................ 203
7.8 Summary .................................................................................................................... 204
Case study questions ............................................................................................................ 205
Multiple-choice questions ................................................................................................... 205
Paragraph questions ............................................................................................................. 207
Essay question ....................................................................................................................... 207
Part 3: organising ................................................................................. 209
chapter 8: Organising and delegating ....................................................... 211
8.1
8.2
8.3
8.4
8.5
8.6
8.7
8.8
Introduction............................................................................................................... 212
Organising, organisation, and organisational structure ..................................... 213
Reasons for organising ............................................................................................. 214
The organising process ............................................................................................. 216
Principles of organisation ........................................................................................ 216
8.5.1 Unity of command and direction .......................................................... 216
8.5.2 Chain of command .................................................................................. 217
8.5.3 Span of control ......................................................................................... 218
8.5.4 Division of work....................................................................................... 218
8.5.5 Standardisation ........................................................................................ 218
8.5.6 Coordination ............................................................................................ 218
8.5.7 Responsibility, authority, and accountability ..................................... 219
8.5.8 Power ......................................................................................................... 220
8.5.9 Delegation ................................................................................................. 220
8.5.10 Downsizing and delayering .................................................................... 220
Authority .................................................................................................................... 221
8.6.1 Formal and informal authority .............................................................. 221
8.6.2 Line and staff authority ........................................................................... 221
8.6.3 Centralised and decentralised authority .............................................. 223
Organisational design............................................................................................... 226
8.7.1 Organisational chart ................................................................................ 226
8.7.2 Departmentalisation ............................................................................... 226
Job design ................................................................................................................... 232
8.8.1 Job specialisation ..................................................................................... 233
8.8.2 Job expansion ........................................................................................... 233
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8.9
Delegation .................................................................................................................. 234
8.9.1 Principles of effective delegation........................................................... 234
8.9.2 The advantages of delegation ................................................................. 235
8.9.3 Obstacles to effective delegation ........................................................... 235
8.9.4 Overcoming obstacles to effective delegation ..................................... 236
8.9.5 The delegation process ............................................................................ 237
8.10 Summary .................................................................................................................... 238
References .............................................................................................................................. 238
Case study questions ............................................................................................................ 239
Multiple-choice questions ................................................................................................... 240
Paragraph questions ............................................................................................................. 242
Essay question ....................................................................................................................... 243
chapter 9: Managing change: culture, innovation and technology . 244
9.1
9.2
9.3
9.4
Introduction............................................................................................................... 245
Change inside the organisation .............................................................................. 247
The change process ................................................................................................... 247
Areas of organisational change ............................................................................... 249
9.4.1 Change in strategy ................................................................................... 250
9.4.2 Changing the organisational structure ................................................. 250
9.4.3 Technological change.............................................................................. 251
9.4.4 Changing people ...................................................................................... 251
9.5 Resistance to change ................................................................................................ 251
9.5.1 Overcoming resistance to change ......................................................... 253
9.5.2 Why efforts to change fail....................................................................... 255
9.6 Culture and change ................................................................................................... 256
9.6.1 Definition of the concept of culture ..................................................... 256
9.6.2 Elements that determine and express a corporate culture ................ 257
9.6.3 Changing the organisational culture .................................................... 260
9.7 Organisational development (OD) ....................................................................... 261
9.8 Summary .................................................................................................................... 261
References .............................................................................................................................. 262
Case study questions ............................................................................................................ 263
Multiple-choice questions ................................................................................................... 264
Paragraph questions ............................................................................................................. 265
Essay question ....................................................................................................................... 266
chapter 10: Managing diversity .................................................................... 267
10.1 Introduction .............................................................................................................. 268
10.2 Misconceptions of diversity .................................................................................... 272
10.3 What is diversity?...................................................................................................... 275
10.3.1 What is workforce diversity?.................................................................. 277
10.4 Diversity defined ....................................................................................................... 277
10.4.1 The platinum rule .................................................................................... 277
10.4.2 General dimensions of diversity ............................................................ 278
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10.5 Reasons for the increased focus on managing workforce diversity .................. 279
10.6 The need for diversity management in South Africa ........................................... 280
10.6.1 Imbalances in the South African business world ................................ 280
10.6.2 The benefits of diversity management .................................................. 281
10.7 Managing diversity.................................................................................................... 282
10.7.1 Approaches to managing diversity ........................................................ 283
10.7.2 Diversity paradigms: strategies for diversity management................ 284
10.8 Cultural diversity....................................................................................................... 287
10.8.1 A definition of culture ............................................................................. 287
10.8.2 Different responses from different world views .................................. 289
10.9 South African cultural values .................................................................................. 290
10.9.1 Social orientation: individualism vs collectivism ............................... 291
10.9.2 Power distance ......................................................................................... 292
10.9.3 Uncertainty avoidance ............................................................................ 294
10.9.4 Goal orientation: quality of life vs career success............................... 294
10.9.5 Relationships and rules: universalism vs particularism ..................... 295
10.9.6 Degree of involvement: specific vs diffuse ........................................... 295
10.9.7 How status is accorded: achievement vs ascription ........................... 296
10.9.8 Time orientation ...................................................................................... 297
10.10 Synergistic solutions to problems of cultural difference .................................... 298
10.11 Diversity training ...................................................................................................... 298
10.11.1 Approaches to diversity training ........................................................... 300
10.11.2 Management support .............................................................................. 300
10.11.3 Summary of spheres of activity for diversity management ............... 300
10.12 Summary..................................................................................................................... 302
References .............................................................................................................................. 302
Case study questions ............................................................................................................ 304
Multiple-choice questions ................................................................................................... 305
Paragraph questions ............................................................................................................. 307
Essay question ....................................................................................................................... 307
Part 4: leading ........................................................................................ 309
chapter 11: Leadership ...................................................................................... 311
11.1 Introduction............................................................................................................... 312
11.1.1 A definition of leadership ....................................................................... 313
11.2 Leadership and management .................................................................................. 313
11.3 The components of leadership ................................................................................ 315
11.3.1 Power, and the key terms associated with power: interests and
influence .................................................................................................... 316
11.4 The theoretical foundations of leadership ............................................................ 320
11.4.1 Introduction ............................................................................................. 320
11.4.2 Trait theory ............................................................................................... 320
11.4.3 The behavioural approach to leadership .............................................. 321
11.4.4 The contingency or situational approaches to leadership ................. 324
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11.5 Contemporary approaches to leadership .............................................................. 331
11.5.1 Charismatic leadership ........................................................................... 331
11.5.2 Transactional leadership ......................................................................... 332
11.5.3 Transformational leadership .................................................................. 333
11.5.4 Emotional intelligence (EQ) and leadership....................................... 334
11.5.5 Servant leadership ................................................................................... 336
11.5.6 Peer-to-peer leadership ........................................................................... 336
11.5.7 Concluding remarks on the foundations of leadership ..................... 337
11.6 Leadership and political behaviour in organisations .......................................... 338
11.7 Summary .................................................................................................................... 340
References ............................................................................................................................. 340
Case study questions ........................................................................................................... 345
Multiple-choice questions ................................................................................................... 345
Paragraph questions ............................................................................................................. 347
Essay question ....................................................................................................................... 348
Chapter 12: Individuals in the organisation ............................................. 349
12.1 Introduction............................................................................................................... 350
12.1.1 The importance of the human dimension in management ............... 351
12.2 People as a subsystem............................................................................................... 352
12.3 People in the organisation ....................................................................................... 353
12.3.1 Values and attitudes ................................................................................. 353
12.3.2 Personality ................................................................................................ 356
12.3.3 The individual’s ability ............................................................................ 359
12.3.4 Motivation ................................................................................................ 360
12.3.5 Perception ................................................................................................. 361
12.3.6 Learning .................................................................................................... 363
12.4 Emotional intelligence (EI) .................................................................................... 363
12.5 Mentoring and coaching .......................................................................................... 365
12.6 Types of workplace behaviour ................................................................................ 366
12.7 Summary .................................................................................................................... 367
References .............................................................................................................................. 368
Case study questions ............................................................................................................ 369
Multiple-choice questions ................................................................................................... 370
Paragraph questions ............................................................................................................. 371
Essay question ....................................................................................................................... 372
chapter 13: Groups and teams in the organisation ............................... 373
13.1 Introduction............................................................................................................... 374
13.2 Groups and teams ..................................................................................................... 374
13.3 Types of organisational group ................................................................................ 374
13.3.1 Informal groups ....................................................................................... 375
13.3.2 Formal groups .......................................................................................... 375
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13.4 Stages in group and team development................................................................. 376
13.4.1 Forming ..................................................................................................... 377
13.4.2 Storming ................................................................................................... 377
13.4.3 Norming ................................................................................................... 377
13.4.4 Performing ............................................................................................... 378
13.4.5 Adjourning ............................................................................................... 378
13.5 Variables that influence group behaviour.............................................................. 378
13.5.1 Organisational context............................................................................ 379
13.5.2 Group member resources ....................................................................... 381
13.5.3 Group structure........................................................................................ 381
13.5.4 Group processes....................................................................................... 384
13.5.5 Group tasks ............................................................................................... 385
13.6 Organisational teams ................................................................................................ 386
13.6.1 Characteristics of effective work teams ................................................ 387
13.7 Why organisations use teams .................................................................................. 390
13.8 Types of team ............................................................................................................390
13.9 Developing individuals into team members ......................................................... 391
13.10 Summary..................................................................................................................... 392
References .............................................................................................................................. 393
Case study questions ............................................................................................................ 395
Multiple-choice questions ................................................................................................... 396
Paragraph questions ............................................................................................................. 398
Essay question ....................................................................................................................... 398
chapter 14: Motivation ...................................................................................... 399
14.1
14.2
14.3
14.4
Introduction............................................................................................................... 400
The motivation process ............................................................................................ 400
The classification of motivation theories .............................................................. 402
Content theories ....................................................................................................... 402
14.4.1 Maslow’s hierarchy of needs .................................................................. 403
14.4.2 The existence needs, relatedness needs and growth needs (ERG)
theory ........................................................................................................ 405
14.4.3 Herzberg’s two-factor motivation theory ............................................ 405
14.4.4 Acquired needs model ............................................................................ 409
14.5 Process theories ........................................................................................................ 410
14.5.1 The equity theory of motivation ........................................................... 410
14.5.2 The expectancy theory of motivation ................................................... 412
14.5.3 Reinforcement theory of motivation .................................................... 413
14.6 Money as a motivator ............................................................................................... 415
14.7 Designing jobs that motivate .................................................................................. 416
14.7.1 Job enlargement ....................................................................................... 417
14.7.2 Job enrichment ........................................................................................ 417
14.7.3 The job characteristics model ................................................................ 418
14.8 Summary .................................................................................................................... 420
References .............................................................................................................................. 420
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Case study questions ............................................................................................................ 422
Multiple-choice questions ................................................................................................... 422
Paragraph questions ............................................................................................................. 424
Essay question ....................................................................................................................... 425
chapter 15: Communication and interpersonal relationships ......... 426
15.1 Introduction............................................................................................................... 427
15.2 The communication process ................................................................................... 428
15.3 Organisational communication .............................................................................. 430
15.3.1 Organisational communication networks ........................................... 431
15.3.2 Formal communication .......................................................................... 431
15.3.3 Informal communication ....................................................................... 433
15.4 Barriers to effective communication ..................................................................... 433
15.4.1 Intrapersonal factors ............................................................................... 433
15.4.2 Interpersonal factors ............................................................................... 434
15.4.3 Structural factors ..................................................................................... 435
15.4.4 Technological factors .............................................................................. 436
15.5 How managers can become better communicators ............................................ 438
15.5.1 The sender encodes the message and selects the channel ................. 438
15.5.2 The sender transmits the message ......................................................... 439
15.5.3 The receiver decodes the message and decides whether feedback
is needed ................................................................................................... 439
15.6 The impact of information technology on the communication process ......... 439
15.7 Interpersonal relationships ...................................................................................... 440
15.7.1 A definition of conflict ............................................................................ 441
15.7.2 Managing organisational conflict .......................................................... 441
15.7.3 Negotiation ............................................................................................... 442
15.7.4 The negotiation process .......................................................................... 443
15.8 Summary .................................................................................................................... 445
References .............................................................................................................................. 446
Case study questions ............................................................................................................ 447
Multiple-choice questions ................................................................................................... 447
Paragraph questions ............................................................................................................. 449
Essay question ....................................................................................................................... 450
Part 5: controlling ............................................................................... 451
chapter 16: Control ........................................................................................... 453
16.1
16.2
16.3
16.4
16.5
Introduction............................................................................................................... 454
Definition of control ................................................................................................. 455
The importance of control ....................................................................................... 455
The control process .................................................................................................. 456
The levels of control ................................................................................................. 457
16.5.1 Strategic control ....................................................................................... 457
16.5.2 Operations control .................................................................................. 460
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xv
16.6 Functional area control systems ............................................................................. 461
16.6.1 Financial control ...................................................................................... 461
16.6.2 The control of human resources ............................................................ 462
16.6.3 Control of physical resources ................................................................ 464
16.6.4 Operational control ................................................................................. 465
16.6.5 Control of information resources ......................................................... 467
16.7 Characteristics of an effective control system ...................................................... 467
16.8 Summary .................................................................................................................... 467
Case study question ............................................................................................................. 469
Multiple-choice questions ................................................................................................... 470
Paragraph questions ............................................................................................................. 472
Essay question ....................................................................................................................... 472
Part 6: contemporary management issues ................................. 473
chapter 17: Ethics, corporate social responsibility, and
corporate governance .................................................................................... 475
17.1 Introduction............................................................................................................... 476
17.2 Ethics........................................................................................................................... 476
17.2.1 Levels of ethical decision-making ......................................................... 478
17.2.2 Different approaches to ethical decision-making ............................... 479
17.2.3 Steps in the ethical decision-making process ...................................... 482
17.2.4 Governing ethics in the organisation ................................................... 484
17.2.5 A last word on ethics ............................................................................... 485
17.2.6 Ethics and social responsibility ............................................................. 485
17.3 Corporate social responsibility (CSR) .................................................................. 486
17.3.1 The narrow view of CSR ......................................................................... 486
17.3.2 The broader view of CSR ........................................................................ 486
17.4 Corporate governance .............................................................................................. 488
17.4.1 Principles and approaches ...................................................................... 488
17.4.2 Corporate governance in South Africa ................................................ 489
17.5 Summary .................................................................................................................... 491
References .............................................................................................................................. 491
Case study questions ............................................................................................................ 493
Multiple-choice questions ................................................................................................... 493
Paragraph questions ............................................................................................................. 495
Essay question ....................................................................................................................... 495
chapter 18: New challenges for management ........................................ 496
18.1 Introduction .............................................................................................................. 497
18.2 Variables influencing contemporary organisations to change ........................... 497
18.2.1 Globalisation ............................................................................................ 498
18.2.2 Technological advances .......................................................................... 498
18.2.3 Radical transformation of the world of work ...................................... 499
18.2.4 Increased power and demands of the customer ................................. 500
18.2.5 The growing importance of intellectual capital and learning ........... 501
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18.2.6 New roles and expectations of workers ................................................ 502
18.2.7 Environmental crises .............................................................................. 504
18.2.8 The digital era ........................................................................................... 504
18.2.9 Demographic change............................................................................... 505
18.3 The traditional model of the formal organisation................................................ 506
18.4 The new organisation model ................................................................................... 507
18.5 Characteristics of contemporary organisations ................................................... 507
18.5.1 Global ........................................................................................................ 507
18.5.2 Networked ................................................................................................ 509
18.5.3 Flat and lean ............................................................................................. 510
18.5.4 Flexible ...................................................................................................... 511
18.5.5 Diverse workforce ................................................................................... 511
18.6 Summary .................................................................................................................... 512
References .............................................................................................................................. 513
Case study questions ............................................................................................................ 515
Multiple-choice questions ................................................................................................... 515
Paragraph questions ............................................................................................................. 517
Essay question ....................................................................................................................... 517
Index ........................................................................................................... 518
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PREFACE
The challenges of being an effective and efficient manager have never been greater.
In a global economy, organisations are more complex than ever before and must be
highly competitive if they are to survive. Technological advances bring benefits, but also
complexities of managing virtual teams and groups and dealing with constant change.
Managers must be sensitive to cultural differences entailed in doing business around the
globe. Climate change, sustainability, corporate governance, corporate citizenship and
business ethics are becoming increasingly important and need to be managed.
Worldwide, the business world is experiencing economic downturns and managers
need to balance sound business decisions with issues surrounding ethics and humanity.
Furthermore, managers need to provide guidance when restructuring is taking place in
their organisations and they need to adhere to health and safety requirements.
South African business managers experience even greater challenges such as
a turbulent political environment characterised by no trust in political leaders,
corruption and bribery. Trade unions are very active, students demand free tertiary
education, workforces are in processes of transformation, and employment equity and
industry charters are realities. These few examples illustrate the fact that all managers
on all managerial levels and in all kinds of organisation (even the most experienced
executives) need to reflect on sound management principles to be effective and efficient
in meeting the demands of modern organisations.
As a response to the increasing complexity of managerial decisions, this book
addresses the traditional management functions of planning, organising, leading and
controlling within a contemporary management environment. The basic principles
underlying these functions are explained by focusing on the theories of these functions
as well as the application of these theories in practice, mainly through using South
African and African examples.
The book provides a solid knowledge base and helps to develop management skills.
It promotes a sound value system that takes the claims of all organisational stakeholders
into account.
Management principles is structured in a way that will guide the reader logically
through the management process, emphasising the challenges that managers worldwide
face and also focusing on the unique challenges facing managers in South Africa and
Africa.
Part 1 of the book provides an overview of management and how management
sciences evolved to adapt to changes in the business environment.
Part 2 focuses on strategic management which aims to focus all the plans, actions
and activities on the overall vision, mission and goals of the organisation. It also explains
how strategic plans should be cascaded down into tactical and operational plans. The
planning process, goals formulation, budgeting, forecasting, information management
and decision-making are also explained in Part 2.
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In Part 3, organising as managerial function is discussed. Organising aims to provide
a structure to an organisation that supports its strategy. Organising principles, the
organising process, as well as delegation are covered in detail.
Part 4 focuses on people in the workplace. Leadership and motivation are explained
from a productivity perspective, in other words, how to optimally use their human
resources. Issues such as diversity management, conflict management, communication
and negotiation are explored in this part of the book.
Part 5 focuses on the last of the four managerial functions, namely monitoring and
controlling. This part will enable the manager to recognise the importance of monitoring
and control, to design a system for an organisation that effectively monitors and controls
its performance, to detect deviations from plans, and to implement remedial actions.
The last part of the book, Part 6, deals with contemporary management issues,
specifically with respect to South African and African managers.
In revising our book, we build upon its previous successes. We maintained the
layout and structure of the previous edition which was found logical and user-friendly
to reviewers and users of the book. Our main aim with the sixth edition of the book was
to update the theoretical content with the latest developments in business management
and to provide more recent and appropriate examples from the South African and
African business environment.
The authors of the book would like to thank all the institutions, organisations and
individuals that use the book – we sincerely hope that it will contribute to the success
of many organisations and the personal successes of individuals. We would also like to
thank all the specialists who have worked very hard in researching, writing, proofreading
and finally publishing this, the sixth edition of Management principles: A contemporary
edition for Africa.
The authors
November 2016
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1
INTRODUCTION TO
MANAGEMENT
Part
The nature
of management
1
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1
THE
PURPOSE
OF THIS
CHAPTER
LEARNING
OUTCOMES
Management Principles 6e.indb 3
INTRODUCTION TO
MANAGEMENT
As the introductory chapter to this book, Chapter 1 introduces the
reader to the important role that business organisations play in satisfying
the changing needs of people. It sketches the role that managers
play in making these businesses successful by applying fundamental
management principles to achieve each organisation’s unique mission
and goals. This chapter also looks at the different kinds of manager and the
different levels of management that one finds in business organisations.
Although managers are responsible for planning, organising, leading
and controlling (the four management functions), they also perform
certain managerial roles. These roles are: interpersonal, informational,
and decision-making roles. These three roles are also considered in this
introductory chapter. To perform such managerial roles, as well as the
four management functions, managers need specific skills. Chapter 1
therefore also covers the conceptual, interpersonal, and technical skills
that managers need in order to manage the organisation, or departments
or sections within the organisation, successfully.
However, there is no ‘one best way’ of approaching management
challenges. There are different approaches to dealing with management
issues. This chapter proposes the use of the systems approach to
management as one of the approaches to management. The systems
approach to management therefore forms the basis for the structure and
content of this book.
This chapter will enable learners to:
Explain the important role that business organisations play in
improving the standard of living in modern society
■■ Depict (diagrammatically) and discuss the components that make
up the management process
■■ Explain the management functions of planning, organising, leading
and controlling
■■ Describe the different levels and kinds of management one typically
finds in an organisation
■■ Explain three managerial roles that managers perform
■■ Discuss the managerial skills needed at the different levels of
management
■■ Explain what ‘management competencies’ encompass
■■ Recommend ways in which to master management skills and
competencies
■■ Describe some of the major challenges faced by management in
South Africa, Africa and abroad.
■■
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management principles
KEY
CONCEPTS
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
Controlling
Decision-making role
Information role
Interpersonal role
Leading
Management
Management competencies
Management ethics
Management process
Management skills
Organising
Planning
Resources
Systems approach
1.1 Introduction
Organisations, especially business organisations, have been part of human life for many
centuries. Today, more than ever before, society depends on business organisations to
meet the changing needs of all its members and to improve their standard of living. But it
is not only business organisations that satisfy the complex needs of society. Government
organisations such as state hospitals and clinics provide healthcare, the South African
Police Services provide protection against crime, and municipalities provide water,
electricity, waste removal, and a host of other services. Non-profit organisations such as
many sports clubs, animal shelters, churches, universities and political parties also help
to satisfy society’s many needs.
All these organisations, whether private or state, large or small, profit-seeking or nonprofit, help to improve the standard of living of society by providing for the complex
needs of society. As diverse as these organisations are, they all strive to achieve their
unique missions and goals, and they all apply the fundamental management principles
to ensure their sustainability.
All organisations, but especially business organisations, utilise society’s resources to
produce much-needed products or render services. These scarce resources are:
■■ Its people (human resources with specific knowledge, skills, abilities and so on)
■■ Money (capital or financial resources)
■■ Raw materials (physical resources)
■■ Knowledge (information resources).
Managers are faced with the challenge of deciding how to optimise these scarce resources
to best satisfy the needs of society. Managers decide which resources and in what
quantities are necessary to best satisfy the changing needs of society. For organisations
to be successful, they must have financial goals, such as to realise an above-average
return on investment for the shareholders. But organisations also have non-financial
goals that may focus on protecting the environment, on promoting women to senior
management positions, on retaining important customers, on the safety of employees,
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introduction to management
5
and so forth. Managers plan and implement (organise, lead and control) what has to be
done to reach the organisation’s mission and goals. They are responsible for the success
and sustainability of their organisations and eventually for the level of need satisfaction
in society.
Famous businesses open their doors in South Africa
Starbucks stores have opened in Rosebank and the Mall of Africa in Midrand. Starbucks
Rosebank store is located on the corner of Cradock and Tyrwhitt Avenues — situated
between the Gautrain station and the Rosebank taxi rank.
Despite the current higher cost of living and economic pressures, Starbucks is convinced that
quick-service dining and the propensity to shop continues unabated amongst middle-upper
income shoppers.
Other global operators that have also opened shops in South Africa, include Krispy Kreme,
H&M and Forever 21. These businesses target brand- and status-hungry consumers.
Coco Safar is an authentic, understated luxury experience in Third Wave Coffee, the finest
Michelin-Star quality patisserie and baked goods. This world-class brand has just been
launched in Cavendish Square in Cape Town.
Competent managers will help an organisation to reach its mission and goals. If
managers do their jobs well, the organisation will be successful. Successful organisations
can compete nationally and internationally, enabling a country as a whole to prosper.
Successful organisations also provide much needed jobs — a basic requirement for a
prospering nation. In 2016 the unemployment rate in South Africa was 25 per cent.1
According to the World Economic Forum (WEF) South Africa has the third highest
unemployment rate in the world for people between the ages of 15 to 24. This report
estimates that more than 50 per cent of young South Africans between 15 and 24 are
unemployed. Only Greece and Spain have higher unemployment than South Africa in
this age range according to the report.2
Please note that we use the terms ‘goals’ and ‘objectives’ interchangeably. We will specify
throughout the text what kind of goal/objective we are referring to.
Managers create wealth for successful countries
When it comes to health and prosperity, no country can beat Norway. For the 12th year
in a row, Norway has earned the number one spot on the United Nations’ 2015 Human
Development Index (HDI).
The HDI measures countries in three basic areas — life expectancy, education, and income/
standard of living.
The poorest countries in the world are all found in Africa. These countries include
Zimbabwe, Democratic Republic of the Congo, Liberia, Burundi, Malawi and Nigeria.
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management principles
For example, Malawi has a population of 16 million yet is amongst the smallest countries
in Africa. The country is in the list of top poorest countries in the world following its low
per capita income and living standards. Malawi has extremely low life expectancy and
high infant mortality. It is one of the least developed nations in the world. However, some
improvements have been seen in the recent years.
In contrast to the management situation in successful countries in the world, South
Africa has a critical shortage of competent managers which can be seen in the standard
of living of South Africans. According to an Adcorp report in 2014, there were an
estimated 470 000 vacancies in the private sector which are positions that could be
filled almost immediately if the skills were available. More than half (52 per cent) of
these positions were in management and the remainder (37 per cent) were largely
professional positions in accounting, law, medicine, engineering and finance.3
Because of the profound influence of business as well as government and other
organisations on the economy of a country – and thus the standard of living of its people
– it is important that managers are developed to ensure that they make responsible
management decisions.
It is against the background sketched in the previous paragraphs that this book was
structured. More specifically, the objective of this book is to provide a comprehensive
contemporary review of management principles and their application in organisations
operating in Africa. This book offers a pragmatic approach to management as it
recognises the unique environment within which managers have to operate in South
Africa and in Africa.
1.2 Business organisations and managers
A century or two ago, consumers were part of an agricultural society. They depended
on themselves and a few other individuals such as the local shopkeeper, tailor, butcher,
and blacksmith for products and services. However, the modern consumer lives in the
age of the organisation. Virtually all the products and services required to satisfy the
consumer’s and, ultimately, society’s needs are produced and provided by specialised
organisations such as car manufacturers, hypermarkets, cellphone shops, fast food
outlets, sports clubs, universities, banks, guest houses, bicycle shops, hospitals, and
airlines, to mention but a few. Unlike a century ago, people’s lives are influenced in some
way or another by the managers of these numerous business organisations.
Organisations, especially business organisations, serve society in a number of
ways by transforming scarce resources into products and services that society needs.
Table 1.1 provides an example of how various types of organisation bring together the
human, financial, physical, and information (knowledge) resources to produce specific
products or services.
Organisations do not however reach their missions and goals on their own. Managers
are needed to deploy the scarce resources that an organisation has at its disposal to
help it reach its mission and goals. Managers must activate and guide the organisation.
Without good management, an organisation is like a ship without a rudder.
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introduction to management
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1.3 The nature of management
As we have already stated, organisations acquire scarce human, financial, physical and
information resources in order to produce a product or render a service for which there
is a need in society. Human resources include both managers and workers; both are
needed to enable the organisation to reach its mission and goals as productively as
possible.
Managers follow a specific process in order to do their jobs. All managers (top,
middle and first-line managers) perform four fundamental management functions:
1. Planning
2. Organising
3. Leading
4. Controlling.
All managers perform the following four management functions:
■■
■■
■■
■■
Planning
Organising
Leading
Controlling.
Table 1.1 The basic resources of an organisation
Organisation
Human
resources
Financial
resources
A municipality
Administrative
staff, engineers,
town planners,
municipal
workers,
technicians,
gardeners, etc
Funds allocated
by government,
rates and taxes,
conditional
grants (to fund
roads and
infrastructure)
Offices,
equipment,
vehicles,
computers
Statistics regarding
water and electricity
usage, new building
plans approved,
demographics of
a specific town or
area
Toyota South
Africa
Managers,
engineers,
technicians,
administrative
staff, workers
Shareholders,
loans, profit
Assembly
plants,
buildings,
equipment,
computers
Market trends,
shifts in
demographics,
national statistics,
skills in car
manufacturing
Architect
practice
Architects,
draughtpersons,
administrative
staff
Fees from
clients
Offices,
computers,
boardrooms
Newly proposed
housing
development,
population forecasts
Bicycle shop
Owner-manager,
members of
family, labourer
Owner’s equity,
profits, loans
Counters,
shelves, tools,
equipment
Knowledge of
models, price lists,
membership list at
the mountain bike
club
Management Principles 6e.indb 7
Physical
resources
Information
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management principles
Figure 1.1 illustrates the management process as a logical sequence of decisions.
Managers start by planning for the future, they then organise, lead their subordinates
and finally control the performance of the organisation/department/section.
Resources
Human
Financial
Physical
Information
Organising
Planning
Leading
Performance
Achieve
goals
Products
Services
Productivity
Profit
Controlling
Figure 1.1 The four fundamental management functions
However, at any given time, a manager is likely to be engaged in several management
functions simultaneously. In order to simplify the complex process of management, it is
depicted in a model as shown in Figure 1.2. The solid lines indicate how, in theory, the
functions of management are performed. The dotted lines represent the true reality of
management.
The external environment
Planning
(Part 2)
Managers determine the organisation’s vision,
mission, and goals and decide on a strategy to
achieve them
Controlling (Part 5)
Managers monitor
progress and take
corrective steps to
reach the mission and
goals
Organising (Part 3)
Managers group
activities together,
establish authority,
allocate resources, and
delegate
Leading (Part 4)
Managers direct and motivate members of the
organisation to achieve the mission and goals
Figure 1.2 The interactive nature of the management functions
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introduction to management
9
Figure 1.2 serves as the structural framework for this book. It is important to emphasise
again that this book is based on the systems approach to management. The systems
approach to management incorporates many of the other approaches to management
(see Chapter 2) and is considered a contemporary approach that can deal with many
current management challenges.
1.4 Definition of management
Management can be described as the process of planning, organising, leading, and
controlling the scarce resources of the organisation to achieve the organisation’s mission
and goals as productively as possible.4
Planning is the management function that determines where the organisation wants
to be in future. We differentiate between strategic, tactical and operational plans.
A car manufacturer may plan to replace all its current models by solar-driven cars
within the next decade. This is an example of a strategic plan that will have an influence
on the entire organisation. All managers and workers will be affected by this new
direction that top management wants to take. Top management will also be committing
billions of Rand to achieve this dream in future. Strategic plans are very broad plans
and must be translated into tactical plans to be more specific and measurable. Tactical
plans are made by functional managers (such as financial, human resources, research
and development, marketing, and operations managers) to support the organisation’s
strategic plan. The research and development manager (middle-management level)
at the above car manufacturer will have to make medium-term plans to support the
overall plan to replace the current cars with solar-driven cars. She may plan to replace
all current technology in the assembly plant with new technology within the next three
years to ensure that the overall strategic plan can be achieved.
Tactical plans are translated into operational plans. Operational plans are made by
lower management (often called ‘first-line’ or ‘supervisory management’) and these are
shorter-term plans which might have daily, weekly and monthly schedules.
Top management is responsible for the overall strategic plans. Middle management is
responsible for tactical plans. First-line managers make operational plans.
Organising is the second step in the management process. Once the goals and plans
have been determined, management has to allocate the organisation’s human and other
resources to relevant departments or sections. Tasks, roles, and responsibilities have to
be defined to ensure that each person knows what he or she is responsible for within the
organisation. Thus organising involves the development of a framework or organisational
structure to indicate how and where people and other resources should be deployed
to achieve the set goals. The better these resources are organised and coordinated, the
more successful the organisation will be. Because organisations have different missions,
goals and resources, each organisation should be structured to accommodate its
particular needs. Furthermore, management must match the organisation’s structure to
its strategies. (This process is called ‘organisational design’.)
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management principles
Sports teams also apply management principles in their matches. For example, in a rugby, soccer
or baseball team, each player has a specific position in which he or she plays. Each player
knows exactly what is expected of him or her in that specific position. The sports teams use
the principles of organising to ensure that all players contribute to the team’s goals.
Managers are responsible for getting things done through other people. The third
management function, namely leading, refers to directing the human resources of
the organisation and motivating them in such a way that they will be willing to work
productively to reach the organisation’s mission and goals. Leading the organisation
means making use of influence and power to motivate employees to achieve
organisational goals.
Controlling, the fourth management function, means that managers should
constantly make sure that the organisation is on the right course to reach its goals. The
aim of control is therefore to monitor the performance of each section and department
in the organisation. For example, an organisation might have a goal to increase sales by
ten per cent within one year. However, after the first three months, management finds
that the organisation’s sales have declined by two per cent due to the economic climate.
Management then has to rectify the deviation in order to get back on track. To do this,
management may decide to appoint more sales managers, give discounts to certain
clients or it may even decide to adapt its goals.
The management functions are performed by managers at all levels of the organisation
(top, middle and first-line management) and in all departments and sections of an
organisation. However, the complexity of the decisions made by top, middle and firstline/lower management differs considerably. These differences will be looked at briefly
in Section 1.5.
Levels of management
Top
managers
Middle
managers
First-line
managers
Marketing Finance Operations Human Research
Other
resources
and
areas
development
Areas of management
Figure 1.3 Classification of managers according to level and functional area
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introduction to management
11
1.5 Different levels and kinds of management in the
organisation
The four management functions must be performed by all managers in all organisations,
but managers are responsible for different departments. They work at different levels
and deal with different challenges. Managers are therefore classified into two categories:
1. According to their level in the organisation (the top, middle, and lower or first-line
managers)
2. By the functional or specialist area of management for which they are responsible
(See Figure 1.3).
1.5.1 Top management
Top management represents the relatively small group of managers at the top of the
management hierarchy. This level of management comprises, for example, the board of
directors of a company, senior partners in an accountancy firm, the directors of a building
company, chief executives, as well as management committees (consisting mainly of
members of top management). Top management is responsible for the organisation as
a whole, as well as for determining its vision, mission, goals, and overall strategies. They
make decisions that affect the entire organisation, such as closing down certain nonprofitable outlets, expanding operations into a new country or forming joint ventures
with other companies. Their decisions are future focused. They also focus on changes
that occur outside the organisation that may offer opportunities or pose threats to the
organisation in future.
The annual reports of organisations depict the top management structure of the organisation.
You can access many of these reports on each organisation’s website, for example:
■■ www.sasol.co.za
■■ www.edcon.co.za
1.5.2 Middle management
Whereas top management focuses on the organisation as a whole, middle management
is responsible for specific departments of the organisation. Middle management
is primarily concerned with implementing the strategic plan formulated by top
management. Middle management in larger organisations will include the financial
manager, marketing manager, purchasing manager, operations manager, research
and development manager, and the human resources manager. Mining companies,
as well as other companies will often have a safety, health and environment manager.
Middle management is concerned with the near future and is therefore responsible
for medium-term planning, organising functional areas (their specific departments),
leading by means of the departmental heads, and controlling the management activities
of the middle managers’ own departments. Middle managers also continually monitor
environmental influences that may affect their own departments. The head of the finance
department must monitor the environment for possible changes in tax legislation,
the marketing manager must monitor the environment for possible new competitors
that may enter the market, the human resource manager must be aware of changes in
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legislation regarding overtime work, while the operations manager must be aware of
new technologies that could make their current machines obsolete.
1.5.3 Lower/first-line management
Departments in an organisation are divided into smaller segments. These segments are
called sections and they are managed by lower or first-line managers. The marketing
department, for instance, could be subdivided into the product design section, the
marketing communication section, and so on. Lower management also includes
supervisors or foremen. Mining companies such as African Rainbow Minerals or
Harmony Mines refer to their first-line managers as ‘supervisors’.
First-line managers deal with the monthly, weekly and daily management of their
sections. They have to ensure that the plans made by middle managers are implemented.
They therefore report to middle management. The operations manager (middle
management) in a manufacturing plant may have a goal to replace all of the old machines
and equipment with more environmentally friendly ones within three years; the firstline managers will then have to ensure that monthly, weekly and daily plans are in place
to ensure proper maintenance of the old machines for the following three years.
Whereas top management and middle management deal with other managers,
first-line managers deal directly with the workforce. The primary concern of a first-line
manager is to apply policies, procedures, and rules to achieve a high level of productivity
in his/her section, to provide technical assistance to workers, to motivate subordinates,
and to ensure that the section’s goals are reached. Edcon (clothing, footwear and textiles
retailer) employs over 20 000 permanent employees and a further 25 000 temporary
staff.5 Most of these employees are workers reporting to first-line managers in Edcon’s
stores. First-line management therefore holds great power to increase or decrease the
productivity in the organisation through their day-to-day interaction with the workers.
For the sake of clarity and convenience, we have distinguished only three levels
of management. Some organisations will have a fourth level, namely teamleaders.
Obviously, the size of an organisation plays an important role in the number of levels
encountered in practice. This is because one person can manage only a limited number
of people, a consideration that will be discussed in more detail later. A one-person
business may have only one level of management and the owner therefore embodies
top, middle, and lower management. However, large organisations with thousands of
employees have many more levels of management and an organisational structure that
is complex. (We shall deal with this issue in greater detail in Chapter 8).
Although we have distinguished different levels of management (top, middle and
first-line), the four fundamental functions of management are all performed at each of
these levels. The complexity of decisions made at the different levels differ; so too does
the time span covered by the decisions. Figure 1.4 illustrates how the four functions
of planning, organising, leading, and controlling can differ for the three management
levels in a specific organisation. The time spent on the different management functions
can also differ from one organisation to another or between different industries.
Research on the time spent by top, middle and first-line management on each of the
four management functions is inconclusive. Figure 1.4 therefore depicts the situation
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for a specific organisation only and should not be generalised to apply to all types and
sizes of organisation.
Planning
Top
managers
Middle
managers
First-line
managers
Organising
28 %
36 %
18 %
15 %
Leading
33 %
24 %
22 %
36 %
51 %
Controlling
14 %
13 %
10 %
Figure 1.4 Time spent on functional activities by organisational level: an example
1.6 Areas of management
Another factor that influences the classification of managers (see Figure 1.3) is the
type of activity they manage. Almost all organisations will have a general manager, as
well as marketing, finance, human resource and operations (production) managers.
Organisations in the mining industry will also have safety, health and environment
managers (called SHE). A pharmaceutical company may have a research and
development manager. Some organisations, especially larger ones, may have a public
relations manager.
The general manager makes strategic decisions that influence the organisation
as a whole, its managers and workers. The general manager of a boutique hotel may
decide to expand the facilities of the hotel to include a spa and gymnasium. He may
further decide to close the hotel’s struggling restaurant and use the space for the spa
and gym instead. This decision will have an impact on the financial manager, the human
resources manager, the operations manager, the receptionists and all other managers
and employees. The general manager’s strategic plan should also consider any potential
threats and opportunities that may arise over the next few years, such as new legislation
regarding air purification in gymnasiums. The general manager must also decide on a
structure for the entire organisation (for example, who will report to whom), must lead
from the top and must monitor and control the performance of the entire organisation
to ensure that it reaches its mission and goals.
The marketing function entails the marketing of the products or services of the
organisation. This includes the formulation of a marketing strategy by segmenting the
market and determining which of these market segments the organisation wants to
target. The marketing manager must then decide on the positioning of the organisation
in relation to its competitors. The marketing manager is also responsible for making
decisions regarding the product, such as its design and packaging, price, promotion
(advertising, personal selling and so on) and distribution.
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It is important to note that strategic management and strategic marketing do not refer to
the same types of decision. Strategic management focuses on the entire organisation.
Strategic marketing focuses only on the marketing function. These two terms cannot be used
interchangeably as they differ profoundly.
The financial manager has to make decisions regarding issues such as how to finance a
new project and how to invest its funds to ensure that the organisation prospers. The
financial manager is also responsible for reporting on the financial performance of the
organisation. A major challenge for a financial manager is to manage the cash flow of the
organisation. The financial manager will be the first one to acknowledge that profit and
cash are not the same!
Managing cash flow is a major priority for a financial manager. An organisation can be very
profitable but still go bankrupt as it may not be able to pay its short-term debt. Profit does
not equal cash!
The production or operations management function focuses on the physical production
of products or the delivery of a service. The operations manager has to determine the
optimal way of producing a product or service. In Toyota’s production plant in Durban,
the production manager is responsible for, amongst other things, ensuring that the layout
of the plant is energy efficient and safe and that all processes required to assemble the
cars are well aligned. In a hospital, the operations manager must ensure that the layout
of the hospital is patient friendly, that operating theatres can cope with the workload
and that admission and other processes run smoothly.
The purchasing function entails the acquisition of all products and materials
required by the business to function profitably, namely raw materials, components,
tools, equipment, and inventory. For a car dealer, inventory will refer to the new as
well as used cars in the showroom, motor parts, and so on. The purchasing manager
has to be in contact with suppliers to ensure a good relationship, must determine the
economic quantities to order, and must know the prices at which goods can be bought.
The purchasing manager must be a good negotiator as prices of goods and parts often
have to be negotiated with suppliers. He or she also has to keep the inventory up to date
to ensure continuity of functioning.
The research and development function is responsible for developing new products
and improving old products. This function plays a crucial role in organisations that
operate in fast-changing industries, such as information technology, communications,
and the pharmaceutical industry.
The human resource function entails finding the right people for the job, training
and developing them and ensuring fair remuneration/compensation for each worker.
Finding the right people means that the human resource manager must recruit
candidates, select the best one for the job and appoint that person. In South Africa,
laws govern this process so the human resource manager has to be well informed about
laws such as the employment equity law. To ensure that employees and managers are
suitably skilled, the human resource manager must ensure that a sound performance
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management system is in place and that performance appraisals are done regularly and
fairly. Assessing the performance of employees helps the human resource manager
to identify skills shortages and to design training and development opportunities to
improve on the shortage of these skills. Finally, the human resource manager must
ensure fair remuneration for each employee and manager. Remuneration is more
than paying a salary. It includes other benefits such as medical aid contributions, paid
annual and maternity leave, free transport to and from work and a healthy and safe work
environment.
The public relations function aims to create a favourable and, hopefully, an
objective image of the organisation and establish good relations with the organisation’s
stakeholders. An organisation’s stakeholders include its shareholders, managers and
employees, customers, suppliers, the community and the government.
Public relations and the Volkswagen emissions scandal
Volkswagen has admitted that millions of its diesel cars worldwide were equipped with
software that was used to cheat on emissions tests. This obviously had a very negative
influence on the image of Volkswagen worldwide. The group’s chief executive at the time,
Martin Winterkorn, said his company had ‘broken the trust of our customers and the public’.
Mr Winterkorn resigned as a direct result of the scandal and was replaced by Matthias
Mueller, the former boss of Porsche.
‘My most urgent task is to win back trust for the Volkswagen Group — by leaving no stone
unturned,’ Mr Mueller said on taking up his new post.
Source: BBC News. nd. Available at: http://www.volkswagenag.com/content/vwcorp/info_center/en/
news/2015/09/CEO.html (Accessed: 29 September 2016); http://www.volkswagenag.com/content/
vwcorp/info_center/en/news/2015/09/statement_ceo_of_volkswagen_ag.html (Assessed 29
September 2016).
In organisations where safety is an issue, such as in mining companies, oil refineries
and the building industry, one will also find a safety, health and environment (SHE)
function. The SHE manager must suggest proactive measurements that prevent
incidents before they manifest as accidents and must ensure the safety of managers
and employees. This function is also responsible for looking after the mental health of
employees, such as worker stress and burnout, and for ensuring that programmes are
in place to assist employees who may need them. The management of health includes
managing HIV/AIDS in the workplace. Environmental managers are in charge of all
policies and procedures relating to recycling, waste disposal, pollution and nature
conservation.
All of the above functional managers are responsible mainly for their own
department’s specific managerial activities. Financial managers, human resource
managers, purchasing managers, and the other functional managers perform the same
management functions as the general manager. However, the focus and time horizons
that their planning, organising, leading and controlling decisions cover differ from
those of the general manager. The general manager focuses on the long-term success
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of the organisation as a whole; functional managers focus on their own department’s
performance.
1.7 The role distribution of managers
During the course of their work, managers are required to perform certain roles in
addition to the management functions. Henry Mintzberg, a famous management
theorist, has studied the activities of a group of managers and came to the conclusion
that managers play about ten different roles, which, as shown in Figure 1.5, can be
classified into three overlapping groups, namely an interpersonal role, an information
role, and a decision-making role.6
As far as the interpersonal role is concerned, three groups of activities can be
distinguished. First, all managers have to perform duties that are ceremonial and
symbolic in nature. When the mine manager of a platinum mine delivers a speech at the
opening of a new mine, he or she acts as a figurehead for the mine. The supervisor who
takes the attendees on a tour of the plant after the opening is also acting in a figurehead
role. Second, all managers have a role to play as a leader. This role includes motivating
employees, appointing new personnel, training them, promoting the most suitable
candidate, and dismissing employees who do not perform. The third role within the set
of interpersonal roles is liaison, which aims at maintaining good relations within and
outside the organisation. In a production plant, the maintenance manager must make
continual contact with the production manager to ensure proper maintenance of the
equipment. The maintenance manager must also make contact with outside suppliers of
the equipment used in the maintenance process to ensure availability of new machines
or machine parts.
Managers’ information role enables them to obtain information from colleagues,
subordinates, and department heads as well as outside stakeholders, which they can
use to make sound decisions. This information role of the manager involves monitoring
or gathering information on trends and passing on relevant information to colleagues,
superiors, and subordinates. The manager is, therefore, a vital link in the organisation’s
communication process. The manager’s information role also entails acting as a
spokesperson for his or her department or for the organisation as a whole (in the case
of the general manager).
The third set of managerial roles is grouped into what is known as the decisionmaking role. First, a manager is regarded as an entrepreneur, using the information that
he or she obtains to identify new business opportunities or threats or ways to improve
the organisation’s functioning. Second, in this decision-making role, a manager also has
to deal with and solve problems such as how to improve productivity, which actions to
take to minimise the chances of strikes, and which departments to restructure or even
close down. Third, managers must make decisions about the allocation of resources to
different projects or departments. In their role as negotiators, managers often have to
negotiate with individuals, other departments or organisations and trade unions about
goals, standards of performance and the allocation of resources.
The role distribution framework is especially useful in explaining why managers
cannot move systematically from planning to organising to leading and ultimately to
controlling. The volatility of their environment requires a more flexible managerial style.
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Interpersonal role
Figurehead
Leader
Relationship builder
Decision-making role
Entrepreneur
Problem solver
Allocator of resources
Negotiator
Information role
Monitor
Analyser
Spokesperson
Figure 1.5 The overlapping role distribution of managers (according to Mintzberg)
1.8Managerial skills and competencies at various
managerial levels
Although managers operate at all levels and in all departments and sections of an
organisation, the optimal mix of management skills required at the different levels
(top, middle and lower management levels) differ. Figure 1.6 depicts the different
skills needed at top management level versus those required at middle and lower-level
management. It also shows how these skills differ from the dominant skills required by
non-managers (workers).
The three major skills needed by managers at all levels and in all departments and sections
of an organisation are:
1. Conceptual
2. Interpersonal
3. Technical.
There are three main skills identified as prerequisites for sound management.7
First, all managers need conceptual skills to be able to view the organisation and
its parts holistically. Conceptual skills involve the manager’s thinking and planning
abilities to ensure that the organisation is prepared for the future. They also include the
manager’s ability to think strategically about the organisation and how it will exploit
opportunities and minimise threats caused by a changing business environment.
Sugar-sweetened beverages’ tax
The business environment will change drastically for many businesses in South Africa when
the government introduces a tax on sugar-sweetened beverages on 1 April 2017. Obesity is a
worldwide concern and South Africa has the worst obesity ranking in sub-Saharan Africa. ➜
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Obesity leads to greater risk of heart disease, diabetes and cancer. The government hopes
that this tax will help reduce excessive sugar intake by South Africans. Businesses that
make sugar-sweetened beverages will have to strategise to find ways to minimise the threat
caused by the sugar tax.
Source: National Treasury & South African Revenue Service. 2016. Budget: People's Guide. Pretoria:
National Treasury and South African Revenue Service, p 4.
Interpersonal skills refer to the ability to work with people. A manager should be able to
listen carefully to other managers and workers, communicate clearly, show real empathy,
deal with conflict, understand people’s behaviour, resolve conflict, optimise diversity
and motivate both groups and individuals.
Technical skills refer to the ability to use the knowledge or techniques of a specific
discipline to reach specific goals. Knowledge of accountancy or engineering or currency
trading is an example of a technical skill that can be used to perform a task. A manager at
a lower level in particular requires a sound knowledge of those technical activities (such
as accounting) that he or she must supervise. The time spent on technical activities
decreases however when a first-line manager gets promoted to a middle management
position.
Top
management
Middle
management
Conceptual
Lower
management
Non-managers
(workers)
Conceptual
Conceptual
Interpersonal
Conceptual
Interpersonal
Interpersonal
Technical
Interpersonal
Technical
Technical
Technical
Figure 1.6 Managerial skills needed at various managerial levels
As illustrated in Figure 1.6, the major difference between non-managers (workers) and
managers is the shift in focus from technical skills to interpersonal and conceptual skills.
Promotion from worker to manager is often based on the worker’s technical ability and
not on his or her management competency. An engineer who is excellent in his job as
engineer may be promoted to a management position purely because he or she is a good
engineer — and not because he or she has the potential to be a good manager. This is
often the case in South Africa because of the severe shortage of suitably skilled managers.
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New managers often mistakenly continue to rely on the technical skills with which they
are familiar rather than on interpersonal skills which involve communication skills,
motivation and negotiation skills and the skills to deal with conflict in the workplace.
It is therefore essential that management training is provided to non-managers (such as
geologists, engineers, accountants) when they are promoted to managerial positions.
In South Africa, the National Qualifications Framework (NQF) defines management
competence from basic management competence to advanced competence. Ten levels
of competence are described with NQF Level 10 the highest level of competence. Each
level clearly specifies what a manager must know, what the skills are that the manager
must have, and what value orientation the manager must have to be declared ‘competent’
at that level. ‘Competent’ means that the manager can apply the necessary knowledge
and skills profitably in a work situation. A qualification, such as a university degree, does
not make one competent. However, it should provide a student with the knowledge
component of the competence.
The difficult transition from non-manager to manager
New managers often mistakenly continue to rely on technical skills rather than concentrating
on management skills. Indeed, some people fail to become managers at all because they
let technical skills take precedence over interpersonal skills. Consider George Mthombeni,
who has a Bachelor’s degree and has worked for five years as a computer programmer for
a motor manufacturer. In four short years, he has more new software programs to his credit
than anyone else in the department. He is highly creative and widely respected for his
programming skills.
However, George is impulsive and has little tolerance for those whose work is less creative.
He does not offer to help co-workers and therefore they are reluctant to ask for help. George
is also slow to cooperate with other departments in meeting their needs because he works
primarily to enhance his own software-writing ability. He spends evenings and weekends
working on his computer programs. George is a hard­working programmer, but he sees little
need to interact with his colleagues.
George received high merit increases, but was passed over for promotion to a management
position and does not understand why. His lack of interpersonal skills, lack of consideration
for co-workers, and failure to cooperate with other departments severely limit his potential
as a supervisor. George has great technical skills, but his interpersonal skills are simply
inadequate to make the transition from worker to supervisory management level.
Being promoted from non-manager (worker) to manager is a stressful event. In fact, it
means a career change for the newly promoted manager. A geologist who is promoted
to a management position in a mine changes his or her career from being a geologist
to being a manager. This means that the geologist has to be retrained and prepared for
the new task that lies ahead. The geologist-turned-manager is no longer responsible
for her performance only. She now has to manage the performance of others and deal
with excessively high workloads and unrealistic deadlines. The new manager will also
be faced with changes in relationships with colleagues and may now have to discipline
someone who was previously on the same level in the organisation as herself.
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The new challenges that the newly-appointed manager will face mean that she will
have to acquire a new set of competencies that will be very different from her previous
competencies needed when she was a geologist.
In the 1960s, organisations queued for the services of graduates, such as MBA
graduates. However, the situation has changed profoundly. Today’s organisation
finds itself in a different environment where managers need more than just classical
management skills to do their jobs. Change in the form of new technologies, diseases
to cope with in the workplace, currency collapses, new wars, legislation, labour
movements, a mobile workforce and so on pose new challenges to managers in South
Africa, Africa and the rest of the world. Additional pressures in South Africa are caused
by crime, violence, corruption, shortages of skilled people at all levels, and a loss of
investor confidence. Today’s managers are required to learn and educate themselves
continually in a large number of disciplines. This means that today’s managers must
prepare themselves physically, mentally, and spiritually for their tasks. Furthermore,
this calls for additional skills. Executive coaches and mentors whose function will be
discussed later play an important role in widening the range of a manager’s skills.
1.9 Management and organisational performance
It was explained in the introduction that the business organisation can best satisfy the
unlimited needs of society by means of the productive use of society’s limited resources.
Achieving the highest possible satisfaction of needs with scarce resources is known as
the fundamental economic principle. The task of management in a free-market economy
is to manage in such a way that the organisation makes a sustainable profit, that is, earns
the highest possible income with the lowest possible costs. Of course, this should be
done with due consideration of the social responsibility of the organisation towards the
community in which it operates, as well as the environment for which it needs to care
(called the triple bottom line).
The terms ‘efficiency’ and ‘effectiveness’ can cause major confusion and are often used
interchangeably due to a lack of clarity as to what they mean. An example will hopefully help
to clarify the difference between the two.
If a manufacturer manufactures a top-quality electric car for use in South Africa it can
be called efficient as it is doing things right by delivering high-quality cars. However, the
manufacturer should consider the threat of power outages in South Africa that will have a
definite influence on the use of electric cars. To manufacture the high-quality car may not be
effective, meaning it is not doing the right things with its scarce resources due to the threat
and unpredictability of power outages in the country.
It should be clear from our previous discussions that management is an important
contemporary social institution. Judging by the search for improved standards of
living in society worldwide, management continues to grow in stature. There are,
however, many challenges facing management in a changing environment. This makes
management a constantly evolving discipline.
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1.10 The scope of management
The study of management traditionally focused on business management and therefore
the management of business organisations such as Sasol, mining companies, architect
firms, hardware stores — to name but a few. This does not mean, however, that the
practice of management is limited to large business or medium-sized organisations only.
Effective and efficient management practice is equally important in smaller business
organisations as well as in non-profit organisations such as government departments,
charity organisations, municipalities, universities and schools, sports clubs, and even
political parties. In fact, good management practice is applicable to every organisation
where people work together to achieve a set of goals.
1.10.1 Large business organisations
Any successful nation needs large business organisations with the necessary resources to
compete globally. In South Africa, these large corporations are responsible for 16,9 per
cent of the tax revenue that the South African government receives.8 The government
uses this money for basic education, health, defence, safety, post-school education and
training, agriculture, human settlements, municipalities, social protection and general
public services. The more successful these corporations, the more corporate tax is paid
to the government. This leads to more money available to the government to spend
responsibly where the needs are the largest. However, successful corporations and
other businesses need competent managers. Management training and development
is therefore imperative for large South African business organisations because of the
important role these organisations play nationally, and internationally to earn muchneeded foreign currency for domestic development.
1.10.2 Small business organisations
Management training and development for small- and medium-sized business
organisations (SMEs) is also essential for a variety of reasons. The World Bank Report
emphasises the role that small and medium enterprises play in most economies,
particularly in developing countries. Formal SMEs contribute up to 45 per cent of total
employment and up to 33 per cent of national income – gross domestic product (GDP) −
in these emerging economies. These numbers become significantly higher when informal
SMEs, such as street vendors, are included. According to this report, an estimated 600
million jobs will be needed in the next 15 years to absorb the growing global workforce,
mainly in Asia and sub-Saharan Africa. In emerging markets, most formal jobs are with
SMEs, which also create 80 per cent of new positions.9 South African SMEs need to
play a greater role in the economy because their current contribution to GDP is far
less than that of organisations in countries like Japan, Singapore and the Unites States
of America. The South African government’s turnover tax for micro business is one of
the attempts of the government to support micro businesses. To turn a micro business
into a small business means that the entrepreneur will need management competencies.
These competencies can be acquired through management training and development,
learnerships and mentorship programmes to name but a few.
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1.10.3Non-profit organisations
Although non-profit organisations such as government-subsidised universities and
schools, healthcare facilities, public libraries and charity organisations may not have to
be profitable to attract investors, they must still employ sound management principles if
they are to survive and achieve their goals. South Africa’s vast new government structure,
which involves a central government, nine provincial governments and thousands of
local governments, schools, clinics, and service centres, make tremendous demands on
scarce resources and pose a real challenge to management.
Where does the South African government’s money come from?
Like all other governments, the South African government has to optimise the scarce
resources available to them. But where do the financial resources (money) come from for the
government to use to build schools, hospitals, roads and a more modern infrastructure?
The biggest portion of the money available to the government comes from the National
Revenue Fund, mainly through taxes and levies. The tax revenue available to the government
for the year 2016/2017 will come from the following sources:
Tax revenue 2016/2017
%
Amount
(Billion Rand)
Personal income tax
37,5
441,0
Corporate income tax
16,9
198,3
Value-added tax (VAT)
25,6
301,3
Customs and excise duties
4,6
54,0
Fuel levies
5,5
64,5
Other
9,8
115,7
TOTAL
100
1 174,8
Source: National Treasury & South African Revenue Service. 2016. Budget: People's Guide.
Pretoria: National Treasury and South African Revenue Service.
South Africa, with its desperate need to overcome poverty and improve the standard of
living of its citizens, can be successful only if it improves its level of management skills
and accepts the challenges that face management in all its organisations.
1.11 The approach followed in this book
Management is a complex subject. To make matters more challenging, there is also
not a best way of dealing with management issues. There is no recipe that managers
can follow to make their organisations, departments or sections successful. There are
different approaches to dealing with today’s management challenges, each approach
claiming that it may have the answer to dealing with management challenges. However,
a very popular approach that most management theorists and practitioners follow is the
management process paradigm or framework indicated in Figure 1.7.
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Part 1: The nature of management
■■
■■
■■
Chapter 1: Introduction to management
Chapter 2: The evolution of management theory
Chapter 3: Managing in a changing environment
Part 2: Planning
■■
■■
■■
■■
Chapter 4: Strategic planning
Chapter 5: Planning
Chapter 6: Managerial decision-making
Chapter 7: Information management
Part 3: Organising
■■
■■
■■
Chapter 8: Organising and delegating
Chapter 9: Managing change: Culture, innovation and technology
Chapter 10: Managing diversity
Part 4: Leading
■■
■■
■■
■■
■■
Chapter 11: Leadership
Chapter 12: Individuals in the organisation
Chapter 13: Groups and teams in the organisation
Chapter 14: Motivation
Chapter 15: Communication and interpersonal relationships
Part 5: Controlling
■■
Chapter 16: Control
Part 6: Contemporary management issues
■■
■■
Chapter 17: Ethics, corporate social responsibility and corporate governance
Chapter 18: New challenges for management
Figure 1.7 A conceptual framework for studying management
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The functions that most management experts (academics and practitioners) single out
when explaining management, are planning, organising, leading, and controlling. These
four management functions are performed continuously by managers and therefore
form a process.
These four management functions also constitute the structure of this book. Using the
four fundamental management functions as the basic premise in this book, we shall
discuss the concepts, principles, theories, and techniques that enable the organisation
to function productively and profitably.
In dealing with the context of management, Part 1 (Chapter 2) continues with an
examination of management theories, while Chapter 3 provides an overview of the
environment in which South African managers operate.
Part 2 examines the first fundamental management function, namely planning. In
simple terms, planning means determining the organisation’s future direction, its vision,
mission, goals and possible strategies to attain these. Chapters 4 to 7 deal with planning
and planning-related issues.
Part 3 deals with the second management function, namely organising. Organising
principles and related issues, such as change management and diversity are dealt with
in this part of the book. The challenge of organising is to ensure that an organisational
structure is created that supports the organisation’s chosen strategy and that clearly
indicates the responsibilities of each person in the organisation.
Part 4 examines the third management function, namely leading. Leading
subordinates means that a manager needs a sound understanding of individuals, teams
and groups in the organisation. The manager also needs to know how to motivate his
or her employees and how to communicate effectively. These matters are dealt with in
Chapters 11 to 15.
Part 5 deals with controlling, the fourth management function. Managers need to
monitor the organisation’s performance continually to ensure that the organisation stays
on track. Should deviations from the planned results occur, they should be rectified
as soon as possible. All resources must be monitored and controlled which makes a
control system essential for all organisations.
Part 6 looks at two important management issues namely ethics in business and new
challenges that managers will face in future. These are two very pertinent issues in South
Africa and Africa and will therefore be approached from an African perspective.
1.12 Summary
This chapter introduced the reader to the concept of management and the management
process. By way of introduction, we pointed out that the business organisation
satisfies the changing needs of people in a market economy. These organisations need
professional management in order to achieve their goals successfully.
In this introductory chapter, management is explained as a process comprising
four fundamental functions. These functions are planning, organising, leading, and
controlling. They take place at various levels in the organisation and are practised by all
managers, regardless of their level or function. Management requires certain knowledge,
skills, and a value orientation to perform their management responsibilities successfully.
These aspects are called management competencies. Management competencies can be
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acquired through both training and development and experience. Management training
and development should be a national priority in South Africa as competent managers
enable business organisations to be competitive nationally as well as internationally.
References
1. National Treasury & South African Revenue Service. 2016. Budget: People’s Guide. Pretoria:
National Treasury and South African Revenue Service.
2. Fin24. nd. Available at:http://www.fin24.com/Economy/SA-youth- unemployment-3rdhighest-in-world-20140120 (Accessed: 6 September 2016).
3. Businesstech. nd. Available at:http://businesstech.co.za/news/general/52918/southafricas-critical-skills-shortage/ (Accessed: 6 September 2016).
4. Griffin, RW. 2017. Fundamentals of management, 8th ed. Boston: Cengage Learning, p 7.
5. Edcon. nd. Available at: https://www.edcon.co.za/pdf/annual_reports/annual_report_
2015.pdf (Accessed: 6 September 2016).
6. Lussier, RN. 2014. Management Fundamentals: Concepts, Applications, & Skill Development,
London: Sage Publications, p 9.
7. Ibid, p 6.
8. National Treasury & South African Revenue Service, op cit.
9. Worldbank. nd. Available at: http://www.worldbank.org/en/topic/financial sector/
brief/smes-finance (Accessed: 6 September 2016).
Case study
Pick n Pay converts spaza shop into store in Diepkloof
On 25 February 2016 Pick n Pay opened the first spaza-to-store conversion in Diepkloof
township in Soweto as it looks for more markets in a tighter economy. This strategy by Pick
n Pay comes as the number of new malls being built dropped. The move will allow Pick n
Pay to move more rapidly at a lower cost in lower-income areas. Shoprite has been very
prominent in these areas.
Pick n Pay has 12 full-format stores in Soweto.
Mr Chris Reed, spokesperson for Pick n Pay, said that many independent township traders
were experiencing tough times as the economy tightens and competition becomes more
intense. ‘When we talk to spaza owners about the challenges, and how we might help, they
frequently identify better access to quality products at good prices, a reliable distribution
system, good business management systems, and business advice and mentorship as
priority areas for them,’ he said.
Mr Solly Legae and his family own and run the first of these new types of store. Mr Legae
has had a spaza in Diepkloof since 1972. He said that this new initiative from Pick n Pay will
change the face of retail in the townships forever. ‘Before, we were just buying and selling,’
Mr Legae said. ‘Now there is a vast difference in how I am running the business,’ he added.
In managing the store, Mr Legae has received mentoring and advice from a Pick n Pay
franchisee. He had to be trained to use, amongst others, systems for ordering and managing
stock. Because business is about economies of scale, Mr Legae feels that he can now
compete against foreign traders and Shoprite’s Usave format.
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26
management principles
Case study questions
Question 1
How will Pick n Pay’s spaza-to-store concept make a difference to the standard of living
of those living in Diepkloof?
Question 2
Mr Legae now owns and manages his own store. Give concrete examples of decisions
that he will have to make to ensure that his store remains successful.
Question 3
Although Mr Legae owns the store, his family is also employed by the store. Recommend
an organisational structure to him to ensure that the store can operate optimally.
Question 4
What are the major reasons why Mr Legae chose to change his spaza into the new Pick
n Pay concept?
Question 5
Briefly explain the managerial functions and roles that Mr Legae will be responsible for
as owner-manager of his new business?
Question 6
1. What type of management training has Mr Legae received to prepare him for his
challenge as the general manager of his spaza-to-store shop?
2. Recommend additional management training and development that may help Mr
Legae become a more competent general manager.
Multiple-choice questions
Question 1
In management, the term ‘resources’ refers to
1. people
2. people, finance and information
3. finance and information
4. people, finance, physical resources, information
.
Question 2
.
First-line managers
1. Deal directly with the workforce
2. Are responsible for the daily, weekly and monthly results of their sections
3. Report to middle managers
4. All of the above
Question 3
Planning, organising, leading and controlling are called
1. managerial roles
2. management functions
Management Principles 6e.indb 26
.
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introduction to management
27
3. management competencies
4. management skills
Question 4
First National Bank has decided to close down its non-profitable branches in the
decision.
Limpopo and Mpumalanga provinces. This is an example of a
1. strategic
2. tactical
3. operational
4. policy
Question 5
How many of the following statements is/are correct?
■■ There is one best way of managing all businesses
■■ The systems approach to management is the only scientific management approach
■■ First-line managers are often called supervisors
1. none
2. one
3. two
4. three
Question 6
The manager responsible for the production process in a business organisation is called
.
the
1. public relations manager
2. operations manager
3. marketing manager
4. general manager
Question 7
Despite the managerial functions for which managers are responsible, Mintzberg has
.
also identified certain roles that they must fulfil. These roles are
1. Planning and interpersonal roles
2. Negotiating and information sharing
3. Interpersonal, decision-making and information sharing
4. None of the above
Question 8
The latest NQF comprises
1. 2
2. 5
3. 8
4. 10
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28
management principles
Question 9
.
All managers in South Africa must
1. complete a university degree
2. register with the SA Institute of Professional Managers
3. do a learnership at a business organisation
4. none of the above
Question 10
Which one of the following statements is correct?
1. business organisations should focus on maximising profit in the short term
2. business organisations should focus only on profitability goals
3. business organisations should have goals that focus on profitability, people and the
environment
4. ‘cash’ and ‘profit’ are the same concepts
Paragraph questions
Question 1
Briefly explain the role of business organisations in a market-driven economy. Your
answer must focus on:
1. Why business organisations exist
2. The changing needs of society
3. The standard of living of society.
Question 2
Explain to a non-manager what management encompasses by focusing specifically on
the following:
1. The scarce resources of an organisation
2. The management functions
3. The goals of a business organisation.
Question 3
Briefly describe how the job of a supervisor differs from that of a middle-level manager.
In your answer you must refer to:
1. The types of decision that each manager makes
2. The time horizon of each manager’s decisions
3. The dominant management skills required by supervisors.
Question 4
Briefly discuss five major challenges faced by managers in South Africa.
Question 5
Depict diagrammatically and briefly discuss the systems approach to management. Your
diagram must contain the following elements:
1. The four scarce resources
2. The four management functions
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introduction to management
29
3. The goal(s) of an organisation
4. The business environment.
Essay question
In less than 300 words, describe why and how managers can make or break a society
through the quality of their management decisions. Your answer should deal with at
least the following aspects:
1. The changing needs of society
2. The scarce resources of a society
3. Productivity
4. The influence of management decisions on a society’s standard of living.
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2
THE
PURPOSE
OF THIS
CHAPTER
LEARNING
OUTCOMES
KEY
CONCEPTS
Management has been practised for centuries although the serious study
of management did not begin until the nineteenth century. Over the
centuries, management theory has evolved as a result of changes that
occur in the business environment.
This chapter looks at the management theories and principles that
have stood the test of time, from the earliest documented theories to
modern theories. The chapter also puts the management approach
followed in this book (the systems approach) into perspective and
therefore provides the basis for understanding the way in which
management concepts are dealt with in the book.
There is no ‘one best way’ of managing or a management ‘recipe’
that can guarantee success for managers. It is therefore important that
managers are familiar with different theories and their relevance in
diverse situations.
This chapter will enable learners to:
Briefly describe the history of management from the time of the
Egyptians (building the pyramids) to today
■■ Explain how environmental forces cause management theory to
evolve over time
■■ Give an overview of the various classical and contemporary
management theories
■■ Defend the use of different management theories in different
environments
■■ Defend the relevance of the systems approach to management in
today’s turbulent business environment
■■ Identify and describe the management principles that have stood the
test of time
■■ Present basic arguments regarding the relevance of the various
management theories to today’s managers in South Africa, Africa
and globally
■■ Sketch briefly current and near-future management realities and
challenges.
■■
■■
■■
■■
■■
Management Principles 6e.indb 30
The evolution of
management theory
Bureaucratic approach
Classical approaches
Contemporary approaches
Contingency approach
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the evolution of management theory
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
31
Cross-boundary management
Entrepreneurial capitalism
Fayol’s 14 principles
Hawthorne Studies
Human Relations Movement
Interim management
Knowledge management
Learning organisation
Managerial capitalism
Outsourcing
Process approach
Quantitative Management Theory
Re-engineering
Scenario development
Scientific Management School
Six Sigma
South African Excellence Model
Systems approach
Total quality management (TQM)
2.1 Introduction
As stated before, there is no single best way to manage that will ensure that managers
manage successfully. We therefore need to look at different management theories to
provide managers with alternatives to dealing with today’s management realities.
The evolution of management thoughts and theories reflects how management
dealt – and is still dealing – with the issue of satisfying the changing needs of society. It
explains the dominant issues and culture of a specific time, and management’s different
approaches to dealing with them.
Ancient civilisations developed and practised many of the basic principles and
approaches to management discussed in this book. The Egyptians used the management
principles of planning, organising and controlling when building the pyramids.
Alexander the Great, as well as the Roman Empire were masters in organising their
people. However, management as a science with a unique body of knowledge and
professional management are products of the nineteenth century.1 In the nineteenth
century, entrepreneurs were capitalists who risked their own money in organisations
that they managed themselves. They were thus owner-manager of their businesses. They
were self-appointed managers who bore the risk alone and took all the profits. The oneperson business was a typical example of how capitalism was organised. This kind of
capitalism is known as ‘entrepreneurial capitalism’.
Capitalism has changed drastically, however, since the end of the nineteenth century.
The technological innovation resulting from the Industrial Revolution, especially the
invention of the steam engine, made mass production possible. This resulted in cheaper
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32
management principles
and more affordable products. Factories were erected where employees could come
together to manufacture goods previously produced on their own land — or for which
there had been no need before. This meant that people had to change their agrarian
lifestyle to an industrialised one. They left their farms and relocated to cities where there
were work opportunities in the factories. They were now exposed to a work environment
that was profoundly different from the agrarian environment that they knew well. Many
of their sought-after farming skills were obsolete in the new manufacturing environment.
They may have been experienced farmers but were inexperienced factory workers and
needed reskilling.
The relocation of people from farms to cities meant that a need was created for new
products and services such as housing, sanitation, transport, schools, hospitals and
postal services.
Management in antiquity
1.
2.
3.
4.
5.
Entrance
Entrance cut by grave robbers
Subterranean chamber
Grand Gallery
King’s chamber, relieving
chambers, granite portcullis slabs
6. Queen’s chamber
7. Shaft
8. Limestone plugging the air shaft
A = ‘Air shafts’.
Khufu’s
pyramid
interior
view
The pyramid of Cheops is located close to the western side of Cairo. It was built by the
Pharaoh Cheops to serve as a necropolis after his death. The Egyptians were meticulous
planners. Planning and preparation of the pyramid took about ten years. The construction
took about 20 years, and involved 100 000 workers (20 000 simultaneously on site). The
pyramid is composed of 2,5 million stones, disposed in 220 layers. Each stone has, on
average, a weight of two to ten tons.
The Egyptians recognised the need for planning, organising, and controlling. In the
construction of the pyramid, astronomers and architects, amongst other experts, were
responsible for planning. The organisational structure was rigid, indicating definite lines
of authority to the 100 000 people who worked on the project. The project was controlled
meticulously: the south-east corner of the 13-acre tomb is only one centimetre higher than
the north-west corner.
To satisfy the needs of a changed society, an organisation far larger than the individual
entrepreneur was needed. Thus the company or corporation as an organisational form,
with shareholders and suppliers of capital, was born. This resulted in suppliers of capital
who did not manage and managers who did not supply capital.
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the evolution of management theory
33
As a result of the split between owners and managers, a need for professional managers
developed. Being a new discipline, managers had to invent their own solutions to
management problems. Managers had their own theories about the organisation and its
management — hence the different approaches to management.
2.2 Why study management theory?
Business literature abounds with management theories that complement each other,
contradict one another or that simply become a buzz word in management circles.
Reasons for studying the origins of management would therefore include:
Not repeating mistakes made by managers in the past
■■ To better understand current management practice.
■■
Out of the many theories on how to improve management – and therefore the
producticity of an organisation − some parts of many theories have survived and been
incorporated into contemporary theories on management.
Without knowledge of how management changed over the last decades and
centuries, learners of management will have only their limited experience of management
as a basis for dealing with management challenges. History should expose learners of
management to additional alternatives that they should consider when practising
management.
In short, managers should know the different classical or contemporary management
concepts, tools, and techniques so that they will be able to select the best approach(es)
when needed.
2.3 Understanding the different management theories
All management theories are based on assumptions unique to that theory. An assumption
of a theory could be that ‘people are merely machines’. Another assumption could be
that ‘people are emotional beings’. These assumptions, and many other assumptions,
form the basis of how each management theory attempts to deal with the productivity
issue. Productivity is a complex issue and theorists provide their own explanations and
solutions to improve productivity.
When studying the evolution of management theory, one should bear in mind that
any subject is shaped over time by environmental influences. As shown in Figure 2.1,
certain environmental forces are responsible for the evolution of management theory,
including social, economic, technological, political, international, and ecological forces.
Social changes, for instance, that had a profound influence on management theory
was society’s change in attitude towards child labour, women in the workplace, sexual
harassment and quality-of-life issues.
As the environmental forces change, management has to change too to adjust to the
new realities.
Technological changes: implications for managers
New technological breakthroughs in communication – such as the Internet – have caused
managers to reassess their approaches to management. ➜
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34
management principles
Today’s managers have to find new ways of working with people at arm’s length. Stated
simplistically, knowledge workers use their brains more than their hands.2 The knowledge
worker owns the means of production, namely knowledge, in the new economy. Knowledge
is highly portable, which leads to a mobile workforce. New organisational structures need
to be implemented as hierarchical structures cannot accommodate this type of workforce.
These structures include more flexible forms such as networks or even virtual organisations.
These new structures, in turn, affect the way in which managers lead and control the
activities of their subordinates — whom they may never see.3
2.4 The theories of management
The theories of management can be classified into two main schools of thought, namely:
1. Classical approaches
2. Contemporary approaches.
At a certain point in time, for example, directly after World War II, each of these theories
proposed a solution to the most pressing management problems of that time.
Ec
ial
on
c
So
om
ic
Political
Evolution of:
Management
thought
Body of theoretical
knowledge
l
ica
Ec
og
ol
o
ol
gi
ca
l
n
ch
Te
International
Figure 2.1 Environmental forces that shape management thought
Managers usually prefer one or a combination of these approaches and therefore tend
to apply that approach in the workplace. This can cause conflict in the workplace as
their approach may clash with that of other managers or subordinates. For example, an
accountant-turned-manager may feel most comfortable with the scientific management
approach to dealing with management issues. This management approach may clash
with the approach of a salesperson-turned-manager who may emphasise behavioural
issues in management.
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the evolution of management theory
35
2.4.1 The classical approaches
The classical approaches extend from the late nineteenth century to the 1920s. Many of
these management approaches developed simultaneously in response to changes in the
environment (see Figure 2.2).
Classical approaches
Contemporary approaches
nisatio
n
Re-eng
ineerin
g
ment
anage
g orga
Learnin
ality m
Total q
u
theory
gency
Contin
System
s theo
ry
ement
Quanti
tative
manag
ns
relatio
Human
ageme
nt
cracy
e man
Bureau
istrativ
Admin
Scienti
fi
c man
ageme
nt
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
Figure 2.2 The evolution of management theory
Scientific management school
As a supervisor at the Philadelphia Midvale Steel Company in the late 1800s, Frederick
W Taylor, a mechanical engineer, became interested in ways to improve the productivity
of workers. He studied the work of individual workers to discover exactly how they
performed their tasks. Taylor believed that there was one best way to perform any task.
He analysed each aspect of each task and measured everything that was measurable.
Unnecessary physical movements that slowed production down were identified and
eliminated, and the exact sequence of activities was determined. A standard time for
the accomplishment of each task was then determined. This allowed him to describe
performance objectives quantitatively, such as the number of units that a worker should
produce per shift. This is known as time-and-motion study.
The Egyptians and FW Taylor
To ensure that the building of the pyramids of Cheops at Giza were completed on time, the
Egyptians planned their days as follows:
■■ During a 10-hour workday: every 2 minutes a stone must be put in place (34 to 43 per hour)
■■ During an 8-hour workday: nearly a stone must be positioned every minute (42 to 53
stones per hour).
This type of approach to managing production is also evident in the scientific management
theory of FW Taylor.
Source: Building the great pyramid. nd. Available at: http://www.cheops-pyramide.ch/khufu-pyramid/
khufu-numbers.html (Accessed: 7 September 2016).
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management principles
Taylor’s scientific approach to analysing a task addressed a pressing problem of that time:
how to judge whether an employee had put in a fair day’s work. He believed that money
motivated workers. Knowing what amounted to a fair day’s work, he supported the
individual piecework system as the basis for pay. If workers met a specified production
standard, they were paid a standard wage rate. Workers producing more than the set
standard were paid a higher rate for all the units produced, not just those exceeding
the standard. His experiments to determine the best way to do a job inspired others to
undertake similar studies in other industries.
The focus of scientific management
Scientific management is based on the assumption that money motivates workers.
Frank and Lillian Gilbreth focused on work simplification as an answer to the
productivity question. Being a bricklayer himself, Frank Gilbreth studied the movements
of bricklayers and determined that many of their body movements (bending, reaching,
stooping, trowelling) could be combined or eliminated. He changed an 18-step process
into a five-step process and increased productivity by about 200 per cent.4
Henry L Gantt’s main concern was productivity at shop-floor level. His major
contribution to scientific management is a chart showing the relationship between
work planned and completed on one axis and time elapsed on the other, called the
Gantt chart.
Principles of efficiency were thus established during this period by using scientific
methods to determine the most efficient way to do things. In short, scientific management
focused on the issue of managing work — not on managing people.
This approach to focusing primarily on managing work has obvious limitations.
First, workers cannot be viewed simply as parts of a smoothly running machine. They
are human beings with ambitions, fears, hopes, and other emotions and they search for
meaning in their work. Second, the assumptions about the motivation of employees
are stated too simplistically in these approaches. Money is also not the only motivator
of workers. Other things also motivate people, such as challenging work or recognition
for performance. In the third place, this approach to management creates the potential
for the exploitation of labour and, therefore, possible strikes by workers. Fourth, in
a broader sense, this approach can lead to ignorance of the relationship between the
organisation and its changing external environment as the focus remains on internal
issues, namely the workers and their productivity.
The process (or administrative) approach
While scientific management focused on increasing the productivity of the worker
through job standardisation and simplification, the process approach to management
grew out of the need to find guidelines for managing complex organisations such as
factories. As output increased and operations grew in these industries, organisations
had to deal with more complex problems than merely the productivity of workers.
Planning and the organisation of people in the workplace became major challenges
for business.
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the evolution of management theory
37
The focus of the process approach
The process approach to management focuses on managing the total organisation.
Henri Fayol, who was managing director of a large French coalmining company, is
recognised as the greatest European management pioneer. He was interested in the
administrative side of operations. He described the practice of management as being
different from finance, production, marketing, and other typical business functions. He
argued that management was applied in business, government, sports clubs, schools —
and even in the home.
Fayol’s experience led him to conclude that there were five basic functions of
administration:
1. Planning
2. Organising
3. Commanding
4. Coordinating
5. Controlling.
Planning called for the formulation of goals. Organising focused on the effective
coordination of resources to attain the set goals. Commanding was the art of leading
people. Coordinating the activities of groups to provide unity of action ensured a
smoothly functioning organisation. Controlling involved seeing that everything was
done according to the set plans and that the stated goals were indeed attained.
Taylor’s approach versus Fayol’s approach
Fayol’s theory differed drastically from that of Taylor, his great contemporary. Fayol himself
said: ‘Taylor’s approach differs from the one we have outlined in that he examines the
firm from the bottom up. He starts with the most elemental units of activity − the workers’
actions − then studies the effects of their actions on productivity, devises new methods for
making them more efficient, and applies what he learns at lower levels to the hierarchy.’
Fayol’s approach was top-down, he looked at the organisation from the point of view of
senior managers.
Source: Economist. nd. Available at: http://www.economist.com/node/13095213 (Accessed:
7 September 2016).
Fayol formulated guidelines for managers to follow. These guidelines form 14 principles
for effective management.
The argument that ‘managers are born, not made’ is not true, according to Fayol.
According to him, management is a skill — something that one can learn once its
underlying principles are understood.
Fayol’s 14 principles
1.
Division of labour: specialisation increases output by making employees more
efficient. ➜
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management principles
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
Authority and responsibility: authority gives managers the right to give orders. However,
along with authority goes responsibility.
Discipline: employees must respect the rules that govern an organisation.
Unity of command: an employee must receive commands from one superior only.
Unity of direction: all operations with the same goal should have one manager and one
plan only.
Subordination of individual interest to the common good: the interests of an individual
or group should not take precedence over the interests of the organisation.
Remuneration: rewards for work should be fair to the worker and employer.
Centralisation: the proper degree of centralisation versus decentralisation should be
found.
Hierarchy: the line of authority in an organisation should run in order of rank from top
management to the lowest level of the organisation.
Order: resources should be in the right place at the right time.
Equity: managers should be fair to their employees.
Stability of staff: a low personnel turnover rate enhances the attainment of goals.
Initiative: subordinates should be given the freedom to conceive and carry out their
plans, even though some mistakes may result.
Team spirit: this will give the organisation a sense of unity.
Source: Adapted from Fayol, H. 1930. Industrial and general administration. Geneva: International
Management Institute.
The bureaucratic approach
Max Weber, a German sociologist, was mainly concerned about how organisations are
structured to deal with the thousands of employees working in them. He developed
a theory of bureaucratic management that stressed the need for a strictly defined
hierarchy, governed by clearly defined regulations and authority.
Weber’s ideal bureaucracy is based on legal authority. Legal authority stems from
rules and other controls that govern an organisation in its pursuit of specific goals.
Managers are given the authority to enforce the rules by virtue of their position.
Obedience is not owed to an individual person but to a specific position in the hierarchy
of the organisation. These positions would outlive the people who occupy them. Today,
one would refer to the rigid rules, processes and procedures as ‘red tape’.
Weber’s approach to management has stood the test of time relatively well. In
South Africa, with its relatively few managers and large numbers of unskilled workers,
devotion to rules and other controls set by managers is still a relevant way of managing.
Strict hierarchical structures are found in banks, universities, the South African Police
Services, mining companies and many more.
One of the major limitations of this approach is that bureaucratic rigidity results
in managers being compensated for doing what they are told to do — not for thinking.
Managers are often rewarded for complying with old, sometimes even outdated, rules
whereas the contemporary business environment requires managers to continuously
improve on current practice. Hence rules may become ends in themselves. Limited
organisational flexibility and slow decision-making are also limitations which, in today’s
turbulent environment, can lead to golden business opportunities being lost.
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the evolution of management theory
39
Human relations movement
The early approaches to management emphasised the work itself at the expense of the
people doing the work. The Depression of the 1930s, its manifestations amongst people
and other major changes in the business environment caused managers to challenge
these approaches and their relevance in a changing society. Managing people became
the major issue facing managers, and managers became more oriented to human
relations and behavioural science than to simply the work itself.
The human relations approach to solving the productivity problem grew out of a
famous series of studies conducted at the Western Electric Company’s Hawthorne
Works in Chicago, Illinois from 1924 to 1933. These studies eventually became known
as the Hawthorne Studies.5
The Hawthorne Studies investigated the relationship between the level of lighting
in the workplace and worker productivity. As lighting improved, so did productivity.
Surprisingly, as lighting conditions were made worse, there was still a tendency for
productivity to improve. It was obvious that something besides lighting influenced the
workers’ productivity.
Researcher Mayo and his associates decided that a complex chain of circumstances
had touched off the productivity increases observed. Management’s concern for the
well-being of their subordinates and sympathetic supervision enhanced the workers’
performance. This phenomenon was subsequently labelled the ‘Hawthorne effect’.
The studies concluded that group pressure, rather than management demands,
had the strongest influence on worker productivity. In short, employees were more
motivated by social needs than economic needs.
Mayo and his colleagues pioneered the use of scientific methods in their studies of
people in the work environment. Later researchers, especially psychologists, sociologists,
and anthropologists, used more sophisticated research methods and became known as
behavioural scientists rather than human relations theorists.
Maslow and McGregor are two well-known behavioural scientists. Maslow suggested
that human beings have five levels of needs.6 The most basic need is the physical need
for food and water; the most advanced need is the need for self-actualisation or personal
fulfilment. Maslow argued that people try to satisfy their lower-order needs before
attempting to satisfy their higher-order needs. Managers can facilitate this process
and attain the organisational goals by removing obstacles and encouraging behaviours
that satisfy both the needs of the worker and the organisation. (See Chapter 14 for a
discussion of Maslow’s hierarchy of needs.)
McGregor distinguished two alternative basic assumptions about people and their
approaches to work.7 These two assumptions which he called Theory X and Theory
Y take opposite views on people’s commitment to work. Theory X managers assume
that work is distasteful to workers who must be motivated by force, money or praise.
Theory Y managers on the other hand assume that people approach their work as an
opportunity to develop their talents.
The major contribution of the human relations approach to management was the fact that
this approach viewed workers as human beings and not as machines.
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management principles
Like all approaches to management, the human relations approach and the behavioural
science perspective have their own limitations. The belief that a happy worker is a
productive worker is too simplistic. Economic aspects of work remain important to
workers, as FW Taylor (scientific approach to management) believed. Many factors
play a role in the productivity of workers: their values, attitudes, perceptions, learning,
motivation and many other factors.
Unilever voted the top employer in South Africa
As a subsidiary of Unilever PLC, one of the largest consumer goods companies in the
region, the business houses more than 3 000 employees across its two offices and five
manufacturing locations in South Africa. Unilever is known for brands such as Omo, Dove,
Domestos and many more.
Consistently recognised for adapting to trends and being proactive in its continuous
development, the company has made huge investments over the years in creating optimum
working conditions for its employees. The company has a staunch set of HR policies
and practices, all of which encourage potential employees to stay in South Africa amid
temptation to move overseas to seek work.
Source: African Business Review. nd. Available at: http://www.africanbusinessreview.co.za/
leadership/1712/Top-10-Employers-in-South-Africa-2015 (Accessed: 7 September 2016).
The quantitative management theory
The focus of the quantitative management theory
This theory deals with mathematical models, statistics, and other models, and their use in
management decision-making.
The quantitative school believes that management is primarily about ‘crunching the
numbers’. This school argues that management decisions should be based on quantifiable
information. The quantitative perspective comprises:
■■ Management science
■■ Operations research (OR).
Management science deals with the development of mathematical models to assist
managers in decision-making. These models help managers to simulate real-life
situations with mathematical equations. Mathematical modeling uses tools such as
decision-theory, queuing theory and linear programming. Operations research is
a narrow branch of quantitative management.8 Central to the theory of operations
research is the use of mathematical models that represent real systems or processes. It
focuses, for instance, on managing the process of transforming materials, labour, and
capital into goods and/or services.
Large organisations often use the techniques of the quantitative management theory.
(Small organisations mostly do not have the luxury of appointing operations research
specialists.) Tools and techniques used today include linear programming, Program
Evaluation Review Technique (PERT) and Critical Path Method(CPM) and regression
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analysis. The greatest contributions of these techniques are in planning and control
activities. They can be used to develop, amongst others, product strategies, production
scheduling, capital budgeting, cash flow management and inventory control.
This approach is seldom used by managers as the primary approach to decisionmaking. It is used mainly as a tool or aid in decision-making, since many aspects of
management decisions cannot be quantified and expressed by means of mathematical
symbols and formulae. The human element of management cannot be captured in a
quantitative sense.
2.4.2 Contemporary approaches
The classical approaches to management discussed above provide the foundation for
management and organisations as they function today. These approaches responded
primarily to the pressing issues of their times, particularly the need for internal efficiency.
They took a simplistic view of the organisation but ignored the interaction between
the organisation and external environment. This environment became increasingly
turbulent after World War II and managers realised that they could no longer focus only
on the internal operations of an organisation. They had to take the business environment
into consideration in their management decisions.
Although these are considered ‘contemporary approaches’, their roots lie in the
classical approaches discussed previously.
The systems approach
The systems approach to management developed in the 1950s. This approach
compensated for the two main limitations of the classical approaches — first, that they
ignored the relationship between the organisation and its external environment and,
second, that they focused on specific aspects of the organisation at the expense of other
considerations.
The systems approach to management views an organisation as a group of
interrelated parts with a single purpose: to remain in balance (equilibrium). The action
of one part influences the other parts and causes imbalance. For example, a strike in the
production department of a business has implications for the marketing department,
the human resources department, the finance department and all other departments.
Managers therefore cannot deal separately with individual parts of an organisation in
isolation: they should view the organisation as a whole and should anticipate the effect
of their decisions on the other parts of the organisation. From a systems point of view,
management should maintain a balance between the various parts of the organisation,
as well as between the organisation and its environment.
The open system perspective of an organisation is illustrated in Figure 2.3. This
figure depicts a system as an interrelated set of elements functioning as a whole. It also
depicts the organisation as a system that comprises four elements:
1. Input (resources)
2. Transformation processes (managerial processes, systems, and so on)
3. Outputs (products or services)
4. Feedback (reaction from the environment).
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The systems approach to management – the approach followed in this book – is
explained in greater detail in Chapter 3.
The contingency approach
The contingency approach to management is based on the systems approach to
management. The basic premise of the contingency approach is that the application of
management principles depends on the particular situation that management faces at
a given point in time. There is no single best way to manage. A method highly effective
in one situation may not work in another. Management has to decide whether to use
the principles of the scientific, bureaucratic, administrative, behavioural, or quantitative
approaches — or even a combination of these. In other words, the contingency approach
to management tries to direct the available techniques and principles of the various
approaches to management towards a specific situation in order to realise the goals of
the organisation as productively as possible.
