23mm
The business environment changes constantly, and so too must the
approaches to managing a business organisation successfully. Among the
plethora of management theories, each proposing that it provides the best
solution to optimising an organisation, a few have stood the test of time
and are considered principles that all modern managers should know and
be able to apply. Management Principles: a contemporary edition for Africa,
focuses on these core management principles. It provides learners with a
sound knowledge of the business environment, how to manage scarce
resources, and the functions of planning, organising, leading and controlling.
The book also highlights the importance of sound decision-making,
information management, optimising a diverse workforce, managing different
organisational cultures, managing people (individuals, groups and teams) and
business ethics.
A unique feature of the book is its integration of relevant management
knowledge, new knowledge acquired and lessons learned from the COVID-19
pandemic and a direct focus on management values to help managers and
potential managers succeed in a world driven by innovation and change.
The book further accommodates different learning styles by providing the
following features:
• Real-world business examples
• Figures and diagrams
• Concise summaries of important concepts
• ‘Time for reflection’ exercises
• Case studies
• Self-assessment questions.
Management Principles: a contemporary edition for Africa is written from
a South African and African perspective. The uniqueness of this continent
justifies a management approach that reflects Africa’s realities while being
sensitive to the fact that Africa is part of the borderless world.
ISBN 978 1 48513 100 7
www.juta.co.za
9 781485 131007
TERSIA BOTHA • MARI VRBA • PJ SMIT
Seventh
Seventh
edition
edition
edition
Management Principles 7e.indb 1
MANAGEMENT
PRINCIPLES
A contemporary edition for Africa
2020/12/04 4:36:56 PM
Seventh
Seventh
edition
edition
edition
MANAGEMENT
PRINCIPLES
A contemporary edition for Africa
Editors:
PJ Smit
T Botha
MJ Vrba
Contributors:
Hellicy C Ngambi
Minka Woermann
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Management Principles – A contemporary edition for Africa
First edition 1992
Second edition 1997
Third edition 2002
Fourth edition 2007
Fifth edition 2011
Sixth edition 2016
Seventh edition 2020
Juta and Company (Pty) Ltd
PO Box 14373, Lansdowne 7779, Cape Town, South Africa
© 2020 Juta and Company (Pty) Ltd
ISBN 978 1 48513 100 7 (Print)
eISBN: 978 1 48513 101 4 (WebPDF)
All rights reserved. No part of this publication may be reproduced or transmitted in any form or
by any means, electronic or mechanical, including photocopying, recording, or any information
storage or retrieval system, without prior permission in writing from the publisher. Subject to
any applicable licensing terms and conditions in the case of electronically supplied publications,
a person may engage in fair dealing with a copy of this publication for his or her personal or
private use, or his or her research or private study. See section 12(1)(a) of the Copyright Act 98
of 1978.
Project manager: Valencia Wyngaard-Arenz
Editor: Deidre Du Preez
Proofreader: Elisma Roets
Cover designer: Drag and Drop ( Jacques Nel)
Typesetter: Lebone Publishing Services
Indexer: Lexinfo
Typeset in Arno Pro 11/13
Printed in South Africa by
The author and the publisher believe on the strength of due diligence exercised that this work
does not contain any material that is the subject of copyright held by another person. In the
alternative, they believe that any protected pre-existing material that may be comprised in it
has been used with appropriate authority or has been used in circumstances that make such use
permissible under the law.
This book has been independently peer-reviewed by academics who are experts in the field.
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CONTENTS
PREFACE....................................................................................................... xvii
ABOUT THE AUTHORS................................................................................. xix
PART 1: THE NATURE OF MANAGEMENT..................................................
1
CHAPTER 1: INTRODUCTION TO MANAGEMENT...................................................
3
1.1
1.2
1.3
1.4
1.5
5
7
8
10
12
13
13
14
15
17
19
21
22
22
23
23
25
26
26
27
28
30
30
Introduction...............................................................................................................
Business organisations and managers.....................................................................
The nature of management.......................................................................................
Definition of management.......................................................................................
Different levels and kind of management in the organisation............................
1.5.1 Top management......................................................................................
1.5.2 Middle management................................................................................
1.5.3 Lower/first-line management.................................................................
1.6 Areas of management................................................................................................
1.7 The different roles that managers perform............................................................
1.8 Managerial skills and competencies ......................................................................
1.9 Management and organisation performance........................................................
1.10 The scope of management........................................................................................
1.10.1 Large business organisations..................................................................
1.10.2 Non-profit organisations.........................................................................
1.11 The approach followed in this book .......................................................................
1.12 Summary.....................................................................................................................
References...............................................................................................................................
Case study...............................................................................................................................
Case study questions.............................................................................................................
Multiple choice questions....................................................................................................
Paragraph questions..............................................................................................................
Essay questions......................................................................................................................
CHAPTER 2: THE EVOLUTION OF MANAGEMENT THEORY ..................................
31
2.1
2.2
2.3
2.4
32
34
35
36
37
43
48
49
2.5
2.6
Introduction...............................................................................................................
Why study management theory?............................................................................
Understanding the different management theories.............................................
The theories of management....................................................................................
2.4.1 The classical approaches..........................................................................
2.4.2 Contemporary approaches.....................................................................
Current and near-future management realities.....................................................
Summary.....................................................................................................................
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References...............................................................................................................................
Case study...............................................................................................................................
Case study questions.............................................................................................................
Multiple-choice questions....................................................................................................
Paragraph questions..............................................................................................................
Essay question........................................................................................................................
50
51
51
52
53
54
CHAPTER 3: MANAGING IN A CHANGING ENVIRONMENT .............................. 55
3.1
3.2
Introduction...............................................................................................................
Concepts of systems theory.....................................................................................
3.2.1 The organisation as a micro-system of its environment.....................
3.2.2 The systems approach in management..................................................
3.3 The composition of the management/business environment...........................
3.3.1 Main characteristics of the management/business environment.....
3.4 The internal or micro-environment........................................................................
3.5 The market or task environment.............................................................................
3.5.1 The market.................................................................................................
3.5.2 Suppliers....................................................................................................
3.5.3 Intermediaries...........................................................................................
3.5.4 Competitors..............................................................................................
3.6 The macro-environment...........................................................................................
3.6.1 The composition of the macro-environment.......................................
3.6.2 The technological environment.............................................................
3.6.3 The economic environment....................................................................
3.6.4 The socio-cultural environment.............................................................
3.6.5 The ecological/natural environment.....................................................
3.6.6 The political environment.......................................................................
3.6.7
The international environment..............................................................
