BUSINESS ADMINISTRATION 101
BACHELOR OF BUSINESS
ADMINISTRATION
BUSINESS ADMINISTRATION 101
MODULE GUIDE
Copyright © 2022
REGENT BUSINESS SCHOOL
All rights reserved; no part of this book may be reproduced in any form or by any means, including
photocopying machines, without the written permission of the publisher.
BACHELOR OF BUSINESS ADMINISTRATION
BUSINESS ADMINISTRATION 101
Table of Contents
INTRODUCTION TO BUSINESS ADMINISTRATION 101 ..............................4
CHAPTER 01:
Overview of the Business Environment ............................................................8
CHAPTER 02:
The Evolution of Business-Related Fields of Study and
the Macro-Environment ..................................................................................20
CHAPTER 03:
Operating Ethically in the Internal and Market Business Environments .........39
CHAPTER 04:
Making Decisions in Business ........................................................................71
APPENDIX A:
Model Answers ...............................................................................................94
BIBLIOGRAPHY ..........................................................................................107
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List of Figures
Figure 1.1: Difference between business administration and
business management ................................................................................ 9
Figure 1.2: Four interdependent elements of business ............................... 11
Figure 1.3: Need-satisfying institutions in the market economy .................. 16
Figure 1.4: Characteristics of a science ...................................................... 17
Figure 2.1: Evolution of management thought ............................................. 20
Figure 2.2: Breakdown of the business environment .................................. 21
Figure 2.3: Breakdown of the external business environment ..................... 22
Figure 2.4: Components of the macro-environment .................................... 23
Figure 2.5: Business technology assessment ............................................. 25
Figure 2.6: Components of the social environment ..................................... 28
Figure 2.7: Concerns posed to the physical environment ............................ 30
Figure 3.1: Micro-environment .................................................................... 40
Figure 3.2: Information required by top management .................................. 43
Figure 3.3: External and internal information needs of an organisation ....... 46
Figure 3.4: Market environment .................................................................. 47
Figure 3.5: Shoprite group ........................................................................... 49
Figure 3.6: Porter’s Five factor forces ......................................................... 57
Figure 3.7: Threats of new entrants ............................................................. 58
Figure 3.8: Burger King advertisement campaign ....................................... 60
Figure 3.9: Nando’s advertisement campaign .............................................. 61
Figure 4.1: Areas of business decisions ...................................................... 73
Figure 4.2: Steps to effective decision making ............................................ 74
Figure 4.3: Cartoon on making business decisions ..................................... 75
Figure 4.4: Assumptions of organisational behaviour .................................. 76
Figure: 4.5: Attributes of effective processes .............................................. 77
Figure 4.6: Business process categories ..................................................... 78
Figure 4.7: Ten core processes of a business ............................................. 79
Figure 4.8: The control process ................................................................... 80
Figure 4.9: Example of in-depth control process ......................................... 87
Figure 4.10: Types of KPIs .......................................................................... 88
Figure 4.11: Meaningful results for a business ............................................ 89
Figure 4.12: Improving processes for effective decision making ................. 90
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List of Tables
Table 3.1: Types of information required by middle-management
in the internal business environment ........................................................... 44
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INTRODUCTION TO BUSINESS ADMINISTRATION
101
1. Introduction
Welcome to the Bachelor of Business Administration programme. As part of your
studies, you are required to study and successfully complete a module on Business
Administration 101.
2. Module Overview
This module has been designed to provide you with an overview of two interrelated
fields in business, namely business administration and business management. In
addition, the various areas of the business environment, namely, micro, market and
macro will be explored, and insight will be provided on the ethical considerations.
Decision making in business is vital to success. This will be explored in line with the
importance of organisation and management of business practices.
3. Aim of the Module
This module aims to provide an overview of business administration and business
management. Furthermore, it highlights the main areas of business as well as
evolution of the fields of study. In addition, the module aims to highlight the importance
of ethical behaviour in business. Lastly, the module aims to provide an overview of
making decisions in business. The following outcomes relate to the module:
•
Provide an informed outline of the core areas, key terms, and theoretical
concepts of the business environment.
•
Describe the evolution of business management and business administration
as fields of study.
•
Operate ethically in a range of business contexts with cognisance of the
different parts of business systems.
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•
Identify essential information required for decision making and present possible
solutions to typical every-day business problems to solve.
4. Essential (Prescribed) Reading
Your essential (prescribed) reading comprises the following:
4.1. Prescribed Reading
Erasmus, B, Rudansky-Klopper, S & Strydom, J. (2019). Introduction to
Business Management - 11th Edition. Oxford University Press.
4.2. Recommended Reading
Ferreira, J. & Groenewald, D. (2017) Business Administration. Juta.
5. How to use the Module
This module should be studied using the recommended and prescribed textbooks and
the relevant sections of this module. You must read about the topic that you intend to
study in the appropriate section before you start reading the textbooks in detail. Ensure
that you make your own notes as you work through both the textbooks and this
module. You will find a list of objectives and outcomes at the beginning of each section.
These outline the main points that you need to understand when you have completed
the section/s. The purpose of this guide is to help you study. It is important for you to
work through all the tasks and self-assessment exercises as they provide guidelines
for examination purposes.
6. Navigational Icons
Think Point
When you see this icon, you should think about and reflect on the
issues/challenges/themes presented.
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Tasks
When you see this icon, you will know that you are required to perform
some kind of task to gauge how well you remember or understand
what you have read or how good you are at applying what you have
learnt.
Definitions
This icon will alert you to a specific definition related to the topic under
discussion.
Case Studies
Case studies are often used to illustrate a concept within the setting
of a real-life scenario. Answer the questions that follow to ensure that
you have a proper understanding of what has been discussed.
7. Specific Outcomes and Chapter Alignment
SPECIFIC OUTCOMES
CHAPTER
ALIGNMENT
SO 1:
Provide an informed outline of the core areas, key
Chapter 1
terms, and theoretical concepts of the business
environment.
SO 2:
Describe the evolution of business management and
Chapter 2
business administration as fields of study.
SO 3:
Operate ethically in a range of business contexts with
Chapter 3
cognisance of the different parts of business
systems.
SO 4:
Identify essential information required for decision
Chapter 4
making and present possible solutions to typical
every-day business problems to solve.
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8. Specific Outcomes and Assessment Criteria
SPECIFIC OUTCOMES
ASSESSMENT CRITERIA
The student should demonstrate the ability to:
SO 1:
Provide an informed outline
•
of the core areas, key
business
terms, and theoretical
administration.
concepts of the business
•
environment.
SO 2:
SO 3:
Clarify the difference between the fields of
Provide
management
insightful
and
business
definitions
and
descriptions of areas core to the business
Describe the evolution of
environment inclusive of the economic,
business management and
legal and political, demographic, social,
business administration as
competitive,
fields of study.
factors.
Operate ethically in a range
•
of business contexts with
global,
and
technological
Provide clear outlines of the internal and
external business environment.
cognisance of the different
parts of business systems.
SO 4:
Identify essential
•
Explain business theory with reference to
information required for
the
decision making and
organisation's behaviour, and what dictates
present possible solutions
its decisions about what to do and what not
to typical every-day
to do.
business problems to
•
solve.
Define
assumptions
what
a
that
business
shape
an
organisation
considers to be meaningful results.
•
Perform basic business processes in the
context of a variety of types of business.
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CHAPTER 01:
Overview of the Business Environment
Chapter Outcomes
Upon completion of this chapter, the learner should be able to:
•
Provide an informed outline of the core areas, key terms and theoretical
concepts of the business.
1.1. Introduction to an Overview of the Business Environment
Businesses behave in a certain way due to the business environment. A business
environment is dynamic and complex, and its purpose is to create products or services
for consumers (individuals, businesses, or government) that solves a need or want. A
business environment considers all factors both within the business and externally;
within their control and without their control; that influences it in anyway. It is therefore
a large and vital area that determines business success, (Erasmus, RudanskyKlopper, Strydom, 2019).
In this chapter we are going to look at the business environment by reviewing its core
areas as well as outlining main concepts related to the business environment.
1.2. Core Areas of the Business Environment
The purpose of a business is to transform either raw materials or ‘package’ and deliver
a service to customers and potential customers (this may include other businesses
and government) in exchange for money. This is done to make a profit (for profit
making businesses), (Erasmus, 2019). In addition to making a profit, businesses have
to consider all interests of its stakeholders.
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Stakeholder: “Individual or group that has interest in any decision or activity
of an organisation,” (ASQ, 2022).
Business actions are therefore dependent on several internal and external factors that
influence the business. Business actions can be divided into two major fields of study
in business namely, business administration and business management.
Business administration: “The process of organising the business’s
personnel and resources to meet business goals and objectives,” (MBN, 2022).
Business management refers to: “Handling the coordination and
organisation of business affairs. This commonly includes the production of money,
materials, machines, and has something to do with innovation and marketing,”
(Covernant, 2021).
Figure 1.1: Difference between business administration and business management
Source: Pacific Oaks College, 2021
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As can be seen from the above, business administration drives strategy using various
techniques whereas business management is more focused on the organisation and
management of the business.
Read the following integrated report for Shoprite Holdings Ltd. After reading this,
identify which functions to be performed falls within the scope of business
administration and which falls within the scope of business management.
Article details:
Shoprite Holdings Ltd. (2017) Operating context and strategy. Available from:
https://www.shopriteholdings.co.za/content/dam/MediaPortal/LatestIntegrateRepor
t/IR2017/9_5932_Shoprite_IR_2017E_Operating_Context.pdf.
[Accessed:
15
February 2022].
Now that you have an overview of the difference between the interrelated elements of
business management and business administration let’s explore business as a whole,
in more detail.
1.2.1. The role of business in society
As already mentioned, businesses are influenced, and influence, various
stakeholders. In turn this affects their ability to perform successfully. Review the figure
below to see the interdependence between various stakeholders.
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Human actvities
(management of
resources)
Transformation of
resources
(production;
delivering a service)
Profit (obtained for
meeting needs and
wants)
Exchange
(products/services
for money/other)
Figure 1.2: Four interdependent elements of business
Derived from: Erasmus, 2019
Let’s unpack this (Erasmus, 2019):
Human resources refer to all labour used in the business to make products or deliver
a service.
Transformation refers to taking materials and turning it into a product that can be sold.
This also involves ‘packaging’ a service that can be delivered.
Exchanges involves selling the product or service for money and profit is the amount
of money that is made over and above what the business needed to product the
product or deliver the service.
In other words, consumers or potential consumers demand products and services.
Businesses employee individuals to fulfil the transformation process. In return this is
sold to consumers and the business makes a profit is this process is done successfully.
Businesses can exist and make a profit due to the fact that there is an unlimited
amount of needs and wants as people progress in Maslow’s hierarchy of needs but
there is only a limited amount of resources. Resources include natural and human as
well as capital and entrepreneurship. Scarcity in resources forms the basis for
businesses, (Erasmus, 2019). This situation is referred to as the economic principle.
Businesses then decide how to deal with the what the consumer wants versus what
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resources they have at their disposal is called the economic problem and it is essential
to their success, (Erasmus, 2019).
Economic principles: “The highest possible satisfaction of needs with these
scare resources,” (Erasmus, 2019).
On the other hand, the way in which need satisfaction is approached and the demand
for products or services are determined as well as how it is produced/delivered is done
by looking at the economic system in place. In South Africa a mixed market system
is followed, (Erasmus, 2019).
Entrepreneurship: “It refers to the collective capacity of entrepreneurs, who
are those individuals who accept the risks involved in providing products and
services for their society,” (Erasmus, 2019).
Let’s look at an example of influences and a business’s ability to transform materials
and generating a profit.
As you may know there is an ongoing chip shortage worldwide since 2021. ‘Chips’ are
used in electronic parts used in various sectors.
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4 sectors hardest hit by the global chip shortage
Whether it is the COVID-19 pandemic, political sanctions, or higher demand than
supply, one thing is clear: Many manufacturers and industries are dealing with a
massive global shortage of electronic parts, such as sensors, and semiconductors.
Unfortunately, some of the most significant economic sectors are taking the brunt of
the problem, and the negative implications can be staggering and devastating. Here
are the four sectors hit hardest by the worldwide chip shortage:
1. Auto
While the global chip shortage hurts many industries, the punch is not equal. It is
hitting the vehicle industry the hardest.
Initially, AlixPartners forecast that the direct losses that could be attributed to the
global problem would reach €60 billion (about $73 billion US) by 2021. Even before
the year is half over, losses have a climbed by 33% and could potentially balloon to
€90 billion (nearly $110 billion US) for the automotive industry alone.
The sore lack of enough sensors and other electronic parts is now forcing many
automakers, including in the United States, to halt, slow down, or delay production
temporarily. All these can mean three things:
•
A possibly higher unemployment rate.
•
Slower economic recovery following the pandemic.
•
Lower vehicle production.
In fact, estimates suggest that total vehicles to come out this year will be up to 5
million fewer than previously thought. Volkswagen is planning to cut down its
number of produced vehicles by at least 100,000, according to consultants at
AlixPartners.
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2. Consumer Electronics
Some experts blame the chip shortage in the automotive industry on the rapidly
increasing demand for consumer electronics, particularly during the pandemic.
Desktop PCs were formerly experiencing a slow death with sales of laptops and
mobile devices.
In a recent report citing Canalys, the worldwide PC market posted an increase of
55% in just the first quarter of this year—the highest it has been over the last 10
years. This is after the pandemic forced students to adopt virtual learning and
employees to work from home.
While non-essential, gaming consoles are also doing well in the market. As of May
2021, another forecast by Fortune Business Insight said that this consumer
electronics sector could achieve a compound annual growth rate of 5.3% until 2027.
By then, the revenues could reach $51 billion.
However, along with their popularity is the higher need for semiconductors and
sensors. Unfortunately, those chips intended for cars are not suitable for consumer
electronics and vice versa. Moreover, companies like Intel predict that it may take
not months but years before the shortage can be properly addressed.