EXTERNAL ENVIRONMENT
Resources
Human
Financial
Physical
Information
Input
Organisation
Transformation process
Output
Products
Services
Feedback
Figure 2.3 The open system perspective of an organisation
The contingency approach recognises that every organisation, even every department
or unit within the same organisation, is unique. Every organisation exists in a unique
environment with unique employees and unique goals. The superintendent of a hospital
must realise that the environment in which medical specialists in the intensive care unit
function is different from that in which nursing staff in the children’s ward function. In
the former case, management has to adapt to specialists who function individually in an
unstructured environment, each taking responsibility for his or her actions. In the case
of the nursing staff, a strict hierarchy may be necessary to indicate lines of authority to
senior and junior nursing staff. A different management approach is necessary in these
two situations although both may occur in the same hospital. The contingency approach
therefore calls for managers to be flexible and to adapt to the situation at hand.
The characteristics of the situation that must be managed are called ‘contingencies’,
and they can be of use in helping managers identify the situation. These contingencies are:
■■ The organisation’s external environment (its rate of change and degree of
complexity)
■■ The organisation’s own capabilities (its strengths and weaknesses)
■■ Managers and workers (their values, goals, skills, and attitudes)
■■ The technology used by the organisation (see Figure 2.4).
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The manager and aspiring manager in South Africa – and the rest of the world –
must learn multiple ways to compete, innovate, and lead. This is precisely what the
contingency approach suggests.
Total quality management
Simply put, total quality management (TQM) is a management approach to long-term
success through customer satisfaction. It requires that all managers and employees in an
organisation participate in improving products and services, processes and the culture
in the organisation. No matter what an organisation does to foster improvements – for
example, improving its processes, training its salesforce or installing new computer
software − it is ultimately the customer that determines what quality is. Total employee
commitment can only be obtained when fear is driven from the workplace, when
empowerment has occurred and management has created a proper work environment.9
The focus in TQM is on process thinking. A process is a series of steps that take inputs
from suppliers (internal or external) and transform it into outputs that are delivered to
customers (again, internal or external). In a restaurant, for instance, the waiter takes the
order from the customer. This order is then delivered to the chef in the kitchen. The chef
is the internal customer of the waiter. The chef then prepares the meals and delivers the
meals to the waiter. In this case the waiter has now become the internal customer of the
chef. The customer will then decide whether this process was of high quality or not.
TQM drives managers and workers to be more analytical and creative in all processes
in order to become more competitive and effective in its functioning.
External
environment
Organisation’s
capabilities
Most suitable
management
approach
Managers and
workers
Technology
Figure 2.4 Major contingencies
Using TQM as a competitive advantage does not apply only to manufacturing
organisations. A university, for example, can introduce TQM in order to be more
responsive to customers (students, academic staff, and other groups that use its services)
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in an environment characterised by increased competition from universities abroad and
other training institutions.
TQM should not be confused with quality control. While TQM emphasises actions
to prevent mistakes, quality control consists of identifying mistakes that may already
have occurred.
Six Sigma
Just like TQM, Six Sigma focuses on improving processes in an organisation. Six Sigma
focuses on, amongst others, identifying possible causes of defects, reduce cycle times
and the cost of operations and improving the return on investment of an organisation.
It is based on a problem-solving methodology called DMAIC, which stands for define,
measure, analyse, improve, control. DMAIC incorporates a variety of statistical and
other improvement tools. The term ‘Six Sigma’ is based on a statistical formula that
equates to a mere 3.4 defects per million. The Six Sigma philosophy is to have all critical
processes in an organisation, irrespective of the functional area, at a Six Sigma level of
capability.10
Six Sigma was initially designed to improve manufacturing processes, but these days
the techniques are applied to various business areas, including sales, human resources,
and customer service.
The learning organisation
Organisations are a collection of individuals working towards a common goal. A
learning organisation therefore requires learning individuals.
According to Senge,11 an expert on learning organisations, five disciplines enable an
organisation to create new futures for itself. These disciplines are:
■■ Becoming committed to lifelong learning
■■ Challenging one’s own assumptions and generalisations about the organisation and
the world around it
■■ Sharing a vision for the organisation
■■ Encouraging active dialogue in the organisation
■■ Promoting systems thinking.
Learning organisations and the people in them learn constantly. They learn from their
successes and also from their failures and they share these with their colleagues. In a
learning organisation, all managers and employees know that continuous learning is
expected and will be rewarded .
Re-engineering
Re-engineering entails a fundamental reappraisal of the way that an organisation
operates. Hammer and Champy,12 re-engineering experts, urge managers to ask a very
basic question about what they would do: ‘If I were recreating this organisation today,
given what I know and given current technology, what would it look like?’ In other
words, managers should imagine that they are starting with a clean piece of paper. This
could mean a quantum leap in reinventing the organisation and not merely incremental
steps in doing so.
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Re-engineering: a quantum leap
In the extreme, re-engineering assumes the current process is irrelevant – it doesn’t work,
it’s broken, forget it! Start over.
Organisations may stagnate when their members, including management, focus on their
immediate environments – such as their jobs and departments – rather than on the larger
environment in which they work and influence the lives of others. Re-engineering thus
involves rethinking and redesigning the processes connecting organisational members
with people, such as customers and suppliers, outside the organisation. Speed, quality
of service, and overhead costs are some of the issues that re-engineering can address.
Re-engineering in a bank
A typical problem with processes in larger organisations such as banks is that customers
must speak to various employees for different inquiries. For example, if a bank customer
enters the bank to apply for a loan, an ATM card and change her residential address, the
customer must most probably visit three different desks in order to be serviced. This process
can be completely re-engineered to become more satisfying to the customer and more
cost-effective to the bank. The Information Technology Department in the bank can create
processes where information and documents can be exchanged by the different departments
in order to service the customer’s request. The customer will then be able to deal with
one employee only who will provide the customer with all information required. The reengineered processes therefore enable the bank to provide a one-stop service for all three of
the customer’s inquiries.
Re-engineering considers the entire organisation, including its suppliers and customers.
It is constant and relentless in its focus on integrating four key drivers – people,
processes, technology, and infrastructure – to create and sustain value for customers
while managing costs.
Compared to TQM, re-engineering blends the best of two worlds:
1. Drastic change – not merely incremental change – throughout the core processes
of an organisation
2. A profound respect for the smallest but most important details that make an
organisation successful in the eyes of its customers.
Successful re-engineering is an ongoing rather than a one-off project, as well-managed
re-engineering programmes encourage organisations to examine themselves continually
in order to learn and generate new processes to meet the challenges of the changing
business world.
2.5 Current and near-future management realities
The rapidly-changing business environment requires of managers to continuously find
new ways of competing. The current and near-future environment can be described
as revolutionary — in contrast to previous environments that were described as
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evolutionary. Evolutionary environments are predictable. They change gradually, which
makes it possible to detect trends that can be forecast to determine what the future
holds. On the other hand, a revolutionary environment is known for its unpredictable,
drastic change. Forecasting becomes impossible in these environments. Managers
therefore need to become familiar with scenario development, that is, the visualisation
of alternative futures for the organisation. Being able to forecast the environment,
such as the demand for an organisation’s services, enabled organisations in the past
to employ workers on a relatively permanent basis. Scenario development does not
allow long-term employment. An organisation needs to be able to respond rapidly to
changing scenarios and therefore needs flexibility in its workforce. Outsourcing is one
way of ensuring that the organisation remains flexible but still has access to the right
skills when needed.
There is a strong tendency in modern organisations to break down internal barriers
caused by functional ‘silos’ (such as separate departments for marketing, finance,
human resources, and operations) and to replace them with process-driven, customerfocused, and multidisciplinary structures. Managers therefore need to understand the
‘big picture’, that is, they need to be able to assess the implications of their decisions on
different people, processes, systems, and so on that make up the organisation. This is
often called cross-boundary management.
Working with robots
The coming decades will see society and the workplace transformed as people will be
working alongside robots.
Toyota and Honda, although rival Japanese companies, are working together to create the
next generation robots. Toyota has already built a nursing aide, called Robina, to look after
the elderly.
Robina the nurse
Robina’s brother, Humanoid, can do the dishes, take care of the sick and even entertain
people by playing the violin.
Honda has created Asimo, a humanoid that can interpret human emotions, movement and
conversation.
Japan’s Ministry of Health, Labour and Welfare predicts a need for four million eldercare
nurses by 2025. Currently there are only 1,49 million such nurses. Caretakers have a high job
turnover rate due to poor pay.
Countries that have already established themselves as major robot societies include Japan,
China, the USA, South Korea and Germany. Slow adopters of robots include Africa, Centraland South America, India and Russia.
Managers will also have to work increasingly with a mobile workforce who will be
appointed on a project basis — not a permanent basis. Individuals will be appointed
because of their expertise in a specific area crucial to the success of the project.
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However, once the project is completed, these knowledge workers will move on to the
next project, taking their knowledge with them. The modern manager’s challenge is
therefore to manage the knowledge supplied by the experts. This knowledge needs to
be stored in a knowledge warehouse for future use.
Managers will also become increasingly mobile in the future and will be appointed
to manage specific projects only. The expert managers may therefore not become
part of the permanent staff of the organisation. This new tendency of ensuring that
the best manager manages specific projects, called interim management, means that
the workforce of organisations will be in a state of constant flux. Both managers and
workers will be constantly on the move to other assignments. Interim management is
also referred to as transient or journey management.
To ensure that mobile managers and workers comply with an organisation’s primary
values and the ethical rules it expects managers and workers to follow, behaviour will
be driven by a strict code of ethics. Corporate governance, specifically the latest King
Report on Corporate Governance in South Africa, spells out some of these behaviours
with which directors, managers, and workers have to comply.
The task of managing workers who are more on the move than was previously the
case means that managers will be exposed increasingly to diversity issues. Managers
will have to shift their philosophy from treating everyone alike to recognising individual
differences and responding to the differences in acceptable ways.
2.6 Summary
This chapter focused on the major approaches to management challenges during the
past decades and even the past century. It should be clear from our discussion of the
evolution of management theory that this evolution was – and still is – the result of
changes in the environment. The different management approaches can therefore be
studied meaningfully only if they are seen against the dominant culture of their time.
The classical approaches to management developed from the late nineteenth
century through the early 1950s. The emphasis was on the internal functioning of the
organisation. Taylor introduced the scientific management approach which looked,
inter alia, at the one best way to complete production tasks.
At about the same time, the process or administrative management perspective
appeared. Writers such as Fayol looked at the management functions, namely planning,
organising, leading, and controlling, as a means of improving productivity in the
organisation.
Weber attempted to establish an overall management system based on bureaucracy.
His emphasis was on specialised positions, structured relationships, and rules and
regulations.
The human relations approach, as well as the behavioural science approach to
management, focused on the worker, groups, and organisational processes as a possible
solution to the productivity problem.
The quantitative management approach developed as a result of the invention of
computers and enabled experts to apply mathematical techniques to management
problems.
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The contemporary approaches have developed since World War II. The business
environment became increasingly turbulent and managers could no longer focus
on internal issues only. The interaction between the external environment and the
organisation became the focus of the systems theory of management. According to this
theory, an organisation is an open system which is influenced by and influences the
external environment.
The contingency approach developed from the systems approach. According to
the contingency approach, there is no single best way to manage. The characteristics
of the situation, called contingencies, will determine the best way to manage a specific
situation.
The learning organisation approach to management is also based on the systems
approach and stresses lifelong learning, scrutinising our mental models, sharing a vision
for the organisation, and active dialogue within the organisation.
Total quality management (TQM) looks at continuous improvement and
emphasises never being satisfied with quality. Re-engineering, on the other hand,
postulates reinventing the organisation and not merely taking incremental steps in
doing so. This could mean a quantum leap for the organisation in order to adapt to an
extremely turbulent environment.
Six Sigma is a quality initiative that focuses on defects per million. At the Six Sigma
level, the expectation is a mere 3,4 defects per million.
Today’s managers need an eclectic approach to managing the contemporary, flexible
organisation. They need to take from different theories what is still relevant today and
find unique ways of managing. This is particularly evident when one looks at current
and near-future realities that may require radically new management approaches.
References
Witzel, M. 2012. A history of management thought. New York: Routledge, p 2.
Horibe, F. 2015. Managing Knowledge Workers. New Jersey: John Wiley and Sons, chapter 1.
Ibid, chapter 1.
Economist. nd. Available at: http://www.economist.com/node/12060343 (Accessed: 7
September 2016).
5. Christensen, CM & Raynor, ME. 2003. ‘Why hard-nosed executives should care about
management theory.’ Harvard Business Review. Available at: http:// harvardbusinessonline.
hbsp.harvard.edu online (Accessed: 7 September 2016); Economist. nd. http://www.
economist.com/node/12762398 (Accessed: 7 September 2016).
6. McGuire, KJ. 2012. Maslow’s hierarchy of needs: an introduction. Grin Verlag ebooks, pp 5−7.
7. McGregor, D. 1966. Leadership and Motivation: Essays. Boston, Massachusetts: MIT Press,
based on the full essay.
8. Carter, MW & Price, CC. 2001. Operations Research: a practical introduction. New York:
CRC Press, pp 1−3.
9. ASQ Quality Press. 2013. TQM: Introduction to and overview of Total Quality Management,
Kindle edition. Wisconsin: ASQ Quality Press.
10. Evans, JR & Lindsay, WM. 2014. An introduction to Six Sigma and process improvement, 2nd
ed. Mason, Ohio: South-Western College Publishing, p 3.
1.
2.
3.
4.
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11. Senge, P. 1999. The Fifth Discipline: The Art & Practice of The Learning Organization, Audio
CD – Abridged, Audiobook. New York: Random House Audio.
12. Hammer, M & Champy, J. 1993. Re-engineering the corporation: A manifesto for business
revolution. New York: Harper.
Case study
The scientific approach to management
Frederick Taylor is known for his scientific approach to management. A well-known example
of the scientific management theory is the pig iron experiment. Iron was loaded onto rail cars
by workers – each lot weighing 92 pounds (41.73 kg) and known as a pig. On average 12.5
tons were loaded onto the rail cars per day, but Taylor believed that scientific management
could be used to increase this to almost 48 ton per day. Through experimenting with various
procedures and tools, Taylor achieved this as follows:
■■ He carefully matched each of the jobs to each of the workers’ skills and abilities
■■ He provided the workers with the correct tools
■■ He provided workers with clear instructions about how to do each job
■■ He then created worker motivation by providing a significantly higher daily wage.
It is believed that through the use of scientific management, Taylor increased productivity on
the shop floor by almost 200 per cent.
Source: Based on Taylor, FW. 1911. The Principles of Scientific Management. New York: Cosimo Inc.
Case study questions
1. Based on the information provided in the case study above, briefly describe Taylor’s
scientific approach to management.
2. State the main advantages and disadvantages of the scientific approach to management
for a business organisation operating in a very volatile business environment.
3. Defend the relevance of the scientific approach to management for an organisation
in Africa that employs mainly migrant workers.
4. Which of Taylor’s viewpoints regarding management are still relevant in managing
a modern business organisation?
5. Criticise Taylor’s approach to management from a humanistic perspective.
Multiple-choice questions
Question 1
advocated that there is one best way of performing a task such as laying
bricks.
1. Peter Drucker
2. Frederick Taylor
3. Abraham Maslow
4. The Hawthorne Studies
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Question 2
Which one of the following describes the scientific approach to management correctly?
1. The approach focuses primarily on workers’ emotional needs
2. The approach is based on the assumption that people are lazy
3. It deals mainly with the issue of structuring an organisation
4. It focuses primarily on the job that must be done
Question 3
Which one of the following statements is correct?
1. The scientific approach to management focuses mainly on the changing business
environment
2. The contingency approach to management suggests that appropriate management
behaviour is determined by the unique elements of each situation
3. Small businesses do not interact with the external environment
4. Total quality management and re-engineering are similar management approaches
Question 4
Fayol’s management approach is still very relevant today in
1. government departments
2. banks
3. universities
4. all of the above
.
Questions 5–8
Which description in column B best describes the management theory listed in column A?
Question
Column A
Column B
5.
Theory Y
1. There is no single best way to
manage
6.
Quantitative management approach
2. Assumes people relish work
7.
Contingency approach
3. Focuses on the interaction
between organisation and
environment
8.
Systems approach
4. Operations management and
management science
Question 9
The expectation of a mere 3,4 defects per million refers to
1. total quality management
2. six Sigma
3. the learning organisation
4. re-engineering
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.
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51
Question 10
assumes the current process is irrelevant — if it doesn’t
‘In the extreme,
work, it’s broken, forget it! Start over.’
1. total quality management
2. Six Sigma
3. restructuring
4. re-engineering
Paragraph questions
Question 1
Provide three reasons why today’s managers should understand the different approaches
to managing an organisation.
Question 2
State the differences between the scientific school and human relations school of
management. Refer specifically to each school’s viewpoint regarding:
■■ The importance of work versus that of people
■■ Their focus on internal versus external issues.
Question 3
Defend Max Weber’s bureaucratic approach to management in a fast-changing business
environment.
Question 4
Critically compare the management concepts ‘total quality management’ and ‘reengineering’.
Question 5
Discuss any three contemporary approaches to management in terms of their relevance
to managing business organisations in South Africa. You should focus, amongst others,
on the following:
■■ The relevance of the assumptions on which each approach is based
■■ The extent to which each approach deals with the business realities in South Africa.
Essay question
Due to increasing competition from countries such as India and China where labour
costs are low, South African organisations have to cut their costs drastically to remain
competitive. Identify and discuss a specific approach to management that should enable
the South African organisations to improve their processes and systems to become
more effective and efficient.
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3
THE
PURPOSE
OF THIS
CHAPTER
LEARNING
OUTCOMES
KEY
CONCEPTS
This chapter describes and explains the constantly changing environment in which business organisations have to survive. The term
‘business environment’ refers to the internal environment, the market
environment, and the macro-environment. Each of these environments
comprise of sub-environments. Being an open system, the organisation
is influenced by changes in the business environment. These changes
could either pose a major opportunity for the business organisation to
exploit, or they could pose a threat to the existence of the business.
Because the business environment constantly changes, management
needs to continuously find solutions to new challenges in order to ensure
that the organisation remains successful. New technology, changes in
legislation, global competition, new sources of energy, access to limited
water supply, the exploding world population, terrorist attacks and many
more changes occur all the time. Management must deal with these
changes in their decision-making.
This chapter looks at changes in the macro-, market- and microbusiness environments and how management can align the business
organisation with these changes.
This chapter will enable learners to:
Clearly state why business managers must understand the business
environments in which they have to manage
■■ Depict diagrammatically and explain the systems approach to
management
■■ Explain the main characteristics of the business environment
■■ Depict diagrammatically and discuss the macro-, market, and
micro-environments, and the variables that comprise each of these
environments
■■ Propose ways in which management can prepare their organisations
for environmental changes.
■■
■■
■■
■■
■■
■■
■■
■■
■■
Management Principles 6e.indb 52
Managing in a
changing environment
Entropy
Macro-environment
Management environment
Market environment
Micro-environment
Open system
Synergy
Systems theory
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53
3.1 Introduction
When most of the management theorists discussed in Chapter 2 were alive, the external
environment of organisations was relatively stable and predictable. However, this is
certainly not the case for the modern manager. Managers today have to make management
decisions that reflect the volatile business environment in which business organisations
have to survive. They often have to deal with uncertainty and unpredictability and find
creative solutions to management problems that occur for the first time.
The last dozen or so years of the previous century are likely to be regarded as the decade
of significant change, beginning with the collapse of the Berlin Wall on 9 November
1989. This signalled the end of the Soviet Union and the threat of communism to the
West. Furthermore, after a thousand years of turbulence, Europe united in 1992 to form
the European Union, which today constitutes the world’s wealthiest single consumer
market. In South Africa, the establishment of democracy in 1994 produced majority
rule for the first time in 300 years.
The European Union (EU)
The EU is a unique economic and political partnership between 28 European countries.
The EU was created in the aftermath of World War II to foster economic cooperation. The
idea behind the formation of the EU was that countries that trade with one another become
economically interdependent and so more likely to avoid conflict.
Source: European Union. nd. Available at: http://europa.eu/index_en.htm (Accessed:
8 September 2016).
During the latter part of the 1990s, Western countries enjoyed their largest-ever
economic boom. This ended with an act of terrorism that has changed the world forever
– the terrorist strike of 11 September 2001 on the World Trade Centre in New York.
This incident alone impacted on many industries including the airline industry, tourism
and security. The terrorist strike of 11 September also triggered the wars in Afghanistan
and Iraq, which again has impacted on oil and political alliances.
Out of all this turbulence, a new world order is emerging — one that may be divided
along religious lines with new enemies and new friends. Currently the crisis in Syria,
the migrant crisis in Europe and radical religious groups are transforming the world. In
2015, more than a million migrants and refugees crossed into Europe, sparking a crisis
as countries struggled to cope with the influx. This created division in the EU over how
best to deal with resettling people.1
Over the past decade, the South African management environment has changed at
an equally fast pace, with political transformation the driver of change. South African
managers are operating in one of the most difficult management environments in the
world, where many variables influence the way in which they manage their organisations.
The changing economic environment in South Africa
Unemployment rate in South Africa averaged 25,27 per cent from 2000 until 2015, reaching
an all time high of 31,20 per cent in the first quarter of 2003 and a record low of 21,50 per
cent in the fourth quarter of 2008.2
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The changing social environment in South Africa
The total population in South Africa was last recorded at 54,0 million people in 2014 from
17,4 million in 1960, changing 210 per cent during the last 50 years. The population of South
Africa represents 0,73 per cent of the world´s total population which arguably means that
one person in every 138 people on the planet is a resident of South Africa.3
Consider, for example, the challenges that the following factors pose to managers in
South Africa:
■■ In the economic environment variables such as exchange rates, the weak South
African Rand, inflation, the economic growth rate, interest rate levels and the
demands of unions have major influences on the operations and markets of large
and small businesses.
■■ The social environment has many variables that change continuously. Here one can
think of crime, education, the changing South African demographics, urbanisation
and poverty.
■■ Health factors should also be considered by managers managing in South Africa.
These factors include: substance abuse by managers and workers, HIV and AIDS,
hypertension and diabetes.
■■ The political dispensation in South Africa is also characterised by a host of
variables that are generated by transformation. Managers in South Africa are
under tremendous pressure from politicians and politically motivated forums
and laws (such as the Employment Equity Act 55 of 1998) to adopt Afrocentric
management philosophies and empower people from designated groups.
Understanding the interaction between the organisation and the constantly-changing
business environment, enables managers to make decisions that will help their
organisations prosper.
The sharing economy
The difficult economic climate worldwide has lead to the birth of the sharing economy, for
example, services such as Airbnb in which people offer travellers accommodation in their
homes, and Locomute, a car-sharing network. Uber is another service sparked by the drive to
make transport available to everyone in tough economic times and where traffic congestion
causes major problems in cities.
Surprises, shocks, and changing trends in the environment have an influence on
business organisations in different ways. The shift from production to knowledgebased societies, from local to global involvements by business organisations, new
management paradigms, and the changing role of business in society also determine the
ways in which organisations are managed to change. Yet many managers still do not fully
accommodate the implications of a changing environment when making management
decisions. Managers can only manage their organisations efficiently and effectively if
they closely consider the relationship between the organisation and its environment,
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the threats and opportunities that exist in the environment, the trends that appear and
disappear, and how all of these form part of a broad environmental system.
The systems theory to management deals specifically with the interaction between
organisation and business environment. A brief overview of systems theory will help
managers to understand the relationship between the organisation and its changing
environment. Such a discussion is also necessary to better understand the approach to
management followed in this book.
3.2 Concepts of systems theory
3.2.1 The organisation as a micro-system of its environment
The systems theory was first developed in physics and management borrowed concepts
of this theory to explain the interdependence between the business organisation and its
environment.
A system can be defined as a set of interrelated elements (micro-systems) functioning
as a whole. A business organisation is an example of such a system that operates in a
specific environment. The business organisation as an open system comprises many
subsystems, such as the financing subsystem, marketing subsystem, production
subsystem and so on. Business organisations are dependent on the external environment
in which they operate and vice versa. The organisation and its environment therefore
depend on each other for survival. This mutual dependence is illustrated in Figure 3.1.
Figure 3.1 depicts how a business organisation obtains resources or inputs from the
environment in the form of people (labour), physical resources (raw materials), capital
(financial resources), and information (knowledge and expertise). The organisation
then transforms these inputs from the environment into outputs in the form of products
and services for the marketplace. Managers are responsible for managing this whole
process efficiently and effectively in an environment that constantly changes.
Inputs from the
environment
Human
Financial
Physical
Information
Transformation or
processing of inputs
Manufacturing and
operational systems
Technology
Expertise
Information
Management process
Outputs to the
environment
Products
Services
Job opportunities
and others
Planning
Organising
Leading
Controlling
Figure 3.1 A systems perspective of an organisation
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3.2.2 The systems approach in management
To appreciate the systems theory in management, four basic concepts must be
understood. These concepts are:
1. An open system (as opposed to a closed system)
2. Subsystems
3. Synergy
4. Entropy.
The systems approach to management implies that the organisation is an open system
which influences and is influenced by its environment. In this regard, management
needs to be well informed about changes in the environment in order to adapt to such
changes in time.
The term ‘subsystem’ refers to smaller systems within larger systems. The human
body (system) for example comprises many subsystems, such as a respiratory system,
nervous system, digestive system and muscular system. The business as a system
comprises subsystems such as a marketing system, finance system, operations system
and administrative system. Each subsystem influences and is influenced by other subsystems in the business organisation.
Synergy is another concept of the systems theory that can be applied to management.
It means that the whole (all the subsystems together) is greater than the sum of its parts
(each individual subsystem). In other words, if the various sections or departments in
the organisation cooperate as subsystems, they become more productive than would
have been the case if they had functioned individually and in isolation.
This also applies to the management process. The functions of management should
not be seen as independent and isolated components of the management process, but
rather as interdependent components that complement one another in their pursuit of
synergy.
Entropy is the opposite of synergy. When a system, including an organisation, does
not adapt to changes in the environment, it will disintegrate and fail to exist. The system
therefore lacks any energy and ceases to function.
The overview of four important concepts in systems theory applies to all types of
business organisation as all organisations function as open systems.
3.3The composition of the management/business
environment
The importance and influence of environmental change on the successful management
of the organisation became apparent in the second half of the previous century when
environmental forces changed the organisational landscape forever. The 1970s were
characterised by oil price and energy shocks. The 1980s experienced a shift from local
to global business and the emergence of fierce competition from Japan and other Asian
countries. In the 1990s, new ways of communicating, from fax machines to cellphones
and the Internet, revolutionised the way we have come to think about business
organisations. The term that describes business survival in the twenty-first century is
the term ‘relentless innovation’. In this century, product innovation alone will not create
a competitive advantage for an organisation. Organisations should constantly think in
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terms of innovation in all areas of an organisation, including the supply chain, talent
development, the sales processes, strategic planning, customer engagement and even
working with competitors (rather than working against them). Relentless innovation
requires a new mindset of managers and workers — one that allows everyone in the
organisation to become an innovator.4
These instabilities increased the need for managers to study environmental influence
and change.
Innovation: harnessing the African sun
In Africa, hundreds of millions of people have poor grid connections or no electricity at
all. Azuri’s Paygo system allows rural residents to pay small monthly installments for a
solar panel that can generate enough electricity for two lights and a cellphone. But Azuri’s
innovation did not stop here. Azuri also offers a path to more power for its customers. Once
a panel is paid off, users can either keep the system or upgrade to a larger one that can
sustain more lights and a television. The implications could be significant. Customers in
rural areas now have easy access to electricity and light, no time or money is wasted to buy
kerosene fuel, and there are no dangerous indoor fumes.
Figure 3.2 depicts the business or management environment comprising three different
environments. Managers need to understand all of these environments and subenvironments to ensure that their decisions reflect changes in any of these environments.
The business environment comprises the:
Macro-environment (remote external environment)
■■ Market environment (competitive environment)
■■ Micro-environment (internal environment).
■■
First, the micro-environment refers to the organisation itself as well as all its subsystems.
It therefore refers to the internal environment of the organisation. Management has
control over the internal environment through the application of the management
process. The internal (micro-)environment of each business is unique as all business
organisations have different strengths and weaknesses. As a manager, one would like
to compete on the organisation’s strengths but also be aware of the weaknesses in an
organisation to minimise them.
The second component of the business environment is the market- or task environment which surrounds the organisation. It describes the specific industry in which
a business organisation has to operate. It forms the buffer between the organisation
and the remote macro-environment. The market-environmental variables indicated
in Figure 3.2 are relevant to organisations in a particular industry; they determine the
nature and strength of competition in a specific industry. The structure of industries
differs and managers therefore have to understand what the dominant forces are
in the industries in which they compete. The running shoe industry, for example, is
dominated by a few, very strong competitors, namely Nike Inc, Reebok and Adidas®.
These dominant players in the industry can dictate prices in the industry, designs of
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shoes and distribution channels. Other industries comprise many small competitors,
each with a small market segment. In some industries prices may even be determined
by government.
The organisation has a negligible
effect on the macro-environment
Microenvironment
■■
■■
■■
■■
Mission and
goals of the
organisation
The organisation
and its
management,
eg marketing,
financial and
purchasing
management
The resources of
the organisation,
eg human
resources, capital
and expertise
Organisational
culture
Market environment
The market,
comprising:
■■ Consumers, their
needs, purchasing
power and
behaviour
■■ Suppliers
■■ Intermediaries
■■ Competitors
■■ Substitute products
■■ Possible new
entrants
■■ Labour unions
Macroenvironment
■■
■■
■■
■■
■■
■■
Political
environment
Economic
environment
Social
environment
Technological
environment
International
environment
Ecological
environment
The macro-environment influences the
organisation directly, eg the effect of
interest rates on financial management
or legislation with which human resource
management must comply
Figure 3.2 The composition of the management environment
The key variables in the market environment are as follows:
Consumers, whose needs and preferences for products and services change
continuously
■■ Suppliers, who supply or do not wish to supply products, raw materials, services,
and even finance to the organisation
■■ Intermediaries, who compete with one another to distribute an organisation’s
products or services
■■ Competitors, who compete for the same customers’ attention
■■ Labour unions, which deal with the supply of labour.
■■
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Prices in the petroleum industry
Prices of fuels in South Africa are influenced first by international crude oil prices, second by
international supply and demand balances for petroleum products, and third by the Rand/US
dollar exchange rate.
Source: Department of Energy. nd. Available at: http://www.energy.gov.za/files/esources/petroleum/
petroleum_pricestructure.html (Accessed: 8 September 2016).
All these variables create specific opportunities and threats in a particular industry.
Management’s primary task in this environment is to identify, evaluate, and utilise
opportunities in the market, minimise threats, and develop its strategy in such a way
that it can deal with competition in that industry.
Changes in the market environment for lawyers
A significant change in the market environment for lawyers is expected soon. This will also
have an influence on business organisations as almost all organisations use legal advisors or
attorneys at some time or another. There will be a gradual movement away from time-based,
bill-by-the-hour legal services, to a more value-based, fixed-price approach to rendering
legal services. Clients want more certainty as to their cost exposure and hourly rates simply
do not provide such certainty.
Source: SME South Africa. nd. Available at:http://www.smesouthafrica.co.za/16334/Legal-challengesand-opportunities-business-owners-are-likely-to-face-in-2016/ (Accessed: 8 September 2016).
The third environmental component, the macro-environment, exists outside
the organisation and the market environment. It is also referred to as the remote
environment. It comprises six distinct sub-environments, often referred to as the
PESTIE environment:
■■ The political environment with the government and its political involvement and
legislation as the primary components. In South Africa, managers should be wellinformed about changes in labour law, taxes, minimum wages, dispute resolution,
the Competition Act 89 of 1998 and so on.
■■ The economic environment in which factors such as inflation, recessions, exchange
rates, and the monetary and fiscal policy of the government influence management
decisions.
■■ The social environment in which changes in people’s lifestyles, urbanisation, lifeexpectancy, changing demographics and values make certain demands on the
organisation.
■■ The technological environment that is responsible for the pace of innovation and
change.
■■ The international environment in which foreign trends, changing international
laws, standardisation of products and new political alliances between countries
influence the organisation and the market environment. Further examples include
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■■
international accounting standardisation, international standards for fruit and
vegetables, international standardisation of corporate governance.
The ecological environment which comprises laws on pollution, the protection of
natural resources such as flora and fauna, the mining of mineral resources, access to
water and quality of air.
Some authors also refer to infrastructure as a seventh macro-environmental variable.
This variable refers to manufactured improvements such as roads and bridges, pipelines,
communication networks and railway lines. In this book we consider infrastructure to
be part of the technological environment.
The individual organisation has no control over the macro-environment. It is the
responsibility of managers to prepare the organisation for changes in this environment.
3.3.1 Main characteristics of the management/business environment
To understand the complexity of the business environment (macro-, market and
micro-environments) one needs to understand its principal characteristics. These
characteristics include:5
■■ Constant changes. The business environment changes constantly. Some of the
changes are minor whereas other changes may require managers to make drastic
management decisions to align the organisation with the changes.
■■ The interrelatedness of environmental factors or variables. Because of this
interrelationship, a change in one external factor may cause a change in many or
all other factors in the environment. For example, a drastic fall in the value of the
Rand could mean that imported goods such as medicines, cars, and fuel become
more expensive. This could trigger higher inflation, followed by increased interest
rates. This in turn could mean that consumers will have less money to spend on
luxury items such as holidays.
■■ Increasing instability. The interdependence between environmental factors
results in increasing instability and change in the environment. Environmental
fluctuations are greater for some industries and businesses than for others.
■■ Environmental uncertainty. Some business organisations function in an
environment of great uncertainty; others face more stable environments.
■■ The complexity of the environment. The business environment for some
industries changes rapidly. Other industries may face fewer and slower changes.
A baker has to cope with far fewer environmental variables than an electronics
manufacturer and therefore functions in a less complex environment.
The environment is becoming increasingly unpredictable. The current business
environment is revolutionary, which is profoundly different from the evolutionary
environment of the 1990s and before. Evolutionary environments change gradually,
which makes them predictable. Revolutionary environments are unpredictable and fast
changing (see Chapter 9).
These characteristics emphasise how important it is for management to focus on
both the internal as well as external environments (macro- and market) when making
management decisions.
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3.4 The internal or micro-environment
The micro-environment is the internal environment of the organisation and the main
environment in which management plans, organises, leads, and controls the activities
of the organisation. The management process therefore plays itself out in the microenvironment as managers have to utilise the scarce resources of the organisation and
transform these into products or services for which there is a need.
The internal environment also refers to the organisation’s strategy for competing in the
business world (its vision, mission, strategic goals and chosen strategies). It further refers to
how the organisation will implement its strategy (the organisational structure, leadership
and culture, the allocation of resources, reward systems and training interventions).
Managers have to assess the internal environment of an organisation to determine
the strengths and weaknesses of the organisation, its departments or sections. There are
different approaches to assessing the capabilities of the organisation. Three of the most
popular approaches are:
1. The functional approach to internal assessment which looks at the organisation’s
different functional areas (such as marketing, finance, operations, human resources)
2. The value chain approach which looks at the organisation as a chain of activities
that must be performed to produce a product or service (see Figure 3.3)
3. The resource-based view of an organisation which looks at how an organisation’s
available resources can be used to give it a competitive advantage. As stated
previously, the four resources that managers have to manage are people, finances,
physical resources and information.
Receive
components
Assemble
cars
Send cars
to dealerships
Target
marketing
After-sales
service
Procurement
Technological development
Human resources
Infrastructure
Figure 3.3 Value chain for a car manufacturer
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The value chain at leading car manufacturers
The value chain at leading car manufacturers will play itself out as follows:
■■
■■
■■
■■
■■
First, the manufacturer will receive components from the suppliers and these
components will be stored until needed at the assembly line.
Next, the cars will be assembled at the assembly line.
The finished cars will then be sent to wholesalers, retailers or individual customers.
A leading manufacturer will now prepare the offering to meet the needs of targeted
customers (for example, the promotional mix).
The final step is to perform the last services, such as the final quality check, after-sales
service, complaints and training of salespeople.
Other activities that will not contribute directly to the physical assembly of the car are:
■■ Getting goods and services at the best possible prices
■■ Developing technology to ensure that the manufacturer creates a competitive edge
■■ Ensuring that the best possible and suitably-skilled people are employed in all their
departments and sections
■■ Good infrastructure, such as the most up-to-date information systems.
Lastly, it is essential for any leading car manufacturer to determine their own strengths and
weaknesses so that they can compare themselves to their competitors in the market.
The micro-environment can be controlled by management. Managers at all levels
(top, middle and first-line) must have a very clear understanding of the capabilities
of their organisations, departments or sections. Understanding the capabilities of the
organisation will help managers deal with the challenges posed by a constantly changing
external environment (macro- and market environments).
3.5 The market or task environment
The environment that immediately surrounds the organisation is known as the market
environment (also called the task environment). As shown in Figure 3.2, it comprises
all the variables that constitute an industry: the market, suppliers, intermediaries,
competitors, substitute products, possible new entrants, and labour unions.
3.5.1 The market
The market for the organisation’s products or services consists of people who have needs
to be satisfied. These people must also have the financial means to satisfy their needs.
These needs constantly change so that new products and services must be provided;
other products and services become obsolete as people’s needs change.
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Products that may become obsolete in the near future
■■
■■
■■
■■
■■
■■
The car mirror will be replaced by cameras and monitor systems
Credit cards will be replaced by digital bits
Wireless technology (such as Bluetooth) will be used in the place of cords
and chargers
Most live human operators (such as call centre operators) will give way to robots
Drones, instead of the post office, will deliver packages
Private ownership of cars will give way to sharing them (for example, Uber).
Market research should provide managers with valuable information regarding possible
new trends in the purchasing behaviour of its customers. Management should also
realise that changes in their markets are influenced directly by the variables in the
macro-environment. For example, demographic trends affect the number of consumers,
while economic factors determine the purchasing power of consumers, and cultural
values exert particular influences on the purchasing behaviour of consumers. Mobile
payments methods and e-commerce, for example, are a definite current trend. So too
is male grooming in South Africa, and products related to this trend have become
increasingly popular.6
Only once marketers have analysed the size, profile and location of their market
segments can they select appropriate marketing strategies to target these market
segments.
3.5.2 Suppliers
According to the systems approach to management, the organisation is regarded as
a system that attracts inputs from the environment and converts these into outputs
(products and services) for which there is a need.
If an organisation is unable to draw the essential inputs of the right quality, quantity,
and price to attain its goals, then it cannot hope to succeed in a competitive market
environment. Virtually all organisations, be they manufacturing, trading, or contracting
organisations, depend on regular supplies of materials.
Organisations are also dependent on suppliers of capital. Banks, building societies,
shareholders, mortgage bonds, and the like are such suppliers. Small organisations, in
particular, often have difficulty attracting capital.
Another environmental variable on which businesses depend is the supply of labour
by trade unions and other representative groups which are ‘suppliers’ with which
organisations, particularly those in manufacturing and mining, have complex relations.
Cosatu is the largest trade union federation in South Africa with almost two million
members.7
Trade unions in South Africa
According to the Department of Labour, as of October 2015, there are 184 registered trade
unions and 23 trade union federations in South Africa.
➜
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The three prominent trade union federations with affiliates operating in the different sectors
of the economy are the Congress of South African Trade Unions (Cosatu), the Federation of
Unions of South Africa (Fedusa), and the National Council of Trade Unions (Nactu).
Source: SouthAfrica.info.nd. Available at: http://www.southafrica.info/business/economy/policies/
tradeunions.htm#.Vvf6WOJ97IU (Accessed: 8 September 2016).
3.5.3 Intermediaries
Besides consumers and competitors in the market environment, intermediaries also
play a vital role in bridging the gap between the manufacturer and the consumer.
Intermediaries include wholesalers and retailers, commercial agents and brokers. In
South Africa, spaza shops form an important part in the distribution of basic consumer
goods. Spaza shops often buy in bulk from wholesalers and repackage the products in
smaller packs. This adds value by making the products more affordable to consumers
and bringing the products closer to the consumer.
Financial intermediaries such as banks and insurers also play a role here. Managerial
decision-making on intermediaries is complicated by the dynamic and ever-changing
nature of intermediaries. In addition to sales via wholesalers or retailers, new
intermediaries must now be considered by managers. Such intermediaries include
websites, franchises, brand stores and call centres. Even pop-up stores should be taken
into account when considering intermediaries.
3.5.4 Competitors
A market economy is characterised by, amongst other things, a competitive market
environment. Therefore every organisation that tries to market a service or product
in the market environment is constantly up against competition — and it is often
competitors and not consumers that determine the actual quantity of a particular
product to be marketed, including the price levels for that product. In addition,
organisations compete not only for a market share for their product, but also with other
organisations for specific types of labour, capital, and materials.
Competition differs from industry to industry and is determined by five forces (see
Table 3.1):
1. The threat of new entrants (competitors) or competitors departing
2. The bargaining power of clients and consumers
3. The bargaining power of suppliers
4. The threat of substitute products or services
5. The number of existing competitors.
McDonald’s position as the global leader in the fast food restaurant market is partly
a result of the company’s effectiveness in responding to the five forces in its industry
environment. Michael Porter’s five forces analysis model identifies the most relevant
external factors that influence business organisations in a specific industry.
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Table 3.1 McDonald’s five forces analysis
Weak
Moderate
Strong
Competitive rivalry or competition
(strong force)
✓
Bargaining power of buyers or
customers (strong force)
✓
Bargaining power of suppliers (weak
force)
✓
Threat of substitutes or substitution
(strong force)
Threat of new entrants or new entry
(moderate force)
✓
✓
Source: Panmore Institute. nd. Available at: http://panmore.com/mcdonalds-five-forces-analysis-portersmodel (Accessed: 8 September 2016).
Table 3.1 illustrates these five forces responsible for competition in the fast food
restaurant industry, using MacDonald’s as an example. It shows that competition,
customers and substitute products are strong forces that determine competition in this
specific industry. The threat of new entrants is a moderate threat while suppliers do not
really pose a threat in this industry. Competition, for example, in this industry is fierce
as there are many fast food outlets of various sizes, including other global fast food chain
restaurants as well as small outlets. Most medium and large restaurant chains market
their products aggressively. Furthermore, McDonald’s customers can easily switch to
other restaurants such as Burger King® or KFC. Thus, this element of the five forces
analysis of McDonald’s shows that competition is amongst the most significant external
forces on the business.
The five forces model derives from the work of Michael Porter.8 According to Porter,
the collective strength of these five forces determine the competitiveness in an industry,
and therefore also its profitability. Competition varies from intense in industries such as
the pharmaceutical industry, to moderate in mining and aviation. An industry is often
dominated by one of these forces.
The market environment causes opportunities and threats to organisations in the
same industry. A threat to one organisation may be an opportunity to another. The new
proposed sugar tax in South Africa will be a threat to companies making sugar-filled
beverages but will provide an opportunity to other companies in the same industry that
make unsweetened drinks.
Management must be well informed and sensitive to trends in the market environment
to enable it to make the most of opportunities and to avoid possible threats timeously.
The tools that management should use for this purpose are environmental scanning
(see Section 3.8.1 and Chapter 4) and information management (which is discussed in
Section 3.8.1 and in Chapter 7).
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Potential development of
substitute products
Bargaining power of
suppliers
Rivalry
among
competing
firms
Bargaining power of
consumers
Potential entry of new
competitors
Figure 3.4 Competitive forces in an industry
3.6 The macro-environment
3.6.1 The composition of the macro-environment
Apart from the market environment, organisations also operate in a larger macroenvironment. This macro-environment consists of sub-environments that constantly
change and therefore have an influence on the organisation. These sub-environments
represent the uncontrollable environmental forces, also referred to as megatrends.
As indicated in Figure 3.2, contemporary literature on management
divides the macro-environment
into six sub-environments (called
Micro
PESTIE), namely:
1. Political
2. Economic
3. Social
Market
4. Technological
5. International
Macro
6. Ecological.
In the study of the macro-environment,
the emphasis is on the changes caused
by the uncontrollable macro-variables
and their implications for management.
These changes, if well managed by
management, can pose major opportunities for the organisation.
Management Principles 6e.indb 66
Figure 3.5 The constant interaction between
the three business environments
Source: David, FR. 2001. Strategic management:
Concepts and cases. New Jersey: Prentice-Hall,
p 100.
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However, if management is not proactive, the same changes can cause major threats to
the organisation.9
3.6.2 The technological environment
Technology refers to the knowledge of how to do something, whether it is age-old
technology for making wine, or high-tech technology for manufacturing the latest
cellphone.
Technology is involved in every process of a business organisation: from
manufacturing to marketing to managing. Technology not only determines how the
organisation makes products or serves customers, but also affects the organisation’s
markets and the organisation’s ability to compete in those markets. Technological
change therefore affects the entire organisation and has strategic implications for
organisations as well as industries.
Some major technogical breakthroughs over the last centuries
■■
■■
■■
The invention of the assembly line made mass production of cars possible.
Although modern society perceives the following as part of our daily lives, they were
major technological breakthroughs in their specific times:
❏❏ The printing press (1430)
❏❏ Photography (early 19th century)
❏❏ Cement (first millennium BC)
❏❏ Steam engine (1884)
❏❏ The assembly line (late 19th century)
❏❏ Personal computers (1970s)
❏❏ The telephone (1876)
❏❏ Sanitation (mid 19th century)
❏❏ Internet (1960s)
❏❏ Optical lenses (13th century)
❏❏ Anesthesia (1846).
The first wheelbarrow
The wheelbarrow was invented thousands of years after the wheel was invented. The
wheelbarrow is still a major labour-saving device with a huge influence on productivity.
Source: The Atlantic. nd. Available at: http://www.theatlantic.com/magazine/archive/2013/11/
innovations-list/309536/ (Accessed: 8 September 2016).
At industry level, technological change – also called technological innovation – changes
the bases of competitive advantage, thereby creating significant opportunities and
threats for competing organisations. The opportunities created by the Internet, for
example, for banking, retail, manufacturing, transport, and practically every industry
are immeasurable. Furthermore, Internet usage in Africa is increasing more rapidly
than anywhere else in the world, creating major opportunities for organisations that are
prepared for this change.10
Technological progress forces management to rethink the ways in which their
organisations produce products and market their services, treat their customers or
compete in the marketplace.
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Superior management of technology and innovation within the organisation can be an
important source of competitive advantage.
3.6.3 The economic environment
After technology, which is primarily responsible for changes in the environment, the
economy also causes major changes in the business environment. Economic changes
that may cause an opportunity or threat to an organisation include a country’s growth
rate, levels of employment, consumer income, the rate of inflation, the exchange rate,
interest rates and many more. These economic forces ultimately result in prosperity or
adversity and have specific implications for an organisation and its management.
Declining purchasing power due to economic pressure on customers leads to a
change in buying behaviour, as well as a change in the type of product sought.
For business organisations in South Africa, the tumbling Rand has been both a
blessing and a curse. While mining houses such as AngloGold Ashanti that export their
products have benefitted, domestic manufacturers and retailers were challenged with
higher costs and weaker consumer demand. For the media group Naspers, the weaker
currency has boosted its profits due to overseas earnings that are brought home.11
The economic environment not only influences other environments and businesses,
but is itself influenced by other trends such as crime, the confidence in the government
and investors’ perception of a country’s stability.
These economic trends demand constant vigilance on the part of management and
may require them to revisit the mission, goals, and strategy of the organisation to assess
whether they are still achievable.
3.6.4 The socio-cultural environment
Socio-cultural change is very sensitive to cross-influences by other variables, especially
technology and the economy.
Consumption is therefore explained not only in economic terms as a function of
income, but also as a function of an individual’s behaviour (attitudes, values, motivation,
etc) and pressure from groups, such as family members, the peer group, social media
friends and the community. Behaviour is not static however, and a community’s values,
expectations, way of life, and habits change over a period of time.
Private ownership in the near future
Will the concept of private ownership disappear by 2025? Probably not completely, but the
Millennials will certainly view it differently. It is already starting to change. Look at your
entertainment choices: we no longer own music or movies, we just curate collections on
Netflix, Spotify, and the like − where all the content actually lives.
To own everything is considered old-fashioned, and certainly not cool! The generation
of Millennials have jumped headlong into the sharing economy. Millennials are far more
interested in buying into subscription services rather than buying actual things. ➜
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They’re not even interested in buying things such as houses or cars. Part of this has to do
with the Millennials not having the economic security enjoyed by society over the last 70
years or so. But the other part is that technology has facilitated a mass communal lifestyle
built around sharing resources.
Source: PC Magazine. nd. Available at: http://www.pcmag.com/article2/0,2817,2489562,00. asp
(Accessed: 8 September 2016).
The culture of a particular country is not absolutely homogeneous. There are numerous
sub-cultures based on nationality, religion, population group, or geographical area,
each of which modifies the environment and has implications for management. An
organisation is at the centre of social change. On the one hand it contributes to social
change, on the other hand it has to adapt to changing social trends.
Managers and the generation gap
Baby boomers born between 1946 and 1964 make up a large percentage of employees, but
increasingly they are being supervised by or working closely with Generation Xers (born
between 1965 and 1977) and younger Millennials or Gen Y employees, the newest additions
to staff. Motivating each of these generations to work together requires managers to adapt
their management approach to accommodate the different work ethics of these generations.
Generation Yers, or those aged 30 and below, have grown up in an environment unlike any before
them. They have been raised in a world of technology and are often more educated than any
previous generations. They come to the workplace with different wants and needs than their
predecessors: different things motivate and drive this generation in their lives and their careers.
Generation Y employees want managers who:
■■
■■
■■
■■
■■
Respect/value them
Communicate well
Support their career progression
Trust them to get on with things
Listen to them.
Source: HRZone. nd. Available at: http://www.hrzone.com/engage/employees/what-do-generation-yreally-want (Accessed: 8 September 2016).
Social problems such as crime, violence, xenophobia, the collapsing of family structures,
substance abuse, obesity, the HIV/AIDS epidemic and poverty also bring about
developments which are responsible for change in the environment. Management
cannot afford to ignore these social influences when making business decisions.
3.6.5 The ecological/natural environment
The ecological or natural environment contains the limited natural resources from
which an organisation obtains its raw materials; organisations also dispose of their
waste into the natural environment. Organisations are becoming increasingly aware
of the natural environment and the interdependence between organisation and the
natural environment. This interdependence presents opportunities as well as threats
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to organisations. Threats include a shortage of resources, the rising cost of energy, the
cost of pollution, and damage to the country’s natural resources. Industries, like the
fishing industry and forestry, depend on the natural environment for their supplies.
Furthermore, the Eskom power outages have a crippling effect on productivity in
businesses. Direct stress on infrastructure elements such as substations, traffic lights
not working, sewer pumps not being able to operate and many more negative effects
have forced management to consider alternative sources of energy in manufacturing
their products or rendering services.
Ecological changes have far-reaching effects on businesses
Ecological changes impact on all facets of business, professional and personal life.
Architects also feel the effect of these changes. Whereas well-designed buildings have
always been regarded as architectural gems, in the past a building’s value was judged
predominantly on location and aesthetic qualities. In today’s changing climate and more
specifically within the current South African context, environmental responsibility has
become a vital aspect of the design process. For a building to be classed as truly great, it:
■■
■■
Should not be damaging to the site it is built on
Should not waste natural resources.
Source: Green Building Council SA. nd. Available at: https://www.gbcsa.org.za/green-star-sa-ratingsystem/ (Accessed: 8 September 2016).
Management must take timely steps to limit, as far as possible, any detrimental effects the
organisation may have on the environment, not only to prevent unfavourable attitudes
towards the organisation, but, most importantly, in order to conserve, maintain, and
manage the country’s dwindling natural resources.
It is against this background that sustainability issues such as green industries,
buildings and transport are becoming crucial for management. A quest for lower carbon
dioxide emissions is putting pressure on the car industry to manufacture cars that are
less dependent on fossil fuels and more dependent on electricity. Other industries
are pressurised to generate and use solar and wind power, opening up opportunities
to produce green energy. New buildings, for example, can be designed and built to
generate their own solar power to drive their air conditioners and heating systems.
Alternative sources of energy
The crippling effect that Eskom’s power outages have on South African businesses has
created major opportunities for farmers in the Karoo, especially those who own farms just
north of the Northern Cape town of De Aar. Kalkbult, one such farm, was identified by the
Norwegian energy company, Scatec Solar, as perfectly suitable for the installation of solar
panels. On sunny days, the 312 000 solar panels on this farm generate enough power for
35 000 households.
South Africa’s renewable energy sector is seen as a global leader. Management Principles 6e.indb 70
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South Africa has an average of 2 500 hours of sunshine a year, putting it amongst the top
countries in the world in terms of solar energy potential. Furthermore, the Department of
Energy calculates that renewable energy could create 462 000 jobs in South Africa by 2030.
It has already created 25 000 jobs.
Source: South African National Energy Development Institute. nd. Available at: http://www.sanedi.
org.za (Accessed: 8 September 2016).
3.6.6 The political environment
Management’s decisions are continually affected by the course of a country’s politics,
especially political pressures exerted by the ruling government and its institutions in the
business environment. As a component of the macro-environment, the state influences
the business environment and the organisation primarily as a regulating force. By
promulgating and enforcing laws, it influences the environment with measures that
are usually politically directed, thus steering development and economic policy in a
certain direction. The policy of the South African government is aimed at maintaining
a market economy and private ownership, but it will intervene where monopolistic or
other conditions impede the functioning of the market or their political power. The
government also influences business organisations through the annual budget, taxation,
import control (or lack of it), promotion of exports, import tariffs to protect certain
industries against excessive foreign intervention, price control and many more.
The perceived stability of a government and the integrity of its leader and government
officials have a major influence on the actions of investors. These perceptions either
attract or deter local and foreign investors to invest in a country.
3.6.7 The international environment
Businesses such as M-Net that operate internationally find themselves in a far more
complex business environment than those operating regionally or nationally. Each
country has unique environmental factors, their own technology, economy, culture,
laws, politics, markets, and competition which differ from those of other countries.
International and multinational organisations in particular are affected by international
trends and events.
Businesses or countries that do not comply with international laws and expectations
may face sanctions and boycotts. These can take on different forms, such as quotas on
exports or imports, an embargo to disrupt export, cancellation of fishing rights and so
on. Embargos against African countries that are currently in place include the freezing
of funds and economic resources to Egypt (valid until 22 March 2017) as well as
an embargo on arms and related material to Eritrea. For example, in Europe, Iran has
restricted access to the airports of EU countries.12
3.6.8 Conclusion
In a market economy, the organisation exists in a dynamic environment in which
technological innovation, economic fluctuations, changing ways of life, and
international and ecological variables, as well as political trends, are continually
changing the environment and ultimately affecting it. Insight into trends and events
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in the environment, especially the ability to forecast the implications of these for
managerial decision-making, are a top priority for management, since past experience
in the rapidly changing environment is often of little help when management has to
deal with new problems. Knowledge of trends in the environment and identification
of environmental dimensions that largely determine the progress of a business are
also necessary for decision-making in order to maximise profitability. This knowledge
requires the environment to be scanned to enable management to identify threats and
challenges in the environment in good time and where possible, transform these into
opportunities.
3.7 Interfaces between the organisation and the environment
The previous overview of the different business environments and sub-environments
clearly shows the complexity and dynamics involved in making management decisions.
Managers cannot simply focus on the internal operations of their business organisations,
departments or sections. Managers are required to be proactive in performing their
responsibilities. A reactive approach to dealing with a turbulent business environment
is certain to lead to catastrophe.
3.7.1 Environmental change and the organisation
Change is a difficult concept to define. In simple terms it means changing the status
quo — changing a state of stability to one of instability, moving from the predictable to
the unpredictable, or from the known to the unknown. It is unmeasurable and it causes
uncertainty. No one factor is responsible for change, and it occurs in specific areas and
societies in various ways and at different rates.
Change has different implications for different organisations. An organisation’s
systems, structure, strategy, style, expertise, culture, and mutual values must
accommodate change in the environment. Change in the environment may seriously
disrupt a once harmonious relationship with the organisation. To ensure its survival,
management must make adjustments in one or more of the organisation’s interfaces
with the environment, namely its systems, strategy, structure, and so on. The extent of
these adjustments will depend on the nature, speed, and complexity of environmental
change.
3.7.2 Uncertainty in the environment
Although no business environment is without some degree of uncertainty, certain
industries are more prone to turbulences in the environment than others. Manufacturers
of chairs face a relatively stable environment while manufacturers of high-technology
components have to deal with many changes. A clothing manufacturer functions in
an environment that is relatively simple, but dynamic due to changes in styles, fashion
and consumer tastes. Car manufacturers operate in a complex but relatively stable
environment with a moderate level of uncertainty. Managers working for Volkswagen
South Africa, for instance, have to cope with numerous suppliers, regulations, trade
unions, exchange rates and competitors. However, changes in design and manufacturing
technology in the motor industry are relatively slow compared to some other industries.
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Some industries face a complex and dynamic environment with a high level of
uncertainty. Such an environment has many variables so that its nature is continually
changing because of technological change and resultant changes in competition and
market behaviour.
3.7.3 Crises in the environment
Analyses of the environment in which an organisation exists does not safeguard
organisations and its managers from unexpected events in the environment that can
strike without warning. No-one could predict the migrant crisis in Europe in 2015/2016,
earthquakes in New Zealand and the terrorist attacks in Paris and Brussels. Closer to
home, few would have predicted the severity of the plunge of the Rand against other
currencies and the severe droughts in South Africa and other parts of Africa in 2016. In
Malawi about 2,8 million Malawians − nearly 20 per cent of the population − face food
insecurity. This makes Malawi one of the worst hit countries in southern and eastern
Africa, where the current drought affects 50 million people according to United Nations
figures.13
Identifying and managing change as top business objective
89 per cent of respondents ranked identifying and managing change as their top
business objective.
This finding of scientific research was conducted by Barloworld over the last eleven years.
Barloworld Logistics’ annual surveys and reports have accurately tracked the emerging,
unexpected and dramatic trends that have fundamentally changed the world in which
we live and work. These reports identified the greatest opportunities and challenges the
respondents in the study expect to encounter in the future.
The number of respondents to the survey continued to increase with over 370 professionals
representing companies across South Africa, providing a statistically accurate representation
of South Africa’s businesses, industry leaders and supply chain practitioners. More than two
thirds (66 per cent) of the respondents to this year’s survey hold a director level position.
Source: Barloworld Logistics. nd. Available at: http://www.barloworld-logistics.com/wp-content/
uploads/2013/11/supplychainforesight-2015-report.pdf (Accessed: 8 September 2016).
Crises such as these influence organisations in different ways and this is precisely why
they react differently to such influences from the management environment.
3.8Ways in which management can prepare for
environmental changes
Insight into trends in the management/business environment and the ability to predict
their implications for decision-making are management priorities. The extent to which
the environment influences the management of an organisation therefore depends
primarily on the type of organisation and the nature of the environment. The response
to environmental change revolves mainly around environmental scanning (see Chapter 4)
and information management (see Chapter 7).
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3.8.1 Information management
For management to have knowledge of possible changes in the environment, its
information management system should make adequate provision for environmental
scanning. The importance of environmental scanning is illustrated in the following:
■■ The environment is changing constantly — hence management should make a
conscious effort to scan it in an effort to keep up with change
■■ Environmental scanning is necessary to determine whether factors in the
environment constitute a threat to the organisation’s current mission, goals, and
strategy
■■ Scanning is also necessary to determine which factors in the environment offer
opportunities to the business organisation.
The more vulnerable the organisation is to change, the more essential environmental
scanning is.
3.8.2 Strategic responses
Once management has adequate information and insight into its environment, it has
to decide on a strategic response to the changes that are forecast. The response may
be minor or it may be major with drastic implications for the entire organisation. A
strategic response could be to sell non-core businesses (Edcon selling CNA) or to
retrench workers. Strategic responses also include merging with another business,
expanding into new markets, re-engineering a business organisation, and so on.
3.8.3 Structural change
Another type of response to environmental change is to adapt or redesign an
organisation’s structure. Organisations in an environment with a low level of uncertainty
may, for example, maintain a bureaucratic type of structure in which basic rules and
a system of stereotyped actions are sufficient for successful existence. In contrast,
organisations that operate in an environment with a high level of uncertainty prefer a
more flexible structure with fewer levels of authority and fewer rules in order to deal
with environmental change more quickly.
3.9 Summary
In this chapter we looked at the business environment in which managers operate.
More specifically, we focused on how this environment constantly changes. The
systems approach to management focuses on the interaction and interdependence of
the business organisation and the business environment.
We examined the management/business environments by looking at the micro-,
market, and macro-environments. The micro-environment refers to the internal environment — the organisation itself. Managers can control this environment by performing the four management functions. The market environment refers to the
buffer between the organisation and the macro-environment; it is the field in which
organisations in the same industry compete. Porter’s five forces model is used to
determine the nature of competition in different industries as well as the profit potential
of industries.
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The macro-environment is the remote environment in which all business organisations
and industries function. It comprises the following sub-environments: political,
economic, social, technological, international, and ecological. A change in any of
these variables can create an opportunity for an organisation or can pose a threat to
the organisation. Managers must be prepared for changes in the environment. An
effective and efficient management information system is therefore essential to provide
managers with relevant information. Scanning the environment will enable managers to
identify changes in the business environment. Managers have to respond strategically
to environmental change to ensure that the organisation remains aligned with these
changes.
References
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
BBC News. nd. Available at: http://www.bbc.com/news/world-europe- 34131911
(Accessed: 8 September 2016).
Trading economics. nd. Available at: http://www.tradingeconomics.com/south-africa/
unemployment-rate (Accessed: 8 September 2016).
Ibid.
Forbes. nd. Available at: http://www.forbes.com/sites/gapinternational /2014/09/03/
the-six-defining-traits-of-the-successful-21st-century-organisation/ #31c7dac442f9
(Accessed: 8 September 2016).
UK Essays. nd. Available at:https://www.ukessays.com/essays/business/the characteristicsof-business-environment-business-essay.php (Accessed: 8 September 2016).
EuroMonitor International. nd. Available at: http://www.euromonitor.com/consumerlifestyles-in-south-africa/report (Accessed: 8 September 2016).
Cosatu. nd. Available at: http://www.cosatu.org.za/show.php?ID=925 (Accessed: 8
September 2016).
Porter, ME. 1998. Competitive Strategy: Techniques for Analysing Industries and Competitors,
2nd ed. New York: Free Press, p xv.
Kelly, M. & Williams, C. 2016. BUSN. Boston, Massachussets: Cengage Learning, pp 7−14.
Ibid, p 11.
BDLive. nd. Available at: http://www.bdlive.co.za/business/trade/2014/02/10/weakrand-makes-exports-a-blessing-imports-a-curse (Accessed: 8 September 2016).
Business and Sanctions Consulting Netherlands. nd. Available at: http://www.bscn.nl/
sanctions-consulting/sanctions-list-countries (Accessed: 8 September 2016).
News24. nd. Available at: http://www.news24.com/Africa/News/malawi-declares-stateof-emergency-over-drought-20160413 (Accessed: 8 September 2016).
Case study
The business environment of beverage companies
Beverage companies market more than 500 nonalcoholic beverage brands, primarily
sparkling beverages but also a variety of still beverages such as waters, enhanced waters,
juices and juice drinks, ready-to-drink teas and coffees, and energy and sports drinks.
The number of people who are conscious about their health have increased dramatically over
the last few years.
➜
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Soda and other sweetened drinks have therefore lost their popularity and bottled water,
energy drinks and fruit juices have become increasingly popular. Doctors and nutritionists
often advise people to reduce the daily consumption of drinks like these since they can be
harmful to their health.
In South Africa, sweetened drinks may soon be subject to sugar-tax. These drinks have
been found to be the main reason for obesity amongst young children and women. Regular
intake of similar products reduces the absorption of minerals such as calcium, magnesium,
riboflavin and vitamin A.
However, Coca-Cola is one of the most innovative companies in the world. One of its
innovations will help customers to have ice-chilled Coke wherever they want. This
technology will work in such a way that when the cap of the bottle is opened, the
mechanism inside will make ice out of the drink inside.
The manufacturing of soda and sweetened drinks is highly dependent on the availability and
quality of water in the places where it is made. Environmental laws in the different countries
where these drinks are produced differ; so too do the laws that govern wastage handling.
Water is a main ingredient in all of the company’s products. However, this resource is also
critical to the prosperity of the communities they serve. Water is a limited resource in many
parts of the world; it faces challenges from overexploitation as well as rising demand for
food and other consumer and industrial products whose manufacturing processes require
water. The exploitation of water resources increases the risk of pollution, poor management,
and effects stemming from climate change. As the demand for water continues to increase
around the world and water becomes scarcer, the overall quality of available water sources
may very well deteriorate markedly. This could mean that these companies will incur higher
costs or face capacity constraints in the future. On the positive side, developing countries
face clean water shortages which ought to result in surging demand for the company’s
bottled water goods.
Case study questions
Question 1
Draw a diagram that depicts the micro-, market, and macro business environments, as
well as all their sub-environments.
Question 2
Based on the information in the case study, describe the changes in the social
environment that beverage companies have to deal with.
Question 3
Provide one example of how Coca-Cola uses changes in the technological environment
to create opportunities for selling their products.
Question 4
What information can you find in the case study on ecological changes that beverage
companies have to deal with?
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Question 5
To better understand the industry in which these companies have to compete,
recommend a specific model that will best explain this industry. Provide reasons for
your recommendation.
Multiple-choice questions
Question 1
The business environment comprises the
1. macro2. market
3. micro4. all of the above
environment(s).
Question 2
The external business environment consists of the
1. macro2. macro- and market
3. macro-, market and micro4. market and task
environment(s).
Question 3
Which one of the following statements describes the macro-environment correctly?
1. Managers can control the macro-environment
2. The macro-environment is best described by Porter’s five forces model
3. The macro-environment only plays a role in certain industries
4. Managers refer to the macro-environment as the PESTIE environment
Questions 4–6
Which description(s) in column B best describe(s) the environment stated in column A?
Question
Column A
Column B
4.
Micro-
1. A country’s unemployment rate is a variable in this
environment
5.
Market
2. Managers can control this environment
6.
Macro-
3. This environment is a closed environment
4. Porter’s five forces model can be used to determine
profitability in this environment
Question 7
.
The systems approach to management
1. is the only modern approach to management
2. focuses on the interaction and interdependence between the organisation and the
external environment
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3. focuses on the external environment only
4. can only be applied to big corporations
Question 8
How many of the following statements are correct?
The market environment comprises, amongst others,
suppliers
■■ competitors
■■ substitute products
■■ the organisation’s strategic plan.
1. one
2. two
3. three
4. four
.
■■
Question 9
Which of the following statements are correct?
1. Management must ensure that they have perfect and complete information
regarding the macro-environment
2. Management can be proactive by continuously scanning the business environment
3. Good managers can predict the future correctly
4. 2 and 3
Question 10
Access to water will become critical to all types of industry in future. Water scarcity
environment.
therefore is a variable in the
1. micro2. market
3. task
4. ecological
Paragraph questions
Question 1
Depict diagrammatically and briefly describe the business environment. Your diagram
and description must focus on:
1. The external versus the internal business environments
2. The sub-environments of each of the three business environments.
Question 2
Based on the systems approach to management, explain the importance that the
business environment has for management decision-making.
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Question 3
Compare Taylor’s scientific approach to management and the systems approach to
management in terms of their views regarding the three business environments (macro-,
market and micro-).
Question 4
Explain how Porter’s five forces model can be used to describe the profitability of a
specific industry.
Question 5
Recommend three ways in which management can prepare for change in the business
environment.
Essay question
Write a report to convince a critic of the systems approach to management of the value
of this approach in today’s business world. Your report should deal with the following:
1. The nature of the modern business environment
2. The limitations of classical approaches to management to deal with the modern
business environment
3. The assumptions on which the systems approach to management is based
4. A description of the systems approach to management
5. The sub-environments of each of the three business environments (macro-, market
and micro-).
(Your report should not exceed 600 words.)
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4
Part
2
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Strategic planning
Planning
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4
THE
PURPOSE
OF THIS
CHAPTER
LEARNING
OUTCOMES
Strategic planning
This chapter deals with the process of creating a strategic plan for
an organisation. The strategic plan is the most important plan in an
organisation as it guides decision-making at all levels. The objective of
strategic planning is to ensure the long-term survival of the organisation
in a volatile environment. For the organisation to survive in the long
term, management has to focus on the future and choose strategies
that will enable it to prosper in a constantly changing environment.
In doing this, management has to formulate a vision and a mission
statement, scan the external environments for opportunities and threats,
assess the organisation’s capabilities, formulate long-term goals, and
choose a strategy or strategies that will ensure survival in the changing
environment. This chapter looks at all of these components of a strategic
plan.
A sound knowledge of strategic planning is essential for managers at
all levels of the organisation. The strategic plan provides the guidelines
that all managers need to enable them to formulate the plans and goals
for their own units, departments, and sections (see Chapter 5). Strategic
planning also relies heavily on top management’s ability to make sound
decisions (see Chapter 6) and to search for relevant information (see
Chapter 7).
This chapter will enable learners to:
Depict the strategic management process (strategic planning,
strategy implementation and control) diagrammatically
■■ Explain what strategic planning encompasses
■■ Defend the importance of strategic plans in the hierarchy of
organisational plans
■■ Differentiate between the three levels of strategy
■■ Explain the process to follow in order to create a strategic plan
■■ Explain each component that should be dealt with in a strategic plan
■■ Recommend different approaches, tools and techniques that can be
used when formulating a strategic plan
■■ Compile a basic strategic plan for an organisation.
■■
KEY
CONCEPTS
■■
■■
■■
■■
■■
Management Principles 6e.indb 83
Balanced scorecard (BSC)
Corporate combinations
Corporate governance
Decline strategy
Differentiation strategy
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■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
External environmental assessment
Financial ratios
Focus strategy
Growth strategy
Internal assessment
Long-term goals
Low-cost leadership strategy
Mission statement
Resource-based view
Scenario planning
Strategic management
Strategic planning
Strategy implementation
Strategy maps
Value-chain approach
Vision statement
4.1 Introduction
In the fast-changing business environment, all business organisations need to plan
for future changes that can influence their businesses. These changes can originate in
the micro-environment or in the market or macro-environments (see Chapter 3). To
ensure that all managers and workers focus on the same goals, a hierarchy of plans exists
to guide decision-making at all levels of the organisation. At the top of the hierarchy
one finds the strategic plan followed by the tactical and then the operational plans at
the lower levels of the planning hierarchy. The strategic plan provides focus to all other
plans in the organisation. It states the direction that the organisation has chosen for its
future as well as its ‘game plan’ (strategy) to compete in the business world. The strategic
plan should be built around the organisation’s unique strengths; it also endeavours to
minimise its weaknesses in order to enable the organisation to compete with other
organisations. The strategic plan also deals with major opportunities and threats that
the changing business environment (see Chapter 3) poses to the organisation.
Management’s priorities for the future can be clearly seen in an organisation’s
strategic planning document. The strategic plan of Toytota, for example, has clear
guidelines regarding this company’s focus on people, processes, price, products and
profit. More specifically, one will find information on Toyota’s strategies regarding
future eco-friendly cars and their plans to expand into emerging markets in future.
The plan also states clearly how Toyota will go about retaining their leadership in the
hybrid-car market. Renault’s strategic plan focuses on this French company’s entry into
emerging markets such as Brazil and Russia.1
What strategic planning is about
Toyota focuses on specific areas to ensure that they are prepared for the future. Figure 4.1
highlights the five focus areas, namely, people, processes, products, profit and price. Management Principles 6e.indb 84
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The company’s strategic plan states clearly what their vision is regarding all five of these focus
areas.
e
opl
Pe
Reform
operations
Pro
fit
Leadership
Product
Profit
achievement
Price
Process
Overhaul business
model and support
services
Sales efficiency
and growth
Desirable products
Figure 4.1 Toyota’s five focus areas
As stated earlier, a sound knowledge of what strategic plans encompass is essential for
managers at all levels of the organisation in order to ensure that each manager aligns his
or her department’s or section’s plans with the overall strategic plan of the organisation.
Managers and workers in Toyota, for example, know that the company’s focus is on five
areas, the five Ps of their focus (see Figure 4.1). All managers’ and workers’ performance
will therefore be measured against these five areas.
But what is strategic planning and how important is it to the contemporary
organisation? A meaningful answer to this question requires us to consider how the
world has changed and how management has had to cope with these changes (see
Chapter 3). Strategic management is about change, and planning to survive – and thrive
– amid these changes.
The first half of the twentieth century, especially the period before World War II,
was characterised by a steady business environment in which inflation was virtually
unknown, interest rates remained steady, urbanisation was not seen as a viable alternative
to farming, and the business environment was an unexplored field. During this era
there was no shortage of natural resources and the rate of technological development
was much slower than it is today. There were few unforeseen changes in the business
environment and little effort was required to keep up with the pace of change.
However, this situation has changed drastically since the end of World War II. Today’s
business environment is more turbulent than ever before. In fact, one can describe
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the environment as revolutionary — as opposed to evolutionary. Evolutionary
environments are predictable; revolutionary environments change at such a rate that
they cannot be predicted.
One of the ‘culprits’ that has caused – and is still causing – revolutionary change,
is technology. Technology, especially the advances in communication and information
technology, has changed the face and the pace of business. The Internet has catapulted
society into the information and knowledge era. In this era, South African and other
African organisations have to compete in the borderless world against established
competitors such as the USA, a united Europe, a highly competitive Finland and New
Zealand. In formulating their strategic plans, South African companies such as Edcon
(comprising amongst other business units, Edgars, Jet, Sales House, Smiley’s Wearhouse,
Cuthberts, and ABC) now have to compete with international players that make their
products available to anyone, anytime, and anywhere in the world through the Internet.
Strategic planning creates and projects. It is concerned not with things as they are, but with
things as they might be and ought to be.
Source: Adapted from Rand, A. 1943. The fountainhead. London: Penguin Classics, p vii.
Managers need a tool to help them ensure that the organisation survives in this changing
environment. One such tool is strategic planning.
4.2 Strategic planning: what it encompasses
Simplistically stated, ‘strategic planning’ refers to the process of proactively aligning the
organisation (internal environment) with threats and opportunities caused by changes
in the external environment (see Chapter 3). The focus of strategic planning is depicted
in Figure 4.2.
Past
Present
Future
Figure 4.2 The focus of strategic planning
The main focus of strategic planning is the changing future — not the present or the
past. Strategists at a coal mine, for example, need to ask themselves: ‘What does coal as
an energy source in the future hold for us?’ They may come up with an answer that is
profoundly different from their current reality. They have to plan strategically to ensure
that the coal company can thrive in a society that has become increasingly eco-sensitive.
Coal, for example, is not a clean energy source. Mining, transport, storage and burning
are fraught with mess as well as danger. Furthermore, deep mines put workers in
intolerably filthy and dangerous conditions. Opencast mining, now the source of much
of the world’s coal, destroys topsoil and gobbles water. Transporting coal brings a host
of environmental problems. At the same time, society is demanding cleaner energy and
less pollution.
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The desire for lower emissions has led to widespread questioning of the role of coal in
particular. Coal mining companies also have to compete with suppliers of renewable
energy utilising wind, sun and water. To exacerbate their situation, coal companies
in South Africa have to comply with the Mining Charter which is a major drive for
the equitable distribution of South Africa’s mining resources and is binding on all
companies in the mining sector. Apart from all this, the coal companies also have to
deal with international commodity prices and exchange rates.
Should a coal mining company consider the future to be the starting point in their
planning (that means, strategic planning), they would have to ask themselves: ‘What
does the future hold for a coal mine? What substitutes may be discovered that may
replace coal as an energy source? What if current energy supplies do not meet our
demand to mine coal? What if a new international competitor enters our market and
poaches our major clients?’
It is obviously not only coal mining companies that face a different future. A small
takeaway outlet may face customers who increasingly want healthy food, grown
organically and packaged in bio-degradable packaging. Hotels, guest houses and bed
and breakfasts face the new way of accommodation, namely Airbnb. Car manufacturers,
the taxi industry and bus operators face the challenges that the new sharing economy
pose to them, namely that the Millennials do not necessarily want to own a car. They
can use Uber to be transported to their destinations. Uber already operates worldwide;
in Africa Uber can be used in cities such as Abuja, Cape Town, Johannesburg, Durban,
Port Elizabeth, Nairobi, Cairo, Lagos, Casablanca, Mombassa and Alexandria.2
Because strategic planning deals with an environment that is constantly changing,
an organisation that needs to be flexible to adapt to these changes, and strategies to
align the organisation with the changing environment, strategic planning has unique
characteristics.
Strategic planning therefore:
Is an ongoing activity (a process) as the business environment continuously change
■■ Requires well-developed conceptual skills and is performed mainly by top
management
■■ Focuses on the organisation as a whole and not only on specific departments in the
organisation
■■ Is future-oriented
■■ Is concerned with the organisation’s vision, mission, long-term goals, and
strategies
■■ Aims at integrating all management functions
■■ Focuses on opportunities that may be exploited, or threats that may be dealt with,
through the application of the organisation’s resources
■■ Has to comply with corporate governance principles.
■■
The discussion of strategic planning in this chapter is based on Figure 4.3. Before we
discuss this figure, however, it is important to look briefly at the difference between
strategic planning, tactical planning, and operational planning (see Chapter 5 for a
more in-depth discussion).
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Strategic planning is performed by top management with input from managers at the
other levels.
Tactical planning and operational planning are performed by middle and lower
management.
Vision
Mission
Capabilities
Opportunities
and threats
Strategic goals
Strategy
Implement through: functional tactics, annual objectives, policies
Institutionalise through: structure, leadership and culture, reward system,
training, resource allocation
Strategic control
Figure 4.3 The strategic management process (planning, implementation and control)
A major implication of the above is that one group of managers (top management)
formulates the strategic plan, whereas other groups of managers (middle and lower
management) have to put these plans into action. Top management therefore has to
make sure that the plans are clear and understandable to those managers who have to
implement the strategic plans in their departments or sections.
Note that the implementation (including the institutionalisation) and control of
the strategies do not form part of strategic planning. They have been depicted here to
complete the strategic management process. It is also important to note that strategic
planning takes place both at corporate and at business level. It also takes place at
functional level (for example, financial strategy and marketing strategy) but is often
called ‘tactics’ at this level.
The corporate strategy (also called the ‘grand strategy’) is the course charted
for an organisation as a whole and specifies which set of businesses the organisation
should be in and in which markets it intends to compete. This decision is driven by
‘synergy’, which means that at corporate level strategists will look for a set of business
organisations that produces an effect greater than the sum of the individual businesses.
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The City Lodge Hotel Group (see Figure 4.5) decided at corporate level to focus on
four businesses, namely, Courtyard, City Lodge, Town Lodge and Road Lodge. The set
of decisions about which new businesses to enter, which businesses to buy, and possibly
which businesses to sell, represent The City Lodge Hotel Group’s corporate strategy.
In short, the corporate strategy focuses on the organisation’s scope of activities and
resource deployment.
etc.
Operations
Purchasing
Finance
Marketing
PROPERTY (PTY) LTD
Figure 4.4 The levels of strategy: single-business organisations
Corporate
strategy
THE CITY LODGE FAMILY OF HOTELS
Business
strategy
Functional
strategy
Marketing
Finance
Business
development
Others
Figure 4.5 The levels of strategy: multiple-business organisations
In a nutshell
Strategies are formulated at:
■■ Corporate level
■■ Business level
■■ Functional level.
Business strategy determines how best to compete in a particular industry or market.
It is concerned with the strategies for each unit or business within a corporation. The
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City Lodge Hotel Group has a unique business strategy for each of its four businesses
as they compete in different markets. Courtyard hotels focus on the upmarket traveller,
whereas the Road Lodge hotels focus on business travellers on a tight budget. The
business strategies for these businesses differ in order to gain a specific advantage in
the markets in which they operate. Although each business has its own strategy, the
formulation of the strategies does not take place in isolation. The focus of all of these
strategies should be on the achievement of the corporate goals.
Functional-level strategies are derived from business-level strategies. A function
is a department in which people have the same types of skill or use the same resources
to perform their jobs. Town Lodge hotels will, for example, have marketing, finance,
human resources, and other functional strategies. Each functional-level strategy states
the goals that functional managers propose to pursue to help the business attain its goals.
The marketing strategy for Town Lodge hotels could be to increase its market share
in the two-star accommodation business or to ensure that they retain their leadership
position in this market segment.
Ensuring consistency of strategies across all three levels is an important issue in
strategic planning. Functional strategies must be aligned with the business strategies;
the business strategies must be aligned with the corporate strategies.
4.3 The strategic planning process
Although each of the components of the strategic planning process is explained
separately in the sections that follow, we should always remember that these components
are interdependent. For example, when formulating the mission statement, top
management needs information on the internal and external environments. A realistic
mission statement should take into account the capabilities (internal environment) of
the organisation, as well as threats and opportunities in the external environment.
4.3.1 The vision
For top management to lead the organisation to success in the future it needs an
inspiring vision that everybody in the organisation – and the external stakeholders
– shares in and is excited about. Ethiopian Airlines has as its vision ‘to be the most
competitive and leading aviation group in Africa by providing safe, market driven and
customer focused passenger and Cargo Transport, Aviation Training, Flight Catering,
Maintenance Repair and Overhaul (MRO), Ground Services, Domestic and regional
services by 2025’. This vision shows that Ethiopian Airlines is already preparing for
2025.3 The company’s vision pushes managers and workers within the company to
look outside of themselves to see not what they currently are but what they could be
in the future. The vision should provide a clear sense of what the organisation hopes to
become — an anchor for decision-making in the organisation. The vision is the end, not
the means of getting to the end.
The success of a vision statement depends largely on how well it is shared with the
organisation’s stakeholders. These stakeholders include the organisation’s shareholders,
its employees, customers, suppliers, the community in which it operates, and the
government. These stakeholders all have vested interests in the future of the organisation.
Employees, for example, want to know that the organisation can provide them with job
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security — now and in the future, shareholders want to know that their investments
will grow over the long term, customers want to know that they have bought a quality
product or service from a reputable organisation, and so on.
A clear vision is important to an organisation for the following reasons:4
■■ It portrays the dream that the organisation has for the future
■■ It promotes change
■■ It provides the basis for a strategic plan
■■ It helps to keep decision-making in context
■■ It should motivate managers and workers and focus the recruitment of talent
■■ It should lead to job satisfaction, commitment, loyalty, pride, esprit de corps, clarity
about the organisation’s values and improved productivity.
Some vision statements are written in conversational prose; some are crisply outlined in
point form; some are vague and abstract on some topics but clear and precise on others.
There is no template for the style of a vision statement.
4.3.2 The mission statement
The vision statement reflects the perfect future; the dream that the organisation has
for itself. This dream is stated in Ethiopian Airlines’ vision statement (see Section
4.3.1). This vision statement shows that a vision statement should not be specific. In
the strategic plan of Ethiopian Airlines, we therefore find more specific information
regarding the future of the Airlines in their mission statement.
Ethiopian Airlines mission statement
■■
■■
■■
To become the leading aviation group in Africa by providing safe and reliable passenger
and cargo transport, aviation training, flight catering, MRO and ground services whose
quality and price value proposition is always better than its competitors
To ensure being an airline of choice to its customers, employer of choice to its employees
and an investment of choice to its owner
To contribute positively to the socio-economic development of Ethiopia in particular and
the countries it operates in general by undertaking its corporate social responsibilities
and providing vital global air connectivity.
Value statement
■■ As an airline, safety is our first priority
■■ ET is a high performance and learning organisation
■■ We are an equal opportunity employer
■■ We treat internal and external customers the way we would want to be treated.
Source: Ethiopian Airlines. nd. Available at: http://www.ethiopianairlines.com/corporate/strategicplan (Accessed: 9 September 2016).
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The vision statement guides the formulation of the mission statement. The mission
statement aligns the organisation with its dream in terms of its:
1. Products
2. Market
3. Technology.
These three form the core components of any mission statement. Management will
typically ask the following questions when formulating a mission statement:
■■ What is (are) our business(es) (in other words, our product or service)?
■■ Who is our client (our market)?
■■ How will we provide this product or service to the client (technology)?
The answers to these three questions should clearly set the organisation apart from
similar organisations. It should state what makes the organisation unique and therefore
provides the organisation with a competitive edge. A mission statement should create
a focus for all managers and employees in the organisation. Because the mission
statement will state management’s priorities and focus areas, it will also serve as the
basis for resource allocation. Based on the mission statement of Ethiopian Airlines, one
can expect that top management will allocate the majority of resources toward safety
issues, reliability of the service that they provide, meeting stakeholders’ expectations
(employees, customers, suppliers, investors, the community). The mission statement
of Ethiopian Airways also states clearly that they want to be profitable in the long term
(‘investor of choice’).
In addition to the core components that should be dealt with in a mission statement,
organisations should also address the following components in their mission statement
to clarify top management’s intent:5
■■ Concern for survival/growth/profitability (the organisation’s concern for financial
soundness)
■■ Philosophy (the values, ethics, and beliefs of the organisation)
■■ Public image (social responsibility)
■■ Employees and all other stakeholders
■■ Distinctive competence (how is the organisation different from or better than its
competitors?).
These components should be adjusted to reflect the important issues of a specific
industry or organisation. For example, a mining company should also refer to SHERQ
(safety, health, environment, risk, quality) in their mission statement. A software
development company may want to adjust their mission statement to refer to innovation
as a key focus area.
Figure 4.6 depicts clearly how a mission statement influences all managers and
workers in an organisation. First, top management must live the mission statement so
that other managers and workers can see that top management focuses their decisions
on realising the mission statement. Second, the key performance areas (KPAs) for
the whole organisation must be stated clearly in the mission statement. The KPAs are
clearly stated in Ethiopian Airlines’ mission statement. Some of these KPAs are safety,
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reliability, quality and price, stakeholders’ expectations, and social development. Third,
top management must ensure buy-in from managers at all levels of the organisation.
However, the ultimate responsibility for the mission statement lies with top management.
Fourth, the KPAs referred to in the mission statement must be cascaded down all the
way to each manager and employee’s individual performance contract. Finally, if each
individual achieves his or her goals, the organisation will achieve its goals.
In today’s diverse work environment, many organisations have a specific section
in their mission statements that deals with the values of the organisation. This
ensures that all managers and employees know what behaviour is acceptable in the
organisation — and what is unacceptable.
One can differentiate between three types of values when writing a mission statement for
an organisation:
1. Business-focused values will state clearly what management considers acceptable
behaviour in terms of efficiency, planning, productivity, responsibility, and so on.
An example of a value focusing on ‘efficiency’ could be stated as: ‘we care for our
resources’.
2. People-focused values will state acceptable behaviour that relates to issues such
as honesty, respect, trust, listening and openness. An example would be to state:
‘we respect our differentness’ meaning that diversity is appreciated in the
organisation.
3. An example of a development-focused value could be to state: ‘we celebrate creativity’
meaning that originality and research are appreciated in the organisation.
Top management to create the mission
statement
State key performance areas (KPAs)
Get buy-in from everyone in the
organisation
Base individual’s performance contracts
on KPAs
Figure 4.6 From overall mission statement to individual KPAs
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Lockheed Martin’s values
Lockheed Martin Aeronautics Company is considered the leader in the design,
development and production of jet fighters. The company has a clear set of values, namely:
■■ Passion ... to be passionate about winning and about our brands, products and people,
thereby delivering superior value to our shareholders
■■ Risk tolerance ... to create a culture where entrepreneurship and prudent risk taking are
encouraged and rewarded
■■ Excellence ... to be the best in quality and in everything we do
■■ Motivation ... to celebrate success, recognising and rewarding the achievements of
individuals and teams
■■ Innovation ... to innovate in everything, from products to processes
■■ Empowerment ... to empower our talented people to take the initiative and to do what’s
right.
Source: Lockheed Martin. nd. Available at: www.lockheedmartin.com (Accessed: 9 September 2016).
4.3.3 Assessing the internal environment
We stated that the vision is management’s dream of the perfect future for the
organisation. The mission statement, however, states what the organisation must be to
move towards its vision. To ensure that the mission
statement is realistic, management must:
Identify
■■ Evaluate the organisation’s (internal) capabilities
strategic
■■ Evaluate the opportunities and threats posed by
internal factors
the changing external environment.
The assessment of the internal capabilities
(strengths and weaknesses) of an organisation gives
management a clear picture of unique strengths that
Evaluate
the organisation may possess that they can use to
strategic internal
factors
outwit their competitors. The internal assessment
also highlights the weaknesses that the organisation
may have that competitors may exploit. The end result
of an internal environmental assessment is called the
organisational profile. This profile should depict the
Develop input for
strategically important strengths and weaknesses
the strategic
on which the organisation should base its strategy.
planning process
Figure 4.7 illustrates internal analysis as a three-step
process. By following these steps, management is able
Figure 4.7 Steps in
the development of an
to identify those factors that:
organisational profile
1. Give the organisation a competitive advantage
2. Meet the basic business requirements
3. Make it vulnerable to the realities of the volatile business environment.
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Step 1: Identify strategic internal factors
In Step 1, managers identify and examine key aspects of the organisation’s basic capabilities, limitations, and characteristics — those internal capabilities that are most
critical to success in a particular industry or competitive area. Factors strategic to
pathologists would be speed, safety and reliability of transport of blood specimen from
the patient to the pathologist. For a small e-commerce business their website is a critical
strategic internal factor. A grocery retailer must focus on the range of their products and
stock management. A strategic internal factor for fast food businesses may be the speed
at which orders can be processed.
Strategic internal factors can also vary between organisations in the same industry.
For example, the strategies of Edgars stores and a very exclusive women’s boutique would
be based on different internal strengths: Edgars on its strength in mass marketing, credit
facilities, extensive advertising, and specialised managerial skills; the exclusive women’s
boutique on relationship building, one-of-a-kind items, image, and customer loyalty.
But how do managers decide which factors are truly strategic for the survival of
their specific business organisation? To help managers with this challenging task, the
following approaches have been identified.
The evaluation of functional segments
The functional approach to internal assessment concentrates on assessing the
capabilities of the functional departments in an organisation. This would mean making
a thorough analysis of its marketing, financial, production, human resources, research
and development, and external relations functions. In Table 4.1, the focus is on general
management as one of the key internal factors in an organisation, and the factors
listed have been identified as potential strengths or weaknesses. This table serves as an
illustration of how one of the segments of the organisation has been assessed in terms of
those factors critical to its success.
According to Table 4.1, the major strengths of this organisation are its clear and
realistic mission statement, its policies and procedures, its integration with other
systems, and its reaction to external changes. Weaknesses in the general management
function are the organisational structure and planning systems.
The value-chain approach
A second approach to identifying an organisation’s strengths and weaknesses (internal
assessment) is called the value-chain approach. The value-chain approach can be used
in any type of business to assess its strengths and weaknesses.
The value chain looks at an organisation as a chain of activities that transforms inputs
into outputs that customers value.