3.6.8 Conclusion................................................................................................
3.7 Interfaces between the organisation and the environment ................................
3.7.1 Environmental change and the organisation........................................
3.7.2 Uncertainty in the environment.............................................................
3.7.3 Crises in the environment.......................................................................
3.8 Ways in which management can prepare for environmental changes...............
3.8.1 Information management.......................................................................
3.8.2 Strategic responses...................................................................................
3.8.3 Structural change......................................................................................
3.9 Summary.....................................................................................................................
References...............................................................................................................................
Case study...............................................................................................................................
Case study questions.............................................................................................................
Multiple-choice questions....................................................................................................
Paragraph questions..............................................................................................................
Essay question........................................................................................................................
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58
58
58
59
63
63
65
65
66
67
67
69
69
70
70
71
73
74
74
74
75
75
75
75
76
76
76
76
76
77
78
79
80
81
82
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PART 2: PLANNING...................................................................................... 83
CHAPTER 4: STRATEGIC PLANNING .......................................................................
85
4.1
4.2
4.3
Introduction............................................................................................................... 86
Strategic planning: what it encompasses............................................................... 88
The strategic planning process................................................................................. 92
4.3.1 The vision................................................................................................... 92
4.3.2 The mission statement............................................................................. 93
4.3.3 Assessing the internal environment....................................................... 95
4.3.4 The external environment....................................................................... 103
4.3.5 Translating the mission into long-term goals....................................... 106
4.3.6 Choosing a strategy.................................................................................. 107
4.4 Grand strategies......................................................................................................... 108
4.4.1 Growth strategies..................................................................................... 109
4.4.2 Decline strategies...................................................................................... 113
4.4.3 Corporate combinations......................................................................... 115
4.5 The selection of grand strategies ............................................................................ 117
4.6 Factors affecting strategic choice............................................................................ 120
4.7 Summary..................................................................................................................... 121
References............................................................................................................................... 122
Case study............................................................................................................................... 123
Case study questions............................................................................................................. 124
Multiple-choice questions.................................................................................................... 124
Paragraph questions.............................................................................................................. 126
Essay question........................................................................................................................ 126
CHAPTER 5: PLANNING ........................................................................................... 127
5.1
5.2
5.3
5.4
5.5
5.6
5.7
5.8
Introduction............................................................................................................... 128
The nature and importance of planning................................................................. 129
Kinds of organisational plan.................................................................................... 130
5.3.1 Strategic plans........................................................................................... 130
5.3.2 Tactical plans............................................................................................. 132
5.3.3 Operational plans..................................................................................... 132
The time frame for planning..................................................................................... 135
5.4.1 Long-term plans........................................................................................ 136
5.4.2 Medium-term plans (tactical plans)...................................................... 136
5.4.3 Short-term plans (operational plans).................................................... 136
Steps in the planning process................................................................................... 137
Barriers to effective planning................................................................................... 139
Planning tools............................................................................................................. 141
5.7.1 Forecasting................................................................................................ 141
5.7.2 Budgeting................................................................................................... 142
5.7.3 Scheduling and monitoring.................................................................... 143
Goal formulation....................................................................................................... 146
5.8.1 The focus areas.......................................................................................... 146
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5.8.2 Properties of well-formulated goals....................................................... 148
5.8.3 The degree of openness........................................................................... 149
5.9 The process of goal-setting....................................................................................... 150
5.10 Techniques for goal-setting...................................................................................... 151
5.11 Summary..................................................................................................................... 154
References............................................................................................................................... 155
Case study............................................................................................................................... 156
Case study questions............................................................................................................. 156
Multiple-choice questions.................................................................................................... 157
Paragraph questions.............................................................................................................. 159
Essay question........................................................................................................................ 159
CHAPTER 6: MANAGERIAL DECISION-MAKING .................................................... 160
6.1
6.2
6.3
Introduction............................................................................................................... 161
The relationship between problems, problem solving, and decision-making..... 163
Types of managerial decisions................................................................................. 164
6.3.1 Programmed decisions............................................................................ 164
6.3.2 Non-programmed decisions................................................................... 165
6.4 Decision-making conditions.................................................................................... 165
6.4.1 Certainty.................................................................................................... 165
6.4.2 Risk............................................................................................................. 166
6.4.3 Uncertainty................................................................................................ 166
6.5 Decision-making models.......................................................................................... 169
6.5.1 The decision-making process.................................................................. 169
6.6 Group decision-making............................................................................................ 173
6.7 Techniques for improving group decision-making.............................................. 174
6.7.1 Brainstorming........................................................................................... 174
6.7.2 Nominal group technique....................................................................... 175
6.7.3 Delphi technique...................................................................................... 176
6.7.4 Group decision support systems............................................................ 176
6.8 Tools for decision-making........................................................................................ 177
6.8.1 Quantitative tools for decision-making................................................ 177
6.8.2 The Kepner-Fourie method.................................................................... 182
6.8.3 Cost–benefit analysis............................................................................... 183
6.9 Summary..................................................................................................................... 183
References............................................................................................................................... 184
Case study............................................................................................................................... 185
Case study questions............................................................................................................. 186
Multiple-choice questions.................................................................................................... 186
Paragraph questions.............................................................................................................. 188
Essay question........................................................................................................................ 188
CHAPTER 7: INFORMATION MANAGEMENT ......................................................... 189
7.1
7.2
Introduction............................................................................................................... 190
The link between decision-making and information........................................... 192
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7.3
What is an information system?.............................................................................. 194
7.3.1 A definition of an information system.................................................. 194
7.3.2 The basic components of an information system................................ 194
7.4 Characteristics of useful information..................................................................... 196
7.5 Organising information systems............................................................................. 196
7.6 Classification of information systems.................................................................... 197
7.6.1 Operations information systems............................................................ 198
7.6.2 Management information systems (MIS)............................................ 199
7.6.3 Other classifications of information systems....................................... 200
7.7 Ethical issues of information systems .................................................................... 206
7.8 Developing an information system......................................................................... 210
7.8.1 Systems investigation............................................................................... 210