In the meantime, the shortage could lead to lower profitability for the companies or
raise consumer prices, which means more people may not be able to afford the
goods.
3. Light - emitting -diode (LEDs) & Lighting Fixtures
The chip shortage also affected LED supply. According to recent reports, the
COVID-19 pandemic slowed down or even stopped construction, remodelling, and
improvement for residential and commercial properties.
This means that the demand for smart homes also slightly declined. Along with it,
there’s not much demand for light-emitting-diode (LED) lights, which are considered
to be a more sustainable option than halogen, incandescent, and fluorescent.
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For this market segment, there’s less likely to be a chip shortage. Instead, the prices
for this raw material could go down, making the product more cost-effective and
competitive.
However, it is a different story for mini LED lights, which are currently used in many
appliances and consumer electronics (such as televisions and smartphones). As
early as the fourth quarter of 2020, many manufacturers that use these materials
were already stockpiling; this is based on the data from OEMsecrets.com a
comparison search engine for electronic parts.
In turn, prices for the commodity have gone up by as much as 10%, according to
TrendForce. It devasted many companies’ inventories, which in turn, hurt their LED
supply chain.
4. Power - Turbines and Solar
While most options for renewable energy are made of steel or aluminum, a part of
their inner workings is controlled or managed by electronic parts, like
semiconductors and sensors. And as expected, the chip shortage could mean a
heavy blow for this growing industry.
Enphase Energy, for example, reported in February constraints in the
semiconductor supply chain. In May, company shares dipped to $114.61 down from
a six-month high of $213.76 on Jan. 7.
The chip shortage doesn’t have an exact timeline on when it will end, which may
delay renewable energy goals and stall prices and, therefore, the adoption by
consumers and businesses.
The best solution
Companies try to remedy the ongoing saga of the lacking semiconductors and
sensors by stockpiling as much as they can, but doing so may also leave other
businesses, especially small ones, with nothing.
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The best solution is a combination of approaches that range from better diplomatic
ties, a resilient supply chain, better inventory planning, stronger relationships with
vendors, and even sound economic and trade policies.
Source: Dooley, 2021
In South Africa, as is the case with the rest of the world, the launch of phones
were delayed due to the chip shortage. In addition, new vehicles took longer to be
delivered to South Africa.
What other areas did you see delays in as a result of the chip shortage?
As you can see from the case study the ability for a business to run its operations and
drive its strategy is key to making a profit. However, there are various elements that
can dramatically impact business’s ability to transform resources into products and
services for profit. This impacts the role of business (of all types) in society.
Next, we are going to consider the various types of business in society.
1.3. Need-satisfying Institutions of the Market Economy
The market economy serves the consumer (whether this is individual or business) by
producing goods and services to address various needs and demands. To achieve
this, they apply management to respective industries.
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Business
organisations
Satisfy
community
needs
Take risks and
initative
Government
organisation
Non-profitseeking
organisations
Need-satisfying
institutions
Need satisfying
but no profit
motive
Profit motive is
absent
Requires
financial
support from
the community
Figure 1.3: Need-satisfying institutions in the market economy
Source: Erasmus, 2019
Business organisations: “Defined as those private need-satisfying
institutions of a market economy that accept risks in pursuit of profit by offering
products and services on the market to the consumer,” (Erasmus, 2019).
During the 2022 SONA (State of the Nation Address), President Ramaphosa
said that legislative amendments will be made in order to end the electricity
monopoly that Eskom has and will allow for private players to sell electricity
independently, (Paton, 2022).
Think about all the potential impacts on the consumer, businesses, and the
community. Do you agree that South Africa should move away from government
organisation to business organisation with a profit motive with regards to electricity?
Support your opinion.
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In the next section we are going to move away from how business is conducted and
the focus of various types of business to consider business management as a scientific
field of study.
1.4. The Nature and Purpose of Business Management
We understand why organisations operate and what their intention may be. Business
management allows organisations to achieve the highest output with the least input,
thereby achieving organisational efficiency, (Erasmus, 2019). Furthermore, it is a
continuous process that considers various problems experienced in business and find
suitable approaches and principles as well as methods and techniques to solve the
problems. This makes business management an applied science that helps drive a
business to achieve its objectives. Business management is evaluated against
characteristics that is required for a phenomenon to be a science. These
characteristics, which is met by business management to be a science includes:
Distinguisable subject
of study
•This needs to form the basis of the nucleus of a discipline.
Independent of other
sciences
•It can be studied by other sciences for more information.
•Busienss management can also study other sciences to supplement the
understanding of management related concepts.
Uniform, systematised
boy of knowledge
Produce a generally
accepted theory
•This includes facts and scientific laws.
•Laws and principles are tested in practice.
•This condition has not yet been met as an independent science.
Figure 1.4: Characteristics of a science
Source: Erasmus, 2019
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1.5. Conclusion
This chapter provided an overview of the core elements of a business and
differentiated between business management and business administration as well as
their core areas of focus. We reviewed the purpose of business as well as the types
of businesses and how businesses decide what to produce and how to produce it by
considering an overview of economic systems. Furthermore, we considered what
makes business management a science of study.
In chapter two we will move to core areas of the business environment by considering
the evolution of the fields of study for both business management and administration
as well as considering the macro-economic environment.
Self-Assessment Questions
1. Differentiate between business management and business administration.
Include the main areas of focus for each.
2. Outline the three types of need-satisfying institutions in the market economy.
3. Explain the characteristics required for a science by mentioning if the field of
business management meet the required characteristics.
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CHAPTER 02:
The Evolution of Business-Related Fields of Study
and the Macro-Environment
Chapter Outcomes
Upon completion of this chapter, the learner should be able to:
•
Describe
the
evolution
of
business
management
and
business
administration as fields of study.
2.1
Introduction to the Evolution of Business-Related Fields of
Study and the Macro-Environment
In unit one we differentiated between business management and business
administration. The ‘starting’ point for these two interrelated fields is the same and it
has evolved over the years. An important element of the business-related fields of
study is the business environment. A business environment consists of elements that
the business can control but also includes elements that is not within the control of the
business but can affect all businesses and all industries, (Erasmus, 2019).
In this unit we are going review the evolution of the business-related fields of study. In
addition, we are going to focus specifically on the component of the business
environment that is not within the control of the business namely the macroenvironment. Before we can do this, it is important to consider all three elements of
the business environment.
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2.2
Evolution of Business Management and Business
Administration
The fields of both business management and business administration have changed
significantly over the years. The most significant phases of evolution can be seen in
the figure below.
Pre-scientific
management
period
Classic theory
Neo-classic theory
Bureaucratic model
fo Max Weber
• Started during the industrial revolution in the
18th century.
• Classic theory - focus was on job content,
standardisation, devision of labour.
• Neo-classic theory - emphasis on employee
relationships within the working environment.
• Include system of rules, division of labour, legal
authority, power, organisational hierarchy,
placement on technical competence
Figure 2.1: Evolution of management thought
Source: Management Study HQ, 2022
As you can see from the above figure, the fields of business administration and
business management started with business thought that did not recognise it as a
science. This has developed and changed to the world of business with the operational
requirements and strategy that we currently know.
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Now that you have an understanding of the evolution of management thought, we
need to consider one of the main factors that has the ability to influence all businesses
and across all industries – the macro-environment.
2.3 The Macro-environment
The macro-environment is one component of the external business environment. The
market and macro-environments together create the external environment by which
businesses are influenced. The major difference between the two is that the market
environment may still be influenced by the business, but the business has no control
over the macro-environment. In other words, the business in itself cannot influence
the macro-environment. In turn, the macro-environment often provides opportunities
and threats to the individual business. When there are various uncontrollable forces
that influence and affect a business from various industries it is referred to as megatrends. Refer to the figures below for a breakdown of the business and external
environments.
Figure 2.2: Breakdown of the business environment
Derived from: Erasmus, 2019
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In the figure below we break down the external business environment further.
Market
environment
Ability to
influence the
business
Macroenvironment
Ability to
influence the
business
The business
has an ability to
influence it
The business
cannot impact it
Impact is
limited to the
business and
industry
Impact is not
limited to
business or a
specific industry
Figure 2.3: Breakdown of the external business environment
Derived from: Erasmus, 2019
Macro-environment: “The extensive and wide-ranging set of economic
conditions is defined as a macro-environment. It refers to all those external
environment factors that immensely influence the business success, strategies, and
decision making. These factors that highly influence the business success are not
controlled by the organisation easily,” (Vedantu, N. D).
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The macro-environment consists of the following elements:
Technology
International
Economic
Macroenvironment
Social
Institutional
Physical
Figure 2.4: Components of the macro-environment
Source: Erasmus, 2019
The COVID-19 pandemic has dramatically changed and shaped the business
environment. Although businesses around the world return are ‘returning to preCovid-19 conditions’, various elements have permanently changed. Which macroenvironmental elements do you think have been permanently changed? What
opportunities and threats do you are, and will continue to affect businesses for the
foreseeable future?
In addition to the components provided in the figure above, other components that
can also influence the business environment is legal and political aspects, (Erasmus,
2019).
Let’s explore each of the variables related to the macro-environment components in
more detail.
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2.3.1. Technology environment
The technology environment helps to enhance and increase human capabilities. It is
therefore vital for business to conduct research in order to improve these efforts.
Technological innovations can result in the following (but not limited to), (Erasmus,
2019):
•
New machinery.
•
New products/services.
•
New processes and methods.
•
New approaches to management.
Monday.com is a project management solution that was founded in February 2012.
However, Monday.com has shown significant growth as a result of COVID-19, when
they released the second version of this software. This encompassed new
products/services, processes, and methods as well as approaches to management,
(Monday.com, 2022). Monday.com capitalised on the opportunity created by the
megatrend of working from home created by the COVID-19.
The road to initial public offering (IPO)
To get a better idea of our journey to becoming a publicly traded company, we’ve
created a timeline that captures how far we’ve come from the number of customers
we serve and our valuation to product milestones.
In 2012, things started cooking and we secured our first round of funding with a 1.5
million Seed Round. After a lot of research, collaboration, and burning the midnight
oil, our team built the prototype for what is known today as monday.com. Just two
years later, monday.com officially launched from a humble apartment in Tel Aviv.
From there, things really got moving. Over the next six years, we did a lot:
Perhaps one of our biggest strides was our 2020 launch of Monday 2.0, when we
officially transformed into a work operating system (Work OS). Despite the COVID19 pandemic, we also pushed forward, growing our teams, and launching Monday
apps- our unique framework that allows every developer in the world to easily build
apps on top of monday.com.
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This year, we rang the bell and officially became a publicly-traded company on
Nasdaq. Over 780 million dollars was raised leading up to the IPO, led by Zoom
and Salesforce Ventures. As Roy and Eran rang the bell at Nasdaq, over 127,000
customers and 80 employees of monday.com became part of a historical moment
— the first Work OS going public.
Source: Monday.com, 2022
From the article above you can see that a there was a mega trend to work from home.
This created an opportunity for a technological company to expand their offering and
through innovation they have significantly increased their market share.
For businesses to capitalise on opportunities and steer clear of any threats as a
result of mega-trends in the technological environment, they should have continuous
review of the following:
Identification of technological trends
Evaluation of current and future
technology changes
Evaluation of technology and the
impact on competition
Evaluation of own technological
strenghts and weaknesses
Continous review of a list of priorities to
be included in a technology strategy
Figure 2.5: Business technology assessment
Derived from: Erasmus, 2019
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As we already noted, macro-environment elements influence businesses from
different industries and it can also be across countries. In South Africa there are
various fields within the technology environment to which we, as a country, pay
attention additional attention. This includes, (Erasmus, 2019):
•
Water technology.
•
Mineral technology.
•
Marine technology.
•
Agricultural and veterinary technology.
•
Medical technology.
•
Transport technology.
•
Power technology.
2.3.2. Economic environment
The economic environment is another element that affects all businesses, across all
industries. In addition, economic conditions in other countries may also affect the
economic conditions of a home country, (Erasmus, 2019).
The economic environment consists of several elements. These elements will affect
the business’s purchasing and trading ability as well as its ability to get and pay back
loans. In addition, it affects the ability for consumers to buy products and services for
the business; thus, affecting the business income, (Erasmus, 2019).
These elements include, (Erasmus, 2019):
•
Economic growth of a country.
•
Inflation.
•
Monetary policy.
Economic growth: “The rate of change in the inflation-adjusted market
value of the goods and services produced by an economy over time. It is
measured as the precent rate of increase in real gross domestic product, or real
GDP, usually in per capita terms,” (IGI Global, 2022).
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Inflation: “The process of increases in the general level of prices,” (Mohr,
2020:256).
Monetary policy: “The measures taken by the monetary authorities to
influence the quantity of money or the rate of interest with a view to achieving stables
prices, full employment and economic growth,” (Mohr, 2020:296).
2.3.3. Social environment
When consumers change their buying preferences and trends it has a direct impact
on the business. This means that changes in both the technology and economic
environments can affect buying patterns and behaviours for consumers and this in
return will have an impact on the business, (Erasmus, 2019).
The social environment has several different components and each of these
components can exert an impact consumer and the business, (Erasmus, 2019). The
physical environment includes:
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Demographic change
Urbanisation
Level of education
•Developed countries - population fall; smaller consumer units; growing demand
for products & services
•Developing countries - population growth, poverty; adverse impact on demand
for product & services
•Foremost trends of the world's population
•Affects businesses in terms of housing, sanitation, slum control and health
services
•An increase in education leads to an increase in skills
•Leads to a change in consumer buying patterns
•Changes in business with an increase in women leaders
Changing role of
women
Consumerism
Social responsibility
and business ethics
•Rights to protect the consumer durning purchases
•Right to: safety, be informed, freedom of choice, be heard
•Businesses requirement to act in a socially responsible manner
•Businesses must contribute to society
•CSR is a requirement & to behave ethically
•Management must understand this problem; develop strategies to deal with
HIV/Aids in the workplace
HIV/Aids
•Political powwer, attitude of workforce, culture, market shape impact the
business
Culture
Figure 2.6: Components of the social environment
Source: Erasmus, 2019
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Business ethics: “The study of business situations, activities, and decisions
where issues of right and wrong are addressed,” (Crane, Matten, Glozer & Spence,
2019:5).