The value chain distinguishes between two types of activity in an organisation:
1. Primary activities
2. Secondary activities.
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Table 4.1 The development of an organisational profile
Key internal factor
Potential strengths and weaknesses
++
1. Clear and realistic mission statement
+
–
++
2. Organisation’s image
+
3. Planning systems
–
4. Organisational structure
–
5. Policies and procedures
––
++
6. Effectiveness and utilisation of control systems
+
7. Alignment with organisational culture
+
8. Innovative decision-making
+
9. Integration with other systems
++
10. Reaction to external changes
++
Figure 4.8 depicts a typical value chain. The primary activities are those involved in
the physical production (or delivery) of the product (or service). In the case of a coffee
shop, these activities will relate to all activities involved in the actual offering of the
coffee to customers. This would mean that coffee beans have to be sourced and bought
from suppliers. Then it must be stored in a store room at the right temperature. The
coffee must then be produced when a customer orders a cup of coffee. The coffee shop
can then launch a new type of coffee by offering customers a sample of the coffee beans
to take home. Finally, the owner of the coffee shop may issue loyalty cards to customers
to make sure that they return to the coffee shop.
The secondary activities provide the platform that allows the primary activities
(actual offering of a cup of coffee) to take place. These include infrastructure,
human resource management, research and development, technology, systems, and
procurement. Infrastructure refers to all departments like management, finance, legal,
marketing and so on which are required to keep the coffee shop operational. The coffee
shop also needs human resources (a manager, barrista, waiters and other staff) and
will have to find these resources, train them and pay them salaries and other benefits.
Constant research and development will be necessary to ensure that the coffee shop
offers the latest in coffee trends. The coffee shop will have to use technology not only to
ensure consistency in their products and service, but customers may also want to access
Wi-fi while being in the shop. Systems such as the ordering system must ensure that
customers get their right cup of coffee without delay. Procurement involves procuring
the raw material for the final product. The owners of the coffee shop may appoint agents
to travel to Asia, Latin America and Africa for the procurement of high grade coffee
beans.
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General administration
M
Human resource management
gin
ar
Research and development
Technology and systems
Procurement
Outbound
logistics
Marketing
and sales
After-sales
service
gin
Operations
ar
Inbound
logistics
M
Secondary activities
The value-chain approach surveys the costs across the series of activities that the
organisation performs in order to determine where the organisation has low-cost
advantages or high-cost disadvantages. In the case of the coffee shop the owners may
have a high-cost disadvantage as far as obtaining the coffee beans is concerned due to
the small amount of coffee that they order. However, they may have a low-cost advantage
in terms of marketing as most of their marketing is through word-of-mouth.
Low cost does not have to be the only yardstick that can be used to determine
an organisation’s strengths and weaknesses if the value-chain approach is used.
Differentiation and response time can also be used as yardsticks.
Primary activities
Figure 4.8 The value-chain approach to internal assessment
The resource-based view (RBV) of an organisation
A third approach to assessing an organisation’s strengths and weaknesses is called
the resource-based view (RBV) of an organisation. The underlying assumption in
this approach to internal assessment is that organisations differ in fundamental ways
because each organisation possesses a unique mixture of resources. For example, Pfizer
is a pharmaceutical company that is known for its research capabilities. Pfizer’s purpose
is to innovate to bring therapies that significantly improve patients’ lives. Research and
development is at the heart of fulfilling Pfizer’s purpose. It has vast resources that can
be used to do research on new medicines. Also in the pharmaceutical industry is Aspen,
a supplier of generic pharmaceuticals. Aspen is the ninth largest generic company in
the world.6 Aspen’s resources are profoundly different from those that give Pfizer its
competitive advantage. Aspen’s unique resources include its production capabilities
that can be used for a wide variety of product types. It has manufacturing sites on four
continents. However, it does not have major research capabilities as it provides generic
medicines.
According to the resource-based view of an organisation, it is much more feasible to
exploit external opportunities using existing resources in a new way rather than trying
to acquire new skills for each different opportunity or threat.7
There are three types of resources according to the resource-based view of an
organisation:
1. Tangible assets are those resources found on an organisation’s balance sheet (such
as property and warehouses)
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2. Intangible assets are assets that one cannot see or touch but are critical to creating
competitive advantage to an organisation (such as brand names, patents, knowledge
of the market)
3. Organisational capabilities refer to the ability of an organisation to turn inputs into
outputs (such as an organisation’s capability to transform its raw material into final
products faster or cheaper than its competitors).
For a resource to be valuable to an organisation – therefore a strength – it must be:
Superior to the resources of competitors (for
example, a better location)
■■ Scarce so that competitors struggle to get hold of
the resource (an example would be access to safe
and affordable water for companies in the coal
Strategic/
mining industry)
competitive
■■ Difficult to imitate (anthracite is of
a much higher quality than other
types of coal and its properties
Base
cannot be imitated)8
■■ Under the control of management
■■ Slow to depreciate
Peripheral
■■ Difficult to substitute
(water, for example, has no
substitute).
Figure 4.9 The hierarchy of resources
■■
Figure 4.9 depicts as a hierarchy the types of resources (tangible and intangible) or
capabilities that an organisation possesses. Strategic resources or capabilities are the
unique resources or capabilities of an organisation that cannot be easily emulated by
competitors.
The three most important resources to business organisations
The World Economic Forum worked with partners at Stanford University and Ernst & Young
and conducted a global survey of more than 1 000 leaders at entrepreneurial companies to
learn what organisations need to be successful.
Three resources are consistently ranked above all others:
1. Access to markets
2. The supply of human capital
3. Access to funding.
Source: Endeavour Insight. 2014. Entrepreneurship: Ecosystems Insight. Available at: http://www.
ecosysteminsights.org/the-three-most-important-succeed/ (Accessed: 9 September 2016).
Strategic resources or capabilities should be nurtured and continuously improved to
ensure that they remain strategic. Base resources are those resources that an organisation
cannot operate without. To Toyota these would be its plant and equipment. Peripheral
resources are necessary resources but can easily be outsourced. Toyota can easily
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outsource resources involved in the recruitment of employees, the selection of the best
applicant for a job, infrastructure as a service, website design and administration and
many more.
The product/market evolution
A fourth approach to internal assessment is the product/market evolution approach.
The requirements for success in an organisation’s product/market relationship change
over time. Management can therefore apply the framework of a product life cycle to
identify strengths and weaknesses in the internal environment as an ongoing exercise.
Products and services go through four phases: the introductory phase is followed
by the growth phase, then the maturity phase and finally the decline phase. Based on
this concept, key success factors during the introductory phase of the product’s life
cycle would revolve around marketing capabilities to create awareness of the product.
An example would be 3D televisions. 3D may have been around for a few decades, but
only after considerable investment in advertising from broadcasters and technology
companies are 3D televisions available for the home. Blue-ray player equipment is
currently enjoying the steady increase in sales that is typical of the growth stage.
Manufacturers of DVD players and the equipment needed to play them have established
a strong market share. However, they still have to deal with the challenges from other
technologies. This is characteristic of the maturity stage. Video recorders are currently
in the decline stage as it has become easier and cheaper for consumers to switch to other
more modern formats.9
Using financial analysis
Financial analysis is a fifth approach to assessing the strengths and weaknesses of an
organisation. However, it should be kept in mind that financial analysis provides an
organisation with a picture of its strengths and weaknesses that is based on past data.
Organisations often use the balance sheet and income statement in their financial
analyses to determine their strengths and weaknesses. The key financial ratios that are
used are:
■■ Liquidity. Liquidity ratios refer to an organisation’s ability to meet its short-term
obligations. The optimum ratio differs from industry to industry.
■■ Leverage. Leverage ratios look at the source of the organisation’s capital, such
as its owners or outside creditors. It could measure the percentage of total funds
provided by creditors against the percentage provided by owners.
■■ Activity. Activity ratios measure how well the organisation is using its resources.
An important ratio for companies such as Edcon would be to determine the average
length of time it takes to collect on credit sales.
■■ Profitability. Profitability ratios measure how well an organisation is managed.
An organisation can measure its gross profit margin, that is, the total profit margin after
the cost of sales has been deducted from the income they have generated. For example,
the gross profit percentage of 36 per cent is realistic for a hardware store; for a beverage
manufacturer a gross profit percentage of 57 per cent is achievable.10 Organisations in
these industries can measure themselves against these yardsticks to determine whether
its sales and cost of sales are weaknesses or strengths.
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Five approaches to determining an organisation’s strengths and weaknesses (internal
assessment) are:
1. Functional approach
2. Value-chain approach
3. Resource-based view
4. Product/market evolution
5. Financial ratios.
Step 2: Evaluate strategic internal factors
Once the strategic internal factors have been identified, the next issue that arises is what
are the potential strengths and weaknesses of the organisation? A factor is considered
a strength if it is a competency or a competitive advantage for an organisation. For
example, Rolls Royce’s image and quality are two distinct competencies for that
organisation and these competencies should be exploited to the full. A weakness, on
the other hand, is something that an organisation does poorly. Examples of weaknesses
for a car manufacturer include a lack of management vision, the poor image of the cars,
fuel-inefficiency, outdated designs, a volatile workforce.
Classifying something as a strength or weakness is not a subjective exercise.
Management can use one, or a combination, of the following to identify their
organisation’s strengths and weaknesses:
■■ A comparison with the organisation’s performance in the past
■■ A comparison with competitors’ performance
■■ A comparison with industry ratios
■■ Benchmarking.
Many managers start their planning efforts by comparing their current results with the
organisation’s previous years’ results. A major problem of this very popular approach,
however, is that managers may compare their current performance to their own very
poor results of the past. Any improvement on the poor results may then wrongly be
considered a strength. However, if the factor was to be compared with an industry
standard or yardstick, it might in fact be a weakness.
Comparing the organisation’s capabilities with those of major competitors is a
second approach that managers might use to evaluate the organisation’s strategic
internal factors. Road Lodge, the one-star lodge, can compare its internal factors to
that of Formula 1 hotels to determine its strengths and weaknesses. Road Lodge will
compare itself in terms of factors such as occupancy rate of its hotel rooms, customer
satisfaction ratings and number of re-bookings by previous customers.
Determinants of success differ from industry to industry. Each industry has its
own ratios that measure success in that industry. In the hotel and tourism industry
occupancy rates of hotel rooms are essential for survival in the industry. The success of
a university or training institution is measured in terms of the percentage of graduates
finding a relevant job after graduation. In the restaurant business, key determinants of
success include cost control, meeting health and safety regulations, cash flow and the
number of return customers.
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Occupancy rates as a yardstick in the hotel industry
Hotel occupancy fell to 48,2 per cent in June 2015. This is according to preliminary figures in
Stats SA’s latest Tourist accommodation release.
During the period 2011 to 2015 hotels have experienced relatively high occupancy rates
during peak months (October/November and February/March), often surpassing the 59,4 per
cent recorded during the 2010 FIFA World Cup. However, the rate recorded for June 2015
was the lowest since January 2012.
Source: Statistics South Africa. nd. Available at: http://www.statssa.gov.za/?p=5311 (Accessed: 9
September 2016).
The five-star Mount Nelson hotel in Cape Town can now use the occupancy rate
yardstick to determine whether this strategic factor is a strength or weakness to the
hotel. In other words, is the Mount Nelson hotel performing better (strength) or worse
(weakness) than its competitors in terms of occupation of hotel rooms?
Benchmarking is another approach that can be used to identify an organisation’s
strengths and weaknesses. Benchmarking is the process of measuring an organisation’s
internal processes and identifying, understanding and adapting it to be best in its class.
Benchmarks do not necessarily come from organisations in the same industry; it can
be set by organisations in other industries. An airline may want to improve on the time
that it takes to do routine maintenance on aircraft between flights, such as refuelling,
cleaning and tyre checks. Indy 500 racing team pit crews have a similar maintenance
process. They also have similar requirements, namely to get their vehicles back on the
track as quickly and as safely as possible. The pit crews’ maintenance turnaround times
can be used as a benchmark by the airlines company to reduce the time between flights.
Determining the strengths and weaknesses of an organisation is not a subjective
exercise. Yardsticks like the ones previously mentioned should be used to identify the
organisation’s capabilities.
These yardsticks are:
■■ The organisation itself (its previous performance)
■■ Competitors
■■ Industry ratios
■■ Benchmarks.
Although the identification (Step 1) and the evaluation (Step 2) of key internal factors
have been discussed as two separate steps, it should be stressed that, in practice, they
are not differentiated.
Step 3: Develop input for the strategic planning process
The results of the second step could be applied to determine those internal factors that:
■■ Provide an organisation with an edge over its competitors — factors around which
to build the organisation’s strategy
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■■
■■
Are important capabilities for the organisation to have but are typical of every
competitor in the industry
Are currently weaknesses in the organisation — managers should avoid strategies
that rely on those key vulnerabilities.
The results obtained in this final step in the internal analysis process serve as inputs into
the strategic planning process.
In the next section we discuss a further input into the strategic planning process,
namely the assessment of the external environment (macro- and market environments).
4.3.4 The external environment
Chapter 3 dealt in great detail with the organisation and the environment in which it
operates, therefore the focus in this section will be on how to identify key variables in
the external environment that can cause the organisation to thrive (opportunities) or
pose major threats to the organisation’s survival. Since organisations do not operate in
a vacuum, they should constantly be aware of key variables (forces) in their external
environment that may change. These forces may be in the macro-environment and/or
the market environment. Management should also be on the lookout for new trends that
may develop in the business environment as they will have to prepare the organisation
for these changes.
‘It is not the strongest nor most intelligent of the species that survive: it is the one most
adaptable to change.’ (Charles Darwin)
The same can be said of the organisation in the constantly changing business environment.
The macro-environment includes forces that originate beyond any single organisation’s
immediate environment. These forces constantly change. This uncontrollable, remote
environment is composed of the policital, economic, social, technological, international
and ecological environments, often called the PESTIE environment (see Chapter 3).
When assessing the economic environment, managers should analyse factors such
as the stage of the economic cycle, inflation and interest rates, and unemployment
levels. An assessment of the political environment should address a possible change
in government, changes in tax laws, protection laws, special incentives, and other
political issues, such as the nationalisation of mines. The societal environment includes
factors such as attitudes towards quality of life, life expectancy, the population growth,
the increasing/decreasing gap between the rich and poor, urbanisation and the career
expectations of the population.
The market environment is also constantly changing. Market environmental factors
include: competitors, customers, suppliers, potential entrants, and substitute products
(see Porter’s five forces model in Chapter 3). Management should identify any trends
that may pose a threat or opportunity to the organisation in the future.
An organisation’s survival depends to a large degree on the ability of management
to anticipate trends and/or changes in the external business environment (macro- and
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market) and to prepare in advance for these changes. It is therefore necessary to predict
the type of environment that the organisation will face in the future. In this regard,
the steps illustrated in Figure 4.10 are recommended to ensure that the organisation is
proactive in terms of possible changes — and not merely reactive.
The selection of critical environmental variables is usually a responsibility of
top management. Time and money constraints obviously preclude the forecasting of
all possible variables in the external environment. The most important variables that
should be forecast are those that drive an industry. For example, the birth rate of the
population is significant for manufacturers of educational toys for children. The birth
rate of the population in turn is greatly affected by variables such as the educational level
of parents and the lifestyles of the population.
The changing face of competition
Until very recently, competition was visible and direct. Car manufacturers competed with
other car manufacturers, banks competed with other banks and travel agents had to outwit
other travel agents. In most cases, competition was benign, giving an organisation ample
opportunity to respond and recover to competitors’ new strategies.
However, cross-industry competitors are powered by technology; they can come from
anywhere. Consider, for example, the following industries:
■■ Banking: M-Pesa, a mobile phone-based money transfer service has become a dominant
way of transferring funds in countries such as Kenya. It is giving traditional bricks-andmortar banking institutions a serious run for their money.
■■ Taxi business: This industry is facing tough competition from Uber. Uber is an excellent
example of the on-demand economy, making simple promises: reliable and affordable
transportation at the push of a button.
■■ Male grooming: Gillette has established global dominance in the men’s shaving
market by investing heavily in research and development and innovation. Today it finds
a challenge in the form of a global fashion trend that has young men sporting stubble or
maintaining a beard.
Source: Srivastava, R. 2015. The Changing Face of Competition that can Knock You Down. Available at:
http://www.foundingfuel.com/column/new-rules-of-business/the-changing-face-of-competition-thatcan-knock-you-down/ (Accessed: 9 September 2015).
Many organisations find that environmental forecasting is beyond their capabilities.
They therefore obtain basic forecasts from sources such as government agencies and
professional research firms. Important South African sources of information for
forecasting include the Bureau of Market Research at the University of South Africa,
Statistics South Africa, the Bureau for Financial Analysis at the University of Pretoria,
and the Institute for Futures Research at the University of Stellenbosch.
Publications such as Financial Mail, Finance Week, South African Journal of Business
Leadership, and Business Day also provide useful information. It is important to note
that the ultimate responsibility for the evaluation and interpretation of the information
supplied by these institutions and publications lies with the organisation and not the
forecasters.
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If an organisation is capable of gathering primary data,
Select critical
a number of quantitative and qualitative forecasting
environmental
techniques can be applied. The choice of technique
variables
depends on considerations such as the nature of the
forecast decision, the usefulness and accuracy of
available information, the accuracy required, the time
available, and the cost and importance of the forecast.
(Popular approaches to forecasting are discussed in
Select sources
Chapter 5.)
of information
The next step in forecasting environmental
variables is the development of an environmental
profile. An environmental profile is a summary of the
key environmental factors evaluated for their potential
impact on the organisation. An environmental profile
Evaluate
for an organisation manufacturing roof trusses for
forecasting
techniques
low-cost housing will clearly show ‘interest rates’ as
an environmental factor with huge impact on the
business.
The final step in environmental forecasting is to
monitor the critical aspects of management forecasts.
Develop an
These aspects include those referred to in Steps 1 to 4
environmental
profile
in Figure 4.10.
Once an organisation is thoroughly aware of its
own strengths and weaknesses (internal assessment)
and of the opportunities and threats in the external
environment, it is in a position to identify and
Monitor
evaluate realistic strategies that are in line with the
forecasts
organisation’s mission and long-term goals.
However, the environment has become increasingly unpredictable. Managers nowadays
Figure 4.10 Steps in
have to imagine alternative futures and prepare the
environmental forecasting
organisation for any of these possibilities.
Scenario planning is a tool used for creating these futures. It came into prominence
in the 1970s, when it was credited with helping Royal Dutch/Shell to cope with
uncertainties in the oil industry. Royal Dutch/Shell used scenario planning as an
opportunity-management tool.
Scenarios can be built as follows:11
■■ Determine which forces will make or break the organisation in the next few years.
In the building industry, one such make-or-break variable is a rise in interest rates.
■■ Put together a scenario-building team and information-gathering network
that focuses on forces that seem most likely to have a significant impact on the
organisation.
■■ Sketch ‘what if ’ scenarios that deal with the most influential external forces in the
environment. Possible scenarios for an organisation in the building industry will
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■■
■■
105
deal with: what if the interest rate increases?, what if the interest rate remains the same?,
what if the interest rate drops? Limit the number of scenarios to three, that is, the worst
case, a status quo world, and a fundamentally different but better world.
Assess the implications of each scenario.
Identify signs which could indicate that a particular scenario is materialising.
Reassess your organisation vision in the light of the scenarios.
Scenario planning is based on the assumption that you cannot control or predict the
future. It helps management envision equally plausible ways in which the future might
unfold and chart appropriate responses to each.
4.3.5 Translating the mission into long-term goals
The assessment of both the external and internal environments will indicate to
management whether the mission statement is realistic. This statement has to reflect
reality as it is the document that guides decision-making in the organisation. It
also serves as the basis for performance contracting for managers at all levels in the
organisation as well as for workers. However, the mission statement is a broad statement
indicating the organisation’s intent. It often contains words such as ‘most cost-effective
producer of …’ or ‘to be the leader’. ‘Most cost-effective’ and ‘airline of choice’ are vague
terms that lend themselves to different interpretations. The mission statement therefore
still needs to be translated into measurable, long-term goals to ensure that it is clearly
understood by everyone in the organisation. The balanced scorecard (BSC) is used by
many organisations in South Africa, including Edcon, Kumba Resources, universities
and government departments, for this purpose.
Kaplan and Norton12 state ‘what you measure is what you get’. An organisation’s
measurement system affects the behaviours of managers and employees. BSC includes
financial measures to measure profitability, liquidity, cost and any other measures
that focus on financial performance. Kaplan and Norton have added three additional
dimensions to measure namely:
1. Operational measures on customer satisfaction
2. Internal processes
3. The organisation’s innovation activities as these drive future financial performance.
These perspectives must be linked to the mission statement to ensure that the
organisation’s purpose is achieved.
The four BSC perspectives measure the following:
1. The financial perspective includes measures such as operating income, return on
capital employed, and economic value added.
2. The customer perspective looks at measures such as the number of new customers,
customer retention, customer defection and customer satisfaction.
3. The third perspective of the BSC, namely internal business processes, deals
with continuous improvement, throughput and quality. Measures can include the
number of mistakes made during a certain process (such as the registration process
at a university), the number of new processes incorporated into the business during
the past year, and productivity measures.
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4. The learning and growth perspective focuses on, amongst other things, the
competency of employees, innovative ideas generated by employees and managers
and staff retention.
Objectives
Measures
Targets
Initiatives
Measures
Targets
Initiatives
Customer
‘To achieve our
vision, how should
we appear to our
customers?’
Objectives
Initiatives
Targets
Measures
Financial
‘To succeed
financially,
how should we
appear to our
shareholders?’
Objectives
The four perspectives of the BSC do not operate in isolation. They are closely related.
For instance, if employees are competent (learning and growth perspective), they
should be able to improve continuously on the processes of the organisation (internal
business processes perspective). This should enable the organisation to improve on their
customer service (customer perspective). This will eventually contribute to bottom-line
improvement (financial perspective).
Although the ‘pure’ BSC comprises four perspectives, organisations should adapt
the above perspectives to reflect their own unique key drivers. In the airline as well as the
mining industry safety, health and the environment are key focus areas for organisations.
They should therefore include ‘safety, health, environment, risk and quality’ as another
dimension of their BSC.
Kaplan and Norton13 have also created a new tool, called ‘strategy maps’. A strategy
map visually represents how an organisation creates value. According to Kaplan and
Norton, you can only measure what you can describe. They argue that sustained value
creation depends on managing four key internal processes: operations, customer
relationships, innovation, and regulatory and social processes. Strategy maps can visually
link those processes to desired outcomes; the tool therefore allows an organisation to
align processes, people, and information technology to achieve superior performance.
Initiatives
Targets
Measures
Internal business
processes
‘To satisfy our
shareholders
and customers,
what business
processes must
we excel at?’
Objectives
Vision and
strategy
Learning and
growth
‘To achieve our
vision, how will we
sustain our ability to change and
improve?’
Figure 4.11 The balanced scorecard
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4.3.6 Choosing a strategy
The choice of a strategy is guided by the organisation’s mission statement and its long-­
term goals (see BSC, discussed in the previous section). When choosing a strategy
or combination of strategies, strategic planners decide on a core idea about how the
organisation can best compete in the marketplace. The term used in strategic planning
for this core idea is ‘generic strategy’.
There are three types of generic strategy:14
1. Low-cost leadership
2. Differentiation
3. Focus.
An overall low-cost leadership strategy attempts to maximise sales by minimising
costs per unit and hence prices. Several things can be done to minimise costs. First, as
workers gain more experience in producing a particular product, productivity should
increase and unit costs decrease. This is called a ‘learning curve’ or ‘experience curve’.
Second, an organisation can expand the size of its operations. As the size of operations
increases, the costs per unit decrease because the fixed costs (plant, equipment, and
others) are shared by a larger number of products. This is referred to as ‘economy of
scale’. An example of this is the reduction in the price of plasma screen television sets
over the years as a result of economies of scale.
Differentiation is the second generic strategy that distinguishes an organisation’s
products or services from those of its competitors. The rationale for differentiation is
that the organisation can charge higher prices (and make more profit per unit) for a
product that customers perceive to be different from similar products offered by rivals.
Differentiation may be in terms of quality, the production process, design, reputation,
friendliness to the environment or any number of other attributes. Virgin Airlines is
a company known for ‘innovation, quality and a sense of fun’. Virgin Airlines has
taken to the skies in an effort to make air travel affordable and enjoyable. Nike Inc.
believes that they offer the athlete the equipment they need to succeed.15 City Lodge
hotels differentiate themselves by offering affordable, no-frills accommodation to
the traveller.
The third generic strategy is to focus on a specific product line or a segment of the
market that gives an organisation a competitive edge. Harley-Davidson® focuses on a
specific segment of the motorcycle market, namely heavyweight motorcycles. This focus
enables the company to differentiate itself from other manufacturers of motorcycles.
4.4 Grand strategies
Once an organisation has chosen a generic strategy – or core idea – it should decide on
a more specific grand strategy for each business. Grand strategies should be developed
for both single-business and multi-business organisations (Figures 4.3 and 4.4). Singlebusiness organisations limit their operations to one major industry. A multi-business
organisation such as the City Lodge Hotel Group develops a business strategy for each
business. The City Lodge Hotel Group will therefore have a different business strategy
for its Courtyard hotels, City Lodge hotels, Town Lodge hotels and Road Lodge hotels.
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Single-business organisations, such as a hardware store, address the same issues as
multi-business organisations, but their scope is more limited.
Pfizer’s strategy
Pfizer is committed to being a leader in healthcare and to changing lives for the better by
providing access to safe, effective and affordable medicines to those who need them.
But in South Africa, the company faced a major challenge.
How do you provide medicine to those who need medication but cannot afford expensive
medication? Pfizer crafted a clever strategy to support their mission statement. They
established Pharmacia, a generic subsidiary with the aim of producing quality original
generic medicines for the South African market. It is the only Pfizer generic company.
Source: Pfizer. nd. Available at: http://www.pfizer.co.za/ (Accessed: 9 September 2016).
The City Lodge Hotel Group has to look at different strategies to find out which strategy
or combination of strategies will enable each business unit to attain its mission and
long-term goals. There are many strategies that they can consider. However, when one
looks at all these strategies it becomes clear that they are either:
■■ Growth strategies
■■ Decline strategies
■■ Corporate combination strategies.
This choice of strategies is depicted in Figure 4.11. The choice of a strategy depends on
an organisation’s strengths and weaknesses as it should choose a strategy that maximises
its strengths and minimises its weaknesses. The choice of one will also depend on the
opportunities and threats in the external environment.
4.4.1 Growth strategies
Internal growth strategies
Should City Lodge hotels or any other organisation decide that they want to grow the
business to ensure sustainable profitability, it can consider internal growth strategies.
These strategies are usually relatively low in risk as the organisation keeps its focus on
what it does well already. One such internal growth strategy is called a ‘concentration
growth strategy’. This strategy implies ‘sticking to the knitting’. It involves concentrating
on improving what one is already doing. Resources are directed towards the continued
and profitable development of a known product, in a known market, using a known
technology. What these (product, market, technology) are, will be found in the mission
statement, as they are the core components of a mission statement.
A concentration growth strategy can be accomplished by attracting new customers,
increasing the consumption rate of existing customers, or ‘poaching’ from the
competition. The City Lodge Hotel Group can offer their business travellers a package
where they can bring their spouses with them for a minimal additional fee. This is a lowrisk strategy as the hotel group is familiar with the service they provide, and know their
market and the technology that they use to provide the accommodation service.
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Concentration
Market development
Internal
Product development
Growth
Grand
strategies
Decline
Innovation
Integration
External
Corporate
combinations
Diversification
Figure 4.12 Grand strategies
The core components of a mission statement are:
■■ Product
■■ Market
■■ Technology.
The four internal growth strategies discussed in this section focus on changing one of the
core components. For example, if the strategy focuses on the product, the strategy is called
‘product development’. If the strategy focuses on the market, the strategy is called ‘market
development’.
Known skills and capabilities are a major advantage in this low-risk strategy. However,
organisations choosing this strategy are susceptible to new competitors and innovations.
City Lodge hotels also have to compete with the popular Airbnb establishments
nowadays.
Toyota’s market penetration strategy
One of Toyota’s strategies is to attract more customers in the company’s current markets.
To ensure this, Toyota offers products for every market segment. For example, the company
has sedans, trucks, SUVs, luxury vehicles, sports cars and other product lines for every
type of customer. Whenever customers’ needs change, Toyota will ensure that they have a
new product to satisfy the new need. This internal growth strategy enables the company to
maximise sales volume, which ensures profits despite relatively low selling prices.
Source: Thompson, A. 2016. Toyota’s Generic Strategy & Intensive Growth Strategies. Available at:
http://panmore.com/toyota-generic-strategy-intensive-growth-strategies (Accessed:
9 September 2016).
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Market development is a second internal growth strategy that can be considered by an
organisation that wants to grow, but still focus on what they are currently doing. Market
development is closely related to a concentration strategy. The market development
strategy also builds on existing strengths and skills. Market development is a strategy
according to which an organisation sells its present products in new markets by opening
additional new outlets or attracting other market segments. A steel manufacturer may
want to expand their operations into China due to the many business opportunities in
this large country.
Challenges when expanding into China
When preparing for a business trip to China:
■■ Carry a boatload of business cards!
■■ Bring your own interpreter
■■ Speak in short sentences
■■ Wear a conservative suit.
Source: Graham, JL. & Lam, NM. 2003. ‘The Chinese Negotiation.’ Harvard Business Review. Available
at: https://hbr.org/2003/10/the-chinese-negotiation (Accessed: 9 September 2016).
A third internal growth strategy that can be considered by an organisation who feels that
they want to compete in the arena that they know well is called ‘product development’.
Product development implies modification of existing products or additions to present
products to increase market penetration within existing customer groups. Toyota chose
this strategy when they introduced the Toyota Prius hybrid car that runs on petrol and
electricity. Nissan followed with their Nissan Leaf. Honda, Chevrolet, Lexus and Ford
are other car manufacturers that developed hybrid cars.
While the first three internal growth strategies discussed here are relatively low
in risk, the fourth internal growth strategy, namely ‘innovation’, is a riskier strategy.
Organisations choosing this strategy continuously search for original or novel ideas.
An innovative strategy can focus on creating innovative products, or on creating new
ways of getting their products to the market, or on designing new processes, or it
could focus on any other area in which they can innovate. The first bank that made
cellphone banking possible chose an innovation strategy which was a risky strategy at
that time as there was no proof that this strategy could work in the banking industry.
Virgin Active’s system to book activities at the gymnasium from your own cellphone is
another example of an innovation strategy based on improving their internal processes.
Self check-in facilities at airports are also innovative ways of speeding up the check-in
time for airline passengers.
Internal growth strategies comprise:
Concentration strategies
■■ Product development strategies
■■ Market development strategies
■■ Innovation strategies.
■■
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External growth strategies
Internal growth strategies do not always provide the answer to an organisation regarding
how to compete in an industry to remain profitable. Organisations often have to look
for growth opportunities outside of the organisation. Higher risk external growth
strategies, comprising integration and diversification, can also be considered if they
are in line with the organisation’s mission.
Backward vertical integration is the strategy followed by an organisation seeking
increased control of its supply sources. This strategy is very attractive if there is
uncertainty about availability, cost, or reliability of deliveries by suppliers. An example
of this strategy would be Sappi (a paper producer) acquiring a plantation to secure raw
material supplies for the future (see Figure 4.13). A plant nursery may want to propagate
plants themselves to ensure that they have a constant supply of plants in the nursery.
This would overcome the risk of suppliers not delivering plants on time.
When the strategy involves the acquisition of a business nearer to the ultimate
consumer, it is called ‘forward vertical integration’. An example would be a car
manufacturer purchasing a car dealership in order to sell its cars. Forward vertical
integration is an attractive alternative if an organisation is receiving unsatisfactory
service from the distributor of its products.
CNA
(bookstore)
Sappi
(paper producer)
Horizontal
integration
Forward vertical
integration
Mondi
(paper producer)
Backward vertical
integration
Purchase of
plantation
Figure 4.13 Integrative growth strategies
Horizontal integration is a long-term growth strategy by which one or more similar
organisations are taken over for reasons such as scale-of-operations benefits or a larger
market share. Such acquisitions provide access to new markets on the one hand, and get rid
of competition on the other. The integration of two paper producers, two restaurant chains,
or two world boxing associations, for example, would be classified as horizontal integration.
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Diversification growth strategies may be appropriate to organisations that cannot
achieve their growth objectives in their current industry with their current products and
markets. Often, businesses diversify to manage risk by minimising potential harm to the
business during economic downturns. Other reasons for an organisation to diversify
could include the following:
■■ The markets of current businesses are approaching the saturation or decline phase
of the product life cycle
■■ Risk can be distributed more evenly
■■ Current businesses are generating excess cash that can be invested more profitably
elsewhere
■■ Synergy is possible when diversifying into new businesses.
Concentric diversification involves the addition of a business related to an
organisation in terms of technology, markets, or products (the core components of
a mission statement). In this type of grand strategy, the new business selected must
possess a high degree of compatibility with the current businesses. The key to successful
concentric diversification is to take advantage of at least one of the organisation’s major
strengths. A major strength could be an organisation’s knowledge of the market or its
processes that can be easily adapted for other types of business or any other strength
that it possesses. Telkom’s strategy to also provide Internet access to its clients is an
example of concentric diversification based on the company’s knowledge of the market
as well as its technical know-how.
Conglomerate diversification involves seeking growth by acquiring a business
because it represents the most promising investment opportunity available. Neither
the new markets nor the new products have to be technologically related to the
products currently being offered by an organisation. This strategy can be chosen to
offset deficiencies such as seasonality, a lack of cash, or a lack of opportunities in the
marketplace. However, this strategy is not without its pitfalls, the primary one being the
lack of managerial experience in the new business.
Virgin’s diversification strategy
Virgin is a leading international investment group and one of the world’s most recognised
and respected brands. Conceived in 1970 by Sir Richard Branson, the Virgin Group has gone
on to grow successful businesses in sectors ranging from mobile telephony, travel, financial
services, leisure, music, holidays, and health and wellness. Virgin started as a small mail
order record company and has diversified successfully into many different types of business.
Source: Virgin Group Ltd. nd. Available at: https://www.virgin.com/about-us (Accessed: 9 September
2016).
4.4.2 Decline strategies
We often read about relatively successful organisations selling off some of their major
assets or even selling a division of the organisation, often resulting in the elimination
of many jobs. Edcon selling the household goods retailer Boardmans as well as CNA,
the retailer of stationery, is an example of a decline strategy where Edcon is getting
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rid of its businesses noncore to its clothing business. A further prominent example is
PepsiCo Inc, which expanded rapidly from the late 1970s to the mid 1990s through the
acquisition of several non-core business lines. Eventually PepsiCo had to sell off several
of these non-core businesses − including Pizza Hut, KFC, and Taco Bell in order to
maintain its focus on snack food and beverages.16
The situation described above could be justified in situations in which an organisation
needs to:
■■ Refocus its activities on its core businesses in order to remain or become profitable
by cutting costs drastically
■■ Eliminate operational inefficiencies
■■ Obtain funds to pay off debts
■■ Focus on other opportunities that are more attractive
■■ Restrategise during a period of economic uncertainty.
The decline strategies discussed in this section are:
■■
■■
Turnaround
Divestiture
■■
■■
Harvesting
Liquidation.
An organisation can find itself with declining profits for many reasons but still be worth
saving. South African Airways (SAA) is a good example. Poor management, inadequate
financial control, price and product competition, a high cost structure, and a change
in the pattern of demand are some of the possible factors that can lead to a decline
in profits. In such circumstances, turnaround is an appropriate strategy, as it focuses
on eliminating inefficiencies in an organisation. Top management usually looks at cost
and asset reduction to reverse declining sales and profits. In their turnaround strategy
SAA focused, amongst others, on maintaining financial stability, strengthening the
balance sheet, cost management (including overheads), revenue management, cash
management, network optimisation, performance excellence through staff engagement,
improved governance, performance management and benchmarking.17
A divestiture strategy – another decline strategy – involves the sale of a business
or a major component of it, to achieve a permanent change in the scope of operations.
Reasons for divestiture vary. It may arise when top management recognises that one
of their businesses presents a mismatch with their other businesses. Another reason
may be the financial needs of an organisation: the cash flow or financial stability of
an organisation can be greatly improved if businesses or components of businesses
with a high market value can be sold, as in the case of Edcon selling off the CNA and
Boardmans.
Harvesting is an appropriate decline strategy when an organisation seeks to
maximise cash flow in the short run, regardless of the long-term effect. Harvesting
is generally pursued in organisations that are unlikely to be sold for a profit but are
capable of yielding cash during the harvesting. Management can decrease investments,
cut maintenance, and reduce advertising and research in order to cut costs and improve
cash flow. This strategy could have detrimental effects on the organisation’s long-term
survival, though.
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In selecting liquidation as a strategy, the owners and strategic managers of an
organisation admit failure and recognise that this least attractive of all strategies is the
best way of minimising the loss to the stakeholders of the organisation. Liquidation can
therefore be seen as the most extreme form of the decline strategies in that the entire
organisation ceases to exist. Planned liquidation may be a worthwhile strategy for an
organisation, because the organisation can liquidate its assets for more cash than the
market value of its shares.
Liquidation as a strategy
Liquidation is indeed a strategy! In the case of a business failing ‘beyond repair’ it is a
simple, clean solution. There’s no transition plan to worry about and no buyers to negotiate
with.
When liquidating an organisation must list all its assets and sell them off to customers,
competitors, suppliers or in an auction. Anything that’s left from the proceeds of the sale,
after paying off all your creditors and any other shareholders in the business, belongs to the
owners of the business.
By liquidating a business one can at least extract some of the value of the business —
although it may be far from the full value of the business. One of the reasons for this
being that one can usually only sell the physical assets of the business. A business’s good
reputation, its employees, its knowhow and relationships with customers are hard to
liquidate. Even physical assets are not sold at full value.
When management decides that their only option is to liquidate the business, they have to
conduct a detailed inventory of all assets and decide on the best way to sell them.
Source: Blackman, A. 2014. ‘The Most Effective Exit Strategies For Your Business’.Business Tutorials.
Available at: http://business.tutsplus.com/tutorials/the-most-effective-exit-strategies-for-yourbusiness--cms-20492 (Accessed: 9 September 2014).
Well-known South African public institutions that were liquidated for reasons such as
poor management and fraud, include: Athletics South Africa, Walter Sisulu University,
ANC Youth League, Limpopo Province, Tshwane Metropolitan Municipality, Boxing
South Africa and many more.18 Companies that were recently liquidated in South Africa
include 1Time Airlines as well as the Southern Kings (the Super Rugby franchise which
is currently under provisional liquidation).19
Although the different strategies discussed above are treated as separate, organisations
can implement multiple grand strategies simultaneously.
4.4.3 Corporate combinations
Recently, four corporate combination strategies have gained popularity in South
Africa, Africa and many countries abroad. One such corporate combination strategy
that is very popular in South Africa is called a joint venture ( JV). Businesses that want
to bid for a specific tender in South Africa but do not have all the necessary skills,
resources, infrastructure or capital often look for partners with whom they can join
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forces through joint ventures. A JV has the advantage that the partners are not trapped
in long-term business partnerships or shareholding scenarios. JVs are an integral
part of the South African business scene due to the importance of broad-based black
economic empowerment (B-BBEE). In South Africa, the amended B-BBEE Codes of
Good Practice have come into effect on 1 May 2015. These new codes place a lot of
emphasis on ownership in business. ‘Ownership’ accounts for 25 points on the B-BBEE
scorecard and it is also a priority element. If a business is not going to score any points
on ownership, they will struggle to achieve a good B-BBEE level. Through JVs business
organisations can overcome this obstacle by joining forces with black-owned companies
to increase their ‘ownership’ score.20
Broad-based black economic empowerment (B-BBEE) in South Africa
The fundamental objective of the broad-based black economic empowerment Act 53 of 2003
is to advance economic transformation and enhance the economic participation of black
people in the South African economy.
Criteria against which businesses in South Africa are rated on the generic B-BBEE scorecard include:
1. Ownership
2. Management control
3. Employment equity
4. Skills development
5. Preferential procurement
6. Enterprise development
7. Socio-economic and sector-specific contributions.
Source: BEE Navigator. nd. Available at: http://www.bee-scorecard.co.za/bee_information.html
(Accessed: 9 September 2016).
A strategic alliance is when two or more businesses join resources in order to attain
a specific goal. In May 1997, Air Canada, Lufthansa, Scandinavian Airlines, THAI and
United Airlines established the Star Alliance network. For the first time these carriers
began working together to offer airline passengers worldwide reach and a better travel
experience.21 Airlines such as these are usually not in competition for the same routes
but provide similar products or services that are directed toward the same target
audience. The Protea Hotel Group has formed a strategic alliance with Budget car
rentals. This strategic alliance enables both businesses to gain competitive advantage
through access to the strategic partner’s resources, markets, databases, technologies and
so on. Other advantages that a strategic alliance offers both partners include growth
through expansion, sharing of technical and operational know how, more time for each
partner to focus on its core business, cost reduction and better exposure to customers.
However, strategic alliances do not only provide advantages to the partners. One of the
major disadvantages of a strategic alliance could be incompatible cultures of the two
organisations. This could cause major conflict between managers and employees.
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Star Alliance partners
The 28 member airlines of the Star Alliance network are amongst the most respected in the
airline industry. To become a member means that an airline must comply with the highest
industry standards of customer service, security and technical infrastructure. Currently
airlines that are members in the Star Alliance partnership include, amongst others:
■■ South African Airways
■■ Air New Zealand
■■ Air Canada
■■ Ethiopian Airways
■■ Egypt Air.
Source: Star Alliance. nd. Available at: http://www.staralliance.com/member-airlines (Accessed: 9
September 2016).
While only some resources of each of the companies are used in a joint venture or a
strategic alliance, mergers and acquisitions involve the total pooling of resources
by two or more organisations. Business organisations grow in two main ways, either
organically or by merging with or acquiring other business organisations. Merger and
acquisition strategies therefore bring separate business organisations together to form
larger ones. The reasoning behind the forming of a merger or an acquisition is that ‘one
plus one makes three’. The two companies together are more valuable than two separate
organisations. Mergers and acquisitions are particularly alluring to management when
times are tough. Organisations may want to buy other business organisations to create a
more competitive and cost-efficient organisation. Both organisations may hope to gain
a greater market share or achieve greater efficiency. Target organisations will often agree
to be purchased when they know they cannot survive alone.
Although the terms ‘merger’ and ‘acquisition’ are often used interchangeably, these two
terms do mean slightly different things. A merger takes place when two organisations –
often of about the same size – agree to operate as a single new organisation. Daimler-Benz
and Chrysler ceased to exist when the two organisations merged to form a new company,
DaimlerChrysler.
When one organisation takes over another and clearly establishes itself as the new owner,
the purchase is called an acquisition. From a legal point of view, the target (‘weaker’)
organisation ceases to exist. The buyer organisation ‘swallows’ the other and the
buyer’s shares continue to be traded.
By merging or acquiring another organisation, management hopes to gain the following
benefits:
■■ Staff reductions
■■ Economies of scale
■■ Access to new technology
■■ Higher sales
■■ Visibility in the industry.
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Many mergers and acquisitions fail because of the incompatibility of the different
cultures of the organisations involved. People issues can also sink the new organisation.
The merging organisations may have treated their employees differently before the
merger or acquisition took place. This ‘differentness’ can cause frustration and even
anxiety in the new organisation where the two different organisational cultures will be
fighting for dominance.
Proposed Sun International merger
The proposed merger between Sun International Hotels and Peermont (hotel and casino
operator) was prohibited by the Competition Commission which found, amongst other things,
that the transaction would prohibit competition in the central Gauteng market and that
‘there could be coordination of behaviour to the detriment of consumers’.
Source: Fin24. nd. Available at: http://www.fin24.com/Companies/TravelAndLeisure/proposed-suninternational-merger-removed-from-roll-20160308 (Accessed: 9 September 2016).
The success of a merger and/or acquisition is by no means assured. On the contrary,
a majority fall short of their stated goals and objectives. While some failure can be
explained by financial and market factors, a substantial number can be traced to human
resource issues and activities.22
4.5 The selection of grand strategies
The selection of a grand strategy starts with the
identification of the recent grand strategy or strategies.
External factors (such as a change in legislation) and
internal factors (such as the organisation’s management
competence and experience) should be well understood
when considering different strategies. So should the
behavioural considerations affecting the choice of
strategies in an organisation (see Section 4.6) as they also
play a major role in selecting a strategy or combination
of strategies for an organisation. The choice of a strategy
may seem like a very scientific process, but it is far from
that. The choice of a strategy reflects the current
strategists’ preferences in terms of risk that they are
comfortable with, time horizon of the strategy, and
the strategists’ personalities.
Change the composition of the team of strategists
who have to choose a strategy and you will most
probably find that the new team chooses a different
strategy or set of strategies.
Organisations offering one product or service
need to choose a strategy for this one business only.
However, the choice of a strategy for a multibusiness
organisation is more complex.
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Identify the
present grand
strategy
Conduct a
portfolio analysis
Select a grand
strategy
Evaluate the
selected strategy
Figure 4.14 The grand
strategy selection process
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Consider again the City Lodge Hotel Group. The group comprises four distinct brands
of hotels, namely the Courtyard (four stars), City Lodge (three stars), Town Lodge
(two stars) and Road Lodge (one star).
We refer to these four different hotels as the City Lodge Hotel Group’s ‘portfolio of
products’. Knowing how to manage multiple businesses or units calls for a knowledge
of portfolio management. The portfolio approach is a useful aid to multiple business
organisations in which each business is managed as a separate business or profit centre.
The portfolio approach provides a visual way of identifying and evaluating alternative
strategies for the allocation of corporate resources. Although many different approaches
to portfolio management can be identified, we shall focus only on the Boston Consulting
Group growth/share matrix, a widely used approach in this regard.
In the Boston Consulting Group growth/share matrix (or the BCG growth/share
matrix), each of an organisation’s strategic business units (SBUs) is plotted according to its:
■■ Market growth rate (percentage growth in sales)
■■ Relative competitive position (market share).
High
City Lodge Hotel Group will plot their four brands (Courtyard, City Lodge, Town
Lodge, Road Lodge) according to each business unit’s market growth rate and relative
competitive position in the industry. See Figure 4.15 for an example. The horizontal
axis represents the market share of each SBU of a fictitious organisation relative to the
industry leader. The industry leader is the organisation with the biggest market share
in that specific industry. The vertical axis represents the annual market growth rate for
each SBU’s particular industry. SBUs are plotted on the matrix once their market growth
rates and relative market shares have been computed. Figure 4.15 represents the BCG
matrix for a company with multiple SBUs, such as South African Breweries or Edcon or
the City Lodge Hotel Group. Each circle represents a business unit. The size of the circle
represents the proportion of corporate reserves generated by that SBU.
STARS
QUESTION MARKS
Market growth rate
SELECT FEW
REMAINDER
DIVESTED
Net users of
resources
Net suppliers of
resources
DOGS
Low
CASH COWS
High
HARVESTED/LIQUIDATED
Relative competitive position (market share)
Low
Figure 4.15 The Boston Consulting Group growth/share matrix
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On the BCG matrix, businesses are classified as stars, cash cows, question marks, and
dogs. Stars are businesses in rapidly growing markets with large market shares. These
businesses should be quite profitable. They require substantial investment to maintain
their dominant position in a growing market. This requirement is often in excess of what
can be generated internally.
If an SBU has a low market growth but a high market share it often generates a large
amount of cash that can be used to support other SBUs, especially question marks. These
cash-generating businesses are called ‘cash cows’ because they can be ‘milked’ for resources
to support other businesses. Cash cows are the foundation of the corporate portfolio.
Question marks are high-growth, low-share SBUs that normally require a lot of cash
to maintain. Management must decide whether they want to invest additional cash to
convert these SBUs into stars or to phase them out.
The BCG matrix calls SBUs with a low market share and market growth the ‘dogs’
in an organisation’s portfolio. A dog is usually a candidate for divestiture or liquidation.
Such an SBU is in a saturated, mature market with intense competition and low profit
margins.
If a portfolio analysis is conducted, management should be in a position to select a
grand strategy for the corporation. A strategy for ‘dog’ businesses, for example, would
be to cut on maintenance or research and development — a strategy called ‘harvesting’.
An alternative to the BCG matrix
Many alternatives to the BCG matrix exist. A website that contains information on the GE/
McKinsey matrix can be accessed at http://www.mgmtguru.com/mgt499/TN9_4.htm.
Management needs to ask and answer several searching questions about its strategies
in order to evaluate the strategies selected. The most important question is whether the
strategies will achieve the mission and long-term goals of the organisation.
4.6 Factors affecting strategic choice
The choice of a grand strategy or strategies requires a clear decision that allows an
organisation to attain its goals. If an examination of the different strategies identifies
a clearly superior strategy, the decision is relatively simple. However, such clarity is
the exception which makes most decisions in this regard judgemental. Several factors
influence the decision to implement a specific strategy. We shall discuss some of the
more important factors further on in this section.
First, corporate governance plays a major role in strategic planning and therefore
in the choice of a strategy or combination of strategies. The King Report on Corporate
Governance in South Africa acknowledges that there is a move away from the single
bottom line (that is, profit for shareholders) to a triple bottom line which embraces
the economic, environmental and social aspects of a company’s activities. The board
is responsible for ensuring that the organisation has implemented an effective ongoing
process to identify risk, measure its potential impact on the environment and society
against a set of assumptions, and then activate what it believes is necessary to manage
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these risks proactively. The board should therefore decide on what risk that company is
prepared to take and the risks it will not take in pursuance of its mission and long-term
goals.23
The King IV Report on Corporate Governance
The Institute of Directors in Southern Africa (IoDSA) and the King Committee have made the
draft version of the latest King Report, King IV, available for public comment on 15 March
2016. The King IV draft document can be downloaded at http://bit.ly/KingIVdraft.
The personality of the Chief Executive Officer (CEO) plays a major role in the choice
of a strategy.24 CEOs who focus on ‘what is in it for me’ tend to make bolder strategic
choices to attract attention, resulting in big wins or big losses. Good CEOs and other
leaders, however, will put the success of the organisation above their own personal
aspirations.
Factors that can influence the choice of a strategy are:
■■ Corporate governance guidelines pertaining to risk management
■■ Previous strategies chosen
■■ Dependence on external factors
■■ Attitude towards risk
■■ Personalities of strategists
■■ Alignment with the organisation’s mission and long-term goals
■■ Proper timing.
Some organisations are extremely dependent on one or more external factors, such as
suppliers, customers, or competition. These organisations may have to choose a strategy
that they would normally not choose in order to maintain their relationship with specific
external factors.
Top management’s attitude to risk – and more specifically the chief executive officer’s
attitude – strongly influences strategy selection. Where attitudes favour risk, the range
of strategic choices expands; where management is risk-averse, strategic choices are
limited, as risky alternatives are eliminated before strategic choices are made. Riskaverse managers will probably consider internal growth strategies first, followed by
decline strategies. Corporate combinations are high-risk strategies and will probably
not be considered by a team of risk-averse managers.
Pressures from an organisation’s mission, long-term goals, and culture heavily
influence strategic choice. The mission statement and all goals have to be analysed to
determine whether a specific strategy fits in with the direction and entire set of goals
that management chooses. Furthermore, if a strategy is compatible with the norms and
values (culture) shared by management and employees, the likelihood of success is
greater.
The success of an organisation’s strategies also depends on proper timing. A
seemingly good strategy may be disastrous if undertaken at the wrong time. A
construction company that decides to concentrate on the first-time home owner for the
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following two years may be detrimentally affected by a sharp increase in interest rates.
The same strategy may be very successful if the organisation decides to hold off entering
this market until interest rates have settled down.
4.7 Summary
The strategic plan is the ‘guiding star’ that should provide the focus of planning at tactical
and operational levels. Strategic planning addresses issues such as the formulation of
the vision and mission, the assessment of the external and internal environments, the
formulation of long-term goals, and the choice of strategy. The strategic plan is futurefocused and often covers a period of five years. In some industries – such as the oil
exploration industry – the strategic plan may even cover periods up to 30 years.
In order to clarify strategic planning, we discussed this concept as a process,
starting with the formulation of an organisation’s vision and mission, then assessing the
organisational capabilities (strengths and weaknesses) and threats and opportunities
from the external environment and, finally, formulating long-term goals for the
organisation. Once these steps have been completed, management is in a position to
choose a realistic strategy that can lead to the attainment of the organisation’s mission
and goals. Management will first decide on a generic strategy (low-cost leadership,
differentiation or focus strategy) before they choose specific business/grand strategies
for their different business units.
We discussed various grand strategies that organisations can implement. These
strategies are either growth, decline or corporate combination strategies.
In the examination of the different strategies, it has been evident that a superior
strategy seldom comes to the fore, which makes most decisions in this regard judgemental.
We therefore also discussed behavioural considerations that affect strategic choice.
References
1. Huffington Post. nd. Available at: http://www.huffingtonpost.com/2011/03/09/toyotassales_n_833322.html (Accessed: 10 September 2016).
2. Uber. nd. Available at: https://www.uber.com/cities/ (Accessed: 10 September 2016).
3. Ethiopian Airlines. nd. Available at: http://www.ethiopianairlines.com/corporate/
strategic- (Accessed: 10 September 2016).
4. Lipton, M. 1996. ‘Demystifying the development of an organisational vision.’ Sloan
Management Review, (Summer), pp 84–85.
5. McMurray University. nd. Available at: http://www.mcm.edu/~lapointp/mission
statementcomponents.html (Accessed: 10 September 2016).
6. Biotech and Pharmaceutical Industries. nd. Available at: http://pharma.about.com/od/
Generics/a/Top-Generic-Drug-Companies.htm (Accessed: 10 September 2016).
7. Strategic Management Insight. nd. Available at: https://www.strategicmanagement insight.
com/topics/resource-based-view.html (Accessed: 10 September 2016).
8. World Coal Association. nd. Available at: http://www.worldcoal.org/coal/what-coal
(Accessed: 10 September 2016).
9. Product Life Cycle Stages. nd. Available at: http://productlifecyclestages.com/productlife-cycle-examples/ (Accessed: 10 September 2016).
10. Butler Consultants. nd. Available at: http://research.financial-projections.com/
IndustryStats-GrossMargin.shtml (Accessed: 10 September 2016).
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11. Scenario planning reconsidered. Harvard Management Update, (May 2006), pp 1–4.
12. Kaplan, RS & Norton, DP. 1992. ‘The Balanced Scorecard – measures that drive
performance’. Harvard Business Review, ( January/February), pp 71–79.
13. Kaplan, RS & Norton, DP. 2004. Strategy maps: Converting intangible assets into tangible
outcomes. Boston: Harvard Business School Press.
14. Porter, ME. 1980. Competitive strategy: Techniques for analyzing industries and competitors.
New York: Free Press.
15. Cleverism. nd. Available at: https://www.cleverism.com/stand-crowd-examples-differen
tiation/(Accessed: 10 September 2016).
16. Financial Times. nd. Available at: http://lexicon.ft.com/term?term=corporate-divestiture
(Accessed: 10 September 2016).
17. Parliamentary Monitoring Group. nd. Available at: https://pmg.org.za/committeemeeting/16966/ (Accessed: 10 September 2016).
18. Business Day Live. nd. Available at: http://www.bdlive.co.za/opinion/columnists/
2013/09/04/ten-bankrupt-south-african-public-institutions (Accessed: 10 September
2016).
19. Sport24. nd. Available at: http://www.sport24.co.za/Rugby/ep-kings-confirm-provisionalliquidation-order-20160310 (Accessed: 10 September 2016).
20. SA-Tenders. nd. Available at: http://www.sa-tenders.co.za/content/hints-tips-andnews/5-rules-remember-when-bidding-through-joint-venture (Accessed: 10 September
2016).
21. South African Airways. nd. Available at: http://www.flysaa.com/za/en/footerlinks/
aboutUs/starAlliance.html (Accessed: 10 September 2016).
22. Schuler, R. & Jackson, S. 2001. HR Issues and Activities in Mergers and Acquisitions.
European Management Journal, 19(3): 239–253
23. Institute of Directors Southern Africa King IV. 2016. Draft King IV™ Report on Corporate
Governance for South Africa 2016. Available at: http://bit.ly/KingIVdraft (Accessed: 10
September 2016).
24. Sage Journals. nd. Available at: http://asq.sagepub.com/content/52/3/351.short
(Accessed: 10 September 2016).
Case study
Sappi Limited
The following excerpt comes from the Sappi Annual Report for 2015.
Sappi is a global company focused on providing dissolving wood pulp, paper pulp and paperbased solutions to its direct and indirect customer base across more than 160 countries. Our
dissolving wood pulp products are used worldwide by converters to create viscose fibre for
fashionable clothing and textiles, acetate tow, pharmaceutical products as well as a wide
range of consumer and household products. ➜
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Our market-leading range of paper products includes coated fine papers used by printers,
publishers and corporate end users in the production of books, brochures, magazines,
catalogues, direct mail and many other print applications, casting release papers used by
suppliers to the fashion, textiles, automobile and household industries, and newsprint,
uncoated graphic and business papers and premium quality packaging papers and tissue
products in the Southern Africa region. The wood and pulp needed for our products are
either produced within Sappi or bought from accredited suppliers. (Sappi’s outputs are
illustrated in the picture that follows.)
Sappi has a tradition of innovating and developing new products to meet local demand. As
part of our strategy to rationalise declining business, focus on business where we have a
competitive advantage and strengthen our balance sheet, we entered into agreements to
sell both our Enstra and Cape Kraft Mills. After the end of the financial year, we received
approval from the Competition Commission and both transactions were realised in October
and November 2015 respectively.
Source: Sappi. 2015. Sappi Annual Report. Available at: https://cdn-s3.sappi.com/s3fs-public/slices/
downloads/2014-Sappi-Integrated-Report.pdf (Accessed: 9 September 2016).
Case study questions
1. Do you consider the above excerpt to be strategic, tactical or operational of nature?
Provide sound reasons for your answer.
2. Briefly discuss the internal growth strategies that the case study refers to.
3. Identify and discuss the decline strategy that the above excerpt refers to.
4. Based on the information provided on Sappi in the case study, why did the company
decide to sell some of its businesses?
Multiple-choice questions
Question 1
The plan that provides direction to all decisions made in an organisation is called a
plan.
1. tactical
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2. operational
3. strategic
4. marketing
Question 2
Which of the following best describes strategic planning?
1. Strategic planning focuses on the present
2. Strategic planning is also called tactical planning
3. Strategic planning focuses on aligning the organisation with its changing environment
4. Strategic planning focuses mainly on improving the internal processes in an
organisation
Question 3
is ‘to become the world’s leading consumer
The Ford Motor Company’s
company for automotive products and services’.
1. long-term goal
2. strategy
3. vision
4. mission
Question 4
‘We provide environment-friendly educational toys to pre-school children through our
.
franchised outlets’ is an example of a
1. vision statement
2. mission statement
3. long-term goal
4. strategy
Question 5
The core components of a mission statement are
1. product, profit, productivity
2. profit, people, productivity
3. productivity, market, technology
4. product, market, technology
.
Question 6
How many of the following are approaches that can be used to determine an organisation’s
strengths and weaknesses (internal assessment)?
■■ Functional approach
■■ Value-chain approach
■■ Resource-based view
■■ Financial ratios
1. one
2. two
3. three
4. four
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strategic planning
Question 7
The picture from the Sappi Annual Report 2015 depicts part of Sappi’s
1. secondary activities
2. value-chain activities
3. balanced scorecard
4. portfolio matrix
Question 8
The resource-based view of an organisation focuses on
an organisation’s capabilities.
1. tangible assets
2. intangible assets
3. organisational capabilities
4. all of the above
Question 9
The external business environment comprises the
1. macro-environment
2. micro-environment
3. macro- and market environments
4. macro-, market and micro-environments.
.
when assessing
.
Question 10
Which of the following belong together?
1. Internal growth strategy, retrenchment, corporate combination
2. External growth strategy, horizontal forward integration, vertical integration
3. Decline strategy, turnaround, product development
4. Corporate combination, joint venture, internal growth
Paragraph questions
Question 1
Explain what a mission statement encompasses by looking at the following:
1. What a mission statement is
2. The core components of a mission statement
3. Additional components of a mission statement.
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Question 2
Explain what the resource-based view of an organisation encompasses by specifically
focusing on what makes a resource valuable to an organisation.
Question 3
‘All industries are basically the same and the profit potential in all industries are therefore
also the same.’ Comment on this statement. Base your arguments on Porter’s five forces
model.
Question 4
Diagrammatically depict the four dimensions of the balanced scorecard (BSC) and
briefly explain each of the dimensions.
Question 5
State the differences between the following corporate combination strategies:
1. Joint venture
2. Strategic alliance
3. Merger
4. Acquisition.
Essay question
Diagrammatically depict and explain how an organisation can formulate a strategic
plan. Your answer must deal with all of the components of a strategic plan.
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5
THE
PURPOSE
OF THIS
CHAPTER
LEARNING
OUTCOMES
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Planning
In Chapter 4 we looked at strategic planning and stated that the strategic
plan of an organisation guides all other plans – and decisions – in
the organisation. Strategic plans are formulated by top management.
However, middle and lower management have to translate these strategic
plans into plans – and goals – for their own departments and sections
within the organisation.
This chapter gives an overview of planning as a management function.
It also looks at goal formulation as it is an integral part of planning. The
chapter examines the nature of planning and the reasons why managers
need to plan. It explains how planning is the pivot around which
the other management functions revolve. It also looks at the various
kinds of plan that managers formulate, namely strategic (discussed in
Chapter 4), tactical, and operational plans. A logical planning process
is demonstrated which should enable managers to plan more effectively.
The goals of an organisation are depicted as a hierarchy to ensure
proper alignment of all the goals at the different levels and areas of the
organisation. The goals must be clear and easy to understand, therefore
this chapter also looks at the criteria for well-formulated goals. Clearly
defined goals make effective control possible. If goals are clearly defined,
deviations from the planned goals can be detected in time and rectified
to ensure that the organisation remains on course.
Despite the importance of planning and goal formulation, many
managers are reluctant to plan. This reluctance can, however, be
overcome by a sound understanding of what planning and goal
formulation encompasses and by knowing which tools are available to
use in the planning and goal-formulation process.
This chapter will enable learners to:
Explain the nature and importance of planning – including goal
formulation – as a management function
■■ Differentiate between strategic, tactical, and operational plans and
goals
■■ Depict and discuss the hierarchy of plans and goals in an
organisation
■■ Differentiate between standing and single-use plans
■■ Defend the use of planning and goal-formulating tools
■■ Apply the management by objectives (MBO) process to set goals at
the individual level
■■
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■■
■■
■■
KEY
CONCEPTS
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
Translate the organisation’s balanced scorecard (BSC) into a
scorecard for their department, section and for individuals (see
Chapter 4)
Identify and discuss barriers to planning
Recommend ways of overcoming planning barriers.
Balanced scorecard
Budgets
Corporate governance
Forecasts
Gantt chart
Intermediate plans
Long-term plans
Operational planning
Planning
Planning process
Policies
Programme
Programme evaluation and review technique (PERT)
Project
Rules
Scheduling
Shareholders
Short-term plans
Single-use plans
Stakeholders
Standard operating procedures
Standing plans
Strategic planning
Tactical planning
Zero-based budgeting (ZBB)
5.1 Introduction
All managers engage in planning and goal formulation. In small organisations managers
often plan informally while planning in larger organisations is done very formally and
plans and goals are carefully documented. However, planning is not done only by
business managers. The mountain climber has to plan a route to the top of the mountain.
The architect has to draft a plan that the building contractor can interpret when building
a house. The Springbok rugby selectors plan for possible replacements due to injury or
poor performance.
Top management in business organisations has to formulate plans (strategies) and
goals that will enable the organisation to survive in a very turbulent environment.
Middle management (the financial, research and development, marketing manager, and
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so on) has to translate top management’s plans and goals into plans and goals for their
functional areas (departments). First-line managers then translate these into plans and
goals for specific sections in the organisation.
Despite the importance of planning as a management function, it offers both pros
and cons to organisations that have to survive in the modern business environment that
is constantly changing. On the one hand, planning offers a focus for all activities in the
organisation. On the other hand, planning may create too much rigidity and may not
be able to accommodate changes that occur in the business environment. Airlines must
plan to ensure that they match the demand for specific flights, but their plans should
be flexible enough to accommodate unexpected changes such as adverse weather
conditions, strikes by disgruntled workers and a shortage of fuel at certain destinations.
When we use the term ‘planning’ in this chapter, we refer to formal planning
which includes goal formulation as it is an integral part of planning. Formal planning
encompasses developing a comprehensive hierarchy of plans and goals to integrate and
coordinate activities in the organisation. The strategic plan (including the strategic
goals) serves as the focal point for all other plans and goals; the strategic plan must
be cascaded down into medium-term tactical plans and goals; these must in turn be
translated into short-term operational plans and goals. A hierarchy therefore depicts
these three types of plan and goal. Planning and goal formulation is concerned with
what the organisation has to do as well as how it is to be done.
5.2 The nature and importance of planning
The purpose of a profit-seeking organisation – such as Sasol, Woolworths, Telkom, Pam
Golding Properties and the local hardware store – is to realise an above-average return
for its shareholders and to satisfy the claims of its other stakeholders. These stakeholders
include employees, customers, suppliers, the community, and the government. The
objective of every plan made by managers in these organisations is therefore to facilitate
the attainment of this purpose.
Meticulous planning to build Africa’s
largest shopping mall
A new mall in Midrand, Gauteng with a building area equivalent to the size of 65 rugby
pitches was opened in April 2016.
Named the ‘Mall of Africa’, it is the largest mall in South Africa built in a single phase. The
complex accommodates 261 tenants, including Edgars, Woolworths, Truworths, Checkers,
Ster-Kinekor, and Game.
To open the mall on time and within budget, required meticulous planning. However, the plans
also had to accommodate unforeseen challenges, such as late delivery of building material,
poor weather conditions that interrupted the building, non-availability of certain building
material, a shoot-out between taxi drivers who transported people to the mall, and so on.
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Planning occurs in all organisations and at all levels of the organisation. Planning is the
task of all managers — from top management right down to the most junior manager
in the organisation. However, the kinds of plan that managers at different levels of the
organisation are responsible for vary in terms of such aspects as focus or time span
covered (see Section 5.3).
Time is money, and therefore planning should not be done at an unnecessarily high
cost to the organisation. Managers have to make sure that the plans they formulate are
effective. The concept of effectiveness in planning implies much more than the ratio of
input to output in terms of Rand, labour hours, or units of production. The effectiveness
of a plan also includes such values as individual and group satisfaction, customer
satisfaction, productive use of the organisation’s scarce resources and concern for the
environment.
In South Africa, with its severe shortage of suitably skilled managers (see Chapter 1),
planning plays a crucial role in managing an organisation towards success. Companies
in the mining industry in South Africa have to plan carefully for the future to ensure
that they have suitably skilled managers and workers in the mines. Planning needs to
take into consideration the severe and critical shortage of skills in the mining industry
in South Africa in ventilation, rock engineering, mine planning, mineral resource
evaluation, and mineral asset valuation.1
Planning forces managers to set clear goals and to be proactive – and not reactive
– in pursuing these goals. It forces management to consider possible changes that may
occur and then prepare timeously for these changes. Planning ensures that managers
and workers focus their efforts on the attainment of the same goals.
Sound plans are also essential when monitoring the progress of an organisation
towards goal attainment. Actual results can be measured against clearly stated goals and
deviations from the goals can be identified and rectified timeously.
The increasing complexity of organisations is another factor that makes planning
essential. Modern organisations often comprise a network of subcontractors who work
for the organisation on a specific project. Once the project is completed, they move
on. These subcontractors need to understand the plans and goals of the organisation to
ensure that they align their activities with them. Many companies employ thousands
of temporary staff during peak seasons. Edcon, for instance, has 20 000 permanent
employees and 25 000 temporary employees. It is essential that these temporary
employees should also be well informed about the goals of Edcon as they play a major
part in the success of the company.2
Managers also need to plan for possible strikes by workers, water shortages, electricity
outages, potential mal-functioning of machinery, a shortage in supplies, late deliveries
of supplies, and so on. Many more reasons can be cited to emphasise the importance
of planning for organisations in South Africa and the rest of Africa. However, the above
should convince the critics of planning of the importance of this management function
in organisations.
5.3 Kinds of organisational plan
The kinds of plan – and goals – made by top management, middle management, and
lower management (supervisors) differ in many respects. Top management typically has
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to formulate plans (strategies) for the entire organisation, middle management drafts
plans (tactics) for specific functional areas in the organisation (such as the finance
or marketing departments) to support top management’s plans, lower management
formulates operational plans for their specific smaller sections to support middle
management’s plans.
To formulate realistic plans, managers need to understand that the different kinds
of plan – and goals – in an organisation form a hierarchy. This hierarchy is illustrated in
Figure 5.1 and resembles a pyramid. In all pyramids (and hierarchies) the stability of
the entire structure depends on each row of building blocks supporting the row above
it and next to it. The entire pyramid or hierarchy will collapse if one row of building
blocks is out of place. This is exactly how the different kinds of organisational plan and
goal support one other.
5.3.1 Strategic plans
Strategic plans are plans designed to ensure that the organisation as a whole is aligned
with the changing external environment (see Chapter 4). These plans are formulated by
top management and focus on the entire organisation. Strategic planning for a financial
institution will focus on issues such as: should the organisation expand into other
countries or should they close some of their less profitable branches? Or should the
financial institution change from a traditional brick-and-mortar bank to a technologydriven bank? Or maybe the financial institution should merge with another institution
to dominate the current market. To realise such changes, careful planning is essential.
Planning at strategic level includes:
■■ Creating a vision (dream) of the future for the entire organisation
■■ Translating the vision into a realistic mission statement
■■ Translating the mission statement into measurable long-term goals
■■ Choosing a strategy/strategies to attain the above (explained in depth in
Chapter 4).
Strategic planning reflects the following characteristics:
■■ Strategic plans have an extended time frame, often more than five years. However,
the time frame depends on the type of industry and may be longer or shorter than
five years. In the fashion industry strategic planning will cover a period of only a
few months whereas strategic planning in the forestry industry may cover periods
of thirty or forty years.
■■ They focus on the entire organisation and not just certain departments in the
organisation. The City Lodge Hotel Group’s strategy to expand its operations into
Nairobi with its Fairview hotel, had an influence on the entire organisation as its
systems, processes etc had to adapt to this newcomer in its portfolio of hotels.3
■■ Strategic plans look at reconciling the organisation’s resources with threats and
opportunities in the external environment.
■■ They focus on creating and maintaining a competitive advantage for the organisation.
■■ These plans also take synergy into consideration. Where synergy between an
organisation’s strategic business units cannot be optimised, top management may
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plan to close down some of the business units or sell them. This would be the
case where Edcon (clothing retailer) sells off CNA bookstores and Boardmans
(household goods retailer) as these are two non-core businesses for Edcon.
CHANGES IN THE ENVIRONMENT
Structuring the organisation
Determining what kind of
people we need
necessary for
Plans (goals)
Determining how we
should lead them
Furnishing standards
of control
Figure 5.1 Importance of planning
Strategies do not attempt to outline in depth and in detail how an organisation is to
accomplish its goals. Tactical and operational plans are therefore needed to implement
the strategies at middle and lower management levels. The balanced scorecard (BSC)
is a tool that can be used at strategic, tactical and operational level to ensure that all
divisions and individuals in the organisation focus on the same key performance areas.
5.3.2 Tactical plans
Whereas strategic plans focus on the entire organisation and its interaction with
the external environment, tactical planning deals primarily with people and action
to implement the strategic plans. The focus could be on the functional areas in an
organisation, such as the marketing, finance, operations, human resources, purchasing,
research and development, and other functions. A tactical goal of the marketing manager
for a chain of bookstores could be to increase its brand recognition amongst university
students to 30 per cent within the next three years. In the same chain of bookstores the
operations manager may have a goal to redesign the layout of each bookstore within the
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133
same period. The financial manager in this chain may have a tactical goal to earn at least
ten per cent on excess cash over the following two years.
Table 5.1 explains how tactical plans differ from strategic plans.
Table 5.1 The difference between strategic and tactical plans
Type of plan
Focus
Time frame
Specificity
Information
required
Strategic
Entire
organisation
Long term
Directional,
broad
Difficult
to gather
information
Tactical
Functional areas
Medium term
More specific
Information
more focused
on specific
issues
Of importance in formulating tactical plans for the different functional areas is the issue
of synergy. All of these plans should be congruent – that is, they should contribute to
the attainment of the organisation’s overall goals. This could mean that some of the
tactical plans – and goals – will have to be reformulated to accommodate the plans from
other functional areas.
5.3.3 Operational plans
Operational plans are developed by lower level managers. In some industries, such as
the mining industry, lower level managers are called supervisors. These plans focus on
carrying out tactical plans to achieve operational goals. Operational plans are narrowly
focused and have relatively short time horizons (monthly, weekly, and day to day). For
instance, the supervisor at a mine may formulate an operational plan to ensure that all
work shifts for the next week are properly staffed. An airline pilot will complete a flight
plan for each flight to ensure a safe and comfortable flight for the crew and passengers.
There are two basic forms of operational plan, namely single-use plans and standing
plans. Single-use plans are used for non-recurring activities, such as the refurbishment
of some of the City Lodge hotels in the Western Cape.
Plans that remain roughly the same for long periods of time are called ‘standing
plans’. Specific types of single-use and standing plan are illustrated in Figure 5.2.
A programme is a single-use plan for a large set of activities. The upgrading of all
national and international airports in South Africa by Airports Company South Africa
(Acsa) before a specified date is an example of such a programme. A programme
manager manages a portfolio of projects and is responsible for the programme meeting
its deadlines. A programme manager will have project managers working under him or
her.
A programme can consist of different projects. The upgrading of all nine airports in
South Africa can be seen as nine separate projects, each with its own project manager. A
project plan guides each project and should state clearly the scope of the project, time,
cost, risk and quality issues relating to the specific project.
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A project goes through the following phases:4
1. Initiating
2. Planning
3. Executing
4. Controlling
5. Closing (see Figure 5.2).
Project management and general management share many similarities but also have
differences. General management focuses on the long-term survival of an organisation;
project management has a definite beginning and end. A project is also a unique, onceoff undertaking whereas general management is an ongoing process.
Initiating
Closing
Controlling
Planning
Executing
Figure 5.2 The five phases of a project
Before starting on the upgrading of the nine airports in South Africa, plans had to
be submitted to indicate the cost of upgrading the existing runways, upgrading the
departure halls, the number of workers required to complete the projects, the raw
material needed to upgrade the parking areas, cashflow planning and so on. A budget is
frequently thought of in financial terms only. However, budgets are also used to plan the
allocation and utilisation of human, physical, and information resources.
Programmes, projects, and budgets are all single-use plans. They require of the
manager to make unique decisions and to solve unique problems. Policies, standard
procedures and methods and rules, on the other hand, are standing plans that have
already been approved and must be applied consistently throughout an organisation.
Policies are general statements that guide decision-making in an organisation.
Policies limit an area in which decisions are to be made and ensure that the decisions are
consistent with the organisation’s goals. A mining company may have a policy regarding
the appointment of migrant workers during peak demand times. All the shift bosses will
have to comply with this policy should they want to appoint additional workers during
these times.
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Strategic plans
Tactical plans
Operational plans
Non-recurring activities
Recurring activities
Single-use plans
Standing plans
Programmes
Policies
Budget
Projects
Standard
procedures and
methods
Rules
Figure 5.3 Types of operational plan
Standard procedures and methods refer to the steps or tasks that must be taken to
achieve a specific purpose. In a garage workshop the procedure to deal with cars booked
for a service could be as follows: cars booked in prior to 06h30 will be serviced the same
morning; after servicing the car it must be quality checked by the workshop manager.
If the workshop manager is satisfied with the work done, the car must be washed. Only
after it has been cleaned will the receptionist phone the owner to collect it. There will
also be standard procedures for a car booked in late. The standard procedure ensures
that the service that is provided by the workshop is of consistent quality.
A rule is a statement that either prescribes or prohibits action by specifying what an
individual may or may not do in a specific situation. For instance, a restaurant may have
a rule that all waiters must leave their personal belongings at the reception desk before
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starting their shift. In the intensive care unit of a hospital there may be a rule that all
nurses must wear disposable, sterilised gloves when working with patients.
For managers to formulate realistic operational plans, they need clear guidance
from strategic and tactical plans. Only if the different kinds of plan are understood, will
lower-level managers be able to derive their sections’ plans from plans at a higher level.
5.4 The time frame for planning
Why do managers responsible for town planning plan ten years or more ahead, whereas
the managers at a clothing boutique have no plans that extend beyond a few months?
Why does Grootegeluk Coal Mine in Limpopo plan years ahead to ensure that the mine
will have sufficient water for mining in 2020? These differences in the time frame for
planning have nothing to do with the quality of management – or specifically planning
– in these organisations. The reason for the different time frames has to do with the
future impact of the decisions that these managers currently make. The decision to plan
a new town entails an investment of billions of Rands that will take decades to recoup.
The clothing boutique turns over its entire inventory every season and may have only a
one-year renewable lease. To ensure sufficient water for its mining operations may mean
that Grootegeluk Coal Mine will have to build dams — a project that will obviously take
years to plan, have approved and complete.
Top management usually makes plans that commit resources for long time periods.
Top management at the City Lodge Hotel Group had to commit vast resources when
they decided to open the Fairview hotel in Nairobi. However, the supervisor in the
breakfast restaurant in the hotel rarely – if ever – makes plans that commit the hotel well
into the future. This shows us that plans, and therefore also goals, formulated at different
management levels cover different time frames. This is illustrated in Figure 5.4.
Now Time frame
Long-term or strategic planning
Top
management
Tactical planning
Middle management
Operational planning
Lower management
2017 2018 2019 2020 2021 2022 2023
Figure 5.4 The levels and time frames of the different kinds of plan
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5.4.1 Long-term plans
Strategic planning focuses on the future and extends beyond the organisation’s current
realities. The time frame that it covers can be considered as long term. The time span for
strategic planning varies from one organisation to the next — as was stated in a previous
paragraph. The time frame for strategic plans should take into account variables such as
the stability of the relevant industry and turbulence in the business environment.
5.4.2 Medium-term plans (tactical plans)
Medium-term plans refer to the medium-term planning carried out by middle
management for the various functional departments in the organisation. This includes
planning for the research and development, marketing, financial, operations, human
resources, administration, and other functions. Medium-term plans are components of
long-term goals and plans that focus on the contribution that the different departments
must make to help implement the strategic plan.
5.4.3 Short-term plans (operational plans)
Short-term (or operational) plans are concerned with periods of no longer than a year.
They are developed by lower management to achieve the operational goals. Short-term
plans are concerned with the day-to-day activities of an organisation and the allocation
of resources to particular individuals in accordance with particular projects, budgets,
and so on, in order to fulfil certain aims. In a takeaway restaurant the scheduling of
workers for the different shifts will be considered an operational plan.
5.5 Steps in the planning process
Planning is carried out in identifiable, logical steps. Essentially the same steps are
followed in planning, irrespective of the complexity of the situation — whether it is
planning the refurbishment of an airport or renovating a pet parlour. Figure 5.5 depicts
these logical steps.
Step 1: Identifying changes that necessitate planning
In a stable environment it would be easy to plan. However, the volatile environment in
which modern organisations have to survive requires continual planning. The first step
in planning is therefore to identify any changes that necessitate planning.
A petition against the eggs used in McDonald’s meals in South Africa has been
signed by thousands of supporters in South Africa. The petition is against McDonald’s
current maltreatment of the hens that lay the eggs.5 This necessitates proper planning
at head office as all of its outlets will be effected by this new pressure from customers.
Step 2: Establishing goals
Once the changes have been identified, goals need to be formulated to give direction to
all major plans. These goals form a hierarchy, starting with the vision at the top of the
hierarchy. The vision is then translated into a mission statement, which is translated into
long-term goals for the organisation. These in turn are translated into functional goals,
and so on. (Goal formulation is discussed in Section 5.8.)
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Consider, for instance,
Future opportunities in the light
of: the changing market, competition, customers’ needs, own
strengths, own weaknesses
Consider, for instance,
Where we want to be
What we want to accomplish
(eg reduce cost)
When we want to accomplish it
Consider planning
premises
Consider, for instance,
Our assumptions about the
external environment (macroand market) and the internal
environment in which our plans
will operate
Identify
alternatives
Consider, for instance,
Which are the most promising alternatives in terms of our
goals (eg to reduce costs)
Compare alternatives in the light of
goals sought
Consider, for instance,
Which alternatives are most viable in terms of our goals
(eg to reduce costs)
Choose an
alternative
Consider, for instance,
The course of action we will
pursue (eg re-engineer the
organisation)
Formulate supporting plans
Consider, for instance,
Plans to retrain workers in new
systems and processes
Develop
budgets
Consider, for instance,
Future sales
Expenses
Identify changes that
necessitate planning
Vision, mission
goals
Figure 5.5 Steps in the planning process
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McDonald’s (see the example discussed under Step 1) will have to set goals for its new
plan to phase out their current way of treating the hens that lay the eggs that they use in
their meals. In September 2015‚ McDonald’s publicly committed to phasing out battery
cages from their supply chain in Canada and the USA, albeit over 10 years. One of
King Pie’s goals is to ‘increase sales of combo meals between 10 and 12 per cent during
campaigns’.6 Both these goals are clear and specific and should be easy for managers and
workers in both organisations to implement.
Step 3: Drawing up premises (assumptions)
The third step is for management to agree on the planning assumptions or premises.
It would be surprising if the individual members of an organisation’s management
team all agreed about the organisation’s future. One manager may expect a major
technological innovation, such as the Internet, to have a profound impact on the way
that the organisation goes about its business. Another may feel that the impact would be
minimal. The use of different sets of premises by different managers can be detrimental
to an organisation. Consistent assumptions should, therefore, be agreed upon by top
management – and shared with other managers – to ensure that subordinate managers
base their plans upon the same assumptions.
In the case of McDonald’s, managers will have to agree on assumptions regarding
the impact that the mentioned petition will have on the existing product range, on the
image of McDonald’s, and so on.
Step 4: Developing various courses of action
It seldom happens that there is a plan for which there are no alternatives. The fourth
step in the planning process is, therefore, to search for and examine various courses of
action. McDonald’s may consider:
■■ Ignoring the petition
■■ Changing their image to be seen as more animal-loving
■■ Getting rid of the old batteries where the hens are kept and replacing them with
more suitable alternatives.
Step 5: Evaluating various courses of action
When evaluating various courses of action, managers will have to decide on criteria that
will enable it to choose the best option or course of action. They may decide on criteria
such as cost, implications for cash flow, influence on current staff, alignment with the
brand image, customer preferences, or any other relevant criteria. All options must then
be assessed against these criteria.
The number of options in most situations is legion, and the numerous variables
and limitations may be complex. This makes the evaluation of options a difficult task.
Techniques that are widely used for the evaluation of possible options are risk analysis,
decision trees, and preference theories. A decision matrix is a simple yet effective tool
to use to evaluate all the options of a decision. When using the matrix, managers must
create a table with all of the options in the first column and all of the factors that affect
the decision in the first row. Users then score each option and weigh which factors are
of more importance. A final score is then calculated to reveal which option is the best.
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Another very simple technique is the T-chart. The chart ensures that all the positives
and negatives are taken into consideration when making a decision.7
Step 6: Selecting a course of action
The real point of decision – the sixth step – is now reached. The manager selects the
course of action that he or she chooses to follow; they may even decide to follow several
courses rather than a single one.
Step 7: Formulating derivative plans
Planning is seldom complete when a decision is made. For example, the decision to
enlarge its current pizza franchise outlets is the signal for the owners and managers to
develop a host of derivative plans dealing with the new layout of the outlets, retraining
of staff, updating of the menus and the processes and systems in each franchise.
Step 8: Budgeting
The eighth and final step in the planning process is the conversion of the plans into
budgets. Through budgeting, managers ensure that they have the resources available to
carry out the plans to achieve the organisation’s goals.
5.6 Barriers to effective planning
At this stage of our discussion of planning as the fundamental function of management,
it may sound strange to say that not all managers are keen planners. However, managers
are often reluctant to plan.
The dynamic and complex environment in which managers work requires careful
consideration during planning. Planning is therefore an ongoing process as plans have
to be continuously updated when change occurs. Managers therefore need to be wellinformed about changes in technology that may affect the organisation, new moves by
competitors, changes in customer preferences, new legislation, and many other possible
changes.
In order to plan effectively, all managers need a clear understanding of the organisation
as a whole. They must know which resources their organisation can utilise in order to
attain the vision, mission, and goals of the organisation in a changing environment.
They need to understand the strategy that the organisation is following. They also need
to understand the goals of their own and of other sub-units (departments, divisions, or
sections).
Managers may be reluctant to plan as they may not understand the principles of
formulating goals (see the sections that follow). They may also lack confidence in their
own ability and that of their subordinates and may be concerned that well-formulated
plans may expose them as less productive. Fear of failure may be another reason why
managers are reluctant to formulate goals; by not setting goals for their sub-units,
managers cannot be accused of not attaining their goals.
Resistance to change is another reason why managers may be reluctant to plan.
Almost by definition, planning involves changing one or more aspects of an organisation’s
current solutions to enable it to adapt to the ever-changing external environment.
Organisational changes may be required in one or more elements of the organisation —
the organisational structure, the reward system, or work hours, to mention just a few.
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In planning for change, management almost inevitably encounters resistance. This
resistance may be so severe that a manager may decide not to implement his or her plans
for the sake of not ‘rocking the boat’. (See Chapter 9 on managing change.)
Planning is time-consuming and expensive. Managers sometimes become so involved
in their day-to-day activities that they neglect their management task of planning. Setting
up a planning system and gathering information to make it work requires time and effort
from many people. This high cost of planning – especially when it is introduced into an
organisation for the first time – is often expected to be justified with tangible results.
Since this is difficult to do, planning is often reduced to a superficial process.
Some managers believe that crisis management is inevitable and that planning –
good or poor – is of little use in the constantly changing business environment.8
Barriers to effective planning discussed in this section include:
■■ A lack of knowledge of the constantly changing external environment
■■ Lack of understanding of the business’s strategic plan
■■ Poor understanding of the principles of goal formulation
■■ Resistance to change
■■ Managers believing that crisis management is inevitable
■■ Planning being time-consuming and expensive.
Although the barriers to planning might seem insurmountable, there are guidelines that
managers can use to overcome them:
■■ Effective planning should start at the top of an organisation. Top management’s sincere
involvement in planning sets the stage for subsequent planning at middle and lower
management levels, and stresses the importance of planning to everyone in the organisation.
■■ Management should realise the limitations of planning. Although it may sound
paradoxical, good planning does not necessarily ensure success – adjustments and
exceptions are to be expected as a plan unfolds.
■■ The role that line and functional managers play in the planning process cannot be
overemphasised. Since they are the individuals who have to implement the plans,
their involvement in planning is obvious. People are more committed to plans they
have helped to shape.
■■ Communication plays a vital role in planning. Managers and all other employees
should have a clear understanding of the grand strategy of the organisation (for
example, to reduce operating cost), as well as of the functional strategies (for
example, the marketing and production strategies) and of how they are interrelated.
■■ Plans should constantly be revised and updated. Planning should be seen as a
process and not a once-off activity. New information on changes in the business
environment, an unexpected strike by factory workers, or the discovery of a
hazardous substance in a pharmaceutical product being developed, are examples of
events that make planning a dynamic process.
■■ Contingency planning may be very useful in a turbulent environment. Contingency
planning is the development of alternative courses of action to be taken if an
intended plan is unexpectedly disrupted or rendered inappropriate.
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5.7 Planning tools
There are planning tools that managers can use to ensure that their plans are realistic
and attainable, yet still challenging. Like in all other occupations, managers also have to
learn how to use these planning tools properly in order to compile the plans. Some of
the popular planning tools used by managers are discussed in the sections that follow.
5.7.1 Forecasting
An important prerequisite for planning is to have some idea of what is likely to happen
in the future as far as an organisation is concerned. A forecast is therefore a projection of
conditions expected to prevail in the future based on both past and present information.
Forecasts can be subjective, that is, based on experience and intuition. Forecasting can
also be based on past trends that are projected into the future. This is referred to as
extrapolation. Causal modelling can also be used as a forecasting technique where the
relationships (cause-and-effect) between variables become the basis for forecasting.9
Forecasting starts with the identification of factors that might provide opportunities
or pose threats to an organisation in the future. Areas of forecasting that are of the utmost
importance to most organisations are sales and revenue forecasting and technological
forecasting. Sales forecasting, as the term implies, is concerned with predicting future
sales. Monetary sources, derived mainly from sales, are necessary to finance both
current and future operations. Knowledge of future sales is thus vital to an organisation.
Examples of poor forecasting
‘The abolishment of pain in surgery is chimera. It is absurd to go seeking it today.
Knife and pain are two words in surgery that must forever be associated in the
consciousness of the patient.’
(Dr Alfred Velpeay, 1839)
‘The population of the earth decreases every day, and if this continues, in another
ten centuries the earth will be nothing but a desert.’
(Montesquieu, 1743)
‘That [the atom bomb] is the biggest fool thing we have ever done ... The bomb will
never go off, and I speak as an expert in explosives.’
(Admiral Will D Lehy to President Truman, 1945)
‘My figures coincided in fixing 1959 as the year when the world must go to smash.’
(Henry Adams, 1903)
‘What, sir, would make a ship sail against the wind and currents by lighting a bonfire
under the decks? I pray you excuse me. I have no time to listen to such nonsense.’
(Napoleon to Robert Fulton, inventor of the steam engine)
‘The demonstration that no possible combination of known substances, known form
of machinery and known form of force can be united in a practical machine by which
man shall fly long distances through the air, seems to the writer as clear as it is
possible for the demonstration of any physical fact to be.’
(Simon Newcomb, astronomer, 1903)
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Forecasting job losses in South Africa
The trade union Solidarity estimated that 58 549 workers could lose their jobs in 2016,
with more than 29 000 jobs on the line in the mining sector and 8 000 in the metal and
engineering industry. These forecasts were based on, amongst others, forecasts by the
Treasury and the Reserve Bank that the economy will grow below one per cent in 2016.
The term ‘sales forecasting’ is appropriate not only to organisations that sell goods or
services. All kinds of organisation depend on financial resources which necessitate
forecasting. A traditional university must forecast future student numbers when
planning to expand its classroom facilities; a hospital needs to forecast its income from
patients, and airlines have to forecast the number of tourists who may visit a specific
country during a specific period. In these cases, revenue forecasting would seem to be a
more appropriate term than the more conventional term ‘sales forecasting’.
Technological forecasting focuses on the prediction of what future technologies
are likely to emerge and when they are likely to be economically feasible. Research by
the World Economic Forum has identified the following as major technologies for the
period 2018 to 2020:
■■ Advanced robotics and autonomous transport
■■ Artificial intelligence and machine learning
10
■■ Advanced materials, biotechnology and genomics.
Managers must be able to anticipate new technological developments in their industry.
This gives the organisation an advantage over its competitors whose products or services
may become obsolete as a result of new technology.
Although sales and revenue forecasting and technological forecasting are vital, other
types of forecasting are also important to many organisations. Resource forecasting
projects future needs for human, financial, physical, and information resources.