7.8.2 Systems analysis........................................................................................ 212
7.8.3 Systems design.......................................................................................... 212
7.8.4 Systems implementation, maintenance, and security......................... 212
7.9 Summary..................................................................................................................... 213
References............................................................................................................................... 214
Case study............................................................................................................................... 214
Case study questions............................................................................................................. 215
Multiple-choice questions.................................................................................................... 215
Paragraph questions.............................................................................................................. 217
Essay question........................................................................................................................ 217
PART 3: ORGANISING ................................................................................. 219
CHAPTER 8: ORGANISING AND DELEGATING ....................................................... 221
8.1
8.2
8.3
8.4
8.5
8.6
Introduction............................................................................................................... 222
Organising, organisation, and organisational structure ..................................... 225
Reasons for organising.............................................................................................. 227
The organising process.............................................................................................. 228
Principles of organising............................................................................................ 229
8.5.1 Unity of command and direction........................................................... 229
8.5.2 Chain of command................................................................................... 230
8.5.3 Span of control.......................................................................................... 230
8.5.4 Division of work....................................................................................... 230
8.5.5 Standardisation......................................................................................... 230
8.5.6 Coordination............................................................................................. 230
8.5.7 Responsibility, authority and accountability....................................... 231
8.5.8 Power.......................................................................................................... 232
8.5.9 Delegation................................................................................................. 232
8.5.10 Downsizing and delayering..................................................................... 232
Authority..................................................................................................................... 233
8.6.1 Formal and informal authority............................................................... 233
8.6.2 Line and staff authority............................................................................ 234
8.6.3 Centralised and decentralised authority............................................... 234
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8.7
Organisational design............................................................................................... 236
8.7.1 Organisational chart................................................................................. 237
8.7.2 Departmentalisation................................................................................ 237
8.7.3 Organisational design for the future...................................................... 243
8.8 Job design.................................................................................................................... 244
8.8.1 Job specialisation...................................................................................... 244
8.8.2 Job expansion............................................................................................ 245
8.9 Delegation................................................................................................................... 245
8.9.1 Principles of effective delegation........................................................... 246
8.9.2 The advantages of delegation.................................................................. 247
8.9.3 Obstacles to effective delegation............................................................ 247
8.9.4 Overcoming obstacles to effective delegation..................................... 248
8.9.5 The delegation process............................................................................ 248
8.10 Summary..................................................................................................................... 250
References............................................................................................................................... 250
Case study............................................................................................................................... 251
Case study questions............................................................................................................. 252
Multiple-choice questions.................................................................................................... 253
Paragraph questions.............................................................................................................. 256
Essay question........................................................................................................................ 256
CHAPTER 9: INNOVATION AND TECHNOLOGY ........................................................ 257
9.1
9.2
9.3
9.4
Introduction............................................................................................................... 258
Change inside the organisation............................................................................... 261
The change process.................................................................................................... 261
Areas of organisational change................................................................................ 263
9.4.1 Change in strategy ................................................................................... 264
9.4.2 Changing the organisational structure.................................................. 264
9.4.3 Technological change.............................................................................. 264
9.4.4 Changing people....................................................................................... 264
9.5 Resistance to change................................................................................................. 265
9.5.1 Overcoming resistance to change.......................................................... 267
9.5.2 Why efforts to change fail....................................................................... 268
9.6 Culture and change.................................................................................................... 270
9.6.1 Definition of the concept of culture...................................................... 270
9.6.2 Elements that determine and express a corporate culture................. 270
9.6.3 Changing the organisational culture..................................................... 273
9.7 Organisational development (OD)........................................................................ 274
9.8 Summary..................................................................................................................... 275
References............................................................................................................................... 276
Case study............................................................................................................................... 276
Case study questions............................................................................................................. 277
Multiple-choice questions.................................................................................................... 277
Paragraph questions.............................................................................................................. 279
Essay question........................................................................................................................ 280
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CHAPTER 10: MANAGING DIVERSITY AND INCLUSION ...................................... 281
10.1 Introduction............................................................................................................... 282
10.2 Misconceptions of diversity..................................................................................... 285
10.3 What is diversity and inclusion?............................................................................. 288
10.3.1 What is workforce diversity?.................................................................. 290
10.4 Diversity defined........................................................................................................ 290
10.4.1 The platinum rule..................................................................................... 291
10.4.2 General dimensions of diversity............................................................ 291
10.5 Reasons for the increased focus on managing workforce diversity................... 293
10.6 The need for managing diversity and inclusion in South Africa........................ 294
10.6.1 Imbalances in the South African business world................................. 294
10.6.2 The benefits of managing diversity and inclusion .............................. 295
10.7 Managing workforce diversity................................................................................. 296
10.7.1 Approaches to managing diversity and inclusion................................ 297
10.7.2 Diversity paradigms: strategies for diversity management................ 299
10.8 Cultural diversity....................................................................................................... 301
10.8.1 A definition of culture.............................................................................. 302
10.8.2 Different responses from different world views................................... 304
10.9 South African cultural values................................................................................... 305
10.9.1 Social orientation: individualism vs collectivism................................ 306
10.9.2 Power distance.......................................................................................... 307
10.9.3 Uncertainty avoidance............................................................................. 308
10.9.4 Goal orientation: quality of life vs career success............................... 309
10.9.5 Relationships and rules: universalism vs particularism...................... 310
10.9.6 Degree of involvement: specific vs diffuse........................................... 310
10.9.7 How status is accorded: achievement vs ascription............................ 311
10.9.8 Time orientation....................................................................................... 312
10.10 Synergistic solutions to problems of cultural differences................................... 313
10.11 Diversity training....................................................................................................... 313
10.11.1 Approaches to diversity and inclusion training................................... 315
10.11.2 Management support............................................................................... 315
10.11.3 Summary of spheres of activity for management diversity and
inclusion..................................................................................................... 315
10.12 Summary..................................................................................................................... 317
References............................................................................................................................... 318
Case study............................................................................................................................... 320
Case study questions............................................................................................................. 320
Multiple-choice questions.................................................................................................... 321
Paragraph questions.............................................................................................................. 323
Essay question........................................................................................................................ 323
PART 4: LEADING ........................................................................................ 325
CHAPTER 11: LEADING ............................................................................................ 327