Consumerism: “The state of an advanced industrial society in which a lot of
goods are bought and sold,” (Cambridge Dictionary, 2022).
Demographic change: “Change in the growth and composition of
populations,” (Erasmus, 2019).
Urbanisation: “The movement of people from rural areas towards cities,”
(Erasmus, 2019).
2.3.4. Physical environment
People need various resources to support life. This is the physical environment and
includes element water, air and so on, (Erasmus, 2019). The physical environment
has some issues that pose concerns. These are provided in the figure below.
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Overpopulation
Food
Water
Energy &
climate
Figure 2.7: Concerns posed to the physical environment
Source: Erasmus, 2019
These elements pose various opportunities and threats for businesses related to:
•
The cost of energy.
•
The growing cost of pollution.
•
Environmentalism.
•
Scare resources.
As previously mentioned in this guide, the 2022 SONA announcement by President
Ramaphosa has created an opportunity, related to the energy and climate, for
businesses.
Identify any other opportunities or threats that affect businesses and relate to
the concerns posed as a result of the physical environment.
2.3.5. Institutional-governmental environment
Government is responsible for passing bills and other regulations. Consequently,
government influences business through the regulatory requirements. This includes
taxes as well as through regulating imports and promoting exports, (Erasmus, 2019).
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2.3.6. International environment
Businesses that transact internationally has to consider international regulations. In
addition, it should also consider demographic factors related to the countries in which
it is operating. Businesses have also been increasingly affected by globalisation.
Globalisation provides businesses with various opportunities but can also introduce
threats, (Erasmus, 2019).
Identify and briefly explain three opportunities and three threats that
businesses face when operating internationally.
2.4. Operating Successfully with the Impacts of the Macroenvironment
The macro-environment can influence all businesses from all industries. It is therefore
vital that businesses evaluate it and adjust their products or services in line with
changes in the macro-environment. This can be done through environmental
scanning.
Environmental scanning: “The ongoing tracking of trends and occurrences
in an organisation’s internal and external environment that bear on its success,
currently and in the future. The results are extremely useful in shaping goals and
strategies,” (Fordham University, 2022).
Environmental scanning helps to create a purposeful monitoring of external elements
that affect the business. This helps businesses to determine the factors that create
potential opportunities and help them to steer clear of threats. In other words, effective
environmental scanning helps to drive the strategy of the business, (Erasmus, 2019).
Consider the following case: You will notice that environmental scanning helped to
identify opportunities to evaluate COVID-19 by using technology (an element of the
macro-environment) to identify opportunities for business, but where the outcome will
have a further impact on the world of business.
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How wastewater is helping South Africa fight COVID-19
Detecting the coronavirus in samples from treatment plants could give early warning
of outbreaks and new variants.
Monday is sample-collection day in Cape Town, South Africa, and Aqeelah
Benjamin is halfway through her shift. At the Green Point wastewater-treatment
plant, under the Atlantic coast promenade, she fills a 500-millilitre bottle from a tap
of untreated water. She wipes the bottle’s exterior, cleans it with a spritz of ethanol
and stores it on ice.
It’s one of nine samples that Benjamin will collect today, each from a different facility.
Later, she’ll drop them off at the South African Medical Research Council (SAMRC)
laboratory, where they will be tested for the presence of SARS‑CoV-2, the virus that
causes COVID‑19. But that’s just a fraction of the samples’ potential — wastewater
contains a wealth of information about public health, and scientists are only just
starting to tap into its potential.
Wastewater testing can provide an unbiased snapshot of community health:
whatever access they have to the health-care system, everyone has to go to the
toilet. And as the effluent makes its way to treatment facilities, researchers can test
it to determine what pathogens might be present. For more than 40 years,
researchers have used wastewater to monitor the spread of poliovirus. Norovirus,
influenza, hepatitis and measles viruses can also be found in wastewater. Now, a
growing number of countries are using wastewater to monitor the spread of COVID19. The memorably named COVIDPoops19 Dashboard, run by researchers at the
University of California, Merced, lists more than 2,200 monitoring sites in 54
countries (see go.nature.com/3fjfcjt).
South Africa is one of a handful of countries rolling out the technology nationwide.
But the process isn’t easy: Researchers are struggling to overcome logistical hurdles
and extend the techniques to the large part of the population that has no sewerage
infrastructure.
The SAMRC runs a research programme across four of South Africa’s nine
provinces — the Western Cape, home of Cape Town; the rural Eastern Cape and
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Limpopo; and Gauteng, which includes South Africa’s largest city, Johannesburg,
and its administrative capital, Pretoria. After showing that it could detect SARS-CoV2 in wastewater in 5 treatment plants last June, the SAMRC extended the testing to
another 19 plants to work out the logistics of scaling up the work.
The exercise highlighted problems specific to operating in South Africa. Difficulties
collecting samples from remote sites can slow down the diagnostic process, for
instance. And rolling electricity blackouts, known locally as ‘load-shedding’, can
hinder the operation of the equipment that samples wastewater throughout the day.
These machines, known as composite samplers, are also prone to theft.
Considering this, and the cost of the samplers, South African researchers tend to
use ‘grab samples’, such as Benjamin’s. These samples are generally considered
less representative than are those from composite samplers, because they
represent just a single snapshot in time. But a study by the South African Water
Research Commission (WRC) has found little difference in the effectiveness of the
two approaches in detecting SARS-CoV-2 (see go.nature.com/3v1mpm4).
On Monday afternoon, after Benjamin and two other collectors deliver their samples
to the SAMRC lab in the northern Cape Town suburb of Parow, I meet Rabia
Johnson, deputy director at the SAMRC’s Biomedical Research and Innovation
Platform. The lab specializes in molecular biology and cell-culture systems, and has
been testing waste water for SARS-CoV-2 for nearly a year. “I think we’ve got the
most comprehensive longitudinal database [in South Africa], from the first wave
through the second wave,” Johnson says.
In the lab upstairs from Johnson’s office, the researchers concentrate the samples
in a centrifuge and then extract any viral RNA using a kit from the molecularreagents company Qiagen in Hilden, Germany. The kit is optimized for extracting
RNA from soil rather than water, but researchers at Yale University in New Haven,
Connecticut, have shown that it is better at handling the unwanted organic materials
found in wastewater than are conventional techniques (J. Peccia et al. Preprint at
medRxiv https://doi.org/gc9k; 2020). The team then moves the extracted RNA to a
‘clean’ room to test for SARS-CoV-2 to avoid the risk of contamination. The
researchers use a technique called real-time quantitative polymerase chain reaction
(RT-qPCR) to quantify the amount of RNA that encodes the viral nucleocapsid
protein. Other viral sequences are added in to assess performance. And positive
controls are added for two key variants: 501Y.V2, first identified in South Africa, and
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B.1.1.7, detected in the United Kingdom. A fluorescent signal indicates that the
nucleocapsid RNA is present.
Finally, Johnson cleans up the data and sends them to the SAMRC’s Environment
and Health Resource Unit. Researchers there upload the data to the SAMRC
dashboard, a public resource launched in November 2020 that plots virus spread on
a map (see go.nature.com/3ukn74u). Around 700 people per week access the
service, according to Renée Street, a senior scientist at the unit.
Early warning system
Because wastewater testing can capture the presence of the virus 7–14 days before
the onset of symptoms, it can provide valuable early warning of localized outbreaks.
Health officials can then make sure the necessary resources, equipment and
personal protective equipment are available, says Johnson.
But that’s still theoretical. Wastewater data have not been used directly to inform
decisions about control measures such as targeted lockdowns or resource allocation
in South Africa, but they have been used alongside other sources of information,
including case numbers and hospital admissions. “It’s still very new science,” says
Street. “We’re still working out what the different signals are, and at what signal level
we would need to take action.”
The ability of the technology to identify hotspots is governed by the service area of
the treatment plant: the wider the spread, the harder it is to pinpoint small outbreaks,
and at least one facility serves more than 850,000 people. But Cape Town
epidemiologist Natacha Berkowitz, says that the goal is to “localize infection down
to a small unit area, like a suburb”.
After the pandemic, the city plans to use wastewater to regularly monitor for polio
and other viruses. Although South Africa has been declared polio-free, missed
vaccinations during the pandemic could result in an outbreak. “If we get a positive
signal for polio, we’ll look at that specific drainage area, and perhaps do increased
vaccinations or community education,” Berkowitz says.
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Remote areas
The advantage of wastewater testing is that it samples the population without
requiring any action from individuals. It’s also cost-effective because a single sample
can be tested for multiple pathogens. And most labs can do the testing. “If you have
a medical set-up for pathogen testing,” says Janet Mans, a virologist at the
University of Pretoria, “You should be able to do this.”
But the technology also has downsides. It’s not easy to tie a signal to a specific
location or group, for instance. Furthermore, it monitors only households that are
connected to the sewerage system. And some 40% of the nation’s households do
not have a flush toilet attached to the sewers, according to the 2011 census.
Extending testing to these areas would capture much more of the population.
In Pretoria, a private facility known as Waterlab is working with the WRC to expand
testing to unsewered communities. The idea is to build a framework to start using
samples from rivers and surface waters, says Gina Pocock, Waterlab’s specialist
consultant.
To monitor trends over time, samples are taken from sites that are consistently
contaminated with waste water. That includes rivers downstream of unsewered,
informal (or unplanned) settlements and surface run-off both of ‘grey’ water from
bathing and sinks around standpipes and of ‘black’ water, which pools near latrines
and contains faecal matter.
Such samples can be difficult to work with. Mans, who is working with Waterlab on
ways to extract and test nucleic acids, says that environmental samples often
contain compounds that can inhibit the amplification of nucleic acid by PCR, so
addition of internal control sequences are a must. If the internal control is still
inhibited after the sample has been diluted by one part to ten, that sample is
considered invalid, says Mans. A target can be considered negative only if the
internal control amplifies at that dilution.
Equally difficult is the analysis, especially determining how many people the sample
might represent. The researchers have to use overall trends in other parameters as
proxies for the number of people. At Waterlab, Pocock says, researchers use
bacterial density “to get an indication of the faecal load in the water”.
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We don’t know, “How many people flushed their toilet this morning,” Pocock says.
“It’s not a definite science, where you can say this is our viral load and X amount of
people in this community are sick. And with the rivers, even less so. So, we look at
trends.”
Pros and cons
Those trends should help in assessing the effectiveness of South Africa’s response
to COVID-19.
Rolf Halden, director of the Biodesign Center for Environmental Health Engineering
at Arizona State University in Tempe, has been testing wastewater for nearly 20
years. Last year, he took part in a study to look at the feasibility of mass surveillance,
testing the wastewater of 36 million people in 100 US cities twice a week for 8 weeks
for SARS-CoV-2. His goal is to scale that up to one billion people globally. He and
his team found that it was possible to collect a lot of actionable information for very
little investment, while still protecting people’s privacy.
Although obviously enthusiastic about the technology’s potential, Halden
acknowledges its shortcomings. For instance, the temperature at the monitoring site
matters, as does the distance that people live from it. A signal at a monitoring site
could come from a single person close to the site, or from 10,000 people farther
away, he explains.
There are also ethical and moral considerations as the technology becomes more
powerful. Aggregated data on populations are generally considered safe from a
privacy perspective because individuals cannot be identified. However, as analytical
techniques advance, it might become possible to identify human DNA, prompting
concerns about who should have access to both the technology and the data, (D.
Jacobs et al. IEEE Trans. Technol. Soc. https://doi.org/gc9m; 2021). “The moral and
ethical framework has to grow, ideally before the technology is applied,” Halden
says.
Still, the potential benefits remain powerful motivators. Wastewater testing, Halden
says, allows researchers to keep “a finger on the pulse of humanity”.
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Source: (Richardson, 2021) (verbatim from source)
2.5. Conclusion
This chapter considered how the management field of study evolved since the 18 th
century. It has evolved through various stages and the last major evolution led to the
business world as we know it with a business management being a science.
We also considered the macro-environment that directly, or indirectly influences all
businesses, across various industries and even countries. The mega-trends resulting
from changes in the macro-environment often leads to opportunities and threats that
businesses can capitalise on or aim to avoid. Businesses can identify potential
opportunities and threats by doing environmental scanning.
This chapter therefore helped us to understand the relationship between the macroenvironment and businesses and elaborated on how businesses can amend its
strategies to lead to business success.
In the next chapter we will review the rest of the business environment in further detail.
Self-Assessment Questions
1. Explain the evolution of the management field of study.
2. Discuss the core elements of the macro-environment.
3. Define environmental scanning and explain how businesses can use to improve
themselves.
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CHAPTER 03:
Operating Ethically in the Internal and Market
Business Environments
Chapter Outcomes
Upon completion of this chapter, the learner should be able to:
•
Operate ethically in a range of business context with cognisance of the
different parts of business systems.
3.1
Introduction to the Internal and Market Environment
The business environment is the landscape, inclusive of all components, in which a
business operates. In unit two we noted that the business environment consists of an
internal and external environment. This includes all the complex relationships within
the business and with other components of the business environment. The internal
environment refers to the business itself and the market environment refers to
components which the business can influence and by which the business is
influenced, (Erasmus, 2019).
In this unit we will consider how businesses interact within itself and the market
environment. We will also review the notion of ethical behaviour by looking at some
examples of how businesses operate and engage with other stakeholders.
Business ethics: “The study of business situations, activities, and decisions
where issues of right and wrong are addressed,” (Crane, Matten, Glozer & Spence,
2019:5).
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3.2
The Internal Business Environment
The internal business environment, also called the micro-environment, refers to all the
components that the business has within its control, (Erasmus, 2019). Let’s consider
each of these components of the internal business environment.