Economic forecasting focuses on factors such as the inflation rate, interest rates, and the
potential level of unemployment in a country. Some organisations undertake market
forecasting and the forecasting of possible new legislation that might affect them. In
fact, virtually any component in an organisation’s external environment (macro- and
market environments) is an appropriate variable for forecasting.
5.7.2 Budgeting
A budget is a financial plan that deals with the future allocation and utilisation of
resources over a given period. Budgets are typically thought of in financial terms,
but also in terms of the allocation and utilisation of raw material, labour, office space,
machine hours, computer time, and so on. A budget can be seen as a tool that managers
use to translate future plans into quantitative terms (Rand and cents).
Although budgeting is an important part of planning, it also serves as a control
mechanism for evaluating organisational activities. A budget exercises control in
two ways:
■■ It sets limits on the amount of resources that can be used by a department or unit
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■■
It establishes standards of performance against which future events will be
compared.
Characteristics of budgets
■■
■■
■■
■■
■■
■■
They are most frequently stated in monetary terms
They cover a specific period (usually one year)
They contain an element of management commitment
They are reviewed and approved by an authority higher than the one that prepared them
Once approved, they can be changed only under previously specified conditions
They are periodically compared with actual performance, and variances are analysed and
explained.
Generally, budgets help managers to coordinate resources and projects and they help
to define the standards needed in all control systems. They provide clear guidelines on
an organisation’s resources and on their utilisation. Budgets also facilitate performance
evaluations of managers and units by assessing a business organisation, unit, department
or section against specific standards.
Zero-based budgeting (ZBB) is a planning technique that plays an important role in
organisations going through change. In traditional budgeting, departmental managers
need to justify only increases over the previous year’s budget. For example, a manager
may increase her department’s advertising budget by ten per cent each year. This method
of budgeting works well if very little change occurs in an organisation and the future is
much the same as the current realities. In the case of ZBB, no reference is made to the
previous level of expenditure as it is considered irrelevant in the changing situation.
Every department function is reviewed comprehensively and all expenditures rather
than only increases are approved. ZBB is a technique by which the budget request has
to be justified in complete detail by each division manager starting from the zero base.
The zero base is indifferent to whether the total budget is increasing or decreasing.11
5.7.3 Scheduling and monitoring
The Gantt chart
The Gantt chart is a graphic planning and control method in which a project is broken
down into separate tasks. Estimates are then made of how much time each task requires
as well as the total time needed to complete the entire project. The starting and end
dates of the tasks are indicated on the chart.
When planning a new training programme for salespeople, the essential activities of
the programme must be determined. These activities are depicted on the vertical axis
in Figure 5.6. This chart shows that some of the activities require the completion of
other activities before they can begin (for example, the training needs analysis must be
completed before the design of the programme can start).
Once the basic activities have been determined, a target completion date must be set
for each activity. This is depicted on the horizontal axis. The next step is to determine
the duration of each activity. If the programme starts on 2 January, registration must
start on 1 November of the preceding year.
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Training needs analysis
Design of programme
Training of facilitators
Launching of
programme
Printing of study
material
Registration of students
Programme starts
1
May
1
Jun
1
Jul
1
1
Aug Sep
1
Oct
1
Nov
1
Dec
2
Jan
Figure 5.6 Gantt chart
Once the activities, as well as the activity duration, completion time, and latest starting
time have been determined, the Gantt chart can be drawn.
Managers can monitor the progress of the project by comparing actual progress with
planned progress.
PERT
PERT, an acronym for programme evaluation and review technique, is a planning
tool that uses a network to plan projects involving numerous activities and their
interrelationships. The key components of PERT are activities, events, time, the critical
path, and possibly cost (see Figure 5.7).
These components are explained in the following example: If a construction
company is awarded the project by the South African government to upgrade the N3
highway between Heidelberg and Villiers, the construction of the highway will comprise
several events for the company. Each event will require multiple activities. Time can be
measured in a variety of ways. In this case, because of the length of the project, it will be
measured in weeks and months to determine the critical path. Knowledge of a critical
path is essential, because it determines the length of time it will take to complete the
highway by identifying how long each activity will take. In the case at hand, it could be
essential for the construction company to complete the highway before the beginning of
the December school holidays. There may even be a penalty payable to the government
if the project is not completed by a certain date. The critical path is the longest or most
time-consuming sequence of events and activities in a PERT network. This should
enable management to work out the time it will take to construct the highway in order
to ensure that it is completed on time. Four steps can be followed in developing a PERT
network as discussed in the sections that follow.
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1
A-2
2
E-7
B-6
3
F-5
6
H-4
End
8
Start
C-4
D-10
4
5
G-7
7
J-1
9
I-6
0
Circles = Events
Arrows and letters = Activities
Numbers = Time in months
Double arrows = The critical path, or how long it should take to complete the project
Figure 5.7 A PERT network
Step 1 List all activities and events
All the activities and events that must be completed to realise the objective should be
listed (see Figure 5.7). Each should be assigned a letter. In constructing the highway,
relevant events for the construction company would include: design of the highway,
approval of the plans, preparing detours for traffic, closing off certain sections of
the highway, demarcating the boundaries of the highway, felling trees, and so on. In
Figure 5.7 we have identified nine such events. Each event comprises activities.
Step 2 Determine completion times
The time to complete each activity, and therefore each event, should be determined. In
Figure 5.7, time is measured in months. Event 2 should take two months to complete,
Event 3 six months, and so on.
Step 3 Arrange tasks chronologically
Arrange tasks in the sequence in which they should be completed. In Figure 5.7, for
example, E must be completed before H can begin. Note that activity D is independent
of the other activities. The numbered circles signify the completion of an event. In
Figure 5.7, 1 represents the start of the project and 9 the completion date.
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Step 4 Determine the critical path
The critical path should be determined. To do this, total the time it takes for each path
from start (1) to end (9). Path 2 – 6 – 8 – 9 takes 2 + 7 + 4 + 1 months, thus 14 months.
Path 1– 3 – 6 – 8 – 9 takes 16 months. Path 1 – 4 – 7 – 8 – 9 takes 18 months. Path 1 – 5
– 9 takes 10 months. The critical path is 1 – 4 – 7 – 8 – 9. The project should therefore
take 18 months to complete.
PERT allows managers to monitor a project’s progress, identify possible bottlenecks,
and shift resources as necessary to keep the project on schedule.
5.8 Goal formulation
Formulating business goals involves introspection into what makes an organisation
successful, and what managers want its future to be. Goal formulation begin by asking:
‘What are the overall goals for the business as a whole?’ The answer to this question will
then trigger goal formulation at departmental as well as section level.
The hierarchy of plans clearly differentiates between:
Strategic plans
■■ Tactical plans
■■ Operational plans.
■■
Goals must be formulated for each of these three levels to ensure that the plans are
focused on the same end result — the mission statement. The goals in an organisation
therefore also form a hierarchy, ranging from the broad purpose of the organisation,
and its mission, to very specific individual goals (see Figure 5.8). This is evident in the
following example that illustrates goal formulation in a South African mining company.
(Bear in mind that only one of the general mine manager’s goals is depicted in Figure 5.8.
There are obviously other goals for which this manager will also be held responsible.)
Goal formulation: An example
In this example, the mine needs to keep costs below R35 per ton in order to be profitable
and to remain competitive in the international market. Should the mine exceed this
limit, it would reduce the company’s planned profits and may have to close down. The
maintenance managers and the production managers have cost goals that will ensure
that the mine keeps within the overall goal.
In turn, maintenance managers require that their assistant maintenance managers
(plant and mining) achieve cost goals that will ensure that they remain within their R20
per ton cost goal. If any one of the managers fails to achieve their goals, the company’s
profits will be harmed, which will impact not only on the mine, but also on the other
stakeholders – shareholders, employees, customers, suppliers, the community, and the
government.
5.8.1 The focus areas
A well-written mission statement will provide clear guidelines in terms of the key focus
areas of the organisation when its long-term goals are formulated. These focus areas – also
called key performance areas – are areas that have been identified by top management
as crucial in the attainment of the organisation’s mission. The key performance areas
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stated in the mission statement therefore clearly highlight top management’s priorities
for the future. Words or phrases in the mission statement, such as ‘lowest cost producer’,
or ‘most innovative’, or ‘superior returns for our shareholders’, indicate what the goals
have to focus on. These words or phrases in the mission statement lend themselves to
different interpretation, however, and therefore have to be translated into something
more specific and measurable. What does ‘lowest cost producer’ mean? Or how is ‘most
innovative’ interpreted by managers and employees in different sections and levels of
the organisation?
The mission statement of SA mining company
To be the lowest cost provider of coal
to industries in South Africa
Organisational goal
To realise an above-average return for our
shareholders
General mine manager
Other general managers
Total production cost of the mine
must be R35/ton or less
Maintenance manager
Production manager
Cost may not exceed
R20/ton
Cost may not exceed
R15/ton
Plant manager
Mining manager
Cost may not exceed
R7/ton
Cost may not exceed
R13/ton
Figure 5.8 The goals of a South African mining company
The strategic goals of the organisation, guided by the vision, mission statement and
strategies of the organisation, will often focus on such areas as the following:
■■ Finance
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■■
■■
149
Customers
Internal processes
Learning and innovation.
The above four dimensions are the focus areas suggested by Kaplan and Norton in the
balanced scorecard (see Chapter 4). These focus areas ensure that the organisation
focuses on short-term issues (finance) as well as long-term issues (customers, internal
processes and learning and innovation).
However, organisations should adapt the balanced scorecard to reflect the key
performance areas of the specific organisation. For example, an organisation could add a
‘risk’ dimension to the above four dimensions if they operate in a high-risk environment.
5.8.2 Properties of well-formulated goals
Understanding the nature of goals – especially their hierarchy and areas of focus –
enables managers to formulate goals for the organisation, for its departments and
sections, and for the individuals in them, that focus on the mission of the organisation.
The balanced scorecard was designed to ensure that all goals in the organisation
are well aligned and focus on the same key performance areas (see Chapter 4). A wellconstructed balanced scorecard should reflect all the properties of well-formulated
goals. Figure 5.9 depicts only one of the dimensions of a balanced scorecard, but shows
what well-formulated goals look like.
Goals need to meet certain specifications in order to fulfil their managerial
purpose. These are specificity, flexibility, measurability, attainability, congruency, and
acceptability.12 Goals that meet these specifications should be easy to understand and
implement.
Specificity
Good goals should be specific and should indicate what they are related to, the time
frame for accomplishing them, and the desired results. For example, a goal should not
only state that ‘cost must be reduced by 12 per cent’, it should be much more specific
and state that ‘operating cost must be reduced by 12 per cent within the next two years’.
Flexibility
The turbulent environment in which organisations operate in South Africa and abroad
makes it necessary for management to modify the goals from time to time. Organisations
are often ‘guilty’ of not changing their goals when the conditions on which the goals were
based subsequently change. This could result in the unfair ‘punishment’ of managers
and employees who then cannot attain these goals.
Measurability
Measurability means that goals should be stated in terms that can be evaluated or
quantified objectively. The primary reason why goals should be measurable is to
facilitate control — goals often evolve into control standards for performance appraisal.
The poorly formulated goal ‘to improve on customer satisfaction’ can be made more
measurable by stating that the organisation wants to improve its customer satisfaction
rating to a rating of at least 85 per cent within the next 18 months.
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Objective
Rating
Key
Key
performance
performance
(five-point
area (KPA)
indicator
scale is
(KPI)
used)
Initiatives
Resources
Blockages
required
Customer
Rating on
80 % (before
Conduct
Managers
Culture not
satisfaction
Customers
28 February
survey once
Staff
supportive
Satisfaction
2010)
a year. Install
Computers
of good
electronic
Survey
customer
customer
Information
service
relations
Others
Index
3
management
programme
Figure 5.9 The balanced scorecard illustrates the properties of well-formulated goals (customer
dimension)
Attainability
Goals should be realistic and attainable, but should also provide a challenge for
management and workers. People are most productive when goals are set at a motivating
level — a level high enough to challenge, but not so high that it frustrates or so low that
it leads to boredom.
Congruency
Goals should be congruent with one another. Congruency means that the attainment
of one goal should not preclude the attainment of another. A marketing goal to increase
visibility of a specific brand through an advertising campaign could be incongruent
with the financial goal of ‘cutting cost in all areas of the business by 20 per cent over
the next 12 months’. Incongruent goals may lead to friction and conflict between
departments and sections. This can be overcome if managers are allowed to function
across boundaries.
Acceptability
Managers are most likely to pursue goals that are consistent with their values, attitudes,
perceptions and preferences. The collaboration of managers at all levels in the goalformulation process is therefore important. While the other specifications of goals
discussed in this section may be influenced by management, they cannot influence the
acceptability of goals.
5.8.3 The degree of openness
We can also distinguish between official and operative goals. The official goals of the
organisation are those that society expects the organisation to pursue. They are derived
from the vision and mission of the organisation, and the organisation espouses these
official goals formally and publicly in annual reports and company publications.
Operative goals represent the private, unpublished goals of an organisation. The
operative goals of Volkswagen might include delaying the launch of a new motorcar
until after the dust has settled with regard to their emissions scandal. A university might
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have an operative goal of an eight per cent budget increase because it recognises that its
formal request for a 16 per cent increase is unlikely to be granted by the government.
5.9 The process of goal setting
Organisations use different goal-setting processes. These processes range from
centralised to decentralised goal setting.
In some organisations, the board of directors sets the goals for the organisation as a
whole, for each department as well as each section in the organisation. This ensures that
all goals focus on the organisation’s mission statement. A retail company may decide
at head office that in all its retail outlets at least 40 per cent of managers must be from
designated groups before the end of 2020. When goals are set in this way, we speak
of centralised goal setting. One of the advantages of centralised goal setting is that it
can be done by highly specialised people who understand the working of the entire
organisation.
Although centralised goal setting has important advantages, it also has significant
disadvantages. One major disadvantage is that the goal-setters may know little about
the particular opportunities and problems faced by lower-level managers. Lower-level
managers may also resist directives coming from above if they do not understand the
reasons for them.
Decentralised goal setting takes place when managers at each level of an organisation
have the dominant influence on their unit or department’s goals.
Decentralisation in Hyatt hotels
Hyatt is a global hospitality company that owns, manages or franchises over 480 hotels in
more than 45 countries, including South Africa. Together, Hyatt hotels employ over 90 000
people around the world. This broad geographic reach means that Hyatt’s operations are
very decentralised and that their managers and staff represent a mix of cultures, languages
and ethnicities.
It also means that the hotels operate under many different local laws and regulations,
manage a myriad of social, economic, and political conditions, and operate under varying
levels of infrastructure capacity and development. Decentralisation was therefore a logical
choice as Hyatt cannot meaningfully implement a one-size-fits-all strategy on a global scale.
Source: Hotel Business Review. Available at: http://hotelexecutive.com/business_review/3098/hyatthotels-making-csr-work-in-a-decentralized-global-company (Accessed: 12 September 2016).
Two basic approaches to decentralisation can be identified, namely the top-to-bottom
approach and the bottom-up approach. In the top-to-bottom approach to goal setting,
the board of directors or corporate-level managers set the corporate goals and the head
of each division or business unit sets the goals for his or her division or business unit
in line with the corporate goals. The same applies to the other organisational levels,
although higher level managers usually approve the goals of lower level managers.
In the bottom-up approach, the lower levels set their goals, and higher level managers
set their goals to be in line with the lower level goals. This approach is sometimes less
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likely to yield a coordinated effort and congruent goals, as some managers tend to fall
into the trap of tunnel vision and therefore focus only on what is important for their
unit.
A combination of the top-to-bottom and the bottom-up approaches is an approach
to goal setting used by many organisations — this approach stresses the importance of
the purpose and mission of the organisation as formulated by top management, but also
takes into account the strengths and weaknesses of each division.
Whether goals are proposed from the bottom or imposed from the top, once
agreement has been reached, there should be a firm commitment at all levels to provide
the resources and achieve the results.
Finally, it should be noted that the decision to use centralised or decentralised goal
setting affects strategy selection, the organisational structure, and the management of
the organisation in general.
5.10 Techniques for goal setting
In the previous section we discussed the process of setting goals by considering centralised
versus decentralised goal setting and some of its advantages and disadvantages.
We have also examined the establishment of goals at top, middle, and lower
management levels. We shall now move on to the question of setting goals for the
individual in an organisation.
The balanced scorecard (BSC)13 discussed in Chapter 4 and earlier in this chapter,
is used by organisations in all industries. The BSC as a goal-setting tool ensures that
all departments, sections and individuals in the organisation focus on the same key
performance areas.
Another technique designed to achieve the integration of individual and
organisational goals is called management by objectives or MBO. MBO is based on
the belief that the joint participation of subordinates and superiors in translating or
converting broad organisational goals into more specific individual goals has an impact
on employee motivation. In other words, MBO is based on the belief that you are
motivated to perform more efficiently in an organisation if you participate in selecting
your own personal goals. Obviously these goals must support the organisation’s strategic
goals. MBO is therefore a disciplined approach by individuals to works towards the
organisation’s goals.
MBO managers focus on the end result — not the activity.14 They delegate tasks by
‘negotiating a contract of goals’ with their subordinates without dictating a detailed
roadmap of how to do it. Stated differently, MBO is about the end, not the means of
achieving the end. The principle behind MBO is to make sure that everybody within the
organisation has a clear understanding of the strategic goals of the organisation, as well
as their own roles and responsibilities in achieving those goals.
MBO refers to goal formulation at the individual level.
The importance of objectives or goals in management can best be seen by showing how
MBO works in practice. Figure 5.10 illustrates this process.
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The goal
hierachy
Evaluation and
feedback
Job output
Performance
targets
Determination
of checkpoints
Discussion of
goals
153
Figure 5.10 The process of MBO
For an MBO programme to be successful, the process should start at the top of the
organisation and should have the active support of the top managers. Top management
should create an organisational culture that is supportive of a goal-oriented approach.
Before the process of MBO is implemented in an organisation, top management should
explain to subordinates why it has adopted the process. Management and subordinates
should then be informed about MBO and their role in it. Top management should tell
subordinates what MBO will do for the organisation, for each department and section,
as well as each individual in the organisation. Top management should stress the fact
that it actively supports and is committed to MBO.
The goal hierarchy
Having adopted the MBO philosophy in an organisation, it is necessary for each
subordinate involved in the MBO process to have a clear understanding of the hierarchy
of plans and goals in the organisation. Subordinates should also understand what the
areas are that management is focusing on (key performance areas) over the next period.
If one of the focus areas is to reduce costs, the subordinate should understand why this
is important to the organisation.
Job output
The goal-setting process starts with a discussion between the manager and the
subordinate about the outputs for which the latter is responsible. The key performance
areas as well as the key performance indicators of the subordinate – as agreed upon in
his or her performance contract – should be discussed to ensure that both parties are
familiar with the subordinate’s job output. The key performance areas (KPAs) must be
aligned with the organisation’s KPAs.
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Performance targets
The subordinate formulates performance targets in predetermined areas of
responsibility for a forthcoming period. Each goal should be as quantitative as possible,
specific, concise, and time related. Each goal should be written, and should meet the
specifications for well-formulated goals as set out in Section 5.8.2.
Discussion of goals
During this stage the subordinate meets with his or her superior to discuss potential
performance targets. The purpose of this discussion is to arrive at a set of goals that the
subordinate and the superior have developed jointly and to which both are committed.
Involvement is the key element at this stage. Goals dictated by a superior do not
evoke full commitment from subordinates. By the same token, failure by a superior to
participate fully and actively in this step leads subordinates to believe that management
places little value on MBO.
Training
and
development
Monitor and
feedback
Strategic
goals
Individual
goals (using
MBO)
Tactical
goals
Operational
goals
Figure 5.11 From strategic goals to goals for individuals
Superiors play the critical role of counsellors in the goal-setting discussion. They should
ensure, amongst other things, that subordinates’ goals are indeed attainable and that
these goals will facilitate goals at the higher levels of the goal hierarchy. The goal-setting
process may, however, take the form of a struggle. The employee may want to set easy
targets to ensure their achievement, whereas the supervisor may want to set challenging
targets to increase work performance.
The discussion between subordinate and superior should also spell out the resources
that a subordinate needs in order to work effectively towards goal attainment. A
subordinate should know which human resources he or she is allowed to mobilise (for
example, the number of marketing researchers from the marketing department), the
financial resources available to him or her (budget), the physical resources allocated
to him or her (office space, computers, vehicles, warehouses, and so on), and the
information resources at his or her disposal (such as reports, surveys and financial
statements).
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Determination of checkpoints
A subordinate’s progress needs to be measured periodically and checkpoints need to
be established for this purpose. If the goals are established for a one-year period, it may
be a good idea for subordinate and superior to meet on a more regular basis to discuss
progress to date. These periodic reviews not only monitor the subordinate’s progress,
but also provide an opportunity to adjust goals that have become unrealistic in the light
of changing conditions or uncontrollable events — such as the loss of productive hours
due to a strike or the resignation of a key person in a project.
Evaluation and feedback
At the end of the predetermined performance period, the superior should meet with the
subordinate to review the degree of goal attainment. The meeting should focus on goal
analysis and a discussion of the results actually achieved. The supervisor should also
give feedback to the subordinate on his or her progress.
From the discussion above, it should be clear that a great deal of planning and
commitment from top management, superiors, and subordinates is necessary to
implement MBO successfully. It is also evident that changes in an organisation may
have to be made in areas such as communication between managers and subordinates in
order to facilitate the MBO process. The question now arises: is it really worthwhile for
an organisation to adopt the MBO philosophy? The benefits that are discussed below
should convince a critic of MBO that it is a very useful planning tool if used correctly.
Some of the major benefits that organisations experience when they implement MBO are:
■■ Improved employee morale through participation in goal setting
■■ Buy-in into the organisation’s strategic goals
■■ Increased clarity of the outputs that have to be delivered
■■ Improved communication resulting from the process of discussion of goals
■■ Identification of development areas for individuals
■■ Training and development of individuals aligned with the organisation’s strategy.
MBO also has limitations, one of them being the overburdening of manager and subordinate
with the administration of the process. The formulation of goals can be time-consuming,
leaving both managers and employees less time in which to do other work.
5.11 Summary
Chapter 4 focused on strategic planning — the starting point in the planning process. In
Chapter 5 we looked at planning as a primary management function. All plans should be
aligned to ensure that they support the strategic plan of the organisation.
Different kinds of organisational plan can be identified, namely strategic, tactical,
and operational. These plans form a hierarchy — from broad strategic plans at the top
to detailed operational plans at the bottom of the hierarchy. Strategic plans focus on
the entire organisation, are formulated by top management, and have an extended
time frame, often five years or more. Tactical plans are more specific and concrete than
strategic plans. These plans are formulated by middle management and focus on areas
such as marketing, finance, purchasing and human resources. The time horizon of
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tactical plans is usually from one to three years. Operational plans are narrowly focused
and have relatively short time horizons. They are usually formulated by middle-level
and lower level managers.
There are two basic forms of operational plan, namely single-use plans and standing
plans. Single-use plans are formulated for non-recurring activities and standing plans
for recurring activities. Managers may not use their own initiative where standing plans
have to be implemented.
We examined the planning process by discussing each of its steps, from identifying
changes that necessitate planning to the final step, which is the development of budgets.
Although planning is the fundamental management function, managers are
sometimes reluctant to plan. The reasons for this reluctance could be managers’ lack of
environmental knowledge, a lack of organisational knowledge, resistance to change, and
various other reasons. To overcome resistance to change, managers can use planning
tools such as budgets, forecasts, the Gantt chart, and PERT.
Goals or objectives form an integral part of planning. Organisations and managers
have multiple goals that are sometimes incompatible and that may lead to conflict within
an organisation. The coordination of goals is of vital importance to an organisation if
all the goals are to move the organisation in the same direction. In order to develop
congruent goals, they should be differentiated in terms of four variable factors, namely
the organisational level, the focus, the degree of openness, and the time frame.
If the organisation is to attain its goals, these need to be specific, flexible, measurable,
attainable, congruent, and acceptable. The balanced scorecard is often used to construct
goals as it leads to clearly understandable and measurable goals.
The procedure for setting goals may range from centralised to decentralised goal
setting. Centralised goal setting takes place when the goals of an organisation are
formulated by top management — these goals encompass the entire organisation.
Decentralised goal setting takes place when managers at each level of an organisation
have the dominant influence on their departments’ goals. Two basic approaches can be
identified in this case, namely the top-to-bottom approach and the bottom-up approach.
A popular technique for integrating individual and organisational goals is called
‘management by objectives’ (MBO). MBO is a widely discussed and used planning
technique nowadays, and is based on the belief that the joint participation of
subordinates and superiors in translating broad organisational goals into more specific
individual goals has a positive impact on employee motivation. Although MBO is not a
perfect goal-setting or planning technique, it is preferred to other planning techniques
in which there is a notable absence of calculated incremental effort to shape or influence
the direction in which an organisation is heading.
References
1. Musingwini, C, Cruise JA Phillip, HR. 2013. ‘A perspective on the supply and utilization
of mining graduates in the South African context’. Journal of the Southern African Institute
of Mining and Metallurgy, 113(3), Johannesburg, March. Available at: ISSN 2411-9717
(Accessed: 12 September 2016).
2. Edcon. nd. Available at: http://www.edcon.co.za/careers-working.php (Accessed: 12
September 2016).
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3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
157
City Lodge Hotel Group. nd. Available at: https://clhg.com/hotels/901/Fairview-HotelNairobi (Accessed: 12 September 2016).
Project Insight. nd. Available at: http://www.projectinsight.net/project-managementbasics/basic-project-management-phases (Accessed: 12 September 2016).
Business Day Live. nd. Available at: http://www.bdlive.co.za/business/retail/2016/04/26/
mcdonalds-under-pressure-to-commit-to-cruelty-free-eggs (Accessed: 12 September
2016).
King Pie. nd. Available at: http://www.kingpie.co.za/inside-kingpie/fasa-brand-builder.
php (Accessed: 12 September 2016).
Business News Daily. nd. Available at: http://www.businessnewsdaily.com/6162-decisionmaking.html#sthash.dBADyGqA.dpuf (Accessed: 12 September 2016).
Management is a Journey™. nd. Available at: https://managementisajourney.com/sevenreasons-why-managers-fail-to-plan-2/ (Accessed: 12 September 2016).
The Economist. 2012. Numbers Guide: The Essentials of Business Numeracy, 5th ed, Chapter 5.
World Economic Forum. 2016. Available at: http://www3.weforum.org/docs/WEF_
Future_of_Jobs.pdf (Accessed: 12 September 2016).
Based on Lussier, RN. 2008. Management fundamentals: Concepts, applications, skill
development, 5th ed. Mason, Ohio: South-Western Cengage Learning.
Harvard Business Review. 2005. ‘The Balanced Scorecard: Measures that drive performance’,
1 July.
Management by Objectives. nd. Available at: http://www.1000ventures.com/business_
guide/mgmt_mbo_main.html (Accessed: 12 September 2016).
Liraz, M. 2013. How to implement MBO in your business, Kindle edition
(page unknown).
Case study
Balanced scorecard for a hotel
The information in this case study relates to a fictitious hotel in the centre of Durban.
The Royal City hotel is a four-star boutique hotel in the centre of Durban. It belongs to a
South African family who opened the hotel in 1955 and has been passed on from generation
to generation in the same family. The hotel offers luxury, en-suite bedrooms to mainly South
African tourists who want to explore Durban and its surroundings. The family owns only this
hotel and do not intend to open more hotels. The hotel offers accommodation and breakfast
but does not have any other facilities, such as a swimming pool, gymnasium or spa.
The hotel has always been very popular with local tourists and has been a huge financial
success. However, in the past two years three new hotels across the road have opened
their doors. All three hotels provide accommodation as well as all modern comforts, such as
hairdressing salons, small gymnasiums, luxury restaurants, swimming pools, and so on.
The 2016 financial results of the hotel showed poor performance by the hotel. Room
occupancy was down by 35 per cent compared to 2015, operating costs increased by 25 per
cent during the same period, staff turnover increased by 12 per cent.
This poor performance forced top management of the hotel to set clear goals for the hotel.
During a ‘bosberaad’ top management agreed to change their product offering and agreed on
the following goals for the hotel:
➜
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1. Decrease the service costs per room by 12 per cent within the next year
2. Increase the average room rate from R 1 800,00 per night to R 2 250,00 per night
3. Attain a rating of at least 85 per cent on the independent Customer Satisfaction Index every
year
4. Implement a new online booking system within two years
5. Retrain all reception staff to be able to work with the new online booking system within
two years
6. Convert two of the smallest adjacent rooms into a compact gymnasium within the next
18 months.
Top management is positive that the above changes will improve the revenue as well as
productivity of the hotel and will help to re-establish it as the preferred hotel of many South
African tourists.
Case study questions
1. Recommend the balanced scorecard (BSC), as a tool to formulate clear goals, to
top management of the hotel.
2. Based on the information provided in the case study above, compile a balanced
scorecard for Royal City hotel.
3. Explain to top management of the hotel what their BSC really means.
4. Explain how the BSC can become the focus of all managers and workers in the
hotel.
Multiple-choice questions
Question 1
Which one of the following statements is correct?
1. Planning is done by top management only
2. Top management relies primarily on their technical skills when planning for the
future
3. Supervisors are responsible for tactical planning in an organisation
4. Strategic plans are translated into tactical and operational plans
Question 2
The management functions are best described as
1. planning, leading, organising, controlling
2. planning, organising, leading, controlling
3. leading and motivating
4. monitoring and controlling.
Question 3
Planning activities include
1. forecasting
2. goal formulation
3. scenario planning
4. all of the above
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.
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Question 4
Complete the figure below that depicts the strategic goal hierarchy in an organisation.
1. Single-use plans
2. Policies and procedures
3. Tactical goals
4. None of the above completes the figure correctly.
Vision
?
Strategic goals
Strategy
Question 5
plans should ensure that the organisation is aligned with opportunities
and threats in the external environment.
1. Tactical
2. Operational
3. Strategic
4. None of the above
Question 6
The upgrading of the N1 highway between Pretoria and Polokwane is called a
.
1. programme
2. project
3. recurring plan
4. standard plan
Question 7
are standard plans and must be applied consistently throughout an
organisation.
1. Budgets
2. Programmes
3. Projects
4. Policies
Question 8
The terms ‘activity, event, critical path, network’ relate to
1. the balanced scorecard
2. the Gannt chart
3. PERT
4. regression analysis
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Question 9
focuses on ‘finances’, ‘customers’, ‘internal processes’ and ‘learning and
innovation’ as dimensions for goal formulation.
1. The balanced scorecard
2. The Gantt chart
3. PERT
4. Regression analysis
Question 10
.
MBO means that managers
1. focus on the end, not the means
2. involve subordinates in formulating their individual goals
3. must ensure that subordinates understand the organisation’s strategic plan
4. all of the above
Paragraph questions
Question 1
Briefly discuss strategic, tactical and operational plans by highlighting any similarities
and differences between them.
Question 2
Explain how project management differs from general management.
Question 3
Explain how the balanced scorecard helps managers to focus on short-term as well as
long-term goals. Your answer must deal specifically with the dimensions that comprise
the balanced scorecard.
Question 4
What possible reasons can managers cite for their reluctance to plan?
Question 5
Briefly discuss management by objectives as a goal-setting approach at individual level in
an organisation. Your answer must focus specifically on how management by objectives
enables an organisation to cascade their strategic goals down to goals for individuals in
the organisation.
Essay question
You have recently been appointed as head of a section in a medium-sized business. The
section has been very poorly managed in the past — mainly as a result of very poor
planning done by your predecessor. Explain how you will go about ensuring that proper
plans are in place for this section in future.
Hint: You will have to summarise almost the entire chapter in order to answer this
question properly. You should limit your answer to less than 900 words (three pages) to
ensure that you focus on the essence of planning and not on peripheral issues.
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6
THE
PURPOSE
OF THIS
CHAPTER
LEARNING
OUTCOMES
KEY
CONCEPTS
Managers at all levels of an organisation and in all functional areas
are constantly faced with changes in the management environment
of their organisations — opportunities and threats emanate from the
organisation’s external environment, whilst strengths and weaknesses
can come from its internal environment. Managers need to steer their
organisations successfully through these changes and they need to evaluate
alternative courses of action to deal with opportunities, threats, strengths and
weaknesses. Thus, managers are required to make decisions in order to solve
problems and to take advantage of organisational strengths and weaknesses.
This chapter explores creative problem solving and managerial decisionmaking. First, we will differentiate between problems, problem solving and
decision-making. Second, the various types of managerial decisions and
conditions of decision-making will be explored. Third, the various decisionmaking models and group decision-making will be explained, followed by
techniques for improving group decision-making. The chapter will then
conclude with recommended tools for decision-making under the various
decision-making conditions.
This chapter will enable learners to:
Differentiate between problems, problem solving, and decisionmaking
■■ Compare the different types of managerial decisions and decisionmaking conditions
■■ Explain the various decision-making models
■■ Describe group decision-making
■■ Suggest techniques for improving group decision-making
■■ Recommend tools for decision-making under the various decisionmaking conditions.
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
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Managerial decision-making
Brainstorming
Decision-making conditions
Decision-making process
Delphi technique
Group decision support system
Nominal group technique
Non-programmed decision
Optimising
Problem solving
Programmed decision
Satisficing
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6.1 Introduction
All managers, regardless of their skills, the level at which they are involved, or the
functional area in which they are placed, perform the four fundamental management
functions of planning, organising, leading, and controlling. While performing these
functions, managers are constantly faced with strengths and opportunities that need
to be explored, as well as threats and weaknesses that need to be solved and decisions
that need to be made. When planning, a manager must make decisions about goals and
when, where, and how they will be met. When organising, a manager needs to make
decisions regarding the most appropriate organisational structure. When leading and
motivating staff, managers need to decide on the most appropriate style to follow in
order to be as effective and efficient as possible. When controlling, a manager is expected
to compare actual performance with planned performance and, whilst doing so, may
notice that organisational goals have not been met. Thus a problem exists that needs
to be solved and the manager needs to decide on corrective actions to take. Decisionmaking is therefore a central aspect of all four fundamental management functions.
When managers perform these functions with effective decision-making, they will have
fewer problems to solve. Regardless of its goals, the organisation’s long-term survival
depends on its managers’ problem solving and decision-making skills. Decisions are
central to the success of any manager. Successful managers make better decisions than
their competitors, they make faster decisions and they ensure that their decisions are
successfully implemented. In this chapter, we shall explore creative problem solving and
decision-making as part of the armour of the effective and efficient manager.
Henry Ford and the Model T Ford
In 2012, Fortune magazine published a book entitled The greatest business decisions of all
time in which the authors identified those groundbreaking business decisions that shaped
the thinking and actions of contemporary business managers. One such decision was the
one made by Henry Ford in 1914.
The Model T Ford was an automobile conceived by Henry Ford and built by the Ford Motor
Company from 1908 to 1927. The Model T Ford was so popular and the demand for it so high
that Henry Ford needed to re-engineer his ideas about mass production to meet the demand
for it. In 1913, he made the decision to introduce a moving assembly line which worked so
well that the company doubled its output with the same number of workers. The downside
of the decision was an increase in staff turnover. Autoworkers had no motivation any more
because their jobs were now narrowly defined, repetitive and physically demanding, and
this caused them to resign. In 1914, Henry Ford made another important decision − he
announced that the company would double the salary of the autoworkers as a means of
reducing its staff turnover. Within a year after this decision, annual staff turnover reduced
by 354 per cent, and between 1910 and 1919 the price of the Model T was reduced from
$800 to $350. These decisions lead to the fact that Henry Ford became the world’s greatest
automaker and he became a billionaire. ➜
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The Ford Motor Company produced over two million units per year and the Model T became
affordable to the company’s own factory workers and the general public.
Sources: Fortune Magazine. nd. Available at: http://fortune.com/2012/10/01/the-greatest-businessdecisions-of-all-time/ (Accessed: 2 August 2016); History.com. nd. Available at: http://www.history.
com/topics/model-t (Accessed: 13 September 2016); Ford, H. 1926. Today and tomorrow: Special
edition of Ford’s 1926 Classic. Oregon: Productivity Press, p.vii.
6.2The relationship between problems, problem solving, and
decision-making
Managers at all managerial levels are responsible for setting goals (see Chapter 5).
Whenever these goals are not being met, a problem exists. In other words, a problem
exists whenever managers perceive a difference between what has actually happened
and what they wanted to happen.
The Henry Ford example also illustrates the ‘unintended consequences’ that managers
often have to face when they make a decision. In the case of the Ford Company, the
introduction of a moving assembly line increased the company’s production. However,
the unintended consequences of this decision were an increase in staff turnover, low staff
morale and low staff motivation. These disadvantages created a new problem for Henry
Ford which he then solved by doubling the wages of factory workers and reducing the
number of shifts that factory workers were required to work.
Problem solving can be defined as the process of taking corrective action that will
solve the problem and that will realign the organisation with its goals. Decision-making,
on the other hand, can be defined as the process of selecting an alternative course of
action that will solve a problem. Managers need to make a decision whenever they are
faced with a problem. Although certain problems cannot be solved and others do not
deserve the time it would take to solve them, managers are responsible for achieving
the goals of the organisation. Therefore, they need to attempt to solve most problems.
This can be done by applying a decision-making model, which will be discussed in
Section 6.5.
6.3 Types of managerial decisions
Although managers in large organisations, government offices, hospitals, and schools
may be separated by background, lifestyle, and distance, they must all make decisions
involving several options and outcomes. These decisions vary in terms of their content
and frequency.
When Henry Ford decided to double the salary of factory workers, his decision had
far-reaching financial and strategic implications for the company. By the same token, it
had far-reaching implications for the factory workers, the economic and technological
environment of the company. However, if a supervisor at the Ford factory needed to
decide whether to approve a leave application from a factory worker, less intensive
analysis would have been required; the decision will have a minor impact on the
company and its environment.
In general, the decisions made by managers are either programmed decisions or nonprogrammed decisions. Rather than being distinct categories, these types of decisions
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represent a continuum, with highly programmed decisions at one end and highly nonprogrammed decisions at the other.
Decisions can be identified as programmed or non-programmed decisions.
6.3.1 Programmed decisions
Decisions are programmed to the extent that they are repetitive and routine. There
are definite methods for obtaining a solution to some decisions, so that they do not
have to be investigated anew each time they occur. The managers of most organisations
face large numbers of programmed decisions in their daily operations. Such decisions
should be made without spending unnecessary time and effort on them. An example of
a programmed decision at the Ford Motor Company includes the processing of payroll
vouchers. Further examples are the processing of graduation candidates at a university
and the processing of the admission of athletes to a sports club.
Managers can usually handle programmed decisions by means of policies, standard
operating procedures, and rules (see Chapter 5). These factors enable the decisionmaker to eliminate the process of identifying and evaluating options and making a
new choice each time a decision is required. While programmed decisions limit the
flexibility of managers to some extent, they free the decision-maker to devote attention
to other, more important decisions.
6.3.2 Non-programmed decisions
Decisions are non-programmed to the extent that they are novel and ill-structured.
Non-programmed decisions have never occurred before. They are complex and elusive
and there is no established method for dealing with them. Managers at all levels of an
organisation make non-programmed decisions.
Henry Ford’s decision to double the salary of factory workers is an example of a
non-programmed decision made by top management of the Ford Motor Company. A
non-programmed decisions made by lower management in the same company can, for
example, include firing an employee or changing the workflow procedures in a particular
section. Decisions such as these are complex and require the use of creative problem
solving. Techniques to encourage creative problem solving are discussed in Section 6.7.
6.4 Decision-making conditions
By identifying the type of decision as well as the conditions under which it will be made,
managers should be in the position to make better decisions. The conditions under
which decisions are made are certainty, risk, and uncertainty, as depicted in Figure 6.1.
Certainty
Outcomes of options
predictable
Risk
Uncertainty
Outcomes of options
unpredictable
Figure 6.1 Decision-making conditions
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6.4.1 Certainty
A decision is made under conditions of certainty when the available options and the
benefits or costs associated with each are known in advance. No element of change
intervenes between the option and its outcome. Under conditions of certainty, managers
are simply faced with identifying the consequences of available options and selecting
the outcome with the greatest potential benefit.
As we may expect, managers rarely make decisions under conditions of certainty,
because the future is rarely known with perfect reliability. The purchase of a government
treasury bill however is made under at least near certainty. Barring the fall of the
government, R1 000 invested in a treasury bill for one year at ten per cent will yield
R100 in interest. Similarly, knowing that income taxes are due on 15 April, a financial
manager can also make decisions under conditions of near certainty.
6.4.2 Risk
When making a decision under the condition of risk, the manager does not know the
outcome of each alternative in advance, but can assign a probability to each outcome.
Decisions under conditions of risk are perhaps most common.
Probability falls into two categories. Objective probability is based on historical
evidence. It refers to the likelihood that a particular state of events will occur, based
on hard facts and figures. Managers cannot be sure that certain events will occur, but,
by examining past records, they can determine the likely outcome of an event. The
probability of obtaining either heads or tails on the toss of a fair coin is 50 per cent:
the coin is equally likely to land face up or face down. Thus, there is a condition of risk.
In many cases, historical evidence is not available, so a manager must rely on a
personal estimate and belief or subjective probability of the situation outcome.
When Henry Ford took the decision to double the wages of factory workers and to cut
the price of a car by half, it can be regarded as a decision that he made under conditions
of risk. He might have estimated the effect of a 50 per cent increase in wages on the
productivity of factory workers and the subsequent number of cars manufactured and
sold. Then, he might have determined the effect of doubling the wages of factory workers
on their productivity, the number of cars manufactured per annum and consequently
the sales that the company may realise due to the increase in wages. Not knowing for
certain what would happen if these changes were implemented, Henry Ford needed to
make these decisions under conditions of risk.
6.4.3 Uncertainty
A decision is made under conditions of uncertainty when there is a lack of
information — the outcome of each alternative is unpredictable and managers cannot
determine probabilities.
A good example of a decision made under conditions of uncertainty is the Elon
Musk decision.1 More than a century after Henry Ford conceived the legendary Model
T Ford, Elon Musk is redefining transportation on earth and in space. Through Tesla
Motors, Musk is aiming to bring fully electric vehicles to the mass market. He is also
working on sending humans to other planets. In both these cases, there were no trends
to analyse in any market and no indication of possible success.
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Decisions made under conditions of uncertainty are unquestionably the most difficult
decisions you may have to make. In such situations, a manager has no knowledge on
which to base an estimate of the likelihood of various outcomes. No historical data
is available from which to infer probabilities, or the circumstances are so novel and
complex that it is impossible to make comparative judgements. Although managerial
intelligence and competence are widely available, the ability to deal with uncertainty is
rare. Perhaps the most common occasions for decisions under conditions of uncertainty
are those involving the introduction of new technology (such as fully electric vehicles)
or new markets where management has to rely on its ‘gut feeling’.
A crisis can be defined as an event that is expected to lead to an unstable and
even dangerous environment. A crisis can affect an individual, a group of individuals,
an organisation, a society or even the entire planet. Think about the effects that
climate change has on individuals, organisations and communities worldwide. In an
organisational context, a crisis is the ultimate unplanned activity and the ultimate test
for managers. During a time of crisis, conventional management and decision-making
practices may not be adequate. Therefore, decision-makers need to be aware of the
various crises that may be sources of uncertainty and risk in their organisations. These
crises fall in seven categories:
1. Economic crises. An economic crisis is regarded as a situation in which the
economy of a country (or even the world economy) experiences a sudden
downturn. Economic recessions and stock market crashes are examples of variables
causing an economic crisis.
2. Physical crises. Physical crisis refers to a situation in organisations experiencing
industrial accidents, problems surrounding the supply of raw material and
components, and product failure.
3. Personnel crises. An organisation may be faced with a personnel crisis during
strikes, workplace violence, or any other reason that prohibit personnel to perform
their jobs adequately.
4. Criminal crises. This type of crises is caused by criminals – individuals breaking
the rules of law. Theft of money, goods and product tampering may be the cause of
criminal crises.
5. Information crises. Organisations are relying heavily on information from its
external and internal environment to make decisions and to solve organisational
problems. Organisations also rely heavily on databases on which organisational
information is stored, for example, personnel records, sales records and financial
records. An information crisis can arise in cases when organisational information
is stolen or when organisational records are tampered with or when cyber attacks
arise.
6. Reputation crises. A reputation crisis exists when an organisation’s competency is
questioned and its reputation is at stake. Few circumstances test an organisation’s
reputation or competency as severely as a crisis. Reputation crises affect stakeholders
within and outside of the organisation. Within the organisation, employees
raise questions, directors are questioned, and shareholders get anxious. Outside
the organisation, customers cancel orders, competitors sense the opportunity,
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governments and regulators come knocking and lawyers are not far behind, creating
a risky and uncertain environment for the organisation. Reputation crises may be
caused by rumour mongering or slander.
7. Natural disasters. Natural disasters not only affect individuals, communities and
organisations, but also have a worldwide effect. Climate change, for example, has
a profound impact on individuals, communities, organisations and continents.
Climate change refers to a change in the average long-term weather conditions. This
change lasts for an extended period of time, typically decades or even longer. At this
point in time, there is sufficient evidence that the global average temperature has
increased by more than 1.4 °F over the last century, changes in weather and climate
are more frequent, and planet Earth’s oceans and glaciers are changing — oceans
are becoming warmer and more acidic, ice caps are melting and sea levels are rising.
All of these changes have an effect on organisations. Organisations are structured
in such a way as to provide society with products and services that are needed in
the conditions that we are used to. Organisations therefore need to be sensitive to
extremes caused by climate change that fall outside this range.
6.5 Decision-making models
After looking at the type of decision and the conditions under which the decision
has to be made, managers also need to consider the two primary decision-making
models, namely the rational model and the bounded-rationality model. In the case of
the rational model, the decision-maker should select the best possible solution. This is
known as optimising. In the case of the bounded-rationality model, the decision-maker
uses satisficing — selecting the first option that meets the minimal criteria.
Managers need to know which model to use, and when. They should optimise –
apply the rational model – when they are making non-programmed, high-risk decisions
(caused by the factors identified in Section 6.4) in conditions of uncertainty. This
process is explained in Section 6.5.1. When managers are making programmed, lowrisk, or certain decisions, they should select the first option that meets the minimal
criteria, in other words, they should satisfice.
Table 6.1 Summary of decision-making conditions and levels of certainty
Certainty
Risk
Uncertainty
Decision-maker has complete
certainty
Decision-maker has some
certainty
Decision-maker has no
certainty
Available options and the
benefits or costs of each are
known
Outcome of each alternative
is not known in advance
Outcome of each alternative
is unpredictable
No element of change
intervenes between the
option and its outcome
Probability can be assigned
to each alternative outcome
Probability cannot be
assigned to each alternative
outcome
Decision is a sure thing
Decision is a ‘gamble’
Decision requires ‘guts’
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6.5.1 The decision-making process
Recognise, classify, and define
the problem or opportunity
STAGE 2
Set goals and criteria
STAGE 3
Generate creative alternative
courses of action
STAGE 4
Evaluate alternative courses of
action
STAGE 5
Select the best option
STAGE 6
Implement the chosen option
STAGE 7
Conduct follow-up evaluation
Quantitative
tools
Kepner-Fourie
method
Cost–benefit
analysis
STAGE 1
Group decisionmaking
The decision-making process describes a set of phases that individual decision-makers or
decision-making teams should follow in order to increase the probability that their decisions
will be optimal. Optimal decisions will lead to maximum achievement of goals and objectives.
In most decision situations, managers go through a number of stages that help them
think through the problem and develop alternative solutions. Figure 6.2 summarises
each stage in the normal progression that leads to an optimal decision. Note that these steps
are more applicable to non-programmed decisions than to programmed decisions. Problems
that occur infrequently with a great deal of uncertainty require the manager to utilise the
entire process. By contrast, problems that occur frequently with a great deal of certainty are
often handled by policies, standard operating procedures, and rules, making it unnecessary
to develop and evaluate alternatives each time these situations arise.
Figure 6.2 Model of the decision-making process
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Stage 1: Recognise, classify and define the problem or opportunity
The first step in decision-making is recognising that there is a problem/threat or an
opportunity. The problem or opportunity may be classified in terms of the type of
decision (programmed or non-programmed) that needs to be made, the decisionmaking condition (certainty, risk, or uncertainty) and the decision-making model (the
rational or bounded-rationality model) used. After the problem or opportunity has been
classified, it should be accurately defined. An important part of defining the problem
or opportunity is to distinguish the symptoms from the cause of the problem. For
example, a conscientious worker who suddenly starts arriving late at work should not
be defined as an ‘absenteeism situation’. Being late is a symptom of the problem, not the
cause. The cause could be illness, personal problems, transport problems, or something
else entirely. Management should recognise and look at the cause. If the situation is
incorrectly classified or defined, any decisions made will be directed towards solving the
wrong problem. A lack of motivation is not always the cause of poor work performance.
Poor work performance may be a symptom of poor training, of a mismatch between
the organisation’s culture and the values of its employees, or a symptom of outdated
equipment, and so on.
Stage 2: Set goals and criteria
Generally, in programmed decisions, Stages 2 to 5 need not be followed as criteria
have been set for these decisions. The criteria can be found in policies and such like.
However, in the case of non-programmed decisions, no goals or criteria have been set.
The manager will be responsible for this task. He or she can make an individual decision
or involve a group in decision-making (see Sections 6.6 and 6.7).
The foundation of the decision-making process lies in the managerial goals that
give it purpose, direction, and continuity. A given goal represents an end point toward
which management directs its decision-making. The goal should state exactly what the
decision should accomplish.
Stage 3: Generate creative alternative courses of action
Once a problem or an opportunity has been recognised and goals and criteria have been
set, the next step is to identify various courses of action to deal with the situation. Bear
in mind that it is impossible to identify all available options. However, a systematic
effort should be made to identify as many courses of action as possible.
Innovation and creativity play a major part in generating various courses of action.
Using groups to generate solutions could enhance this process (see Sections 6.6
and 6.7). The availability of information (Chapter 7) and technology should also be
considered. South African managers are fortunate in that they can tap into the creativity
of a diverse workforce.
The number of available options identified is limited by certain constraints — mainly
time and money. Rarely do managers have enough time or money to identify, let alone
evaluate, an unlimited number of options. Indeed, there may be times when doing
something immediately may be more important than taking a different action at a later
date. Managers often need to balance time and expense against identifying additional
options. During this stage managers need to decide whether they want to consider all
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options and optimise their decision (rational model) or search only until a ‘satisficing’
option (bounded rationality) has been reached.
Stage 4: Evaluate alternative courses of action
Once various courses of action have been identified, the next step is to evaluate the
options. Each option should be evaluated in terms of its strengths and weaknesses,
advantages and disadvantages, benefits and costs. Because each option is likely to have
both positive and negative features, most evaluations involve balancing anticipated
consequences. The evaluation of options may be intuitive or may follow a more scientific
approach. Some of these approaches are discussed in Section 6.8.
Stage 5: Select the best course of action
In the previous two steps, options were identified and evaluated. The next step is to
select the best option. The success rate of the average manager in selecting the best
option is rarely more than 50 per cent: this is only slightly better than deciding on the
toss of a coin. Therefore, this step requires a manager to evaluate each option carefully
against the goals and criteria set during the second stage, with a view to ranking the
options in order of priority. In practice, selecting an option is often subjective. The
manager’s experience, values, internal politics, and so on influence this choice.
Stage 6: Implement the chosen option
Once an option has been selected, appropriate actions should be taken to ensure that
it is properly implemented. A decision is only an abstraction and needs to be put into
action. It is possible for a good decision to be damaged by poor implementation, while a
poor decision may be helped by good implementation. Therefore, implementation may
be just as important as the activity of selecting an option.
Decisions should be explained in such a way that all the relevant parties understand
them. Those concerned should understand not only the logic behind a decision, but also
what they are supposed to do. A suitable organisational structure, good leadership, a
strong organisational culture, and a fair reward system will enhance the implementation
of decisions.
Stage 7: Conduct follow-up evaluation
Once a decision has been set in motion, evaluation is necessary to provide feedback
on its outcome. Adjustments are invariably needed to ensure that actual results compare favorably with planned results — as determined in Stage 2 of the decision-making
process.
The process of evaluation closes the feedback loop shown in Figure 6.2. The soundness
of a decision may be evaluated against planned results. If necessary, modifications
can be made and further options identified and evaluated. This should be seen as an
opportunity for acquiring new knowledge in order to improve future decisions.
6.6 Group decision-making
Stages 2 and 3 of the decision-making process, namely the setting of goals and criteria
and the generation of creative alternative courses of action, rely heavily on creativity
and innovation. Group decision-making can enhance this process, especially in the case
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of non-programmed decisions where there is usually a great deal of uncertainty about
the outcome. The complexity of many of these decision-making situations requires
specialised knowledge in a number of fields.
Whether groups make better decisions than individuals working alone has been the
topic of extensive discussion. Groups are subject to social factors when making decisions.
These factors include social conformity, levels of communication skill, dominance by a
specific group member, and so on. While groups often make better decisions than those
made by the average group member, their decisions consistently fall short of the quality
of decisions made by the best individual member. Group decision-making, therefore,
has certain advantages and disadvantages. The advantages of group decision-making are
as follows:
■■ A variety of skills and specialised knowledge can be used to define and solve a
problem or recognise an opportunity — this will lead to better quality decisions
■■ Multiple and conflicting views can be taken into account
■■ Beliefs and values can be transmitted and aligned
■■ More organisation members will be committed to decisions, since they have
participated in the decision-making process
■■ Participation in problem solving and decision-making will improve the morale and
motivation of employees
■■ Allowing participation in problem solving and decision-making train people to
work in groups through developing group process skills.
On the other hand, group decision-making also has some potential disadvantages:
■■ It may be more time-consuming and lead to slower decision-making
■■ Groups are more likely to satisfice than an individual, especially when group
meetings are not run effectively
■■ One group member, or a sub-group, may dominate and nullify the group decision
■■ It may inhibit creativity and lead to conformity and ‘groupthink’. Groupthink is
discussed in Chapter 13.
We shall now go on to examine techniques for improving group decisionmaking.
6.7 Techniques for improving group decision-making
In order to overcome the disadvantages and to capitalise on the advantages of group
decision-making, various techniques have been suggested to make group decisionmaking more creative. We shall consider a selection of four of the many techniques
available. These four techniques are brainstorming, the nominal group technique, the
Delphi technique, and group decision support systems (GDSS). These techniques are
illustrated in Figure 6.3.
(Figure 6.3 indicates where the different techniques are mainly used. However, the
techniques can be used at any management level.)
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Delphi
Top
management
Nominal
Group
Decision
Middle management
Lower management
Brainstorming
Figure 6.3 Group decision-making techniques
6.7.1 Brainstorming
One of the problems of decision-making groups is that group norms develop over time,
and group members tend to conform to dominant group opinions. As a result, the
creativity of a decision-making group declines after having peaked early in the forming
of the group.
Brainstorming is a technique used to stimulate creative or imaginative solutions
to organisational problems. Group participants informally generate as many ideas as
possible without evaluation by others. This prohibition should encourage contributions
from members who are particularly shy, have divergent ideas, or have low status within
the group. During idea generation, group members are encouraged to build on, but
not criticise, ideas produced by others. This cross-fertilisation is assumed to produce
a synergistic effect. The object is to generate as many ideas as possible in the belief that
the more ideas conceived, the greater will be the likelihood of one outstanding idea
emerging.
The following rules govern brainstorming sessions:
Criticism is prohibited. The judgement of the creative or imaginative solutions
to organisational problems should be withheld until all the solutions have been
generated.
■■ No ‘Yes, but ...’ comments are allowed.
■■ Imaginative solutions are welcome. The wilder and more ‘far out’ the solution, the
better.
■■ Quantity is important. The greater the number of solutions, the greater the
likelihood that there will be an outstanding one.
■■ The combining of various solutions and the improvement of suggested solutions
are encouraged.
■■
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Brainstorming sessions usually last from thirty minutes to an hour. A one-hour session
can generate up to 150 ideas. Typically, most of the ideas will be impractical, but a few
will merit serious consideration. Brainstorming has been used with encouraging results
in the field of advertising, new product development, and so on.
It is important to note that brainstorming is merely a process for generating ideas.
The next two techniques go further by offering methods of actually arriving at a
preferred solution.
6.7.2 Nominal group technique
This technique is a structured group decision-making technique. The nominal group
technique restricts discussion or interpersonal communication during the decisionmaking process. Group members are all physically present, as in a traditional committee
meeting, but members operate independently.
A problem is usually presented with the following steps taking place:
Seven to ten members meet as a group. Before any discussion takes place, each
member independently writes down his or her ideas on the problem.
■■ The group leader systematically gathers information from all participants. Each
member presents one idea to the group. No discussion takes place until all the ideas
have been recorded.
■■ The ideas are clarified through a guided discussion.
■■ The group leader then instructs participants to vote on their preferred solutions.
■■ Each member silently and independently ranks the ideas.
■■ The process may conclude with an acceptable solution.
■■
The nominal group technique is appropriate for situations in which groups may be
affected by a dominant person, conformity, or ‘groupthink’ because it minimises these
effects.
6.7.3 Delphi technique
Decisions often have to be made by experts in different geographical areas. In this case
neither brainstorming nor the nominal group technique can be used, as both techniques
require the presence of participants. The Delphi technique is a decision-making
technique that does not require the physical presence of the participants. Companies
such as Edcon which owns various retail divisions such as Edgars, Red Square, CNA,
and so on in most South African towns and cities can use this technique to change, for
example, the layout of their stores by involving store managers all over the country.
The Delphi technique involves using a series of confidential questionnaires to refine
a solution. In this technique the group’s members never meet face to face. The following
steps characterise the Delphi technique:
■■ The problem is identified and members are asked to provide potential solutions
through a series of carefully designed questionnaires.
■■ Each member anonymously and independently completes the first questionnaire.
■■ The results of the first questionnaire are compiled at a central location, transcribed,
and reproduced.
■■ Each member then receives a copy of the results.
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■■
■■
After viewing the results, members are again asked for their solutions. The results
typically trigger new solutions or cause changes in the original position.
The last two steps are repeated as often as necessary until consensus is reached.
Origin of the Delphi technique
This technique gets its name from Delphi, a place that was famous before the time of Christ
as the seat of the most important temple of the Greek god Apollo. Kings and other powerful
rulers from all over the ancient world came to Delphi to consult with Apollo through his
priestesses, whom they believed could foretell the future.
Trends in safety management
A Delphi study was conducted by obtaining a list of 120 American Society of Safety
Engineers chapter presidents. These individuals served as the group of experts, known as
the Delphi panel. In the survey, respondents were asked an open-ended question regarding
their predictions about safety for the remaining decade. Participants were asked to identify
‘up to ten trends you feel the safety profession will experience over the next ten years’. By
going through all the steps of the Delphi technique, 46 predictions were generated by panel
members. In brief, the panel sees a profession that will be more global as well as more
reliant on computers. Professionals will increasingly be expected to explain how their efforts
contribute to the bottom line, which will continue to be negatively affected by increasing
medical costs and an aging workforce. Furthermore, the panel predicts new regulations in
areas such as ergonomics from the Occupational Safety and Health Administration.
Source: Adams, S.J. 2001. ‘Projecting the Next Decade in Safety Management’. Professional Safety,
46(10), p 26.
Brainstorming, the nominal group technique, and the Delphi technique should not be
seen as competing choices, but as complementary techniques.
6.7.4 Group decision support systems
Group decision support system (GDSS) is a generic term that refers to various kinds of
computer-supported group decision-making systems. Most of the GDSSs can be used
to support face-to-face groups as well as groups that communicate through electronic
media.
The process of brainstorming can be supported by sophisticated computers, called
electronic brainstorming. In an electronic brainstorming session, the participants have
at their disposal networked workstations. Instead of contributing their ideas in a roundrobin fashion, they simply type in their suggestions. These ideas are disseminated to
the other group members without an identifying mark. Thus anonymity is preserved
and the group members can respond more freely than in a conventional brainstorming
session.
Figure 6.4 depicts an example of a group decision support system, namely
the electronic meeting. This technique blends the nominal group technique with
sophisticated computer technology. Group members sit around a horseshoe-shaped
table, empty except for a series of computer terminals.
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Issues are presented to participants and they type their responses onto a computer
screen. Individual comments, as well as aggregate votes, are displayed on a projection
screen in the room. Electronic meetings can be as much as 55 per cent faster than
traditional face-to-face meetings.
Swivel chair
Projection screen
U-shaped table
Individual
monitors
and keyboards
Figure 6.4 Typical GDSS configuration for a face-to-face meeting
In a real-time Delphi, a computer conference is substituted for the mail questionnaires
of the conventional Delphi. This allows participants to respond immediately to the
comments anonymously entered by the other members of the group. In this way the
time required to complete the Delphi is much reduced.
In deciding which of the techniques to use for improving group decision-making,
management should consider issues such as time and money costs, the potential for
interpersonal conflict, commitment to the solution, and many more. In general, it can be
said that top management commonly uses the Delphi technique for a specific decision.
Brainstorming and the nominal group techniques are frequently used at middle and
lower management level where work groups are involved.
6.8 Tools for decision-making
Various tools are available to assist managers in performing Stage 4 of the decisionmaking process (the evaluation of alternative courses of action) and Stage 5 (the
selection of the best option). In this section we will discuss quantitative tools for
decision-making, the Kepner-Fourie method, and the cost–benefit analysis.
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6.8.1 Quantitative tools for decision-making
Many of these techniques have their origin in the quantitative management school (see
Chapter 2) and propagate the use of mathematical relations in solving management
problems.
Our objective in this section is to make you aware of these techniques — not to
turn you into a mathematician. For the same reason, we will use the dominant model in
this chapter as a guide, that is, the conditions of decision-making — certainty, risk, and
uncertainty. Figure 6.5 will serve as the point of reference for our discussion in this section.
Top
management
Middle management
Lower management
Condition
Tool
Uncertainty
Simulation
Capital budgeting
Risk
Break-even analysis
Decision tree
Pay-off matrix
Probability analysis
Certainty
Queuing theory
Linear
programming
Figure 6.5 Conditions of decision-making and quantitative decision-making tools
Decision-making tools in conditions of certainty
Linear programming
Of all the quantitative tools identified, linear programming is perhaps the most
frequently and extensively used. It is a quantitative tool for optimally allocating scarce
resources amongst competing uses to maximise benefits or minimise losses. The
resources in question may be human, financial, physical, or informational.
The so-called ‘travelling salesman problem’ is a classic linear programming application.
The problem is to determine the shortest or least costly route for a salesperson to travel
to visit a set list of cities. The salesperson must visit each city only once, never retrace
any steps, and return to the starting city. Linear programming is capable of determining
which route is the shortest or least costly to follow.
Queuing theory
South African Airways introduced self-check-in systems for its passengers travelling
with only hand luggage in order to avoid unnecessary waiting in check-in lines. The
decision-making tool used by SAA management to introduce this system is called
queuing theory.
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Queuing theory is a quantitative tool for analysing the costs of waiting lines. The
objective of queuing theory is to achieve an optimal balance between the cost of
increasing service and the amount of time individuals, machines, or materials must wait
for service.
Not only are there costs associated with allowing a queue, but there are also costs
associated with increasing service to prevent them. The problem is to determine the
best balance between the cost of upgrading service and the amount of time users of a
service must wait in line. In such situations, queuing theory can be used to identify an
optimal solution to maximising service with minimum costs.
Decision-making tools in conditions of risk and uncertainty
In this section, probability analysis, the pay-off matrix, decision tree, break-even analysis,
capital budgeting and simulation will be discussed as possible decision-making tools in
conditions of risk and uncertainty. The following LeisureNet example will be used for
illustrative purposes.
Death of a business
LeisureNet was a very successful and profitable company, yet it is viewed as one of South
Africa’s most spectacular corporate failures. A turnaround specialist from Coronation FRM,
Peter Flack, was invited to sit on their board during September and October 2000. He found
that the company had deteriorated so far and so fast that all that could be done was to close
it. LeisureNet made all the wrong decisions and the lessons drawn from their failure need to
be learned by every manager. This is Flack’s account of what went wrong.
First, the board of LeisureNet had become dysfunctional. The company decided to expand
offshore and had built 22 Health & Racquet (H&R) Clubs in Australia, Britain, Germany, and
Spain. The previous joint chief executive officers of LeisureNet had recently been transferred
to Healthland International Limited so the young managing director of the South African
operations had been approached to take the job as CEO of LeisureNet. However, he had not
accepted the position and the terms of his appointment had not been finalised. So clearly
there was a question of a leadership vacuum. The previous leaders had sold almost all of
their interests in LeisureNet and had been awarded a substantial and meaningful stake, free
of charge, in Healthland International Limited.
Second, LeisureNet had been used to fund, staff, and train employees of Healthland. The
H&R Club business had been pillaged to establish Healthland’s operations and all available
cash had been invested in Healthland and little, if any, in the H&R Club business. The result
was a lack of maintenance and refurbishment at H&R Clubs.
Third, the company had no coherent strategic plan. Over the previous five years the
company had, in addition to the health and fitness business, acquired a food business, a
golfing business, an education business, a casino bid, a gymnasium equipment business, a
restaurant, and the six-member Imax theatre chain.
The accounting system, sales system, marketing, and human resources procedure were
well thought out. In moving offshore, the business there had adopted the best of the local
operating systems, acquired a standard management information system, and had recruited
the most senior of the local managers.
➜
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The glaring omission, however, related to the position of chief financial officer and the
treasury and cash management functions for this massively cash hungry growth business in
a state of rapid development. Ultimately, this gap in the management structure caused the
downfall of Healthland. Finally, there was no action plan of any kind.
Source: Adapted from Flack, P. 2001. ‘Death of a Business’. Succeed Magazine, June/July.
Probability analysis
The term ‘probability’ refers to the estimated likelihood, expressed as a percentage that
an outcome will occur. LeisureNet, in deciding to embark on a restaurant business,
could have determined – objectively or subjectively – what the probabilities were of an
80 per cent occupancy rate under conditions of high inflation compared with conditions
of low inflation. Management could then have compared this outcome to an alternative
course of action. The alternative could have been to embark on the Imax theatre chain. A
mathematically calculated answer should indicate to management the value (in Rand)
of each alternative.
There are two complementary approaches to using probability analysis, namely payoff matrices and decision trees. Both are amongst the most helpful quantitative tools
available to a manager.
Pay-off matrix
The pay-off matrix is a technique for indicating possible pay-offs, or returns, from
pursuing different courses of action. Each option is pursued under different states of
nature, or circumstances beyond the control of the decision-maker.
Table 6.2 Pay-off matrix showing alternative pay-offs
Alternatives
States of nature (level of inflation)
Low
High
Restaurant business
R16 m
R8 m
Imax theatre chain
R6 m
R2 m
Table 6.2 shows the possible pay-offs to LeisureNet from pursuing each alternative under
the two levels of inflation. As indicated in the pay-off matrix, if LeisureNet decided to
become involved in the restaurant business under a low level of inflation, anticipated
revenues would be R16 million. If they decided to become involved in the Imax theatre
group under a high level of inflation, anticipated revenues would be R2 million. The
anticipated revenues can now be used in a decision tree.
Decision tree
A decision tree is a graphic illustration of the various solutions available to solve a
problem. It is designed to estimate the outcome of a series of decisions. As the sequence
of the major decision is drawn, the resulting diagram resembles a tree with branches.
The expected value of becoming involved in the restaurant business, according
to Figure 6.6, is R9.6 million. This is higher than the R2.8 million expected value of
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becoming involved in the Imax theatres. Management would therefore opt for the first
alternative — becoming involved in the restaurant business.
Break-even analysis
Another technique that can be used to evaluate alternative courses of action, and to
select the best option, is the break-even analysis. This technique involves the calculation
of the volume of sales that will result in a profit. It requires a forecast of the sales volume
and the cost of production. The break-even point is then calculated as the level of sales
where no profit or loss results. For example, LeisureNet could have calculated how
many members of the Health & Racquet Clubs were necessary in order to break even.
Expected value
= (80 % x R8m) + (20 % x R16m)
= R6.4m + R3.2m
= R9.6m
Expected value
= (80 % x R2m) + (20 % x R6m)
= R1.6m + R1.2m
= R2.8m
Build
Buy
Build
Buy
Manage
Sell
new
existing
new
existing
all
franrestaurant restaurant restaurant restaurant theatres chises
Manage
all
theatres
Sell
franchises
Options
Anticipated
pay-off
Event and
probability
R16 m
R8 m
High
inflation
(80 %)
Low
inflation
(20 %)
R2 m
R6 m
High
inflation
(80 %)
Low
inflation
(20 %)
Alternative
courses
of action
Restaurant
IMAX
Figure 6.6 A decision tree
Capital budgeting
Capital budgeting is a technique that can be used to evaluate alternative investments.
It involves a process by which each alternative investment is analysed in financial terms
and placed on the capital budget. Various methods exist to analyse investments in
financial terms. For example, the payback period can be used to calculate the years it will
take to recover the initial cash invested. The alternative that offers the shortest payback
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period (in years, months, etc) is then preferred. Another method computes the average
rate of return of each investment and selects the investment with the highest average
rate of return. A more sophisticated technique is the net present value of an investment,
which is the present value of the future benefits less the cost. It is the difference between
what is to be received, in current worth, and what will be paid for it.
Simulation
Simulation is a quantitative tool for imitating a set of real conditions so that the likely
outcomes of various courses of action can be compared. These methods involve
constructing and testing a model of a real-world phenomenon. South African Airways
uses simulators to train and retrain pilots. These simulators are particularly useful for
solving complex problems such as the failure of one of a Boeing 747’s engines on takeoff. It is too costly and dangerous to expose each South African Airways pilot to these
conditions. Pilots are exposed to real-life situations, but on a manageable scale.
In business, simulation can be used with mathematical models to predict the possible
outcomes of investment and pricing decisions, proposed inventory control systems,
assembly-line scheduling routines, various design specifications, and various competitive strategies. Organisations are making increasing use of computers to run business
simulations. This allows managers to save time and money and keeps them better
informed, allowing them to make better decisions.
6.8.2 The Kepner-Fourie method
In the previous section we explained objective quantitative tools for decision-making.
The Kepner-Fourie method combines the objective quantitative approach with some
subjectivity. The subjectivity comes from determining ‘must’ and ‘want’ criteria and
assigning value weights to them. It is a method for comparing alternatives using the
criteria selected in Stage 2 of the decision-making model.
The following example illustrates the use of the method: Let’s state that our objective
is to buy a house, which can be occupied within two month’s time. This is obviously
a non-programmed decision. Table 6.3 shows the use of the method to decide which
house to buy.
■■ Step 1: Compare each alternative to the ‘must’ criteria listed in column 1. Eliminate
any alternative that does not meet the ‘must’ criteria. Houses three and four do not
meet all the ‘must’ criteria and are eliminated.
■■ Step 2: Rate each ‘want’ criterion (column 1) on a scale of one to ten (ten being
most important). Note that the same number may be used more than once (ten for
example).
■■ Step 3: Assign a value of one to ten (ten being the highest) to how well each
alternative meets all the ‘want’ criteria. These values are shown in the vertical
columns labelled House 1 and House 2, and they can be compared for each house.
Again, factors can have equal weights, for example five.
■■ Step 4: Compute the weighted scores (WS) for each alternative by multiplying
(horizontally) the importance value by the ‘meets criteria’ value for each house.
Next, add these weighted scores vertically to obtain the total weighted score for
each house.
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■■
181
Step 5: Select the alternative with the highest total weighted score as the solution
to the problem. House two should be selected because it has the highest weighted
score.
6.8.3 Cost–benefit analysis
The quantitative tools for decision-making make maximum use of objective mathematical
approaches to compare alternatives. The Kepner-Fourie method combines the objective
quantitative approach with some subjectivity. However, managers may be faced with
situations when the benefit received for the cost is uncertain, making these methods
unusable. In such situations, the cost–benefit analysis can be used. It compares the
costs and benefits of each alternative course of action using subjective intuition and
judgement. This method makes the minimum use of mathematics to make the decision.
The advantages (which can be considered the benefits) and disadvantages (which can
be considered the cost) are identified for each alternative.
Table 6.3 The Kepner-Fourie method for analysing alternatives
‘Must’ criteria
House 1
House 2
House 3
House 4
Cost under R500 000
Yes
Yes
No
Yes
Available within two months
Yes
Yes
Yes
No
‘Want’ criteria
Meets criteria
Importance*
House 1
WS**
House 2
WS**
4 bedrooms
8X
5 = 40
10 = 80
2 bathrooms
7X
5 = 35
10 = 70
Double garage
10 X
9 = 90
9 = 90
Near schools
9X
10 = 90
6 = 54
Security
10 X
10 = 100
8 = 80
Pool
5X
6 = 30
9 = 45
385
419
Total weighted score
* Indicates the quantity of importance – on a scale of 10 (high) to 1 (low) – assigned to each
‘want’ criterion as a weight.
** Indicates the weighted score awarded to each alternative.
6.9 Summary
Problems exist whenever managers perceive a difference between what has actually
happened and what they wanted to happen. Problem solving is the process of taking
corrective action, while decision-making can be defined as the process of choosing
between various courses of action. Decision-making can be classified by its relative
frequency. Programmed decisions are those decisions that are made by habit or policy
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and involve simple, common, frequently occurring problems. Non-programmed
decisions deal with unusual or novel problems and require creative thinking. This
chapter is mainly concerned with non-programmed decision-making.
Managers usually make decisions under conditions of certainty, risk, or uncertainty.
Under conditions of certainty, all available options and the benefits and costs associated
with each are known. When making a decision under the condition of risk, the manager
does not know the outcome of each alternative in advance, but can assign a probability
to each outcome. Decisions under conditions of risk are perhaps the most common.
A decision is made under conditions of uncertainty when the available options, the
probability of their occurrence, or their potential benefits or costs are unknown.
Decision-making can be seen as a process, starting with the recognition, classification,
and definition of a problem or opportunity. The other steps in this process are the
setting of objectives and criteria, the generation of creative alternative courses of
action, the evaluation of these courses of action, the selection of the best option, the
implementation of the chosen option, and follow-up evaluation.
To overcome the disadvantages and to capitalise on the advantages of group
decision-making, we presented various ways of making this process more creative. The
techniques discussed were brainstorming, the nominal group technique, the Delphi
technique, and group decision support systems.
To conclude the chapter, we examined various tools for decision-making, namely
quantitative tools (linear programming, queuing theory, pay-off matrix, decision trees,
break-even analysis, capital budgeting, and simulation), the Kepner-Fourie method,
and the cost–benefit analysis.
References
1. Forbes. nd. Available at: http://www.forbes.com/profile/elon-musk/ (Accessed:
13 September 2016).
Case study
BP Oil Company
On 10 April 2010, one of the worst environmental disasters in history occurred. The British
Oil Company’s Macondo well blew out in mile-deep water in the Gulf of Mexico. The blowout caused the Deepwater Horizon drill rig to explode, killing 11 workers and injuring 17
others. Over the next three months the company attempted to cap the gushing well, but
sadly failed to do so. The flow finally stopped on July 15, 2010, an estimated 171 million
gallons of oil had leaked into the highly productive and biodiverse Gulf of Mexico. The
catastrophe lead to many injuries and loss of workers’ lives, harm to the health of many
Gulf coast residents, ecological damages and negative economic impact, not to mention the
financial obligations that the company faced since the day of the disaster.
Subsequent to the oil spill, the BP Company released a sustainability report, filled with
sincerity, regrets and promises to do things better in future. The company not only lost the
trust of the public, but also the trust of employees, shareholders, suppliers, government and
other stakeholders. The chairman of the company at the time of releasing the sustainability
report indicated that BP is determined to be a safer and more risk-aware business.
➜
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The chairman’s letter further acknowledges the wrongs and pledges improvement, mainly
in terms of stating that safety has become their number one priority. The company has set
up a new safety and operational risk function. This function has its specialist personnel
embedded in BP’s business, working alongside the line management to guide, advise and
intervene when it is needed. Furthermore, the company established a Gulf Coast Restoration
Organisation and a Gulf of Mexico Research Initiative to study and monitor the long-term
effects of the spill on the environment and human health. They also pledge to share their
‘lessons learned’ across the company and with industry peers.
The Company also forecasts an increase in energy demand globally. BP is a big believer in
renewable energy, but in practice, they decided to invest a relatively small portion of their
investment portfolio in renewable energy. BP’s investments in renewable energy focus on
biofuels, wind, solar and carbon capture and storage.
Source: BP. nd. Available at: http://www.bp.com/en_us/bp-us/commitment-to-the-gulf-of-mexico/
deepwater-horizon-accident.html (Accessed 29 September 2016).
Case study questions
Question 1
During 2010, BP Oil Company faced many problems that they needed to solve due to
the oil spill disaster. Management needed to go through a number of stages that helped
them think through the problem and make optimal decisions. Discuss the stages in
the decision-making process that BP needed to follow. In your discussion, you need to
apply each stage of the decision-making process to the BP Oil Company.
Question 2
Group decision-making can enhance the decision-making processes of BP Oil Company
that you have discussed in the previous question. Defend the statement ‘groups make
better decisions than individuals working alone’.
Question 3
Various techniques exist that can improve group decision-making in an organisation.
Which of these techniques would you recommend to the management of BP Oil
Company, given the problems and opportunities with which they were faced in 2010?
Substantiate your answer.
Question 4
Most of the decisions referred to in the BP Oil Company case study are decisions
top management needed to make. Which quantitative decision-making tools would
you recommend to their top management that would enhance their decision-making
processes? Substantiate your answer.
Multiple-choice questions
Question 1
.
Decision-making can be defined as the
1. process of taking corrective action that will solve a problem and that will realign the
organisation with its goals
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2. process of selecting an alternative course of action that will solve a problem
3. stimulation of creative and imaginative solutions to organisational problems
4. optimal allocation of organisational resources
Question 2
A commercial bank needs to decide whether a client qualifies for a home loan.
decision.
This is an example of a
1. programmed
2. unstructured
3. non-programmed
4. group
Question 3
During an economic recession, most commercial banks tighten credit scorecards, curtail
loan growth, include new loan-to-value criteria in home loans and apply generally
stricter credit criteria across most retail products.
These are examples of
1. programmed
2. routine
3. non-programmed
4. structured
decisions.
Question 4
When deciding on their commission to be paid to brokers, a commercial bank estimates
that business in their investment management and life insurance department, has a 30
per cent chance of dropping by 5 per cent, a 20 per cent chance of dropping by 10 per
cent and a 50 per cent chance of dropping by 15 per cent.
, and
This is an example of decision-making taken under conditions of
.
more specifically decisions based on
1. uncertainty; historical evidence
2. risk; subjective probability
3. certainty; objective probability
4. certainty; subjective probability
Question 5
A commercial bank decides to seek growth by acquiring an educational business because
it represents the most promising investment opportunity available.
This is an example of a decision taken under conditions of
1. certainty
2. risk
3. uncertainty
4. volatility
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Question 6
When the commercial bank made decisions such as the one described in question 5,
and apply the
decision-making model.
they should
1. optimise; bounded-rationality
2. satisfice; rational
3. satisfice; bounded-rationality
4. optimise; rational
Question 7
Which of the following quantitative tools for decision-making is the most appropriate
one to use under the conditions explained in question 5?
1. Capital budgeting
2. Queuing theory
3. Pay-off matrix
4. Delphi technique
Question 8
Which one of the following group decision-making techniques is the most appropriate
to use by middle level managers of an organisation?
1. Delphi technique
2. Brainstorming
3. Nominal group technique
4. Linear programming
Question 9
An organisation needs to make an important decision that involves the five different
international jurisdictions where we have operating licenses.
The most appropriate group decision-making technique for them to use is
1. the nominal group technique
2. the Delphi technique
3. brainstorming
4. simulation
.
Question 10
A retail store applies the queuing theory for analysing the costs of clients waiting in
queues in their different branches.
By applying the queuing theory, the retail store is trying to achieve and optimal balance
and the
.
between the
1. cost of preventing individuals from waiting for service; bank’s return on investment
2. productivity of their tellers; satisfaction of their clients
3. cost of increasing service; amount of time individuals must wait for service
4. number of individuals waiting for service; capacity of their tellers
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Paragraph questions
Question 1
Explain the relationship between problems, problem solving and decision-making in an
organisational context.
Question 2
Distinguish between the various types of decisions made by the managers of an
organisation.
Question 3
Explain the conditions under which decisions are made in an organisation. Illustrate
your answer by means of practical examples from the business environment.
Question 4
Compare the various techniques that an organisation can use to enhance group decisionmaking.
Essay question
Various tools are available to assist managers in especially two stages of the decisionmaking process, namely the evaluation of alternative courses of action and the selection
of the best option. Discuss these tools for decision-making and distinguish between
the tools that are most appropriate for use by top, middle and lower management of an
organisation.
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7
THE
PURPOSE
OF THIS
CHAPTER
LEARNING
OUTCOMES
KEY
CONCEPTS
In the previous chapter we looked at management decision-making at
the different levels of management. In order to make sound business
decisions, managers rely on a steady stream of reliable, accurate, and
timely information from both inside and outside the organisation. In an
era where information is available in almost any format and at all times,
managers run the risk of information overload. This chapter deals with
ways of managing information to use in problem solving and decisionmaking processes.
This chapter will enable learners to:
Explain the link between decision-making and information
management
■■ Explain what an information system comprises
■■ Identify the characteristics of useful information
■■ Classify information systems according to their use in operational
and managerial support
■■ Explain how a management information system can support
decision-making
■■ Explain the role of managerial end-users in developing an
information system
■■ Develop a generic information system for managers.
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
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Information management
Business-to-business e-commerce
Business-to-consumer e-commerce
Business-unit strategy
Consumer-to-consumer e-commerce
Corporate strategy
Data
Decision support systems (DSS)
Electronic commerce (e-commerce)
Electronic mail (email)
Executive information systems (EIS)
Expert systems (ES)
Extranet
File transfer protocol (FTP)
Functional strategy
Hardware
Information
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■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
Information reporting systems (IRS)
Information system (IS)
Information systems strategy
Internet
Intranet
Management information system (MIS)
Operations information system
Software systems analysis
Systems design
Systems implementation
Systems investigation
Telnet
World Wide Web
7.1 Introduction
In the late 1940s, Herbert A Simon popularised the notion that management was
primarily a decision-making process. He later received the Nobel Prize for economics
for his work on managerial decision-making. He argued that all managerial activities
involve the conscious or unconscious selection of particular actions. In many cases,
the selection process consists simply of an established reflex action or habit. In other
cases, the selection is the product of a complex chain of activities. He suggested that for
any decision there are numerous possible solutions, any of which may be selected. By
applying the decision-making process, the possible options are narrowed down to the
one that is selected.
Essential to the process of narrowing down options is information — which is
provided by an organisation’s information system. The quality of the decision is related
to the quality of the information, whereas the quality of the information depends on the
accuracy with which data is gathered, coded, processed, stored, and presented. These
are the main elements of an information system.
Electronic technology designed to process and transport data and information has
been developing at exceptional rates for more than four decades. This information
technology (IT) revolution has significantly affected employees, managers, and their
organisations. It has created opportunities as well as challenges for millions of companies
and individuals. The challenges facing managers are extremely high — managers need
to learn to maximise the advantages offered by IT, while avoiding the many pitfalls
associated with it.
The purpose of this chapter is to introduce and provide an overview of information
management. As managers, we need to understand the uses of information systems in
today’s business environment. We discuss the fundamental concepts of information
systems, identify the characteristics of useful information, and examine ways in which
information systems can support managerial activities. The many kinds of information
system available are classified and described. To conclude the chapter, we discuss the
development of a generic information system that can be used by most types of
organisation.
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The future of jobs
In January 2016, the World Economic Forum published The future of jobs: Employment, Skills
and Workforce Strategy for the Fourth Industrial Revolution.
The authors of the report, together with many business leaders and executives worldwide,
believe that we are at the beginning of the Fourth Industrial Revolution. Since the 1700s,
various revolutionary changes occurred. The First Industrial Revolution (which began
between 1760 and 1820 and ended in 1840) focused on the use of water and steam to
power machinery. The Second Industrial Revolution (which began between 1840 and 1870
until 1914) focused on replacing water and steam with electrical power. The Third Industrial
Revolution (also called the Information Technology Revolution) began in the late 1950s until
the late 1970s. The current and Fourth Revolution is often described as an extension of the
previous one, focused on computer hardware, robotics and massive computing power to
expand information technology. Developments in genetics, artificial intelligence, robotics,
nanotechnology, 3D printing and biotechnology are all building up one another.
This revolution is changing our world of work. Although these changes are creating
opportunities for new types of jobs, it also poses risks and threats. All types of organisations
need to adapt to these changes — even industries need to adapt as a result of these
changes.
Various factors act as drivers of these changes, which we can find in the demographic and
socio-economic and technological environments. Our concern within the context of this
chapter is to interrogate the technological drivers of change. According to the report, the
following drivers are playing a key role:
■■ Mobile Internet and cloud technology
■■ Advances in computer power and big data
■■ New energy supplies and technologies
■■ The Internet of things
■■ Crowdsourcing, the sharing economy and peer-to-peer platforms
■■ Advanced robotics and autonomous transport
■■ Artificial intelligence and machine learning
■■ Advanced manufacturing and 3D printing
■■ Advanced materials, biotechnology and genomics.
Source : World Economic Forum. nd. Available at: http://www3.weforum.org/docs/WEF_Future_of_
Jobs.pdf (Accessed: 12 August 2016).
The drivers of change originating from the technological environment as discussed in
the previous box have major implications for contemporary organisations, individuals,
governments and societies, requiring them to proactively adapt to these changes.
It will have an effect on how we conduct business and how we live our private lives.
Organisations need to be mindful of these changes and its implications for their
organisations, especially in terms of the information management function.
7.2 The link between decision-making and information
In Chapter 3, the external and internal environments in which the organisation operates
were discussed. An information system transforms data from an organisation’s external
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and internal environments into information that can be used by managers in the
decision-making process (see Figure 7.1).
INTERNAL ENVIRONMENT
Organisational resource data
Marketing data
Financial data
Purchasing and operations data
Human resources data
Other data
EXTERNAL ENVIRONMENT
Consumer data
Competitor data
Intermediaries data
Supplier data
Technological data
Ecological data
Economic data
Social change data
International data
Other data
INFORMATION
SYSTEM
Transforms data into
information
DECISIONMAKING
Figure 7.1 The relationship between an organisation’s information system and decision-making
From the internal environment, organisational resources, marketing, financial,
purchasing, supply chain, and human resources data are used. From the external
environment, consumer, competitor, intermediaries, supplier, technological, ecological,
economic, social change and international data are used. The information system is then
responsible for transforming these data into useful, timely and accurate information
that decision-makers can use to solve problems, overcome challenges and make use of
business opportunities.
As highlighted by the World Economic Forum’s report in our introductory section
of this chapter, the world of work is changing and technological factors play a major
role as driver of these changes. For example, the number of available options is much
greater today than ever before because of improved technology and communication
systems. Second, the cost of making errors may be excessive because of the complexity
and magnitude of operations, automation, and the domino effect of an error through
the organisation. By the same token, the benefits may be numerous, if correct decisions
are being made.
Because of these trends and changes in the Fourth Industrial Revolution, it is
extremely unwise to rely on a trial-and-error approach to decision-making. Managers
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need to become more sophisticated — they must learn how to manage the information
in their fields. In what follows, we will focus on computer-based information systems
that support managerial decision-making in organisations.
Discovery Health medical scheme
The core purpose of the Discovery Health Medical Scheme (DHMS) is to achieve in a
sustainable manner, the best possible value for its members which comprises the benefits,
quality of care and service levels to members relative to their contributions to the scheme.
DHMS is an open medical scheme, meaning that any member of the public can join the
scheme, subject to its rules.
On 31 December 2015, DHMS covered 2 691 852 members — the largest open medical
scheme in South Africa with a market share of 53 per cent. For the year ended December
2015, the scheme generated a positive net healthcare result of R507 million. Also, the
scheme generated a health investment income of R1 019 million, contributing to the net
surplus for the year of R1 276 million.
Source: Discovery Health. nd. Available at: https://www.discovery.co.za/discovery_coza/web/linked_
content/pdfs/health/DHMS_integrated_annual_report_2015_single_page.pdf (Accessed: 16 August
2016)
7.3 What is an information system?
7.3.1 A definition of an information system
We tend to use the terms ‘data’ and ‘information’ interchangeably, although there is a
definite distinction between the two concepts. Data refers to raw, unanalysed numbers
and facts about events or conditions from which information is drawn. The financial
statements that organisations draw up at the end of each financial period contain
various unanalysed numbers. For example, financial statements provide the sales, gross
profit, net profit, taxes paid, interest on long-term bonds, and so on. In the case of
Discovery Health Medical Scheme (as referred to in the previous box), the scheme’s net
healthcare result, investment income and net surplus for the year ended 31 December
2015, are examples of the scheme’s data. As soon as this data is processed and analysed,
managers and decision-makers will have information which can be used in the problem
solving and decision-making processes. In other words, data pertaining to Discovery
Health Medical Insurance need to be transformed into valuable information. For
example, by comparing the scheme’s investment income for 2015 with the scheme’s
target investment income for 2015 as well as its investment income for 2014. These
comparisons will provide stakeholders of the scheme with a better indication of the
scheme’s financial performance for the year 2015. Data pertaining to Discovery Health
Medical Scheme therefore needs to be transformed into information to be of value to
stakeholders and decision-makers.
Management information is information that is timely, accurate, and relevant to a
particular situation. Management information enables management to establish what
should be done in a specific situation.
A system, as defined in Chapter 1, comprises subsystems that form a whole. These
subsystems are linked and interact in such a way that they achieve a goal.
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An ‘information system’ can now be defined as the people, procedures, and other
resources used to collect, transform, and disseminate information in an organisation.
Stated differently, an information system accepts data resources as input and processes
them into information products as output.
7.3.2 The basic components of an information system
An information system utilises hardware, software, and human resources to perform
the basic activities of input, processing, output, feedback, control, and storage. This is
illustrated in Figure 7.2.
Information systems receive data as input, for instance the sales figures from each
of its strategic business units. The information system needs to process this data by
organising and analysing it in a meaningful way to provide information as output to
managers. Managers may want to know the growth rate of sales, earnings per share,
return on common equity, and so on. The information, and not the data, should enable
management to make decisions. This information must then be stored. Storage refers to
the activity by which data and information are retained for subsequent use. Discovery
Health Medical Insurance could use magnetic tapes, computer disks, or other means
of storage for this purpose. Finally, an information system provides feedback on its
activities in order to determine whether the system meets established performance
standards.
Human resources
TRANSFORMATION
INPUT
DATA
OUTPUT
INFORMATION
Software resources
Hardware resources
Control
FEEDBACK
Storage
Figure 7.2 An information systems model
Procedures
Information systems include certain resources that contribute to their informationprocessing activities. ‘Hardware resources’ is a broad term that denotes the physical
components of a computer system. The four main categories of computer system
components are:
1. Input devices, such as keyboards, optical scanning devices, and magnetic ink
character readers which allow one to communicate with one’s computer.
2. A central processing unit (CPU), which consists of electronic components that
interpret and execute the computer program’s instructions. The CPU can be seen
as the ‘brain’ of the computer.