11.1 Introduction............................................................................................................... 329
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11.1.1 A definition of leadership........................................................................ 329
11.2 Leadership and management................................................................................... 330
11.3 The components of leadership................................................................................ 331
11.3.1 Power, and the key terms associated with power: interests and
influence .................................................................................................... 332
11.4 The early approaches to leadership ........................................................................ 337
11.4.1 Introduction ............................................................................................. 337
11.4.2 Trait theory................................................................................................ 337
11.4.3 The behavioural approach to leadership............................................... 338
11.4.4 The contingency or situational approaches to leadership.................. 342
11.5 Charismatic, transactional and transformational leadership.............................. 348
11.5.1 Charismatic leadership............................................................................ 348
11.5.2 Transactional leadership.......................................................................... 349
11.5.3 Transformational leadership................................................................... 350
11.5.4 Emotional intelligence (EQ) and leadership....................................... 352
11.6 Values-based leadership............................................................................................ 353
11.6.1 Authentic leadership................................................................................ 354
11.6.2 Ethical leadership..................................................................................... 356
11.6.3 Responsible leadership............................................................................ 357
11.6.4 Servant leadership.................................................................................... 357
11.7 Leadership in an environment characterised by change .................................... 358
11.7.1 Agile leadership........................................................................................ 358
11.7.2 Peer-to-peer leadership............................................................................ 359
11.8 Leadership and political behaviour in organisations........................................... 360
11.9 Summary..................................................................................................................... 361
References............................................................................................................................... 362
Case study............................................................................................................................... 365
Case study question.............................................................................................................. 367
Multiple-choice questions.................................................................................................... 367
Paragraph questions.............................................................................................................. 369
Essay question........................................................................................................................ 370
CHAPTER 12: INDIVIDUALS IN THE ORGANISATION ............................................. 371
12.1 Introduction............................................................................................................... 372
12.1.1 The importance of the human dimension in management................ 373
12.2 People as a subsystem............................................................................................... 374
12.3 People in the organisation........................................................................................ 375
12.3.1 Values and attitudes.................................................................................. 375
12.3.2 Personality................................................................................................. 378
12.3.3 The individual’s ability............................................................................. 382
12.3.4 Motivation................................................................................................. 383
12.3.5 Perception.................................................................................................. 383
12.3.6 Learning..................................................................................................... 385
12.4 Emotional intelligence (EI)..................................................................................... 385
12.5 Mentoring and coaching........................................................................................... 387
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12.6 Types of workplace behaviour................................................................................. 388
12.7 Summary..................................................................................................................... 389
References............................................................................................................................... 390
Case study............................................................................................................................... 391
Case study questions............................................................................................................. 391
Multiple choice questions.................................................................................................... 392
Paragraph questions.............................................................................................................. 394
Essay question........................................................................................................................ 394
CHAPTER 13: GROUPS AND TEAMS IN THE ORGANISATION ............................... 395
13.1 Introduction............................................................................................................... 396
13.2 Groups and teams...................................................................................................... 396
13.3 Types of organisational group................................................................................. 397
13.3.1 Informal groups........................................................................................ 397
13.3.2 Formal groups........................................................................................... 398
13.4 Stages in group and team development................................................................. 398
13.4.1 Forming...................................................................................................... 399
13.4.2 Storming.................................................................................................... 399
13.4.3 Norming..................................................................................................... 400
13.4.4 Performing................................................................................................. 400
13.4.5 Adjourning................................................................................................ 400
13.5 Variables that influence group behaviour.............................................................. 400
13.5.1 Organisational context............................................................................ 401
13.5.2 Group member resources........................................................................ 403
13.5.3 Group structure........................................................................................ 403
13.5.4 Group processes....................................................................................... 406
13.5.5 Group tasks............................................................................................... 408
13.6 Organisational teams................................................................................................. 409
13.6.1 Characteristics of effective work teams................................................. 410
13.7 When organisations use teams................................................................................ 413
13.8 Types of team............................................................................................................. 413
13.9 Developing individuals into team members......................................................... 415
13.10 Team-level dysfunction............................................................................................. 416
13.11 Summary..................................................................................................................... 416
References............................................................................................................................... 417
Case study............................................................................................................................... 418
Case study questions............................................................................................................. 419
Multiple-choice questions.................................................................................................... 419
Paragraph questions.............................................................................................................. 421
Essay question........................................................................................................................ 422
CHAPTER 14: MOTIVATION ...................................................................................... 423
14.1 Introduction............................................................................................................... 424
14.2 The motivation process............................................................................................. 424
14.3 The classification of motivation theories............................................................... 426
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14.4 Content theories........................................................................................................ 426
14.4.1 Maslow’s hierarchy of needs................................................................... 426
14.4.2 The existence needs, relatedness needs and growth needs (ERG)
theory......................................................................................................... 429
14.4.3 Herzberg’s two-factor motivation theory............................................. 429
14.4.4 Acquired needs model............................................................................. 432
14.5 Process theories......................................................................................................... 433
14.5.1 The equity theory of motivation............................................................ 433
14.5.2 The expectancy theory of motivation................................................... 435
14.5.3 Reinforcement theory of motivation.................................................... 437
14.6 Money as a motivator................................................................................................ 440
14.7 Designing jobs that motivate................................................................................... 440
14.7.1 Job enlargement........................................................................................ 440
14.7.2 Job enrichment......................................................................................... 441
14.7.3 The job characteristics model................................................................. 442
14.8 Leadership and motivation...................................................................................... 443
14.9 Summary..................................................................................................................... 444
References............................................................................................................................... 445
Case study............................................................................................................................... 446
Case study questions............................................................................................................. 447
Multiple-choice questions.................................................................................................... 448
Paragraph questions.............................................................................................................. 449
Essay question........................................................................................................................ 450
CHAPTER 15: COMMUNICATION AND INTERPERSONAL RELATIONSHIPS ......... 451
15.1 Introduction............................................................................................................... 452