3.2.1. Components of the internal business environment
Before we can discuss the internal environment, we must be aware of an ‘environment’
is.
” The environment comprising of all the actors of an organisation’s
immediate environment which influences the performance of the company, as they
have a direct bearing on the firm’s regular business operations,” (Business Jargons,
2022).
The internal business environment consists of several variables that can impact the
business strategy as well as its performance and decision making (Marketingtutor.net).
These variables are provided in the figure below:
Vision,
mission and
objectives
Microenvironment
Business
functions
Business
resources
Figure 3.1: Micro-environment
Source: Erasmus, 2019
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Shell (previously known as the Royal Dutch Shell company) has been in the news on
several occasions in recent years due to the seismic surveys and their search for oil
and gas, specifically, in the South African oceans.
Let’s look at an example of Shell, the below includes a description of their microenvironment.
Who we are
Shell is an international energy company with expertise in the exploration,
production, refining and marketing of oil and natural gas, and the manufacturing
and marketing of chemicals.
We use advanced technologies and take an innovative approach to help build a
sustainable energy future. We also invest in power, including from low-carbon
sources such as wind and solar; and new fuels for transport, such as advanced
biofuels and hydrogen.
Our purpose
Shell's purpose is to power progress together with more and cleaner energy
solutions. We believe that rising standards of living for a growing global population
are likely to continue to drive demand for energy, including oil and gas, for years to
come. At the same time, the need to tackle climate change means there is a global
transition under way to a low-carbon energy system.
Source: Shell, 2022
Now that you have a better understanding of Shell’s micro-environment, let’s consider
a case study related to Shell. Look out for the elements that may relate to the microenvironment.
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It's 'poppycock': Shell's SA partner HCI blasts seismic survey uproar
Shell's South African partner dismissed fears that seismic surveys for offshore oil
and gas could endanger marine life, calling it "poppycock", while warning that
halting the process could leave the country entirely dependent on crude imports.
There is no evidence that seismic testing has, "had any biologically significant
impact on any marine populations in areas in which surveys have been conducted
anywhere in the world," Hosken Consolidated Investments (HCI) said in an open
letter published on its website. The company is an investor in Impact Oil and Gas
in which Shell owns a 50% stake.
HCI's CEO is former trade unionist and erstwhile ANC MP Johnny Copelyn. He is
also the chair of eMedia Holdings, of which HCI owns a majority stake.
Shell temporarily halted its search for offshore oil and gas reserves along the Wild
Coast and its vessel left South African waters after a court on December 28 granted
local activists an interim interdict blocking any seismic surveys until a ruling can be
made on whether further environmental authorization is required.
"Some people may believe the most important social contribution they can make is
to inhibit oil exploration in South Africa, but their success will not end our demand
for oil," HCI said.
"It will simply leave us completely dependent on importing it at huge cost to our
foreign reserves."
This comes as Australian Geoscience data company Searcher plans to oppose a
legal challenge by West Coast communities seeking to interdict its proposed
seismic survey in the area.
Seismic surveys involve the use of airguns to direct sound pulses into the water which helps with mapping out the seabed to potentially find oil or gas resources.
The applicants have raised concerns of the harmful impact this will have on marine
and bird life.
Source: Njini, 2022
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Do you think Shell is acting in line with their vision, missing and objectives?
Do you think Shell is acting ethically? Why or why not?
As we noted in this section a business’s internal environment has various components.
However, it is also important to note that businesses must make decisions related to
these components and for this, they need to obtain information.
3.2.2. Information requirements of the internal business environment
In addition to the components of the internal business environment, the business in
itself also requires information. This helps it to guide its vision and objectives as well
as its strategy. In addition, it helps the business to organise its resources effectively
through suitable management decisions, (Ferreira, Groenewald, Erasmus, 2017:15).
Let’s explore the information each type of management needs to make effective
decisions for the business itself.
Figure 3.2: Information required by top management
Source: Ferreira et al., 2017:16
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Top management is focused on strategy, but middle management is focused more on
implementation and execution of top-level strategies to meet future needs of their
respective departments.
As such, middle management requires slightly different
information for each department. They also need the information from both within the
business and the external environment, (Ferreira et al., 2017:16).
Table 3.1.: Types of information required by middle-management in the internal
business environment
Functional area
Sales & Marketing
External information
Internal information
needed
needed
• Clients and potential clients:
• Strategies of top
Number, tastes, preferences,
management.
opinions, expenditure ability,
• The products/services and
geographical situation, markets,
their characteristics.
market sectors, and needs.
• Budgeted and actual sales
• Competitors: Their products,
quantities.
prices, and marketing
• Marketing costs.
communication.
Purchasing and
• Everything about existing and
• Stock levels.
Supply Chain
potential suppliers.
• Rate of consumption.
• Quality and prices of raw
• Production quantities.
materials and equipment.
• Machine utilisation.
• Acquisitions costs.
• Quality and availability of other
similar products.
Operations
• Alternative sources of human
• Budgeted and actual
resource requirements.
production quantities.
• All the relevant labour
• Operations costs.
regulations and acts.
• The application of equipment
• Trends regarding all facets of
and staff.
the labour force.
• Stock quantities required and
• Salaries paid in organisations
stock quantities available.
of the same industry.
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Functional area
Human Resources
External information
Internal information
needed
needed
• Capital sources and interest
• Staff requirements.
rates.
• Leave.
• Capital movement.
• Salary scales.
• Investment opportunities
• Other benefits (e.g. car
• Creditors and debtors.
allowances, travelling).
• Conditions of employment.
• Training statistics and needs.
• HR needs in other functions.
• Merit assessment results.
• Performance management
systems.
Finance
Public Relations
• Capital sources and interest
• Stock levels.
rates.
• Turnover.
• Capital movement.
• Information to calculate all
• Investment opportunities.
the financial ratios to ensure
• Creditors and debtors.
sound financial management.
• Interest groups.
• Products and strategies of
• The image of the organisation.
the organisation to enable
them to project the correct
image.
Source: Ferreira et al., 2017:17
Lastly lower-level managers also require information. This helps them with the day-today execution of operations required to fulfil requirements set by middle management.
The information they require include, (Ferreira et al., 2017:18):
Information form operation or marketing schedules
•
Surveys and feedback from consumers, suppliers, employees and so on.
•
Gantt charts: Plot timelines and progress of activities.
•
Observation: Can be achieved by looking at stakeholders actively engaged with
the various activities of a business.
•
Budgets: These are projections whereby the businesses suggest planned
spending in various areas.
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Gantt chart: “Graphical representation of activity against time,” (APM,
2022).
You can see how the internal business uses its information to influence its own
decisions and therefore the components of the internal environment from the figure
below.
Figure 3.3: External and internal information needs of an organisation
Source: Ferreira, 2017:18
The internal business environment is therefore of vital importance to influence its own
decisions, using the information at its disposal to help the business succeed. It is also
where management use information in order to make decisions that are ethical and in
line with their vision, mission and strategy.
In the next section we are going to look at the market environment. This environment
can influence the internal business environment, but as you also noted from table 3.1.
it is also a source of information for the business’s internal environment, and it is often
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used to drive the business’ strategy (a component of the internal business
environment).
3.3
Market Environment
The market environment includes factors that are influenced by the business, but that
can also influence the business. While you are working through this section, consider
the link and information needs of the internal and external environments as well.
Consumers
Competitors
Market
environment
Labour market
& labour
unions
Suppliers
Intermediaries
Figure 3.4: Market environment
Source: Erasmus, 2019
Let’s explore each of these components in more detail. We will also consider some
examples and real-world scenarios.
3.3.1 Consumers
Consumers are individuals or groups of individual that have the buying power (they
have the means; the money) to ‘power’ to make decisions about what they want to
purchase. Businesses therefore influenced by consumers as they drive the market,
but consumers are also often influenced by businesses, (Erasmus, 2019).
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Market: “Consist of people with particular demands who manifest certain
forms of behaviour in satisfying those demands,” (Erasmus, 2019).
Businesses cannot affect changes in macro-environment, such as changes in inflation
or interest rates, but they can try to influence the behaviour of the consumer following
this through various initiatives. A business can often alter the market offering for a
specific area or market segment to help drive consumers to their business instead to
that of the competitor by focusing on each sectors needs and purchasing power.
Purchasing power: “Represented specifcally by consumers’ personal
disposable income. Peraonl disposable income is the portion of personal income
that remains after direct taxes plus credit repayments have been decuted, ad is
avaialbe for buying consumer products and services,” (Erasmus, 2019).
Let’s consider an example where one company has various subsidaries that target
their efforts to make the customer the focus instead of having one business serve all
customers.
Figure 3.5: Shoprite group
Source: Shopriteholdings, 2022
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From the above image you can see that the Shoprite group focuses on the consumer,
to try and influence the buying behaviour in its favour. As such, it has various brands
and subsidaries that drive consumers and influence the correct segments to drive
business within the group.
Up to the point, we have look at how businesses can influence a consumer, however,
consumers can also influence businesses. According to Morley (n.d) consumers
influence businesses in the following ways:
Product development
Consumers often drive products or products design (the same applies to services).
Thus, if businesses are able to see a gap in what customers want and what is available
it helps them to create a product or service that fulfills this need.
How do you think consumers have driven product development over the past
year? Provide examples of atleast two new products that businesses have
developed in response to consumer needs and wants.
Gathering consumer behaviour data
Businesses collect information on consumer sales to understand how you and other
consumers spend, on what and when. For example, businesses can collect data from
your selected payment method (cash or credit card).
In addition, have you ever received a ‘rate our service’ or ‘complete the survey’ request
from a business? They are trying to obtain input from you.This is done to better
understand you and provide better products or services.
Marketing
Businesses consider consumer behaviour in order to determine how, when and what
they should sell.
For example, after Christmas stores selling decorations, jewellery and Christmas
snacks have sales, where there tends to be a markup on roses, teddy bears and
chocolate before Valentine’s Day.
As consumers, we therefore have an impact on businesses, from what we want in
terms of products and services to how businesses market to us. In turn businesses
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also collects information from us that helps them to amend their offerings to us and to
help them stand out from their competitors.
Consider the article below. It is about is about consumer behaviour, and how
businesses can influence consumers in the longer term. It is an American article, but
the same principles apply to South Africa.
Understanding and shaping consumer behaviour in the next normal
Consumer beliefs and behaviours are changing fast. To keep up with—and perhaps
even influence—those changes, companies must leverage deep consumer
insights.
Months after the novel coronavirus was first detected in the United States, the
COVID-19 crisis continues to upend Americans’ lives and livelihoods. The
pandemic has disrupted nearly every routine in day-to-day life. The extent and
duration of mandated lockdowns and business closures have forced people to give
up even some of their most deeply ingrained habits—whether spending an hour at
the gym after dropping the kids off at school, going to a coffee shop for a midday
break, or enjoying Saturday night at the movies.
Many disruptions in daily experiences present a rare moment. In ordinary times,
consumers tend to stick stubbornly to their habits, resulting in very slow adoption (if
any) of beneficial innovations that require behaviour change. Now, the COVID-19
crisis has caused consumers everywhere to change their behaviours—rapidly and
in large numbers. In the United States, for example, 75 percent of consumers have
tried a new store, brand, or different way of shopping during the pandemic. Even
though the impetus for that behaviours change may be specific to the pandemic
and transient, consumer companies would do well to find ways to meet consumers
where they are today and satisfy their needs in the postcrisis period.
Behavioural science tells us that identifying consumers’ new beliefs, habits, and
“peak moments” is central to driving behavioural change. Five actions can help
companies influence consumer behaviour for the longer term:
•
Reinforce positive new beliefs.
•
Shape emerging habits with new offerings.
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•
Sustain new habits, using contextual cues.
•
Align messages to consumer mindsets.
•
Analyse consumer beliefs and behaviours at a granular level.
When consumers are surprised and delighted by new experiences, even long-held
beliefs can change, making consumers more willing to repeat the behaviour.
For example, approximately 15 percent of US consumers tried grocery delivery for
the first time during the COVID-19 crisis. Among those first timers, more than 80
percent say they were satisfied with the ease and safety of the experience; 70
percent even found it enjoyable. And 40 percent intend to continue getting their
groceries delivered after the crisis, suggesting that they’ve jettisoned any previously
held beliefs about grocery delivery being unreliable or inconvenient; instead,
they’ve been surprised and delighted by the benefits of delivery.
Another example of changing beliefs involves at-home exercise. The US online
fitness market has seen approximately 50 percent growth in its consumer base
since February 2020; the market for digital home-exercise machines has grown by
20 percent. It’s likely that many people who tried those fitness activities for the first
time during the pandemic believed that at-home exercise couldn’t meet their
exercise needs. That belief has clearly changed for many of these consumers: 55
percent who tried online fitness programs and 65 percent who tried digital exercise
machines say they will continue to use them, even after fitness centers and gyms
reopen. To reinforce the new belief that online fitness can be motivating and
enjoyable, NordicTrack, in a recent TV ad titled “Face Off,” shows that online
workouts can foster the same friendly competition and connection that people look
for when they go to the gym or attend in-person exercise classes.
An effective way to reinforce a new belief is to focus on peak moments—specific
parts of the consumer decision journey that have disproportionate impact and that
consumers tend to remember most. Peak moments often include first-time
experiences with a product or service, touchpoints at the end of a consumer journey
(such as the checkout process in a store), and other moments of intense consumer
reaction.
Some companies have focused on enhancing the consumer’s first-time experience.
Plant-based-meat manufacturer Beyond Meat, for instance, was already benefiting
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from delays in meat production in the early days of the COVID-19 crisis: Its sales
more than doubled between the first and second quarters of 2020. In collaboration
with local restaurants and catering companies, the company has been delivering
free, professionally prepared food to hospitals and other community centers. By
giving away Beyond Burgers prepared by professional chefs, Beyond Meat is
creating positive first experiences with its product at a time when consumers are
more open to trial.