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3. Output devices, for example printers, audio devices, and display screens.
4. Auxiliary storage, for example magnetic disks and tapes, and optical disks.
Software resources are the programs or detailed instructions that operate computers.
These resources include:
■■ System software, which manages the operations of a computer
■■ Application software, which performs specific data-processing or text-processing
functions such as a word-processing package or a payroll program
■■ Procedures that entail the operating instructions for users of an information
system.
The human resources required to operate an information system include specialists
and end-users. Specialists are people who develop and operate information systems,
such as systems analysts, programmers, and computer operators, while end-users
are people who use the information produced by a system. Managers are end-users
of information.
The toll on information systems in the World Trade Centre attacks
On 11 September 2001, the World Trade Centre in New York was attacked by terrorists.
The financial toll on computerised information systems was:
■■ US$500 million one-time cost to replace hardware destroyed in the attack
■■ US$15,8 billion cost of restoring all IT and communications disrupted by the attack
■■ US$8,1 billion long-term IT cost to enterprises.
7.4 Characteristics of useful information
Information must have certain benefits over raw data to be considered a value-added
resource to the organisation. There are certain characteristics that information should
have in order to be useful and of value to the organisation. These characteristics are:
■■ Quality (accuracy). Information is of high quality if it portrays reality accurately.
The more accurate the information, the higher its quality.
■■ Relevance. Managers and employees often receive information that is of little use.
Information is relevant only when it can be used directly in problem solving and
decision-making processes.
■■ Quantity (sufficiency). Managers and employees often complain about an
information overload. Quantity is the sufficient amount of information available
when users need it — more is not always better.
■■ Timeliness (currency). Timeliness means the receipt of the needed information
while it is current and before it ceases to be useful for problem solving and
decision-making processes. Receiving information too late can have a detrimental
impact on an organisation.
Information must be:
■■ Accurate
■■ Relevant
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■■
■■
Sufficient
Current
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The mentioned four characteristics of useful information, namely accuracy, relevance,
sufficiency, and currency, are interrelated and are essential to the provision of information
that serves as a value-added managerial resource. In what follows, we examine how
organisations organise information systems so that they can provide managerial endusers with information that is all those things.
7.5 Organising information systems
An organisation’s corporate or grand strategy feeds down, through divisional or business
unit strategies, into a number of functional strategies, such as the marketing strategy, the
financial strategy and also the information systems (IS) strategy. Most organisations
organise information systems in such a way that it has similar status as other functions
of the organisation. Figure 7.3 illustrates the hierarchy of an organisation’s strategies
(compare this figure with Figure 4.4).
IS strategy, as one of an organisation’s functional strategies, may have various
substrategies. Examples are the IT strategy and the communications strategy. These
substrategies can then be developed in more detailed strategy elements. For example,
an IT strategy can be developed into a hardware and software strategy and the
communications strategy can be developed into a data strategy and a voice strategy.
In this way, the information systems strategy is viewed as an element of a system of
strategies. In many organisations, the information technology function operates as a
business within a business, supporting all other functional units in a variety of ways.
Table 7.1 provides examples of some functional units and the IT applications that
typically support them.
Corporate
strategy
Divisional or business
unit strategies
Functional strategies
Figure 7.3 Hierarchy of an organisation’s strategy
Senior IS managers and most IS functions have both line and staff responsibilities.
Because of this shared responsibility, IS is a hybrid function in most organisations. The
next section focuses on the classification of IS.
7.6 Classification of information systems
Information systems perform operational and managerial support roles in organisations.
Figure 7.4 provides a conceptual classification of information.
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Table 7.1 Organisational functions and supporting information technology applications
Function
Supporting IT applications
Production and
operations management
Information technology can support this function by means of
the automation of product design and a component catalogue.
Product development can also be supported by means of materials
logistics and factory automation.
Marketing management
Information technology can support the distribution function by
means of warehouse automation, shipping and receiving of goods
and components. Information technology can also support the
sales function by means of order entry, sales analysis and the
calculation of commission. In terms of service and after-sales
service, information technology can be used to analyse failure
and to determine the effectiveness of call centres.
Financing and
accounting management
Information technology can support record keeping, financial
planning, financial reporting, investment analysis and financial
control.
Administrative
management
Information technology can support administrative management
systems by means of various office systems, personnel records,
and performance assessments.
7.6.1 Operations information systems
The purpose of operations information systems is to support business operations.
These systems process data generated by and used in business operations. It is also very
popular abroad. The major categories of such systems and the roles they play are:
■■ Most organisations use transaction-processing systems (TPS) to record and
process data resulting from business transactions, such as sales, purchases, and
inventory changes. In the case of Discovery Health Medical Scheme, various
transactions need to be recorded and processed, for example, the claims of its
members, claims of service providers, payments of claims to service providers,
and so on. Transaction processing systems produce a variety of documents and
reports for internal and external use. They also update the databases used by an
organisation for further processing by its management information system.
■■ Operations IS can make routine decisions that control physical processes. The
financial health and success of the Coca-Cola Company’s bottling partners is
a critical factor in the company’s ability to create and deliver leading brands.
Coca-Cola may, for example, implement an automatic inventory reorder system.
Reordering from their bottling partners then becomes a programmed decision.
Decision rules outline the actions to be taken when the IS is confronted with a
certain set of events. Information systems in which decisions adjusting a physical
production process are automatically made by computers are called ‘process
control systems’ (PCS).
■■ Office automation systems (OAS) transform traditional manual office methods
and paper communications media. These systems support office communication
and productivity. Examples of office automation applications are electronic mail
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(email), desktop publishing, and teleconferencing. Teleconferencing has become
very popular in South Africa because of the long distances that managers and
employers have to cover to attend meetings. In the case of Discovery Medical
Health Scheme, accounts, claims and other information can be emailed to members
instead of using the postal service to deliver hard copies of these information. They
can also make use of teleconferencing to communicate with their centres spread
across the country.
INFORMATION SYSTEMS
Operations information
systems
Transaction-processing
systems
Process control systems
Office automation
systems
Management
information systems
Information-reporting
systems
Decision support
systems
Executive information
systems
Other
classifications
Expert systems
Business function
information systems
The Internet
The extranet
The intranet
Electronic commerce
Figure 7.4 The classification of information systems
7.6.2 Management information systems (MIS)
The term ‘management information systems’ has several popular meanings. Many
writers use the term as a synonym for ‘information systems’. In this text we use MIS to
describe a broad class of IS, the goal of which is to provide information on and support
for decision-making by managers.
Management information systems support the decision-making needs at the
operational, tactical, and strategic levels of management.
At the operational level, decisions are mainly structured, and MIS process
transactions as they occur in order to update internal records and provide reports and
documents.
At the tactical level, decisions are semi-structured, and middle managers receive
results from the operational level. At this level, information is needed on important
matters such as problems with suppliers, abrupt sales declines, or increased consumer
demand for a particular product line. In addition, middle managers also access data
from external sources to support their own planning and control activities.
At the strategic level, decisions are unstructured. Top management needs information
from internal and external sources in order to gauge the organisation’s strengths and
weaknesses, as well as opportunities and threats in the external environment. Information
on the financial performance of the organisation is derived from internal sources and
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is needed by top management to make sound financial decisions. Management needs
information on quarterly sales and profits, on other relevant indicators of financial
performance (such as share value), on quality levels, on customer satisfaction, and on
the performance of competitors. Information from external sources is more difficult
to obtain and to computerise than internal information. Top management also needs
information on interest rates, possible changes in tax laws, the latest technological
breakthroughs, substitute products, and other variables (see Chapter 3).
Providing information and support for managerial decision-making at all levels
of management is a complex task. Several major types of IS are needed to support a
variety of managerial end-user responsibilities. These types of MIS, as indicated in
Figure 7.4, are information-reporting systems, decision support systems, and executive
information systems.
Information-reporting systems (IRS)
Information-reporting systems provide managerial end-users with the information
reports they need for making decisions. These systems access databases on internal
operations containing information previously processed by transaction-processing
systems. Data on the external environment is obtained from external sources.
Decision support systems (DSS)
Decision support systems are a natural progression from transaction-processing systems
and information-reporting systems. They are computer-based information systems
that provide interactive information support to managers during the decision-making
process. Decision support systems use:
■■ Analytical models
■■ Specialised databases
■■ The decision-maker’s own insights and judgement
■■ An interactive, computer-based modelling process to support the making of semistructured and unstructured decisions by the individual manager.
Electronic spreadsheets and other decision support software allow a managerial enduser to receive interactive responses to ad hoc requests for information posed as a series
of ‘what if ’ questions. When using a DSS, managers are exploring possible options and
receiving tentative information based on different sets of assumptions.
Executive information systems (EIS)
Executive information systems are MIS that are tailored to the strategic information
needs of top management. The function of computer-based executive information
systems is to provide top management with immediate and easy access to information on
the organisation’s critical success factors — that is, the factors critical to accomplishing
the organisation’s strategic goals. Executives usually consider various factors critical to
the success and survival of their organisations, such as an insightful understanding of
socio-economic and technological trends, innovative thinking, an understanding of
the impact of legislation and changes in legislation on the business environment and
ways to deal with it, and the key success factors pertaining to the industry that they are
competing in.
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7.6.3 Other classifications of information systems
There are several major categories of IS that provide unique or broader classifications
compared to those just mentioned. These are IS that can support business operations
as well as managers at the operational, tactical, or strategic levels of an organisation.
Examples are expert systems, business function IS, the Internet, the extranet, the
intranet, and electronic commerce (or e-commerce).
Expert systems (ES)
When an organisation has a complex decision to make or problem to solve, it often
turns to experts for advice. These experts have specific knowledge and experience in the
problem area. They are aware of the alternatives, the chances of success, and the costs
the organisation may incur. Organisations engage experts for advice on matters such
as equipment purchases, mergers and acquisitions, and advertising strategy. The more
unstructured the situation, the more specialised and expensive is the advice. Expert
systems are an attempt to mimic human experts.
Typically, an expert system is a decision-making and/or problem solving package of
computer hardware and software that can reach a level of performance comparable to –
or even exceeding that of – a human expert in some specialised and narrow area. It is a
branch of applied artificial intelligence (AI). The logic behind expert systems is simple.
Expertise is transferred from the human being to the computer. This knowledge is then
stored in the computer and users call on the computer for specific advice as needed. The
computer can make inferences and arrive at a specific conclusion. Then, like a human
consultant, it advises non-experts and explains the logic behind the advice.
Expert systems are used today in thousands of organisations and they support many
tasks. Their capabilities can provide organisations with improved productivity levels
and increased competitive advantages.
The application of expert systems
Expert systems have problem solving capabilities within a specific area of knowledge. These
vary in complexity, in terms of both knowledge and technology. For example, expert systems
can be used as medical diagnosis systems, where the user (or patient) describes his/her
symptoms to the computer as he/she would to a medical doctor, and the computer returns
a medical diagnosis. In terms of the use of expert systems in business, numerous examples
exist, ranging from a very simple type of system to systems that are more complicated.
An example of the simplest type of system is a personal budgeting system running on a
personal computer. Examples of systems that are more complicated are e-commerce which
refers to the use of software and machines that can behave like experts such as sales clerks
in a store and even like a cashier. When purchasing goods online, a person never has to
interact with another person – he or she can enter a virtual store, shop and pay for products.
Strategic impact expert systems involve high levels of knowledge and technological
complexity. An example of such a system is one that underwrites an individual’s life. The
process of underwriting an individual’s life insurance application requires complex medical,
financial and insurance knowledge. Such a system may also require that an applicant’s
hobbies (such as mountain climbing) and vocation (for example, frequent travel to politically
unstable countries) be factored into policy evaluation and pricing. The information that the
underwriter receives needs to be clarified and interpreted.
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Business function information systems
Information systems directly support the business functions of accounting, finance,
human resource management, administration, purchasing, marketing, and operations
management. Such IS are needed by all business functions. For example, marketing
managers need information on sales performance and trends — provided by marketing
IS. Financial managers need information on financing costs and investment returns —
provided by financial IS.
The Internet
The Internet is a loosely configured, rapidly growing web of thousands of corporate,
educational, and research computer networks around the world. The US Department of
Defence created it in 1969, and it was designed to survive a nuclear war. Instead of routing
messages through central computers, the Internet makes use of thousands of computers
linked by thousands of different paths. Each message sent bears an address code that
speeds it towards its destination. Messages usually arrive in seconds. Information on
the Internet is potentially available to almost everyone in the world. It offers almost
unlimited communication opportunities. One drawback in communication through the
Internet is the limited privacy of information sent over it. As a result, finding methods to
make information secure is a high priority of both researchers and users.
Internet access usually provides four primary capabilities:
1. Electronic mail (email) enables users to send, receive, and forward messages from
people all over the world. Users can reply to, save, file, and categorise received
messages. Email makes participation in group decision support systems such as
electronic brainstorming, electronic meetings, and real-time Delphi possible.
2. Telnet enables users to log in to remote computers and to interact with them.
Users’ computers are remotely connected to computers at other locations, but act
as if they were directly connected.
3. File transfer protocol (FTP) enables users to move files and data from one computer
to another. Users can download magazines, books, documents, software, music,
graphics, and much more.
4. World Wide Web (or ‘the Web’) is a set of standards and protocols that enable users
to access and input text, documents, images, video, and sound on the Internet.
The Web is non-linear by design and permits users to jump from topic to topic,
document to document, and site to site.
As web-based systems began to flourish, businesses gained efficiency by integrating the
individual systems that supported their value chains. This led to the introduction of
enterprise resource planning (ERP) systems. These complex, comprehensive systems
cover most of the value-chain elements and are used to purchase parts and supplies,
accept customer orders, maintain work-in-process inventories, service customers,
support sales people and help to manage many other important activities.
The extranet
The extranet is a wide area network that links an organisation’s employees, suppliers,
customers, and other key stakeholders electronically. Unlike the Internet, the general
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public does not have access to an extranet. The purpose of an extranet is to provide
vast, reliable, secure, and low-cost computer-to-computer communication for a wide
variety of applications, such as sales, marketing, product development, and employee
communications.
The intranet
The intranet is a semi-private internal network where access is limited to an
organisation’s employees. It uses the infrastructure and standards of the Internet and
the Web. It enables managers and employees to communicate with one another and to
access internal information and databases for which they have been cleared, through
their desktop or laptop computers. Sensitive information, such as employee salaries and
performance appraisals, can be restricted to particular authorised employees.
Electronic commerce
Electronic commerce (e-commerce) can be defined as ‘the process of buying and selling
goods and services electronically by means of computerised business transactions’. The
Internet has emerged as the dominant technology for conducting e-commerce. On
almost a daily basis we read in newspapers of some new organisation that will sell its
products or services online.
Three types of e-commerce exist:
1. Business-to-consumer
2. Business-to-business
3. Consumer-to-consumer.
Business-to-consumer (B2C) e-commerce involves selling products and services
to customers (who are the end-users of its products and services) over the Internet.
Amazon.com is an example of a company selling products over the Internet to the
customer. They sell books that can be delivered around the globe in 24 hours. Although
this may be the most visible expression of e-commerce to the public, the fastest
growing area of e-commerce is business-to-business (B2B) e-commerce, which refers
to electronic transactions between organisations — one business makes a commercial
transaction with another business.
B2B e-commerce typically occurs when a business is sourcing materials for their
production process; or a business needs the services of another for operational reasons;
or a business re-sells goods and services produced by others. Many B2B transactions
take place over the Internet — for example, the Ford Motor Company buys and sells
billions of US dollars worth of goods a year via Internet linkages.
Lastly, consumer-to-consumer (C2C) e-commerce allows customers to interact
directly with each other. Traditional markets require businesses to have customer
relationships, in which a customer goes to the business in order to purchase a product
or service. In C2C markets, customers can sell goods and services directly to each other.
C2C is made possible when an Internet-based business acts as an intermediary between
and amongst consumers. An example is a Web-based auction where consumers can buy
and sell directly to one another, often handling the entire transaction via the Web.
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Information systems can be classified as either operations or management information systems.
Examples of operations information systems are transaction-processing systems, process
control systems, and office automation systems. Examples of management information
systems are information-reporting systems, decision support systems, and executive
information systems. However, some information systems cannot be classified as either
operations or management information systems, for example, expert systems, business
function information systems, the Internet, the extranet, the intranet, and e-commerce.
7.7 Developing an information system
Most managers are not IS specialists. However, they are IS users in line and staff
departments, such as accounting, operations, marketing, purchasing, and so forth.
Their performance will, in part, depend on the quality of the IS support available. It
is therefore imperative for end-users to have a say in the development efforts of IS
specialists in order to ensure that the system meets their information requirements.
7.7.1 Systems investigation
An information system is usually conceived, designed, and implemented through a
systematic development process in which end-users (managers) and technical staff
design systems based on an analysis of the specific information requirements of an
organisation, or of departments in an organisation. In this way, a systems development
life cycle emerges, as illustrated in Figure 7.6. All the activities involved in the
development cycle are closely related and interdependent, with the result that several
development activities can, in practice, occur at the same time.
The first step in the IS development life cycle is to determine the nature and scope of
the need for information. If the need is incorrectly or incompletely defined, the entire
process could address the wrong issues. The management of a retail store, such as Edgars,
may need information on annual sales, bad debt, effective customer service, styling of
merchandise, and quality control. A life insurance company may need information
on the effective training of agency management, new product development, and the
productivity of clerical operations. Management has to define these needs clearly so
that the systems specialist knows which systems to utilise in order to generate the
information.
Since the development process may be costly, systems investigation frequently
requires a preliminary study, known as a ‘feasibility study’, to be conducted. The
purpose of the feasibility study is to evaluate different systems, to analyse the costs
and benefits of each option, and to propose the most feasible system for development.
A feasibility study therefore determines the information needs of prospective users
and the objectives, resource requirements, cost benefits, and feasibility of proposed
projects. The findings of a feasibility study are usually formalised in a written report and
submitted to management for approval before development begins.
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Management
information
systems
Top
management
Middle
management
Lower
management
Business operations
Executive
information
systems
Decision
support
systems
Informationreporting
systems
Operations
information
systems
Other
classifications
Expert
systems
Business
function
systems
Internet,
extranet,
intranet,
e-commerce
Office automation systems
Transaction-processing
systems
Process control systems
Figures 7.5 The relationship between management information systems and levels of
management
Systems
investigation
Systems
analysis
Systems
design
Systems
implementation,
maintenance,
and security
Figure 7.6 The information systems development life cycle
7.7.2 Systems analysis
Systems analysis involves many of the activities used when a feasibility study is
conducted, but is a more in-depth study of end-user information requirements. The
first step in systems analysis involves a study of the information requirements of an
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organisation and its end-users. Managers at Edcon stores, for example, should specify
clearly that they need information on the annual sales of all of its retail divisions for
the year and a comparison of the annual sales with the previous five years’ sales. They
should also state that they need the annual amount of account holders’ bad debt for each
branch per year compared to the previous five years’ bad debt, and so on. Managers at a
financial services provider, such as Sanlam, should specify that they need information on
every new product that has been developed, and on the success of these products in the
market. They should also specify the need to compare their new product development
with new products offered by rivals, such as Old Mutual.
The second step in systems analysis is to understand the current system that is to be
improved or replaced, and to determine the importance, complexity, and scope of the
problem at hand. Much of this phase involves gathering information on what is being
done in this regard, why it is being done, how it is being done, who is doing it, and what
major problems have developed.
The third step is to determine the system requirements for a new or improved IS.
This means finding out an end-user’s specific information requirements as well as the
information-processing capabilities required for each system activity to meet these
information needs. For example, management at Edcon could specify that they want
the information in bar chart form, and that they want only top management to access
the information on their own personal computers.
7.7.3 Systems design
Whereas systems analysis describes what a system should do to meet the information
requirements of end-users, systems design specifies how a system will accomplish this
goal. The systems specialist plays the major role because the area now being focused
on is seldom one in which management plays an active part. Systems design involves
logical and physical design activities. Logical design activities involve the development
of a logical model of the proposed system. A logical data-flow diagram is used to depict
the system, its procedures, and the flow of information graphically. Physical design
activities entail the process of developing specifications for a proposed physical system.
This process includes the design of report layouts, screens and input documents, forms,
and physical file structures. The design specifies what types of hardware, software, and
human resources are needed.
Once the proposed system has been designed, it is implemented.
7.7.4 Systems implementation, maintenance, and security
The systems implementation phase involves acquiring hardware and software,
developing software, testing programs and procedures using both artificial and live data,
developing documentation, and carrying out a variety of other installation activities.
Systems implementation also involves the training of end-users and operating personnel.
Systems maintenance involves monitoring, evaluating, and modifying or enhancing
a system once it is up and running. It includes a post audit, which establishes whether
a system satisfies the system specifications and how efficiently the system investigation
activities were conducted.
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Systems security is an issue that must be addressed in the design and implementation
stages. At Sanlam, only top management should have access to new product
developments since this is confidential information that Sanlam’s competitors could
use to outperform them.
As users of IS, managers have a major role to play during the systems investigation,
systems analysis, and – to a lesser extent – systems design phases. Lack of end-user
involvement in systems development almost certainly guarantees the failure of an IS
because it will not satisfy the requirements of the organisation.
7.8 Summary
Computer-based information systems play a vital role in the operations, management,
and strategic success of organisations. Information systems transform data obtained
from an organisation’s external and internal environments into information that can be
used in decision-making.
An information system uses the resources of hardware, software, and people to perform
input, processing, output, storage, and control activities that transform data resources into
information products. Data is first collected for processing (input), then manipulated or
converted into information (processing), stored for future use (storage), or communicated
to the ultimate user (output), according to the correct processing procedures (control).
Conceptually, information systems can be classified as either operations or
management information systems. Operations information systems process data that is
generated by and used in business operations. The major categories of such systems are
transaction-processing systems, process control systems, and office automation systems.
Management information systems constitute a broad class of information systems,
the function of which is to provide information and support decision-making by
managers. Types of management information systems needed to support a variety of
managerial end-user responsibilities include information-reporting systems, decision
support systems, and executive information systems.
Several major categories of information systems provide unique or broader
classifications than operations information systems and management information
systems. Examples are expert systems, business function information systems, the
Internet, the extranet, the intranet, and e-commerce.
An information system is usually conceived, designed, and implemented through a
systematic development process comprising the following steps: systems investigation,
systems analysis, systems design, systems implementation, maintenance, and security.
Case study
ACE, a consumer products company
ACE, a consumer products company specialising in freshly baked goods, is facing short-term
supply problems for many of the raw material that they use in their baking. The company
considers the development of an optimisation model to solve the problem of choosing and
balancing amongst various product recipes.
The inputs to the optimisation model include a series of different recipes for many products, shortterm supply levels of raw materials, and the production requirements for their finished products. ➜
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The output of the model is the choice of recipes that will maximise production by using
existing supplies of raw materials. When the short-term supply situations change, the model
can be revised and a new set of recipes can be chosen.
The model has a major impact on the way the management of the business view the
allocation of input – including raw materials, labour and machinery. Initially, the producer
considered allocating scarce raw materials to products by setting priorities amongst
products. The model showed that it was more advantageous to start with production
requirements and then allocate scarce resources by optimising the mix of product recipes.
Case study questions
Question 1
ACE designed an optimisation model to solve their problems pertaining the choosing
and balancing amongst various product recipes. Explain the basic components of this
model and illustrate your answer by means of a diagram.
Question 2
To be of value to ACE, the optimisation model should provide the company with
information that has certain characteristics. Explain these characteristics.
Question 3
To develop the optimisation model, ACE needed to go through a systematic development
process. Discuss this process and apply each step of the process to ACE.
Question 4
Information systems can conceptually be classified as operations information systems,
management information systems and other classifications (such as the Internet,
extranet, and so on). Where would you classify the optimisation model developed by
ACE? Substantiate your answer.
Multiple-choice questions
Question 1
ACE receives an order to provide 200 breads per day, seven days per week to the local
hospital. The cost per product unit is R8,50.
The unit cost of the bread is an example of
1. information
2. data
3. management information
4. an information system
.
Question 2
to perform the basic activities of
An information system utilises
.
1. data and information; financial planning
2. hardware, software and human resources; input, processing, output, feedback,
control and storage
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3. computers; input, processing and output
4. information technology; operational efficiency
Question 3
Information-reporting, decision support and executive information systems are
information systems.
examples of
1. operations
2. management
3. integrated
4. expert
Question 4
A wide area network that links an organisation’s employees, suppliers, customers, and
.
other key stakeholders electronically is known as the
1. intranet
2. extranet
3. internet
4. enterprise resource planning
Question 5
Top management usually needs
1. decision support; business function
2. information reporting; e-commerce
3. decision support; process control
4. executive information; expert
and
systems.
Question 6
An information system whereby expertise is transferred from a human being to a
computer, the knowledge is stored in the computer and users call on the computer for
system.
specific advice as needed, is known as a(n)
1. business function information
2. decision support
3. expert
4. executive information
Question 7
When an organisation needs a network where access is limited to its employees, they
.
should use the
1. Internet
2. extranet
3. intranet
4. World Wide Web
Question 8
An insurance company wants to launch an innovative product. They are using electronic
spreadsheets and other software that allows their management to receive interactive
responses to requests for information posed as a series of ‘what if ’ questions.
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The insurance company is using a(n)
1. information reporting
2. decision support
3. executive information
4. business function information
207
system.
Questions 9 and 10
A new information system is usually conceived, designed and implemented through a
systematic development process in which end-users and technical staff design systems
based on an analysis of the specific information requirements of an organisation.
Question 9
stage of the development process, the current system (that is
During the
to be improved or replaced) is examined to determine the importance, complexity and
scope of the problem at hand.
1. systems investigation
2. systems analysis
3. systems design
4. systems security
Question 10
Training of end-users and operating personnel is part of the systems
stage in the development process.
1. implementation
2. analysis
3. design
4. investigation
Paragraph questions
Question 1
A very direct and specific link exists between decision-making and information
management. Explain this link.
Question 2
Define the term ‘information system’ and explain the components thereof.
Question 3
Classify information systems according to their use in operational and managerial
support.
Question 4
Explain the process involved in the development of a generic information system for
managers.
Essay question
Information systems perform operational and managerial support roles in organisations.
Discuss the conceptual classification of information systems in an organisation.
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organising and delegating
Part
3
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8
THE
PURPOSE
OF THIS
CHAPTER
LEARNING
OUTCOMES
KEY
CONCEPTS
This chapter deals with organising as the process that creates a structure
for the organisation which will enable its people to work effectively
towards its vision, mission, and goals.
This chapter will enable learners to:
Explain the concepts of organising, organisation, and organisational
structure
■■ Explain how the organisation used its structure to implement its
strategic plans and goals
■■ Expound on the importance of organising in attaining the
organisation’s goal
■■ Describe the steps to follow (the organising process) in designing an
organisational structure
■■ Explain the principles of organising that should be considered in
designing an organisational structure
■■ Comment on how the principles of organising are applied in the
different types of organisational structure
■■ Explain the ‘structure follows strategy’ adage
■■ Propose recommendations regarding the design or redesign of jobs
as a motivational factor
■■ Design and provide implementation guidelines for a delegation
process.
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Organising and delegating
Accountability
Authority
Centralisation
Chain of command
Coordination
Decentralisation
Delayering
Delegation
Departmentalisation
Division of work
Downsizing
High involvement
Job design
Network structures
New venture units
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Organisation
Organisational chart
Organisational design
Organisational structure
Organising
Pooled interdependence
Power
Product departmentalisation
Reciprocal interdependence
Responsibility
Sequential interdependence
Span of control
Specialisation
Standardisation
Team approach
Unity of command
Virtual network organisation
8.1 Introduction
Look at a painting. Whether it is a centuries-old masterpiece like the Mona Lisa of Leonardo
da Vince, or modern art of South African artist Portchie, you see colour, texture and shape.
Look more closely, and you’ll see the artist’s study technique composing and organising
the work. Artists start off with a blank canvas. Then they decide whether the picture will
be a landscape, a portrait, an abstract, or a still life. While many different styles, such as
Impressionism and Cubism, have evolved over the centuries, one ideal has held fast: an
artist must know the rules of composition. Paint is organised on canvas to convey emotion
– awe, anger, love, comfort or knowledge. The artist’s eye organises, but he or she begins
by determining the medium and organising materials – colours, brushes, and lighting – that
will best bring a personal vision to life. Colours are transferred from their blobs on a palette
to their personal placement on the canvas. The artist structures the work to embody an
emotion, to tell a story, plant an idea, or provide beauty.
In an organisation, managers follow the same process as that of an artist explained in
the box. Managers organise and deploy resources to achieve the mission and goals
of the organisation. Today’s managers work for organisations, and they support, and
must be supported by the organisation. By organising their resources, such as people,
technology, and knowledge, and by marshalling their strengths, managers can support
the organisation despite economic downturns or competitive threats to achieve
organisational goals. While beauty may not be the manager’s goal as in the case of a
painting, organisational design can be a work of art.
With its plans and goals clearly formulated, an organisation must decide on how to
organise its resources optimally.
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South African Breweries Ltd
South African Breweries (SAB Ltd) is a brewing and bottling company headquartered in
Johannesburg, South Africa, and a wholly owned subsidiary of SABMiller. It is the dominant
brewing company in South Africa, with a market share of around 89 per cent.
In 1895, SAB Ltd became the first industrial company to be listed on the Johannesburg Stock
Exchange. The company grew rapidly and soon became the beer industry’s market leader.
With the fall of apartheid in the 1990s, SAB Ltd found themselves in a position to establish
a presence internationally. First, they expanded to other African countries, then the Canary
Islands, Central Europe, China, and India. In 1999 they moved to the London Stock Exchange,
becoming SAB plc. Three years later, the company acquired the Miller Brewing Company,
resulting in SABMiller plc, the world’s second largest beer company by volume, producing
180 million hectolitres of beverages per annum.
Today, the company has 70 000 employees working in more than 80 countries. They produce
over 200 beers and every minute of every day, more than 140 000 bottles of SABMiller beer
are sold. The company also has a growing soft drinks business through its own brands and
as one of the world’s largest bottlers of Coca-Cola drinks.
Source: SABMiller. nd. Available at: http://www.sabmiller.com/about-us/history (Accessed: 15 August
2016).
Attaining the goals of an organisation such as SAB Ltd requires the concerted effort of all
of its employees. Each manager and employee have to know exactly what he or she had
to deliver to ensure that the resources were utilised optimally and that no unnecessary
duplication of activities took place.
For plans to be implemented, someone in the organisation must perform the
necessary tasks to ensure that the organisation’s goals are attained. Management must
determine effective ways of dividing the major tasks into subtasks, combining these,
and coordinating them.
Organising is the function most visibly and directly concerned with the systematic
coordination of the many tasks that must be performed in an organisation and,
consequently, the formal relationships between the people who perform them.
Organising is the process of creating a structure for the organisation that will enable its
people to work effectively towards its vision, mission, and goals.
This chapter deals with the principles and the process of structuring an organisation in
such a way that it is aligned with its plans and goals. The structuring of the organisation
poses a big challenge to managers. There is no single best structure that matches a
specific plan or strategy. In trying to find the most suitable structure for an organisation,
management needs to understand and be guided by the principles of organising.
8.2 Organising, organisation, and organisational structure
Before we focus on a detailed discussion of organising, it is important to differentiate
between the terms ‘organising’, ‘organisation’, and ‘organisational structure’. Organising
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refers to the process of creating a structure for the organisation that will enable its people
to work effectively towards its vision, mission, and goals. In the case of SABMiller plc, it
will be the process of determining which tasks each of the managers and workers should
perform, who will perform them, and how these tasks will be managed and coordinated.
If a change in the environment (such as the fall of apartheid in the 1990s) necessitates
a change in the organisation’s plans and strategy, the structure will have to be realigned
with the new realities. Organising can therefore be seen as an ongoing and interactive
process that occurs throughout the life of an organisation.
Structure follows strategy.
Organisation refers to the end result of the organising process. The process of organising
consists of assigning the tasks necessary to achieve the organisation’s goals to the relevant
business units, departments, or sections, and then providing the necessary coordination
to ensure that these business units, departments, or sections work synergistically. In a
small organisation or a small department this is relatively simple — it is usually a matter
of deciding which tasks need to be done and allocating them to various subordinates. In
large organisations, such as SAB Ltd, the process of organising becomes very complex.
It involves dividing the work of the organisation, allocating it logically to business
units, departments, and sections, delegating authority, and establishing coordination,
communication, and information systems to ensure that everyone is working together
to achieve the goals of the organisation.
Remember that we use the terms ‘goal’ and ’objective’ interchangeably in this book.
We shall specify in each case as to what type of goal we are referring (for example, an
organisational, functional or even an individual goal).
The task of dividing up the work, allocating responsibility, and so on, is referred to
as the ‘design of the organisational structure’. An organisational structure refers
to the basic framework of formal relationships between responsibilities, tasks, and
people in the organisation. A typical way of illustrating an organisational structure is
by means of an organisational chart. This is a graphic representation of the way in
which an organisation is put together. It shows, amongst other things, authority and
communication relationships between jobs and units.
The organisational charts of listed companies are usually depicted in their annual reports. To
see how SABMiller plc is structured, for example, access the following website: http://www.
sabmiller.com/about-us/.
8.3 Reasons for organising
Organising is an indispensable function in the management process. Plans devised and
strategies formulated will never become a reality if human and other resources are not
properly deployed and the relevant activities suitably coordinated. Leadership is not
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possible if lines of authority and responsibility are not clear. Likewise, control is out of
the question if people do not know what tasks they are responsible for.
Looking at SAB Ltd selling every minute of every day more than 140 000 bottles of
SABMiller beer and considering that 70 000 people have to contribute to realise this,
it is clear that the organisation of resources plays a vital role in the attainment of SABs
goals. Organising is an imperative function in any kind of organisation for the following
reasons:
■■ Allocation of responsibilities. Organising leads to an organisational structure
that indicates clearly who is responsible for which tasks. In the case of a brewing
company such as SABMiller, the goal of producing and selling a certain volume
of beer per year will typically require a variety of tasks such as manufacturing,
bottling, logistics (such as transport), and marketing. In each of these functions,
the managers’ and subordinates’ responsibilities need to be clarified.
■■ Accountability. This implies that the responsible employees will be expected
to account for the outcomes, positive or negative, for that portion of the work
directly under their control. Accountability links results directly to the actions
of an individual, section, department, or business unit. One of the reasons for
SABMiller’s success in the brewing industry is that their employees are passionate
about their organisation, and committed to meeting goals and welcoming
challenges. Furthermore, employees are accountable for their own actions.
■■ Establishing clear channels of communication. This ensures that
communication is effective and that all information required by managers and
employees at all levels of the organisation effectively reaches them through the
correct channels so that they can perform their jobs effectively. SABMiller’s human
resources (HR) practices are designed specifically to attract, retain and develop
extremely talented individuals. People management processes are consolidated
in the company’s strategic people-resourcing initiatives, which comprise several
legs. The formulation of a ‘people balance sheet’ enables the organisation to keep
track of people-related gaps and trends, and all human resources processes are
recorded in an enterprise-wide information system, ensuring they are accessible
to key decision-makers. These, together with the organisational effectiveness
climate survey, are important monitoring tools for evaluating the impact of human
resources processes. Individual development and leadership development plans are
in place.
■■ Resource deployment. Organising helps managers to deploy resources
meaningfully. At SABMiller, human resources, financial resources, information
resources and so on must be deployed in the most effective, productive and
profitable manner.
■■ The principle of synergy enhances the effectiveness and quality of the work
performed. All business units, departments and sections in SABMiller must work
closely together to ensure that planned volumes are delivered.
■■ Division of work. The total workload is divided into activities to be performed by
an individual or a group of individuals. Organising means systematically grouping
a variety of tasks, procedures, and resources. This is possible because the organising
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process also entails an in-depth analysis of the work to be done, so each person is
aware of his or her duties.
Departmentalisation. The related tasks and activities of employees are grouped
together meaningfully in specialised sections, departments, or business units so
that experts in various fields can deal with their specialised tasks.
Coordination. The organisation structure is responsible for creating a mechanism
to coordinate the activities in the entire organisation.
All the above-mentioned reasons for organising direct the organisation towards attaining
its mission and goals.
8.4 The organising process
The point of departure in the organising process is the vision, mission, goals, and
strategy of the organisation that were formulated during the strategic planning phase
(see Chapter 4).
The first stage in the organising process involves outlining the tasks and activities
to be completed in order to achieve the organisational goals. Once these tasks and
activities are outlined, jobs must be designed and assigned to employees within the
organisation. ( Job design is discussed in more detail in Section 8.8.)
Worker relationships between individuals and work groups should also be defined.
The next step in the organising process is to develop an organisational design
that will support the strategic, tactical, and operational plans of the organisation.
(Organisational design is discussed in more detail in Section 8.7.) This entails grouping
the organisational members into work units, developing an integrating mechanism to
coordinate the efforts of diverse work groups, and determining the extent to which
decision-making in the organisation is centralised or decentralised (the locus of
decision-making).
Finally, a control mechanism should be put in place to ensure that the chosen
organisation structure does indeed enable the organisation to attain its mission and
goals.
Figure 8.1 summarises the stages in the organising process.
The process should be guided by certain organising principles to ensure that the
structure is sound. These principles are the focus of the next section.
8.5 Principles of organisation
Managers at all levels of an organisation need to organise human, physical, financial, and
information resources to achieve the mission and goals. The principles of organisation
should guide managers in this process. Table 8.1 summarises these 13 principles.
8.5.1 Unity of command and direction
‘Unity of command’ means that each employee should report to only one supervisor.
Reporting to more than one supervisor can be very confusing to employees as
supervisors may focus on different aspects of the work. Unity of direction means that
all tasks and activities should be directed toward the same mission and goals.
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Table 8.1 Principles of organisation
■■
Unity of command and direction
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Authority
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Chain of command
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Accountability
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Span of control
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Power
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Division of work
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Delegation
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Standardisation
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Downsizing
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Coordination
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Delayering
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Responsibility
Vision, mission, goals, and
strategies (strategic plan)
Control mechanism
Outline tasks and activities
1
Design jobs and assign to employees
2
Define worker relationships
3
Develop organisational design
4
Figure 8.1 Stages in the organising process
8.5.2 Chain of command
‘Chain of command’ (also referred to as the ‘scalar principle’) states that a clear, unbroken
chain of command should link every employee with someone at a higher level, all the
way to the top of the organisation.
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8.5.3 Span of control
‘Span of control’, also called ‘span of management’, refers to the number of subordinates
reporting to a manager. It is humanly possible for a manager to deal with only a certain
number of employees. If more than a realistic number of employees report to a manager,
the manager’s task becomes impossible to perform. The fewer employees supervised,
the smaller or narrower the span of control. The more employees supervised, the greater
or wider the span of control. The span of control is in proportion to the height of the
organisation — or its number of levels: a flat organisation exists when there are few
levels with wide spans of control, whereas a tall organisation exists when there are many
levels with narrow spans of control.
8.5.4 Division of work
A major challenge faced by managers is to determine how the work should be divided.
With the division of work, employees have specialised jobs. Related jobs can then be
grouped together in a section or department. Employees generally have specialised
jobs in a functional area such as accounting, administration, marketing, purchasing, or
human resource management. As managers move up the corporate ladder, they perform
less specialised functions.
8.5.5 Standardisation
Managers should employ the principle of standardisation when structuring the
organisation. Standardisation is the process of developing uniform practices that
employees are to follow in doing their jobs. The purpose of standardisation is to
develop a certain level of conformity. In order to standardise their operations, the South
African operation of SABMiller is seen as the group’s ‘talent nursery’, as the company’s
international growth strategy is based on installing a team of South African managers in
each new operation.
8.5.6 Coordination
Coordination means that all departments, sections, and individuals within the
organisation should work together to accomplish the strategic, tactical, and operational
goals of the organisation. Coordination entails integrating all organisational tasks
and resources to meet the organisation’s goals. In general, the degree of coordination
between tasks depends on their interdependence. In the case of a coalmining company,
the exploration, extraction, beneficiation, and logistics departments or sections depend
on each other for information and resources. The exploration section must, for example,
provide the extraction section with the right quality and quantity of information
regarding coal deposits. This is crucial for the extraction section (mining) to reach their
goal of a certain cost per ton. In a restaurant, the waiters depend on the chefs to provide
them with ordered dishes within a realistic time; the chefs depend on the waiters to give
them the correct client orders. The greater the interdependence between departments
or sections, the greater the coordination required.
Three major forms of interdependence can be identified, namely pooled
interdependence, sequential interdependence, and reciprocal interdependence.
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1. In departments or sections that exhibit pooled interdependence, it operates with
little interaction; the outputs of the units are pooled at organisational level. Failure
of any unit could threaten the entire organisation. Edgars Consolidated Stores Ltd
(Edcon) operates through several different divisions (or store formats), namely
Edgars, Red Square, Boardmans, Edgars Active, Mono-Branded stores, Discount
Division and CNA.1 Edgars, for example, does not interact all that much with
Boardmans, but they both contribute to the profits of Edcon. The different divisions
are interdependent to the extent that the final success or failure of a division affects
Edcon.
2. In sequential interdependence, the output of one department or section becomes
the input for the next. The second department or section is directly dependent
upon the first to finish its work before it can begin its assigned task. Sequential
interdependence is typically found in a production-line set-up, such as the assembly
plant of a car manufacturer or the production line in a steel-manufacturing
organisation.
3. Reciprocal interdependence refers to a situation in which the outputs of one
department or section become the inputs for the second department, and vice
versa. In a hospital, the sections such as intensive care, paediatrics, and so on,
provide inputs to surgery. After surgery, patients are sent back to the respective
sections. In a restaurant the waiters and chefs are reciprocally interdependent.
Sappi Limited
Sappi Limited is a South African producer of paper and pulp with global operations. Sappi
produces and sells commodity paper products, pulp, chemical cellulose and forest and timber
products for Southern Africa and export markets. Sappi’s products are widely specified
due to the unwavering commitment of 12 800 employees to serve their customers the best
that they can. Continued focus on innovation and excellence underlies Sappi’s growth and
competitive advantage in the paper and pulp industry.
Sappi’s paper-making process production line is as follows:
Forest  Wood  Debarked pulpwood  Chipper  Digester  Bleaching plant  Screens
 Paper machine Coater  Super calendar  Slitter winder  Sheet cutter  Sheets 
Dispatch Books.
The sections in the production line illustrate sequential interdependence. The bleaching
plant, for example, is directly dependent on the digester to finish its work before it can begin
its assigned task. Through Sappi’s sustainable business model, the company reduces, reuse
and recycle throughout its manufacturing processes.
Source: Sappi. nd. Available at: http://www.sappi.com/group/Sustainability/2015-Sappi-SouthernAfrica-Sustainability-Report.pdf (Accessed: 16 August 2016).
8.5.7 Responsibility, authority, and accountability
These three terms are closely related and are often used interchangeably by managers
and employees. It is, however, important that managers understand the difference
between the concepts when they are involved in the organising process. Responsibility
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is the obligation to achieve goals by performing required activities. When strategic,
tactical, and operational goals are set, the managers responsible for achieving them
should be clearly identified. Authority is the right to make decisions, issue orders, and
use resources. (Authority is discussed in more detail in section 8.6.) Accountability
is the evaluation of how well individuals meet their responsibility. Managers are
accountable for everything that happens in their departments or sections; they can
delegate responsibility and authority, but never their accountability.
Accountability has its roots in the classical management theories (see Chapter 2), in the
division of labour into parts, and in explicit job specifications. Consistent with Taylor’s
scientific management, and with the norms of fairness, employees in organisations are
deemed accountable for that portion of the work under their direct control.
8.5.8 Power
‘Power’ refers to the ability to influence the behaviour of others in an organisation. The
following kinds of power can be distinguished in organisations:
■■ Legitimate power is the authority that the organisation grants to a particular
position. For instance, the position of managing director gives more power to its
incumbent than does the position of first-line manager.
■■ The power of reward is the power to give or withhold rewards, which can be of a
financial or a non-financial nature. The head of a department, for example, has the
power to allocate or withhold rewards after a performance appraisal has been done.
■■ Coercive power is the power to enforce compliance through fear, either
psychological or physical. Stated differently, coercive power is the ability to
influence a person’s decision-making by taking something away as punishment or
threatening punishment if the person does not follow instructions. For example, a
performance bonus can be taken away should an individual not perform according
to expectations.
■■ Referent power relates to personal power and is a somewhat abstract concept.
People follow a person with referent power simply because they like, respect, or
identify with him or her.
■■ Expert power is based on knowledge and expertise, and a leader who possesses it
has special power over those who need his or her knowledge.
8.5.9 Delegation
Delegation is the process of assigning responsibility and authority for attaining goals.
Responsibility and authority are delegated down the chain of command from a person
at a higher level in the organisation to a person at a lower level. (Delegation is discussed
in more detail in Section 8.9.)
8.5.10 Downsizing and delayering
Downsizing is a managerial activity aimed at reducing the size of an organisation’s
workforce. Downsizing may be achieved by reducing the number of employees in one
or more departments – leaving the organisational unit intact – or through eliminating a
departmental unit by, for example, outsourcing its activities.
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Examples of corporate downsizing can be found across the globe. In South Africa
specifically, job losses as a result of downsizing are increasing. According to the
Quarterly Labour Force Survey, unemployment in South Africa is increasing in almost
all industries — which is a concerning matter in an economy that is not promising to
improve over the short term.2
Delayering is the process of reducing the number of layers in the vertical management
hierarchy. Delayering is the traditional way to achieve a flatter organisational structure.
Delayering can improve business communication since messages have to pass through
fewer levels of management. The downside of delayering is, as in the case of downsizing,
a reduction in the workforce and an increase in job losses.
Downsizing is the process of reducing the size of an organisation’s workforce. Delayering is
the process of reducing the number of layers in the vertical management hierarchy.
8.6 Authority
Authority has been defined in the previous section as the right to make decisions, issue
orders, and use resources. It includes the right to take action to compel the performance
of duties and to punish default or negligence. In the formal organisational structure,
the owners of an organisation (shareholders) possess the final authority. They appoint
a board of directors and give them authority to manage their investments in the
organisation. The directors appoint managers, who in turn give a certain authority to
subordinates — and in this way authority flows down the hierarchical line. This formal
authority passed downwards from above is known as ‘delegation of authority’.
Authority resides in positions rather than in people — managers acquire authority by
means of their hierarchical position in the organisation, rather than from their personal
characteristics. When a manager steps down from his or her position, that authority is
relinquished.
For managers to structure an organisation that is well aligned with its mission
and goals, they need to understand the different types of authority. These are formal
and informal authority, line and staff authority, and centralised and decentralised
organisational authority.
8.6.1 Formal and informal authority
Formal authority refers to the specified relationships amongst employees. It is the
sanctioned way of getting things done, illustrated by the organisational chart. Informal
authority refers to the patterns of relationship and communication that evolve as
employees interact and communicate. It is the unsanctioned way of getting things done.
8.6.2 Line and staff authority
Line authority entails the responsibility to make decisions and issue orders down the
chain of command. Line managers are those managers in the organisation who are
directly responsible for attaining the organisation’s goals. Line authority originates at
top management level, with the directors, and is delegated to the heads of the different
units, departments, or sections, such as the human resources department or the research
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and development department. It is then delegated further down the various hierarchical
levels to the level where the basic activities are carried out.
Staff authority entails having the responsibility to advise and assist other personnel.
As an example, the King Report on Corporate Governance (King III) unveiled in
September 2009 in South Africa,3 addresses the issue of conducting business in an
ethical and transparent way. Company secretaries are appointed to render services to
the chairperson of the board and the chief executive officer (CEO) and to advise line
management regarding issues of ethics and governance in the organisation. The company
secretary therefore has staff authority, based primarily on expert power (see Section
8.5.8). Partners in a law firm or a firm of architects may appoint managers to run the
business side of the firm, such as human resources management and the management
of its finances and investments. The presence of such staff specialists frees lawyers or
architects to practise law or architecture — their line function.
Andrew S Grove of Intel
One of the best examples of exercising authority by top management lies with Andy Grove,
chairman of Intel. During the mid-1980s, Intel almost went under as a result of fierce
competition from Japanese chipmakers. When Grove, together with Gordon Moore and
Robert Noyce, started Intel in 1968, their goal was to produce memory chips. Initially, Intel
owned 100 per cent of the market because they invented these chips. During the early 1970s
competitors entered the market, and by the time the 1980s came, the nature of the business
had changed. Japanese chipmakers entered the market in a big way, offering better quality
and beating Intel’s chip on price. Japanese producers kept gaining ground, and Intel was
losing market share rapidly. In the middle of 1985 came a watershed moment. Intel changed
direction and instead of focusing on beating rivals, they started focusing on a different line
of business, namely microprocessors. Grove’s leadership in turning away from memory chips
towards an underserved market (microprocessors) helped Intel retain its lead.
The second challenge came a decade later, when the company was slammed by its
customers and the media for a flaw in its Pentium microprocessors. Top management was
aware of the flaw and after a thorough investigation concluded that it was insignificant. The
design error caused a rounding error in division once every nine billion times. This meant
that an average spreadsheet user would run into the problem only once every 27 000 years
of spreadsheet use. Intel admitted the flaw, changed direction and agreed to spend US$475
million to replace the flawed chips.
The rules by which the company did business changed, ironically, because of the success
of another initiative, the ’Intel inside’ marketing campaign. A few years before the Pentium
crisis, Intel embarked on an aggressive marketing campaign to build its brand. The ‘Intel
inside’ slogan was plastered on billboards, appeared on TV commercials and, in China, even
on bicycle reflectors. By the time the campaign ended, Intel had become a world-famous
brand with international name recognition. As a result, when the Pentium crisis hit, the
customers who were concerned were not just engineers (who might have understood why
a minor design flaw was not a big deal) but millions of non-technical users who didn’t care
about intricate mathematical arguments.
➜
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Intel was no longer an industrial company; it had evolved into a mass consumer products
company. Intel has learned its lesson: it implemented several measures to win back the
public’s trust and confidence. Eventually it won a spot on Fortune magazine’s list of most
admired companies. Grove’s experience shows that when faced with a challenge of such
enormous magnitude, just being a truth teller is not enough; it is equally important to be a
fast learner, exercising authority, recognising how the rules of the game have changed and
adapting to the new realities.
Source: TIME. 1997. Andrew Grove: Man of the year. Available at: http://time.com/4267448/andrewgrove-man-of-the-year/ (Accessed: 16 August 2016).
Certain people in staff positions function only as specialists in an advisory capacity. This
means that line managers may choose whether or not to seek the advice of the specialist.
A typical example is an economist at a bank. He or she advises the line managers on the
prevailing economic variables such as interest rates, inflation, and Reserve Bank policy.
Conflict often arises between people in line and staff positions because line
managers regard staff managers as a threat to their authority. Hence staff managers are
not consulted, and complain that they are underutilised. As soon as line managers are
obliged to rely too heavily on the advice of staff managers, they feel that they are too
dependent on their expertise and this may make them feel threatened. Differences in
perception may also cause conflict, especially if line managers feel that staff managers
are infringing on their lines of authority, have too idealistic a perspective, or are usurping
the prestige of the line managers. However, the staff manager’s perception may be that
the other party unnecessarily opposes all new ideas.
In functional authority, staff personnel have the right to issue orders to line personnel
in established areas of responsibility. For example, the purchasing department assists
the sales personnel by keeping appropriate stock levels. If the purchasing personnel
determine that a specific order quantity is the most economic one, they may issue an
order to a line manager to order that specified quantity.
Staff managers may also have both line and staff authority. This is called ‘dual-line
authority’. For example, a labour relations manager advises and assists all departments
in an organisation. However, such a manager may also have line authority within the HR
department and may issue orders (a line function) to his or her subordinates.
8.6.3 Centralised and decentralised authority
The major difference between centralised and decentralised authority is in who makes
the important decisions in an organisation. In centralised authority, important decisions
are made by top managers. In decentralised authority, important decisions are also
made by middle and lower management.
Decentralisation has become very popular in South African organisations as a
method of empowering employees. By decentralising power and authority, a more
democratic organisation is created in which managers at the lower levels can decide on
issues such as the allocation of resources in their departments, differentiated salaries for
employees, flexible work hours, and so on.
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In centralised authority, important decisions are made by top managers. In decentralised
authority, lower levels can decide on certain issues.
In deciding whether to centralise or decentralise authority, the following factors should
be considered:
■■ The external environment: The more complex the environment and the greater the
uncertainty, the greater the tendency is to decentralise.
■■ The history of the organisation: Organisations tend to do whatever they have done
in the past. Hence there will be a tendency to follow the history of the organisation
when it comes to centralisation or decentralisation.
■■ The nature of the decision: The riskier the decision and the higher the costs
involved, the more pressure there will be to centralise decision-making.
■■ The strategy of the organisation: This determines the types of market, technological
development, and any competition to which the organisation is subject.
■■ Skills of lower-level managers: If lower-level management is not in a position
to make sound decisions, decision-making in the organisation will probably be
centralised. If lower-level managers are well qualified, top management can make
the most of their skills by decentralising.
■■ The size and growth rate of the organisation: It is impossible to manage a very
large organisation without decentralising. The larger and more complex an
organisation is, the greater the need for decentralisation will be. In an organisation
that is growing rapidly, management will have to bear the burden of an increasing
workload, and therefore be obliged to shift some of the decision-making authority
to lower levels, and thus to decentralise.
Centralisation versus decentralisation in business computing
The decision as to whether to centralise or decentralise not only concerns the locus of
authority, but managers also need to decide on the centralisation or decentralisation of other
important activities such as business computing. Organisations favouring the centralised
approach to business computing have benefited from a lower cost of ownership, given that
centralised computing architectures require fewer information technology staff for support
than do decentralised architectures. As a result, decentralised business computing has
failed to become the dominant computing architecture because it is too expensive and it is
difficult to manage hundreds or even thousands of servers spread across the organisation.
In the aftermath of the 11 September 2001 attacks in New York, however, the conventional
wisdom about what constitutes an expense is changing. Centralised operations in today’s
global environment are a liability. Organisations with centralised computing architectures
that were affected by the attacks are having a harder time recovering than those with
decentralised computing. Decentralisation enabled the latter to move their business
functions more easily to other locations.
In theory, organisations that build some form of decentralised computing will carry a higher
cost of doing business than those that rely primarily on massive data centres.
➜
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But in the case of a catastrophic event, the cost seems minimal compared to the amount
of time it would take to recover from an attack that destroyed one’s computing resources’
location. Many of those managers affected will take a harder look at decentralising their
business functions in future to make sure that major elements of the business are not all
concentrated in one single location.
Source: Adapted from Vizard, M. 2001. ‘Above the noise: When computing is an organisational liability
– after the September 11 attacks, companies are rethinking decisions to centralise computing’.
InfoWorld, 23(42), p 8.
Advantages of decentralisation
By decentralising, the workload of top management is reduced, enabling them to
devote more attention to strategies.
■■ Decision-making improves because decisions are closer to the core of action and
time is not wasted by first referring the matter to a higher authority.
■■ There should be improved morale and initiative at the lower levels of management.
These managers feel that they participate in managing the organisation and are
prepared for greater responsibilities. They should experience a great deal of job
satisfaction.
■■ Decentralisation of decision-making renders it faster and more flexible. This is
necessary in a rapidly changing environment.
■■ Decentralised authority also fosters a competitive climate in the organisation.
Managers are motivated to participate in this competition because their
performance is constantly compared with that of their colleagues.
■■
Disadvantages of decentralisation
■■ There is the danger of loss of control. The primary objective of organising, namely
to integrate sub-units, will be defeated without a certain degree of centralisation.
Too much decentralisation will result in sub-units or departments moving away
from the centres of decision-making.
■■ There is the danger of duplicating tasks. For example, there could be HR sections
in the decentralised sub-units that keep personnel records, while these records are
also being kept up to date at head office.
■■ Decentralisation of authority requires more expensive and more intensive
management training and development to enable managers to execute delegated
tasks.
■■ Decentralisation also demands sophisticated planning and reporting methods.
Even if there is delegation, top managers are and will always be accountable for
attaining the goals of the organisation, and they must continually receive feedback
on the situation.
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Table 8.2 The advantages and disadvantages associated with decentralisation
Advantages
Disadvantages
Reduced workload for top managers
Defeats integration of sub-units
Improved decision-making
Potential loss of control
Improved training, morale, and initiative
Danger of duplication
Faster and more flexible decision-making
More expensive and intensive training
required
Fosters a competitive climate
Demands sophisticated planning and
reporting methods
The shift towards decentralisation in South African organisations and organisations
abroad does not come without its challenges. More individual authority at middle and
lower management levels requires thorough management training and development.
Managers need to be aware of the impact that their decisions could have on the survival
of the organisation. A prerequisite for such knowledge in the current turbulent business
environment is continuous management training and development.
8.7 Organisational design
In the previous sections, the principles of organisation have been presented and
discussed. Managers need to understand these principles in order to structure a sound
organisation.
Organisational design refers to the arrangement of positions into work units or
departments and the interrelationship amongst them within an organisation. We
shall consider organisational design by demonstrating the organisational chart and
discussing the various types of departmentalisation. In this, we must bear in mind that
the choice of an organisation structure should always be viewed against the strategy of
the organisation.
8.7.1 Organisational chart
We have seen in Section 8.2 that the organisational chart is a graphic representation
of the way in which an organisation is put together. It shows, amongst other things,
authority and communication relationships between jobs and units.
8.7.2 Departmentalisation
Departmentalisation can be described as the grouping of related activities into units or
departments. The various departments created constitute the organisational structure
as they appear on the organisational chart. To support the chosen strategy (the strategic
plan), management must decide on the type of departmentalisation that best supports
the strategy.
Functional departmentalisation
The functional organisational structure, as shown in Figure 8.2, is the most basic
structure; in it the activities belonging to each management function are grouped
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together. One set of activities, for example, comprises advertising, marketing research,
and sales, which belong together under the marketing function. Another set of activities,
for example debtors and creditors, is grouped under the financial function.
Managing director
Marketing
manager
Production
manager
Research and
development
manager
Human
resources
manager
Financial
manager
Figure 8.2 Functional departmentalisation
Functional departmentalisation is often used by organisations with a single product
focus. In order to build competitive advantage in providing their products or services,
such organisations require well-defined skills and areas of specialisation. Dividing tasks
into specialist areas enables personnel to focus on their area of expertise only. However,
this structure poses major challenges in terms of coordination of the specialist functions.
Specialists may view the organisation solely from their own perspective. The
marketing manager may see an opportunity or threat exclusively from a marketing
perspective, whereas the financial manager may approach the same issue from a purely
financial perspective. To overcome potential conflict between the different departments,
the chief executive must ensure that proper coordination mechanisms are in place.
Product departmentalisation
In product departmentalisation, departments are designed in such a way that all activities
concerned with the manufacturing of a particular product, or group of products, are
grouped together in product sections. This means that all the specialists associated with
such products are grouped in product sections. The rationale for this structure is that
the marketing, financing, and personnel needs involved in the production of, say, diesel
engines will differ considerably from those in the manufacture of cigarettes. An example
of product departmentalisation is shown in Figure 8.3. This is a logical structure for
large organisations providing a wide range of products or services. The advantages of
this structure are that the specialised knowledge of employees regarding particular
products is used to maximum effect, decisions can be made quickly within a section, and
the performance of each group can easily be separately measured. The disadvantages
are that the managers in one particular section may concentrate their attention almost
exclusively on their particular products and tend to lose sight of those of the rest of the
organisation. In addition, the administrative costs could increase, because each section
has to have its own functional specialists, such as market researchers and financial
experts.
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Managing director
Food
brands
Textile
brands
Healthcare
brands
Hospital
brands
Figure 8.3 Product departmentalisation
Location departmentalisation
An example of location departmentalisation is illustrated in Figure 8.4. This is a logical
structure for a business that manufactures and sells its goods in different geographical
regions. This structure gives autonomy to area managers, which is necessary to facilitate
decision-making and adjustment to local business environments. This structure is also
suitable for a multinational business – such as SABMiller plc, which operates and markets
its range of products worldwide – because each country in which the multinational
operates will be culturally unique and will have to be approached differently.
Customer departmentalisation
Customer departmentalisation is appropriate when an organisation concentrates on a
particular segment of the market or group of consumers or, in the case of industrial
products, where the organisation sells its products only to a limited group of users.
Figure 8.5 illustrates an example of customer departmentalisation. This structure has
the same advantages and disadvantages as product departmentalisation.
Unlike a functional structure in which activities are grouped according to
knowledge, skills, experience, or training, a structure based on product, location, or
customers resembles in some respects a small privately owned business. It is more or
less autonomous in action, and is accountable for its profits or losses. However, unlike
an independent small business, it is still subject to the goals and strategies of the whole
organisation.
Managing director
Managing director:
Europe
Chairman:
USA
Managing director:
Africa and Asia
Figure 8.4 Location departmentalisation
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Managing director
President:
Household
President:
Professional
President:
Pharmaceutical
President:
Industrial
Figure 8.5 Customer departmentalisation
Multiple departmentalisation
Particularly large and complex organisations find it necessary to use several of the
departmental structures described above to create a hybrid organisation. Any mixture of
structures can be used. The next sections discuss some of the most common combinations.
CEO
Project
manager 1
Project
manager 2
Project
manager 3
Manager:
Finance
Manager:
Marketing
Manager:
Operations
Team
Team
Team
Team
Team
Team
Team
Team
Team
Figure 8.6 Matrix departmentalisation
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Matrix departmentalisation
Matrix departmentalisation combines functional and product departmental structures.
The employee works for a functional department, such as finance, but is also assigned to
one or more products or projects. The major advantage of matrix departmentalisation is
flexibility — it allows the organisation to organise temporarily for a project. The major
disadvantage is that each employee reports to two superiors – a functional and a project
superior – which violates the unity of command principle. Coordination can also be
difficult. Figure 8.6 illustrates a matrix structure.
Divisional departmentalisation (strategic business units)
Large, complex, and global organisations with related products and services usually
have a divisional structure which is departmentalised into semi-autonomous strategic
business units. Figure 8.7 illustrates an example of divisional departmentalisation.
With the divisional (or ‘M-form’) structure, any combination of the other forms of
departmentalisation may be used by the organisation and within its divisions. When the
organisation has unrelated diversified business units, they usually use the conglomerate
structure, based on autonomous profit centres. In this case top management focuses on
portfolio management to buy and sell businesses without great concern for coordinating
the separate divisions. For example, Johnson & Johnson has 166 separate companies
that are encouraged to act independently.
CEO
Product
division 2
Human
resources
Manufacturing
Accounting
Product
division 1
Human
resources
Manufacturing
Accounting
Figure 8.7 Divisional departmentalisation
Network structure
This describes an interrelationship between different organisations. A network
organisation usually performs the core activities itself but subcontracts some or
many of its non-core operations to other organisations. One of the big challenges for
a network organisation is to coordinate its network partners’ activities to ensure that
they contribute to the network organisation’s mission and goals. Figure 8.8 illustrates
an example of a network structure.
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Manufacturing
Central hub
Human resources
agency
Marketer
Figure 8.8 Network structures
New venture units
These consist of groups of employees who volunteer to develop new products or
ventures for the organisation. These groups use a form of matrix structure. When the
project is complete it can be adopted into any of the following organisational structures:
■■ The new products or ventures become a part of traditional departmentalisation,
such as functional, product, location, or customer departmentalisation
■■ The products are developed into a totally new department
■■ The new products grow into divisions.
Team structure
Probably the most widespread trend in departmentalisation in recent years has been
the implementation of team concepts. The vertical chain of command is a powerful
means of control, but passing all decisions up the hierarchy takes too long and keeps
responsibility at the top. The team structure gives managers a way to delegate authority,
push responsibility to lower levels and be more flexible and responsive in the competitive
global environment. Figure 8.9 illustrates an example of the team structure.
CEO
Figure 8.9 The team structure
The virtual network structure
This builds on the features of the network organisation. It is no longer necessary for
the organisation to have all its employees, teams, departments, and subcontractors in
one office or facility. Information technologies enable the organisation to integrate its
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internal employees, teams, and departments with its external network of subcontractors
in order to achieve specific goals. In the virtual organisation, people who are spread out
in remote locations work as though they were in one place. Figure 8.10 illustrates an
example of a virtual network structure.
Employees
contracted
on flexitime
Employees in
satellite office,
same country as
home office
Home
office
Employees in
satellite office in a
different country
than home office
Independent
contract
workers
Suppliers
Figure 8.10 The virtual network structure
The virtual organisation is a streamlined model that fits the rapidly changing environment.
It provides flexibility and efficiency because partnerships and relationships with other
organisations can be formed or disbanded as needed.
However, a disadvantage associated with the virtual organisation is that the levels of
reciprocal and sequential interdependence are much higher than those of the network
organisation. They tend to be instantaneous – that is, any time and any place – for the
networked employees, teams, departments, and subcontractors. The boundaries of the
virtual organisation are also more open than in a network organisation because of the
use of advanced information technologies that seamlessly knit all partners together.
Examples of the information technologies used to create the virtual organisation are
electronic commerce, extranet, and intranet, which have been discussed in Chapter 7.
8.8 Job design
Once the organisational structure is in place, management must consider the
design of jobs to motivate the incumbents of the different positions in the structure
to contribute towards the organisation’s goals. Job design refers to the process of
combining the tasks that each employee is responsible for. Job design is a crucial part of
organising as it affects job satisfaction and productivity. Empowering employees to be
involved in designing their own jobs motivates them and increases their productivity.
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This obviously requires employees to have a very clear understanding of the entire
organisation and the way it operates.
8.8.1 Job specialisation
Job specialisation, or job simplification, refers to the narrowing-down of activities to
simple, repetitive routines. This approach to job design is often used in industries where
many of the employees are illiterate or very inexperienced in the workings of a business.
The term ‘job specialisation’ should not be confused with ‘person specialisation’, which
refers to individuals with specialised training, such as medical specialists, lawyers,
geologists, and engineers.
When designing jobs, managers need to consider motivating elements such as job
specialisation and job expansion.
Job specialisation originated with the work of Adam Smith. The famous opening words
of his book Wealth of nations describe a basic form of specialisation in a pin factory and
the subsequent increased productivity: ‘One man draws the wire, another straightens it, a
third cuts it, a fourth points it, a fifth grids it at the top for receiving the head. Ten persons,
therefore, could make amongst them upwards of forty-eight thousand pins in a day... But if
they had all wrought separately and independently, and without any of them having been
educated to this peculiar business, they certainly could not each of them have made twenty.
This would have meant that 200 pins at most would have been made instead of 48 000.’
Source: Adapted from Campbell, RH, Skinner, AS & Todd, WB. (eds). 1976. Adam Smith: An inquiry into
the nature and causes of the wealth of nations. Oxford: Clarendon Press, p 15.
8.8.2 Job expansion
Job expansion is almost the opposite of job simplification — it is the process of making
a job less specialised. Jobs can be expanded through job rotation, job enlargement, and
job enrichment. Job rotation involves performing different jobs for a set period of time.
Many organisations appoint management trainees and then develop their conceptual
skills by rotating them through the various departments of an organisation. Job
enlargement stems from the thinking of industrial engineers. They wanted to increase
a job’s scope in order to break the monotony of a limited routine. A job is enlarged
when an employee carries out a wider range of activities of approximately the same level
of skill, such as a typist whose job is enlarged to include general administration tasks.
The expanded job will be more interesting because it is more varied. Job enrichment is
implemented by adding depth to the job. It is based on Herzberg’s two-factor theory
of motivation, which is described in detail in Chapter 14. Herzberg argued that job
rotation and job enlargement do not enhance employee motivation. A worker should
be provided with actual control over the task to make the job more motivating.4 Job
enrichment entails increasing both the number of tasks a worker does and the control
the worker has over the job.
Jobs can be expanded through job rotation, job enlargement, and job enrichment.
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Two other forms of job enrichment exist, namely the development of work teams
(which is discussed in Chapter 13) and the job characteristics model (see Chapter 14).
8.9 Delegation
The job of a manager is to get the work done through the efforts of others. It is neither
desirable nor is it possible, in many instances, for managers to perform all the work
for which they are held responsible. Delegation is the process through which managers
assign a portion of their total workload to others. In this process, authority is also passed
on to an employee, who then has the authority to deploy the necessary resources in
order to complete the delegated task.
There are different reasons why managers delegate. Delegation is important from
the organisation’s perspective as it promotes succession planning. Should the manager
retire, resign, or get promoted to a higher level, a subordinate will more easily be able to
move into the manager’s position. From a manager’s point of view, delegation is used to
enable the manager to get more management work done. Subordinates also profit from
delegation. By participating in more challenging jobs, subordinates learn to develop
their decision-making and problem solving skills and in the process improve their
managerial skills.
Even though managers delegate authority, they remain accountable for the
completion of the job. They are accountable both for their own actions and for those of
their subordinates. Managers may hold subordinates responsible for a job, but they are
still accountable to their own superiors for the work.
According to the parity principle, neither the manager nor the subordinate should
be held responsible for things beyond their control or influence. The parity principle
stipulates that authority and responsibility should be co-equal. This means that, when a
manager assigns the responsibility for a task to be performed, he or she must also give
the subordinate the full authority to perform the task. For example, the employee who
is asked to drive across town and pick up a load of timber (responsibility) should also
be given the right (authority) to request a vehicle from the vehicle pool to accomplish
the task. This principle is often violated. Employees almost always feel they have been
assigned more responsibility than authority to act.
8.9.1 Principles of effective delegation
The delegation process is essential to every manager, for this is how managers get
others to share in the organisation’s drive for performance. A common failing of less
effective managers is that they try to be responsible for everything. In so doing, they
are overloaded, and not very efficient managers. This phenomenon is evident in South
African managers, due to the shortage of suitably qualified managers. Consequently,
the subordinate suffers because of the manager’s failure to delegate and develop the
subordinate.
Below are some principles that can be used as guidelines to help managers be more
effective in delegation.
■■ Explain the reason(s) for delegating. Subordinates should understand that
delegation has advantages for themselves, for the manager, and for the organisation.
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■■
■■
■■
■■
■■
235
Set clear standards and goals. Employees should participate in the process of
formulating goals for the delegated task and should also agree with the criteria laid
down for measuring their performance. This participation will foster successful
delegation.
Ensure clarity of authority and responsibility. Subordinates must understand the
tasks and authority assigned to them, recognise their responsibility, and be held
accountable for the results.
Involve subordinates. Managers should motivate subordinates by including them
in the decision-making process, informing them of their progress, and enabling
them to improve their knowledge of and skills in the delegated task. An informed
employee is more likely to accept well-designated tasks and perform them properly.
Request the completion of tasks. By providing the necessary direction and
assistance, managers can see to it that employees complete the tasks assigned to
them according to the agreed-upon standards and goals.
Provide performance training. The effectiveness of delegation depends on
the workers’ ability to perform tasks. Managers should continually evaluate
the responsibilities delegated and provide training to help workers overcome
shortcomings.
Provide feedback to the subordinate. Timely and accurate feedback should be
given to subordinates on a regular basis. The feedback should include both positive
and negative feedback regarding the subordinate’s performance. The way forward
should also be discussed with the subordinate.
8.9.2 The advantages of delegation
The management process relies on the concept of delegation. Therefore it is important
for aspiring managers to understand this concept and to know the advantages of
implementing it. When applied properly, delegation has several important advantages:
■■ Managers who train their staff to accept more responsibility are in a good position
themselves to accept more authority and responsibility from higher levels of
management.
■■ Delegation encourages employees to exercise judgement and accept accountability.
This improves self-confidence and willingness to take the initiative, and is a great
training method.
■■ Better decisions are often taken by involving employees who are ‘closer to the
action’ and know more about the practical execution of tasks.
■■ Quicker decision-making takes place. If subordinates have the necessary authority,
they do not have to refer to top management before taking certain decisions.
8.9.3 Obstacles to effective delegation
When one is given something to do and one knows how to do it well, there is a natural
tendency to do that task rather than to give it to someone else. However, one of the
first things managers need to learn is to delegate those tasks that they know best. By
delegating the tasks that one knows best, one can move on to other tasks that will offer
further personal growth. Also, it is easy to supervise subordinates who are doing things
of which one has detailed knowledge.
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There are a number of personal and psychological barriers that impede the delegation
process for managers. A further review of these barriers may be helpful to us as managers:
■■ A manager may fear that his or her own performance evaluation will suffer if
subordinates fail to do a job properly.
■■ The manager may also feel that the subordinate will not do the job as well as he
or she can do it. This may stem from a lack of confidence in subordinates and the
perception that they are not up to doing the job.
■■ Managers are often too inflexible or disorganised to delegate, or sometimes they
feel that it takes too long to explain to subordinates how to do the job and that they
may as well do it themselves.
■■ Managers may also be reluctant to delegate because they fear their subordinates
will do the job better than they can. Subordinates, on the other hand, sometimes
fear that they will fail and thus expose themselves to disciplinary action. They may
try to avoid work responsibilities and risk, and feel that there are no additional
rewards for completing a task. Sometimes there is confusion about who is actually
responsible for the job.
Managers often inherit organisations that have been designed by others. It is possible
that the current design of the organisation itself may be an impediment to delegation.
If there are problems in delegation, managers should review all the elements of the
organising function to determine the root cause of such organisational stumbling
blocks. The following are examples of organisational impediments to delegation:
■■ Delegation is not effective if authority and responsibility are not clearly defined. If
managers do not know which tasks to delegate and what is expected of them, they
will not be able to delegate decision-making to their subordinates. This situation
requires a clarification of duties from above or from the manager’s boss.
■■ When a manager does not make subordinates accountable for task performance,
there is a likelihood that this responsibility will be passed on to others, creating
additional staff and communication burdens.
■■ In the absence of or with poorly developed job descriptions, individuals may not
have a good understanding of what is expected of them.
8.9.4 Overcoming obstacles to effective delegation
Most of the impediments to delegation can be minimised by a greater awareness on
the part of the manager that such obstacles exist. One way of overcoming obstacles to
effective delegation is to create a culture of continuous learning.
Managers should realise that there is more than one way to deal with a situation
and they should, therefore, not compel subordinates to apply their methods. Managers
should clearly state the outcome that the subordinate must deliver (such as a safe
work environment), but should give subordinates maximum freedom to perform their
delegated tasks. When mistakes are made, the subordinate should be assisted to find
solutions to problems.
Improved communication between subordinates and managers removes obstacles
to delegation. Close communication will reveal the strengths and weaknesses of
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employees, enabling managers to know which tasks can be appropriately delegated
in the knowledge that the job will be done properly. Training helps subordinates to
understand their responsibilities, authority, and accountability.
Subordinates should be made aware of the extent of their contribution in achieving
the goals of the organisation. Managers should be able to analyse the organisation’s
goals and task requirements and determine to what extent employees are capable of
performing the task they wish to delegate. They should be able to trust their employees
and have faith in their ability to complete the task successfully. When employees cannot
perform the job effectively, the manager’s job is to teach them how to do it.
8.9.5 The delegation process
We have discussed how essential the delegation process is to the manager. Similarly, the
process is also essential to the growth and well-being of subordinates. Delegation does not
take place automatically — it is something a manager must initiate. Conditions are constantly
changing in today’s organisations, so it is important for managers to review the changing
requirements with their subordinate staff. Of course, in the case of new staff members, more
time is required to ensure that they understand their jobs and what is expected of them.
1
2
3
4
5
Decide on the
tasks to be
delegated
Decide who
should perform
the tasks
6
Feedback
Provide
resources
Delegate
Step in
Figure 8.11 The delegation process
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Figure 8.11 illustrates the recommended steps in the delegation process:
1. Decide on the tasks to be delegated. Tasks of a repetitive nature, or minor chores,
can easily be delegated. It is important, however, to delegate more challenging tasks
in order to develop employees and create self-confidence. Try delegating those
tasks that you know best how to do.
2. Decide who should perform the tasks. In this instance, the time available, the
competency required, and the experience of the subordinate should be taken into
account. You may also want to rotate certain tasks amongst employees in order to
create a more flexible workforce.
3. Provide sufficient resources to carry out the delegated task. These resources include
people resources, financial resources, physical resources (such as computers),
and information resources. Without sufficient resources, the subordinate cannot
perform the task. This is the nature of authority. All too often the manager delegates
the work to be done, but fails to give the individual control over the necessary
resources to perform the task.
8.10 Summary
In this chapter, we explained the second element of the management process, namely
organising. Organising has been defined as the process of creating a structure for the
organisation that will enable its people to work effectively towards its vision, mission,
and goals. We discussed organisation, organisational structure, and the reasons for
organising. We also discussed the organising process, followed by a definition of the
most important principles pertaining to organisation: unity of command and direction,
chain of command, span of control, division of work, standardisation, coordination,
responsibility, authority and accountability, power, delegation, downsizing, and
delayering. Finally, we discussed authority, organisational design, job design, and
delegation in greater detail.
Managers often complain about stress due to an overload of work. This is often
a result of ineffective delegation. By following the steps in the delegation process,
managers will reduce their own workload to focus more on management challenges;
develop their subordinates; and increase productivity in the organisation.
References
1. Edcon. nd. Available at: http://www.edcon.co.za/about-retail.php (Accessed: 16 August
2016).
2. Statistics South Africa. nd. Available at: http://www.statssa.gov.za/ (Accessed: 16 August
2016).
3. Institute of Directors Southern Africa. nd. Available at: http://www.iodsa.co.za/?kingIII
(Accessed : 16 August 2016).
4. Tiger Brands. 2014. Integrated Annual Report 2013. Available at: http://www.tigerbrands.
com/wp-content/uploads/2014/09/Tiger-Brands-Annual-Integrated-Report-2013.pdf
(Accessed: 16 August 2016).
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Case study
Sappi
It has been eight decades since the South African Pulp and Paper Industries (Sappi) Limited
was registered as a company in December 1936. This incredible milestone is testimony
of the resilience of Sappi Ltd and its people. From its humble beginnings at Enstra Mill in
Springs (South Africa) where their first paper was produced from straw in 1938, the company
has grown into a global leader with operating units and sales offices on six continents and
customers in over 160 countries. The company currently employs almost 12 800 employees
worldwide.
The organisational structure of Sappi Ltd is given in the diagram below.
Sappi
Johannesburg
Sappi North
America: Boston
Sappi
southern Africa:
Johannesburg
Sappi
Europe:
Brussels
International:
Hong Kong
Source: Sappi. nd. Available at: http://www.sappi.com/regions/sa/group/Pages/Company-history.aspx
(Accessed: 29 September 2016).
Case study questions
Question 1
Sappi Limited has its beginnings in 1938, starting as a small producer of paper and pulp.
Since then, it has grown into a big company. Explain the importance of organising for a
company such as Sappi that started off small and with time grows into a multinational
company.
Question 2
Explain the reasons why an organisation such as Sappi should create a structure for their
organisation.
Question 3
‘Power’ can be defined as the ability to influence the behaviour of others in an
organisation. Discuss the various kinds of power that can be distinguished in an
organisation. Which one of these various kinds of power would be the most important
one to have for leaders in Sappi? Substantiate your answer.
Question 4
An important aspect of organising is the grouping of related activities into units or
departments called departmentalisation. Distinguish between the various types of
departmentalisation that an organisation can implement. Also, identify the type of
departmentalisation that Sappi follows.
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Question 5
Job design is a crucial part of organising. Managers must consider the design of jobs to
motivate the incumbents of the different positions in the structure to contribute towards
the organisational goals. There are various ways to design jobs that motivate. Discuss
the various ways of job design and recommend one of these ways to the management of
Sappi. Give reasons for your recommendation.
Multiple-choice questions
Question 1
The management function most visibly and directly concerned with the systematic
coordination of the many tasks that must be performed in an organisation and,
consequently, the formal relationships between people who perform them, in order to
.
work effectively towards this mission is
1. planning
2. organising
3. leading
4. controlling
Question 2
Identify the wrong statement from the following:
1. Organising will help an organisation to deploy human resources, financial resources,
and information resources in the most effective, productive and profitable manner
2. The organisational structure of an organisation is responsible for creating a
mechanism to coordinate the activities of the entire organisation
3. An organisational structure needs to ensure that communication is effective and
that all information required by managers and employees at all levels reaches them
through the correct channels so that they can perform their jobs effectively
4. An organisation first needs to develop an organisational structure and then
formulate its corporate strategy
Question 3
A flat organisational structure will lead to
spans of control.
1. a few; narrow
2. many; narrow
3. many; wide
4. a few; wide
levels of management with
Question 4
In a production line set-up, the output of one unit becomes the input for the next unit.
The second unit is directly dependent upon the first unit to finish its work before it can
begin its assigned task.
According to Thompson, this is called
1. pooled
2. synergistic
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interdependence.
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241
3. sequential
4. reciprocal
Question 5
power, based on the
The managing director of an organisation has
authority that the organisation grants to his or her particular position.
1. coercive
2. referent
3. legitimate
4. expert
Question 6
An organisation appoints company secretaries to render services to their top
management and to advise line managers regarding ethics and corporate governance
issues in the company.
Company secretaries have
1. line
2. centralised
3. expert
4. staff
authority in the organisation.
Question 7
Which of the following factors will influence an organisation to decentralise authority?
a. The organisation is operating in a complex and uncertain environment
b. The organisation obtains new products through a strategy of research and development
c. Lower level managers are not in a position to make sound decisions
d. The organisation is large, complex and operates in countries all over the globe
e. It has a history of centralising authority in the organisation.
1. a b
2. a b d
3. b c d
4. c d e
Question 8
Which of the following are advantages that an organisation can expect from
decentralising authority?
a. Decentralised authority will improve decision-making
b. Decentralised authority will foster a competitive climate in the organisation
c. There will be a lesser need for management training and development
d. Decentralisation demands sophisticated planning and reporting methods
e. There should be improved morale and initiative at the lower levels of management.
1. a b d e
2. a b e
3. b c d
4. b c d e
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Question 9
The following characteristics are typical of a(n) _____ organisational structure: (i)
independence of various organisations, such as suppliers, (ii) a common project, (iii)
time and space have no incidental impact, (iv) information technologies is in the core
management processes.
1. virtual
2. product
3. location
4. customer
Question 10
To delegate effectively, managers should use the following guidelines:
a. Explain the reasons for delegating
b. Provide performance training
c. Provide feedback to subordinate
d. Delegate responsibility, authority and accountability to subordinates
e. Request the completion of tasks
f. Although managers can assign the responsibility for a task to a subordinate, the
subordinate should never have the full authority to perform the task.
1. a b c e
2. b c d
3. b c f
4. d e
Paragraph questions
Question 1
Explain the importance of organising in attaining the goals of an organisation.
Question 2
Describe the organising process in designing an organisational structure.
Question 3
Explain the principles of organising that should be considered in designing an
organisational structure.
Question 4
Explain the various types of organisational structure.
Question 5
Explain the design or redesign of jobs as a motivational factor in organisations.
Question 6
Explain the delegation process and guidelines that managers should follow when
delegating tasks to subordinates.
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Essay question
The job of a manager is to get the work done through the efforts of others. It is neither
desirable nor is it possible for managers to perform all the work for which they are
responsible and they need to assign a portion of their workload to others. This is called
delegation. Give a full discussion of delegation within an organisational context.
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9
THE
PURPOSE
OF THIS
CHAPTER
LEARNING
OUTCOMES
KEY
CONCEPTS
Every organisation faces change. Change is part of life and therefore
also part of the ‘life’ of a business organisation. Change can originate
in the external environment or within the organisation itself. It can be
revolutionary or gradual. Organisations can benefit from change if they
manage the change process carefully. Successful organisations recognise
change and adapt to them timeously. Managers have to lead organisations
and its people through the change process and deal with issues such as
resistance to change, productivity loss during the change process and
even turnover of key workers during the change process.
This chapter examines change management by dealing with the
following issues: environmental forces that require organisations to
change, the different types of change, the process to follow to bring about
change in the organisation, and how to overcome resistance to change.
The chapter also looks at the concept of organisational culture and how
to align it with the chosen strategy and the organisational structure.
This chapter will enable learners to:
Explain how environmental change forces the organisation to adapt
in order to survive
■■ Expound on how internal change can be planned
■■ Depict and discuss the change process
■■ Identify and discuss the four main areas of organisational change
■■ Recommend ways of overcoming resistance to change
■■ Explain what the concept of organisational culture encompasses
■■ Discuss the importance of managing the organisational culture in
order to change the organisation
■■ Explain briefly what an organisational culture analysis (OCA) encompasses
■■ Explain the importance of aligning the organisation’s culture with
the chosen strategy and structure.
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
Management Principles 6e.indb 244
Managing change: culture,
innovation and technology
Change agent
Change intervention
Change process
First-order change
Organisational culture
Organisational culture analysis (OCA)
Organisational development (OD)
Planned change
Reactive change
Resistance to change
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9.1 Introduction
Growing urbanisation, a change in demographics, global warming, new emerging
markets and advances in technology are only some of the changes that affect all business
organisations across the world.1 The United Nations predicts that urban populations
will grow by 72 per cent in 2050. This growth will mainly happen in African and Asian
countries. Coca-Cola, for instance, sees water scarcity in the future as a threat to its own
sustainability. In developed countries, people are growing older while other countries
are experiencing an increase in their overall growth rate. This change will affect the
labour force making it more difficult for companies to acquire talent in developed
countries due to a large percentage of the workforce being older, and even old. There
is also a shift in economic power from Western markets to Brazil, Russia, India, China
(BRIC). New technological developments are also creating totally new industries. For
example, Amazon is seeking approval from the Federal Aviation Administration (FAA)
to deploy a drone delivery system. This change in delivery will turn the industry on its
head!
Although the above changes are profound, less dramatic changes also require of
managers to deal with change on a daily basis. These ‘less dramatic changes’ could
include: an important supplier closing its business, new legislation regarding minimum
wages, the relocation of a main road that goes through a town, a major product
breakthrough by a competitor and so on.
In Chapter 3 we examined environmental change and how the many variables in
the environment impact on the organisation. We stated that the organisation is an
open system. This means that the organisation does not function in a vacuum, but is
influenced by the forces of change in the environment. The organisation either has to
respond to these forces or face possible failure.
Dealing with change is a complicated process, at the heart of which lie people and
their natural resistance to change. The change process therefore poses major challenges
to managers at all levels of the organisation. How organisations manage change will
inevitably mean the difference between success and failure in a very volatile business
environment.
Figure 9.1 shows some of the environmental forces of change that force organisations
to adapt in order to survive − and hopefully thrive − in the changing environment.
The macro- and market forces which were described as external forces in Chapter 3
are responsible for the ever-faster environmental change and these eventually impact
on organisations by creating pressure for change. When the pace of change in the
environment outstrips the pace of change inside the organisation, the organisation will
run into problems. If organisations do not align their visions with the environment, or
adapt their missions, goals, strategies, structures, and organisational cultures to change,
they will fail. And if leaders and managers do not sense the need for change and do not
look beyond the boundaries of their ‘comfort zones’, they will lead their organisations
to failure. Ultimately, their competitors, with increased productivity and improved
quality, will overtake them.
A brief overview of change inside the organisation and of the process of change will
help to clarify the concept of ‘change management’.
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New products
Computerisation of
processes
New and
faster
production
New and
faster
communication
Information
technology
Internet
■■
■■
■■
■■
■■
■■
■■
■■
■■
Faster change
Increased competition
Increased productivity
Increased quality
■■
■■
■■
■■
■■
■■
■■
Demographic
trends
Education
Health issues
Business
ethics
Gender and
race issues
Changing
lifestyle
Social forces
■■
More threats to organisations
More opportunities for
organisations
More
countries
join market
economy
Free trade
Global
competition
Free flow of
capital
Trade union
activities
Economic and
market forces
ENVIRONMENTAL CHANGE
■■
■■
■■
■■
■■
■■
Technological
forces
■■
■■
■■
■■
■■
■■
■■
■■
■■
Increased
demand and
exploitation
of natural
resources
Increase
in waste
production
Climate
change
Possible
negative
impact of
genetically
modified
crops on the
environment
Ecological
forces
■■
■■
■■
■■
■■
New vision
New mission
Change in strategy
Change in structures
(restructuring)
New operations
■■
■■
■■
■■
■■
Increased
international
cooperation
such as:
Nepad,
Commonwealth of
Nations,
European
Union (EU),
and so on
International
forces
New technologies
Change in organisational culture
Re-engineering
New systems
ORGANISATIONAL CHANGE REQUIRED
Failure of
communism
Government
ideologies
Legislation
Human rights
Employment
Equity Act
Labour laws
Political forces
■■
246
management principles
Figure 9.1 Forces of change driving the need for organisations to change
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Evolutionary versus revolutionary change
To be able to manage change, we need to understand the difference between evolutionary
versus revolutionary change. When a courier company decides to use solar-driven cars,
instead of petrol cars, to deliver its parcels, the change would be considered ‘gradual’.
However, if the courier company decides to use drones to deliver its parcels, the change will
be considered ‘revolutionary’.
Evolutionary change is often localised. Using solar-driven cars will impact mainly on the
operations of a courier without major repercussions to other parts of the system. The
organisation as a whole remains intact and no overall change of its former state occurs in
spite of the incremental change to its fleet of cars.
Replacing petrol-driven cars with drones indicates a revolutionary, radical change. This will
require a massive re-engineering of the entire organisation. This revolutionary change will
have an influence on employees who may need new skills, new administration systems, new
ways of contacting customers, and many more radical changes.
Change management in the next decade will involve more of the revolutionary variety – and
less of the evolutionary variety. This is due largely to the many technological breakthroughs
that are revolutionising the way in which business is conducted. To cope with the change,
managers will be expected to show a level of courage that was not previously required.
9.2 Change inside the organisation
In the introductory paragraph, the examples given dealt mainly with change that
emanates from the external environment, such as changes in legislation, technological
breakthroughs, a new competitor entering the market, a new economy, and so on. Yet,
a variety of forces inside the organisation may also cause change. Whenever owners
decide to change their business model, revise the commission structure for salespeople,
choose different strategies to become more competitive, organisational change will
result.
Managers can respond to the internal need for change in two basic ways, namely,
either through reactive change or planned change. Because of the fact that change is
often unexpected, managers may respond to it in a reactive way. This approach is
usually hurried and poorly planned, and is sometimes called crisis management.
Planned change, on the other hand, is a change process that is planned and executed in
anticipation of future events and changes. It involves the entire organisation, or at least
a major part of it. Managers should plan for change whenever possible and should plan
the implementation of the change initiatives carefully. This requires going through a
change process.
9.3 The change process
Changing an entire organisation or just certain sections of an organisation is a very
challenging task. And even if an outside consultant informs management that a change
is required, managers may still not respond to the change for a variety of reasons. The
reasons could include: mistrust in management, internal politics, fear of losing your job
and poor communication regarding the need for the change.
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Managers must understand how change affects the organisation, and they must know
when and how to set a change process in motion. A logical and planned process is more
likely to be successful than an ill-conceived effort. Although many change processes are
presented in various textbooks, the one depicted in Figure 9.2 takes a holistic approach
to organisational change.