15.2 The communication process.................................................................................... 453
15.3 Organisational communication............................................................................... 455
15.3.1 Organisational communication networks............................................ 456
15.3.2 Formal communication........................................................................... 456
15.3.3 Informal communication........................................................................ 458
15.4 Barriers to effective communication...................................................................... 458
15.4.1 Intrapersonal factors................................................................................ 458
15.4.2 Interpersonal factors................................................................................ 459
15.4.3 Structural factors...................................................................................... 460
15.4.4 Technological factors............................................................................... 461
15.5 How managers can become better communicators............................................. 463
15.5.1 The sender encodes the message and selects the channel.................. 463
15.5.2 The sender transmits the message.......................................................... 463
15.5.3 The receiver decodes the message and decides whether feedback
is needed.................................................................................................... 463
15.6 Organisational communication in virtual organisational structures................ 464
15.6.1 Choosing communication technology.................................................. 465
15.6.2 Message content....................................................................................... 465
15.6.3 Frequency of communication................................................................ 466
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15.6.4 Diversity in virtual organisations........................................................... 466
15.7 Interpersonal relationships...................................................................................... 466
15.7.1 A definition of conflict............................................................................. 466
15.7.2 Managing organisational conflict........................................................... 467
15.7.3 Negotiation................................................................................................ 468
15.7.4 The negotiation process........................................................................... 469
15.8 Summary..................................................................................................................... 471
References............................................................................................................................... 472
Case study............................................................................................................................... 472
Case study questions............................................................................................................. 472
Multiple-choice questions.................................................................................................... 473
Paragraph questions.............................................................................................................. 475
Essay question........................................................................................................................ 476
PART 5: CONTROLLING ............................................................................... 477
CHAPTER 16: CONTROL ........................................................................................... 479
16.1
16.2
16.3
16.4
16.5
Introduction............................................................................................................... 480
Definition of control................................................................................................. 481
The importance of control........................................................................................ 482
The control process................................................................................................... 482
The levels of control.................................................................................................. 484
16.5.1 Strategic control........................................................................................ 484
16.5.2 Operations control................................................................................... 487
16.6 Functional area control systems.............................................................................. 488
16.6.1 Financial control....................................................................................... 488
16.6.2 The control of human resources............................................................. 489
16.6.3 Control of physical resources................................................................. 491
16.6.4 Operational control.................................................................................. 492
16.6.5 Control of information resources.......................................................... 494
16.7 Characteristics of an effective control system....................................................... 494
16.8 Summary..................................................................................................................... 494
Case study............................................................................................................................... 495
Case study questions............................................................................................................. 496
Multiple-choice questions.................................................................................................... 496
Paragraph questions.............................................................................................................. 498
Essay question........................................................................................................................ 498
CHAPTER 17: THE COMPONENTS OF ETHICAL BUSINESS ................................... 499
17.1 The components of ethical business....................................................................... 501
17.2 Business ethics ........................................................................................................... 502
17.2.1 Morality, ethics and business ethics...................................................... 502
17.2.2 Normative ethical theories and moral decision-making ................... 503
17.2.3 Descriptive ethics and contextual influences ...................................... 506
17.3 Business in society..................................................................................................... 508
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17.3.1 Corporate social responsibility.............................................................. 508
17.3.2 Stakeholder theory................................................................................... 512
17.3.3 Corporate citizenship.............................................................................. 512
17.4 Corporate governance .............................................................................................. 514
17.4.1 Defining good corporate governance.................................................... 514
17.4.2 The statutory approach to corporate governance................................ 515
17.4.2 The voluntary approach to corporate governance............................... 516
17.4.3 Evolution of South Africa’s corporate governance regime................. 518
17.5 Summary .................................................................................................................... 518
References............................................................................................................................... 521
Case study............................................................................................................................... 523
Case study references............................................................................................................ 525
Case study questions............................................................................................................. 525
Multiple-choice questions.................................................................................................... 525
Paragraph questions ............................................................................................................. 527
Essay questions ...................................................................................................................... 527
CHAPTER 18: NEW CHALLENGES FOR MANAGEMENT ........................................ 528
18.1 Introduction............................................................................................................... 529
18.2 Variables influencing contemporary organisations to change............................ 529
18.2.1 Globalisation............................................................................................. 530
18.2.2 Technological advances and the fourth industrial revolution........... 531
18.2.3 Radical transformation of the world of work....................................... 533
18.2.4 Increased power and demands of the customer.................................. 534
18.2.5 The growing importance of intellectual capital and learning ........... 534
18.2.6 New roles and expectations of workers................................................. 535
18.2.7 Environmental crises............................................................................... 537
18.2.8 Demographic change............................................................................... 539
18.3 The traditional model of the formal organisation................................................ 539
18.4 The new organisation model.................................................................................... 540
18.5 Characteristics of contemporary organisations.................................................... 541
18.5.1 Global......................................................................................................... 541
18.5.2 Networked................................................................................................. 541
18.5.3 Flat and lean.............................................................................................. 542
18.5.4 Flexible....................................................................................................... 543
18.5.5 Diverse workforce.................................................................................... 544
18.6 Summary..................................................................................................................... 545
References............................................................................................................................... 546
Case study............................................................................................................................... 548
Case study questions............................................................................................................. 549
Multiple-choice questions.................................................................................................... 549
Paragraph questions.............................................................................................................. 550
Essay questions...................................................................................................................... 551
INDEX ........................................................................................................................ 552
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PREFACE
Amidst the Fourth Industrial Revolution, the climate change crises, financial crises and
above all the Coronavirus pandemic, the challenges of being an effective and efficient
manager have never been greater. Organisations are more complex than ever before and
they need to adapt to a total new management environment, change their strategies
and structures and learn about new customer buying behaviour and spending patterns
if they are to survive. Virtual organisational structures are rapidly becoming a reality
for many organisations - bringing new complexities and requiring new managerial and
leadership styles. With the emergence of renewed tensions between cultures in the
United States and the spread thereof to other countries, managers must be even more
sensitive to cultural differences entailed in doing business around the globe. Climate
change, sustainability, corporate governance, corporate citizenship and business ethics
are becoming increasingly important and need to be managed.
The COVID-19 global pandemic has brought unprecedented disruption to the
global economy, already tremendously impacting livelihoods in Africa by reducing
earnings and increasing poverty. Managers need to balance sound business decisions
with issues surrounding ethics and humanity. Furthermore, managers need to provide
guidance when restructuring is taking place in their organisations and they need to
adhere to new health and safety requirements.