Identify and optimize them. For example, a peak moment in a grocery store might
be the discovery of an exciting new product on the shelf. In the online-grocery
journey, however, a peak moment might instead be on-time delivery or the
“unboxing” of the order (the experience of taking the delivered items out of the
packaging). Grocers could consider including a handwritten thank-you note or some
other surprise, such as a free sample, to reinforce consumers’ positive connections
with the experience.
Highly emotional occasions can spark intense consumer reactions and therefore
present an opportunity for companies to create peak moments associated with their
products or brands. For example, when graduations shifted from formal, large-scale
ceremonies to at-home, family celebrations, Krispy Kreme offered each 2020
graduate a dozen specially decorated doughnuts for free. With that promotion, the
company connected its brand with an emotional event that may not have been a
key occasion for doughnuts prior to the pandemic.
Shape emerging habits with new products
Companies can nudge consumers toward new habits through product innovation.
For instance, the COVID-19 crisis has spurred consumers to become more health
oriented and increase their intake of vitamins and minerals. Unilever reported a
sales spike in beverages that contain zinc and vitamin C, such as Lipton Immune
Support tea. The company is therefore rolling out such products globally. It’s also
aligning its innovation priorities with consumers’ emerging health-and-wellness
concerns.
Similarly, packaged-food companies can encourage the habit of cooking at home.
Spice manufacturer McCormick’s sales in China have sustained double-digit
increases compared with 2019, even as the Chinese economy has reopened and
people go back to their workplaces. The same pattern could play out in other
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countries. Kraft Heinz’s innovation agenda for its international markets now
prioritizes products that make home cooking pleasurable, fast, and easy products
such as sauces, dressings, and side dishes. These will be targeted at “light” and
“medium” users of Kraft Heinz products.
Sustain new habits, using contextual cues
Habits can form when a consumer begins to associate a certain behaviour with a
particular context; eventually, that behaviours can become automatic. To help turn
behaviours into habits, companies should identify the contextual cues that drive the
behaviours. A contextual cue can be a particular task, time of day, or object
placement. For example, more consumers are keeping hand sanitizer and
disinfecting wipes near entryways for easy access and as a reminder to keep hands
and surfaces clean. Product packaging and marketing that reinforces the put-it-bythe-door behaviours can help consumers sustain the habit.
Some companies may need to identify—and create—new contextual cues. Before
the COVID-19 crisis, a contextual cue for chewing-gum consumption was
anticipation of a social interaction—for instance, before going to a club, while
commuting to work, and after smoking. As social occasions have waned during the
pandemic, a chewing-gum manufacturer must look for new contextual cues,
focusing largely on solo or small-group activities, such as gaming and crafting. Gum
manufacturers could consider designing packaging, flavours, and communications
that reinforce those new associations.
Align messages to consumer mindsets:
•
Play Video.
•
Video.
•
Connecting with consumers ‘in the moment’.
People across the country have felt an intensified mix of anxiety, anger, and fear
because of recent events, making marketing a tricky terrain to navigate. The
heightened emotions and increased polarization of the past few months could drive
lasting changes in consumers’ behaviour and shape their long-term preferences.
Companies should therefore ensure that all their brand communications are attuned
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to consumer sentiment. The quality of a company’s communication and its ability to
strike the right tone will increasingly become a competitive advantage.
McKinsey’s consumer-sentiment surveys show that consumers are paying closer
attention to how companies treat their employees during this crisis—and taking note
of companies that demonstrate care and concern for people. That has implications
for how brands connect with consumers and what types of messages will resonate.
Hair-care brand Olaplex, for example, became one of the most mentioned hair-care
brands on social media when it started an affiliate program: The company donated
a portion of its proceeds from product sales to customers’ local hairstylists, helping
them stay afloat during salon closures.
That said, consumers will see through—and reject—messages and actions that are
performative and that seek to commercialize social issues. A brand’s
communications must align with its purpose; otherwise, the messages won’t ring
true. Testing marketing messages among a diverse group of consumers, in the
context in which those messages will appear, could help prevent costly missteps.
Analyse consumer beliefs and behaviours at a granular level
Consumer beliefs, habits, occasions, and emotional-need states will continue to
evolve rapidly over the next year or two as the world awaits a COVID-19 vaccine.
For consumer companies to stay abreast of those changes, monitoring product
sales alone won’t be sufficient. Companies must also conduct primary consumerinsights work, with a focus on identifying changed behaviours and associated
changed beliefs and motivators to get a comprehensive picture of the changing
consumer decision journey.
Qualitative, exploratory research will have a particular role to play as a precursor to
(and, in some cases, a substitute for) quantitative research. Digital data-gathering
and monitoring techniques—such as mobile diaries, social-media “listening,” and
artificial-intelligence-driven message boards—will be vital tools to help companies
understand emerging behaviours and contextual cues. When structured well, those
insights generate new thinking within an organisation that can be validated through
larger-scale surveys and in-market testing. Companies can then refine their product
offerings and marketing messages accordingly.
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In addition, granular analyses of footfall data and omnichannel sales will unearth
telling details, such as which geographic regions are seeing in-person commerce
rebound first and which products consumers are buying (such as smaller pack sizes
to avoid sharing, activewear versus office wear, and so on). Whereas in the past,
companies might have fielded high-level usage and attitude surveys and brand
trackers a few times a year, it’s especially important now for companies to keep a
closer eye on the evolution of consumer behaviours on a weekly or monthly basis.
Source: McKinsey & Company, 2020
As you can see from the article, there are various ways in which businesses were able
to influence consumers since the start of Covid-19.
Can you think of any way in which a business influenced your buying
behaviour since the start of Covid-19?
Next, we will look at the impact of competitors on a business.
3.3.2. Competitors
In most situations, businesses operate in an environment with competitors. This
means that there are people that tries to sell similar products or services. In other
words, businesses compete for productive resources such as labour, capital, and
materials, (Erasmus, 2019).
Competition: “Situation in the market in which several businesses, offering
more or less the same kind of product or service, compete for the patronage of the
same consumers,” (Erasmus, 2019).
Competition often results in technology innovation (just think how we are getting new
cell phones on a yearly basis). In addition, there are also advances in productivity
amongst businesses.
Competition in industry includes the following variables that affect competitive rivalry
(Indeed, 2021):
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•
Number of competitors.
•
Variety of competitors.
•
Differences in products.
•
Differences in quality.
•
Industry balance.
•
Industry growth.
•
Customer loyalty to existing brands.
•
Barriers (high costs) to exit the industry.
In other words, competition is affected by how many competitors there are. If there
are fewer, there are less competition. This can also be linked to variety; less variety
of products, means less things to choose from by customers. In addition, fewer
choices do not have to mean poor quality. The level of quality in relation to price can
affect levels of competition and thereby the growth opportunities and balance of
competition within the industry, should it not be too expensive to introduce new
businesses to the industry.
Competition is driven by the industry, and it consists of five major factors (competitive
forces) as can be seen in the figure below.
Threat of
new entries
to the
market
Threat of
substitution
products
availability
Buying
power of
clients and
consumers
Porter's
Five factors
forces
Number of
competitors
Strenght of
suppliers
Figure 3.6: Porter’s Five factor forces
Source: Erasmus, 2019
Let’s explore each of these elements in more detail.
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Industry competition
When businesses collect data about competition, it can help businesses with the
following, (Indeed, 2021):
•
Industry targets.
•
Areas of success or areas of difficulties.
•
Demand for products or services in the current market.
•
Industry and market risks.
•
Opportunities and threats in the market and industry.
•
Profit distribution within the industry.
•
Analyse industry trends.
•
Predict the future of market and industry trends.
Threat of new entrants
In some markets and industries new competitors can easily enter, and for others it is
more difficult. This determines the risk of the business for losing market share.
Think about at least two examples of industries in which new businesses have
entered in the past two years. Why do you think they have entered? Is it with ease
or was there elements that made this more difficult?
The following elements make it more difficult to for businesses to enter the in the
industry.
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Government
regulations
Customer loyalty (in
terms of brands)
High costs to
market entry
Access to
distribution
Technologies
requried to create,
design, implement
Experience and
skills required
Economies of scale
Figure 3.7: Threats of new entrants
Source: Indeed, 2021
Threat of substitute products
This consider how easily consumers will switch between products and services that
are similar. This points to the fact that the customers may be less loyal if they are
willing to move and this can affect a business’s market share.
If these risks exist for a business, and if they do not have a unique selling point (USP),
consumers may move to other businesses, and this affects the business should other
businesses enter the market.
Unique selling point (USP): “The factor or consideration presented by a
seller as the reason that one product or service is different from and better than that
of the competition,” (Entrepreneur, 2022).
Bargaining power of buyers
There are various things that can also affect the purchasing power of buyers. In turn
this affects the pricing of a business, and in turn the profits, (Indeed, 2021).
This includes, (Indeed, 2021):
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•
Number of customers.
•
Purchasing quantity per customer.
•
Ability of substitute products.
•
Price sensitivity.
•
Consumer’s ability to obtain information.
Bargaining power of suppliers
This consist of the number of suppliers that a business has and the ease with which
they can amend prices and how this can affect the business. This is influenced by the
following elements, (Indeed, 2021):
•
Number and size of suppliers.
•
Ability to substitute suppliers.
•
USP of the supplier’s product and services.
•
Quality of the supplier’s product.
•
Distribution channels and the supplier’s strength.
Competitors use various techniques to obtain market share and change consumer
behaviour. One way in which this can be is through advertisements.
Look at the advertisements of the competitors below. Both advertisements were part
of advertising wars. Burger King tried to highlight that its burgers are not filled with
preservatives and will and will mould. This hinted that it is better quality and fresher
than that of McDonalds. However, Nando’s took a different approach and said that
its burgers will only last 3-4 minutes.
Read the comments from Lotter (2020), below:
“I think Burger King was looking the other way at McDonald's when Nando's came
zooming in. Burger King in America was referring to the fact that people said a Big
Mac would survive nuclear war because it's packed with preservatives. So, Burger
King filmed a Whopper, free of preservatives, deteriorating over 34 days. But I think
they took their eye off the competition, because just as they were counting the praises
they got for the stunt, along comes Nando's. They show the rotten Whopper on one
plate and the other a completely empty plate, showing what happens to their burger
after three minutes.”
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Figure 3.8: Burger King advertisement campaign
Source: Marketing360, 2021
These advertisements are just one example of how the actions of competitors impact
each other. It is not within the control of the business, but they are able to react to it.
We can also see that the business used the information it had access to (in the
business’s internal environment) to make decisions about how to influence and
compete against competitors, (Ferreira et al., 2017:16).
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Figure 3.9: Nando’s advertisement campaign
Source: Lotter, 2020
Do you think that it is ethical for competitors to directly or indirectly ‘insult’ each
other’s products or brands?
In the next section we will consider the influence of suppliers on a business.
3.3.3. Suppliers
The business requires input to transform into outputs. This means it needs
‘ingredients’ or resources, such as material, equipment and energy, that needs to
convert it to products or services that the business can sell, (Erasmus, 2019).
Businesses are therefore dependent on suppliers in order to produce their product and
deliver their services. Let’s look at an example to review the impact that delays from
suppliers can affect South Africa.
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Global supply chain delays affecting South Africa's manufacturing
sector
Advisory multinational PwC estimates that about a quarter of under-utilisation in
large manufacturing facilities in South Africa during the first quarter of the year was
associated with material shortages.
Data by Statistics South Africa (Stats SA) shows that, in the first quarter, large
manufacturing facilities were operating at 74% of capacity.
The Stats SA data also shows that, for five out of ten manufacturing subsectors,
raw material shortages were a larger constraint on capacity utilisation in the first
quarter of this year than during the lockdown-hit second quarter of 2020.
Producers of consumer goods, like clothing, plastic products, and furniture, were
among those facing greater input pressures compared to last year. Manufacturers
of heavy machinery and metal products have the highest underutilisation owing to
raw material shortages.
"Factory output contracted by 0.7% year-on-year during the first quarter of this year
and this number could have been better, were it not for the shortage of raw
materials," PwC Strategy& Africa chief economist Lullu Krugel, PwC Strategy&
economist Dr Christie Viljoen and PwC Connected Supply Chain leader Rheinhardt
Schulze say.
This mirrors similar challenges in global supply chains, as the IHS Markit Flash
Purchasing Managers’ Index (PMI) reports released on May 20 indicated that, while
private sector growth continued at a strong pace in the world’s largest economies,
input material shortages and logistics challenges were reported in some major
economies during May.
The global supply chain issues have contributed to higher international commodity
prices. The London Metals Exchange (LME) Index, which tracks prices of
aluminium, copper, zinc, lead, nickel, and tin, has increased by 23% in dollar terms
over the past year.
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"For South Africa, higher commodity prices are a double-edged sword. It is
attractive for exporters who earn foreign currency on their goods, while at the same
time it increases the cost of inputs used in local manufacturing processes," Krugel,
Viljoen, and Schulze say.
"In the near term, the cost of supplies from South Africa’s key trading partners could
increase, stemming from overtime and expedited freight costs, as well as from
paying premiums to buy up supply and hold capacity. Companies are also working
through alternative sourcing strategies. It will be critical to identify alternative supply
scenarios and evaluate what these mean for operations," they advise.
PwC is of the view that South African companies with direct exposure to the current
global supply chain disruptions can take several actions to mitigate the impact.
These include securing capacity and delivery status for Tier 2 and 3 suppliers and
securing allocated supplies and overtime assembly capacity where possible.
Companies should also be buying ahead to procure inventory and raw materials
that are in short supply in impacted areas and securing future air transportation
capacity as supply and capacity become available, shortening what might otherwise
be ocean freight-based lead times.
Additionally, companies must activate pre-approved parts or raw-material
substitutions in places where the primary supplier is impacted, but a secondary
supplier is not, and activate product redesign or material certification resources
where reliable second sources of parts or raw material are not already available,
Krugel, Viljoen and Schulze note.