The change model illustrated in Figure 9.2 begins with a recognition of change — the
trigger for change. This is probably the most difficult step of the change process, because
management often lacks the insight to recognise the need for change as evolutionary
change can be so incremental. Revolutionary change is often so drastic that managers
need to ‘rock the boat’ to deal with the change — something that managers often do
not want to do. Revolutionary or drastic change requires strong leaders who can create
a vision of the future that managers and employees want to share in — despite the
uncertainties created by the change. (In Chapter 8 which deals with leadership, the
argument is made that the real job of leaders is to sense the need for change and to
initiate it.) The need for change may be triggered by a change in any of the business
environments.
Determine the desired outcome of the change intervention
UNFREEZE
The trigger for change
Plan for implementation
Implement
Evaluate and follow up
REFREEZE
Select an appropriate change technique
CHANGE
Diagnose the causes
Figure 9.2 Steps in the change process
This means that change may become simply inevitable. Management can also initiate
change themselves if they believe that there is a better business model for their business,
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more efficient systems, lower-risk production methods, or a better strategy for the
organisation. However, it is critical to also determine if the organisation is ready for the
intended change.2
Once the need for change has been identified and is clearly defined, managers
must clearly state the desired outcome of the change intervention. This may be a new
organisational structure that decentralises decision-making to improve performance,
a new reward system to pay for performance, and so on. A clothing retailer may state
that they want to reduce, within two years, their range of clothes to only include locally
manufactured clothes, in order to get rid of the expensive imported clothes.
Third, managers must diagnose the causes that necessitated change. If the cause of
change was ‘declining sales’, managers must look for causes such as unrealistic sales
forecasts, an unproductive sales force, an outdated product range, a poorly-structured
commission structure.
The fourth step in the change process requires management to select a change
technique or a change agent to lead the organisation through the change. If the need for
change revolves around new skills, retraining may be required. If a change in technology
caused the change, the implementation of new systems may be required.
After the change technique has been chosen, management must plan its
implementation by considering such things as the cost of change, budget implications,
target dates, resources needed and the influence this will have on the morale of managers
and workers. Once the change intervention is implemented by the change agent, it must
finally be evaluated to see if the change has been successful. If the change intervention
is not completely successful, further change may be necessary.
Many change interventions involve the organisation’s strategy, its structure, its
technology, and its people. We therefore need to look closer at these areas of change in
the organisation.
9.4 Areas of organisational change
Many organisational changes take place in the so-called areas of organisational change,
namely in strategy, structures, technology, and people. When change takes place in any one
of these areas, that change will generally bring about change in another area or areas.
Lewin’s change model
Different models can be used to implement
change in an organisation. Lewin’s change
model is a popular one.
This model comprises three stages:
1. Unfreezing current behaviour
2. Changing behaviour
3. Refreezing behaviour.
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In order to cause change, according to Lewin, one must ‘unfreeze’ the current behaviour.
To improve productivity, an organisation may inform the workforce of impending lay-offs or
the closure of certain of its plants. To change the behaviour of the workforce, management
may decide to create training interventions to help individuals and teams improve their
productivity. Alternatively, management may decide to negotiate with the workforce for
specific reward packages. To ensure that the implementation of the change is successful,
management then needs to ‘refreeze’ the behaviour. This can be done, for instance, through
a permanent upward adjustment of salary for those performing well in the organisation.
Source: Cummings, TG & Worle, CG. 2013. Organisational change and development, 10th ed.
Australia: Cengage Learning, p 22.
The four major areas of organisational change are illustrated in Table 9.1.
Table 9.1 Areas of organisational change
Strategy
■■
■■
■■
■■
Goals
Corporate
strategies
(growth, decline,
corporate
combinations)
Functional strate­
gies (marketing,
finance, human
resources, and
so on)
Strategic
redirection
Structure
■■
■■
■■
■■
Bureaucracy
(levels, span of
control, departmentalisation)
Authority (formal,
informal)
Decision-making
(centralised,
decentralised)
Organisational
design (reengineering,
downsizing,
restructuring)
Technology
■■
■■
■■
■■
■■
Production
technology
Information
technology
Systems
technology
Operations
technology
Control systems
People
■■
■■
■■
■■
■■
■■
Knowledge and
skills
Motivation
Performance
management
Reward allocation
Behaviour
Culture (beliefs,
values, attitudes)
We shall briefly discuss each of these areas of organisational change.
9.4.1 Change in strategy
Most organisations have strategic plans outlining the future course of the business (see
Chapter 4). Any change to these will mean a change in the functional strategies of the
organisation, as well as changes in any of the other areas of change. Edcon’s decline
strategy to sell off non-core businesses (CNA and Boardmans) will have a profound
influence on their product offering.
9.4.2 Changing the organisational structure
A change in strategy should normally result in a change of structure. This may involve
reducing the management levels, enlarging the span of control, merging departments
or sections, revising authority, or deciding to decentralise decision-making. Changing
an organisation’s structure is very difficult because of the vested interests of managers,
employees, and unions. This is especially true in cases of a change in the overall design
of an organisation in order to make the organisation more streamlined.
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To compete in the fast-changing business environment, organisations often have
to become more flexible in order to meet the needs of its clients. Management may
therefore have to outsource its non-core departments, such as the information
technology department, management training and development, and legal services.
Included in structural change is also the improvement of processes or what is often
called the ‘business architecture’. At a training institution, traditional classroom-style
lectures may, for example, be replaced by e-learning or interactive tutor sessions.
Another well-known structural change involves outsourcing those areas that can be
better performed by specialist suppliers.
9.4.3 Technological change
This may involve replacing people with robots, altering equipment or introducing new
engineering processes, production processes, or systems. About 35 per cent of current
jobs in the United Kingdom are at high risk of computerisation over the following 20
years, according to a study by researchers at Oxford University and Deloitte.3 Similar
research conducted in the USA estimates that 47 per cent of jobs in the USA are ‘at risk’
of being automated in the next 20 years.4 Technology has compelled organisations to
undergo changes at an enormous rate. A change in technology, on the other hand, can
also lead to a change in strategy or structure.
9.4.4 Changing people
A change in the organisation’s strategy may necessitate a change in the job description
of many employees, their mindsets and behaviours. Many managers and workers may
find change traumatic and may resist any attempts to change the organisation. In certain
cases managers and employees may even have to reapply for their own jobs. A strategy
change may require completely new competencies by managers and workers. Internal
competition for jobs may cause hostility amongst colleagues.
Changing the beliefs, values, and behaviour of people also entails changing the
corporate culture of the organisation. Just as an individual’s personality determines
his or her behaviour, shared values and beliefs form the basis of a particular culture
that influences the behaviour and performance of the organisation. In many cases a
corporate culture, such as a performance-driven corporate culture, a teamwork-driven
culture or a power-driven culture, impacts negatively on the strategies and performance
of the organisation, and may have to be changed. (The question of changing a corporate
culture is discussed in more detail in Section 9.6.)
Despite possessing a thorough knowledge of the areas of organisational change,
and putting in place a process of planned change, most organisations fail in their efforts
to change. The reasons for this failure often revolve around resistance to change. This
should be expected, as change is essentially about people adapting to it.5
9.5 Resistance to change
Organisational change efforts often run into some form of manager and employee
resistance. Change triggers emotional reaction because of the uncertainty involved
in terms of job security, possible retrenchments, new managers to report to, and so
on. Therefore, in planning for change, management should always take resistance by
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managers and workers into account. This can be done by understanding the reasons
why people resist change. These reasons are discussed in the sections that follow (see
Figure 9.3).
Threatened self-interest
Uncertainty
Lack of trust
Misunderstanding
Different perceptions
Low tolerance for change
General:
Inertia
Timing
Surprise
Peer pressure
Figure 9.3 Reasons for resistance to change
Threatened self-interest
Both managers and employees will resist change if they think it will cause them to lose
something of value. Some people are relatively comfortable with change while others
may be completely change-resistant. Managers and employees may fear losing their
jobs, their status in the organisation and in society, their access to the organisation’s
resources. They may even fear losing their houses or other possessions.
Uncertainty
Perhaps an even bigger cause than the threat to self-interest is uncertainty. People’s
inherent aversion to change is caused by the uncertainty created by the change as well
as the unknown repercussions of the change.
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Lack of trust and misunderstanding
Even when management proposes change that will benefit everyone, people will still
resist if they do not fully understand the reasons for changing. Such a situation is most
likely to occur when there is a lack of trust between the parties involved. Distrust
and suspicion often result in rumours and distorted information and may become an
effective obstacle to change. Clear and honest communication is essential to overcome
any misunderstandings.
Different perceptions
Perceptions of the costs and benefits of a proposed change depend on what individuals
think change will mean for themselves and their organisation. Differing perceptions of
the benefits of proposed change occur when information on the change is not properly
shared with managers and employees. Employees are often exposed to different, and
often less, information than management and may not understand the reasons for
change as well as the full consequences of change.
Low tolerance for change
People often resist change because they fear they will not be able to develop the new
competencies necessary to perform well. Although individuals often understand the
necessity for change, they may be emotionally unable to accept the change.
General reasons
There are also several general reasons why people resist change, regardless of the actual
content of the change:
■■ Inertia. People do not want to change the status quo. The old way of doing things
may have been comfortable and easy.
■■ Timing. Change may be resisted because of poor timing.
■■ Surprise. People do not react favourably to surprises. If the change is sudden,
unexpected or extreme, resistance may be almost a reflex reaction.
■■ Temporary fad. Managers and employees may believe that the change is simply to
impress others and not essential to improve the organisation’s performance.6
■■ Peer pressure. Work groups sometimes resist new ideas because of antimanagement attitudes.
Note that resistance to change should always be regarded as an important signal for
further enquiry into the initiative for change. Employees’ assessment of the initiative
may be more accurate than that of management; they may know that a change will not
work because of their own experience and exposure.
9.5.1 Overcoming resistance to change
Resisting change is a human response and management should take steps to counter
it. Reducing resistance may cut down on the time needed for change to be accepted. A
number of methods that may be useful in decreasing resistance to change are examined
in the sections that follow.
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Education and communication
People should be educated about planned changes before they occur. The nature as well
as the logic behind the change should be communicated to employees in a way that they
will understand. This can be done by means of one-on-one discussions, presentations
to groups, discussion forums, reports, and so on. It should be borne in mind that the
fact that the change initiative has been communicated does not mean that managers
and workers are informed about the issue. A financial manager explaining the cashflow
situation of an organisation must consider his or her target audience and adapt the
presentation to the level of understanding of the target group. So too must all other
communicators of the necessity for change ensure that their audiences understand their
messages.
Participation and involvement
Participation in the change initiative is generally considered to be an effective technique
for overcoming resistance to change. Prior to change, those who oppose it can be
brought into the decision-making process. Participation gives employees a chance to
express their fears about proposed changes. It is also important in bringing together
those affected to help implement the change.
Facilitation and support
Facilitation involves providing the necessary resources that employees need to carry out
the change and perform their jobs properly. This often includes decentralising authority.
Psychological support may be required where levels of employee fear and anxiety are
high.
New confidence
Denial
Anger
Acceptance
Self-esteem
Confusion
Depression
Crisis
Time
Figure 9.4 Psychological reactions to change
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Negotiation and rewards
It is often best to negotiate a proposed change with the parties involved and to reach
an agreement. Negotiated agreements involve conceding something to the other party
in order to reduce resistance. A drastic intervention to overcome a change barrier
may sometimes be to remove the persons resisting change from the organisation or to
remove or replace the change agent.
The best way to overcome resistance to change is probably a combination of the
above with the emphasis on participation and reward.
9.5.2 Why efforts to change fail
In addition to the above reasons why management experiences resistance to change,
other valid reasons may also explain why efforts to change fail.
The starting point in the management of change should be ‘the story of the company’.
It is difficult to think of an organisation outside of its context. Context invokes heritage,
values, shared experiences, norms, and myths. An organisation’s current capacity and
appetite for change is contingent on this history. This acknowledgment of history is
therefore crucial in managing the change process. It is essential to understand the past
if we are to make sense of why things are what they are.7 (See the five main principles of
the Toyota Company in the box below.)
Five main principles of Toyota
1.
2.
3.
4.
5.
Always be faithful to your duties, thereby contributing to the Company and the overall good
Always be studious and creative, striving to stay ahead of the times
Always be practical and avoid frivolousness
Always strive to build a homelike atmosphere at work that is warm and friendly
Always have respect for spiritual matters, and remember to be grateful at all times.
Source: Toyota. nd. Available at: http://www.toyota-global.com/company/history_of_toyota/75years/
data/conditions/precepts/index.html (Accessed: 12 September 2016).
Kotter singles out the following reasons why change in an organisation may fail:8
Too much complacency
When complacency levels are high, transformations always fail because followers will
not move out of their comfort zones.
Failing to create a sufficient coalition to make change happen
A few individuals without much power cannot manage change. Neither can the chief executive
single-handedly manage change. A strong enough coalition of key players is required.
This coalition should preferably comprise senior managers and employees (including
representatives from trade unions) as well as young ones. These two groups often have
diverse views on a matter. These contrasting views may even lead to innovative solutions.9
The absence of an exciting vision
A vision should sketch the ‘perfect future’. This exciting future should be shared by
managers and workers throughout the organisation. The vision plays a key role in
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producing meaningful change by helping to direct the thoughts and actions of large
numbers of people.
Under-communicating the vision
A vision is of value only if it is shared. Organisations use different ways of communicating
the vision. Most listed companies have a copy of the vision in their annual report. Some
organisations display their vision statements in their reception areas, offices, and so on.
To ensure that all managers and employees understand the vision, some organisations
use video presentations as a way of communicating the ‘perfect future’. Also popular is
an industrial theatre to use actors to present the change to workers in a playful way.
Permitting obstacles to block the vision
Obstacles such as the organisational structure, remuneration structure, or mindsets of
managers and employees can block change. Such structures will have to be removed
when they become inconsistent with the new vision.
Failing to create short-term wins
Efforts to change lose momentum if there are no short-term goals to meet and celebrate.
However, declaring victory too soon may also impact negatively on the success of the
change initiative.
Neglecting to anchor changes firmly in the corporate culture
Change is embedded in the organisational culture only when it becomes ‘the way things
are done here’.
Managers need to understand that resistance to change can come from individuals as
well as from organisational systems. Being sensitive to factors that may cause resistance
to change can help managers to implement the initiative for change successfully.
9.6 Culture and change
The changes that many organisations are forced to make in an ever-changing business
environment are often so fundamental that they involve transforming an organisation’s
very essence — its corporate culture. Because the culture of an organisation plays such
an important part in both organisational performance and change, an examination
of the concept is necessary. An organisational culture should be well aligned with
the organisation’s strategy and structure. If not, the culture can be a potent source of
resistance to change.
Every organisation has a particular culture, which is almost like a personality. It
comprises an omnipresent set of assumptions that is often difficult to fathom and that
directs activities within the organisation.
Just as an individual’s personality determines his or her behaviour, shared values
and beliefs form the foundation of a particular culture that influences the actions and
activities in that organisation.
9.6.1 Definition of the concept of culture
Organisations are made up of people and not simply of buildings, production facilities,
products, markets, strategic analyses, and technological innovations. Every organisation
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has its own unique personality, which is known as its corporate culture. The heart and
soul of an organisation is its people. The concept of ‘culture’ is difficult to define, so
studying a number of perspectives on culture may help in defining it.
Corporate culture can be defined as the beliefs and values shared by people in an
organisation. It refers to a set of basic assumptions that works so well in a specific business
organisation that they are regarded as valid assumptions within the organisation. These
assumptions are upheld as the correct way to do things or to understand problems in the
particular organisation. The term ‘basic assumptions’ refers to the following:
■■ Beliefs or convictions about the world and how it works
■■ Values, which are the organisation’s assumptions about which ideals are worth
pursuing, such as striving for success or avoiding debt.
Managers and employees who have worked for different organisations should be
familiar with the ‘basic assumptions’ that are maintained in different organisations. In
some organisations, challenging the leaders’ viewpoints regarding business issues is
appreciated and considered as ‘assertive’; in other organisations this could be a careerlimiting approach. In some organisations creativity is appreciated; in others the status
quo should be maintained.
9.6.2 Elements that determine and express a corporate culture
An organisation’s culture is portrayed by numerous elements, such as symbols, rituals
and customs, ideologies, language, tales, assumptions, relationships, and humour (or
lack of it).
Symbols
The symbols of organisational culture may include the architecture of the buildings,
the arrangement of offices, the extent to which parking bays are reserved for senior
management, the name of the organisation, the use of its logo, and the way that outsiders
are treated. According to Steve Jobs’s recent biography, his headquarters had to be
designed around a huge open atrium in order to be a place that ‘promoted encounters
and unplanned collaborations’ between managers and workers from different
departments. An unexpexted encounter with a colleague in the atrium could then lead
to creative solutions to pressing issues. The ‘open-atrium design’ of headquarters is very
different from the closed-offices designs of many other corporate headquarters.10
Rituals
Rituals refer to practices and reactions that occur repeatedly and have a certain
significance within the organisation. These rituals set certain boundaries and
relationships between employees, managers, customers, unions, and so forth. Such
rituals include awards, celebrations and farewell parties.
Ideologies
The beliefs, moral principles, and values underlying decision-making within an
enterprise may be explicit and set the tone and pace, or may be barely visible at all in
the organisation.
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Sometimes the value systems of various managers in an organisation differ radically
and are totally conflicting. An attempt should be made to resolve such problems and to
tighten up the organisation’s ideology.
To ensure that everybody in the organisation understands its values, these values
should be expressed in behavioural terms. The value ‘we are honest’ may be interpreted
differently by different people. When this value is expressed in behavioural terms, such
as: ‘We declare all presents given to us by customers immediately’, it should be easier for
everybody in the organisation to live by the same set of values.
Language
Language and language usage are important manifestations of corporate culture. One
of the factors here is that certain language groups have certain values and customs.
Thus one might find in a predominantly English-speaking organisation that there are
different value systems compared with, for example, a predominantly Afrikaans- or
Xhosa-speaking organisation. Moreover, the continual use of certain words and phrases
tells its own story about the prevailing corporate culture within an enterprise. In certain
enterprises strong, aggressive words and phrases such as ‘destroy all competitors’ and
‘price wars’ clearly express the type of culture that prevails.
Tales
Often stories circulate in an organisation depicting certain qualities and characteristics
considered unique to the organisation. These stories can be based on facts, fiction, myths,
sagas in the organisation, and so on. Stories provide clues to managers and employees
about behaviour that is appreciated or not tolerated in the organisation. It often depicts
dramatic moments in the life of the organisation in a heroic way. For example, the basic
value of equality amongst members of an organisation can be demonstrated in these
stories. In this way, stories may be told about a certain superior/manager who risked her
or his life to save workers who were trapped in a mine.
Assumptions
Different groups in an organisation may make different assumptions about the way that
certain tasks should be performed. These differences may result in misunderstandings
and conflict. Some enterprises may even have the experience that people with different
professional training belong to different groups with divergent assumptions. Even
employees who belong to different unions can manifest different assumptions. It is a
well-known fact that there is often disagreement between production and maintenance
personnel on the way things should be done. It is vital that an organisation recognises
the various groupings and the assumptions on which they base their decisions.
Relationships
This refers to relationships that may arise as manifestations of a particular corporate
culture. The reference here is to specific types of relationships, such as relationships
between managers and subordinates or the relationships between managers of different
departments. In a previous example, we referred to the open-atrium design of an
organisation’s headquarters. This design symbolises the importance of cross-functional
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relationships between all members of an organisation as they will cross paths in the
atrium at some stage during the day.
Humour
Humour can convey certain messages about corporate culture. Jokes about cultural
outsiders indicate a definite boundary between ‘us’ and ‘them’. In this way, employees
identify with the organisation. Such humour may subtly focus attention on divergent or
corresponding assumptions.
Organisational culture analysis (OCA)
Organisational culture analysis is a means of determining the here and now of what life is
really like in an organisation – a quick barometer of the difference between current culture
and that which is desired. It is an analysis of whether or not conditions for competence
exist, and if they do not, which conditions oppose them. The analysis also indicates whether
the planned changes have any flaws.
The OCA measures three conditions for competence in terms of an organisation’s culture:
1. Collaboration: measures leadership values, the accessibility of leaders, and the
credibility of leaders
2. Commitment: determines the extent to which the sharing of power is formalised, the
extent to which people are allowed to do what needs to be done, and the extent to which
mutual reliance and respect (team values) are established
3. Creativity: determines the extent to which personal control over work is allowed, the
extent to which excitement (not boredom) is created, and the faculty for problem solving.
Source: Productivity SA. nd. Available at: www.productivity.co.za (Accessed: 12 September 2016).
The elements of a culture form the content of that culture. Culture is an asset to the
organisation, but if not properly managed, can also be a liability. It is an asset because
cultural alignment eases communications (people know how things are done), facilitates
decision-making (people know what to do), makes control more effective (people know
what is expected of them), and it may generate pride and cooperation. The results are
efficiency, good products, satisfied customers, and higher profits.
Culture becomes a liability when important shared beliefs and values interfere
with the strategy and structure of the organisation. This condition may be found
in government organisations when the ideology of a new regime is brought into the
organisation and its proponents mistrust members of the prior regime, and vice versa.
Such a culture is a significant liability because personal ideological beliefs cannot always
be expected to match the dominant ideology of an organisation’s culture. This difficulty
may be dealt with by focusing on protocols for behaviour in the organisation.11
Realigning an organisation’s culture with a chosen strategy and structure is a timeconsuming process. It often starts with an analysis of the current culture and the
identification of differences between the current culture and the desired culture.
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9.6.3 Changing the organisational culture
Appealing to managers to change behaviors, thinking, values, and beliefs rarely works,
according to corporate culture guru, Professor Hrebiniak.12 Professor Hrebiniak states
further that culture-changing activities such as white-water rafting, rock climbing,
paint-ball wars, sensitivity training, and other teambuilding exercises alone rarely have
long-lasting effects on an organisation’s attempt to change its culture. Spirits may be
lifted or behaviour changed for a while, but managers soon fall prey to the same old
organisational structures, incentives, processes, and controls.
To change an organisational culture, management must focus on four of the factors
and conditions that affect it (see Figure 9.5).
Structure
and
process
Incentives
People
Controls
Figure 9.5 Factors to change in order to change an organisational culture
1. Structure and process. Organisations, big or small, can change their structures
and processes to change the organisational culture as this will have an influence on
all members of the organisation. To create a culture of responsibility and decisionmaking, management can decentralise autonomy. A hotel group, for example, can
decentralise decision-making so that hotel managers in the different countries or
regions can make decisions that will better satisfy their specific customers and
their needs.
2. People. Appointing an outsider may bring in new innovative ideas of how to
improve the business. He or she will also not ‘carry any baggage’ or have any
personal relationships in the organisation to protect. New appointees will also not
be contaminated by the old organisational culture or internal politics. Managers
can even be rotated in the organisation. In short, new people, ideas, and strategies
can have a positive effect on culture change.
3. Incentives. Many organisations reward people for getting older and not for
performance. People are therefore rewarded for doing the same things in the same
way. A new incentive system will affect behaviour and performance and attract new
resources and capabilities, which can lead to culture change.
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Organisational culture guru, Professor Hrebiniak, Wharton School,
University of Pennsylvania
‘Don’t try to change an organisation culture per se. Focus on changing some of the
factors and conditions that affect culture, rather than directly on culture itself.’
Professor Hrebiniak’s presentation to Wharton Executives, September 2011.
Source: Wharton @ Work. 2011. Available at: http://executiveeducation.wharton.upenn.edu/thoughtleadership/wharton-at-work/2011/09/four-steps-culture-change#sthash.4FuLua68.dpuf (Accessed: 12
September 2016).
4. Changing and enforcing controls. It is important that managers should give
continuous feedback to departments/sections/individuals, evaluate performance,
identify gaps in performance and take remedial action to get the organisation back
on track. Emphasis should be on the achievement of stated organisational and
individual goals. These actions or emphases will help to shape new behaviours,
task interactions, and ways of thinking. This in turn will re-emphasise a culture of
learning and achievement.
9.7 Organisational development (OD)
Organisational development is the ongoing planned effort by managers and leaders to
manage change as a means of improving organisational performance. It involves planned
interventions to improve the skills and abilities of employees and to eliminate aspects of
the organisation that limit employee and organisational growth and performance.
The interventions which the OD managers usually undertake range from diagnostic
activities – which assess the current condition of an organisation – to surveys, training
and development, intergroup activities, teambuilding sessions, conflict resolution, reengineering projects, coaching, consultation, and counselling.13
The support of top management is important to the success of OD projects and
efforts at managing organisational change. Development activities usually take place
throughout an entire organisation and therefore need the approval of top managers.
OD is more than simply change management. Organisational interventions
emphasise ‘process’ rather than ‘problems’. OD initiatives focus on identifying the
behavioral interactions and patterns that cause and sustain problems. OD specialists
therefore are behavioural scientists.
OD interventions are time-consuming and expensive. There is also no guarantee
that the intervention will indeed bring about the necessary behavioural changes. It
could even cause psychological harm to certain individuals as well as a possible invasion
of their privacy. Any potential OD intervention should therefore be considered with
great sensitivity towards the individuals and teams that will be influenced by this type
of intervention.
9.8 Summary
Change in the environment (external or internal) is usually responsible for the internal
pressures and needs to change or modify a substantial part of the organisation. Reactive
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change is the response to unexpected change, whereas planned change anticipates
future change. Even though leaders and managers may realise that something is wrong
and that change has to take place to improve the performance of the organisation, they
often find it difficult to effect change for a variety of reasons, such as mistrust, a lack of
teamwork, complacency, a lack of leadership skills, fear, or simply resistance to change.
Managers should understand when and how to change the organisation and they must
take steps to overcome any resistance to change. They should follow a planned process
of change to modify any of the major areas of organisational change, namely the areas of
strategy, structure, technology, and people.
Another area of organisational change which we examined in some detail is the
concept of corporate culture and its importance in any effort at change. Corporate or
organisational culture reflects the shared beliefs and values of people in the organisation.
These shared beliefs and values drive the behaviour of the organisation. It follows that if
change management intends to change the behaviour of the organisation, it will have to
modify the organisational culture. Changing the culture of an organisation is a daunting
task that should be managed with great sensitivity to all involved.
Finally, we looked at OD as the planned effort by managers to manage change as
a means of improving organisational performance. OD interventions must be driven
from the top (top management) as it will influence individuals and teams throughout
the entire organisation.
References
1. Enterprise Risk Management Initiative. nd. Available at: https://erm.ncsu.edu/library/
article/emerging-risks-global-trends-affects (Accessed: 12 September 2016).
2. Carnall, C. 2014. Managing Change in Organisations. 6th ed. Harlow: Pearson Education
Limited, p 7.
3. University of Oxford. Department of Engineering Science. nd. Available at: http://www.eng.
ox.ac.uk/about/news/new-study-shows-nearly-half-of-us-jobs-at-risk-of-computerisation
(Accessed: 12 September 2016).
4. BBC News, nd. Available at: http://www.bbc.com/news/technology-34066941 (Accessed:
12 September 2016).
5. CDP Inc. nd. Available at: http://www.cdp-inc.com/articles/five-stages-mostpeople-ex perience-when-changes-occur-company-or-depar tment (Accessed:
12 September 2016).
6. Rick, T. 2011 ‘Top 12 reasons why people resist change’. Change Management. Available
at: http://www.torbenrick.eu/blog/change-management/12-reasons-why-people-resistchange// (Accessed: 12 September 2016).
7. Lynda Gratton. nd. Available at: http://www.lyndagratton.com/ (Accessed: 12 September
2016).
8. Kotter, J P. 1999. Reading change. Boston: Harvard Business School Press, pp 3–16.
9. Gratton, L. 2000. Living strategy: Putting people at the heart of strategy. London: Pearson.
10. Entrepreneur. nd. Available at: https://www.entrepreneur.com/article/249174 (Accessed:
12 September 2016).
11. Gutterman, AS. 2015. Organisational Culture: A Guide for Growth-oriented Entrepreneurs.
Growth-Oriented Entrepreneurship Project Report, p 9.
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12. Wharton University of Pennsylvania. nd. Available at: http://executiveeducation.wharton.
upenn.edu/thought-leadership/wharton-at-work/category?c=8262B584F2FF42F2AAC8
E9A8923905C1 (Accessed: 12 September 2016).
13. Massachusetts Institute of Technology. Human Resources. nd. Available at: http://hrweb.
mit.edu/organisational-effectiveness/organisation-development-consulting.(Accessed: 12
September 2016).
CASE STUDY
Change management: the City Lodge Hotel Group (CLHG)
In 2009 the City Lodge Hotel Group (CLHG) introduced a sustainable energy management
pilot project at its Town Lodge, Sandton hotel. Following the success of the pilot project
which was focused on changing the behaviour of hotel staff in relation to energy usage, the
programme was rolled out across the group’s 52 South African hotels, leading to a 15 per
cent energy saving.
Content with the change that occurred in its staff’s behaviour, the group is implementing
technology and equipment changes to further increase energy savings. It is now installing
LED lighting, other energy efficient lighting, and heat pumps for the efficient heating of
water.
City Lodge’s ongoing energy efficiency initiative involves constant metering and monitoring
and has involved considerable training of hotel staff around the country.
By installing LED lighting and other energy efficient lighting, the group will save around
R4 million a year. Eskom, as part of its own drive to encourage the installation of LED
technology, is contributing to this CLHG project.
Hotels across the group’s four brands – Courtyard, City Lodge, Town Lodge and Road Lodge –
will receive a lighting makeover. More than 45 000 lamps will be changed,
CLHG is adding water monitoring to its ‘dashboard’ that enables it to track water usage. It is
also looking at further opportunities to make energy savings in air conditioning and laundry
operations.
Mr Clifford Ross, Chief Executive of the CLHG, stated: ‘The way we do things has changed
considerably over the past four years and the efficient use of resources has now become
engrained into our operational culture. Our aim is to constantly monitor our energy efficiency,
always looking for new ways to improve on what we are doing. It makes good business
sense for us and helps us to help the environment.’
Source: City Lodge Hotel Group. 2015. Available at: http://financialresults.co.za/2015/citylodgeintegrated-report-2015/ (Accessed: 12 September 2016).
Case study questions
1. In the case study above, Mr Cliff Ross refers to ‘behavioural changes’ that had to
be managed across all 55 hotels in the group. What possible behavioural changes
could he be referring to?
2. According to the literature, what are the major benefits that the CLHG could have
wished to attain with this change initiative? Which benefit does Mr Ross specifically
refer to in the case study?
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3. Based on the information in the case study, was a culture change required in order
to attain the hotel group’s goals? Give at least two reasons for your answer.
4. Identify four factors that CLHG had to focus on to ensure that a culture change
takes place in all of their hotels.
5. Identify the information in the case study that deals specifically with these four
factors.
Multiple-choice questions
Question 1
Evolutionary change can be described as
1. gradual
2. drastic
3. radical
4. revolutionary
Question 2
Change can occur in the
1. macro2. market
3. macro- and market
4. macro-, market and micro-
change.
environment(s).
Question 3
is a person from inside or outside the organisation who helps an
organisation transform itself by focusing on such matters as organisational effectiveness,
improvement, and development.
1. Bureaucrats
2. Line managers
3. Staff managers
4. Change agents
Question 4
change model, successful change requires unfreezing
According to
current behaviour, changing behaviour and refreezing behaviour.
1. Handy’s
2. Lewin’s
3. Vroom’s
4. none of the above
Question 5
‘The way we do things around here’ refers to an organisation’s
1. mission
2. structure
3. culture
4. people
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Question 6
The beliefs and values shared by people in an organisation are called
1. corporate culture
2. internal politics
3. group think
4. leadership
265
.
Question 7
Roma Pharmaceuticals (Pty) Ltd has an annual ceremony at the end of the year when
top performers in the company are rewarded with an expensive corporate gift. This is an
that expresses the corporate culture at the company.
example of a
1. symbol
2. ritual
3. tale
4. none of the above
Question 8
refers to the ongoing planned effort by managers and leaders in an
organisation to manage change as a means of improving organisational performance.
1. Internal communication
2. Culture audit
3. Organisational culture analysis
4. Organisational development (OD)
Question 9
The Organisational Culture Analysis (OCA) measures
1. commitment
2. creativity
3. collaboration and commitment
4. collaboration, commitment and creativity
.
Question 10
An employee of Paint-for-Colour CC describes the business as ‘… bureaucratic, slow
moving and change-resistant ...’. The employee is referring to this close corporation’s
.
1. mission
2. strategy
3. culture
4. none of the above
Paragraph questions
Question 1
Explain four areas of organisational change that the modern organisation will have to
deal with in order to remain competitive.
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Question 2
Provide reasons why managers and employees may resist change in an organisation by
highlighting personal dispositions that may lead to the resistance.
Question 3
Identify and briefly discuss five reasons why change in an organisation may fail.
Recommend ways of overcoming potential failure.
Question 4
Explain how top management can ensure that a change in corporate culture becomes
visible to all stakeholders.
Question 5
Explain three approaches that managers can follow to ensure that change is imbedded
in the organisation.
Essay question
Pizza Egoli (Pty) Ltd has eight outlets in Gauteng. All these outlets are owned by
the company. Decisions are centralised and are made by the original founder of the
business. All outlets use wood fires when making the pizzas. However, due to clients
complaining about the time that it takes to make the pizzas, top management has
decided to completely revise the processes in the outlets — from ordering the pizzas to
receiving the final product. This meant that at least two employees per outlet will lose
their jobs as new types of skill will be required in the outlets.
Suggest a change process to top management to ensure that the change that the
outlets are facing will be managed successfully.
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10
THE
PURPOSE
OF THIS
CHAPTER
LEARNING
OUTCOMES
KEY
CONCEPTS
This chapter directs the learner’s attention to the management of
diversity and inclusion as a mechanism to improve organisational
effectiveness. It aims at equipping the learner with knowledge, skills
and competencies to create an environment that allows all workers to
contribute optimally to organisational goals and experience personal
growth. This includes creating a conducive environment that allows
all employees to have access to jobs as well as facilitating fair and
positive treatment in the workplace. The learner is introduced to skills
and competencies to develop employees so that they are comfortable
working with others from a wide variety of ethnic, racial, religious, and
various other backgrounds.
This chapter will enable learners to:
Define and distinguish diversity from what it is not
■■ Identify the primary and secondary dimensions of diversity
■■ Recommend strategies for managing diversity
■■ Describe the opportunities and the challenges presented by diversity
■■ Define ethnocentrism and stereotyping
■■ Recognise and explain cultural differences
■■ Recommend approaches for managing cultural diversity
■■ Suggest ways of managing diversity effectively in organisations
■■ Train others in diversity issues in the organisation.
■■
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■■
■■
■■
■■
■■
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Managing diversity
Achievement
Afrocentric
Ascription
Career success
Degree of involvement
Dimensions of diversity
Diversity
Diversity paradigm
Ethnocentrism
Ethno-relativism
Eurocentric
Exclusivity
Inclusivity
Monoculture
Particularism
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■■
■■
■■
■■
■■
■■
■■
■■
Pluralism
Power distance
Quality of life
Radically pluralist society
Social orientation
Stereotyping
Uncertainty avoidance
Universalism
10.1 Introduction
We South Africans have commonly referred to ourselves as the ‘rainbow nation’ because
our nation includes people of many different races, languages and religions. While we
all share the important dimensions of the human species, biological and environmental
differences separate and distinguish us as individuals and groups. This vast array of
differences constitutes a spectrum of human diversity and causes us to perceive and
interpret similar situations differently.
The same message — different interpretations
An African professor, on sabbatical to the USA, was lecturing to postgraduate students. She
posed a simple problem that she usually puts to her African students: ‘There are five birds
sitting in a tree. You take a slingshot and shoot one of them. How many birds are left in the
tree?’ Most of her American students said ‘four’. They said, ‘One subtracted from five leaves
four.’ Almost all of her African students said ‘zero’. ‘If you shoot one bird, the others will fly
away,’ they said.
The bird-in-the-tree story illustrates one of the most fundamental aspects of managing
people with different life experiences — they may interpret reality very differently. By
the time people enter organisations, the way they perceive and respond to the world
around them will largely have been determined by the environment in which they were
brought up. One’s family, friends, type of school attended, as well as the culture in which
one is brought up, shapes one’s cognitition and influences one’s perceptual bias.
One of the major challenges facing South African organisations is managing workforce
diversity. Working with people whose values, attitudes, beliefs, perceptions, languages,
and customs are very different from one’s own can make for costly misunderstanding,
miscommunication, misperception, misinterpretation, and misevaluation.
We have seen, in the opening anecdote, that those who were of African descent gave
zero as an answer. Having been brought up in an environment where children would play
using slingshots or stones, they knew from their experience that if you threw anything
at a flock of birds and hit one of them, they would all fly away. Here, principles of logic
and arithmetic are violated, yet the answer based on their cultural experience is correct.
If, on the other hand, we apply arithmetical logic, those of non-African descent are seen
to be equally correct. As to which one of the answers is right or wrong depends (in
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this particular case) on whether the evaluator is of African or non-African descent. This
simple example illustrates the impact of culture or environment on people’s behaviour;
it highlights the need to manage – and utilise – diversity effectively in organisations.
Many countries in the world can be described as radically pluralist societies.
Such societies comprise practically every conceivable kind of human plurality; their
populations are extremely heterogeneous in terms of race, ethnicity, culture, language,
sexual orientation, religion, conceptions of good or bad, etc. Safeguarding such a
society from the potentially destructive conflicts that arise so easily in radically pluralist
or diverse societies is a complex task.1 South African society can at best be described
as a radically pluralist society, therefore the potential for destructive conflicts exists
if the design of its social institutions does not ensure fairness to all its members.2
Table 10.1 reports the National Economically Active Population (EAP) by population
group (ethnicity) and gender which illustrates ethnic, gender, diversity in South Africa.
Table 10.1 Profile of the national EAP distribution by population group and gender
National EAP by population group and gender
Race
Male
Female
Total
African
40,3 %
34,9
75,2
Coloured
5,6 %
5,0 %
10,6
Indian
1,9 %
1,2 %
3,1
White
6,2 %
4,6 %
10,8
Total
54,0 %
46,0 %
100 %
Source: Statistics South Africa. 2013. Quarterly Labour Force Survey, p 3.
While there are said to be eleven official languages in South Africa, sign language makes
the 12th one as depicted in Table 10.2.
Table 10.2 South African linguistic diversity
Language
% of Total
Afrikaans
13,5
English
9,6
isiNdebele
2,1
isiXhosa
16
isiZulu
22,7
Sepedi
9,1
Sesotho
7,6
Setswana
Sign language
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0,5
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Language
% of Total
SiSwati
2,5
Tshivenda
2,4
Xitsonga
4,5
Other
1,6
Source: SouthAfrica.info. nd. Available at: http://www.southafrica.info/about/people/population.htm
(Accessed: 21 September 2016).
South Africa is a nation in the midst of a profound transformation. Diversity in South
Africa is all the more dynamic and complicated as the result of a history of legislated
race separation, even after two decades of the demise of the apartheid regime. South
Africa is still experiencing demands by previously disadvantaged groups (PDGs) for
inclusivity in decision-making and in the sharing of wealth in the workplace. Under
the former apartheid system, South African organisations operated in an environment
of protectionism propped up by government support. The best jobs were reserved for
white employees. There was, therefore, limited workforce diversity to be managed.
In 1994, apartheid ended with the adoption of a new constitution and South Africa
redefined itself as a democratic, non-racial society. More recently, parliament passed
the Employment Equity Act, which seems to have spurred greater debate on the issue of
transforming the country’s business organisations towards true diversity.
Yet, despite the new constitution and government legislation mandating employment
equity, most South African organisations remain white male-dominated, as indicated in
Tables 10.3, 10.4 , 10.5 and 10.6. White men still occupy the bulk of empowered and
well-paid management positions.
Table 10.3 Top management by population group
90,0 %
80,0 %
70,0 %
60,0 %
50,0 %
40,0 %
30,0 %
20,0 %
10,0 %
0,0 %
2003
2005
2007
2009
2011
2013
African
14,9 %
17,9 %
18,8 %
20,3 %
18,5 %
19,8 %
Coloured
4,0 %
3,7 %
3,9 %
5,0 %
4,8 %
5,1 %
Indian
4,9 %
5,6 %
6,1 %
6,9 %
7,5 %
8,4 %
White
76,3 %
72,6 %
68,2 %
63,8 %
65,4 %
62,7 %
Foreign National
0,0 %
0,0 %
3,1 %
3,9 %
3,9 %
4,1 %
Source: Statistics South Africa. 2013. Quarterly Labour Force Survey, p 3.
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Table 10.4 Top management by gender
90,0 %
80,0 %
70,0 %
60,0 %
50,0 %
40,0 %
30,0 %
20,0 %
10,0 %
0,0 %
2003
2005
2007
2009
2011
2013
Male
86,0 %
83,0 %
79,5 %
81,5 %
80,9 %
79,4 %
Female
14,0 %
17,0 %
20,6 %
18,4 %
19,0 %
20,5 %
Source: Statistics South Africa. 2013. Quarterly Labour Force Survey, p 3.
Table 10.5 Senior management by population group
90,0 %
80,0 %
70,0 %
60,0 %
50,0 %
40,0 %
30,0 %
20,0 %
10,0 %
0,0 %
2003
2005
2007
2009
2011
2013
African
14,2 %
14,5 %
18,1 %
20,0 %
12,8 %
23,0 %
Coloured
6,3 %
6,0 %
6,1 %
6,4 %
7,0 %
7,0 %
Indian
6,8 %
7,0 %
8,2 %
9,1 %
9,6 %
10,1 %
White
72,7 %
72,4 %
65,0 %
61,9 %
59,1 %
57,0 %
Foreign National
0,0 %
0,0 %
2,3 %
2,0 %
2,5 %
3,0 %
Source: Statistics South Africa. 2013. Quarterly Labour Force Survey, p 3.
The diversity figures at top and senior management levels in the tables might provide
an explanation for the pressure that organisations are receiving from the South African
government to address the imbalances. In certain cases, this pressure has created
resentment and dysfunctional conflict which poses unique diversity challenges for
South Africa. The implication for all this is that managing diversity in South Africa is
not only the right or profitable thing to do, as for example in the USA, but is also a
necessity for survival. This also calls for a true understanding of what diversity is and
how to value and manage a diverse workforce in organisations.
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Table 10.6 Senior management by gender
90,0 %
80,0 %
70,0 %
60,0 %
50,0 %
40,0 %
30,0 %
20,0 %
10,0 %
0,0 %
2003
2005
2007
2009
2011
2013
Male
77,7 %
76,3 %
74,6 %
72,8 %
71,8 %
70,1 %
Female
22,3 %
23,7 %
25,3 %
27,2 %
28,2 %
29,9 %
Source: Statistics South Africa. 2013. Quarterly Labour Force Survey, p 3.
10.2 Misconceptions of diversity
Because of all the early misconceptions about diversity, it would probably be easier to
understand what diversity is by first ascertaining what it is not.
Diversity is not culture
A crucial mistake many people make in defining diversity is to equate it with culture.
They think diversity training means teaching people about ‘what Asians are like’,
‘characteristics of blacks’, or ‘what women want’. While this approach may appear
sound on the surface, it is inherently flawed because all it does is reinforce stereotypes.
That is what we are trying to overcome by valuing diversity in our organisations. This
approach reinforces an ‘us versus them’ mentality. It focuses only on what way we are
different, without including the ways in which we are alike. It is exclusive, not inclusive.
Valuing diversity extends far beyond culture to include all the primary and secondary
dimensions illustrated in Figure 10.1.
Figure 10.1 explains in what ways we are all similar and different in a wide variety
of dimensions. The primary dimensions include variables such as race, age, ethnicity,
physical qualities, gender, and sexual orientation. These are variables that people cannot
change. However, in this global village it is important to note that one aspect of the
primary dimension, sexual orientation is not perceived as such in all countries. In
over 78 countries, sexual orientation is not recognised as a dimension and punished
by imprisonment or even death. This calls for an awareness as one interacts with
diverse others from other countries (https://76crimes.com/76-countries-wherehomesexuality-is-illegal/). The secondary dimensions of diversity are not as fixed, and
they include variables such as education, religious beliefs, and work background, to
name but a few. Thus culture is only one of the dimensions of diversity. By recognising
that diversity is a phenomenon that applies to everyone, we can realise that it is a quality
that we can all value and support.
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Secondary dimensions
Education
Marital
status
Primary dimensions
Religious
beliefs
Age
Gender
Parental
status
Ethnicity
Person
Sexual
orientation
Physical
ability
Military
experience
Race
Work
background
Geographic
location
Income
Figure 10.1 Dimensions of diversity
Diversity is neither equal employment opportunities nor affirmative action
People tend to assume that diversity is just a repackaging of equal employment
opportunities (EEO) and affirmative action (AA), which are mainly about ‘quota
filling’. This is a detrimental and divisive view. While EEO and AA are necessary steps
and have their place in correcting past imbalances, they are distinctly different from
valuing diversity as shown in Table 10.7.
Table 10.7 The major differences between EEO/AA and diversity
EEO/AA
Workforce Diversity
Legally driven: Workplace programmes
derive from legal framework outlawing
discrimination
Productivity driven: Depends upon
organisational initiative; internally driven
proactive
Government driven: Compliance, eg with
recruitment targets
Organisation driven: Business case arguments
part of rationale
Melting-pot approach: Equality through
samenesss, based on merit
Mosaic salad approach: Taking equality further
through contribution of ethnic minorities
Numbers driven: Aims to increase proportion
of under-represented groups in senior roles
Moving beyond statistics: valuing differences,
recognising benefits of workforce diversity
Main focus: Gender and race
Main focus: Maximising employee potential
Approach: Liberal
Approach: About groups as well as individuals
Radical approach: May include positive
action to redress past discrimination
Mosaic result approach: equality through
difference
Source: Adapted from Cornelius, N. 2002. Building Workplace Equality: Ethics, diversity and inclusion.
London: Thomas, p 28.
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Both EEO and AA are laws that are imposed on people and create an adversarial
environment. Also, there is the belief that these two concepts mean that less qualified
people should be given jobs, instead of more qualified, ‘traditional’ employees. The
insinuation is that we have to help the designated classes of people because they are not
really qualified enough to succeed on their own merits. This only adds to the conflict,
reinforces stereotypes, and destroys the very same people it is meant to serve by having
them promoted to levels of incompetence if not accompanied with appropriate training
and development to empower them to do the job.
As shown in Figure 10.2, unless management responds effectively to these reactions,
the organisations will continue to experience a decline in productivity, increased
retrenchments, and unemployment, which would result in a poor economy.
Valuing diversity, on the other hand, affirms that people’s differences are an asset
rather than a burden to be tolerated. In valuing diversity, we acknowledge that we may
have preconceived ideas that can blind us from seeing the value that non-traditional
employees bring. Only the most qualified candidate is given the job; but we have to
transcend our biases about what is ‘most qualified’. An organisation that emphasises
quota filling as part of its diversity effort will undermine the true intent of valuing
diversity; instead emphasis should be put on accelerated training and development
of the previously disadvantaged groups to equip them with competences, which will
enable them to do the job effectively.
Affirmative action in a slump economy
Reaction of previously
disadvantaged workers
Reaction of previously
privileged workers
Organisational/management response
If not managed properly
Bitterness, antagonistic fear,
anger, guilt and aggression:
Leads to decline in productivity, increase in retrenchment and
unemployment. Hence, poor
economy.
If managed properly
Shared will to survive, valuing of
differentness:
Leads to productive, supportive,
transparent, effective organisations. Hence, prosperous economy.
Figure 10.2 Affirmative action in a slump economy
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Diversity is not an absence of standards
People sometimes believe that valuing diversity means, ‘anything goes’ — that we give
up our standards for hiring and promoting people. In fact, diversity is the very opposite.
Because we are removing our preconceived ideas about who is qualified for a job, we
must create better definitions of actual job requirements. For true equality to happen,
there needs to be less emphasis on race, gender, and other differences, and an increased
focus on a person’s capabilities, and system adjustments that support diversity. Only
this approach will create a process that is naturally equal for everyone.
Diversity is not a vendetta against white males
To some, diversity symbolises a more enlightened society, a reflection of our future
as global citizens. To others, it breeds resentment. These two extreme views are at the
heart of the issue of diversity – and are the reason why efforts to promote diversity so
often fail. Although well intentioned, a focus on only culture, race, and gender, which
ignores ability and competence – and which blames the white male for past injustices –
only intensifies the division between groups, instead of bringing them together to create
a more productive workplace.
Understandably, the historical, homogeneous group of white male workers created
the South African workplace on the bases of their own similar backgrounds, styles,
perspectives, values, and beliefs. But the changes in the international and national
management environment regarding diversity have forced organisations to change, and
now even the needs of the original homogeneous group have changed.
Unfortunately, the people who created the system are often labelled ‘the bad guys’
when the system needs updating. In effect, positioning diversity so that one group must
take continuous blame for the past makes the ultimate goal – greater unity – impossible.
While it is important to acknowledge the past wrongs, it is critical to look to the future
by addressing the past imbalances without blaming one group.
■■
■■
■■
■■
Diversity is not culture
Diversity is neither equal employment opportunities (EEO) nor affirmative action (AA)
Diversity is not an absence of standards
Diversity is not a vendetta against white males
10.3 What is diversity?
Now that we have explored the misconceptions about diversity and what it is not, let us
look at what it is.
■■
■■
■■
■■
■■
Diversity is about demographics
Diversity is about profitability
Diversity is about values
Diversity is about behaviour
Diversity is a long-term process
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Diversity is about demographics
Major demographic changes have occurred in South Africa during the past decade. We
have moved from a situation in which the law regulated where people could live, what
kind of work they could do, and with whom they could socialise, to a situation where
the human rights of people are protected by a modern constitution. These changes have
had a major impact on the way organisations function, on whom they employ, and with
whom they do business.
Diversity is about profitability
While affirmative action focuses on eliminating discrimination or righting past wrongs,
valuing diversity is a bottom-line issue about increasing productivity and profitability.
In fact, valuing diversity is one of the few social issues in which the business community
is actually leading the way. Why? Because it is profitable, it fosters teamwork, and it
helps organisations identify and meet the needs of their customers and consumers.
The organisations that have understood and used their understanding of diversity
innovatively have found that they have a competitive advantage in the marketplace.
Diversity is about values
Having said that diversity is a business issue, we must also affirm that it relates to people’s
values. Although people are sometimes more comfortable in keeping this an impersonal
issue – ‘strictly business’ – diversity has to do with human rights, civil rights, and people’s
deeply held beliefs and other mosaic differences. It forces people to question years of
social conditioning to which they have been subjected since birth. For some people,
diversity is even related to their religious beliefs. How do we balance people’s rights to
their personal values with the organisation’s right to create a productive workplace? The
answer is delicately, tactfully, respectfully, and also firmly, openly, and persistently. We
admit that valuing diversity is a personal decision; we focus on diversity as a business
decision.
Diversity is about behaviour
Regardless of our personal beliefs, our organisations expect us to work in the most
productive possible manner, and valuing diversity is much more productive than not
valuing it.
Diversity is a long-term process
Diversity is a large-scale change effort that extends far beyond training, and must therefore
be viewed as a long-term process. Organisations that make a long-­term commitment to
a comprehensive strategy, which includes training, will not be disappointed and will be
able to see lasting benefits.
■■ Diversity is not a problem but a mixture of people with different group identity
within the same social system. It is an opportunity.3
■■ Diversity is not only a human resource department’s responsibility, but everyone’s.
■■ Diversity is not just about race and gender, nor the previously disadvantaged
groups in the workplace. Diversity is about your internal customers (employees)
and external customers (prospective clients).
■■ Diversity is not exclusive but inclusive — it is about all of us.
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Diversity is about creating a culture where each individual can thrive and
contribute to the organisation.
Diversity is not another fad. If you look at your workforce today and compare it to
five or ten years ago and then try to imagine it five or ten years into the future, you
will see that diversity is not a fad. Do the same analyses for your customer base. The
changes we see happening now will continue for the foreseeable future.
10.3.1 What is workforce diversity?
Many people in South African organisations are experiencing difficulty in meeting
the challenge of adapting to people who are different from themselves. The term used
to describe this challenge is ‘workforce diversity’ which means that organisations are
becoming more heterogeneous in terms of gender, race, ethnicity, ability, age, and other
aspects of differentness, as shown in Tables 10.1 and 10.2 and Figure 10.1.
10.4 Diversity defined
To encompass all the ideas we have discussed so far in this chapter, we can define
diversity as follows:
Diversity refers to the mosaic of people who bring a variety of backgrounds, styles,
perspectives, values, and beliefs as assets to the groups and organisations with whom they
interact.
This definition has three notable points. First, it describes diversity as a mosaic, which
is different from the traditional idea that diversity is a melting pot. A mosaic enables
people to retain their individuality like the ingredients of a salad, while contributing to
a collectively larger picture. Second, this definition of diversity applies to and includes
everyone; it is not exclusionary. According to this definition, we are all diverse. Finally,
this definition describes diversity as an asset, as something desirable and beneficial. We
may be different, but being different is not wrong.
10.4.1The platinum rule
A key component of ‘what diversity is’ revolves around the use of the platinum rule,
which is an extension of the well-known golden rule. While the golden rule is to treat
people as you want to be treated, the platinum rule goes further and says: ‘Treat others
as they want to be treated’.
The platinum rule is the cornerstone of diversity behaviour, as presented in this
chapter because it demonstrates respect and honouring of our differences by assuming
others may want to be treated differently from us. It also implies that we need to ask
others what they want, and tell others what we want. Using the platinum rule takes
diversity beyond culture, and ensures that everyone is included and everyone wins.
The platinum rule
Treat others as they want to be treated.
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10.4.2 General dimensions of diversity
The worldwide shift in demographics, changing immigration patterns, and social change
are all factors that affect the work environment. In the USA, for example, the population,
and therefore the workforce, is growing more slowly than at any time since the 1930s,
the average age of the population is rising, more women are entering the workforce,
and immigrants will represent the largest share of the increase in the workforce.4 South
Africa is exposed to similar variables that impact on the productivity of the workforce,
transforming it into a diverse workforce that necessitates the management of diversity.
A brief overview of the following general dimensions of diversity will help explain the
need for its management:
■■ Gender issues
■■ Age
■■ Marital status
■■ Physical ability
■■ Language.
Gender issues
Women are entering the labour market in increasing numbers every year. This means
that organisations must deal with issues such as work–family conflicts, childcare, dualcareer couples, and sexual harassment. Seven out of ten women in the labour force have
children which means that organisations should take some responsibility for childcare.
One issue surrounding gender as a dimension of diversity is the ‘glass ceiling’ syndrome,
which refers to the difficulty women have in advancing themselves. Only a handful of
women reach top management positions in organisations. In the USA it is estimated
that men hold 97 per cent of the top positions. In South Africa, as shown in Table 10.4,
they held, 86 per cent in 2003 and 79,4 per cent in 2013 of the top positions. There has
been a relatively small percentage change over a ten year period.
Age
In the USA, the supply of younger workers is dwindling, with the result that older
workers represent a significant component of the labour force. This is the same in
South Africa in respect of whites, but in the case of young black workers the number
of entrants is at an all-time high. Both older and younger workers present management
with challenges. Older workers are more cautious, less likely to take risks, and less open
to change, though their experience makes them high performers. Young entrants into
the South African labour force often present challenges in the fields of communication
and management training.
Marital status
Marital status is a variable that adds to the complexity of diversity in organisations, with
the increase, for instance, of single-parent families. The challenge for management is to
recognise these differences and use them as strengths.
Physical ability
People with disabilities are also subject to stereotyping, prejudice, and discrimination.
These people prefer managers to focus on abilities, rather than on disabilities.
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Language
Having 12 official languages (including sign language) in South Africa poses a great
challenge to organisations. Sensitivity needs to be shown in the choice and the use of
language policy within organisations.
Managers should have the knowledge and skills to deal with the general dimensions
of diversity as discussed above. However, especially in the South African context, they
need to know in particular, how to manage the cultural dimension of diversity, which we
discuss in Sections 10.8 to 10.10.
10.5 Reasons for the increased focus on managing
workforce diversity
Why do South African organisations such as Microsoft South Africa and Siemens Southern
Africa currently spend vast amounts of money on programmes to sensitise their workforce
to diversity issues? While many of the issues surrounding diversity have been around for
some time, many organisations have adopted a renewed concern as new trends in the
workforce are surfacing. Organisations worldwide are becoming increasingly diverse along
many different dimensions, including cultural diversity. Several different factors account for
these trends and changes. A brief overview of each factor will put the renewed focus on
diversity in perspective.
The single biggest challenge surrounding the issue of diversity and multicultural
management is the changing composition of the labour force. Changing demographics
in the labour force, together with legislation on affirmative action in some countries, are
major forces contributing to increased diversity. In South Africa the female component
of the workforce is increasing. Women currently make up nearly half of the labour force
in South Africa, and the trend is likely to continue. It is particularly amongst black
women that this trend is occurring.5
Microsoft in South Africa
Microsoft South Africa was voted by the National Research Foundation as one of South
Africa’s top ten companies to work for in 2005 and again in 2011. This ranking was released
in Johannesburg on 24th August 2011. It is said to be a unique international HR policy
and practice benchmarking project conducted by the CRF Institute South Africa and is the
culmination of months of rigorous research with findings independently audited by Grant
Thornton South Africa. Diversity management is one of the areas ranked.
Microsoft is a subsidiary of the world’s largest software company which was started
by Bill Gates and Paul Allen back in the 1970s. The South African office was opened in
1992. Microsoft produces software that is suitable for large and small businesses, project
managers, schools, gamers, cellular devices, media, etc. It has an enormous range of
applications and tools which businesses can build into custom-made solutions. It competes
in industries from mining and manufacturing to retail and banks. Microsoft has huge
resources for research, development, expansion, and internal staff programmes.
The company culture in the South African office is one that has a strong sense of community
spirit and embraces diversity.
Source: Brevis, T. 2005. ’Best companies to work for in 2005.’ Management Today, 21(10), pp 50–55.
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Another factor contributing to increased diversity in organisations is the globalisation
of business. More and more organisations are entering the international marketplace,
including South African organisations who are moving into Africa and the rest of the
world. Many multinational corporations today have more employees outside of their
home­base country than within it. Ford, for example, today employs less than half its
total workforce on US soil.
This brief overview of the issues of diversity in international management confirms
the importance of examining the influence of culture on management. South African
business can now freely do business with the rest of the world, including the rest of
Africa. This means that managers must develop new skills and awareness to handle the
unique challenges of global diversity: cross-cultural understanding, the ability to build
networks, and the understanding of geopolitical forces.
The awareness that cultural diversity improves the quality of the workforce is another
important reason for the renewed focus on the management of diversity. In fact, most,
if not all, South African organisations operating in a period of sweeping transformation
should implement strategies to deal with diversity issues.
10.6 The need for diversity management in South Africa
In addition to the reasons for the present worldwide interest in diversity and multicultural
management are the complexities of the South African situation. South Africa has
already been described as a radically pluralist society where race and ethnicity are the
most visible dimensions of its diversity. Many cultural differences exist between ethnic
groups such as Euro-Africans, coloureds, Asian-Africans, and black Africans. There are
also differences within each group. Each of these groups shares a common history, while
at the same time maintaining a uniqueness.
10.6.1 Imbalances in the South African business world
The imbalances between the different ethnic groups in South Africa result in managerial
and economic imbalances. We can identify three categories of management problems
relating to the South African workplace that create an urgent need for research and
education in this regard.
1. The first issue that relates to the imbalances in South African organisations, and
which forms an integral part of any policy or strategy on diversity management, is
the question of affirmative action. This is an employment policy that aims to ensure
that South African institutions reflect the character of the country as a whole. Many
business organisations are developing policies to correct this imbalance.
2. The second management issue is the question of economic empowerment. Pressure
for the transfer of economic power is evident. The government is being blamed for
not doing enough to make black economic empowerment possible. Organisations
such as the African Federated Chamber of Commerce (NAFCOC), the Black
Management Forum (BMF), and some labour unions proposed the 3-4-5-6 policy
whereby 30 per cent of directors, 40 per cent of senior management, 50 per cent of
middle management, and 60 per cent of the workers of all businesses should have
been black by the year 2000.6 The capital base of black organisations could provide
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only a fraction of what would be needed for substantial economic empowerment.
The stokvel movement could provide only about R1 billion for this purpose. More
and more black consumers are, however, buying insurance policies not only from
the black-controlled insurance corporations such as African Life and Metropolitan
Life, but also from the mutual insurance giants Sanlam and Old Mutual. Change in
the control of these giants could change the ownership of the economy overnight.7
The other question surrounding the transformation of economic power has been
whether black people have the entrepreneurial and managerial expertise to make
such an urgent transformation feasible.
3. The third management issue in the debate on managerial and economic
transformation in South Africa is the quest for a new management philosophy.
Activated by the affirmative and empowerment movements, and supported by a
rich diversity of articles, books, and conference papers, this issue is challenging
the theoretical foundations of South Africa’s Euro-American-Asian management
theories, approaches, and practices. Based on the premise that the environment of
organisations in developing countries is different from that of Western and Asian
industrialised countries, management theories and practices from the developedcountry context may have only limited applicability in the context of a developing
country such as South Africa and a developing continent such as Africa.
The above discussion on the reasons for the present focus on the management of
diversity – including a brief overview of the complex South African situation – shows
how imperative it is for South African managers to implement diversity management
strategies.
10.6.2 The benefits of diversity management
Organisations in South Africa have generally not been highly successful in managing
women and cultural diversity in the workplace. Proof of this is the fact that women and
black people in South Africa are clustered at the lower management levels as can be seen
in Tables 10.4 to 10.6 . This indicates that they are not progressing and that their full
potential is not being utilised. Managing the issues of diversity and multiculturalism is
crucial to organisational success.
When organisations, such as Microsoft, decided to invest in diversity management
training programmes for their managers and employees, top management expected
certain benefits from this investment. Table 10.8 lists six arguments that support the
belief that managing diversity can improve organisational performance.
Organisations which manage diversity and multiculturalism will have a competitive
edge in the market, because they create higher morale and better relationships in the
workplace. Research has shown that diverse groups tend to be more creative than
homogeneous groups. The presence of cultural and gender diversity in a group leads
to freer discussion and reduces the risk of ‘groupthink’. Moreover, the simple act of
learning about other cultural practices enables organisations to expand their thinking in
other fields as well. South African organisations can certainly expand their thinking on
the advantages of diversity management.
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10.7 Managing diversity
Managing diversity is different from valuing diversity because it addresses the
organisational processes that can reinforce – or hinder – the ability to create an
environment that values diversity. These organisational processes include hiring,
promotion, communication, and power allocation in organisations.
In the past, most organisations used what is called the ‘melting pot’ approach to
managing diversity in the workplace. This assumes that people who are different would
somehow automatically want to assimilate. Now organisations have realised that
employees do not set aside their cultural values and lifestyle preferences when they
come to work. The challenge for a manager is to create a work environment in which
different lifestyles, family needs, and work styles are accommodated. The melting pot
assumption is being replaced by the mosaic approach, which recognises and values
differences. In the next sections we shall look briefly at some of the approaches to
managing diversity in organisations. Managing diversity can yield enormous results in
innovation, new ideas and improved productivity.8
Table 10.8 The benefits of managing diversity
Six arguments for managing cultural diversity
Cost
argument
As organisations become more diverse, the cost of a poor job in integrating
workers will increase. Those who handle this well will create cost
advantages over those who don’t.
Resource
acquisition
argument
Organisations develop favourable reputations as prospective employers for
women and previously disadvantaged groups. Those with the best reputations
for managing diversity will win the competition for the best personnel. As
the labour pool shrinks and changes composition, this edge will become
increasingly important.
Marketing
argument
For multinational organisations, the insight and cultural sensitivity that
members with roots in other countries bring to the marketing effort should
improve these efforts in important ways. The same rationale applies to
marketing to sub-populations with domestic operations.
Creativity
argument
Diversity of perspectives and less emphasis on conformity to norms of the
past (characterising the modern approach to management of diversity) should
improve the level of creativity.
Problemsolving
argument
Heterogeneity in decision-making and problem solving groups potentially
produces better decisions through a wider range of perspectives and more
thorough critical analysis of issues.
System
flexibility
argument
An implication of the multicultural model for managing diversity is that
the system will become less determinant, less standardised, and therefore
more fluid. The increased fluidity should create greater flexibility to react to
environmental changes (reactions should be faster and at less cost).
Source: Cox, TH & Blake, S in Harvey, C & Allard, MJ. 1995. Understanding Diversity: Readings, Cases, and
Exercises. New York: Harper Collins, p 67.
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10.7.1 Approaches to managing diversity
The idea that diversity should be managed originated in the 1960s, and since then the
following three approaches have been identified:
1. The golden rule approach. According to this approach, it is best to treat everyone
in the same way: ‘Treat others as you want to be treated.’ Good intentions of
not treating other people badly inspired this theory. However, people from the
dominant culture – who have the good intentions – assume that they should treat
people according to their own standards and consequently individual differences
are ignored.
2. The ‘right-the-wrongs’ approach. This approach takes the form of affirmative
action. ‘We don’t have enough of the previously disadvantaged people, such as
black people and women — we’d better hire some, to make up for all these years of
negligence.’ This approach creates a backlash, because ‘traditional’ employees feel
that they will be overlooked so that ‘a quota can be filled’. It creates an ‘us versus
them’ mentality, which is unproductive.
3. The ‘value-of-differences’ approach. This approach recognises differences and
acknowledges that they exist, but does not require people to be assimilated into
the dominant culture. It allows for the individual mosaic of people to create the
aggregate picture of an organisation.
Approaches to managing diversity:
■■ The golden rule approach
■■ The ‘right-the-wrongs’ approach
■■ The ‘value-of-differences’ approach.
When you join an organisation and become an employee, you carry your ‘differentness’
with you. When you are faced with a situation that involves managing others different
from yourself, your reaction or solutions will depend on how much you know,
understand, and value the ‘differentness’ of others.
Managing diversity is a management orientation that is not limited to one
department or to a specific management level of the organisation. It is an overall
approach, which seeks the commitment of the whole organisation if any success is to
be achieved. There is also no one particular policy which necessarily guarantees the
required results. Organisations differ in the ways in which they implement a policy of
diversity management. Table 10.9 illustrates, there are a range of diversity management
policies which organisations implement. In the first stage, most organisations starts
without any active efforts towards diversity. At this level, the organisations resist AA
policies and believe in a mono culture organisations without any policies to encourage
the inclusion of PDGs. Once the organisations Gets pressure from the government
and other bodies for inclusion, they then move to a second stage of compliance with
EEO and AA policies. At this stage there is very little and erratic management efforts
put in implementing diversity policies. There is limited commitment to mentoring and
training initiatives to empower PDGs to contribute meaningfully to the organisation.
As organisations come to a realisation that effectively managing workforce diversity
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offers a competitive advantage and improves productivity, they move to the third stage
of valuing and managing diversity and inclusion. In this third stage they go beyond
positively responding to EEO and AA policies to proactively developing and embracing
workforce diversity. This stage is characterised by an enabling and empowering
environment with mentoring and training programmes aimed at building skills and
competencies in all employees that would enhance their performance. This stage is what
is referred to in Table 10.9 as the learning-effectiveness paradigm in managing diversity.
This table shows the range of diversity management policies which organisations
implement.
Research in South Africa indicates that alternative work schedules like flexitime,
job sharing, and the compressed work week could be used to respond to diverse
needs of the workforce. Flexitime increases employee autonomy and responsibility, in
choosing the schedule that meets individual needs. Job sharing meets the needs of those
employees who cannot work on a full-time basis, but require a permanent career job.
The compressed work week is a week of four ten-hour days, which allows employees
more leisure and private time.9
Understand the ‘differentness’
Vusi, one of your employees, comes to you with a request to take off three days’ work to
attend his father’s funeral. You recall that he had exactly the same request the previous year
and took two days off to attend his father’s funeral.
1. What is your initial reaction?
2. What do you say to Vusi?
When managing a diverse workforce you encounter challenges with regard to all the
different dimensions of diversity. In Vusi’s case your assumptions, and hence your decision
on the matter, will depend on your cultural background and that of the employee. Vusi is
a black African, therefore it could well be that one of the dead fathers was his biological
father, while the other one was his father’s brother. All the brothers of a father are regarded
as fathers to his offspring, and all the sisters of a mother are called ‘mother’ by her children.
If you are not aware of this custom, you could immediately assume that Vusi is a liar and
therefore untrustworthy. Such an assumption could destroy your working relationship and
therefore have an adverse effect on an employee’s performance. This example indicates that we
need to understand each other’s ‘differentness’ to be able to manage diversity effectively.
10.7.2 Diversity paradigms: strategies for diversity management
In the last few years in America, managing diversity has become an increasingly
significant research and organisational issue. Yet, the meaning of managing diversity
has remained elusive.10 However, Thomas and Ely have recently developed a theoretical
paradigm of three different perspectives on how organisations perceive the task of
managing diversity.11 They classify the perspectives as discrimination and fairness,
access and legitimacy, and learning and effectiveness.
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They found that, while most organisations in the USA have applied the first two
perspectives, very few organisations were using the third perspective. Ely and Thomas
suggest that it is only the third perspective that will enable organisations to benefit
adequately from managing diversity.12 Table 10.9 shows the focus of diversity efforts,
human resources practices, effectiveness measures, and strengths and weaknesses of
each of the three paradigms.
In South Africa, with the legacy of apartheid still entrenched in the minds of both
leadership, management, and workers, most organisations are ‘trapped’ in the first
paradigm of managing diversity. The emphasis is on the discrimination-and-fairness
perspective or what can be termed as ‘righting the wrongs’. The legal mandate, as
expressed in the Employment Equity Act, has led to conflict and dissension since
virtually every organisation in South Africa is under pressure to transform its worker
and leadership profiles rapidly. Diversity initiatives implemented in South Africa and
other countries indicate that organisations have a long way to go before they can apply
the learning-effectiveness paradigm. In these countries diversity efforts are still centred
on the first two paradigms.
Table 10.9 Diversity paradigms
Discrimination –
fairness
Access –
legitimacy
Learning –
effectiveness
Focus
Creating equal
opportunity, assuring
fair treatment, and
compliance with equal
opportunity laws
Match internal
employee demographics
to customer and
marketplace served
Incorporate
diversity into the
heart and fabric of
the mission, work,
and culture of the
organisation
Human
resource
practices
Recruitment of women
and previously disadvantaged groups
(PDGs). Mentoring and
career development
for women and PDGs
Recruitment of
employees from diverse
groups to match external
demands
Redesigned and
transformed
to enhance
performance of all
employees
Effectiveness
Recruitment numbers.
Retention rates of
women and PDGs
Niche markets captured.
Degree of diversity
amongst employees
All employees feel
respected, valued,
and included
Weaknesses
Strengths
Does not capitalise
on diversity of all
employees. Emphasis
on assimilation
Does not affect
mainstream of company
business; diversity
confined to specific
market segments
All employees
respected, valued,
and included
Source: Adapted from Thomas, DA & Ely, RJ. 1996. ‘Marketing differences matter: A new paradigm for
managing diversity’. Harvard Business Review, (September–October), pp 79–90.
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Lessons on leaders in diversity and inclusion from top global companies.
Amongst the lessons from leaders in diversity and inclusion of top global companies are:
■■ Recognise the shift in global understanding. This means going beyond the
secondary dimentions of diversity mentioned in Figure 10.1 to include generation,
personality type and thinking style. The focus is on meeting the needs of the
individual, not just on HR-centred initiatives.
■■ Build an inclusive environment where multiple voices are heard and respected.
■■ Use multiple practices and measures to include diverse and changing experiences.
■■ Ensure leaders model diversity and inclusion to set the tone for the rest of the members
of the organisation to follow. Leaders cannot afford to pay lip service to diversity and
inclusion if the organisation is to reap its benefits. They have to walk the talk.
■■ Recognise the connection between innovation and diversity and inclusion.
Diversity and inclusion increases innovation and creativity and reduces business
risk.
The most and least frequently implemented initiatives
Research conducted in the UK, Ireland, the USA, and South Africa in a management of
diversity study reveals that emphasis is put on selection, induction, and communication
initiatives in all countries except the USA, which emphasises flexibility and the
individual. These three countries are also similar in terms of least frequently implemented
initiatives. In particular, training staff and managers in diversity, and adopting a strategy
approach to managing diversity, are low priorities for their organisations. Mentoring
schemes for staff are low on the list of priorities for all four of the countries. Literature
on diversity frequently presents mentoring in relation to diversity, yet the results of this
survey suggest that it is not being implemented.13
The most and least successful initiatives
For the UK and Ireland, the most successful initiatives relate to objective and fair
processes (as in terms of selection, induction, and open criteria), and to creating a culture
that empowers. For North America, the most successful initiatives relate to flexibility
and an individual focus. However, for South Africa the most successful initiatives relate
to fair process (as in terms of selection), but they then focus on flexibility (as in benefits
or uniforms).14
There is considerable overlap across all four countries with regard to those initiatives
that are viewed as least successful. There is a common difficulty regarding decisionmaking within organisations from all four countries. In addition, for South Africa, the
UK, and North America, there is concern regarding the success of ‘open criteria’. This is
interesting, as the survey suggests that open criteria are frequently being implemented,
but not succeeding. This leads us to question the commitment of organisations to
the success of appraisal training. South African organisations are also struggling with
defining diversity as a business goal and with strategies for managing diversity. It
is interesting that, in South Africa, developing a diversity policy and publicising the
organisation as a diversity-oriented organisation is very low on the list. In addition, the
main focus of South African organisations is compliance with new legislation.15
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What managers need to keep in mind while conducting the first diversity initiative:
■■ Expect resistance – some employees, such as white males, may initially become offended
■■ Be willing to take some heat
■■ Understand that the culture will not change overnight
■■ Be cautious when forming partnerships with advocacy groups
■■ Be ready for surprises when you start probing real issues
■■ Be accountable for what you say you are going to do – many people are watching to see
what happens.
10.8 Cultural diversity
As pointed out previously, South Africa is known as a rainbow nation because of its
cultural diversity, amongst other factors. For South Africa to thrive and survive in the
competitive global market it needs to draw on this diversity and create positive synergies.
In this section we shall review the cultural dimensions identified by Hofstede16 and
Trompenaars17 and contextualise these for the South African situation according to the
categories of Eurocentrism and Afrocentrism. We shall discuss some of the problems
posed by these differences and consider suggestions for some possible solutions and
synergies that can promote productivity and competitiveness in South Africa.
Co-workers from diverse cultures run the risk of misinterpreting one another
on the basis of language, non-verbal messages, cultural values pertaining to time,
work styles, presentation styles, and understanding of the organisational culture.
These misinterpretations can be called ‘cultural collisions’. If both people in this
kind of interaction feel mistreated, misunderstood, frustrated, or impatient at the
same time, nothing will be accomplished; no creative solutions will arise. Many writers
on cultural differences, such as Trompenaars, Hofstede, and Adler, have attempted to
address these and a variety of other problems that impact on management in crosscultural organisations.18 South African organisations are not exempt from these problems
that result from cultural diversity and its effects. We shall first define culture (see also
Chapter 9), and then discuss South African cultural values, based on the cultural dimensions
of Hofstede and Trompenaars, highlighting problems and possible solutions. Anecdotes,
cases, and personal experiences will be used to illustrate these differences.
There are many definitions of culture but we shall focus on one that is relatively
encompassing.
10.8.1 A definition of culture
Culture is:
■■ A shared system of meanings. Culture dictates what groups of people pay attention to;
how the world is perceived; how the self is experienced; and how life itself is organised.
Individuals of a group share patterns that enable them to see the things in the same way,
and this holds them together.
■■ Relative. There is no cultural absolute. People in different cultures perceive the world
differently and have different ways of doing things, and there is no set standard for
considering one group as intrinsically superior or inferior to any other.
➜
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■■
■■
■■
Learned. Culture is derived from your social environment, not from your genetic
make-up.
Collective. Culture is a collective phenomenon that is about shared values and meanings.
Source: Hoekclin, S. 1993. In Christie, P, Lessem, R & Mbigi, L. African management: Philosophies,
concepts and applications. Randburg: Knowledge Resources.
Trompenaars compares the relationship of culture to humans with that of water to fish.
In another simile, he describes culture as appearing in layers in the form of an onion as
shown in Figure 10.3.19 The outer layer consists of the explicit products of culture, such
as the observable realities of the language we speak, the food we eat, and the homes we
live in. The middle layer of culture consists of our norms and values.
The visible aspects of culture (artefacts and products)
How different groups of people speak, dress, eat, and other aspects such as
their art and technology, which are easy to see, but hard to interpret without
knowledge of the other levels.
The social aspects of culture (norms and values)
This level reveals how people explain or justify the first
level of culture. This includes their values, habits, customs,
traditions, rituals (marriage, death, etc) relating to social
organisations.
The unconscious aspects of culture
(implicit basic assumptions)
The things that are shared in the
minds of a group. The beliefs
that members of a group take
for granted; their ideas and
assumptions that govern the other
aspects. These include the beliefs
(right or wrong) that members of
a group share, their perceptions,
values, norms, and attitudes.
Figure 10.3 The different levels of culture (the onion principle)
Sources: Adapted from Schein, EH. 1992. Organisational culture and leadership. San Francisco: Jossey Bass
Publishers, p 17; Trompenaars, F & Hampden-Turner, C. 1998. Riding the waves of cultures: Understanding
diversity in global business. London: The Economist Books, p 22.
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Norms reflect our sense of what is right and wrong, and values provide definitions of
what is good and bad. The core part of the onion analogy consists of assumptions about
our existence as humans. According to Trompenaars, ‘To answer questions about basic
differences in values between cultures it is necessary to go back to the core of human
existence.’20
The previous definitions indicate that culture is an all-encompassing phenomenon
of human nature. We only discover that our culture is different when we encounter
others of another culture. There is no place in which this is more likely to happen than
in the organisations where we work. Working relations are brought to the test when
we seek to solve a problem by different means from others of different cultures, using
different cultural lenses. Organisations in South Africa that comprise diverse cultures
must meet the challenge to manage cultural differences efficiently and effectively if they
are to be competitive in the global market.
10.8.2 Different responses from different world views
Culture affects our perception of self and the world around us. We all develop individual
worldviews, based on the culture in which we were brought up. Cultural values, which
vary from person to person, are the standards we use to determine whether something
is right or wrong. Trouble arises when we believe that only our own culture makes
sense, espouses the right values, and represents the right and logical way to behave. In
South Africa today, the culture and race dimensions of diversity probably overshadow
the general dimensions of diversity. The following are some worldviews based on the
cultural dimension of diversity identified in organisations.
Ethnocentrism
Ethnocentrism is the belief that one’s own group, culture, or subculture is inherently
superior to other cultures and groups. It is racism. Viewing one’s own culture as the best
culture is a natural tendency for most people. It is this tendency that makes workplace
diversity so difficult to manage, since most theories of management presume that
managers and workers share similar values, beliefs, motivations, and attitudes about
work and life in general. These theories presume that there is one set of behaviours
that best help an organisation to be productive and successful, and should therefore be
adopted by all employees. In many countries this is not the case. In South Africa the
white male-dominated business organisation is a good example of ethnocentrism.
Ethnocentrism is the belief that one’s own group, culture, or subculture is inherently superior
to other cultures and groups.
The following three perceptual attitudes are related to ethnocentrism (racism):
1. Stereotyping which is an assumption that group averages or tendencies are true for
each and every member of that group. While it is important to depict characteristics
that are typical of specific groups, such depictions are both valuable and dangerous.
They are valuable because they alert managers to diversity in their employees.
They are dangerous because it is easy to fall into the trap of assuming that a group
tendency is true of all individual employees. To be effective in managing cultural
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differences, caution should be taken not to treat people as representatives of a
group.
2. Generalisation, which is the perception or assumption that a group of people has
certain collective characteristics.
3. Prejudice, which is a preconceived judgement or opinion about a group of people.
When these attitudes are present in a negative way and are acted upon, they can result
in discrimination.
Monoculture
A monoculture is produced by a standard set of cultural practices. It is a culture that
accepts only one way of doing things. The assumption that people who are different
are somehow deficient makes it difficult to take advantage of their many values, beliefs,
and abilities that may enhance the success of the organisation. A monoculture in any
organisation creates a dilemma for women, blacks, immigrants, and other culturally
diverse people who are expected to behave like members of the dominant group.
Such diverse employees may feel under pressure to conform or may be the victims of
stereotyping.
Pluralism
Pluralism refers to the accommodation of several cultures or subcultures in a country or
an organisation. A movement towards pluralism should seek to integrate fully into the
organisation the employees who would feel isolated or marginalised.
Ethno-relativism
Ethno-relativism is the belief that all groups, cultures, or subcultures are inherently equal.
Organisations worldwide are making conscious efforts to shift from an ethnocentric
monoculture to one of pluralism and ethno-relativism. Employees in a monoculture (as
is the case in many South African organisations in which white males still dominate),
may not be aware of the positive values and attributes of other cultures and may assume
that their own culture is superior. Through effective training, employees can be helped
to accept different ways of thinking and behaving. Organisations that overcome the
problems of monoculturalism take advantage of the diverse abilities of their human
resources.
The following website contains a list of resources relating to multiculturalism and diversity
in the workplace: www.library.gsfc.nasa.gov/SubjectGuides/Multiculturalism.htm
10.9 South African cultural values
As shown in Table 10.1, South Africa is predominantly a nation of five cultural influences
or ethnic groups: the black African majority, the Afrikaners, the English speakers
of British descent, the coloureds, and the Asians. The black Africans consist of nine
tribal groups, each with its own cultural heritage, language, and sense of identity. The
African value system is commonly referred to as Afrocentric, and that of the whites as
Eurocentric.21 Although it is slowly changing, South Africa’s management class is almost
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exclusively white and male and draws from only a small section of the African social
spectrum. Research conducted amongst the black managers in South Africa reveals that
their management style, which reflects their African values, differs from that of their
white counterparts.22
We shall use the two categories, Afrocentric and Eurocentric, to signify all the
diverse cultures in South Africa, in order to simplify our discussion and understanding
of the cultural dimensions in this country. (Nevertheless, we must bear in mind that
there are always individuals within a culture group who are outside the norm.) The
rest of our discussion will be based on a set of cultural dimensions defined by Hofstede
and Trompenaars as they apply to the two categories. These cultural dimensions are
summarised in Table 10.10 and discussed in detail thereafter.
Table 10.10 Cultural dimensions in South Africa
Dimensions
Afrocentric
Eurocentric
Social orientation
Collectivism
Individualism
Power distance
Large power distance
Large power distance
Uncertainty avoidance
High uncertainty avoidance
Low uncertainty avoidance
Goal orientation (masculinity)
Quality of life (femininity)
Career success
Relationships and rules
Particularist
Universalist
Degree of involvement and
expression of feelings
Diffuse and effective
Specific and neutral
How status is accorded
Ascription
Achievement
Time orientation
Past, present, future
(synchronous)
Present as means for future
(sequential)
10.9.1 Social orientation: individualism vs collectivism
Individualism pertains to societies in which the ties between individuals are
loose — everyone is expected to look after himself or herself and his or her immediate
family. Collectivism, as its opposite, pertains to societies in which people are integrated
from birth onwards into strong, cohesive in-groups, which continue to protect them
throughout their lifetime in exchange for unquestioning loyalty.23
It is generally accepted that Africans, regardless of their background, tend to group
together in a collectivist manner.24 Studies in South Africa support this contention. In
Africa the individual’s behaviour cannot be interpreted solely from an individualistic
perspective. The African career is formed within a framework of shared values, norms,
and belief systems. No one in the African context lives for himself or herself. People
live for the community. In South Africa the collective experience of being oppressed as
a group has further intensified the bonds of solidarity amongst black people, and by so
doing has further enhanced the communalistic values of African people.25
The collectivist Africans perform best when operating anonymously, with group
goals. They avoid expressing their real feelings about organisational issues. If problems
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are brought into the open, they are dealt with communally. That is why in South Africa
the black workers’ unions are stronger than others. When one worker has a problem, and
that problem is not effectively solved by management, all the other workers join together
and go on strike. When workers in other branches of the organisation learn about the
situation, they join in and the strike spreads, leading to a decline in productivity and
income, and to possible retrenchments.
The opposing positions of the individualist and the collectivist ways of life may lead to
difficult situations. According to Trompenaars, individualists ‘work for extrinsic money
rewards’, while collectivists ‘prefer to share the fruit of their efforts with colleagues than
to take extra money for themselves’.26 These differences are reflected in the structure of
the organisation, and in the way that the business is conducted. In an individualistic
organisation people act and make decisions alone — this is a sign of achievement. The
collectivist organisation assigns status by the number of helpers surrounding a person.
As the organisation varies, so does the motivation structure. The individualist prefers
individual rewards, while the collectivist prefers a reward that will benefit the entire
group.
There is also a difference in the type of discipline and correction that is effectively
used. Take arriving late for work as an example. In the individualistic society, a letter
informing the employee of the infringement and of potential disciplinary action will
usually serve to correct the errant behaviour. The letter affects only the individual. On
the other hand, such a letter has no impact on the employee in the collectivist society.
Instead the employer must contrive to make the employee aware of the negative effect
his or her behaviour has on others. It might be more effective to single him or her out
for not supporting the collective (peers or colleagues). Management should therefore
be prepared to be flexible in dealing with these differences.
10.9.2 Power distance
Power distance, as a cultural dimension, is an index of the relationship between superior
and subordinate; it reflects the degree of formal difference, or inequality, between them.
According to Hofstede and to Blunt and Jones, who have done research in Africa, both
black and white Africans maintain a relatively large power distance.27 In South Africa there
is considerable dependence of subordinates on bosses. The attitude of subordinates to
this circumstance is either willingness or resentment; accepted or endured. In the case of
tribal (patriarchal) leadership, such dependence tends to be willingly preserved. When,
on the other hand, dependence is resented and rejected, it is referred to in psychology
as counter dependence.28 This kind of imposed dependence, endured with resentment,
typified life during the apartheid era and is still evident in formal organisations today.
Power distance in the African culture
In the African culture, people do as expected of them, and when in doubt they wait for
direction from above. Groups and alliances are commonplace. Relations between such groups
are belligerent and untrusting as witnessed by tribal feuds in South Africa and Africa as a whole.
Almost all issues involving management and workers in South Africa are seen as win or lose
situations. Even relatively trivial matters evoke strong feelings and are bitterly contested. ➜
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This could be attributed, amongst other things, to the two cultures’ similar orientation to
power distance. However, power in the Eurocentric culture is based on expertise and the
ability to give rewards, while in Afrocentric culture, power is based on family or friends,
charisma, and sometimes the ability to use force. That is why political systems are changed
by changing people at the top in a revolutionary way and not necessarily by procedure in an
evolutionary way as in the USA, for example. Thus, to get rid of the apartheid system, the
top leadership had to change. This is characteristic of the high power distance culture.
Source: Hofstede, G. 1991. Cultures and organisations. London: McGraw-Hill.
Managing people
There is still much protest in South Africa against oppression by management. As stated
by Schuitema: ‘We should recognise that people will only give willingly if the leadership at
work pay the appropriate price which is to care essentially about the people and not to care
essentially about what they get out of the people.’
Sources: Schuitema, E. 1995. ‘Pick of the crop: Hot pointers for SA managers’. People Dynamics,
13(11) (November), pp 28–32; Joffe, A. 1995. ‘Seeing things differently’. Productivity SA 21(30) (May),
pp 10–15.
Traditional authorities, indigenous law, and customary law are fully recognised in
South Africa and incorporated in the Constitution.29 A council of traditional leaders
is established to advise the national government on traditional issues and matters of
national interest. In a strong tribal culture, authority is willingly accepted and respected,
and hence there is an unequal but accepted distribution of power.
In South Africa, as a society characterised by large power distance, there is a great
emotional distance between subordinates and their bosses. Subordinates do not usually
or easily approach and contradict their superiors. Current research in South Africa
affirms this stance and proposes a different approach that would allow for subordinates
to approach their bosses in an attempt to improve communications and build
relationships.30 Management can attempt to promote participation and relationshipbuilding activities in order to address this need.
Butler’s research has determined that autocrats provoke absenteeism in South African
formal organisations, which results in low productivity levels.31 The preservation of a
large power distance fosters an acceptance of inequality, whether it entails voluntary
dependence or imposed dependence. An insidious problem in South Africa is that a
pattern of polarisation is manifested between dependence and counter-dependence,
and this polarisation has a high potential for conflict.
Power distance is the same for both cultures in South Africa. Thus, there is not much
conflict between the cultures in this dimension. However, the American organisation
wishing to manage in South Africa will find many obstacles with which to contend.
For the Eurocentric South African culture, the Americans are too democratic in their
decision-making process. For the Americans, the Eurocentric South African culture is
too ‘autocratic’ — time is lost waiting for higher management to make decisions. There
will also be difficulties dealing with the black South African culture. The Afrocentric
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culture is very dependent on trusted leadership, and the American manager must be
prepared to work hard at building trust if decisions are to be accepted.
10.9.3 Uncertainty avoidance
Uncertainty avoidance is a dimension that refers to the extent to which people are
made nervous by situations that they consider to be contingent, unplanned, unclear,
or unpredictable, and the extent to which they try to avoid such situations by adopting
strict codes of behaviour and belief in absolute truths.32 In South Africa, high uncertainty
avoidance is manifested in the Afrocentric culture33 and low uncertainty avoidance in
the Eurocentric culture.34
Again, the two predominant cultures in South Africa are not as polarised on this
dimension as they are on some of the others. However, there is more of a difference than
there is in power distance. A typical difficulty that may be encountered is in granting
initiative to employees. Those with low uncertainty avoidance (Eurocentric) believe
that employees should be granted flexibility in their positions. The high uncertainty
avoidance group (Afrocentric) like to have all tasks strictly outlined for them, so that
no errors can occur. Another difficulty, as we have seen in the list above, is that those
with high uncertainty avoidance are reluctant to compromise with opponents. When a
group only sees one way of doing things, it makes negotiation a very difficult task.
Uncertainty avoidance in South Africa
Studies by Blunt and Jones reveal that South African and other southern African cultures are
generally characterised by high uncertainty avoidance. Their findings reveal the following
elements in the manifestation of high uncertainty avoidance:
■■ More emotional resistance to change
■■ Less risk taking
■■ A preference for clearly laid-out rules and regulations that should not be broken
■■ A strong feeling that conflict in organisations is undesirable and to be avoided whenever
possible
■■ A tendency to want to restrain the initiative of employees
■■ Reluctance to compromise with opponents
■■ Suspicion and distrust of foreigners as managers
■■ More ritualised behaviour
■■ Managers who are more involved in detail.
Source: Blunt, P & Jones, M. 1992. Managing organisations in Africa. Berlin: Walter de Gruyter.
10.9.4 Goal orientation: quality of life vs career success
Goal orientation, as a cultural dimension, is based on the opposing characteristics
defined by Hofstede as career success (‘masculinity’) versus quality of life (‘femininity’).
The Eurocentric career success or ‘masculine’ culture is assertive, ambitious, and
competitive. It strives for material success and respects what is big, strong, and fast.