South African business managers experience even greater challenges such
as a turbulent political environment characterised by no trust in political leaders,
corruption and bribery. Trade unions are very active, students demand free tertiary
education, workforces are in processes of transformation, and employment equity and
industry charters are realities. These few examples illustrate the fact that all managers
on all managerial levels and in all kinds of organisation (even the most experienced
executives) need to reflect on sound management principles to be effective and efficient
in meeting the demands of modern organisations.
As a response to the increasing complexity of managerial decisions, this book
addresses the traditional management functions of planning, organising, leading and
controlling within a contemporary management environment. The basic principles
underlying these functions are explained by focusing on the theories of these functions
as well as the application of these theories in practice, mainly through using South
African and African examples.
The book provides a solid knowledge base and helps to develop management skills.
It promotes a sound value system that takes the claims of all organisational stakeholders
into account.
Management principles is structured in a way that will guide the reader logically
through the management process, emphasising the challenges that managers worldwide
face and also focusing on the unique challenges facing managers in South Africa and
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management principles
Africa. The unique challenges and possible responses relating to the COVID-19
pandemic are also addressed throughout the book.
Part 1 of the book provides an overview of management and how management
sciences evolved to adapt to changes in the business environment.
Part 2 focuses on strategic management which aims to focus all the plans, actions
and activities on the overall vision, mission and goals of the organisation. It also explains
how strategic plans should be cascaded down into tactical and operational plans. The
planning process, goals formulation, budgeting, forecasting, information management
and decision-making are also explained in Part 2.
In Part 3, organising as managerial function is discussed. Organising aims to provide
a structure for an organisation that supports its strategy. Organising principles, the
organising process, as well as delegation are covered in detail.
Part 4 focuses on people in the workplace. Leadership and motivation are explained
from a productivity perspective, in other words, how to optimally use their human
resources. Issues such as diversity management, conflict management, communication
and negotiation are explored in this part of the book.
Part 5 focuses on the last of the four managerial functions, namely monitoring and
controlling. This part will enable the manager to recognise the importance of monitoring
and control, to design a system for an organisation that effectively monitors and controls
its performance, to detect deviations from plans, and to implement remedial actions.
The last part of the book, Part 6, deals with contemporary management issues,
specifically with respect to South African and African managers.
In revising our book, we build upon its previous successes. We maintained the
layout and structure of the previous edition which was found logical and user-friendly
to reviewers and users of the book. Our main aim with the sixth edition of the book was
to update the theoretical content with the latest developments in business management
and to provide more recent and appropriate examples from the South African and
African business environment.
The authors of the book would like to thank all the institutions, organisations and
individuals that use the book — we sincerely hope that it will contribute to the success
of many organisations and the personal successes of individuals. We would also like to
thank all the specialists who have worked very hard in researching, writing, proofreading
and finally publishing this, the sixth edition of Management principles: A contemporary
edition for Africa.
The authors
September 2020
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ABOUT THE AUTHORS
Professor Tersia Botha teaches Strategy, General Management, Finance and
Entrepreneurship for the past 27 years at the University of South Africa. She authored,
co-authored and acted as editor of numerous academic books in the field of Leadership,
Corporate Citizenship, General Management, Strategy, Business Management by
Portfolio. She published articles in accredited peer reviewed academic journals and
presented papers at international and national conferences. Prof Botha has been
involved in many community engagement projects for the past 25 years, most notably
the partnership with Education Africa and the Davis and Dean Youth Development
Programme.
Mari Vrba was a Senior Lecturer in Business Management in the Department of
Business Management, College of Economic and Management Sciences at the
University of South Africa for 25 years. She has published articles in accredited journals
and contributed to several textbooks in the field of Business Management.
Pieter Smit was professor in Strategic Management at the University of South Africa
for several years, lecturing to both students and businesspeople at universities, business
schools and corporate institutions in South Africa and abroad. Specialising in change
management, amongst others, he exchanged the world of the academia for the business
world, always ensuring that he stays thoroughly updated with the latest in research on
strategic management and related subjects.
Professor, Dr Hellicy C. Ngambi is the Vice Chancellor at Mulungushi University
since 2012, where she is the first woman to be appointed in such a position in the
Republic of Zambia. She is a full professor of business leadership. She has over 35 years
of Management and teaching experience in higher education in Africa and overseas,
including Executive Director and CEO of Unisa’s Graduate School of Business
Leadership (SBL); Executive Dean of the College of Economic and Management
Sciences. In all these positions she was the first woman and black person to be
appointed. She was previously the Principal and Managing Director of the Academy
of Business Management in Botswana from 1988 to 1994, a private university college
she founded. She holds the following qualifications: DBL, MSc, MBA, BA, ITP, ACE
Fellow, and Prosci certified Change Management expert.
Minka Woermann (PhD) is an Associate Professor in the Philosophy Department
and the Head of the Unit for Business Ethics and Public Integrity in the Centre for
Applied Ethics at Stellenbosch University. She has authored a number of national
and international publications, including two monographs respectively titled ‘On the
(Im)Possibility of Business Ethics’ and ‘Bridging Complexity and Post-Structuralism’
(Springer 2013, 2016). She served as the editor-in-chief of the African Journal of
Business Ethics from 2013 to 2016.
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1
1
INTRODUCTION TO
MANAGEMENT
Part
THE NATURE
OF MANAGEMENT
1
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Management Principles 7e.indb 2
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THE
PURPOSE
OF THIS
CHAPTER
Management Principles 7e.indb 3
1
1
INTRODUCTION TO
MANAGEMENT
Business organisations, and the management thereof, are so interwoven
into our daily lives that we often take them for granted. However, as
an introduction to this book on management principles, we have to
ask ourselves if the traditional business organisation is here to stay …
or destined to disappear. Has management therefore become outdated
— or even redundant — in an era where technology, amongst others,
has changed the way we do business? Can complex and ever-changing
needs be satisfied by structures other than business organisations?
And can organisations function without a clear mission and goals, an
organisational structure that defines the roles and responsibilities of each
employee, a motivated workforce and proper control of the business
organisation’s performance?