Source: Burger, 2021
Do you think businesses experience any ethical challenges when dealing with
suppliers? If so, explain.
3.3.4. Intermediaries
Intermediaries’ role-players that are between the manufacturer and the consumer.
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Examples of intermediaries in the retail sector include Pick n Pay, Makro, Shoprite and
so on. They sell product on behalf of the manufacturer, and they therefore act as the
middleman between the manufacturer and the consumer, (Erasmus, 2019).
In
addition to intermediaries in the retail sector we also have intermediaries such as
agents and brokers, representatives, bankers, asset managers and insurance brokers,
(Erasmus, 2019).
This influences the business as management must decide if intermediaries should be
used and for what products. There has been a drive to sell things more direct to
consumer, and online than through intermediaries, but for some products it will work
better than others, (Erasmus, 2019).
In addition, intermediaries play a role in packaging and promotion of products, (Chron,
2020). In a pre-Covid-19 world, we often had ‘taster’ and ‘sample’ tables at retailers.
Since the start of Covid-19 more focus has been on displays and offerings showcasing
products. As such, intermediaries support businesses in driving awareness and sales.
However, it may also happen that the intermediary, such as PnP sells competitive
products. In this way, the business can also be affected.
Think of at least two examples where intermediaries are used in industries
other than retail.
Let’s consider an example of a financial intermediary and the impact that Covid-19
had on intermediaries in this sector. The article below if from the United Kingdom, but
the same principles apply to South Africa.
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The impact of COVID-19 on insurance intermediaries
The current circumstances are having a dramatic effect on business, particularly in
the insurance sector. Bradley Chadwick considers the impact of COVID-19 on
insurance intermediaries, their lenders, and investors.
Lenders to and private equity (PE) owners of insurance intermediaries will be
acutely aware of the impact that the COVID-19 situation is having on insurers,
whose products their intermediaries are dependent upon. I think John Neal, Lloyds
of London CEO, and Huw Evans, the Association of British Insurer's (ABI) Director
General, sum this up best:
John Neal has said that the coronavirus pandemic is likely to be the most expensive
event in history for the insurance industry, and that pay-outs to customers could be
higher than USD 50 billion. He believes this is compounded by the fact that insurers
are also likely to have to refund some premiums because of the general downturn
in business.
The ABI estimates that as of 28 April 2020, excluding those made through Lloyds
and the London markets, there will be £1.2 billion in claims made as a result of the
outbreak. This is primarily across business interruption, travel, and event insurance.
While these views and the daily updates on the likely impact that the situation will
have on insurers is essential reading, we're not seeing corresponding analysis of
what the impact will be on insurance intermediaries or the intermediary market
generally. While our understanding of the consequences of the pandemic is
evolving, I have some initial thoughts on what this may mean for the intermediaries
and their lenders and investors:
Headwinds
Short-term loss of revenue
Reduced economic activity as a result of the coronavirus outbreak will almost
certainly reduce revenue during both the quarantine and the downturn that now
seems likely to follow. While the most-severe loss of revenue will be experienced
by managing general agents (MGA) and brokers specialising in products such as
credit insurance, individual and multi-trip travel insurance, events insurance, and
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aviation insurance. The wider sector will also experience a loss of income as the
economy falters.
Some insurance intermediaries will not only lose future revenue but may have to
refund premiums already written. This will include intermediaries whose product
premium is based on economic metrics, such as turnover or payroll, and
intermediaries whose policyholders will seek mid-term adjustments (MTAs) or
cancellations for policies not required during lockdown. An example is fleet
insurance where the insureds' cars are not being used as anticipated and where
the insurer is willing to provide MTAs because loss development will be favourable.
The loser in this scenario is the MGA or broker who experiences a loss of revenue.
Claim levels may be such that those MGAs whose binding authorities include an
underwriting loss ratio “profit share” component do not earn the contingency
cheques they had expected. This can be a material part of income structures such
that its loss could be detrimental to insurance intermediaries’ liquidity positions.
Meanwhile, third-party administrators specialising in handling claims associated
with areas where insured loss volumes are down, such as auto, are experiencing a
reduction in volume and revenue that may impact their business.
Reduction of binding capacity
Given the level of projected losses in the market, insurers will need to consider how
best to deploy their underwriting capacity. I'd expect this to include an analysis of
lines of business and distribution channels so as to support decisions about what
products to sell, at what level and through which distribution channels. It is probable
that there will be insurance intermediaries who will be winners and losers in this realignment, and in the worst cases intermediaries may have their binding capacity
restricted, non-renewed or withdrawn.
Operational resilience for insurance intermediaries
The current climate has shone a spotlight on the resilience of both insurers and
their vendors: software, call centres, third-party administrators, MGAs, brokers, etc.
As insurance regulators had already issued multiple consultation papers on
operational resilience3, the current situation may accelerate the regulators and
insurers focus on this. Insurers will look at their distribution network and service
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providers to identify who was unable to perform policyholder critical functions and
why not.
It is possible this will lead insurers to make changes to vendor audits and vendorselection criteria. It is also likely that insurer and regulator focus on operational
resilience will, in turn, pose challenges to some insurance intermediaries whose
operations and IT systems may not be as resilient as the standards set. In these
circumstances, intermediaries will need to invest to ensure systems are sufficiently
robust. This investment will require both liquidity and management capacity at a
time when both may be scarce.
Defending claims against their own business
Given what we've seen in recent years with the cottage industry around PPI redress claims, it is possible that similar activity may spring up for policyholders to
claim for alleged mis-selling of insurance policies that did not provide the cover the
policyholders thought it id. We've seen early signs of this with policyholders banding
together to bring collective coverage disputes.
An early indicator of what may follow is the Hiscox Action Group. Initial action is
being taken against the insurer themselves, however, insurance intermediaries who
sold the policies that are in dispute may well be caught up, either through claims
from the insurer or from the insured.
Tailwinds
While I've focused on the headwinds there are some tailwinds and mitigations,
which I should highlight:
Short-term liquidity provided by government programmes
There may be a hardening of the insurance market, with a resultant increase in
premiums and commissions earned by the insurance intermediaries
While helpful, these tailwinds won't be a panacea for those insurance intermediaries
hardest hit by the pandemic. It is, therefore, worth considering what lenders to and
PE holders in intermediaries could be doing now to prepare for and mitigate
downside risk.
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Advice for stakeholders of insurance intermediaries
Firstly, early engagement with the management teams of the insurance
intermediaries to understand how they see their business being impacted by each
of the head and tailwinds outlined above, as well as those not identified by this short
piece. Use these discussions to both model the impact of scenarios on covenants
and liquidity, as well as to look externally and consider relationships with insurers
and any risk to your binding authority. Those of you familiar with the Boston
Consulting Group (BCG) matrix should expect that the carrier will be categorising
its intermediaries into stars, cash cows and dogs, and will be intent on supporting
the stars and cash cows, while dealing with the dogs.
It is also important to engage with insurers early, which should include dealing
head-on
with
any
operational
resilience
challenges,
actual
loss
ratios
experienced/projected versus the insurers expectation, and the expected impact of
any lost revenue on your business and how robust your business is. In my
experience, an authentic and transparent discussion with your insurers about
challenges and remediation can deliver dividends.
Source: Chadwick, 2020
Do you think intermediaries have an ethical responsibility to businesses to
promote the business in a way that will make it stand out from competition, or do
you think it has an ethical responsibility to consumers, to promote products and
services in such a way that consumers know which brand is the best?
Do you think intermediaries face any other ethical dilemmas in dealing with
businesses?
Now that we have covered intermediaries, we will move on to the labour market as a
component of the market environment.
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3.3.5. Labour markets and labour unions
Businesses requires people to function. This is where labour markets and unions come
in. These provide guidelines and often act on behalf of employees when it comes to
salaries, working hours and conditions. This can also have a major impact on
businesses, but businesses are not able to influence it to the same extend, (Erasmus,
2019). Consider the example below to see the impact the impact that labour unions
can have on businesses.
Labour unions declare wage dispute at S.Africa’s Transnet
CAPE TOWN, April 22 (Reuters)
Two unions declared a dispute with South Africa's Transnet on Thursday after wage
talks broke down, and warned of possible strike action if the state-owned freight
logistics firm failed to present a better offer.
The United National Transport Union (UNTU) and the South African Transport and
Allied Workers Union (SATAWU) baulked at Transnet's offer of a 3% wage hike - a
figure they described in a joint statement as, "So bad that organised labour can’t
even present it to their constituents to obtain a revised mandate."
Transnet, which operates major ports and a huge railway network that transports
minerals and other commodities for export, did not immediately respond to a
request for comment. Under South Africa's labour relations laws, such disputes are
referred to arbitration. If that fails to secure a deal, unions are permitted to ballot
members for strike action.
Source: (Reuters, 2021)
There are numerous activities that the labour market and unions perform in order to
help employees as well as employers and the overall industry. However, as a result
of the tasks they perform businesses are impacted and sometimes to a large extent.
Do you think labour unions promote ethical behaviour in businesses?
Motivate your answer.
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3.4
Conclusion
In this chapter we explored the micro and market business environments. We noted
that the microenvironment refers to the business itself. It guides the business’s
strategy through its vision, mission, and objectives but it also requires information from
within the business, or externally, to operate effectively. The market environment is
influenced by the business, but it also has the ability to influence the business. It
consists of various stakeholders and each of the ability to influence the business in
terms of products and services, prices, promotion, and marketing or in terms of
employee relations and distribution. The business must therefore evaluate each of
these components in order to make decisions that will contribute to its success but is
also ethical.
In the next chapter we will discuss decision making whilst considering consumer
behaviour and evaluation of business performance.
Self-Assessment Questions
1. Illustrate the internal and external information needs of a business.
2. Differentiate between the internal and market environments. Include the
components of each of the environments.
3. Outline Porter’s five forces model.
4. Define business ethics and explain why it is important in business.
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CHAPTER 04:
Making Decisions in Business
Chapter Outcomes
Upon completion of this chapter, the learner should be able to:
•
Identify essential information required for decision making and present
possible solutions to typical ever day business problems to solve.
4.1
Introduction to Decision Making
In every business, regardless of the type or industry, management and employees
must make decisions. This is driven by the business’s internal environment and is
often guided by the market and macro environments. Management therefore makes
decisions on what needs to be done, how it will be achieved, orders it, and then
measures that the performance achieved is in line with what they wanted to achieve,
(Erasmus, 2019). However, decisions are affected by the organisational behaviour to
a large extend and consequently it also affects the way in which business control its
internal environment and decision making as well as measuring performance and
determining if it is in line with its goals.
In this chapter we are going to explore how businesses make decisions by considering
the impact of organisational behaviour on decision making, controlling the business,
and measuring results. These variables within a business are interrelated and often
happen at the same time. This chapter has been broken up into sections, but it is
important that you note the golden thread between the elements of this chapter
specifically, but also the rest of the guide.
4.2
Decision Making
Before we can look at how anything in the business affects decisions and ultimately
business performance and results, we must first understand the fundamentals of
business decision making.
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Decision making: “The process of making choices by identifying a decision,
gathering information, and assessing alternative resolutions,” (University of
Massachusetts, 2021).
Business decisions can be made by all employees however, the majority of the
responsibility and vital decisions are made by various levels of management. These
decisions include those that affect the long-term strategic position and vision of the
business but also day-to-day decisions affecting the business. These includes
decisions made by top level, middle level and lower-level management, (Erasmus,
2019).
Management: “The process followed by managers to accomplish a
business’s goals and objectives. More precisely, management is a process of
activities that are carried out to enable a business to accomplish its goals by
employing human, financial and physical resources for that purpose,” (Erasmus,
2019).
Top level management makes decisions that is in line with mission and goals of the
business, inclusive of long-term planning and organising the business and measuring
business performance, (Erasmus, 2019).
Middle level management makes decisions that helps the business to executive and
effectively implement the functional areas of the business. Decision making is also
more centralised to each department rather than the business as a whole, (Erasmus,
2019).
Lower-level management makes decisions related to subsections of each department
and includes decisions on activities that is short term, (Erasmus, 2019).
Identify two decisions that will be made by top, middle, and lower-level
management respectively.
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There are four main areas in which businesses need to make decisions. These are
illustrated in the figure below:
Decisions related to customers, markets and competitors
Decisions related to finance
Decision related to internal operations of the business
Decisions related to employees
Figure 4.1: Areas of business decisions
Source: Marr, 2021
Have you ever thought about the ‘steps’ you take in making decisions?
We turn to ‘autopilot’ and do not effectively think through decisions all the time.
However, in business, and in life, decisions are generally made in seven steps. These
steps are followed consciously or unconsciously. Let’s look at the steps involved in
making decisions.
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Figure 4.2: Steps to effective decision making
Source: University of Massachusetts, 2021
It is vital that businesses have a process in line to help individuals make decisions.
This helps a business to achieve the following, (Eby, 2018):
•
Making more informed decisions using information that allows for the
consideration of various options as potential solutions.
•
It helps the individual to explain where he/she is in the decision making process,
involve the correct stakeholders.
•
Captures the process to show stakeholders why a certain decision has been
taken and how it aligns with the business’s goals, mission, and vision.
Regardless of the areas of business decisions, all levels of management (and nonmanagerial employees) make decisions, in line with the overall organisational
behaviour and culture of the business. The business shares similar values and
believes and these drives decisions making. Effective decision making, in line with
organisational behaviour and culture and also assist the business in increasing
performance across all areas, but also to identify and measure performance so that
next steps can be decided on, (Erasmus, 2019).
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Organisational culture (corporate culture): “A group of internal values and
behaviours in an organisation. It includes experiences, ways of thinking, belief, and
future expectations. It is also intuitive, with repetitive habits and emotional
responses,” (MBN, 2022).