The Afrocentric quality of life or ‘feminine’ culture, on the other hand, emphasises
nurturance, a concern for relationships, and concern for the living environment.35
According to Hofstede’s studies, South Africa is rated as a career success society, which
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indicates the predominance of Eurocentric culture in goal orientation. The work of
Blunt and Jones indicates that the black African culture emphasises quality of life.
Denying an Afrocentric worker the opportunity to attend a funeral, or giving him
or her a written warning for staying away a little longer at the funeral of a close relative,
would destroy pride and dignity and cause further polarisation and dissent amongst
other black workers. While Eurocentric culture is concerned with material success,
position, and rewarding individual merit, Afrocentric culture is concerned with the
commonality of all people, vision, values, and efforts, and rewarding common vision
for communal effort.
The cultural differences in the dimension of goal orientation also intensify situations
of inequality. Those who espouse the career success view are more likely to take strong,
extreme positions on issues. They might attempt to force subordination, which could be
dysfunctional in organisations.
10.9.5 Relationships and rules: universalism vs particularism
Universalism and particularism are the two orientations that determine attitudes and
judgements in regard to the cultural dimension of rules and relationships.
Apartheid, a policy of separation of white and black people, enforced rules in
a universalistic pattern. All persons falling under the rule were treated the same.
Regardless of whether you were from another country, if you came to South Africa you
would be treated as all other black people if you were black, or as all other white people
if you were white. The rules have now changed. In organisations still predominantly
managed by white people, rules imply equality — to the extent that there is resistance to
affirmative action policies, which are labelled as ‘reverse discrimination’. The Afrocentric
would argue that this is not reverse discrimination, but reversal of discrimination to
correct past imbalances.36
There are endless problems resulting from the two categories of culture co-existing
in South Africa. While the Eurocentric managers (universalist) base their transactions
on written contracts, their Afrocentric workers (particularist) emphasise relationships
rather than the written agreement. The result of this synergistic problem has been
perpetual strikes, absenteeism, productivity problems, and the like.
The dimension of relationships and rules ‘defines how we judge other people’s
behaviour’.37 The universalist believes that the system must be the same for all or it
will collapse. The particularist feels that the individual circumstances should always be
considered. A broad summary of the conflict arising out of the differing views would be
that they ‘will tend to think each other corrupt’.38 For the universalist, the particularists
cannot be trusted because they work outside the rules. The particularist does not find
the universalists trustworthy because they put rules before friendships.
10.9.6 Degree of involvement: specific vs diffuse
The specific and diffuse orientations indicate the degree of involvement with which
individuals are comfortable in dealing with other people. South Africa’s Eurocentric
culture is specific while that of the Afrocentric one is diffuse.
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Different degrees of involvement
Funerals and weddings provide a good illustration of differences in degree of involvement
as a cultural dimension. In the Eurocentric world, invitations to attend are usually sent out
privately, individually, and exclusively. In the Afrocentric world, because of extended family,
friends, and neighbours, events such as weddings and funerals are a major affair, and are
‘open’, to avoid rejecting anyone by forgetting to invite them. Communalism, the need to
belong, and the fear of rejection are illustrated in social relationships amongst people.
The differences in degree of involvement reveal a dichotomy in South African attitudes
to social life. Amongst the South African Afrocentrics, friendship continues after work
and business activities end. ‘Socialisation outside of the office is common. It is under
those relaxed conditions that managers talk politics, sports, and sometimes business.’39
By contrast, the Eurocentrics are interested primarily in getting the job done and are
thus accused by the Afrocentrics of being exploitative. The Eurocentrics, in turn, accuse
Afrocentrics of being lazy. A lot of time is spent on working out agreeable workable
solutions between these two opposites in an attempt to find a new approach that would
expose the talent in each worker.40
There is great potential for miscommunication in the difference between the specific
and diffuse orientations. The Eurocentric specific orientation compartmentalises
people in specifically defined areas of life, such as the workplace, while the Afrocentric
diffuse culture regards people in every aspect of their life. According to Trompenaars,
both views have dangers: ‘the specific extreme can lead to disruption, and the diffuse
extreme to a lack of perspective; a collision between them results in paralysis.’41 There
must be a balance between the two.
10.9.7 How status is accorded: achievement vs ascription
The achievement versus ascription orientation refers to the way in which power
is determined in a society, whether by achievement or by ascription based on the
admiration of others. Admiration is based on attributes such as age, gender, family
lineage, or type of qualification or skill possessed. In the latter case, status is generally
independent of a task or particular function. We would argue that in South Africa the
Eurocentrics are achievement-oriented and the Afrocentrics ascriptive. In South Africa,
as in other African countries, age is a very important factor. It is believed that the older
you grow, the wiser you become, due to the many experiences that you have undergone.
Even if a young person does not agree with the older person, it is improper to oppose
their opinion, which must be respected.
Achievement is very important to the Eurocentric South African culture and the
American culture. They respect superiors in the hierarchy only when the superior has
shown that they have knowledge. This is in direct contrast to the ascription-oriented
Afrocentric culture where respect is accorded to a superior based on his or her position
in the organisation. Managers in the achievement-oriented world vary in age, gender, and
proficiency. This is very difficult for the ascriptive society, which is used to respecting
male, middle-aged managers.
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Power in Africa
Koopman states that: ‘power in Africa bubbles up from the bottom and is bestowed upon
the leader through the will of the people. It is a personal power base. Power in the Western
world, by contrast, emanates from some higher authority in the organisation, in the form of
positional power within the hierarchy, and reflects a material position vis-à-vis others in the
organisation as opposed to a social relationship in the context of ubuntu.’
Ubuntu is defined as: ‘a concept that brings to the fore images of supportiveness,
cooperation, and solidarity, ie communalism. It is the basis of a social contract that stems
from but transcends the narrow confines of the nuclear family to the extended kinship
network, the community – it places great importance on working for the common good, as
captured by the expression: “Umuntu, ngamuntu, ngabantu” (literally translated: a person is
a person through other human beings): “I am because you are, you are because we are”.’
Under ubuntu the admiration of the community is seen as more important than individual
achievement. Thus your status is derived from contribution to the community based on your
talents. Popularity is the indicator rather than your individual bank account.
Sources: Koopman, A. 1993. ‘Transcultural management: In search of pragmatic humanism’. In
Christie, P, Lessem, R & Mbigi, L. 1993. African management: Philosophies, concepts, and applications.
Randburg: Knowledge Resources, pp 41–76.
There are problems in negotiation between cultures that are polarised on this dimension
of status. The achievement-oriented society will send as few representatives as possible,
selected for their knowledge and skill to do the job. The ascription-oriented society will
send older and senior position holders, although they may not have the appropriate
knowledge. This in turn is difficult for the achievement-oriented to respect.
10.9.8 Time orientation
The dimension of time orientation relates to the importance that different cultures attach
to the past, present, and future, as reflected in the decisions they make and the actions
taken. This orientation determines whether a culture views time as sequential (a series
of passing events) or as synchronic, with the past, present, and future interrelated so
that the present action is determined by ideas about the future and by past memories.42
Differences in time orientation are another source of potential conflict between
the two cultures. In the sequential culture (characteristic of Americans and the
Eurocentrics in South Africa), time is very important — being late may disrupt the
entire day’s schedule. Time is a commodity and anyone not respecting time is seen
as lazy, untrustworthy, and unserious. In the synchronous culture (the Afrocentric in
South Africa), punctuality does not seem to be highly valued.
The view of time affects many factors inside the organisation. Take, for example,
the issue of performance assessment. The Eurocentric management uses the most
recent behaviour, combined with future potential, to rate the performance of the
employee. The Afrocentric culture believes that the entire past association with the
organisation should be used to evaluate performance. The differences between the most
recent behaviour and the overall behaviour may vary greatly depending upon what is
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happening in the employee’s personal life. The Afrocentric culture believes that this
should be recognised. Differences in time orientation also result in varying levels of
flexibility. The sequential Eurocentrics view time as measurable and controllable. The
synchronic Afrocentrics view time as secondary to relationships and change. This results
in flexibility and responsiveness.
10.10 Synergistic solutions to problems of cultural
difference
Those who want to do business in South Africa, with its diversity and variety of local
customs, will benefit from background research on the country’s cultural dimensions.
We have seen from the discussion above that there are two dominant cultures operating
simultaneously in South Africa. Apart from the dimension of power distance, South
Africa’s Eurocentric culture is very similar to the corporate culture of the USA.
Americans, therefore, would not have great difficulty in establishing workable
relationships. However, the following are some general guidelines for doing business
across cultures in South Africa:
■■ Obtain appropriate information. Seek information about South African business
conditions and cultures to determine the cultural orientation of the people with
whom you will be dealing, whether Afrocentric or Eurocentric.
■■ Be formal and respectful. While age is amongst the important factors in South
Africa (as well as in tribal authority), if you show sincerity, respect, and empathy,
you will receive a positive response. In the Afrocentric cultures, respect for elders
tends to be the key to harmony. This could help solve trust and authority problems.
Table 10.11 demonstrates some differences that may be recognised between the two
broad categories of culture, and suggests what each group needs to do towards achieving
synergistic outcomes.
10.11 Diversity training
The above discussion on the complex dimensions of diversity, which include noncultural as well as cultural dimensions, explains why organisations worldwide focus on
the management of diversity and cultural diversity, or multiculturalism.
Reasons why organisations are designing and implementing diversity training and
development initiatives:
■■ There is an increasingly diverse customer population
■■ There is an increasingly diverse employee population
■■ It is important to retain top talent
■■ It is necessary to minimise the risk of litigation
■■ It is the right thing to do and is an aspect of corporate social responsibility
■■ It fosters learning and effectiveness in organisations.
Many South African organisations are grappling with transformation. Although the
challenges posed by the diversity of the workforce have been the focus of researchers
and writers on the subject, they have met with mixed reactions from South African
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practitioners. Some organisations simply ignore the situation and treat their diverse
workforce as if it were homogeneous. The results are usually reflected in poor
performance of individuals as well as the organisation. They urgently need to implement
policies and strategies to deal with both the cultural and the non-cultural dimensions
of diversity.
Table 10.11 Towards cultural synergistic outcomes
Differences to be recognised in relationships
By Afrocentrics
By Eurocentrics
Greater emphasis on the non-personal –
Eurocentrics focus on the product or problem.
Seek out and develop long-term
relationships in all aspects of people’s lives.
Clear separation between work and family.
Focus on relationships more than the rules.
The ‘get-to-know-you’ attitude and phase is
crucial.
Eurocentrics are concerned with immediate
career success and individual achievement.
Work is not accomplished through
relationships but needs individual motivation.
Negotiations are focused on people and
relationships first.
Recognise the importance of the extended
family in life and work.
General conduct and demeanour
For Afrocentrics
For Eurocentrics
Be prepared to be specific and timely when
working towards an end goal.
Be prepared to be patient with randomness
and free flow when working towards an end
goal.
Each participant may not have several realities
on an issue.
Each participant may have several realities on
an issue depending on the particular situation.
Schedules are not subordinate to relationships.
Schedules are typically subordinate to
relationships.
Appointments are usually not approximations.
Appointments are usually approximations.
Do not always expect assistance for your
extended families in times of need or duress.
Be prepared to assist employees and their
extended families in times of need or
duress.
What to do
For Afrocentrics
For Eurocentrics
Get appropriate information on the culture.
Be patient. Negotiations may take longer.
Be on time.
Build relationships.
Watch out which contract you sign.
Emphasise politeness.
Do not expect close relationships from
colleagues.
Be flexible, even regarding time schedules.
Assume difference until similarities are proven.
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We shall now consider briefly how management should approach these two categories
of diversity.
10.11.1 Approaches to diversity training
Diversity training is specifically designed to better enable members of an organisation
to function in a diverse and multicultural workforce.
In order for managers to respond to the challenges of working with diverse
populations, they must recognise the difficulties that employees may have in coping with
diversity. These difficulties include resistance to change, racism, and lack of knowledge
about other groups, as well as prejudices, biases, and stereotypes. Some employees lack
the motivation to understand cultural differences, often because of the lack of reward
for doing so. Diversity training should therefore focus on:
■■ Programmes designed to raise participants’ consciousness and awareness about
differences in values, attitudes, patterns of behaviour, and communication that may
exist across cultures
■■ Programmes designed to develop new skills and competencies, including
communication competence.43
Exposure to other people’s culture forms a significant step in any cultural awareness
training.
10.11.2 Management support
Training employees in the issues and attitudes involved in valuing diversity must be
complemented from the top by managerial example and support through:
■■ Declaration of commitment to diversity in the mission statement
■■ An organisational climate that supports diversity
■■ Managers who have diversity skills and competence
■■ Awareness raising
■■ Peer support in the workplace
■■ Open communication between subordinates and managers about diversity issues
■■ Recognition for employee development of diversity skills and competencies
■■ Recognition for employee contributions to enhancing diversity goals
44
■■ Organisational rewards for managers’ implementation of organisational diversity goals.
Diversity training and managerial support from the top can do much to create cultural
synergy and to contribute to higher productivity. To this end, diversity training needs to
have a new focus that facilitates positive and productive working relationships.
10.11.3 Summary of spheres of activity for diversity management
Successful diversity management depends on the commitment of the whole organisation.
Many spheres of management activity are involved in preparing an organisation to
accommodate diversity.
Once a vision for a diverse workplace has been formulated, management can analyse
and assess the current culture (prevailing value system, cultural inclusion, differences,
and systems such as recruitment, training, and promotion) within the organisation, as
indicated by the various spheres of management activity in Figure 10.4.
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Mindsets about
diversity
■■
■■
■■
Problem or
opportunity?
Challenge met or
barely addressed?
Level of majority
culture buy-in
(resistance or support)
Organisation culture
■■
■■
■■
Valuing differences
Prevailing value
system
Cultural inclusion
HR management
systems (bias-free?)
■■
■■
■■
■■
■■
Cultural differences
■■
■■
Promoting knowledge
and acceptance
Taking advantage of
the opportunities that
diversity provides
■■
Recruitment
Training and
development
Performance appraisal
Compensation and
benefits
Promotion
Greater career
involvement of
women
■■
MANAGEMENT
OF
DIVERSITY
Education problems
■■
301
Improve state schools
Educate management
on valuing differences
■■
■■
Dual-career families
Sexual harassment
Work–family conflict
Heterogeneity in race/
ethnicity/nationality
■■
■■
■■
Effects on cohesiveness, communication,
morale
Effects of group
identity on interaction
(eg stereotyping)
Prejudice (racism,
ethnocentrism)
Figure 10.4 The spheres of activity for managing diversity
This assessment is followed by a willingness (by the leadership cadre of management)
to change whatever systems and ways of thinking need to be modified. Throughout this
process people need top management’s support in dealing with the many challenges
and conflicts they will face. Training and support (in the form of delegated power and
rewards) are important for the people in pioneering roles. Once management accepts
the need for a strategy to develop a truly diverse workplace, three major steps are
involved in implementing such a major change:
1. Building a corporate culture that values diversity
2. Changing structures, policies, and systems to support diversity
3. Providing diversity awareness and cultural competency training.
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For each of these efforts to succeed, top management’s support is critical, as is holding
all managerial ranks accountable for increasing diversity.
The implementation of these steps to bring about the necessary change that will
ensure inclusive diversity in the organisation is anchored in the four basic management
functions of planning, organising, leading, and controlling. Planning applies to
management’s role in developing strategies to promote diversity, while organising,
leading, and controlling apply to the implementation phases as we have discussed them
in previous chapters.
10.12 Summary
A common misconception about diversity is that it is synonymous with affirmative
action and equal employment opportunity. These are legislated initiatives, which often
create a ‘them-and-us’ situation. In contrast, the acknowledging of diversity entails an
inclusive and positive attitude, which does not focus on the partition of difference,
but celebrates the commonality of difference. Diversity in organisations means the
inclusion of people with different human qualities, or people who belong to various
cultural groups. The general dimensions, which were examined in this chapter, include
issues such as women in the workforce, age, people with disabilities, and the influence
of these dimensions on management. Organisations that manage diversity successfully
benefit from such an approach. Many South African organisations are still insensitive
to diversity management and should urgently implement policies and strategies to deal
with the various dimensions of diversity in their planning, organising, leadership styles,
and control activities.
In order for managers to respond to the challenges of working with diverse
populations, they must recognise the difficulties and needs of employees. People in
all groups are struggling to identify how to relate to people who are different from
them. Most employees want to learn how to handle work relationships without being
affected by stereotypes and prejudices. Understanding what people want enables them
to relate to one another with acceptance; understanding the needs of employees helps
managers respect and accept others. Diversity awareness training, also called diversity
competence training, helps people to work and live together and to handle conflicts
related to diversity constructively.
There are a number of supports available to managers who are facing the challenges
of diversity in the workplace. A primary source of support is training programmes to
assist managers and employees in working through difficulties they may encounter in
coping with diversity.
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applications. Randburg: Knowledge Resources.
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Adonis, M, in Christie et al, op cit.
Trompenaars & Hampden-Turner, op cit.
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1992. Managing organisations in Africa. Berlin: Walter de Gruyter.
Hofstede, op cit.
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Manning, T. 1995. ‘Pick of the crop: Hot pointers for SA managers.’ People Dynamics, 13(11)
(November), pp 28–32; Schuitema, op cit, p 19; Joffe, A. 1995. ‘Seeing things differently.’
Productivity SA, 21(3) (May), pp 10–15.
Hofstede, op cit.
Butler, J. 1995. ‘Autocrats accelerate absenteeism.’ Productivity SA, 21(2) (March), pp 8–10.
Blunt & Jones, op cit.
Hofstede, op cit.
Ibid.
The Black Management Forum. 1995. Affirmative action blueprint.
Trompenaars & Hampden-Turner, op cit.
Ibid.
Harris, P & Moran, T. 1996. Managing cultural differences. Houston: Gulf Publishing
Company, p 372.
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40.
41.
42.
43.
44.
Manning, op cit.
Trompenaars & Hampden-Turner, loc cit.
Koopman, op cit.
Tayeb, MH. 1996. Management of a multicultural workforce. New York: John Wiley, p 185.
Certo, op cit, p 591.
Case study
Brian Horlock: Aero Tech Incorporated (ATI) takes a proactive approach to
diversity
Brian Horlock, chief executive officer (CEO) of ATI since 1996, has gained the admiration
and respect of many diversity scholars and diversity advocates. Through his leadership,
ATI – a highly diversified, advanced-technology corporation with approximately R100 billion
in annual sales and approximately 110 000 employees – has one of the most successful
diversity programmes in South Africa today. Horlock is most admired for his efforts at
creating a work environment that fosters greater awareness and sensitivity to the needs
of ATI’s diverse employee population. These efforts include crafting a ‘mission success’
statement that clearly delineates the corporation’s commitment to diversity and also hiring
executives with the skills and commitment to implementing the corporation’s diversity
initiatives.
Another diversity initiative of ATI has been the creation of employee organisations. Examples
of social support networks of this kind include members of the physically challenged groups
at ATI (GLOBAL) organisation, and the Previously Disadvantaged Support Team (PDST). Social
networks such as these are important because they tailor their training and mentoring to
the specific issues of a particular subculture, says Mike Botha, research specialist with the
Missiles and Space division.
Dimakatso Molefe, director of Equal Employment Opportunity Office (EEOO), observed that
the specialised unit of Missiles and Space was understaffed, and proactively initiated a
skills audit and engaged Botha in an attempt to build capacity in the unit. She was shocked
at the realisation that the whole unit comprises only five per cent blacks and females
of its one thousand employees. She was even more surprised to realise that neither of
these groupings form any part of specialists nor management in the unit. After a lengthy
engagement with Botha, he indicated to her that they only recruit the best for the unit and
due to the demanding nature of the unit, he prefers to maintain like-mindedness to ensure
continuity of performance excellence.
This audit is threatening the diversity leadership that Horlock and his team had for so long
enjoyed.
Case study questions
Answer the following questions and support your answer with specific information
from the case, text and personal experiences.
1. In what ways has ATI taken a proactive approach toward supporting and encouraging
diversity?
2. Can you identify any diversity dimensions from the case. Explain?
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305
3. How do you suggest that Ms Molefe move forward in addressing findings of her
report in line with Horlock’s vision?
Multiple-choice questions
Question 1
Diversity in its right is based primarily on cultural differences and equal employment
opportunity.
1. True
2. False
Question 2
Secondary dimensions of diversity will include the following:
1. Employment background
2. Racial classification
3. Age
4. Sexuality
5. All of the above
Question 3
Companies that embrace diversity innovatively found that they can achieve
in the marketplace?
a. Sustainable advantage
b. Collective advantage
c. Competitive advantage
1. a & b
2. a, b & c
Question 4
The phenomenon that creates difficulty for women to advance their careers is referred
.
to as
1. break-ceiling syndrome
2. LIFO syndrome
3. narcism syndrome
4. groupthink syndrome
5. glass-ceiling syndrome
Question 5
What are the identified approaches to managing diversity?
a. The golden rule approach
b. Right-the-wrong approach
c. The platinum theory approach
1. a & b
2. a & c
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Question 6
Which of the following is the perspective that specifically incorporates mentoring of
women and previously disadvantaged groups (PDG)?
1. Access and legitimacy
2. Learning and effectiveness
3. Learning and mentoring
4. Discrimination and fairness
5. Access and learning
Question 7
The implicit basic assumptions of culture includes
1. norms
2. values
3. attitudes
4. all of the above
5. none of the above
.
Question 8
Of the differing world views on cultural diversity, racism is more related to
1. monoculture
2. ethnocentrism
3. pluralism
4. ethno-relativism
5. ethno-racism
Question 9
Eurocentric value system is commonly associated with
a. Particularist
b. Individualism
c. Achievement
1. a & b
2. b & c
.
.
Question 10
What do we refer to as the concept that brings to the fore images of supportiveness,
cooperation and solidarity?
1. Pluralism
2. Afrocentrism
3. Ubuntu
4. Heuristics
5. Groupthink
Paragraph questions
1. According to Trompenaars, every culture distinguishes itself from others by
the specific solutions it chooses to certain problems which reveal themselves as
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2.
3.
4.
5.
307
dilemmas. It is convenient to look at these problems under certain headings. Name
three problems and describe them.
Describe three factors that are wrongfully equated to diversity.
Name and describe four arguments why managing diversity is important.
Identify and describe four ways in which organisations can cultivate a diverse
workforce.
Using the Hofstede National Cultural Framework, name and describe the four
largely independent dimensions, based on patterns of enduring values which
provide the framework for describing national cultures.
Essay question
Understanding what diversity is all about is an important aspect of effectively managing
workforce diversity organisations. Discuss why managing diversity and cultural
differences are important for South African organisations. Support your arguments
with practical examples.
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Part
4
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11
THE
PURPOSE
OF THIS
CHAPTER
LEARNING
OUTCOMES
KEY
CONCEPTS
The purpose of this chapter is to examine the third management
function, namely leading. After defining the function, we differentiate
between the concepts of management and leadership and then examine
the components of leadership, where we pay special attention to the
concept of power and the key terms associated with power — interest
and influence. The theory on leadership is the foundation of the chapter
and we specifically deal with trait theory, behavioural leadership
theories and the contingency theories of leadership. We conclude the
discussion on the theoretical foundations of leadership by examining
selected contemporary theories on leadership, specifically charismatic,
transactional and transformational leadership as well as servant
leadership. The chapter concludes with a brief discussion on leadership
and political behaviour in an organisational context.
This chapter will enable learners to:
Define the concept of leadership as a management function
■■ Differentiate between leadership and management
■■ Discuss the components of leadership
■■ Explain the trait theory
■■ Compare the behavioural leadership theories with each other
■■ Discuss the contingency theories of leadership
■■ Describe the emerging approaches to leadership
■■ Examine the occurrence of political behaviour in an organisational
context.
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Leadership
Ability
Accountability
Achievement-oriented leadership behaviour
Authoritarian management
Authority
Autocratic leadership style
Behavioural leadership theories
Charismatic leadership
Coercive power
Collective interests
Competence
Concern for people
Concern for results
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■■
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Consideration
Consistency
Contingency leadership models
Contingent reward
Country club management
Credibility
Delegating
Democratic leadership style
Directive leadership behaviour
Emotional competencies
Emotional intelligence
Employee-centred leadership
Equipotency
Expert power
Hersey and Blanchard’s model
Idealised influence
Individualised consideration
Initiating structure
Influence
Inspirational motivation
Integrity
Intellectual stimulation
Interests
Job-centred leader behaviour
Leader−member relations
Least preferred co-worker
Legitimate power
Loyalty
Leadership grid
Management-by-exception
(active)
Management-by-exception
(passive)
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Middle-of-the-road management
Node
Node community
Openness
Participative leadership
behaviour
Path–goal model
Physiological maturity
Position power
Power
Production-centred leadership
Rational dynamics
Readiness
Referent power
Relationship behaviour
Relationship-oriented leadership
Relevance
Responsibility
Reward power
Servant leadership
Situational leadership theory
Supportive leadership behaviour
Task behaviour
Task-oriented leadership
Task structure
Team management
The path–goal theory of
leadership
Trait theory
Transactional leadership
Transformational leadership
Trustworthiness
Willingness
11.1 Introduction
Leadership is a subject that has long fascinated researchers. Throughout the decades,
researchers focused on aspects such as the reason why some people are natural leaders
and others not, whether one can learn to become an effective leader and why people
willingly follow leaders and then stop following them. The numerous researchers, who
focused their studies on leadership have answered some of these questions, while many
questions remain unanswered.
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In this chapter, we look at the answers to some of these questions by examining the
literature which developed over many decades through the contributions of leading
experts in the study field.
11.1.1 A definition of leadership
Leadership is an elusive concept judged by the sheer volume and range of definitions to
describe it. One author who conducted a comprehensive review of leadership literature
exclaimed that there are almost as many definitions of leadership as there are people
who have researched the concept.
By sifting through the definitions, the emerging common denominator is that
leadership and influence are inseparable. Thus, one element of leadership is that it is a
process where one person exerts influence over another person or persons.
A few other essential elements should also be included in a comprehensive
definition of leadership, specifically in an organisational context.1 First, leadership
should be consistent with the intention of the leader. For example, sport stars have a
great influence on their fans, but it is rarely intentional. In organisations, leadership
should be intentional with the purpose to attain specific outcomes. Second, the effect of
leadership should be to benefit the organisation and its stakeholders. Finally, employees
should follow the leader willingly to attain organisational goals.
Combining these elements into a broad definition of leadership, we can say that
leadership is an influence process that produces acceptance or commitment on the part
of organisational members to willingly participate in courses of action that contribute
to the effectiveness of the organisation.2
A vital aspect of leadership is its effect on followers. Leaders need followers to
lead — without followers there can be no leadership. A symbiotic relationship (working
together to their mutual advantage) exists between leaders and followers — without
follower approval, an aspiring leader cannot lead. A consequence of leader behaviour is
follower behaviour, which tends to reinforce, diminish or extinguish leadership. Chester
Barnard, one of the pioneers of management theory, asserted that followers have a ‘zone
of acceptance’3 within which they willingly allow themselves to be activated, directed
and controlled by a leader. This ‘zone’ is present in the mind and behaviour of the
follower, not in a position or in the leader. People do not blindly follow leaders, but
once a leader–follower relationship develops, an effective leader can direct individuals
and groups to attain organisational goals.
Leadership is an influence process that produces acceptance or commitment on the part of
organisational members to willingly participate in courses of action that contribute to the
effectiveness of the organisation.
11.2 Leadership and management
The question of whether the two concepts of ‘leadership’ and ‘management’ are the
same, and if not, how they differ, often arises in management literature. John Kotter4
argues that leadership and management are different constructs and that each has its
own unique characteristics and complementary systems of action. He distinguishes
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between leadership and management by explaining that leaders cope with change by
setting directives, aligning people, motivating, and inspiring them. Managers, on the
other hand, cope with complexity by planning, budgeting, organising and staffing as
well as controlling and problem solving.
Table 11.1 Differences between management and leadership
Leaders cope with change
Managers cope with complexity
■■
Setting a directive
■■
Planning and budgeting
■■
Aligning people
■■
Organising and staffing
■■
Motivating and inspiring people
■■
Controlling and problem solving
Kotter says that organisations need leaders who can lead in business environments
characterised by major, ongoing change. In Chapters 9 and 18 we discuss the major
forces of change facing organisations, including technological change and changes
stemming from advances in information technology, as well as changes relating to
globalisation.
To deal with change, organisations need leaders to provide a vision (direction),
to communicate and obtain support for the vision (aligning people) and motivate
and inspire people to follow the vision. Such leadership is vital because organisations
become more complex as they operate within the complex business environment. To
deal with this complexity, organisations need managers to achieve their objectives by
performing the management functions of planning, organising, and controlling.
Revisiting the question of whether organisations need managers or leaders, Kotter
maintains that not all leaders are strong managers, nor are all managers strong leaders.
He adds that successful organisations value both managers and leaders and incorporate
them at all levels in their groups and teams. However, when organisations prepare
people for executive positions, or when they develop people to lead their organisations
through periods of major change, they should attempt to develop people who have the
qualities of both managers and leaders.
In recent debates about the merits of employing managers or leaders, the view is
that contemporary organisations have to survive in a highly competitive global business
environment and therefore they should employ people who are both managers and
leaders. After all, both management and leading involve exactly the same thing: ‘The
achievement of a specific purpose through others.’5
General management theory describes management as a much broader concept than
leading, comprising four management functions of which leading is one function — to
direct and align, motivate and inspire the human resource.
‘Leaders’ cope with change by setting directives, aligning people and motivating and
inspiring them. ‘Managers’ cope with complexity by planning and budgeting, organising and
staffing as well as controlling and problem solving.
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11.3 The components of leadership
Leading relates to the authority relationships in the organisation, as defined by the
organisational structure. In Chapter 8, we discuss these authority relationships which
also comprise the components of leading, namely authority, responsibility, delegation,
accountability and power.
■■ Authority is the right of managers to give commands to and demand actions from
employees. Formal authority is a form of legitimate power first described by the
sociologist Max Weber.6 He was interested in answering the question of why
individuals obey commands from others in the organisations where they work.
Weber made a distinction between power where managers have the ability to force
people to obey, and authority where the recipients of orders obey them voluntarily
because of the hierarchical position of the person with authority.
■■ Responsibility is the obligation of employees to attain organisational goals by
performing specified activities, typically defined by their job descriptions.
Managers are always responsible for the results obtained by their sections,
departments or organisations.
■■ Accountability is the evaluation of how well individuals meet their responsibilities.
Managers always remain accountable for everything that happens in their sections,
departments, or organisations, even for the successful completion of the tasks
they delegated to subordinates. The often repeated saying ‘the buck stops here’ is
relevant as far as the accountability of managers is concerned. Accountability is the
reason why the chief executive officers (CEOs) of organisations immediately resign
if, for example, the organisation did not meet the expectations of its stakeholders,
or was involved in a scandal or in unethical activities. The Prime Minister and the
Conservative Party of the United Kingdom called a referendum to decide whether
the country should remain a member of the European Unity (EU) or leave it. Mr
Cameron, the Prime Minister, resigned when the results indicated that the majority
of the voters wanted to leave the EU, contrary to the position he advocated to the
nation.
■■ Delegation is the process whereby the manager assigns responsibility and authority
to a subordinate or subordinates for achieving organisational goals. Managers
delegate responsibility and authority down the chain of command to their
subordinates. A crucial point to remember here is that managers can delegate
authority and responsibility to their subordinates, but they can never delegate their
accountability.
■■ The final component of leading is power, a vital factor of leading which we will
discuss in the following section in more detail together with two terms closely
associated with power, namely interests and influence.
The components of leading are authority, responsibility, accountability, delegation and
power.
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11.3.1 Power, and the key terms associated with power: interests and influence
Power is a key component of leading and in the literature definitions of power abound,
as evident from the following:
■■ ‘The medium through which conflicts of interest are resolved … influences who
gets what, when and how’7
■■ ‘The potential ability to influence behavior, to change the course of events, to
overcome resistance, and to get people to do things they would not otherwise do’8
■■ ‘The ability of individuals or groups to persuade, induce or coerce others into
following certain courses of action… [I]t is rooted in control over or access to
resources of a wide variety.’9
The different definitions capture the key terms associated with power — interest and
influence, ‘to get people to do what they would not otherwise do’.
Despite the negative connotations that some of the definitions of power may
conjure, power has two ‘faces’, which explains why the use of power in organisations is
unavoidable.
One theorist who makes a clear distinction between the two ‘faces’ of power is
McClelland10 who distinguishes between personal power (an individual who has a ‘me’
orientation) and social power (an individual who has a ‘we’ orientation).
People with a personal power orientation may use power to protect their own
interests and to pursue their own goals.
The ‘good face’ of power (social power) manifests in an individual’s concern for
group goals, for helping the group to formulate goals and providing the means to attain
them by empowering people to work hard to attain the goals. Another description of
positive power is that it derives from a ‘socialized need to initiate, influence and lead
and to recognize other people’s needs to achieve their own goals as well as those of the
organization’.11
Despite conflicting views on the subject, the use of power in contemporary
organisations is crucial because organisations have limited and scarce resources and
to attain their goals, groups, teams and individuals in organisations need resources.
Managers often have to use their power to compete with others to secure resources for
their sections, departments or organisations to attain their goals.
Sources of power
Individuals or managers accrue power from different sources. The most popular view
on the sources of power is that of French and Raven.12 They identified five sources of
organisational power. The five sources derive from an individual’s hierarchical position,
the ability to reward or to ‘punish’ others, charisma and expertise. These are either
personal or formal sources of power.13
Formal sources of power
Organisations confer formal power on individuals in terms of their positions in the
organisational hierarchy, deriving from the following sources:
■■ Legitimate power. People accrue legitimate power because of their formal
positions in organisations. Managers, for example, have legitimate power allowing
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■■
317
them to make decisions about resource allocation, information flows, performance
evaluations, task alignment and conflict resolution.
Reward power. Reward power rests with an individual, for example, a manager
in an organisation may have the ability to give compensation to reward or
reinforce desirable behaviour. In an organisational context, managers can use
many ‘currencies’ to reward subordinates, such as salary increases, promotions,
interesting assignments, admission to ‘in’ groups, access to crucial information,
feedback and praise, to mention but a few.14 The flipside of this power source is that
the recipients of the rewards must perceive the rewards as being of value to them.
As we shall see in a discussion on workforce motivation (Chapter 14), a reward
serves as a motivator only if the recipient values the reward.
Coercive power. An individual who is in a position to offer or restrict benefits,
inflict punishment, or control the behaviour of another person, has coercive power.
This type of power is often associated with the negative ‘face’ of power. Coercive
power is based on fear because the person with power has the ability to inflict
punishment or to take action with adverse consequences for the other person.
Managers can retrench people, withhold rewards such as promotions, or directly or
indirectly threaten subordinates with punishing actions.
Personal sources of power
An individual’s personal power stems from his or her unique characteristics with or
without the presence of formal power based on hierarchical position.
■■ Referent power. Referent power refers to the power of an individual because of
his or her personal characteristics or charisma. People will follow and obey such an
individual because they like and respect him or her and they accept that the person
has power. In an organisational context the manager who depends on referent
power must be ‘attractive’ to subordinates in the sense that they would want to
identify with the manager, regardless of the other bases of power (legitimate power
or power of reward) that the manager may possess.
■■ Expert power. Expert power refers to an individual’s power that stems from the
possession of scarce and valued expertise. Expertise is a source of power if it is
the perception in the organisation that the individual possesses knowledge and
understanding pertaining to a specific defined area. For example, the only professor
at a university with expert knowledge of the latest groundbreaking treatment for
cancer may possess expert power. It is necessary that the recipients of a person’s
expert power must perceive the person with expert power as credible, trustworthy
and relevant.15 Credibility means that the person has the right credentials in terms
of knowledge and experience and must be able to show concrete evidence of this.
In our example, the professor may prove her credibility by referring to the number
of research articles she has published in accredited international medical journals,
earning the respect of her colleagues. Trustworthiness means that the person with
expert power must be honest and forthright. Finally, the knowledge or expertise of
the person must have relevance in the context of his or her expertise. The professor
in our example will have expert power as far as a specific cancer treatment is
concerned, but not in respect of the latest research on tuberculosis.
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■■
■■
■■
■■
■■
■■
■■
■■
In addition to the sources mentioned above, Morgan16 argues that power influences
‘who gets what, when and how’ in organisations. In his view, power in organisations
stems from a number of sources and we briefly discuss a selected few of these
sources of power.
Control of scarce resources. Organisations transform their resources into the
products they produce or the services they render. They are thus dependent – for
their success and survival – on the resources they need and on the suppliers of
these resources. Those in the organisation who control and allocate resources
such as financial, human, physical and informational resources, accrue power.
The scarcer the resources and the more dependent an individual or a group in
the organisation is on its availability, the more resource power the individuals or
groups who control the resources accumulate.
Organisational structure. Managers have significant scope when it comes
to choices regarding organisational design, which they can exercise when
deciding about aspects such as differentiation or integration, centralisation or
decentralisation and departmentalisation. These choices may enhance the power
positions of the decision-makers.
Control of decision processes. The ability of an individual to control the
outcomes of organisational decision-making processes can build power, for
example, the control of decision agendas, which may involve preventing or
promoting the appearance of a specific decision on the agenda.
Control of knowledge and information. Individuals who control the knowledge
and information that define the reality of decision-making processes accrue power.
Many principles of organising, such as the chain of command, division of work
and the coordinating of sections and departments, enable individuals to control
information flows, open and close channels of communication, filter, analyse
and summarise information before disseminating it and consequently modelling
information to suit their own views on issues and to advance their own interests.
Control of boundaries. A person or a group can accrue power by controlling
organisational boundaries which form the interface between the different elements
of the organisation internally (boundaries between different groups) and externally
(boundaries between the organisation and its environment, including suppliers,
customers, intermediaries and competitors). An individual with control of
boundaries may be able to access crucial information regarding eminent changes
and be in a position to plan to avoid or facilitate changes. People in leadership
positions, project coordinators and organisational liaison officers can gain power by
controlling organisational boundaries.
Strong informal interpersonal alliances and networks can be a source of power
for an individual.
Control of counter organisations. Interaction and liaison with significant counter
organisations, such as labour unions or lobby groups, enhance the personal power
of those who deal with such groups on behalf of the organisation.
Symbolism and the management of meaning. Organisational leaders who are
effective users of cultural tools (corporate culture) use symbols, rituals and stories
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to help others make sense of events in an organisation. In so doing, the leader could
wield symbolic power because he or she influences the way others think about and
act in specific situations.
Interests
Individuals in organisations will attempt to protect their own interests and those of the
group or teams to which they belong. Employees have individual interests as well as
collective interests.17
People’s self-interest is the primary motivator of their behaviour (see Chapter 14 on
workforce motivation). For example, individuals may look at a change intervention and
consider how the change may affect their own position relative to, for example, better
remuneration, advancement in the organisation or perhaps obtaining more power and
influence.
Collective interests derive from organisational design where the organisational
structure and the positions of power created by the structure create groups who share,
and will protect their collective interests, such as the marketing department, or a
research team, or an operational section. Organisational members will support or block
decisions that affect their interests in their various groups.
Managers have to engage in interaction with various individuals, groups or teams
with the aim to influence them to protect the interests of the groups or teams they
manage. This interaction lies at the core of the leading function of managers.
People protect their individual and collective interests.
Influence
In the context of leading, influencing18 is the process leaders follow to communicate
ideas, gain acceptance of them and inspire followers to support and implement the ideas
through change. Influence manifests in a leader’s ability to affect the actions of others
and it affects the relationship between the leader and his or her followers.
In a general sense, people with influence have power, but not all people with power
have influence. Some managers have power, but they are unable to influence their
employees. Influence, in the case of managers, evolves by gaining the agreement of
employees to work with them to achieve specific organisational goals.
What is the relationship between power and influence and when does power convert
to influence? To illustrate this process, suppose the manager (agent) has power and
interacts with an employee (target). When the employee consents to behave according
to the wishes of the manager, power has converted to influence. Thus, power involves a
reciprocal relationship between the agent (the manager) and the target (the employee).19
The influence of leaders on their followers has a strong effect on the overall
performance of the organisation and as a result, researchers conducted many studies to
establish exactly what it is that enables leaders to influence their followers. We shall now
examine the theory on leadership that has evolved over many decades to contribute to
our understanding of leadership.
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Influencing is the process leaders follow to communicate ideas, gain acceptance of them and
inspire followers to support and implement the ideas through change.
11.4 The theoretical foundations of leadership
11.4.1 Introduction
Against the backdrop of the discussion thus far, it is clear that strong leadership is a vital
element of organisational success, although it is not the only contributing factor. Not
surprisingly, leadership is also one of the most researched topics in the social sciences
and in business management research. In numerous studies, researchers have attempted
to determine the key characteristics and behaviour patterns of strong leaders in an
organisational context. In the discussion that follows, we examine the major categories
of approaches to leadership, including trait theory and the behavioural and contingency
approaches to leadership.
11.4.2 Trait theory
The early leadership studies concentrated on the personal qualities and characteristics
or unique traits of successful leaders. The premise of early trait research was that some
people are born leaders, with characteristics that distinguish them from other people
who are not leaders. The researchers wanted to find out if strong leaders share some of
the same characteristics.
The results of these research efforts were mainly unconvincing because traits vary
from one leader to another and some traits develop only after a leader assumes a
leadership position.
However, during the first half of the twentieth century, the emerging field of
psychology provided trait researchers with new tools, such as aptitude and psychological
tests which enabled them to investigate the distinguishing characteristics of strong
leaders in dimensions such personality, physical traits, abilities, social characteristics
and work-related characteristics. A recurring finding of many of these studies was that
the relevancy of vital traits is often dependant on the specific situation, for example, the
type of organisation or the industry where the leader worked.
Towards the end of the previous century, a renewed interest in trait theory provided
a few promising studies, which indicated that there are some traits that successful
leaders have in common, such as self-confidence, honesty/integrity and drive.20
Scandals worldwide and in South Africa occur in private and public organisations at
an increasing rate, implicating leaders who act dishonestly and betray their organisations
and their followers. One only needs to read the daily newspapers or watch the news
to realise the extent of the problem in South Africa. As a result, trust is becoming a
significant component of effective leadership.
Managers cannot be effective leaders if their employees do not perceive them as
being trustworthy. In order to be trusted, leaders need to display traits such as integrity,
competence, consistency, loyalty and openness.21
■■ Integrity refers to a leader’s honesty and truthfulness.
■■ Competence denotes a leader’s technical and interpersonal knowledge and skills.
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■■
■■
■■
321
Consistency reflects a leader’s reliability, predictability and good judgement in
handling situations.
Loyalty entails a leader’s willingness to protect another person.
Openness is the degree to which one can rely on the manager to tell the whole truth.
Such leadership is vital in a world where thieving, grafting and fraud are the order of
the day.
Another concept relating to the traits of successful leaders is emotional intelligence.
Emotional intelligence refers to a leader’s self-awareness and awareness of the feelings of
others. We shall discuss the relationship between leadership and emotional intelligence
in a separate section in this chapter.
Employees perceive leaders as trustworthy if they display traits such as integrity,
competence, consistency, loyalty and openness.
11.4.3 The behavioural approach to leadership
The premise that successful leaders behave differently from unsuccessful leaders
underpins the behavioural approach to leadership. Behavioural approach researchers
attempted to determine how people who lead successfully act, for example, how
they delegate, communicate and motivate their employees. The assumption was that
managers could learn to lead in the one ‘right’ way.
Although the numerous behavioural research studies were not very successful in
producing a definite list of behaviours distinguishing leaders from non-leaders in every
situation, it did result in a better understanding of the different styles of leader behaviour.
University of Iowa’s leadership styles
Kurt Lewin and his associates at the University of Iowa conducted research on leadership
styles which they defined as the combination of traits, skills and behaviours leaders use
when they interact with followers. They distinguished between two leadership styles:22
1. A leader with an autocratic leadership style makes the decisions and limits employee
participation
2. A leader with a democratic leadership style involves employees in decision-making,
encourages their participation and provides feedback.
Robert Tannenbaum and Warren Schmidt23 expanded on the work of Lewin and his
associates and asserted that leadership styles could range from autocratic to democratic
on a continuum, reflecting different degrees of employee participation. The researchers
proposed that deciding whether leadership behaviour should be ‘boss-centred’ (use of
authority by a manager) or ‘employee centred’ (area of freedom for employees) depends
on the manager, the employees and the environment.
The researchers concluded that managers should move toward more employeecentred styles in the long term to enhance employee motivation, decision quality,
teamwork and morale.
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Ohio State University studies
An interdisciplinary team of researchers at the Ohio State University conducted a major
study to examine and measure the performance of leaders rather than their traits. The
main contribution of their research was to develop precise operational definitions of
what people in leadership positions do. They developed the leader behaviour description
questionnaire (LBDQ). Analysis of the data obtained by respondents revealed two
descriptions of leader behaviour:24
1. Initiating structure refers to the degree to which a leader provide precise definitions
of role responsibility, plays an active part in scheduling and organising the work,
and in structuring the work context.
2. Consideration refers to the degree of camaraderie, mutual trust, liking and respect in
the relationship between the leader and followers.
A finding of the Ohio studies and one that caused much interest at the time was that
consideration (C) and initiating structure (IS) are independent dimensions of leader
behaviour. In other words, in theory, a leader’s behaviour could be high or low in both
dimensions, resulting in four combinations of leader behaviour, high C/high IS, high
C/low IS, low C/low IS and low C/high IS. Leadership behaviour tends to be average
close to the crossover point in the middle in terms of both dimensions.25
The University of Michigan leadership studies
A group of researchers, mainly psychologists, at the University of Michigan, conducted
the first phase of the Michigan Studies. They focused on identifying relationships
between leader behaviour, group processes and measures of group performance.
The Michigan researchers26 focused more on productivity than the Ohio researchers.
They selected as their sample a number of pairs of highly productive and unproductive
groups of clerical and railroad workers in their respective organisations. The objective
of the study was to identify the difference in behavioural and organisational factors
between the efficient and inefficient groups. To obtain data on leadership behaviour in
the two types of group they conducted structured interviews with the supervisors of the
sections. The researchers identified two distinctive types of leader behaviour, namely
production centred and employee centred:27
1. Production-centred supervisors emphasise the technical and production aspects of
their jobs in their relationships with employees. They are work-oriented and treat
employees as people who should get the work done.
2. Employee-centred supervisors focus on the human relations aspects of their
employees, such as motivation and training. They have supportive personal
relationships with their work groups.
The results of the studies indicated that employees that are more productive tended to
report on the more employee-centred behaviour of their supervisors. They also reported
greater satisfaction with the job, their supervision, and the organisation as a whole.
Unlike the findings of the Ohio studies, the results of the early Michigan studies
implied that employee-centred and production-centred leadership are distinct — a
leader’s behaviour could either be employee centred or job centred, but not both.
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The findings of the studies had a significant impact on developing ideas on programmes
for organisations to develop their managers and their structures.
The leadership grid
Blake and Mouton from the University of Texas distinguished between two approaches
of the managerial role, concern for production and concern for people. They assumed
that both concerns are components of effective leadership. The researchers constructed
the managerial grid, a two-dimensional grid where each concern has a nine-point scale
(a score of one indicates a low concern and a score of nine indicates a high concern),
thus yielding 81 possible combinations of management behaviour. A revised version of
the grid was later developed and renamed the leadership grid, with the two dimensions
renamed concern for people and concern for results.28
1. Concern for people indicates that the leader maintains good relations with
subordinates
2. Concern for results indicates that the major concern of the leader is to accomplish
the task.
To pinpoint the kind of ‘concern’ a leader displays in relation to employees, the
researchers identified five main leadership styles, as presented in Table 11.2. The
leadership style of an individual leader can fall anywhere between the five styles
identified by the researchers.
Table 11.2 The leadership styles identified by the leadership grid
Concern for
Results
People
Leadership style
Leadership behaviour
1
(High)
9
(Low)
Country club
management
Concerned about the needs of employees to
form satisfying relationships; results in a friendly
organisation and comfortable work pace
9
(High)
9
(High)
Team management
Emphasises both production and people
needs, attains maximum productivity and
creates a team spirit leading to relationships
of trust and respect
5
5
Middle-of-the-road
management
Seeks to find a balance by attending to
the need to do the work and the needs
of the employees; can result in adequate
performance and good morale of employees
1
(Low)
1
(Low)
Impoverished
management
Do just enough effort to survive in the
organisation
9
(High)
1
(Low)
Authority-compliance
management
Obtain efficiency in operations by arranging
conditions of work to limit interference from
employees to a minimum
Source: Adapted from Hughes, RL, Ginnett, RC & Curphy, GJ. 2002. Leadership: Enhancing the lessons of
experience. New York: McGraw-Hill Higher Education, p 211.
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The researchers claim that team management is the most effective style ‘where a leader
is strong on both dimensions (9, 9), a high–high style’.
The behavioural theories of leadership made a significant contribution to the
evolution of leadership theory, but in general failed to identify consistent patterns of
leadership behaviour and employee responses because results vary over different ranges
of circumstances. Similar to the research relating to leadership traits, research results on
leader behaviour suffers from a tendency to over-simplify complex questions.
Nevertheless, the various research findings provide some insight into managerial
effectiveness because of the differentiation between managers who focus strongly on
the task and managers who focus more on their employees.29
Table 11.3 summarises the behavioural research studies presented in this chapter.
Table 11.3 A summary of selected behavioural research studies
Focus on task
Focus on employees
University of Iowa
Autocratic
Democratic
Ohio State University
Initiating
Consideration
University of Michigan
Production centred
Employee centred
University of Texas
Concern for results
Concern for people
11.4.4 The contingency or situational approaches to leadership
The contingency (or situational) approach to leadership acknowledges that predicting
leadership success is more complex than examining the traits and behaviours of
successful leaders. The underlying premise of this approach is that instead of trying to
find a ‘one best style of leadership’, the focus should rather be on the most effective
leadership style for any given situation.
A number of variables or contingencies define a situation and may include the nature
of the work performed by the leaders’ unit, the nature of the external environment, and
the characteristics of followers.
Contingency approach research focuses on the aspects pertaining to a situation
that could enhance the relationship between specific leader behaviours and leadership
effectiveness. The assumption is that different leadership behaviours will be effective in
different situations and that the same behaviour is not the most effective in all situations.
Least preferred co-worker (LPCW theory [Fred Fiedler])30
The LPC contingency model, developed by Fred Fiedler, describes how the situation
determines the relationship between leader effectiveness and a trait measure called ‘the
least preferred co-worker (LPC) score’.
The LPC score is determined by asking a leader to select the co-worker with whom
he or she could work least well. Next, the leader rates this least preferred co-worker
on a scale of 18 sets of adjectives ranging, for example, from friendly to unfriendly,
cooperative to uncooperative and efficient to inefficient.
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The scoring of the manager of his or her least preferred co-worker determines the leader’s
LPC score, which indicates whether a leader is task-oriented or relationship-oriented.
Furthermore, Fiedler proposes that effective group performance depends on the
proper match between a leader’s style of interacting with employees (LPC score) and
the degree to which the situation gives control and influence to the leader.
Situational criteria
Fiedler identified three situational criteria that organisations can manipulate to create a
proper situational match with the behaviour orientation of the leader:
1. Leader-member relations indicate the degree to which the leader has the support
and loyalty of employees and the extent to which the relations with employees are
friendly and cooperative or tense and threatening.
2. Position power of the leader refers to the degree to which the leader has the authority
to evaluate performance and manage rewards and punishments.
3. Task structure may range from structured to unstructured, depending on the
following factors: whether each employee has clearly defined objectives and
responsibilities, the degree to which there is standard operating procedures to
accomplish the task, the existence of a detailed description of the finished product
or service, and criteria to measure performance accurately.
By combining these elements, Fiedler identifies eight situations and their degree of
‘favourableness’ for the leader (denoting the leader’s influence and control over the
group), as described in Table 11.4.
Table 11.4 Degree of favourableness for a leader in different situations
Situation
Situational criteria
Leader−
member
relations
Position
Power
Task
Structure
Degree of favourableness
(the leader’s influence and
control over the group)
1
Good
High
Structured
Favourable
2
Good
Low
Structured
Favourable
3
Good
High
Unstructured
Favourable
4
Good
Low
Unstructured
Moderately favourable
5
Poor
High
Structured
Moderately favourable
6
Poor
Low
Structured
Moderately favourable
7
Poor
High
Unstructured
Moderately favourable
8
Poor
Low
Unstructured
Unfavourable
Source: Adapted from Yukl, G.1998. Leadership in organizations, 4th ed. Upper Saddle River, New Jersey:
Prentice-Hall International, Inc, p 284.
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A task-oriented, controlling leader is most effective when the situations are favourable
(situations 1, 2 and 3). The relationship-oriented leader tends to be more effective in
the intermediate situations, which are moderately favourable for a leader (situations 4,
5, 6 and 7) or very unfavourable (situation 8).
An assumption of the model is that an individual’s leadership style is fixed, for
example, if a situation requires a task-oriented leader and the person in the leadership
position is relationship-oriented, either the situation must change or the leader must be
replaced with a leader who is more effective in task-oriented situations.
The path–goal theory of leadership (Robert House)31
Robert House developed the path–goal model to explain how the behaviour of a
leader influences the satisfaction and performance of employees. The effect of leader
behaviour on employee effort and satisfaction depends on situational variables,
including subordinate characteristics and environment variables.
Subordinate characteristics include:
■■ The degree to which subordinates want to be told what to do and how to do the job
■■ The locus of control of the employee (internal or external)
■■ The ability of the employee to perform the tasks to attain goals.
Environment variables include:
■■ The task structure
■■ The formal authority of the leader
■■ The extent to which co-workers contribute to goal attainment and satisfaction.
The situational variables influence the employee’s preferences for a particular style of
leadership to maximise his or her performance and satisfaction.
House furthermore asserts that it is the leader’s responsibility to help employees
attain their goals by motivating them. To increase motivation, the leader should clarify
an employee’s ‘path’ to obtain the rewards the employee values. The leader should assist
the employee to exhibit behaviour that will ensure that he or she accomplishes the task
successfully and receive the desired rewards. To this end, the leader uses one of four
leadership behaviours, namely directive, supportive, participative and achievementoriented (see Table 11.5).
Table 11.5 Path−goal theory of leadership — four leadership styles
Leadership
behaviour
Directive
Task
Structure
■■
■■
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Typically
unstructured and
complex
Little formalisation
of rules and
procedures to guide
the work
Leader behaviour
■■
■■
Tells inexperienced
employees what
they are expected
to do
Gives specific
guidance
Effect
■■
■■
■■
Reduces role
ambiguity
Employees’
expectancy of
success increase
Employees’ effort
increase
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Leadership
behaviour
Task
Structure
Leader behaviour
■■
■■
Supportive
■■
Likely to be
stressful, boring,
tedious or
dangerous
■■
■■
■■
Effect
Requests employees
to follow rules and
procedures
Schedules and
coordinates their work
Considers the needs
of employees
Displays concern
for the welfare of
employees
Creates a friendly
climate in the work
unit
■■
■■
■■
■■
Participative
■■
Typically
unstructured
■■
■■
Achievement
oriented
■■
Likely to be
unstructured,
complex and nonrepetitive
■■
■■
■■
■■
327
Consults with
employees
Seeks the opinions
and suggestions
of employees and
takes them into
account
Sets challenging
goals
Seeks improvement
in performance
Emphasises
excellence in
performance
Shows confidence
that employees
will attain high
standards
■■
■■
■■
■■
An increase in
employee effort and
satisfaction
The leader
cultivates the
self-confidence of
employees
Employees have
less anxiety
Reduces the
unpleasant aspects
of the work to the
minimum
Employee effort
and satisfaction
increase because of
better role clarity
An increase in
the enjoyment of
work results in
satisfaction for
employees with
a high need for
achievement and
autonomy
An increase in
employee selfconfidence
Increase in the
expectation of
successfully
accomplishing a
challenging task or
goal
Source: Adapted from Yukl, G.1998. Leadership in organizations, 4th ed. Upper Saddle River, New Jersey:
Prentice-Hall Inc, pp 265−270.
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Criticism of the path−goal theory of leadership is that not all the situational factors
are always present in the guidelines for when to use which style, making it difficult to
determine which style to use.
The contribution of the path–goal theory to the study of leadership is that it provides
a conceptual framework for researchers to identify potentially relevant situational
variables that influence leadership styles. The theory also enables managers to think
creatively about increasing employee motivation.
Situational leadership model (Paul Hersey and Kenneth Blanchard)
Hersey and Blanchard proposed a situational leadership model based on the assumption
that there is no best way to influence people. The leadership style a leader should use
with individuals or groups depends on the readiness of the employees the leader is
trying to influence.
Readiness is the extent to which an employee has the ability and willingness to
accomplish a specific task. The concept of readiness relates to specific situations and
includes two related components:32
1. Ability relates to the knowledge, experience and skill an individual or group has to
do a specific task or activity.
2. Willingness relates to the amount of confidence, commitment and motivation an
individual or a group has to accomplish a particular task.
The readiness of an employee to complete a task ranges from poor ability and little
confidence to good ability and very confident to do the task (see Table 11.6).
Table 11.6 Employee readiness
Readiness
Components of readiness
Ability
R.1
Incompetent
Willingness
and confidence
Unwilling
or
Insecure
R.2
Incompetent
Willing
or
Confident
Employee behaviour
Incompetent and lacks commitment and
motivation
or
Incompetent and lacks confidence
Incompetent, but motivated and makes
an effort
or
Incompetent but is confident if the leader
provides guidance
R.3
Competent
Unwilling
or
Insecure
Competent, but not willing to use ability,
or
Insecure or hesitant to do the task alone
R.4
Competent
Willing
or
Confident
Competent and committed
or
Confident to do the task
Source: Adapted from Hersey, P & Blanchard, KH. 1993. Management of organizational behavior: Utilizing
human resources, 6th ed. Englewood Cliffs, New Jersey: Prentice-Hall Inc, p 191−192.
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Hersey and Blanchard also distinguish between two separate dimensions of leadership
behaviour, namely task behaviour and relationship behaviour:33
1. Task behaviour is the extent to which a leader defines roles, for example, telling
employees what to do in terms of goal setting, organising, establishing time lines,
directing and controlling.
2. Relationship behaviour is the extent to which the leader engages in two-way (or
multi-way) communication, listening, facilitating behaviours, providing emotional
support, and providing feedback.
By combining these two elements, Hersey and Blanchard identify four basic leadership
styles a leader can use, depending on the readiness of an individual or group to do the
specific task (situation).
A leader may use different leadership styles with the same individual, depending
on the task that the employee should accomplish. For example, a researcher may be
brilliant, highly motivated and confident to do her work as a researcher working in
a laboratory (the leader would use the S4 leadership style), but unwilling to do the
administrative tasks expected from her, although she has the ability to do it (here the
leader would use the S3 leadership style).
Matching the leadership style with the level of task readiness determines the most
effective leadership behaviour, as illustrated in Table 11.7.
Table 11.7 Effective leadership behaviour (Hersey and Blanchard): Matching employee level of
readiness with the most effective leadership style
Employee
readiness
R.1
(Low)
Leadership style
S1
Telling
Dimensions of leadership
behaviour
Task
behaviour
Relationship
behaviour
High
Low
Leader behaviour
■■
■■
■■
R.2
(Low to
moderate)
S.2
Selling
High
High
■■
■■
■■
■■
R.3
(Moderate
to high)
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S3
Participating
Low
High
■■
Gives direct instructions
Sets performance standards
Tells employees exactly what
is expected from them
Gives direction to employees
Encourages them to
contribute their inputs
and uses the inputs when
appropriate
Expresses confidence in
employees
Gives them feedback on their
performance
Assists employees to find
their own solutions to workrelated problems and work
methods
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Employee
readiness
Leadership style
Dimensions of leadership
behaviour
Task
behaviour
Leader behaviour
Relationship
behaviour
■■
■■
R.4
(High)
S4
Delegating
Low
Low
■■
■■
■■
Does not provide the
answers for the problems
(low task structuring)
Encourages employees to
think by asking questions and
acting as a soundboard, but
does not tell them what to do
Delegates and discusses the
result the employee has to
achieve
Observes and measures the
result afterward
Gives recognition when
appropriate
Source: Adapted from Hersey, P & Blanchard, KH. 1993. Management of organizational behavior: Utilizing
human resources, 6th ed. Englewood Cliffs, New Jersey: Prentice-Hall Inc, pp 195−197.
Hersey and Blanchard’s theory has made a positive contribution to leadership theory.
They stressed how essential it is to treat different employees differently, but also treating
the same employee differently as the situation changes. The practical implication of the
theory is that managers should use opportunities to build the skills and confidence of
employees, rather than assuming that an employee without skills or motivation cannot
improve on his or her performance.34
Despite their deficiencies, contingency theories provide insight into leadership
in the context of different situations and have made significant contributions to our
understanding of leadership (see Table 11.8).
Table 11.8 Contributions to leadership theory by contingency theories
Contingency
theory/model
Researcher/s
Contribution of the theory
Least preferred coworker (LPCW theory)
Fred Fiedler
Emphasise that an individual’s leadership style
is fixed, and if a leader is not effective in one
situation, the situation must change or another
leader who is more effective in that specific
situation must replace the leader
The path–goal theory
of leadership
Robert House
Provide a conceptual framework to guide
researchers in identifying potentially relevant
situational variables that influence leadership
styles
➜
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Contingency
theory/model
Situational leadership
model
Researcher/s
Paul Hersey
and Kenneth
Blanchard
331
Contribution of the theory
Emphasise that managers should treat different
employees differently, and treat the same
employee differently when the situation changes
The model implies that managers should use
opportunities to build the skills and confidence
of employees, rather than assuming that an
employee without skills or motivation cannot
improve on their performance
11.5 Contemporary approaches to leadership
The assumption underpinning the discussion on leadership theories in the previous
section is that leadership is the ability of leaders to influence their employees to
achieve organisational goals. More recently, a different view of leaders is emerging — as
individuals who define organisational reality through the articulation of a vision. This
view of leadership does not confine to top managers alone, managers at all levels are
stronger leaders if they can convey the vision of their section, department, group or
team to their employees.
11.5.1 Charismatic leadership
Charismatic leaders have traits such as self-confidence, the ability to articulate their
visions, unconventional behaviour and environmental sensitivity. They typically
have excellent communication skills, are enthusiastic, optimistic and energetic. Not
surprisingly, charismatic leaders often appear when the followers’ task has an ideological
component, perhaps explaining why charismatic leaders most often appear in politics,
religion or unusual business organisations. Examples of such leaders include Nelson
Mandela and Desmond Tutu.
A strong positive relationship exists between charismatic leadership and the
performance and satisfaction of their followers. The followers of charismatic leaders
often develop a strong sense of trust and connection with the leader. They tend to
unconditionally accept the leader and develop self-confidence to attain the leader’s
vision, which in turn may enhance their organisational citizen behaviour. Followers also
unquestionably obey and trust their leader. This type of behaviour is not common in
other leader−follower relationships.35
Examples of famous charismatic business leaders include Richard Branson (the
Virgin Group), Steve Jobs (Apple) and Oprah Winfrey (the Oprah Winfrey show and
Oprah’s Angel Network). These leaders use their charisma in a positive manner (the
socialised charismatic leader) and for the benefit of others.36
Charismatic leaders can also use their charisma in a negative way (the personalised
charismatic leader) to attain their own agendas and for self-glorification. Such leaders
represent the ‘darker’ side of charisma.37 Leaders such as Adolph Hitler, Osama bin
Laden and Charles Mason fall into this category.
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In the next section, we shall discuss transactional and transformational leadership. Note
that transformational leaders are also charismatic because they express a compelling
vision of the future, usually in an organisational context. They form strong bonds with
followers and align their vision with the needs of followers. While both charismatic
and transformational leaders are concerned with organisational or societal change,
transformational leaders always use their leadership to the advantage of their followers,
while some charismatic leaders (personalised charismatic leaders) are interested only
in pursuing their own agendas.
11.5.2 Transactional leadership38
The first researcher to distinguish between transactional and transformational leadership
was James Burns.39 According to him, transactional leaders ‘motivate their followers by
appealing to their self-interest’. An example of a transactional leader is a manager who
exchanges pay and status to employees for the work they perform. Bernard Bass40 refined
Burns’ distinction between transactional and transformational leadership and describes
transactional leadership as ‘an exchange of rewards for compliance’. According to Bruce
Avolio,41 transactional leadership occurs when the leader rewards or disciplines the
follower, depending on the acceptability of the follower’s behaviour or performance.
This type of leadership depends on establishing agreements, providing reinforcement,
and giving positive contingent rewards (or the more negative active or passive forms of
management- by-exception). Perceptions of trust, justice and fairness play a vital role in
this leader−follower relationship.
Bass and Avolio42 developed the full range leadership development model and
an instrument, the multifactor leadership questionnaire (MLQ) to assess a leader’s
transactional and transformational leadership. The model comprises three components
of transactional leadership and four components of transformational leadership. The
three components of transactional leadership are contingent reward, management-byexception (active) and management-by-exception (passive) leadership behaviour (see
Table 11.9).
Table 11.9 Components of transactional leadership
Components of transactional leadership
Leader behaviour
Contingent reward
■■
Management-by-exception (active)
■■
Management-by-exception (passive)
■■
(laissez-faire leadership)
Employs goal setting to help clarify what
is expected of followers and the rewards
they will receive for accomplishing goals
and objectives
Acts as monitor whose main aim is to
detect variances between the planned
objectives and actual performance
Takes action only when something goes
wrong, indicating the avoidance or
absence of leadership
Source: Adapted from Avolio, BJ. 2011. Full range leadership development, 2nd ed. Thousand Oaks,
California: Sage Publications Inc, pp 63−66.
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Contingent reward is the most effective leader behaviour while management-byexception (passive) indicates a leader’s passive indifference about the task and followers
and represents the weakest leadership behaviour.
11.5.3 Transformational leadership
Transformational leadership is more emotion-based than transactional leadership43 and
involves heightened emotional levels.44 Burns describes transformational leadership as a
process in which ‘leaders and followers raise one another to higher levels of morality and
motivation’.45 Apart from their ability to create a strong vision, transformational leaders,
(and socialised charismatic leaders), have characteristics such as strong communication
skills, self-confidence and strong moral principles, the ability to inspire trust, a high
risk-, energy- and action orientation and usually a self-promoting personality. Moreover,
they have the ability to empower others — they create minimum internal conflict and
have close working relationships with followers.46
The effect of transformational leaders on followers is that followers ‘feel trust,
admiration, loyalty and respect for their leader’.47 Followers of transformational
leaders are motivated to do more than is expected of them. Transformational leaders
appeal to their followers’ values and their sense of a higher purpose by identifying and
communicating organisational (or societal) problems and by articulating a compelling
vision of how the organisation (or society) can improve.48 This vision links to the values
of both the leader and the followers.
The effects of transformational leadership in organisations include positive changes
in organisational culture and learning and a move from focusing on self-interest to
focusing on collective interests in the organisation. In most organisational contexts,
transformational leadership is desirable because it improves employee satisfaction, trust
and commitment. Results of research studies indicate that transformational leadership
consistently promotes greater organisational performance.49 Transformational leaders
are also effective in organisations where major change and transformation are taking
place.
The full range leadership development model of Bass and Avolio50 comprises, in
addition to the three transactional leadership components, also four components of
transformational leadership. These components are idealised influence, inspirational
motivation, intellectual stimulation and individualised consideration (see Table 11.10).
Effective leaders use both transactional and transformational leadership styles.
Transformational and transactional leadership are interdependent and complementary
and not opposites from one another. Without the more positive forms of transactional
leadership, such as setting goals and expectations and monitoring performance to detect
variances, leaders would be limited in their ability to succeed in performance outcomes.
In other words, transactional leadership adds to transformational leadership. However,
successful transactional leaders without transformational leadership will not achieve
the same level of performance outcomes.51
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Table 11.10 Components of transformational leadership
Components of
transformational
leadership
Examples of leader behaviour
Idealised influence
Shows determination, displays unusual talents, takes risks, empowers,
is dedicated to a cause, creates a feeling of joint mission, deals with
crises, uses drastic solutions and has faith in followers
Inspirational
motivation
Inspires and motivates others by providing meaning and challenge,
paints an optimistic picture of the future, enhances team spirit, displays
enthusiasm, articulates and communicates shared organisational goals
and a mutual understanding of what is right and important; provides a
vision of what is possible, and how to attain organisational goals
Intellectual
stimulation
Approaches problems, particularly persistent ones, by questioning
previously used assumptions to solve such problems, stimulates
followers to be creative and innovative and approaches old problems
with new solutions
Individualised
consideration
Shows empathy towards followers’ capabilities, needs and desires and
treats followers as unique, thus reducing frustration and competition;
supports, encourages and coaches followers; demonstrates moral and
ethical conduct
Source: Adapted from Avolio, BJ. 2011. Full range leadership development, 2nd ed. Thousand Oaks,
California: Sage Publications, Inc, p 63−71.
Leaders who are able to balance transactional and transformational leadership over time
in various situations and meeting a variety of challenges tend to be the most effective.52
Identifying individuals with the potential to become transformational leaders is
particularly relevant in South Africa. This is because of the unique socio-economic
context of a country in which organisations need to transform rapidly, procure large
numbers of employees from previously disadvantaged groups and develop effective
managers. In addition, major global changes, including the opening of new markets and
global competition, force organisations to change. Advances in information technology
influence how organisations operate, compete and change. South African organisations
desperately need transformational leaders who can lead them through these changes in
order to remain competitive in a complex business environment.53
11.5.4 Emotional intelligence (EQ) and leadership
Salovey and Mayer were the first researchers to use the term ‘emotional intelligence’
(EQ). They define EQ as ‘the ability to monitor one’s own and others’ feelings and
emotions, to discriminate amongst them and to use this information to guide one’s
thinking and actions’.54
Daniel Goleman’s conception of EQ has moved beyond the original definition
of Salovey and Mayer to include emotional competencies in the workplace. He defines
emotional competencies as ‘a learned capability based on emotional intelligence
resulting in outstanding performance at work’.55
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EQ determines the potential of a person to learn the practical skills that underpins four
emotional intelligence clusters. Emotional competence indicates how much of that
potential a person realised by learning and mastering skills and translating intelligence
into capabilities to do a job. Goleman’s emotional competence inventory (ECI)
involves 20 competencies that distinguish individual differences in work performance.
The competencies support four clusters of general EQ skills: self-awareness, selfmanagement, social awareness and relationship management.
The ECI is a multirater instrument and is used to measure the emotional competencies
of managers at all levels of the organisation in various organisational settings.56 The four
clusters of EQ skills entail the following competencies:57
1. Self-awareness: emotional self-awareness, accurate self-assessment, and self-confidence
2. Self-management: self-control, trustworthiness, conscientiousness, adaptability,
and achievement drive
3. Social awareness: empathy, service orientation, and organisational awareness
4. Relationship management: developing others, influence, communication, leadership,
change catalyst, building bonds, and teamwork and collaboration.
The results obtained in a wide range of studies, where the researchers used the ECI
instrument to assess people at all levels, in a wide range of organisations across diverse
industries, indicate that each competence has a significant impact on performance. ‘Star
performers’ typically exhibit excellence in six or more of the competencies.58
Commenting on the relationship between leadership and EQ, Goleman says
the evidence suggest that emotionally intelligent leadership is key to creating an
organisational climate that develops and supports employees and encourages them to
give their best. In a major study, the researchers correlated the analyses of data from
3 781 executives with climate surveys based on the responses of employees working
for the executives. The results suggest that 50−70 per cent of the employees’ favourable
perceptions of working climate linked to the EI strengths of the leader. Another study
established a similar relationship between leaders’ EI strengths and business results.59
Gender roles and leadership styles
A study to investigate the different leadership styles used by successful executives
focused on three groups of executives in senior leadership positions: 45 successful female
executives, 34 less successful female executives, and 44 successful male counterparts.
The results indicated that outstanding female leaders used both ‘feminine’ leadership
styles (coaching, participative and affiliative) and ‘masculine’ leadership styles (directive,
pacesetting and visionary). Less successful female leaders relied mostly on ‘masculine’
leadership styles and they created the weakest work climate in their organisations of all
three groups. The researchers concluded that the gender expectations associated by leading
roles did not influence highly successful female leaders. They embraced a broader range of
leadership styles and behaviours, which accounted for better performance and leadership
that is more effective. The women who were more masculine in their approach fared the
worst of all three groups.
Source: Adapted from Vielmetter, G & Sell, Y. 2014. Leadership 2030: The six megatrends you need to
understand to lead your company into the future. New York: Hay Group Holdings Inc, p 170.
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11.5.5 Servant leadership
The late Robert Greenleaf, a former AT&T executive, developed the concept of leaders
as servants of people. According to Greenleaf, the primary purpose of a leader should
be to serve others.
Servant leadership can range from encouraging and assisting others in their personal
development to helping people find purpose in their jobs. Servant leadership is when
the leader ‘transcends self-interest to serve the needs of others, help others grow and
develop and provide opportunities for others to gain materially and emotionally’.60
Servant leaders put service before self-interests by choosing to use their talent for
the benefit of individuals and the organisation. They have the ability to listen to others,
to make an effort to understand their problems and show confidence in them. They do
not impose their will on others, but attempt to understand what the group needs or
wants and then to further those interests to the best of their ability.
Servant leaders inspire trust by being trustworthy (see the explanation of these concepts
in the first section of this chapter). Servant leaders help others to find the power of the
human spirit and accept their responsibilities. They show an openness and willingness to
emphasise with others and because they create close relationships, they show their own
human vulnerability.61 Advocate Thuli Madonsela is known to be a servant leader, based
on her peerless performance on serving the interests of South African citizens in her role as
public protector.
11.5.6 Peer-to-peer leadership
Current leadership practices, as discussed in this chapter, do not always align with the
new realities of organisational life in certain industries. As a result, there is a shift from
traditional leadership practices to peer-to-peer leadership.62
Peer-to-peer leadership is effective in organisations using an interconnected
central network. The concepts of the node (an individual computer in a network),
node-community (all the computers in a network), equipotency, (all nodes in a node
community on equal footing) and relational dynamics (the interaction between nodes)
frame a new concept of peer-to-peer leadership.63
The work of a manager in an equipotent organisation is to set overall goals, provide
direction and ensure that the network functions well, but not to tell the node community
what to do. In the node community, leadership roles shift rapidly to fit the needs of a
given situation. Information flows freely and those who need it can find it and act on it
immediately. Feedback becomes an organic part of the workflow and corrections take
place immediately.
Big accounting firms use peer-to-peer leadership to great effect. A central
interconnected network enables an audit team to form a node community. As the clerks
and managers work on their specified tasks from their nodes, they add information to the
file that is accessible to the node community. The audit managers review the information
on the audit file and provide immediate online feedback for clerks or managers to do
corrections immediately. Everyone in the node community shares information and
provides input and feedback to each other to complete the audit.
Leadership roles shift when the situation changes. An example is a situation where
expert IT input is required from a clerk in the node community, or a clerk from outside
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the community (who will then join the node community) to provide feedback and
direction on a specific IT-related problem. This person takes over a leadership role in
the node community to solve the problem.
The node community has a common goal — to complete the audit to the highest
standard. The role of the partner allocated to the audit is to formulate overall goals,
provide general direction and see to the health of the network, but not to play an
exclusive leadership role in the node community.
Peer-to-peer leadership is a new way to provide leadership in organisations by using
technology and the interconnectedness of a network where everyone is a sender and a
receiver, and a leader and a follower to attain the goals of the organisation.
11.5.7 Concluding remarks on the foundations of leadership
The ultimate aim of effective leadership in a business context is the ability to get
employees to attain organisational goals. The various theories we have discussed in
this chapter represent the findings of researchers who have studied leadership from
different angles, depending on their preferences and the time line of their research and
the contributions they made to the body of knowledge in the study field of leadership.
The leadership framework
The leadership framework developed by Deborah Ancona integrates a number of leadership
theories. The leadership framework is based on four assumptions: leadership is distributed
throughout the organisation, it is personal and developmental, it is a process to create
change and leadership skills develop over time. The framework entails four leadership
capabilities and the leader’s change signature:
1. Sensemaking refers to the ability of a leader to make sense of the organisation and its
environment, and understanding its current context. The leader is able to quickly and
effectively understand the complexity of an environment and explain it in simple terms
to others. The leader is courageous enough to present his or her understanding of the
situation, even if it differs from the understanding of others.
2. Relating refers to the development of key relationships within and across organisations.
It refers to the ability of a leader to listen and understand what others are thinking and
feeling, to suspend judgement, to listen without imposing his or her own view, and
to understand the other person’s point of view. It also entails the ability of the leader
to express a strong view and to explain the merits of this view to others whilst being
open to alternative ideas. It includes the capability of leaders to take responsibility for
their prejudices and decisions and acknowledging when they are wrong. Furthermore,
‘relating’ refers to the ability of a leader to build cooperative relationships with others
and to create coalitions for change.
3. Visioning is about a leader creating a compelling, genuine vision that is shared
extensively in the organisation, thus providing a shared picture of the future, motivating
people to change their beliefs, to work hard and excel, and binding people together with
a common identity and sense of destiny.
4. Inventing refers to a leader’s ability to change the way people work together by creating
the processes and structures to make a vision a reality. It may involve actions aimed at
overcoming a particular obstacle to change, or a new way of doing things. ➜
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It focuses on continuous improvement and can happen on a small or large scale.
Inventing focuses on activity, but it also involves creating a mindset in the organisation
of developing new approaches, new solutions and new practices.
A leader’s change signature is about who the leader is in terms of his or her unique
characteristics, experiences and skills.
Source: Adapted from Ancona, D, Kochen, TA, Scully, M, Van Maanen, J & Lewisney, DE. 2005. Managing
for the future: organizational behavior & processes, 3rd ed. Cincinnati: South-Western College, pp M14–8-16.
11.6 Leadership and political behaviour in organisations
The idea of organisations where organisational members seek common goals and where
they see politics and politicking as undesirable elements, prevents us from recognising
its necessity. Jeffrey Pfeffer,64 an expert on the subject of the use of power and politics in
organisations, argues that effective managers know that in order to succeed, they need
two competencies or skills: substantive business acumen (to know what to do), and
organisational or political skills (to get it done).
When managers in organisations convert their power into influence and action, they
are engaging in politics. Those with good political skills can use their bases of power
effectively. They use specific influence tactics to obtain compliance. To illustrate the
process, suppose person A (the agent, for example, the manager) wants to influence the
recipient, person B (the target, for example, an employee). Person A may use one or
more of the following tactics:65
■■ Rational persuasion: Using logical arguments and factual evidence to persuade
B that a proposal or request is viable and likely to result in the achievement of
objectives
■■ Inspirational appeals: Appealing to B’s values and ideals and arousing enthusiasm by
making an emotional request or proposal or by boosting B’s confidence that he or
she can do it
■■ Consultation tactics: Seeking B’s participation in making a decision or planning how
to implement a proposed policy, strategy, or change
■■ Ingratiating: Using friendliness, humour or flattery before making a request to B
■■ Upward appeals: Persuading B that higher levels of management approved
the request, or appealing to higher levels of management for assistance in B’s
compliance
■■ Exchange: Promising – explicitly or implicitly – that B will receive rewards or
tangible benefits if he or she complies, or reminding B of a prior favour that he or
she should return
■■ Coalition: Seeking the aid of others to persuade B to do something or using the
support of others as an argument to convince B to agree
■■ Pressure: Threatening, intimidating B or demanding that he or she complies.
Contextual factors, especially the hierarchical level of B, should influence A’s selection
of the most effective tactic to use. Rational persuasion is the most effective tactic to
use across organisational levels (upward, downward and lateral). Tactics such as
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inspirational appeal, pressure, consultation, ingratiation and exchange are most effective
when the intended influence is downward (to subordinates). When the direction of
the influence is lateral, consultation, ingratiation, exchange and coalition tactics are the
most effective.66
Political behaviour in organisations are activities that are not required as part of an
employee’s formal role, but are activities that are performed to influence or attempt to
influence the distribution of advantages or disadvantages in the organisation. Legitimate
political behaviour refers to actions that occur on a daily basis in organisational life,
such as forming alliances or coalitions, using one’s networks to attain goals and so on.
Illegitimate political behaviour includes extreme and damaging behaviour that infringes
the rights of the organisation and its members, for example sabotage.67
Any form of major change, such as strategic or structural change, will inspire various
forms of political action from various actors across the organisation. Mobilising support
requires an understanding of interests and power and using one’s knowledge of it to
your advantage to achieve the desired outcomes.
Consider a scenario where an individual manager is promoting a major change
intervention in an organisation and needs to get buy-in from various other managers
before proceeding with the intervention. The manager can attempt to secure the
approval of the other managers by taking certain political actions.68
The first step would be for the manager to recognise the differences in interests and
goals of the individuals and groups who oppose the idea and find ways to unite them to
yield advantages to all. The manager also needs to identify the individuals and groups
whom the change will affect, and map their interest (as well as their sources and bases
of power).
It is essential to identify possible supporters and blockers of the change intervention,
the potential stakeholders and the existing coalitions. The manager needs to obtain ‘buyin’ and shared ownership of the decision by finding supporters who will act together
to support the decisions and who would be willing to build coalitions to change the
dissemination of power.
To facilitate the process described here, managers should create and use upwards,
downwards and horizontal networks in their organisations. Lastly, it is worth reminding
oneself that the aim of political action should be to negotiate solutions and outcomes
with the purpose to create win-win outcomes.
Although the perception of political behaviour by managers often rests on negative
assumptions, many effective actions in organisations have at the very least a political
element. Critical organisational issues often require individuals (often managers) to
mobilise the support from individuals or groups in control of organisational resources
to attain the desired outcomes.
To obtain outcomes beneficial to all parties, it is essential for managers to have
conflict management and negotiating skills, which is a topic we shall discuss in
Chapter 15.
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11.7 Summary
Leadership is an influence process that produces acceptance or commitment on the part
of organisational members to participate willingly in courses of action that contribute
to the effectiveness of the organisation.
Organisations need leaders to deal with change stemming from business environments
characterised by major, ongoing change. To deal with change, organisations need leaders
to provide a vision (direction), communicating and obtaining support for the vision
(aligning people) and motivating and inspiring people to follow the vision. The result
of ongoing change is that organisations become more complex. Managers need to deal
with this complexity in their organisations. To this end, they perform the management
functions of planning, organising, and controlling to attain their organisations’ goals in
an environment characterised by change.
Leaders are able to influence others because they possess power. Power is the
potential to influence behaviour, to change the course of events, to overcome resistance,
and to get people to do things they would not otherwise do. The power leaders have
stems from the following sources identified by French and Raven: legitimate power,
reward power, referent power and expert power. The other components of leadership
are authority, responsibility, accountability and delegation.
The early leadership studies focused on the personal qualities and characteristics of
successful leaders. Traits are the unique personal characteristics of a person and trait
research focused on the characteristics of strong leaders.
Behavioural approach researchers attempted to determine how people who lead
successfully act, for example, how they delegate, communicate and motivate their
employees. The assumption was that managers could learn to lead in the one ‘right’ way.
The contingency theories of leadership include the LPC contingency model, path–
goal model and Hersey and Blanchard’s theory.
Contemporary approaches to leadership include charismatic leadership, transactional and transformational leadership, emotional intelligence, servant leadership
and peer-to-peer leadership.
References
1. Vroom, VH. ‘Situational factors in leadership’. In Chowdhury, S. 2003. Organization 21C:
Someday all organizations will lead this way. Upper Saddle River, New Jersey: Financial
Times, Prentice Hall, pp 69−70.
2. Ibid.
3. Wren, DA. (1994). The evolution of management thought. 4th ed. New York: John Wiley &
Sons, p 598.
4. Kotter, JP. 1990. ‘What leaders really do’. Harvard Business Review, 68(2): 103−11.
5. Manning, T. 2001. Discovering the essence of leadership. Cape Town: Zebra Press, pp 28−29.
6. Hughes, RL, Ginnett, RC & Curphy, GJ. 2002. Leadership: Enhancing the lesssons of
experience. New York: McGraw-Hill Higher Education, pp 400−401.
7. Morgan, G. 1997. Images of organization. Thousand Oakes: Sage, p 170.
8. Pfeffer, J. 1992. Managing with power: politics and influence in organizations. Boston: Harvard
Business Press, p 30.
9. Johnson, G, Whittington, R & Scholes, K. 2011. Exploring strategy: Text and cases. 9th ed.
Upper Saddle River, New Jersey: Financial Times, Prentice Hall, p 160.
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10. Luthans, F. 2011. Organizational behavior: An evidence based approach. 12th ed. Boston:
McGraw-Hill Irvin, p 322.
11. Senior, B & Swailes, S. 2010. Organizational change. 4th ed. Essex: Prentice Hall, p 208.
12. French, JRP & Raven, BH. 1959. The bases of social power. In Senior and Swailes, 2010, p
181; Luthans, op cit, pp 314–318.
13. Robbins, SP & Judge, TA. 2009. Organizational behavior. 13th ed. NJ: Upper Saddle River:
Pearson Education, p 486.
14. Ancona, D, Kochen, TA, Scully, M, Van Maanen, J & Westney, DE. 2005. Managing for the
future: Organizational behavior & processes. 3rd ed. Cincinnati: South-Western College, p
M2.44.
15. Luthans, op cit, p 317.
16. Morgan, op cit, pp 170–199.
17. Ancona et al, op cit, M2−34.
18. Lussier, RN & Achua, CF. 2001. Leadership: Theory, application, skill development. Cincinatti:
South-Western College Publishing, p 7.
19. Luthans, op cit, p 319.
20. Daft, RL. 2002. The leadership experience. 2nd ed. Orlando, Florida: Harcourt College
Publishers, pp 50−52.
21. Robbins, SP. 2001. Organizational behavior. 9th ed. Upper Saddle River, New Jersey:
Prentice-Hall, p 336.
22. Lussier, RN & Achua, CF. 2004. Leadership: Theory, application, skill development. Eagan,
Minnesota: Thompson, South-Western, p 67.
23. Tannenbaum, R & Schmidt, WH. 1958. ‘How to close a leadership pattern’. Harvard Business
Review, 36: 95−101. In Daft, op cit, pp 54−55.
24. Bryman, A. 2013. Leadership and organizations. (Volume 5). Abbington, Oxon: Routledge,
pp 39−40.
25. Ibid, p 43.
26. Ibid, p 26.
27. Ibid, p 65.
28. Blake, R & Adams McCanse, A. 1991. Leadership Dilemmas – Grid solutions. Houston: Gulf
Publishing, p 29. In Hugh et al, op cit, pp 210−212.
29. Yukl, G. 1998. Leadership in organizations, 4th edition. Upper Saddle River, New Jersey:
Prentice-Hall Inc, p 62.
30. Fiedler, FE. 1967. A theory of leadership effectiveness. New York: MacGraw-Hill. In Robbins
& Judge, op cit, pp 426−429; Yukl, op cit, pp 283−286.
31. Based on the discussion on the path−goal theory of leadership in Lussier & Achua, op cit,
pp 116−120
32. Hersey, P. & Blanchard, KH. Management of organizational behavior: Utilizing human
resources. 6th ed. Englewood Cliffs, New Jersey:Prentice-Hall, Inc., p 189.
33. Ibid, p 197.
34. Yukl, op cit, p 273.
35. Achua & Lussier, op cit, p 306.
36. Ibid, p 309.
37. Ibid.
38. The discussion on transactional and transformational leadership is based on Vrba, M. 2007.
‘Emotional intelligence skills and leadership behaviour in a sample of South African firstline managers’. Management Dynamics, (16)2: 25−35.
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39. Burns, JM. 1978. ‘Leadership in organizations’. New York: Harper and Row. In Yukl, op cit,
p 324.
40. Bass BM.1985. ‘Leadership and performance beyond expectations’. In Yukl, op cit, p 325.
41. Avolio, BJ. 2011. Full range leadership development. 2nd ed. Thousand Oaks, California:
SAGE Publications Inc, p 63.
42. Bass, BM. & Avolio, BJ. 1997. Full range leadership development: Manual for the multifactor
leadership questionnaire. Palo Alto, Calif: MindGarden.
43. Palmer, B., Wallis, M., Burgess, Z., and Stough, C. 2001. ‘Emotional intelligence and
effective leadership’. Leadership and Organizational Development Journal, 22(1):5−10.
44. Yammarino, FJ. & Dubinsky, AJ. 1994. ‘Transformational leadership theory: Using levels of
analysis to determine boundary conditions’. Personnel Psychology, (47):787−811.
45. Burns, in Yukl op cit, p 324.
46. Anchua & Lussier, op cit, p 316.
47. Bass, BM. 1985. Leadership and performance beyond expectations. In Yukl, op cit, p 325.
48. Ibid.
49. Lowe, KB. & Kroeck, KG. 1996. ‘Effectiveness correlates of transformational and
transactional leadership: a meta-analytic review’. Leadership Quarterly, (7): 385−426.
50. Bass and Avolio, op cit.
51. Avolio, op cit, p 49.
52. Achua & Lussier, op cit, p 313.
53. Vrba, op cit, p 26.
54. Salovey, P. & Mayer, JD. 1990. ‘Emotional intelligence’. Imagination, Cognition and
Personality, 9(3): 189.
55. Goleman, D. 2001. ‘An EI-based theory of performance’. In Cherniss, C. & Goleman, D.
(eds). The emotionally intelligent workplace, San Francisco: Jossey-Bass, p 27.
56. Vrba op cit, pp 27−28.
57. Goleman, op cit, p 28.
58. Ibid, p 37.
59. Ibid, pp 38−39.
60. Daft, op cit, p 230.
61. Ibid, p 232.
62. Based on a discussion in Baker, MN. 2014. Peer to peer leadership: why the network is the
leader. San Francisco, CA: Berret-Koehlef, pp 8−53.
63. Ibid, p 8.
64. Pfeffer, J. 2010. ‘Power Play’. Harvard Business Review, ( July–August): 84−92.
65. Yukl, G & Falbe, CM. 1990. ‘Tactics and objectives in upward, downward, and lateral
influence attempts’. Journal of Applied Psychology, 75(2): 132–140.
66. Ibid.
67. Ibid.
68. Ancona et al, op cit, pp M2-41–M2-45.
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Case study
Leadership lessons from South Africa’s public protector, Advocate Thuli
Madonsela
Since Adv. Thuli Madonsela took office in October 2009, the Public Protector as a
constitutional institution has received unprecedented national and international recognition.
Madonsela was the recipient of a number of prestigious awards including the Transparency
International’s Integrity Award in 2014. In the same year, she appeared on the Time’s list of
the top 100 most influential people in the world. In 2016, Madonsela won the German Africa
Prize for her commitment to fighting corruption.
In a speech on the topic Women in Leadership, she shared her views on leadership and
some of the leadership lessons she has learned in her journey through life, especially since
assuming the role as public protector.
Madonsela defines leadership as ‘the act of causing other people to move towards some
goal or direction you desire, or to behave in a particular manner’. She argues that occupying
a leadership position is not the same as being a leader. Some people in leadership positions
never exercise leadership.
To illustrate the interaction between leader and follower, she cited the following quote, ‘If
you think you are a leader, look behind you. If no one is following, then you are deluding
yourself, for the reality is that you are not a leader.’