Chapter 1 deals with the questions above and introduces the reader
to the important role that business organisations play in satisfying the
ever-changing needs of individuals and society. It explains the role
and responsibility of managers in making these businesses successful
by applying fundamental management principles to achieve each
organisation’s unique mission and goals. Managers need to understand
how their decisions impact on their organisation’s profit, the people in
the organisation, the business organisation’s effect on the planet, and
so on. This chapter also looks at the different kinds of manager and the
different levels of management that one finds in business organisations of
different sizes, from large corporations to micro-business organisations.
Although managers are responsible for planning, organising, leading and
controlling (the four management functions), they also perform certain
managerial roles: interpersonal, informational, and decision-making.
These three roles are also considered in this introductory chapter.
To perform these managerial roles, as well as the four management
functions, managers require specific skills. Chapter 1 therefore also
covers the conceptual, interpersonal, and technical skills that managers
need in order to manage the organisation, or departments or sections
within the organisation, successfully.
Management is an art, science and profession. Managers approach
the same challenges from different perspectives. Although the four
management functions (planning, organising, leading, controlling)
have stood the test of time and have proven to be critical management
functions, there is no ‘one best way’ of finding solutions to management
challenges. There are different approaches to dealing with these challenges.
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4
management principles
This chapter proposes the use of the systems approach to management
as one of the approaches. The systems approach to management looks at
both the external environment in which the business organisation has to
survive as well as its internal functioning. This approach to management
is therefore well-suited to deal with contemporary issues which managers
in South Africa, Africa and the rest of the world face.
LEARNING
OUTCOMES
KEY
CONCEPTS
Management Principles 7e.indb 4
This chapter will enable learners to:
■
Explain the important role that business organisations play in
improving the standard of living in modern society
■
Depict (diagrammatically) and discuss the components that make
up the management process
■
Explain the management functions of planning, organising leading
and controlling
■
Describe the different levels and kinds of management found in a
typical organisation
■
Explain three managerial roles that managers perform
■
Discuss the managerial skills needed at the different levels of
management
■
Explain what ‘management competencies’ encompass
■
Recommend ways in which to master management skills and
competencies
■
Differentiate between different types of business organisation
■
Describe some of the major challenges faced by management in
South Africa, Africa and abroad.
Controlling
Decision-making role
■
Information role
■
Interpersonal role
■
Leading
■
Management
■
Management competencies
■
Management ethics
■
Management process
■
Management skills
■
Micro-business organisation
■
Organising
■
Planning
■
Profit, people and the planet
■
Resources
■
Systems approach
■
■
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introduction to management
5
1.1 INTRODUCTION
Organisations, especially business organisations, have been a part of human life for many
centuries. Today, more than ever before, society depends on business organisations, from
large corporations to small entrepreneurial businesses, to meet the changing needs of
all its members and to improve their standard of living. It is, however, not only business
organisations that satisfy the complex needs of society. Government organisations
such as state hospitals and clinics provide healthcare, the South African Police Services
provide protection against crime, the South African National Roads Agency (SANRAL)
maintains the national roadwork structure and municipalities provide water, electricity,
waste removal, and a host of other services. Non-profit organisations such as certain
sports clubs, art museums, public libraries, animal shelters, churches and universities
also help to satisfy society’s diverse needs.
All of these organisations, whether owned privately or by the state, large or small, profitseeking or non-profit-seeking, provide products and render services that are essential
to society to function properly. As diverse as these organisations are, they all strive to
achieve their unique missions and goals, and their managers apply the fundamental
management principles to ensure the sustainability of these business organisations.
All organisations, but especially business organisations, utilise society’s resources
to produce much-needed products or render services. Different societies have different
resources; some societies may have an abundance of well-trained and highly competent
electrical engineers whereas other societies may have a severe shortage of these skills.
Many African countries are rich in natural resources (such as gold and copper) whereas
other countries may have very limited natural resources. These resources, which all
societies have, whether they are in abundance or very scarce in a specific society, are:
■
Its people (human resources with specific work ethic, knowledge, skills, abilities,
experience and so on)
■
Money (capital or financial resources)
■
Raw materials (physical resources)
■
Knowledge (information resources).
Managers decide which resources and in what quantities are necessary to best satisfy
the changing needs of society. They also have to ensure that their decisions enable
their organisations to make a profit, retain its competent people and cause minimal
damage to the planet. Managers therefore have to plan what has to be done and then
implement these plans (organise, lead and control) to reach the organisation’s mission
and goals. They are responsible for the success and sustainability of their organisations
and eventually for the level of need satisfaction in society.
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6
management principles
The far-reaching consequences of management’s decisions
South African Airways (SAA) has confirmed that it will embark on a restructuring process
that may lead to substantial job losses for its employees as well as for employees working
for their suppliers as well as many other businesses on which the SAA relies to provide their
services. The financially-troubled airline has informed its 5 146 employees of the process of
cutting jobs. Acting CEO Zuks Ramasia says the retrenchments could affect 944 employees
of the airline.
Poor management of a business organisation also has far-reaching implications for other
business organisations and its customers and employees. International travel agency Flight
Centre Travel Group has stopped selling tickets for SAA flights. Flight Centre took this
decision after a travel insurance company said it would no longer cover SAA tickets against
insolvency. State-owned SAA failed to pay staff full salaries in November 2019 and has said
it has almost no cash left after a week-long strike.
Source: SABC News. 2019. Available at: https://www.sabcnews.com/sabcnews/job-cuts-loom-at-saa/
(Accessed: 20 September 2020); IOL News. 2019. Available at: https://www.iol.co.za/business-report/
companies/watch-flight-centre-ditches-struggling-saa-and-this-is-why-38164564 (Accessed: 20
September 2020).