Figure 4.3: Cartoon on making business decisions
Source: Modern Analyist.com, 2022
Now that you have an understanding of decision making in businesses, we will
elaborate further on decision making by various variables. As can be seen in the figure
above business decisions are affected by several internal and external factors and it
this will be explore in more detail in the sections to follow.
4.2.1. Organisational behaviour
Businesses must make decisions. These decisions are made at both organisational
and individual level. Often the decisions that are made influence the business going
forward and it is therefore vital that the business has effective communication
mechanisms in place to ensure decisions are made in line with what is best for the
business. It is important for any business to understand the way people make
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decisions within a business and this can be achieved by looking at the organisational
behaviour, (MacDonald, 2019).
”Organisational behaviour (OB) is the multidisciplinary study of the
employee interactions and the organisational processes that seek to create more
efficient and cohesive organisations,” (University of Southern Indiana, 2018).
It is important to note that there are both a ‘people’ and a ‘process’ component to the
organisational behaviour and both can affect decision making in the business.
People component of organisational behaviour
The ‘people’ component consists of two assumptions as depicted in the figure below.
Social
systems
Mutual
interest
Figure 4.4: Assumptions of organisational behaviour
Source: Kunwar, 2021
If we explore these concepts further, the following can be said:
Social systems: All businesses are systems that are influenced and controlled by
social and psychological laws of rule. This is influenced by different social structures.
Mutual interest: There is a mutual relationship and need between businesses and
people. In other words, the one cannot effectively exist without the other.
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Process component of organisational behaviour
The process component of organisational behaviour includes (JEB group, 2018):
•
Culture (as mentioned earlier in this chapter).
•
Policies.
•
Structure.
Business processes can be formal or informal, but it helps to standardise the business
through policies and structures. It is repetitive and continuous and helps to make
decisions in an efficient and consistent manner, (Dickmann, 2021).
Business always strives to create and implement a process that will help them in
improving performance within the business and guide decisions. In order to do so,
there are four attributes that businesses must consider to create effective processes.
Business
process is finite
•The process/method musdt be well defined
•It must have a clear start point and end point
•For example, if a customer wants a refund, online processes and
in store processes cannot be the same and must each have its
own start and end point and be clearly defined
Business
processes are
repeatable
•The same process must be able to be followed continously
•Eg. the same process related to salary increases, performance
reviews, customer retunrs etc
Business
processes are
flexbile
•The aim it to guide the business within a framework
•It must always consider special situations and exceptions
•Eg. a customer bought a product in store while on holiday and
cannot return it to the store as they are not in the area
Steps must
lead to
improvement
•Businesses must ensure that there is a clear value for taking each
step and following the process
•It should not be done just to tick boxes
Figure: 4.5: Attributes of effective processes
Source: Dickmann, 2021
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What business process have you recently come across and how has it
impacted you? Do you think this was a good process to support effective decision
making or just done to tick a checkbox?
There are three categories of business processes, namely, (Dickmann, 2021).:
•
Primary: Provides direct value to a customer.
•
Secondary: Supports primary processes.
•
Management: Monitors and controls activities within a business.
Consider the figure below for a breakdown of business process categories.
Figure 4.6: Business process categories
Source: Dickmann, 2021
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As can be seen from the above figure, there are three main categories of business
processes. However, we can also break the business processes up into business
drivers and business operations which outline the ten core processes of any business.
Figure 4.7: Ten core processes of a business
Source: Bizmanualz, 2022
Businesses therefore use processes to guide management to make business
decisions within a given framework. However, businesses must determine if the
decisions are effective and helps the business to achieve its goals. This can be done
through a control function.
4.2.2. The control process
Businesses strive to control variables in order to be able to measure results of
initiatives so that they can decide what worked and what did not and decide on the
way forward, (Erasmus, 2019).
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Control process: “The control process includes setting standards against
which actual performance can be measured, measuring actual performance,
evaluating any deviations that might occur and taking steps to rectify deviations,”
(Erasmus, 2019).
The figure below depicts the control process:
1. Setting
standards (derived
from goals)
4. Rectifying
devisions
(corrective actions)
2. Measuring
actual
performance
3. Evaluating
deviations
(performance gap)
Figure 4.8: The control process
Source: Erasmus, 2019
The above figure is a basic breakdown of why controlling the outcomes and therefore
measuring performance in businesses is so important. It helps the business focus its
efforts on the correct variables that will allow it to achieve what it set out to achieve in
its microenvironment. It is also in a better position to make decisions related to the
market and macro environments and to respond to changes in these areas as well,
(Erasmus, 2019).
Control and measuring of performance can take various forms. These include
,(Dickmann, 2021 & Kappel, 2017):
•
Looking at financial statements (income statement, balance sheet and cash
flow statement).
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•
Review customer satisfaction (this can be done through surveys, polls etc).
•
Average how many new customers you get (increase in market share).
•
Conduct performance reviews (the business’s evaluation of employees).
•
Stay current on the market (introduce new products and services to grow
market share).
•
Assess your own expectations.
•
Analysing current business processes.
Let’s look at two articles that shows how businesses use its controlling functions to
measure its performance. This also helps the business to make decisions going
forward.
South Africa's Woolworths sees slide in profit after Australian
lockdowns
Let’s consider the following examples of businesses and how they can use
information available to them to review their performance and make decisions on
the way forward.
JOHANNESBURG, Nov 17 (Reuters) - Woolworths Holdings (WHLJ.J) expects firsthalf profit to fall by more than 20% due to extended lockdowns in Australia and civil
unrest at home, the South African retailer said on Wednesday, sending its shares
down more than 6%.
The retailer of clothing, food and homeware said headline earnings per share, the
main profit measure in South Africa, was expected to drop by 52.2 cents in the 26
weeks ending on Dec. 26 from 261.1 cents a year earlier.
For the majority of the 20 weeks up to Nov. 14, Woolworths was unable to open
stores in the Australian states of Victoria and New South Wales, losing up to 75%
of the trading days.
The stores affected represent 70% of its brick-and-mortar sales base in Australia
and New Zealand, it said.
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The impact of those lost sales, coupled with the absence of government and rent
relief initiatives that supported the company a year earlier, hit its upmarket
department chain David Jones and Country Road Group in Australia and New
Zealand.
Let’s take a more practical approach to how information about the business
performance obtained during ‘control’ affects the rest of the business. Businesses
are driven by money, and therefore anything that affects the performance of a
business will have an impact on the businesses’ finances and budgeting. Consider
the figure below for a breakdown on the financial impacts of the control process.
Turnover and concession sales at David Jones fell 17.1%, while Country Road sales
declined 5.9% in the 20 weeks to Nov. 14. Together, the businesses contribute close
to 40% of the group's annual turnover.
In South Africa, trading was hit by the ongoing impact of the pandemic, civil unrest
in July which resulted in looted stores and power cuts and, to a lesser extent,
international supply chain disruptions and supplier delays which affected the
availability of imported products, Woolworths said.
Food sales rose 3.2% in the 20-week period from a year ago, when demand for
groceries was particularly high, while the fashion, beauty and home business
continued to recover under the company's turnaround plan with sales up 7.4%.
Overall group sales fell by 4.5% year-on-year.
Source: Dludla, 2021
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SA ENTREPRENEURS WHO MADE THE BEST OF THE COVID-19
PANDEMIC
JOHANNESBURG - On the evening of 23 March, South Africans gathered around
their television sets to listen to arguably the most important announcement of this
year. At the time, the nation was on edge. The rate of COVID-19 infections was
accelerating here at home and the rest of the world. Very little was known about the
virus other than the fact that it was ruthless to senior citizens and people with
comorbidities. Italy, one of the hardest hit countries in Europe, became a point of
reference. Although there were 340, 000 reported cases worldwide at the time,
compared to over 40 million today, it all looked scary. Nobody knew what was going
to happen next. The South African government decided to take action.
“The National Coronavirus Command Council has decided to enforce a nationwide
lockdown for 21 days with effect from midnight on Thursday 26 March. This is a
decisive measure to save millions of South Africans from infection and save the lives
of hundreds of thousands of people,” President Cyril Ramaphosa said that Monday
night as his government imposed a lockdown on the country.
This strategy appeared sensible, especially as the country looked to buy itself time
to prepare for the inevitable spread of the coronavirus. But a prolonged lockdown
came at a heavy price. In the months that followed, businesses were bludgeoned.
A staggering 2.2 million South Africans lost their jobs. Unemployment now stands
at over 30%. Government admitted, “The punch in the gut was severe”.
But even in our darkest hour, there was a glimmer of hope. The pandemic became
a blessing to some sectors of the economy.
“I think the use of internet and the use of digital technology during COVID because
of a lack of movement, obviously surged upwards. I think in the last quarter, if you
look at the Statistsa release in the last quarter alone, telecoms was one of the
growing sectors in COVID and in the [contraction] time, when everyone else was
contracting up to 90% in terms of business activity and output,” says Nthabiseng
Moleko, PhD graduate in development finance at the University of Stellenbosch
Business School.
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Johannesburg businessperson Donald Valoyi can attest to this. As companies were
downsizing or shutting their doors, his grocery delivery service, Zulzi, experienced
a different reality. It grew at a pace he never predicted.
“Our orders increased 500 times immediately and that means we had to increase
capacity. We had to bring in more drivers. It was very difficult because it was during
lockdown. Now you have to get guys who are brave to come and work for you. So
yah, I think it was challenging. That type of growth comes with a lot of pain,” he told
Eyewitness News.
Valoyi started Zulzi in 2013. He says: “We were just an e-commerce platform. We
were selling books online to students.” But the business morphed over time. It
offered anything from pharmaceutical products and alcohol to fast food. Today, it’s
an inspiring company that focuses on delivering groceries. As a customer, you send
a list of your grocery items to Zulzi, through an app or website. Your order will be
received at the company’s call centre, before it’s sent to someone who will do all the
shopping on your behalf. The shopper will then give your groceries to a driver, who
will deliver to your doorstep.
“We cover all the major cities. If you talk about Pretoria, Durban, Cape Town and
Jo’burg, we are there. We have about 45 guys who work in the office. So, this
includes software engineers, the marketing team, the guys who run logistics and the
customer service team. Then we have personal shoppers. We are sitting at around
250 shoppers currently. We have about 300 independent drivers at the moment. It’s
an Uber-type model. Obviously that number always changes depending on how
much demand we have at any given time,” says the former FNB employee. “COVID
was very good for online businesses actually. Any business that’s online really took
off. Everywhere I look worldwide, groceries were doing well. Valuations for the startups shot up,” he says.
Another entrepreneur who’s been smiling from ear to ear in recent months is
Graham Wallington. He runs WildEarth, a media company that broadcasts live
safaris. The company has a group of camera operators who capture images out in
the wild. Those visuals are then sent to television sets, computers and mobile
devices around the world, through a control room in Johannesburg. At the same
time, safari guides interact with viewers in real time. “All we’re doing is, we’re just
watching the unscripted process of nature unfolding, and I think that the majority of
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our viewers come to have this experience oftentimes because they are stuck, maybe
because they are not well, maybe they are depressed, maybe they are lonely, or
maybe because they are locked down and can’t access nature easily. What
WildEarth offers is a way for people to feel like they are transported into the wild,”
says Graham.
The concept is innovative and has become a massive hit in the coronavirus era.
“Our global traffic increased five-fold between March and April 2020. Also, we saw
an increase 15-fold in our South African audience during March and April 2020,” he
says. The growth he is referring to hasn’t turned into financial returns yet, but it
increased WildEarth’s valuation.
“I think these are businesses that are going to last because there has been a shift
in the way we work. When you are talking about, for example safaris, the way we
work has changed. Certainly the way we have fun has to change. The way we relax
has to change,” says economist Xhanti Payi.
Developments in the local digital economy are not surprising though. A StatsSA
report released earlier this year shows that over 36 million South Africans out of 59
million now use the internet. Most people consume content on mobile devices. This
means the ground is fertile for innovative digital businesses or companies with a
strong online presence.
“We were always moving into a relatively more online society, more online
purchases. Whether we are talking about our food, we are talking about our clothes,
that’s where we were going. But I guess it was accelerated even for people like me
who were not particularly keen on that sort of thing. Now we are sort of there,” Payi
says.
But as our nation looks to recover from the scourge of COVID-19, are we capitalising
on the strength of digital businesses? President Cyril Ramaphosa recently
announced an economic recovery plan with bold promises. He said his government
would create 800 000 job opportunities in the coming years. The plan covered many
sectors including forestry, energy, construction, and farming. But he said very little
about developing start-ups, particularly in the ICT space. Although he spoke of
supporting 5,000 young entrepreneurs in passing, few details were given on the
plans to help them.
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Business experts Nthabiseng Moleko and Mark Swilling say we need to think
differently. The two academics from the University of Stellenbosch Business School
and the Centre for Complex Systems in Transition respectively, argue in great detail,
through a document they released a few weeks ago that, “continuing on the current
path, reliant on mainstream economic thinking and use of existing micro-economic
solutions, is unlikely to deliver different outcomes in the future”.
Source: Lakaje, 2021
As you can see from the above, despite the economy suffering severely, some
businesses used Covid-19 to propel them into growth because they were able to
measure performance and let that drive their actions.
Businesses can and should always use performance measurement to guide
their decisions. However, Covid-19 proved how valuable this is. South Africa, and
the rest of the world will continue to feel the effects of the pandemic for years to
come. Explain how businesses can continue to use performance measurement to
drive their businesses forward.
You would have noted that figure 4.8 is a basic breakdown of the control process.
However, after reading the above articles you should know that the control process is
more intricate that initially depicted. The figure below provides an overview and
example of how the findings collected from the control process affects other areas of
the business to ensure that the business is on course to reach its objectives.
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Figure 4.9: Example of in-depth control process
Source: Mieseigha & Adeniyi, 2013:4
Any control process should bring information to the business, however, not all
information will necessarily help the business and steer its decisions in the right
direction. The business must therefore look for meaningful results.
What do you think are meaningful results for a business?