Lessons Madonsela has learned from other women such as Charlotte Maxeke, Helen
Joseph, Lillian Ngoyi and Albertina Sisulu stood her in good stead. She tried to capture
their and her own lessons on leadership in a book, initially titled No more tea makers, and
proceeded to share them with her audience. The following entails a short summary of the
leadership lessons she shared with her audience:
Stand up for something
If you stand up for nothing you will fall for everything. If you have a vision, such a vision
serves as a compass directing your day-to-day decisions. It also enables you to act as a
voice of reason when your organisation goes off course.
Lead with authenticity
Authentic action does not always win you the popularity contest but it is the only way to
make a difference. She often tells young people that if you do not make a difference, you do
not matter.
Act consistently
Key to making a difference is to be dependable and to act with integrity. If you act
wrongfully together with others against another person, you are showing your true colours.
If you act as a proxy, remember that you are disposable, because anyone can be a puppet.
Have integrity
Integrity means you do as you say. It is difficult to follow a leader who says one thing but
does the opposite.
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Her advice to women at the level of governance at their organisations is that if you set rules,
you must comply with them and enforce them consistently. Honesty is an important aspect of
integrity. If you need to tell people often that you are a person of integrity, chances are that
you are not!
Act courageously
You need to have unquestionable loyalty to your organisation (not unquestioning loyalty).
Speak truth to power
In the context of the public protector’s work, it is not only important to do justice, but also
that people can see that justice has been done. She and her team understand and mediate
power imbalance between the state and ordinary people. When they find wrongdoing on the
part of the state, they say so – they act courageously. She writes elaborate reports to clarify
the reasoning behind her decisions in cases where the complaint was upheld, and in cases
where it was not upheld to clear the name of the person against whom the complaint was
lodged. This is important when panels or individuals in discussions in the media questioned
the person’s character and made allegations against him or her.
Be excellent in what you do
Excellence does not mean that you never make mistakes, but it means that you always give
it your best shot.
Lead from the front and from the back
She leads from both the front and the back, depending on the situation. If the bullets fly, your
team takes comfort when you are there in front with them, and at other times, you lead from
the back to give space for your team to flourish.
Maintain a learning and growth attitude
You can never reach a point where you can say that you have all the answers. In her own
work, she reaches decisions alone, but she bases her decision-making on the input from
team research and various discussions.
Communicate effectively
An African proverb says that ‘a person who cannot communicate walks alone’. In her
view, communication is an important tool for repetition of information and for stakeholder
management. It does not matter whether you are right or wrong, it is the perceptions that
carry weight. Her office uses communication often and she thanks the Constitution for
Section 10 on the freedom of expression, including freedom for the media. In the same vein,
she is grateful for the media itself for supporting her office’s work and facilitating dialogue
on their activities and decisions.
Inspire others
It is important that your vision inspire hope for a better future, especially for young people to
realise that their actions matter and that they can create the future and society they want.
They need to have faith that the future starts now with their actions in respect of issues
such as unemployment, disease and corruption.
➜
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Be persistent and resilient
The key to success in life is patience, persistence and resilience. One should not compare
oneself unfavourably to others, because we all have a different purpose in life. Success is
living up to your own full potential with the cards you were dealt and not by living someone
else’s life.
Source: Adapted from Madonsela, T. 2012. Address by Public Protector Adv Thuli Madonsela during
the Higher Education Resource Services-AS Academy opening dinner in Cape Town on Women in
Leadership, Western Cape, on Sunday 10 September 2012. Available at: http://www.gov.za/addresspublic-protector-adv-thuli-madonsela-during –higher-education (Accessed: 16 September 2016).
Case study question
Use appropriate theories of leadership as a framework to discuss the leadership style of
Adv Thuli Madonsela.
Multiple-choice questions
Question 1
John Kotter makes a distinction between leadership and management. Which of the
following people’s behaviour can be described as leadership?
1. John formulates goals and plans to achieve the goals.
2. Thabo develops a structure for the assignment of tasks and resources.
3. Jane manages the complexities of policies, processes and procedures.
4. Sylvia steers people in the right direction through motivation and checking control
mechanisms.
Question 2
Students elected Vusi, a third-year university student, to serve on the Student
power to protect the interests
Representative Council (SRC). Vusi has
of fellow students at SRC meetings.
1. referent
2. expert
3. legitimate
4. reward
Question 3
Vivek is an excellent programmer and excels in jobs for clients requiring changes to their
unique and complex information systems. He sets his own goals and believes he can
achieve them. Which one of the following leadership styles identified by Robert House
should Vivek’s manager use?
1. Directive
2. Supportive
3. Participative
4. Achievement-oriented
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Question 4
The manager of Sally, a newly qualified chartered accountant (CA), instructs her to
audit a new client. Sally is very shy, with little self-confidence and she is hesitant to take
on so much responsibility. The leadership model developed by Hersey and Blanchard
leadership style.
proposes that Sally’s manager should use a
1. S1 − Telling
2. S2 − Selling
3. S3 − Participating
4. S4 – Delegating
Question 5
Steve is a manager at a medium-sized construction company. He is a very popular
manager with good people skills, although he becomes anxious when his team falls
behind schedule with a contract (which happens often). Identify Steve’s leadership style
on the Leadership Grid.
1. Middle of the road
2. Team
3. Impoverished
4. Authority-compliance
Question 6
Thandi’s LPC score revealed that her leadership style is task-oriented. She works as
a project manager. Although she has a good relationship with all her employees, she
formulates non-negotiable performance goals and schedules and controls activities
accordingly. She links her employees’ rewards to their performance. Sally is an effective
leader because her leadership style fits the situation. Identify her situation according to
Fiedler’s LPCW theory.
1. 1
2. 2
3. 5
4. 6
Question 7
Tom is the chief executive officer (CEO) of a banking group in South Africa. The
organisation is implementing a major change programme. Tom is considered to be the
leadership style.
right person to lead this change because of his
1. charismatic
2. transformational
3. transactional
4. dynamic
Question 8
Mandy is the manager of a post office branch. She sets objectives and standards for
her branch and evaluates the performance of her employees according to the policies
and procedures she receives from head office. She has the authority to recommend
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that specific deserving employees receive merit bonuses. Mandy uses
leadership to manage the branch.
1. transactional
2. charismatic
3. transformational
4. servant
Question 9
Which one of the following would be unacceptable political behaviour for Joseph, the
manager of an academic section who is trying to get the support of academics in the
department for an idea he plans to table at the next departmental meeting?
1. Finding allies who would support him if they can benefit from his plan
2. Using his power and influence as a manager to convince the academics in his section
to support the idea for the good of their section
3. Informing his employees that he would not support their applications for study
leave if they fail to support him
4. Identifying those in the department who will oppose his idea and try to convince
them to support it, before the meeting takes place
Question 10
Identify the form of political behaviour Tom, the manager of a big architectural firm
uses when he offers a promotion to Pete, a junior architect (whose father plans to erect
a big shopping mall) in exchange for securing the contract for the firm?
1. Rational persuasion
2. Exchange
3. Ingratiating
4. Coalition
Paragraph questions
Question 1
Discuss the shortcomings of the trait theory.
Question 2
Would you prefer to work for a leader who has an initiating structure or a consideration
leadership style? Substantiate your answer.
Question 3
Apply Fiedler’s least referred co-worker’s (LPCW) model to your own manager and
explain the context of the section or department he or she manages. Explain why the
manager’s leadership style is effective or ineffective in that specific situation.
Question 4
Distinguish between charismatic and transformational leaders and give an example of a
South African transformational leader.
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Question 5
Describe a specific incident in an organisational context where a manager took specific
political actions and comment on the desirability of these actions.
Essay question
Perform an Internet search to identify a prominent South African transformational
business leader. Write an essay on his or her leadership style using the theory on
transformational leadership as a framework for your discussion. Include an introduction
and a conclusion in your essay, and use a proper referencing technique to refer to your
sources of information.
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12
THE
PURPOSE
OF THIS
CHAPTER
LEARNING
OUTCOMES
KEY
CONCEPTS
Human behaviour is complex and each individual in the organisation is
unique. Managers have to manage these individuals successfully as they
are a critical resource of the organisation. Management is about getting
things done through other people in order to attain the organisation’s
mission and goals. It is therefore essential that managers understand
more about people – individuals, groups, and teams – in the organisation.
This chapter looks at the key variables that determine the behaviour of
individuals in the workplace: their values, attitudes, perceptions, how
they learn, what motivates them, how their personalities differ, and their
different abilities. The chapter also examines emotional intelligence
as a way of differentiating between average and superior performers.
Mentoring and coaching are also discussed as both are important
management interventions that enable the individual to realise his or her
potential in the organisation.
Individuals usually function in a group or team in an organisation,
therefore this chapter also looks at group and team behaviour.
This chapter will enable learners to:
Explain why managers must know how individuals function in an
organisation
■■ Explain the key variables that determine human behaviour in an
organisation
■■ Suggest ways of improving individual performance in the workplace
■■ Recommend mentoring and coaching as management interventions
to help individuals realise their potential in the organisation
■■ Explain how emotional intelligence (EI) can be used by
management to ensure that their workforce performs optimally
■■ Explain four types of workplace behaviour.
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
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Individuals in
the organisation
Ability
Attitudes
Coaching
Cognitive strategies
Conditioning
Emotional intelligence (EI)
Halo effect
Heuristics
Learning
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■■
■■
■■
■■
■■
■■
■■
■■
Mentoring
Motivation
Perceptions
Personality
Prejudices
Shaping
Values
Workplace behaviours
12.1 Introduction
Management is essentially about getting things done through other people in order
to attain the mission and goals of the organisation. As one of the four resources that
managers have to manage, ‘people’ is the only living resource. A sound understanding of
human behaviour is therefore essential for managers to get the best out of the employees.
SABMiller, for instance, has almost 69 000 employees in more than 80 countries.1
These employees come from diverse backgrounds, have different views of life and the
organisation, have different abilities and levels of motivation, and so on.
Managers need to understand the key determinants of the behaviour of their workers
in order to lead them to attain the organisation’s mission and goals. In South Africa, this
is a daunting task. Not only does South Africa experience a severe shortage of suitably
skilled managers, but South African business is also prone to labour strikes, go-slows,
low productivity and ‘brain-drain’ to name only a few challenges.
Our focus in this chapter is on understanding how individuals function in the
organisation. (Groups and teams are discussed in a later chapter.) More specifically,
we focus on the key determinants of human behaviour. Managers do not need to be
expert psychologists, sociologists, or anthropologists, but the modern manager should
understand what determines human behaviour in the workplace. This should enable
the manager to be sensitive to the different values found in the workplace, the types
of personality that suit certain jobs, people’s attitudes regarding their jobs, and so on.
Understanding the individual is a prerequisite for leading employees (Chapter 11),
motivating them (Chapter 14), and communicating with them (Chapter 15). However,
individuals function primarily in groups and teams in organisations and our discussion
in this chapter will therefore look briefly at both groups and teams. (Groups and teams
are discussed in a later chapter.)
To understand human behaviour in the workplace one must consider the nature of
the relationship between the individual and organisation. The nature of this relationship
is depicted in a psychological contract. This psychological contract is similar in some
ways to a standard legal contract, but it is less formal. The psychological contract refers
to the overall set of expectations held by an individual in terms of what he or she will
contribute to the organisation. An individual’s contributions refer to the effort that he
or she puts into the job, the competencies of the individual, ability, time, creativity and
so forth. The psychological contract also states what the organisation will provide in
return for the individual’s contributions. These could be the salary that the organisation
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351
provides, job security, benefits (such as paid sick leave), career opportunities, status
and promotion opportunities. Managers must ensure that they get value from their
employees; they must also ensure that they provide fair and appropriate remuneration
to the employees.
12.1.1 The importance of the human dimension in management
When managers are asked about their major challenges as managers, one theme crops
up time and again — people. Managers often mention that people issues take up most
of their time — issues such as motivating the workforce, resolving conflict, negotiating a
performance contract with an employee, keeping subordinates informed, sharing ideas
with them. Since it is the task of managers to manage people, they must learn more
about people and their behaviour in the organisation.
More specifically, people are crucial to the success of an organisation as they can
provide an organisation with a competitive edge in terms of, amongst others, their
innovative ideas, producticity and sensitivity to customer needs. On the other hand, it is
also people who can cause an organisation to fail. Disgruntled managers and workers can
sabotage an organisation in many ways, from bad-mouthing the organisation on social
media to tampering with the organisation’s systems, to theft of intellectual property.2
Other reasons why managers should optimise their workforce include:
■■ Organisations are social institutions. People spend a large part of their day, and life,
at work. They work to satisfy their needs and wants. The organisation is one of the
instruments employees can use to realise their personal goals.
■■ People are the lifeblood of an organisation; this is the resource that gets other
resources mobilised. Just as managers must know how to manage their finances,
physical resources and information resources, they must know how to optimise
their human resources.
■■ Knowledge workers are at the centre of success for many organisations yet they
are often managed with techniques designed for the Industrial Age. As this critical
sector of the workforce continues to increase in size and importance, this is a
mistake that could cost an organisation its future.3
■■ People are part of a social system. An organisation comes into being when two
or more people come together to realise an objective that is too complex for one
person alone to attain. An organisation cannot exist without people. If managers
wish to understand the organisations in which they work, they must know how
people function as individuals, in groups, and in teams. (People as a social system
play such a prominent role in the functioning of an organisation that we have
devoted an entire chapter – Chapter 13 – to this subsystem, the group and the
team, in the organisation.)
The importance of human resources
The following excerpt is from the Edcon 2015 annual report.
‘We rely on our key personnel and we face strong competition to attract and retain
qualified managers and employees. ➜
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We are highly dependent on our key personnel who have extensive experience
in, and knowledge of, our industry. In addition, our business faces significant and
increasing competition for qualified management and skilled employees. We have
instituted a number of programs to improve the recruitment and retention of
managers and employees, and we invest substantially in their training and
professional development. However, these programs may prove unsuccessful and,
in conditions of constrained supply of skilled employees, there is a risk that our
well-trained managers and employees will accept employment with our competitors.
The loss of the service of our key personnel or our failure to recruit, train and retain
skilled managers and employees could have a material adverse effect on our retail
sales, results of operations and liquidity.’
Source: Edcon. nd. Available at: https://www.edcon.co.za/pdf/annual_reports/annual_report_2015.
pdf (Accessed: 12 September 2016).
12.2 People as a subsystem
The individual as a subsystem in the organisation has the same characteristics as
any other subsystem. These characteristics, which we mentioned earlier, include the
following:
■■ A system is complex. People differ in respect of their needs, values, expectations,
goals, and so forth. In addition to being complex, they are also continually
changing as they build up experience, are exposed to environmental changes, and
mature. Thus people cannot be compartmentalised, as is the case with so many
other functions with which managers are concerned. Each individual is unique, and
management must deal with each one differently.
■■ A system can be either open or closed. People continually interact with the
environment and are influenced by external inputs almost every moment of their
existence. An input might be the fact that a colleague has been dismissed, that
a fatal accident occurred in the mine, or that there is talk of a better-paid job in
another organisation.
■■ People, in turn, influence the environment in which they function. The warehouse
manager in a mining company may want to introduce a new way of ordering
components through the Internet. This may have a profound effect on the job
opportunities of other workers in the department who may strongly resist the
implementation of this new idea.
■■ A system strives for equilibrium. People continually strive for equilibrium —
physiologically and/or psychologically. Thus certain physiological mechanisms create
the urge to eat in order for the equilibrium of a hungry person to be restored. A person
may experience a psychological imbalance if he or she has a certain position in the
organisation but would actually prefer to be promoted to a higher position.
A system can strive towards achieving a multiplicity of goals. A person, like an
organisation, pursues many goals simultaneously. One of these goals may be to complete
her academic qualification as soon as possible, while another may be to spend as much
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353
time as possible with her family. These goals, which are sometimes in conflict, cause
tension and imbalance.
It is necessary for managers to be aware of people as open systems to enable them to
understand why different people act differently in the organisation, how other systems
influence people, and vice versa.
12.3 People in the organisation
No two people are the same. The differences between people are easily discernible
when it comes to age, sex, marital status, or number of dependants, but differences in
emotional intelligence (EI), intellectual capacity, personality, learning experiences,
perceptions, values, attitudes, motivation, and so forth are far more difficult to ascertain.
There are certain key variables that influence the individual behaviour of employees that
managers should know about. These key variables are depicted in Figure 12.1.
12.3.1Values and attitudes
A newly appointed managing director of a successful hotel group decides soon after being
appointed to close down the casino part of the hotels. The managers of the different casinos
cannot fathom this decision because the gambling activities at the hotels generate large
profits. What could have driven the managing director to make this decision?
The above decision was most probably driven by his value system.4 People’s values
play a decisive role in decisions that they take in an organisation. Important decisions
taken by top management, such as the managing director’s decision in the example
above, and ostensibly insignificant ones, such as standing back to allow another to
enter a lift first, are influenced by values. Values are basic beliefs that a certain way of
doing things is preferable to another. Thus a moral principle lays the foundation for
an individual’s values and determines his or her views on what is right and wrong.
Value systems refer to the arrangement of values in order of priority for an individual.
Every employee in an organisation therefore has his or her own value system. What is
important to an individual – values and value systems – influences his or her attitude,
level of motivation, perception, and individual behaviour, amongst other things.
Ability
Learning
Values and
attitudes
Values
Perception
Motivation
Personality
Figure 12.1 Key variables that determine the behavior of employees
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Peter Drucker on the individual
According to Drucker, people had little need to manage their careers in the past. They relied
on their companies to chart their career paths. But times have drastically changed. Today
we must manage our own careers. In Drucker’s view, it means we have to learn to develop
ourselves continually and stay mentally alert and engaged during a 50-year working life.
This means we need to know how and when to change the work that we do. It may seem
obvious that people achieve results by doing what they are good at and by working in ways
that fit their abilities and unique strengths. He challenges managers and employees to ask
themselves fundamental questions such as: What are my strengths? What are my values?
Where do I belong? What should my contribution be?
Drucker believes that successful careers today are not planned in advance. They develop
when people are prepared for opportunities because they have asked themselves those
questions, and they rigorously assessed their unique characteristics.
Source: Drucker, P. 2005. ‘Managing oneself’. Havard Business Review OnPoint Article, 1 January.
An individual’s values are fairly stable. This stability can be attributed to the way in
which values are acquired. Children are often taught that certain behaviour is always
desirable or undesirable. Obedience, for instance, is behaviour that is always desirable.
In childhood, individuals are not taught to be just a little obedient. This clear and
unambiguous distinction between desirable and undesirable behaviour results in the
relative stability of values.
Changing someone’s values is difficult. When a person’s values are questioned,
however, he or she may change. Conversely, questioning or challenging a person’s values
may result in those values being reinforced.
Management should realise that employees have different values. A decision that
accords with management’s values might conflict with the values of certain employees,
with the result that those employees might not throw their weight behind the decision.
As in the case of employees’ values, their attitudes are also a primary cause of
individual difference. It is sometimes said that employees have to change their attitudes
towards their jobs before they can become productive. If attitude can influence
productivity, it stands to reason that managers should have knowledge of the concept
of attitude.
An attitude is a collection of feelings and beliefs.
Managers should be interested in their employees’ attitudes because attitudes give
warning of potential problems. To understand someone’s work-related attitudes,
managers should look at the following three components:
1. An affective component
2. A behavioural component
3. A cognitive component.
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individuals in the organisation
Affective
+
Behaviour
+
Cognitive
=
355
Attitude
Figure 12.2 The three components of an attitude
Source: Adapted from Robbins, SP, Judge, TA, Millett, B & Jones, M. 2014. Adapted from: OB: the
essentials. Australia: Pearson, p 37.
An employee stating that she loves her job, is expressing her attitude towards her job.
The affective component of this person’s attitude could be that she experiences her
employer’s treatment of women in the workplace as fair and equal to that of men. Her
behaviour could then be to work as creatively and productively as possible to help
the organisation attain its goals. It is easy for her to be productive as she believes that
‘discrimination against anyone’ is unacceptable. As this is her opinion of discrimination
in the workplace, it forms the cognitive component of an attitude.
People can have thousands of attitudes, but managers are interested in attitudes
that are job related. These would include attitudes that pertain to job satisfaction, job
involvement, and organisational commitment.
Job satisfaction refers to the feeling of pleasure and achievement that employees
experience in their jobs.5 Job satisfaction influences work productivity, work effort,
employee absenteeism and staff turnover. Job satisfaction also influences the quality of
decisions that managers and employees make.6
Job involvement indicates the degree to which an individual identifies
psychologically with his or her job. Top performers are engaged in their work and have
high job involvement.
Organisational commitment is the degree to which an individual identifies with
his or her employer organisation — with its goals, culture, public image and so on. A
prominent theory in organisational commitment is the three-component model (or
TCM). The model argues that organisational commitment has three distinctive components,
namely an affective, continuance and normative component. ‘Affective commitment’ is the
emotional attachment that a manager or employee has to an organisation. A high level of
affective commitment means that an employee enjoys her relationship with the organisation
and is likely to stay at the organisation. ‘Continuance commitment’ is the degree with
which a manager or employee believes that leaving the organisation would be costly. A high
level of continuance commitment indicates that a manager or employee will stay with an
organisation because they feel that they have to stay as quitting a job may have unacceptable
consequences, such as a long period of unemployment. Another consequence may be the
loss of status when one leaves a highly-rated organisation. ‘Normative commitment’ is the
degree to which a manager or employee feels an obligation to the organisation or believes
that staying is the right thing to do.7
Although employees continually have new experiences and therefore develop new
attitudes, it is extremely difficult to change attitudes. However, management can try to
change an employee’s negative attitude by changing the following:
■■ Organisational factors
■■ Group factors
■■ Personal factors.
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Factors that can lead to a change in attitude are depicted in Figure 12.3. This figure shows
how important it is for managers to understand how attitudes develop and how they
can be changed. Changing an employee’s negative attitude towards the organisation can
improve job satisfaction which in turn can generate higher productivity, a lower staff
turnover, and less absenteeism. In mining companies, for example, positive attitudes
can lead to fewer injuries and fatalities in the mines.
12.3.2 Personality
There are as many different personalities in an organisation as there are people in an
organisation. People with certain personality traits are better suited to certain jobs than
others. An introvert will experience more job satisfaction doing something on his or
her own than in, say, selling products to customers where interaction is critical. Some
employees are more conscientious than others and less open to influence, and feel that
their own hard work will lead to promotion. Some employees easily accept responsibility
whereas others ‘pass the buck’ by passing on the responsibilities and blaming others.
The fact that some workers are better at some jobs than at others can be ascribed to
differences in personality, amongst other things. In a nutshell, an individual’s personality
largely determines how he or she perceives, evaluates, and reacts to the environment.
Organisational
factors
■■
■■
■■
■■
■■
■■
career
opportunities
clear
communication
remuneration
promotion
the job itself
training
Group factors
■■
■■
co-workers
managers
Higher
productivity
Job
satisfaction
Lower staff
turnover
Personal factors
■■
■■
needs
aspirations
Less
absenteeism
Fewer injuries
and fatalities
Figure 12.3 Factors that can lead to a change in attitude
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357
The following factors have been found to be particularly valuable in providing insights
into employee behaviour:
■■ Personality type
■■ Locus of control
■■ Authoritarianism
■■ Self-monitoring
■■ Achievement orientation
■■ Self-esteem
■■ Risk profile.
One way of looking at the different types of personality in an organisation is to
distinguish between type A and type B personalities8 (see Table 12.1).
Type A and Type B personalities
Friedman and Rosenman (both cardiologists) developed their theory (Type A and Type B
personalities) based on an observation of the patients with heart conditions in their waiting
room. Some people seemed unable to sit in their seats for long and wore out the chairs.
They tended to sit on the edge of the seat and leaped up frequently. Others were a lot
calmer.
What interested these two cardiologists about the restless people in the waiting room was
that their chairs were worn down on the front edges of the seats and armrests instead of
on the back areas which would have been more typical. Friedman and Rosenheim described
them as: ‘… tense as racehorses at the gate’.
The two doctors labelled this behaviour Type A personality. Their further research
culminated in the theory known today as Type A and Type B personality types. They found
Type A personalities to be very competitive, self-critical and always experiencing a sense of
urgency. They are also easily aroused to anger and hostility.
People with Type B personality tend to be more tolerant of others, are more relaxed than
Type A individuals, experience lower levels of anxiety, are more reflective and creative.
Source: Simply Psychology. nd. Available at: http://www.simplypsychology.org/personality-a.html
(Accessed: 12 September 2016).
Managers have to manage both Type A as well as Type B personalities. Each of these
personality types have their pros and cons and if managed properly can add a lot of value
to an organisation. Managers themselves also differ in terms of their own personality
types. In today’s very competitive business environment a ‘good’ manager is often
stereotyped as a manager who is hard-driving, demanding of his employees and very
stressed (typical Type A behaviour). However, as management is about getting things
done through other people, Type B personality managers may be able to create a work
environment in which employees feel comfortable and allowed to be creative. A wellknown saying in management is that ‘people leave a manager, not a company’ referring
to the major influence that a manager’s personality has on his or her subordinates.
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Table 12.1 Traits of personality types A and B
Type A
■■
■■
■■
■■
■■
■■
■■
■■
Unceasing struggle to achieve more in less
time
Competitive
Impatient
Think or do two or more things
simultaneously
Cannot cope with leisure time
Emphasise quantity of work over quality
Rarely creative
Rely on past experiences when making
decisions
Type B
■■
■■
■■
■■
■■
■■
■■
■■
Rarely try to complete an increasing
number of tasks in a shorter period
Do not exhibit their superiority
Patient
Stay focused
Can relax without guilt
No need to display achievement
Creative
Develop unique solutions to problems
The Myers-Briggs Type Indicator (MBTI) is a very popular tool to use to determine
personality type. According to the MBTI, individuals are classified as:
■■ Extrovert or introvert (E or I)
■■ Sensing or intuitive (S or N)
■■ Thinking or feeling (T or F)
■■ Perceiving or judging (P or J).
The personality type of a person can be ISTJ, ISTP, INFP or any other combination of
the letters above.
Managers can use the MBTI to match personalities with jobs. Bear in mind that
the MBTI should not be used alone — it should be part of a battery of tests in order to
ensure that personality types are measured from different perspectives.
Personalities can be looked at from the following perspectives:
■■ Self-monitoring
The MBTI
■■ Type A and type B personalities
■■ Achievement orientation
■■ Locus of control
■■ Self-esteem
■■ Authoritarianism
■■ Risk profile.
■■
Another way of looking at personality is to look at someone’s locus of control. Some
managers and employees think that they can control almost everything. They therefore
have an internal locus of control. Others think they are controlled by the world around
them. These people have an external locus of control. It is important for a manager to
know that employees with an internal locus of control take responsibility themselves for
their own work and the consequences of their efforts. Their colleagues with an external
locus of control will contribute the consequences of their work to outside influences,
such as ‘the boss dislikes me therefore I did not get the promotion’ or ‘we cannot meet
the due date because the suppliers are always late’.
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The four dimensions of the MBTI
Your world: Intraversion–Extraversion pertains to an individual’s dominant source of energy.
An introvert (I) draws his/her energy primarily from their internal world of information,
thoughts and ideas. An extravert (E) draws his/her energy primarily from the outside world.
They engage, amongst others, people and ideas from the outside world for their energy.
How you take in information: Sensing (S) pertains to how one focuses on the basic
information you take in through your senses (for example, what you see and hear). Intuition
(N) refers to how you interpret and add meaning to a situation.
How you make decisions: When making decisions, do you prefer to first look at facts,
logic and consistency (T) and emphasise tasks and results to be attained? Or do you first look
at the people and the impact that your decisions will have on them (F)?
Structure: In dealing with the outside world, do you prefer to plan and organise things
and people to structure your outside world (J) or do you prefer to stay open, adaptable and
flexible to new information and options? This is called perceiving (P).
Source: Myers Briggs Foundation. nd. Available at: http://www.myersbriggs.org/my-mbti-personalitytype/mbti-basics/ (Accessed: 12 September 2016).
Authoritarianism is another way of looking at personalities. It refers to the extent to
which an employee believes that there should be power and status differences in an
organisation. Some employees will obey their manager’s requests without questioning
it simply because he or she is the manager. Other employees do not believe that senior
people in the organisation have that much more power and status than themselves and
may question their seniors’ decisions. The more a person emphasises these differences
in power and status, the more authoritarian the person is. Millennial employees may
often be in conflict with older managers and other employees as the Millennials believe
that respect must be earned. Millennials believe that it is acceptable to question a
person, even if the person is your manager.9
Self-monitoring is a relatively new way of looking at personalities. It refers to the
extent to which employees are able to mould their behaviour according to that of their
co-workers. People who monitor themselves frequently will, for example, check to see
how a manager handles a certain situation, such as negotiating the purchase of new
components for machines, and then act in the same way when in a similar situation.
People who seldom monitor themselves, follow their own ways and pay scant attention
to the way others act.
Besides the personality traits discussed above, certain other traits also influence
behaviour in the organisation. These include an employee’s achievement orientation,
self-esteem, and willingness to take risks.
12.3.3 The individual’s ability
Irrespective of how positive a person’s attitude is, it is highly improbable that he or
she will be able to write as well as William Shakespeare, play tennis as well as Roger
Federer, kick a rugby ball as well as Daniel Carter, or act as well as Meryl Streep. No two
people have exactly the same abilities. This shows that people have unique strengths
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and weaknesses. What is important to a manager is not that people differ, but rather
how they differ when it comes to applying their abilities successfully in the organisation.
‘Ability’ refers to a person’s capacity to do the different tasks in a job. So, the ability
of a typist is judged on speed and accuracy when typing documents. The ability of a
veterinarian indicates how she can communicate with pet owners, her manual dexterity,
ability to diagnose and treat different ailments in pets and her business acumen to
manage her veterinarian practice. Ability refers to both intellectual capacity and physical
ability. An employee’s intellectual capacity refers to the ability to perform actions
intelligently. An architect’s intellectual capacity refers to his or her ability to design
functional buildings that are also aesthetically beautiful. A person’s physical ability
refers to stamina, coordination, strength, and so forth. This ability plays an important
role in the more standardised jobs at the lower levels of the organisation. A mineworker
obviously needs to be physically strong to perform the work during an eight-hour shift.
However, the higher one moves up the hierarchy in the organisation, the more one will
have to depend on intellectual capacity.
It is important for the manager to make sure that an employee’s ability matches the
task that has been assigned to him or her.
Lately many managers prefer to refer to an individual’s competency — instead of his
or her ability. ‘Competency’ refers to four aspects:
1. Knowledge
2. Skills
3. Value orientation
4. Applied in context.
A competent manager, for example, is someone who has a sound knowledge of what
management comprises, the functions of the manager, how to compile a business plan
and deal with diversity. This type of knowledge is often obtained through a qualification,
such as a degree. But the manager also needs skills such as decision-making, problem
solving, numeracy and many other skills to manage his or her organisation successfully.
He or she also needs a sound value orientation. In other words, one of the values that
he or she should strive towards is to be productive, customer-oriented or to drive
for continuous improvement in his or her organisation. Lastly, having the relevant
knowledge, skills and value orientation pertaining to management only makes a person
competent if he or she can apply the above in the work context. Having a management
qualification (such as a BCom) therefore does not make a person competent; the
qualification only deals with one aspect of being a competent manager, namely having
the relevant knowledge.
12.3.4 Motivation
Because motivation of employees plays such a vital role in an organisation, we have devoted
Chapter 14 to this subject. In the study of individual behaviour, motivation is probably the
concept that receives the most attention. In any organisation, some employees work harder
than others although they may receive the same remuneration as their colleagues. Both hard
workers and loafers must be motivated. Even motivated workers become demotivated at
certain times and managers must then know how to re-energise them.
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Managers therefore need to understand positive reinforcement, how to discipline
poor performance, how to set challenging and motivating goals for employees, how to
restructure boring jobs, how to base rewards on performance, and so on. These issues,
as well as other factors, are therefore discussed later in the book as they have a direct
impact on the productivity of employees.
12.3.5 Perception
Perception refers to the process in which individuals arrange and interpret sensory
impressions in order to make sense of their environment. These sensory impressions
are sight, hearing, taste, touch and smell.
It is important for a manager to realise that what his or her subordinates perceive
is often different from his own reality — people react not to reality, but to what they
perceive as reality. An organisation may, for example, implement an automated system
where salespeople have to register their whereabouts in the office. When they leave
their desks, they must register this as being ‘out of the office’ on the system. Even a
bathroom break must be registered as such. The real reason may be that management
wants to provide better service to clients who phone in by putting them through directly
to salespeople who are available at that moment. However, the salespeople may have
the perception that the new system is there to catch them out when they are not at
their desks.
Managers and employees may even have different perceptions of the organisation’s
mission and goals. These differences in perception depend on:
■■ The person (who perceives)
■■ The object (what is being perceived)
■■ The context (in which perception occurs).
An architect may look at a building and think that it is poorly designed. A building
contractor may look at the same building and only see how well the building was built.
This is an example of perceptual differences that are attributable to the person who
perceives. Employees’ interests, expectations, and their previous experiences influence
what they perceive. A female employee that had been overlooked for a promotion may
only see the negative side of decisions in the organisation as she perceives management
to be unfair and discriminatory.
Characteristics of the object being perceived can also cause perceptual differences.
The employee who was overlooked for a promotion by her red-haired, male manager
may now suddenly become aware of all the red-haired male managers in the organisation.
Objects are also not perceived in isolation, but are seen against a certain background.
In Figure 12.4, the inside area is first perceived as a vase, that is, the inside area is seen as
the subject of the drawing. However, if one sees the darker area as the focus, the subject
becomes two heads in profile facing each other.
The context in which an object is perceived also influences one’s perception of the
object. A manager can be seen having tea with one of the striking workers at a sports
club. Other managers may immediately perceive this as ‘being too friendly with the
workers’, whereas the manager may simply have played a league match against the
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worker. Factors in the context that may play an important role are the time at which the
object is perceived as well as the working and social environment in which this occurs.
Figure 12.4 Figure-and-ground illustration
Because people cannot concentrate on all the stimuli in their environment at one time,
they tend to perceive selectively. Hence they perceive only fragments of the whole.
These snippets of information are not chosen uniformly but selectively, depending
on the perceiver’s interests, background, experience, attitude, and so on. Selective
perception therefore helps us to perceive more quickly, but carries the risk that we may
make inaccurate assessments of others.
The brain uses shortcuts to reduce the mass of information with which it is
bombarded so that a person can make more sense of the socialisation process. These
short cuts that people take are known as ‘cognitive strategies’. Heuristics and prejudices
are two such strategies. Heuristics entails decision-making principles that an individual
uses to draw quick conclusions about other people. Prejudices are mainly the result of
stereotyping. When we judge employees on the basis of their age, their gender, or the
group to which they belong, we use a short cut known as stereotyping. ‘Young people
are irresponsible’ or ‘people who wear bright colours are in a happy mood’ are examples
of stereotyping.
The halo effect also plays a role in the forming of perceptions. The halo effect
means that an individual forms a general impression of another individual based on
certain characteristics such as intelligence, appearance, or degree of socialisation. At
an interview, appearance sometimes overshadows the interviewer’s perception of a
prospective employee. Thus the interviewer at a firm of architects might decide that a
conservatively dressed, well-groomed person will be an accurate tracer without actually
studying other qualities that the person might have.
It is often wrongly assumed that all people learn predominantly by reading books, such
as prescribed books. People have different learning styles and these styles should be
accommodated in all learning and training interventions.
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The following examples show how different learning styles can be accommodated:
■■ Learning by reading: referring to a book or journal articles
■■ Learning by listening: attending lectures and seminars or talking to a subject-matter
expert
■■ Learning by observing: watching videos or observing how a coach performs a task
■■ Learning by doing: simulations, on-the-job training, learnerships.
12.3.6 Learning
When looking at the determinants of an individual’s behaviour in an organisation,
one also has to look at how people learn. Thus, the final concept that concerns us in
this section is ‘learning’ as a key determinant of individual behaviour. Managers and
employees continually learn new things in the workplace, for example, the human
resource manager must continuously learn about changes in labour legislation, the
financial manager must learn about new legislation regarding company tax, and
employees must learn to use new technology in the workplace.
In the fast-changing environment in which management and employees must
operate, learning has become part of the daily activities of both managers and employees.
Managers must be aware that not all employees learn in the same way and must ensure
that their learning programmes and interventions accommodate all learning styles.
12.4 Emotional intelligence (EI)
A book on contemporary management issues would not be complete without reference
to the concept of emotional intelligence (EI). Emotional intelligence is the ability to
identify and manage your own emotions and the emotions of others.10
Emotional intelligence has been thoroughly researched by Daniel Goleman who
found that it is more important to work success than the rational intelligence quotient
(IQ) or technical skill.11 The emotional competencies that differentiate superior from
average performers are:
■■ Self-awareness
■■ Self-management (managing one’s own emotions)
■■ Social awareness (empathy)
■■ Social skills (managing relationships).
Daniel Goleman is an internationally known psychologist who lectures frequently to
professional groups, business audiences, and on university campuses. He has also been a
visiting lecturer at Harvard. Working as a science journalist, Goleman reported on the brain
and behavioural sciences for The New York Times for many years. His 1995 book, Emotional
Intelligence was on The New York Times bestseller list for a year and a half, with more than
5 000 000 copies in print worldwide in 30 languages.
Source: Daniel Goleman. nd. Available at: http://www.danielgoleman.info/biography/ (Accessed:
12 September 2016).
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Self-management
Self-awareness
Emotional
Intelligence (EI)
Social awareness
Social skills
Figure 12.5 The emotional competencies of EI
Emotional self-awareness entails being in touch with oneself. This means that one can
accurately assess one’s emotions and have confidence in one’s unique strengths and
weaknesses. Emotions always serve a purpose. It is therefore important to spend time
with yourself reflecting on where the emotion comes from. Managers and employees
high in emotional self-awareness understand what they do well, what satisfies and
motivates them. They also know which situations and people push their buttons. They
are also comfortable dealing with their emotional ‘mistakes’ such as overreacting to a
colleague’s remarks, ignoring a co-worker with whom they have had an argument, and
so on. A manager low in emotional self-awareness may lose his cool and berate a worker
in front of her colleagues. This will cause a ripple effect and influence all other workers
who saw the manager exploding. However, positive self-awareness has a direct positive
influence on job performance.12
Emotional self-management is the ability to regulate one’s emotions towards
situations and people. These emotions include disappointment, anxiety and anger and
to refrain from acting impulsively. Signs of this competence include still being effective
in stressful situations or being able to deal with disappointment without giving up.
An example of emotional self-management
Lana Colbert is the manager in a very busy call centre. When her subordinates were asked to
describe Lana in the workplace, one of them described her as follows:
‘Ms Colbert is the perfect example of patience and understanding, even during heated and
emotionally charged meetings. She always listens actively and responds very appropriately.
She communicates clearly yet very decisively. It makes us, her subordinates, feel safe and
appreciated in our jobs.’
Social awareness refers primarily to looking outside oneself to learn and appreciate
others. We often refer to this as ‘empathy’, although it encompasses more than this. The
empathy competence gives people an astute awareness of others’ emotions, concerns,
and needs. It enables managers to put themselves in the shoes of their employees and
to understand what they are experiencing. The empathetic person can read emotional
currents, such as tone of voice or facial expression.
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According to Daniel Goleman, the competencies associated with being socially aware are:
Empathy: understanding others’ emotions, needs and concerns
■■ Organisational awareness: the ability to understand the politics within an
organisation and how these affect people working in them
■■ Service: the ability to understand and meet the needs of colleagues, clients and
customers.
■■
The difference that emotional intelligence makes
Carl Hermiss of the Consortium for Research on Emotional Intelligence in Organisations cites
studies on the benefits of developing emotional intelligence in the workforce:
■■ In top leadership positions, emotional competence has been shown to account for 80 per
cent of the difference between average and superior performers
■■ Retail store managers who demonstrate better emotional abilities in handling stress
outperformed their counterparts in net profits, sales per square metre, sales per
employee, and per dollar inventory investment
■■ In a cross-cultural study of executives from Germany, Japan, the USA, and Latin America,
emotional competence was a better predictor of success than either past experience or IQ.
Finally, ‘social skills’ entails the ability to attune ourselves to, or influence, the emotions
of another person. It refers to essential social skills such as developing others, managing
emotions effectively in other people, creating an atmosphere of openness, creating
clear lines of communication, managing conflict, inspiring others to work towards the
organisation’s vision, managing change, building networks, and managing teamwork.
12.5 Mentoring and coaching
Mentoring and coaching are two interventions that all managers in contemporary
organisations need to be competent in when dealing with individuals. Organisations use
the mentoring process in which an experienced member of the organisation (called the
‘mentor’) provides advice, information and guidance to a less experienced individual
(called the ‘protégé’) for the protégé’s personal and professional development.13
Mentoring addresses the whole person and his or her career. Mentoring aims to boost an
individual’s capabilities and standing in the organisation; it also addresses the person’s
inner self (how to behave in the organisation, workplace values, personal dilemmas).
The Latin origin of the term ‘protégé’ (protégére) implies a protected person or a favourite.
The general usage implies a person whose career is being advanced by someone with
experience or influence.
The scope of mentoring is vastly greater than that of coaching. Coaching focuses on
improved performance in the protégé’s job and imparts skills that the protégé needs to
accept new responsibilities. Coaching in a business sense is very similar to that in the
sports field where a tennis coach, for instance, will direct the learning of his pupil on
court. The coach usually concentrates on the short-term needs of the protégé whereas
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a mentor has a long-term relationship with his or her protégé. The goal of coaching is
often focused on the improvement of one aspect of job performance only.
Mentoring is about a career; coaching is about a job.
12.6 Types of workplace behaviour
Workplace behaviour refers to how individual differences can directly or indirectly
influence the effectiveness of an organisation. These behaviours are depicted in
Figure 12.6.
Organisational
citizenship
Performance
behaviours
Workplace
behaviour
Dysfunctional
behaviours
Withdrawal
behaviours
Figure 12.6 Types of workplace behaviour
Performance behaviours are derived from the psychological contract between an
individual and the organisation. It is relatively easy to define and measure the behaviour
of certain jobs, such as that of a typist or call centre worker; many other jobs are more
difficult to measure. The performance behaviour of both bricklayer and call centre
worker has relatively few factors. In both of these jobs the outputs of employees are
measurable. The performance of a bricklayer, for example, can be measured by counting
the number of bricks placed correctly in position. To ensure good performance both
managers and employees must know what the goals are that they must achieve. They
should also know what behaviour will lead to the desired performance.
Withdrawal behaviours refer to, amongst others, absenteeism and turnover.
Absenteeism occurs when a manager or employee does not turn up for work. The cause
for the absenteeism may be legitimate (such as illness) or feigned (excuse to stay at
home). Managers must try to minimise feigned absenteeism and reduce legitimate
absences as much as possible. When managers or employees quit their jobs, it is referred
to as ‘turnover’. Several reasons may lead to turnover. Three of the top reasons why
people leave an organisation are:
1. Not liking their boss
2. Wanting more money
3. Not enjoying the work they are doing.14
Some turnover is inevitable and in some cases even desirable. ‘Inevitable’ turnover refers
to, amongst others, people retiring or having to move to another city due to different
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reasons. ‘Desirable’ turnover refers to reasons such as an employee leaving because
of a misfit between the employee and the job or a disgruntled employee who causes
problems in the organisation leaving the organisation.
Organisational citizenship refers to the behaviour of individuals that make a
positive overall contribution to the organisation. An employee may deliver excellent
work in terms of quantity and quality but may not share his or her experiences or lessons
learned with other employees. Such a person is not considered a good organisational
citizen. Another employee may also deliver excellent work and may spend a lot of
time with newcomers to familiarise them with the organisation and is prepared to
work overtime to meet certain deadlines. This person is considered a much better
organisational citizen than one who is focused on his or her job only.
Unfortunately managers also have to deal with dysfunctional behaviours in the
workplace. Dysfunctional behaviours include theft, withholding information from
other employees, harassment, the spreading of rumours and even violence. These types
of behaviour may be even more costly to an organisation than absenteeism and turnover
as it creates fear and mistrust in an organisation.
12.7 Summary
An organisation without people is unthinkable. Even in factories that are ‘staffed’
by robots, people still play a vital role in the functioning of the organisation. As the
smallest subsystem in an organisation, individuals have the same characteristics as other
systems. People are complex, they interact continually with the environment, they strive
for equilibrium, and they may have a multiplicity of goals.
In this chapter we discussed a number of concepts that help us to analyse and manage
individual behaviour. We emphasised the fact that it is vital for managers to understand
individual behaviour in order to predict how individuals will react to certain decisions.
South African managers, particularly in these times of rapid change, should
understand the influence of their decisions on their subordinates. To understand how
people function is not an easy task, for no two individuals are the same. However,
there are certain key variables that determine the behaviour of employees with which
managers should be familiar. These include values and attitudes, personality, ability,
motivation, perception, and learning. Apart from motivation which is discussed in
detail in Chapter 14, we focused on those variables that determine behaviour.
We also included a discussion of emotional intelligence as the ability to access,
manage, and make use of our feelings. Contemporary research has found that emotional
intelligence is a better predictor of success in the workplace than rational intelligence
or technical skill.
This chapter also looked at the important role that mentoring and coaching play in
the contemporary organisation.
To conclude this chapter, four types of workplace behaviours were discussed:
1. Performance behaviours
2. Withdrawal behaviours
3. Organisational citizenship
4. Dysfunctional behaviours.
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Workplace behaviour refers to actions that directly or indirectly influence an
organisation’s effectiveness.
References
1. SABMiller. nd. Available at: http://www.sabmiller.com/sustainability/our-people/
attracting-and-retaining-talent (Accessed: 13 September 2016).
2. Entrepreneur. nd. Available at: https://www.entrepreneur.com/article/250920 (Accessed:
13 September 2016).
3. Davenport, DH. 2005. ‘Peak performance knowledge workers: Managing a workforce that
thinks for a living: A conversation with Thomas H. Davenport’. Harvard Business School
Publishing Virtual Seminar CD.
4. The Journal of Value Based Leadership. nd. Available at: http://www.valuesbased
leadershipjournal.com/issues/vol1issue1/dean.php (Accessed: 13 September 2016).
5. Cambridge English Dictionary. nd. Available at: http://dictionary.cambridge.org/
dictionary/english/job-satisfaction (Accessed: 13 September 2016).
6. Eurofound. nd. Available at: http://www.eurofound.europa.eu/observatories/eurwork/
comparative-information/measuring-job-satisfaction-in-surveys-comparative-analyticalreport (Accessed: 13 September 2016).
7. Study.com. nd. Available at: http://study.com/academy/lesson/organizationalcommitment-definition-theory-types.html (Accessed: 13 September 2016).
8. Rosenman, RH, Brand, RJ, Sholtz, RI & Friedman, M. 1976. Multivariate prediction of
coronary heart disease during 8.5 year follow-up in the Western Collaborative Group
Study. The American Journal of Cardiology, 37(6): 903−910.
9. Human Resources. nd. Available at: http://humanresources.about.com/od/manage
menttips/a/millennial_myth.htm (Accessed: 13 September 2016).
10. Psychology Today. nd. Available at: https://www.psychologytoday.com/basics/emotionalintelligence (Accessed: 13 September 2016).
11. Emotional Intelligence Consortium. nd. Available at: www.eiconsortium.org (Accessed: 13
September 2016).
12. Bradberry, T & Greaves, J. 2009. Emotional Intelligence 2.0. San Diego: TalentSmart, p 29.
13. Mentoring and management: Developing human assets. 2006. Boston: Harvard Business School
Press, Available at: http://harvardbusinessonline.hbsp.harvard.edu/b01/en/common/view
FileNavBean.jhtml?_requestid=29023 (Accessed: 13 September 2016).
14. Fortune. nd. Available at: http://fortune.com/2015/10/11/common-reasons-for-quittingjob (Accessed: 13 September 2016).
Case study
Red Peppers CC
Red Peppers cc is a medium-sized advertising company specialising in the design and
manufacturing of corporate wear and related products for companies in southern Africa.
The business was established in 1998 by Gill Stravinsky who managed the entire business
herself. Her entire staff comprised one graphic artist and two junior employees. Since its
inception the business has grown to an annual turnover of ± R20 million. Gill is still the
general manager but is supported by human resources, financial, marketing and operations
managers. The business has 120 full-time staff members and uses almost 40 contract
workers.
➜
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During 2010, Red Peppers had an unusually high staff turnover, especially in its operations
department. In January 2010, Jan Hoskens was appointed as Manager: Operations and since
his appointment 30 per cent of the staff in operations has resigned. The exit interviews
of staff who resigned from this department brought the following to the attention of top
management:
■■ Mr Hoskens is a ‘control freak’
■■ Mr Hoskens also suffers from ‘analysis paralysis’, meaning that he analyses every detail
of every decision made by his subordinates
■■ He also focuses only on performance and ignores the fact that he is indeed working with
people
■■ He is a very poor communicator
■■ He enjoys telling dirty jokes during tea breaks despite the fact that the females in the
tearoom have told him that they do not appreciate the jokes
■■ He blames everything and everybody – except himself – when things go wrong in the
department
■■ He considers himself the boss and subordinates are expected to respect his more senior
position in the business.
One of the staff members who resigned stated during the exit interview that she felt that
her value system was totally different from the values in the operations department. She
also said that she told Mr Hoskens of this clash in values and his reaction was: ‘Change your
values!’
It has become clear to top management that Mr Hoskens’s appointment as Manager:
Operations has been a mistake. They have called in an expert on labour issues to make sure
that they follow the right process and procedures to get rid of Mr Hoskens. In the meantime
Mr Hoskens’s personality is having a major influence on the effectiveness of the business
as his department is understaffed and productivity is very poor, mainly as a result of the
negative attitudes that workers in the department have developed.
Case study questions
Question 1
From an emotional intelligence point of view, describe the behaviour of Mr Hoskens in
the organisation.
Question 2
Comment on Mr Hoskens’s statement to the staff member that she must change her
values. Focus specifically on how one can/cannot change one’s values.
Question 3
Briefly discuss the following two types of behaviour that are referred to in the
case study:
1. The withdrawal behaviours
2. Dysfunctional behaviours.
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Question 4
Make recommendations to top management regarding the personality type that you
feel best suits the job of an operations manager in a manufacturing concern. Base
your recommendations on the MBTI and at least one other approach to describing
personalities.
Multiple-choice questions
Question 1
How many of the following will determine how an individual will behave in an
organisation?
■■ The individual’s values
■■ The individual’s attitude towards the organisation
■■ The individual’s perception of the organisation
■■ How the individual learns
1. One
2. Two
3. Three
4. Four
Question 2
An individual believes that all people should be treated with respect, irrespective of their
.
age, seniority and position in the organisation. This is an example of a(n)
1. internal locus of control
2. external locus of control
3. perception
4. authoritorianism
Question 3
The set of expectations held by people with respect to what they will contribute to the
.
organisation and what they expect to get in return is called
1. corporate citizenship
2. organisational citizenship
3. the psychological contract
4. perception
Question 4
.
According to the MBTI, introverts (I)
1. need solitude to recharge their energy
2. get their energy by being around other people
3. base their decisions on facts
4. are primarily motivated by external rewards
Question 5
.
According to the MBTI
1. there are 16 different types of personality
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individuals in the organisation
2. some personality types are better than others
3. extroverts are more productive workers than introverts
4. extroverts are more creative than introverts
Question 6
An employee who believes that if she works hard she will eventually be promoted to a
.
more senior position has
1. an external locus of control
2. a higher I score than E score (based on the MBTI)
3. an internal locus of control
4. a higher P score than J score (based on the MBTI)
Question 7
According to the concept of emotional intelligence, self-awareness refers to
1. self-consciousness
2. empathy
3. being in touch with one’s emotions
4. self-assertiveness
.
Questions 8–10
Which description in column B best describes the concept in column A?
Question
Column A
Column B
8.
Performance behaviours
1. Absenteeism and turnover
9.
Withdrawal behaviours
2. Sexual harrassment
10.
Dysfunctional behaviour
3. Derived from the psychological contract
4. Authoritorianism
Paragraph questions
Question 1
Explain the nature of the psychological contract between the individual and the
organisation.
Question 2
Explain the Myers-Briggs type indicator (MBTI) as a useful instrument for
understanding personality in the workplace. Your answer should focus specifically on
the four dimensions of the MBTI, namely:
1. I or E
2. N or S
3. T or F
4. J or P
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Question 3
Describe emotional intelligence in terms of the following:
1. Its use to predict how successful a newly appointed manager will be in her new role
as manager
2. The four dimensions assessed by emotional intelligence
3. The characteristics of an emotionally intelligent manager.
Question 4
Explain four workplace behaviours and how each can directly or indirectly influence
organisational effectiveness.
Question 5
Briefly explain how the following two types of behaviour can be managed to minimise
their negative influence on productivity in an organisation:
1. Withdrawal behaviours
2. Dysfunctional behaviours
Essay question
Convince a newly appointed manager why it is important for managers to understand
how individuals function in an organisation. Your argument must take into consideration
all relevant issues discussed in this chapter. (Maximum length of written argument: 900
words [three A-4 pages].)
Note: The reason for limiting the answer to 900 words is to force you to identify the
crux of the matter in this chapter.
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13
THE
PURPOSE
OF THIS
CHAPTER
LEARNING
OUTCOMES
KEY
CONCEPTS
This chapter deals with groups and teams in organisations. We examine
the types of group present in organisations and explain the stages of
group development. We categorise and describe the many variables
that influence group performance. Next, we discuss work teams by
first differentiating them from work groups and then explaining when
organisations should use teams and the advantages they can expect from
using teams. Finally, we discuss the options available to organisations
wishing to develop work teams, such as following effective selection
processes, training existing and new employees to become effective team
members, and designing reward systems to encourage outstanding team
performance.
This chapter will enable learners to:
Distinguish between groups and teams in an organisation
■■ Explain why people join groups
■■ Differentiate between the various types of group in organisations
■■ Describe the stages of group development
■■ Identify the variables that influence group behaviour
■■ Describe the characteristics of a work team
■■ Explain why, and under what circumstances organisations could use
teams effectively
■■ Differentiate between problem-solving-, self-managed-, crossfunctional-, and virtual teams
■■ Explain how organisations could develop individuals into team
members.
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
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Groups and teams
in the organisation
Command group
Cross-functional teams
Friendship group
Group behaviour model group
Cohesion
Group processes
Groups
Interest group
Problem-solving teams
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■■
■■
■■
■■
■■
■■
■■
■■
■■
Role conflict
Role expectation
Task group
Reward system
Role perception
Teams
Self-managed teams
Stages of group development
Virtual teams
13.1 Introduction
Whereas the emphasis in the previous chapter is on the individual, this chapter focuses
on groups and teams in organisations. Most individuals working in organisations have
to join groups and teams in order to attain the goals of the organisation. Thus, this
chapter deals with the optimum use of groups and teams in the organisation. The ability
to develop, support, facilitate and lead groups to attain organisational goals is a core
function of management. The evaluation of managers’ performance is not only based
on their individual performance, but also on the results of their units, departments, or
sections as a whole. Since managers spend much of their time in some form of group
activity, their understanding of groups and how to enhance group performance will
contribute to their effectiveness as group members and leaders.
13.2 Groups and teams
In everyday language, we sometimes use the words group and team interchangeably but
management literature makes a definite distinction between the two concepts. A group
refers to two or more people, interacting and interdependent, who come together to
attain particular goals.1 A team is a special kind of group, and turning groups into teams
is a process that requires special management skills, which we shall discuss later in the
chapter.
A group refers to two or more people, interacting and interdependent, who come together to
attain particular goals.
13.3 Types of organisational group
Most people working in organisations belong to various groups at the same time — some
at work, some in the community, and some in the family. However, when we discuss
groups in the organisation, we distinguish between two main categories, namely
informal and formal groups. Figure 13.1 depicts these two categories, and the specific
types of group within them.
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Interest groups
Informal
Friendship groups
Categories and
types of group
Command groups
Formal
Task groups
Figure 13.1 The main categories and types of group
13.3.1 Informal groups
An informal group is an interest group or friendship group that is not part of the
organisational hierarchy and one that develops out of the day-to-day activities and
interactions of people working in the same organisation. The goals of informal groups are
not necessarily the same as those of the organisation, although the formal organisation
often has a considerable influence on the formation of informal groups. At the same
time, the informal group can have a significant influence on the formal organisation.
Interest group
The emphasis in the interest group is on the needs of the group itself. The reason for
its existence is the shared interests of the members. Examples of interest groups in a
manufacturing organisation may be older workers campaigning for better pension
benefits, or a group of environmentalists in the organisation taking a stand on the air
pollution caused by the smoke emitted into the air by the manufacturing plant. Such
interest groups may exist for only a short time until the goal is either accomplished or
abandoned. Other interest groups may last for a relatively long period.
Friendship group
The friendship group can range from a social club that organises social events for the
members of a department to a few people playing cards together during their lunch
break. The main reason for its existence is that its members have social needs to satisfy
or have things in common to share with colleagues, such as similar hobbies, an interest
in sport, and so on.
13.3.2 Formal groups
The second category of group in an organisation is the formal group, or work group. An
organisation creates formal groups to accomplish specific tasks and to attain specific
goals. The structure of an organisation defines formal groups and determines the
allocation of work assignments to specific work groups.
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Work group
A work group is a unit of two or more people who interact primarily to share information
and make decisions that will help each group member perform within his or her own
area of responsibility.2
The work group has the following characteristics:3
■■ The skills of group members are random and varied
■■ There is a strong leader, such as a manager
■■ Individual members are accountable and rewarded for their own performance
■■ The group performance is the sum of all the individual group members’
performance.
A work group is a unit of two or more people who interact primarily to share information
and make decisions that will help each group member perform within his or her own area of
responsibility.
There are two types of formal work group, namely command groups and task groups.
Command group
The organisational structure determines the authority relationships in an organisation
and indicates the various command groups. A command group comprises a manager
and the subordinates who report directly to him or to her. A functional department,
such as the marketing department of an organisation is an example of a command
group.
Task group
A task group comprises people working together to complete a specific task, and it can
cross hierarchical boundaries. A task group formed to investigate an appropriate reward
system for a university may comprise some staff members representing the various
trade unions and others representing the academic and administrative departments, as
well as human resources management experts. With the completion of the project, the
group disbands.
13.4 Stages in group and team development
A newly formed group, or a group experiencing a change intervention, advances through
certain stages of group development.4 To manage a group successfully, a manager should
be able to recognise the development stage of the group. Managers cannot expect a
newly formed group to perform at the level of an established well-functioning group.
Each stage of group development demands specific actions and pose different
challenges for the manager of a group. The case study at the end of the chapter describes
how the team members of various yachts competing in the BT Global Challenge Round
the World Yacht Race went through the various stages of group development, and how
every stage brought different challenges to the teams and their leaders.
Figure 13.2 illustrates the five stages of development that groups typically experience
during their life cycles.
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Forming
Storming
Norming
Performing
Adjourning
Figure 13.2 Stages in the development of groups
Source: Adapted from Tuckman, BW. 1965. ‘Developmental sequence in small groups’. Psychological
Bulletin: (63): 384–391.
13.4.1 Forming
During this stage, a set of individuals is not yet a group, and there is much uncertainty
about the purpose, leadership, and structure of the group. Individuals may ask a number
of questions as they begin to identify with other members and with the group itself,
usually focusing on the advantages and disadvantages group membership holds for
them. They want to find out what kind of behaviour the group expects of them, the tasks
the group have to perform and the rules the group have to follow.
13.4.2 Storming
The storming stage is often characterised by conflict and disagreement. It is a period
of tension and raised emotions amongst the group members. They are part of a group,
but they are reluctant to accept the restrictions the group impose on their individuality.
Members become more assertive and opinionated. Conflict may develop over leadership
positions and authority, as individuals attempt to influence the group and to occupy the
positions they desire. Management and other stakeholders may create tension in the group
by imposing their premature expectations of performance on them. Group members are
not yet functioning as a cohesive group, performance is relatively low, and members do not
lend support to one another. Managers should focus on group goals and performance
improvement during this stage to ensure that the group moves out of this phase.
13.4.3 Norming
The norming stage is the point where the group begins to function as a cohesive unit. A
more balanced situation replaces the conflict of the storming phase as group members
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discourage minority viewpoints and deviating tendencies. Group members enjoy a
preliminary sense of closeness and attempt to protect the group from disintegration.
This may become a problem as some members may focus solely on the survival of the
group rather than achieving its goals. Members may perceive this stage to be one of
ultimate maturity and managers should manage this sense of premature accomplishment
carefully. Managers should instil awareness in the group that they need to advance to a
higher level of group development to become a high-performance group.
13.4.4 Performing
The performing stage of group development marks the emergence of a mature, organised,
and well-functioning group. The careful integration in the previous stage develops fully
during this period and the group can complete complex tasks and solve disagreements
that may arise in a mature manner. Group structure is stable, members support group
goals, and they are satisfied. The primary managerial challenge associated with this stage
is to discourage complacency, to continue working on intragroup relationships, and to
improve on group performance. Group members are now able to use opportunities and
adapt to demands that develop over time.
13.4.5 Adjourning
A well-integrated group is able to disband, if required, when its work is accomplished.
The focus is on completing activities. The adjourning stage of group development is
especially important for the many temporary groups characterising contemporary
organisations, including problem-solving teams, task forces, and so on. Managers
should encourage members to convene quickly, do their jobs on a tight schedule, and
adjourn, often to reconvene at a later stage. The willingness of members to disband
when they completed their work and to be prepared to work together on future projects
is an indication of a successful group.
The five-stage model illustrates how a group develops from the forming stage to
a fully functional group. Groups generally become more effective as they progress
through the first four stages, but note that under certain conditions this might not
be the case. Groups do not always move clearly from one stage to the next, because
sometimes a group experiences various stages of group development at the same time.
A group may, under certain circumstances, storm and perform at the same time. Groups
may even regress to previous stages under certain circumstances, for example, when
new members join the group, thereby changing the dynamics of the group. The context
of group development also plays a role because under certain circumstances, groups
may progress faster through the stages than under another set of circumstances.
13.5 Variables that influence group behaviour
The purpose of this chapter is to enhance your understanding of group behaviour in
organisations and to examine ways to increase group performance. The group behaviour
model5 illustrates how factors such as organisational context, group member resources,
group structure, and group processes influence the development and effectiveness of groups
and teams in organisations. Figure 13.3 shows the model and indicates the different
variables that interact and influence the effectiveness of work groups in organisations.
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ORGANISATIONAL CONTEXT
Group member
resources
Group
structure
Group
processes
Group task
Group performance
Figure 13.3 Group behaviour model
Source: Adapted from Robbins, SP. 2003. Organizational behavior. 10th ed. Upper Saddle River: Prentice
Hall, p 223.
13.5.1 Organisational context
To understand how a group functions, managers need to understand the organisational
context in which the group functions as it is part of the larger organisation. Many
variables in the organisational context affect group functioning, including factors
such as goals and strategies, authority structures, policies and procedures, resources,
the personnel selection process, the performance management system, organisational
culture and the physical work setting.
Goals and strategies
The strategic goals formulated by top management define the goals that groups in
organisations have to attain within a specific time frame. Groups have to compete for
the same scarce organisational resources to attain strategic goals, which middle-level
managers convert into functional and operational goals. Thus, on the one hand, groups
have to interact with one another to secure resources, and on the other hand, they
are dependent on one another to attain organisational goals. The typical interaction
between the production and the marketing departments of an organisation illustrates
the interdependence of groups as they strive to attain organisational goals jointly. For
example, the marketing department has a goal to sell as many products as possible at
the lowest cost, while the production department needs to keep to its budgeted cost
projections and time limitations and cannot always provide the correct number of
products at the lowest price as required by the marketing department. Such interaction
can create conflict, but also underscores the interdependence of groups in their pursuit
of attaining organisational goals.
Authority structures
The organisational structure determines the authority relations and the place of a
group in the organisational hierarchy, its leader and the relationships between the
group and various other groups in the organisation. All these variables influence group
performance. We discuss organisational structures in more detail in Chapter 8.
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Policies, procedures, rules, and regulations
Groups follow the policies, procedures, rules, and regulations that govern the operations
and functioning of their organisations. If these inhibit creativity and innovation, it
has a negative influence on group performance. On the other hand, sensible policies,
procedures, rules, and regulations can speed up group development and prevent
excessive conflict.
Organisational resources
The availability or the lack of resources, such as suitably skilled people, finance, raw
materials, equipment and information affect group performance because groups need
resources to complete their tasks successfully. Resource availability furthermore
influences groups’ interaction with one another because they have to compete to secure
resources to attain their goals. Thus, groups have to negotiate with one another to get
their fair share of resources, which increases the potential for conflict. The intensity of
the conflict depends on the scarcity of the resources, how many groups are competing
for the same resources and the relative power positions of the various groups.
Personnel selection process
The human resources department of an organisation selects and appoints staff members
according to specific criteria, which in turn affect the composition of groups in areas
such as members’ personality types, level of motivation and creativity, but also the
functioning and effectiveness of groups. The researchers who recorded the interaction
of teams on the yachts sailing the BT Global Challenge Round the World Yacht Race6
(see the case study at the end of the chapter) found evidence that one person’s behaviour
changed the dynamics of an entire crew on a specific boat. They observed a few crew
members of various yachts that did not ‘fit’ or experienced problems to integrate
with their teams. One skipper had to deal with a crew member whose behaviour had
such an adverse effect on the dynamics of the team that it had a negative effect on the
performance of the entire group. On another yacht, the skipper had to spend valuable
time and energy trying to resolve the conflict caused by one team member.
Performance management system
The performance management system implemented by an organisation affects group
behaviour. Performance evaluation and reward systems can focus on individual
performance and reward or collective performance and award. The chosen system
reinforces specific behaviour and could encourage or discourage group performance.
A crucial prerequisite for the effective functioning of work teams is that organisations
should evaluate and reward team members individually and collectively. We shall
elaborate on this point later when we discuss work teams.
Organisational culture
Organisational culture defines how organisational members are expected to behave
in a given context and determines the norms of behaviour against which individuals
and groups evaluate their own actions and the actions of others. See Chapter 9 for a
comprehensive discussion of organisational culture. For example, a culture focusing
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on the core business of the organisation and its customers can enable groups in the
organisation to work towards attaining their goals. However, a dysfunctional culture
characterised by internal politics and conflict can prevent groups to attain their goals.
Physical work setting
The physical layout of the workspace can create barriers to or opportunities for
interaction within and between groups, depending on the nature of the group and its
task. The greater the proximity of group members, the more they will interact. Informal
groups are more likely to develop if group members work in close proximity to one
another. The physical work setting also influences the interaction between groups in
the sense that if members of different groups occupy offices close to one another there
is a greater chance of informal interaction between them. Managers can manipulate the
pattern of group interaction by the way they allocate offices to individuals and groups
in the organisation.
13.5.2 Group member resources
For a group to perform effectively, its members need the technical knowledge associated
with their specific tasks, skills, including interpersonal skills such as problem-solving,
decision-making and conflict resolution skills, and the abilities to perform their work.
13.5.3 Group structure
Each group has a structure that defines the positions of individual group members in
the group and which affect the functioning of the entire group. The following seven
variables define the structure and often the effectiveness of groups.7
1. Leadership
Leadership is a critical factor in the success of a group. In formal groups, a leader gives
direction and creates an environment where workers can be motivated to attain the
goals of the group and the organisation (see Chapter 11).
2. Roles8
Each member in a group fulfils a role, and each role carries a role expectation representing
the way others believe a person should act in a given situation. In addition, each group
member has his or her own view or role perception of how he or she is supposed to act
in a given situation.
Consider the example of a manager of a private hospital. Others expect him to act as
the hospital’s manager who must see to it that the hospital as a whole attains its goals. One
of the goals is the realisation of good returns for the shareholders on their investment.
This is his expected role. However, his own role perception is that, in addition to his
expected managerial role, he must also ensure that the nurses are satisfied in their jobs
because they are rapidly leaving the profession (and the hospital).
Apart from their regular role expectations and role perceptions, individuals also
fulfil different roles simultaneously, because they belong to different groups. The
manager in our example fulfils different roles: in addition to his role as manager, he
is also a member of the hospital’s ethics committee, and he belongs to the hospital’s
jogging club. Fulfilling different roles in various groups can result in incompatibility
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between roles. In our example, the manager’s running mate has to appear in front of the
ethics committee, of which he is a member. This can result in the manager experiencing
role conflict. Personal role conflict occurs when the requirements of a role contradict the
basic values, attitudes, and needs of an individual in a particular position. The manager
may experience personal role conflict because a decision taken by the ethics committee
goes against his values and professional integrity as a doctor.
Intra-role conflict occurs when people have different expectations of the same role.
It becomes impossible for the person enacting the role to satisfy all the expectations.
The manager expects the head matron to discipline all nurses who arrive late for work,
without exception. However, the nurses expect her to take into consideration the
unreliable bus and train service from their homes to the hospital.
Inter-role conflict may result when a person has to perform a multiplicity of roles.
Sometimes an individual has to fulfil many roles simultaneously, which may have
conflicting expectations. The manager expects the head matron to work every second
weekend, but her son expects her to watch his soccer matches on Saturday mornings.
Clearly, the expectations of her roles as head matron and as mother are in conflict.
3. Norms
Over time, and because of the interaction between group members, group norms
develop. A norm is a generally agreed-upon standard of behaviour, which groups
expect their members to adhere to. The strongest norms relate to behaviour that the
group members consider as the most significant. Norms can be formal, in the form of
prescribed behaviour, or informal because of the interaction between group members.
An example of a formal norm is, ‘In this editorial section, each translator must translate
at least eight pages a day’. An informal norm could be, ‘We all eat lunch together on
a Friday afternoon’. A group attaches different values to different norms, for example,
they will expect members to observe certain norms while they consider others as being
peripheral. Norms may also be negative. One of the norms in the sales department of
an organisation may be to do as little as possible on a Friday afternoon. Norms may
be written, communicated verbally, or even be shared unconsciously by members of
the group.
Not every member of the group accepts its norms to the same extent. When a
member rejects important norms, he or she may experience a great deal of pressure to
conform, since significant nonconformity threatens the standards, stability, and survival
of the group. Such pressure can be very strong.
Group members conform to group norms in varying degrees. A group member
may change his or her behaviour although not fully in agreement with the norms or
may adhere to the norms because he or she accepts and identifies with the norms. The
degree of conformance of group members to group norms affects the success of the
group in attaining their goals.
A norm is a generally agreed-upon standard of behaviour which groups expect their members
to adhere to.
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4. Status
Why does the marketing director have more status than the sales manager who reports
directly to her? Alternatively, why does the manager get his own parking bay whereas
the other members in his department have to compete for parking space in a communal
parking area with a limited number of parking bays? These two examples both relate to
the perceived ranking of one individual against other members of the group.9 In time,
factors such as knowledge, aggression, power, and seniority determine the status of each
individual member in a group. Members of a group evaluate the position of each person
in the group in terms of status and importance, amongst other things, and so a group
hierarchy develops. The position of a person in the formal organisation determines his
or her status in formal groups, while anything that is appropriate determines status
in informal groups. For example, the person who can communicate most easily with
management may have higher status in a specific group than the other group members.
In certain cases, a person enjoys a particular status in the group because of his years of
experience and he will have the most status in that particular group. This acquired status
may have no connection whatsoever with formal status.
The group as a whole also has its status in an organisation, and a number of things, such
as the level of the organisation where the group finds itself, its general performance, and its
work, reflect this and the amount of power vested in it. Top management in an organisation
has a higher status than the group of middle managers, the rector at in a university has higher
status than the managers of the different faculties that constitute the university. In general,
group status relates positively to group cohesiveness (which we consider next) in the sense
that the higher the group’s status in the organisation, the more cohesive it tends to be.
Status is the perceived ranking of one member to the other members of the group. Groups
also have status in an organisation.
5. Cohesiveness
Cohesiveness refers to group solidarity — the way a group stands together as a unit
rather than as individuals in a group. Cohesiveness develops because of the attraction
that the group holds for the individual, and this attraction relates to the individual’s
needs.10 Group cohesiveness does not always have positive results for an organisation.
The phenomenon of ‘groupthink’, which we discuss later, may occur in groups with
strong cohesiveness and this may mean that the group’s desire for cohesiveness prevents
it from generating innovative solutions to problems.
How do managers encourage or discourage group cohesiveness? In order to
encourage group cohesiveness, managers can:
■■ Keep groups as small as possible
■■ Encourage individuals to identify with the goals of the group
■■ Stimulate competition with other groups
■■ Include people who are similar (bearing in mind, however, that diverse groups
usually make better decisions)
■■ Ensure that one or a few group members do not dominate the group
■■ Motivate the group to become successful.
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To discourage group cohesiveness, managers should do the opposite of the aspects
mentioned in the bulleted list.
Cohesiveness refers to group solidarity – the way a group stands together as a unit rather
than as individuals in a group.
6. Size
Smaller groups are usually more productive than groups with more members, although
the latter are better at problem solving. Maximilien Ringelmann,11 a French engineer,
found that when group members work together on a task, such as pulling a rope,
they exert significantly less effort than when they do the task alone. Ringelmann also
discovered that when more people join a group, the group often becomes increasingly
inefficient, which disproves the premise that group effort and participation will always
result in more effort by group members. Thus, according to the so-called Ringelmann
effect (or ‘social loafing’), group size is inversely related to individual productivity,
which means that the larger the group, the weaker the individual effort is likely to be.
7. Diversity
Generally, diverse groups with a variety of skills and knowledge tend to be more effective
than homogeneous groups. Although diversity created by racial and national differences
interferes with group processes in the short term, it contributes positively to group
effectiveness in the long term because the group members have diverse viewpoints that
can stimulate innovation and creativity.
13.5.4 Group processes
The effectiveness of group processes influences the performance of groups. Group
processes include group decision-making, communication, power dynamics, and
conflict interaction.
Group decision-making
We discuss the group decision-making process thoroughly in Chapter 6. However, in the
context of group processes, two interesting consequences of the group decision-making
process, namely groupthink and groupshift warrant further discussion. Groupthink
occurs when individual group members do not express their own realistic assessment
of a decision in cases where the group’s consensus is different from their own.12 In one
famous study, the researcher instructed five out of six people in a group to give the
wrong answer to a simple problem. When the first five group members gave the ‘wrong’
answer, the sixth person gave the same obviously wrong answer. He simply did not want
to be different from the rest.
Groupshift occurs when group members take group decisions that carry either
more risk (more adventurous) or less risk (more conservative) than the decision that
individual members would make on their own.13 This happens because the discussion
of an idea by a group may lead to a significant departure from the original point of
view and the decision taken reflects the dominant decision-making norm that has
developed during the group’s discussion. The dominant norm will determine whether
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the shift is towards greater caution or more risk. Groupshift, for example, took place
when the governors of a high school held a meeting to decide how they would spend
a substantial amount of money generated by the parents through various fund-raising
events and contributions. The parents instructed the governors to use the money in
any way they saw fit, but communicated a strong preference for the upgrading of the
science laboratory. The individual governors, all of them parents at the school, came to
the meeting convinced that they would agree to spend the parents’ money on upgrading
the science laboratory. However, one dominant group member made out a very strong
case for the renovation of the school hall instead. After a lengthy discussion, the whole
group agreed that they would spend the money on the renovation of the school hall.
This was a risky decision, especially because the parents indicated their preference for
the renovation of the science laboratory.
Communication
Communication has a strong influence on group members’ behaviour and it
influences their motivation to attain the group’s goals. Effective communication
reduces ambiguities and clarifies a group’s tasks. In terms of group processes, it is
essential for group members to ensure that one or a few members do not dominate
the communication in the group and that all the group members have the opportunity
to contribute to the decision-making and other processes of the group (see
Chapter 15).
Power, interests, influence and politics
Some group members might have more power than others and as a result could influence
other group members to do things they would not otherwise have done. Power and
politics is an integral part of groups in organisations. Read the discussion on power and
politics in Chapter 11 in the context of group performance.
Conflict
Conflict is often the result of disagreements in groups and between the various groups
in an organisation. However, if managers deal with conflict correctly, positive conflict
can prevent stagnation, stimulate creativity, release tensions and initiate change in their
groups. See Chapter 15 for a discussion on conflict and conflict resolution.
13.5.5 Group tasks
The tasks that groups perform range from simple (routine and standardised) to complex
(novel and non-routine). Stocktaking will be a simple task for a group of employees in
a retail store as head office usually provides clear guidelines on how to do it. However,
implementing a new electronic inventory control system will be much more complex.
Tasks also vary in terms of the required degree of interdependence between members
and between various groups. A high degree of task interdependence between group
members requires effective communication and low levels of conflict in order for
the group to perform effectively. Task interdependence is the most powerful basis of
interaction between groups in the organisation, and consists of three kinds of interaction:
pooled interdependence, sequential interdependence, and reciprocal interdependence. An
explanation of these interdependencies appears in Chapter 8.
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Another variable that influences the performance of groups is task uncertainty. In
the prevailing turbulent business environment there are many uncertainties beyond
the control of management. Task uncertainty occurs when groups are unsure of the
direction in which the organisation is heading or how future events may affect them and
their activities in the organisation.
Our discussion thus far centred on the variables that influence the effectiveness of
groups in the organisation. We shall now turn our attention on a special kind of group,
which is gaining rapid popularity in contemporary organisations, namely work teams.
13.6 Organisational teams
In our discussion of groups, we mentioned that teams are a special kind of group and
that although all teams are groups, not all groups are teams. Organisations can develop
groups into teams, but their characteristics will change. Developing teams and utilising
their full potential requires special management skills.
Modern organisations use teams to meet the demands imposed on them by a
number of environmental influences, resulting in them becoming more networked,
flatter, flexible, global and diverse (see Chapter 18).
Earlier on in our discussion on groups we defined a work group as a unit of two or
more people who interact primarily to share information and make decisions that will
help each group member perform within his or her own area of responsibility. Work
teams differ in a number of ways from work groups. In contrast to a work group, a work
team consists of a small number of employees with complementary competencies who
work together on a project, are committed to a common purpose, and are accountable
for performing tasks that contribute to attaining organisational goals.14
A work team consists of a small number of employees with complementary competencies
who work together on a project, are committed to a common purpose, and are accountable
for performing tasks that contribute to attaining organisational goals.
Two examples of nature’s bio teams
Ants
Ant colonies are arguably the most successful team on the planet. They are so dominant in
nature that, despite their tiny size, they comprise ten per cent of all living things by weight
on the planet. No matter where you are in the world, if you are outside and you look down
carefully, you will probably see an ant. Ants have no overall leader – the queen’s role
is simply to reproduce. Even with their tiny brains, ants use swarm intelligence to solve
complex route-planning problems as efficiently as our best computers.
Geese
Flocks of geese fly amazing distances, constantly rotating the bird that handles the extra
responsibility and air resistance of leading. ➜
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A goose can fly up to 70 per cent further in a team than by itself due to the optimisation
of slipstream effects through the ‘V’ formation. If a goose falls behind, two birds will
automatically drop out of formation to assist it or care for it until it dies.
Sources: Bonabeau E. 1999. Swarm intelligence: From natural to artificial systems. Oxford: Oxford
University Press, pp 9–7, pp 271–273; Thompson, K. Bioteaming: ‘Why virtual teams need more than
Internet technology to succeed.’ Bioteam features: 39. Available at: http://www.bioteams.com/
bioteams_features.html (Accessed: 27 June 2005).
13.6.1 Characteristics of effective work teams
The characteristics of work teams differ from those of work groups in a number of vital
aspects as will become evident in the discussion that follows.15
Complementary competencies
In effective teams, team members have complementary competencies in terms of
knowledge, skills, and value orientation. Organisations select team members based on
their technical skills and on their interpersonal and other skills required for the effective
functioning of the specific team. The team members’ skills should complement one
another. This means that each individual team member should have skills that no one
else in the team has, so that each member contributes a distinct skill towards the task
and the collective skills of the members will enable the team to complete the task from
start to finish.
Organisations use various selection tools to ensure that their teams possess
complementary competencies. One such tool is the Belbin method, named after the
creator of the method, R. Meredith Belbin,16 who conducted a comprehensive study of
the best mix of characteristics in a team and produced a list of nine roles that teams need
in order to be fully effective (see Table 13.1). According to Belbin, there should not be
too many of one type in a team because it will cause a lack of balance, while if there are
too few types, the team will not be able to perform some of its tasks.
Commitment to the common purpose
Successful team members are committed to a common purpose, a set of performance
goals, and expectations. A major difference between groups and teams lies in who
sets the goals and plans and who makes the decisions. In a team, the team members
help to formulate the goals and the role of the manager is to involve members and to
ensure that members understand, accept, and are committed to attain the goals. The
distinctive characteristic of a team is a shared commitment by its members to their joint
performance. A simple example of a team goal may be to respond to all customer calls
within twenty-four hours, or a more complex goal may be to reduce defects by 25 per
cent over the next six months. The key point is that teams cannot attain these goals
without the commitment of all the members of the team.17
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Table 13.1 Belbin’s team roles
Belbin©2012
Team Role Summary Descriptions
Team role
Contribution
Allowable weaknesses
Plant
Creative, imaginative, free-thinking.
Generates ideas and solves difficult
problems.
May ignore incidentals, and may be
too pre-occupied to communicate
effectively.
Resource
investigator
Outgoing, enthusiastic. Explores
opportunities and develops
contacts.
Might be over-optimistic, and
can lose interest once the initial
enthusiasm has passed.
Coordinator
Mature, confident, identifies
talent. Clarifies goals. Delegates
effectively.
Can be seen as manipulative and
might offload their own share of
the work.
Shaper
Challenging, dynamic, thrives on
pressure. Has the drive and courage
to overcome obstacles.
Can be prone to provocation, and
may sometimes offend people’s
feelings.
Monitor
Sober, strategic and discerning.
Sees all options and judges
accurately.
Sometimes lacks the drive and
ability to inspire others and can be
overly critical.
Teamworker
Cooperative, perceptive and
diplomatic. Listens and averts
friction.
Can be indecisive in crunch
situations and tends to avoid
confrontation.
Implementer
Practical, reliable, efficient. Turns
ideas into actions and organises
work that needs to be done.
Can be a bit inflexible and slow to
respond to new possibilities.
Completer
Finisher
Painstaking, conscientious, anxious.
Searches out errors. Polishes and
perfects.
Can be inclined to worry unduly,
and reluctant to delegate.
Specialist
Single-minded, self-starting and
dedicated. They provide specialist
knowledge and skills.
Can only contribute on a narrow
front and tends to dwell on the
technicalities.
Evaluator
Source: Belbin®. 2012©. Available at: http://www.belbin.com/media/1486/team-role-summarydescriptions-2016.pdf (Accessed: 18 September 2016).
Cross-cultural perspectives on teamwork in the workplace
People in different cultures think differently about work and have different expectations of
teamwork. For example, in the United States, people use many sports metaphors, while in
Latin America people often refer to the work team as a family. ➜
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Comparing these two contrasts by relating it to what you might expect from your family
versus what you might expect from your sports team, the differences emerge. Families are
central to one’s life while involvement in one’s sports team is more limited, less caring and
more competitive.
Source: Gibson, CB & Mc Daniel, DM. 2010. ‘Moving beyond conventional wisdom: Advancements
in cross-cultural theories of leadership, conflict, and teams’. Perspectives on Psychological Science.
Available at: http://www.psychologicalscience.org/index.php/news/releases/cross-culturalperspective-can-help-teamwork-in-the-workplace.html (Accessed: 11 August 2010).
Shared mission and collective responsibility
The team concept implies that all team members know and share the mission of the
organisation and that team members accept collective responsibility for the performance
of the team. The case study of the BT Global Challenge Round the World Yacht Race at
the end of the chapter shows that the crew members of any given boat could not have
achieved their shared goal of completing the race in the best possible time if they had
not had a shared mission. Team members also had to accept collective responsibility for
sailing their boat and to arrive safely at their destination.
Individual and mutual accountability and rewards
A major difference between work groups and work teams is that group members are
individually accountable and rewarded, whereas team members are both mutually and
individually accountable and rewarded for the team’s performance.
Synergy
The combined effort of a team result in a level of performance that is greater than the
sum of their individual inputs (see characteristics of Belbin’s teams in Section 13.6.1).
Shared leadership
In groups, there is one clear leader; teams share leadership. Most teams identify a
specific person as the leader but the person usually shares this responsibility with other
members. Team leaders empower members to perform management functions while
they focus on developing effective group structures and processes and on developing
team skills. Team leaders plan and conduct meetings and handle problem members.
Their role changes from managing to coaching and facilitating.
Equality
Teams are characterised by equality. In the best teams, everyone suppresses their
individual ego for the good of the team. In the example of the BT Global Challenge Round
the World Yacht Race, we see that in the forming stage, self-interest was paramount. In
the performing stage, self-interest gave way to a focus on group performance.
Size
According to Belbin,18 the best differentiator between groups and teams is size. Groups
can comprise many members, but teams are the most effective if they are small, and in
Belbin’s opinion, the optimum size ranges from four to six members, but not more as
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seniority and status begin to replace merit and contribution when team membership
exceeds six.
Selection
Belbin19 also stresses that selection is a vital task performed by team leaders when they
try to select the best possible team.
13.7 Why organisations use teams
Implementing teams is not the solution to all organisational problems. However, teams
are very effective when the following conditions exist:20
■■ The problem is relatively complex, uncertain, and holds potential for conflict
■■ The problem requires intergroup cooperation and coordination
■■ The problem and its solution have important organisational consequences
■■ There are tight but not immediate deadlines
■■ Widespread acceptance and commitment are critical to the successful
implementation of a response to a situation.
When implemented under the correct conditions, the advantages to organisations using
teams could include:21
■■ Innovation. Teams enhance creativity when people with a variety of experience and
expertise work on a common problem or task.
■■ Speed. Teams can reduce the time required to complete a task because they replace
serial development with parallel development. In serial development, one function
completes a task and then hands over to the next team function, until all the
functions have completed their tasks in sequence. In parallel development, the
team members complete and coordinate several tasks simultaneously.
■■ Cost. Self-managing teams have the ability to reduce costs and respond faster to
customer requests because of their ability to make decisions quickly to meet the
demands of changing situations.
■■ Quality. Teams have shared accountability and commitment to their joint effort,
with the consequence that excellent quality is a primary goal of work teams.
13.8 Types of team
The most common types of team in organisations are problem-solving teams, selfmanaged work teams, cross-functional teams and virtual teams.22
Problem-solving teams are typically composed of employees from the same
department who meet for a few hours each week to discuss ways of improving quality,
efficiency, and the work environment. At a busy restaurant, the kitchen staff members
meet each week to discuss customer complaints, more effective ways of preparing dishes,
the layout of the restaurant to promote efficiency, and so on. Although this team may
suggest improvements, it does not have the authority to implement any of its solutions
unilaterally.
Self-managed work teams function autonomously because they make and implement
decisions and take full responsibility for the outcomes. Consider the example of an
electronics company that assembles modular units for use in computers. Autonomous
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work teams of 14 to 18 people do the work. The teams are responsible for the production
of the units from the arrival of supplies to the shipment of finished products. Every team
member is multiskilled and performs operating tasks to produce the whole product.
The teams meet daily and make decisions about production and the allocation of work,
and issues such as improvements in work design or the hiring of new team members.
Each team has a leader who acts as a resource, coach and facilitator.23
When organisations decide on using self-managed work teams, they have to make
certain design changes that may include changing the organisation structure to a flatter
design, distributing performance-related information to employees, providing extensive
training and development, eliminating status differences, rewarding team performance
and creating conditions for employee empowerment.
Cross-functional teams comprise employees on the same hierarchical level, such as the
marketing manager, financial manager, operations manager, and so on. Cross-functional
teams usually consist of people in the same organisation but could also include people
from other organisations. This type of team is suitable in situations where the team
has to solve complex problems, which require the expertise of specialists with diverse
backgrounds.
Virtual teams comprise geographical and/or organisationally dispersed coworkers who use telecommunications and information technologies to accomplish
an organisational task. They work in any place, at any time and increasingly across
organisational boundaries, unlike teams that primarily operate through face-to-face
meetings between members of the same organisation.
Members of virtual teams may have fewer social relationships and less direct
interaction with other members because they are unable to engage in face-to-face
discussion, and they do not have the advantages such as tone of voice, eye movement,
hand gestures, and body language. Virtual teams tend to be more task-oriented,
especially where the members have not met personally. The members of virtual teams
gain less satisfaction from the group interaction process compared to members of faceto-face teams.
13.9 Developing individuals into team members
There are several options available to organisations wishing to introduce teams in
the workplace. These include following a strict selection process to ensure that the
organisation employs the right kind of people, training existing and new employees to
become effective team members, and implementing a reward system that encourages
teamwork.24
The selection process
In addition to the technical skills needed to perform the work, candidates applying for
positions involving teamwork must also possess suitable personality attributes enabling
them to fulfil their team roles. Personality traits are difficult to change and therefore
team-based organisations often use intensive and sophisticated selection procedures
when hiring new employees. The selection process should identify those people who
possess the interpersonal skills to be effective team players. Organisations typically look
for people with the ability to find common areas of understanding with other members
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of a team, and people with effective communication skills, planning and administration
skills, relevant technical skills, and a global awareness (if the teams are part of global
organisations). Organisations can use the Belbin method to ensure that the team
includes all eight specified roles.
Training
Teambuilding programmes are often effective, even for organisations performing
intensive selection procedures before hiring team members. In cases where teams
need to be able to cope with rare and unexpected events, teams use teambuilding
interventions to help them develop successfully. The case study at the end of the chapter
emphasises the advantages associated with team building where the team relies heavily
on teamwork for survival. The purpose of teambuilding programmes is usually to train
team members to perform a variety of managerial and leadership activities and to
enhance team cohesiveness.
Reward systems
The evaluation and reward systems of organisations influence the behaviour of group
members as we have already indicated elsewhere in the chapter. A reward system indicates
to individuals and groups how they should direct their energies, and they reinforce
desired performance. Different teams require different reward systems — in some cases
non-monetary rewards to recognise excellent team performance might be appropriate,
for others the basis for distributing rewards amongst team members may be a crucial
consideration. Another consideration relating to reward systems is to determine which
portion of an individual’s remuneration should link to the performance of the team and
which portion should be allocated for individual performance.
This brings us to the end of this chapter on groups and teams in organisations. In
Chapter 14, we look at workforce motivation and ways in which managers may influence
the performance of individuals and groups in the organisation in order to attain its goals.
13.10 Summary
Group and team management is one of the most challenging tasks faced by the managers
of contemporary organisations. Different kinds of group exist in an organisation, from
formal groups including command groups and task groups to friendship groups and
interest groups, which are examples of informal groups.
Group development typically follows five stages, namely forming, storming,
norming, performing, and adjourning. As a group develops, its focus and the emotions
of the group members change, and if the group makes it to the performing stage, it
becomes a fully functional and productive group.
Several variables influence the behaviour of individual group members and of the
group itself. These variables are organisational context, group member resources, group
structure, group processes, and group tasks.
A work team consists of a small number of employees with complementary
competencies who work together on a project, are committed to a common purpose,
and are accountable for performing tasks that contr