4.2.3. Meaningful results for a business
Businesses use organisational behaviour and performance to steer business
decisions of any kind. However, it is also important to note that businesses do this to
improve performance in all areas of the business, but also to create meaningful results
for the business.
“A business with purpose drives growth and employee retention by promoting a culture
where all stakeholders feel invested in the company,” (PageExecutive, n.d).
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Results that are important to a business are usually in the form of key performance
indicators (KPI’s). KPI’s are measurable variables. An example of this is increasing
online traffic to a business by 15% in two months.
There are two types of KPI’s, (Indeed, 2021). The types are depicted in the figure
below.
Lagging vs
leading
KPIs
High vs low
KPIs
• Lagging - current performance
against goals over a set period of
time
• Leading - measure and determine a
future state based on indicators
• High - all goals that affect the
whole business
• Low - department goals
Figure 4.10: Types of KPIs
Source: Indeed, 2021
KPIs are then used as a way to measure performance in a way that allows the
business to obtain meaningful results.
Meaningful results for a business include the following:
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Sales and finance
• KPIs for the business include: Earning before interest, tax,
depreciation and amoritzation (EBITDA), gross profit, net
profit, costs, projected vs actual revenue, debt vs equity
ration, increase in market share, expenses vs actual budtet,
retention costs etc.
Marketing
• KPIs include: Budget spent on marketing to achieve certain
goals, online traffic, web and mobile traffic, ratio of
advertisement to sale (click-through rate), sales revenue
created per campaign, search engin optimisation (SEO)
ranking, sales qualified leads, cost per lead etc.
• KPIs include the following: Increase in customers gained, instore/online traffic, cost of customer acquisition (how much
in marketing speding leads to one additional customer),
customer life time value (how much does one customer
Customer relations
spend before not supporting the business anymore)
Improved employee
engagement
• Employees feel valued
• Improvements in customer satisfaction levels
• Higher levels of staff retention
Retention
Figure 4.11: Meaningful results for a business
Derived from: Indeed, 2021 & Page Executive, n.d.
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If the business is not satisfied with the performance and results of the business, it
should consider its organisational behaviour. This therefore means that businesses
may have to analyse businesses processes and people involved in decision making
and look at areas that require change (this may include areas related to the micro,
market or macro environments). As the world changes, wants and demands change
and this affects business processes, (Dickmann, 2021). Business must act accordingly
to amend processes to allow for effective decision making and enhanced performance
and results. This can be achieved through the following:
Ensure
transparency in
processes
Increase process
speed
Reduce process
costs
Increase customer
satisfaction
Enhance accuracy
of workflows
Boost staff
productivity
Figure 4.12: Improving processes for effective decision making
Source: Dickmann, 2021
As previously mentioned, using processes can help to improve performance and guide
decisions. When businesses update their processes they are able to help busiensses
get better information. Read the article below to see how businesses are using
updated and new processes to guide the business. In turn businesses can measure
and control performance and see how they can adjust thier decisions to lead to greater
business success.
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Three Examples of How Companies Make Data-Driven Decisions
More companies are relying on data to help them identify challenges, capitalise on
opportunities and make timely decisions that could affect their bottom line.
A recent Harvard Business Review study, “The Evolution of Decision Making: How
Leading Organizations Are Adopting a Data-Driven Culture,” found companies that
rely on data expect a better financial performance. The study, which surveyed 646
executives, managers and professionals from all industries around the global, found
many corporations are integrating data capture and analysis into their decisionmaking processes. In fact, many business executives are enhancing their skills to
allow them to integrate analytical tools into their business decision-making
practices.
As more companies rely on data to make their most important decisions, earning a
Master of Business Administration degree can be a game changer for your career.
Utica University offers an online MBA program that features core courses such as
data-driven decision making. Designed to be integrated and applied, these courses
establish critical thinking and problem analysis for executive decision-making and
data-context relevance. The program can be completed in two years of part-time
study and many requirements can be completed online, and/or on campus, due to
its blended learning format.
Here are examples of how three companies – Google, Amazon, and Southwest
Airlines – are using data to make decisions that increase their success and
profitability.
Google’s name is synonymous with data-driven decision making. The company’s
goal is to ensure all decisions are based on data and analytics. In fact, part of the
company’s culture is to discuss questions, not pithy answers, at meetings.
Google created the People Analytics Department to help the company make HR
decisions using data, including deciding if managers make a difference in their
teams’ performance. The department used performance reviews and employee
surveys to answer this question. Initially, it appeared managers were perceived as
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having a positive impact. However, a closer look at the data revealed teams with
better managers performed best, are happier and work at Google longer.
The next question Google tackled was what makes a good manager. Google
created the “Great Managers Award” to encourage employees to nominate
managers they felt made a difference. Employees were required to provide
examples of good manager behaviours in the nomination application. Google also
interviewed managers about their practices.
Using this data, Google established eight behaviours for good managers, as well
as the top three reasons managers might struggle in their roles. Google then used
this data to measure managers against these behaviours, enact a twice-yearly
feedback survey and revise its management-training program.
Ecommerce sites typically use data to drive profits and sales. If you’ve ever
shopped at Amazon, you have probably received a product recommendation while
visiting the Amazon website or through email. This is an example of a data-driven
business decision.
Amazon bases its recommendations on what customers have bought in the past,
the items in their virtual shopping cart, what items the customer has ranked or
reviewed after purchase and what products the customer has viewed when visiting
the site. Amazon also uses key engagement metrics such as click-through rates,
open rates and opt-out rates to further decide what recommendations to push to
which customers.
By integrating recommendations into nearly every aspect of Amazon’s purchasing
process, from product browsing to checkout, the company has found that product
recommendations, in fact, do drive sales and increase the bottom line.
It’s no secret airlines use data to track customers’ luggage, personalize customer
offers, boost customer loyalty and optimize their operations. At Southwest Airlines,
executives are using customer data to determine what new services will be most
popular with customers and the most profitable. Southwest has found that by
observing and analysing customers’ online behaviours and actions, the airline can
offer the best rates and customer experiences. As a result, Southwest has seen its
customer and loyalty segments grow year after year.
Source: Untica University, 2022
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Data driven processes and decisions have not always been an option for business. In
recent years businesses updated their processes to allow for this and this has been
beneficial for businesses.
4.3
Conclusion
In this chapter we considered the intricacies of decision making in businesses. There
are steps that must be followed when making decisions but more than that, decisions
are impacted by the organisational behaviour of the business. Decisions that are made
by the business also impact the business’s performance and this can be reviewed
during the control function of a business. A business’s performance can shed light on
the business’s alignment to its goals as well as mission and vision and changes can
be made to help steer the business in the right direction if needed.
Self-Assessment Questions
1. Outline what meaningful results consists of for a business. Include examples to
support your answer.
2. Differentiate between leading and lagging KPIs.
3. Define organisational behaviour and outline the assumptions of organisational
behaviour.
4. Explain the attributes of an effective process.
5. Define and illustrate the control process.
6. Identify the core processes related to business operations.
7. Discuss how processes can help businesses make decisions.
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APPENDIX A:
Model Answers
Chapter 01 – Model Answers
1. Business administration refers to the process of organising the business’s
personnel and resources to meet business goals and objectives. Areas include
leadership and operation as well as strategy.
Business management refers to the handling the coordination and organisation of
business affairs. Areas include organising and management of resources.
2.
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3.
Distinguisable subject
of study
•This needs to form the basis of the nucleus of a discipline.
Independent of other
sciences
•It can be studied by other sciences for more information.
•Busienss management can also study other sciences to supplement the
understanding of management related concepts.
Uniform, systematised
boy of knowledge
Produce a generally
accepted theory
•This includes facts and scientific laws.
•Laws and principles are tested in practice.
•This condition has not yet been met as an independent science.
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Chapter 02 – Model Answers
1.
Pre-scientific
management
period
Classic theory
Neo-classic theory
Bureaucratic model
fo Max Weber
• Started during the industrial revolution in the
18th century.
• Classic theory - focus was on job content,
standardisation, devision of labour.
• Neo-classic theory - emphasis on employee
relationships within the working environment.
• Include system of rules, division of labour, legal
authority, power, organisational hierarchy,
placement on technical competence
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2.
Technology
International
Economic
Macroenvironment
Social
Institutional
Physical
The technology environment helps to enhance and increase human capabilities. It is
therefore vital for business to conduct research in order to improve these efforts.
Technological innovations can result in the following (but not limited to):
•
New machinery.
•
New products/services.
•
New processes and methods.
•
New approaches to management.
The economic environment consists of several elements. These elements will affect
the business’s purchasing and trading ability as well as its ability to get and pay back
loans. In addition, it affects the ability for consumers to buy products and services for
the business; thus, affecting the business income.
These elements include:
•
Economic growth of a country.
•
Inflation.
•
Monetary policy.
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Social environment
When consumers change their buying preferences and trends it has a direct impact
on the business. This means that changes in both the technology and economic
environments can affect buying patterns and behaviours for consumers and this in
return will have an impact on the business.
Physical environment
People need various resources to support life. This is the physical environment and
includes element water, air and so on.
Institutional-governmental environment
Government is responsible for passing bills and other regulations. Consequently,
government influences business through the regulatory requirements.
3.
It can be defined as: “The ongoing tracking of trends and occurrences in an
organisation’s internal and external environment that bear on its success, currently
and in the future. The results are extremely useful in shaping goals and strategies.”
Environmental scanning helps to create a purposeful monitoring of external elements
that affect the business. This helps businesses to determine the factors that create
potential opportunities and help them to steer clear of threats. In other words, effective
environmental scanning helps to drive the strategy of the business.
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Chapter 03 – Model Answers
1.
2.
Vision,
mission and
objectives
Microenvironment
Business
functions
Business
resources
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Consumers
Competitors
Market
environment
Labour market
& labour
unions
Suppliers
Intermediaries
The internal environment is the business, and it has full control over it. Whereas the
market environment is influenced by the business, and it can influence the business.
It consists of stakeholders outside the business.
3.
Threat of
new entries
to the
market
Threat of
substitution
products
availability
Porter's
Five factors
forces
Number of
competitors
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power of
clients and
consumers
Strenght of
suppliers
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Industry competition
When businesses collect data about competition, it can help businesses with the
following, (Indeed, 2021):
•
Industry targets.
•
Areas of success or areas of difficulties.
•
Demand for products or services in the current market.
•
Industry and market risks.
•
Opportunities and threats in the market and industry.
•
Profit distribution within the industry.
•
Analyse industry trends.
•
Predict the future of market and industry trends.
Threat of new entrants
In some markets and industries new competitors can easily enter, and for others it is
more difficult. This determines the risk of the business for losing market share.
Threat of substitute products
This consider how easily consumers will switch between products and services that
are similar. This points to the fact that the customers may be less loyal if they are
willing to move and this can affect a business’s market share.
If these risks exist for a business, and if they do not have a unique selling point (USP),
consumers may move to other businesses, and this affects the business should other
businesses enter the market.
Bargaining power of buyers
There are various things that can also affect the purchasing power of buyers. In turn
this affects the pricing of a business, and in turn the profits, (Indeed, 2021).
This includes, (Indeed, 2021):
•
Number of customers.
•
Purchasing quantity per customer.
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•
Ability of substitute products.
•
Price sensitivity.
•
Consumer’s ability to obtain information.
Bargaining power of suppliers
This consist of the number of suppliers that a business has and the ease with which
they can amend prices and how this can affect the business. This is influenced by the
following elements, (Indeed, 2021):
•
Number and size of suppliers.
•
Ability to substitute suppliers.
•
USP of the supplier’s product and services.
•
Quality of the supplier’s product.
•
Distribution channels and the supplier’s strength.
4.
Business ethics can be defined as the study of business situations, activities, and
decisions where issues of right and wrong are addressed. It guides business
behaviour to ensure it is fair and right and in line with the business’s vision, mission,
and strategy.
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Chapter 04 – Model Answers
1.
Sales and finance
•KPIs for the business include: Earning before interest, tax,
depreciation and amoritzation (EBITDA), gross profit, net profit,
costs, projected vs actual revenue, debt vs equity ration,
increase in market share, expenses vs actual budtet, retention
costs etc.
Marketing
•KPIs include: Budget spent on marketing to achieve certain
goals, online traffic, web and mobile traffic, ratio of
advertisement to sale (click-through rate), sales revenue created
per campaign, search engin optimisation (SEO) ranking, sales
qualified leads, cost per lead etc.
•KPIs include the following: Increase in customers gained, instore/online traffic, cost of customer acquisition (how much in
marketing speding leads to one additional customer), customer
life time value (how much does one customer spend before not
Customer relations supporting the business anymore)
Improved employee
engagement
•Employees feel valued
•Improvements in customer satisfaction levels
•Higher levels of staff retention
Retention
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2.
•
Lagging: Current performance against goals over a set period of time.
•
Leading: Measure and determine a future state based on indicators.
3.
Definition:
Organisational behaviour (OB) is the multidisciplinary study of the employee
interactions and the organisational processes that seek to create more efficient and
cohesive organisations.
Assumptions:
Social systems: All businesses are systems that are influenced and controlled by
social and psychological laws of rule. This is influenced by different social
structures.
Mutual interest: There is a mutual relationship and need between businesses and
people. In other words, the one cannot effectively exist without the other.
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4.
5.
Definition:
The control process includes setting standards against which actual performance
can be measured, measuring actual performance, evaluating any deviations that
might occur and taking steps to rectify deviations.
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1. Setting
standards (derived
from goals)
4. Rectifying
devisions
(corrective actions)
2. Measuring
actual
performance
3. Evaluating
deviations
(performance gap)
6.
•
Customer acquisition.
•
Product development.
•
Accounting management.
•
Technology management.
•
Making more informed decisions using information that allows for the
7.
consideration of various options as potential solutions.
•
It helps the individual to explain where he/she is in the decision-making
process, involve the correct stakeholders.
•
Captures the process to show stakeholders why a certain decision has
been taken and how it aligns with the business’s goals, mission, and
vision.
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