Competent managers are essential to make business organisations successful. Successful
organisations can then compete nationally and internationally, enabling a country
as a whole to prosper. Successful organisations also provide much needed jobs — a
basic requirement for a prospering nation. Unemployment (or joblessness) occurs
when people are without jobs even though they have actively sought work. Thus the
unemployed in a country are those with age, ability and the desire to work (called the
labour force) but do not have a job. The number of unemployed in a country is usually
expressed in terms of the labour force (called the unemployment rate). In September
2019 the unemployment rate in South Africa was 29,1 per cent. This situation compares
very poorly with other countries, such as Japan, where the unemployment rate is
2,4 per cent. Brazil, which is often seen as similar to South Africa in many ways, has a
much lower unemployment rate than South Africa of 11,6 percent.1 However, it is not all
doom and gloom for South Africa and other countries in Africa. According to the World
Economic Forum (WEF) African countries are well-positioned to develop the new
skills needed to succeed in the Fourth Industrial Revolution (4IR) as machinery on its
own isn’t enough to succeed in the 4IR. The necessary skills to work with the emerging
technologies must be developed. Skilling and reskilling the current workforce can
ensure that both managers and employees have the right proficiencies for the workplace.
Ensuring that the education system in schools focus on these skills, potential job-seekers
can be prepared from a very early age to work with the emerging technologies. Jobseekers, as well as those in jobs, must embrace lifelong learning to ensure that their skills
remain relevant.2
Please note that we use the terms ‘goals’ and ‘objectives’ interchangeably. We will specify
throughout the text what kind of goal/objective (such as long-term or short-term goals) we
are referring to.
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introduction to management
7
Africa’s digital revolution
1784: The First Industrial Revolution refers to the shift from our reliance on animals and
human effort as primary sources of energy to the use of fossil fuels and the mechanical
power this enabled. Examples include the steam engine and mechanical production methods.
1870: The Second Industrial Revolution brought major breakthroughs in the form of electricity
distribution, mass production and the division of labour.
1969: The Third Industrial Revolution began with the development of digital systems,
electronics, information technology, automated production as well as rapid advances in
computing power. This enabled new ways of generating, processing and sharing information.
2020: The Fourth Industrial Revolution (4IR) can be described as the advent of “cyberphysical systems” involving entirely new capabilities for people and machines.3 While
these capabilities are reliant on the technologies and the infrastructure of the Third
Industrial Revolution, the Fourth Industrial Revolution represents entirely new ways in which
technology becomes embedded within societies and even our human bodies.
Africa has definitely responded with urgency regarding the promise of the 4IR. More than
400 technical hubs have sprung up across the continent, with Cape Town, Lagos and Nairobi
emerging as internationally recognised technology centres. These cities now host thousands
of start-ups, along with the incubators, accelerators, innovation hubs, maker spaces,
technology parks and co-working spaces that support them.
Source: World Economic Forum. 2019. Available at: https://www.weforum.org/agenda/2019/09/africainnovation-rather-than-industrialization/ (Accessed: 20 September 2020).
Managers worldwide face major new challenges as the decisions that they make in
contemporary business organisations will require complex problem-solving skills, as
well as the ability to deal with social and system issues. They will have to manage in an
environment where routine jobs are being automated, where decisions are being made
using artificial intelligence and where robots replace human interaction.
Because of the profound influence of business as well as government and other
organisations on the economy of a country — and thus the standard of living of its
people — it is important that managers are developed to ensure that they are enabled to
make responsible management decisions.
It is against the background sketched in the previous paragraphs that this book is
structured. More specifically, the objective of this book is to provide a comprehensive
contemporary review of management principles and their application in organisations
operating in Africa. This book offers a pragmatic approach to management as it recognises
the unique environment within which managers have to operate in South Africa and in
Africa, yet fully recognising that the world has become a seamless environment where
business organisations, and managers, have to take a global view when solving problems
and making decisions.
1.2 BUSINESS ORGANISATIONS AND MANAGERS
A century or two ago, consumers were part of an agricultural society. These societies
relied heavily on farming and led a settled lifestyle close to their farmland. They depended
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8
management principles
on themselves and a few other individuals such as the local shopkeeper, tailor, butcher,
and blacksmith for products and services. However, the modern consumer lives in the
age of the organisation. Virtually all the products and services required to satisfy the
consumer’s and, ultimately, society’s needs are produced and provided by specialised
organisations such as car manufacturers, hypermarkets, cellphone shops, fast- food
outlets, sports clubs, universities, banks, guest houses, bicycle shops, hospitals, and
airlines, to mention but a few. People’s lives are influenced in some way or another by the
managers of these numerous business organisations. Eskom’s load-shedding schedule
has, for instance, a direct impact on each individual in South Africa’s daily live. The
preparation of meals, studying at night, storing of food in refrigerators and many other
daily routines of South Africans had to be changed to accommodate the load-shedding
schedules of South Africa’s major electricity supplier. Eskom is one of the biggest power
utilities in the world, providing 90 per cent of power supply in South Africa, the most
industrialised country in Africa.4
Organisations, especially business organisations, serve society in a number of ways
by transforming scarce resources into products and services that are needed. Table 1.1
provides an example of how various types of organisation bring together the human,
financial, physical, and information (knowledge) resources to produce specific products
or services.
Organisations are social structures and therefore cannot reach their missions
and goals on their own. Managers are needed to bring these organisations to life by
deploying the scarce resources that an organisation has at its disposal to help it reach its
mission and goals. Managers must activate and guide the organisation. Without good
management, an organisation simply cannot survive.
1.3 THE NATURE OF MANAGEMENT
As we have already stated, organisations acquire scarce human, financial, physical and
information resources in order to produce a product or render a service for which
there is a need in society. Human resources include both managers and workers; both
are needed to enable the organisation to reach its mission and goals as productively
as possible.
Managers follow a specific process in order to do their jobs, irrespective of the
size of the organisation or type of products manufactured or services rendered by the
organisation. For instance, managers in a big mining company, as well as managers in a
small guest house, all follow the same management process. All managers (top, middle
and first-line managers) perform four fundamental management functions:
1. Planning
2. Organising
3. Leading
4. Controlling.
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introduction to management
9
Table 1.1 The basic resources of an organisation
Organisation
Human
resources
Financial
resources
A municipality
Administrative
staff, engineers,
town planners,
municipal
workers,
technicians,
gardeners, etc
Funds allocated
by government,
rates and taxes,
conditional
grants (to fund
roads and
infrastructure)
Offices,
equipment,
vehicles,
computers
Statistics regarding
water and electricity
usage, new building
plans approved,
demographics of
a specific town or
area
Toyota South
Africa
Managers,
engineers,
technicians,
administrative
staff, workers
Shareholders,
loans, profit
Assembly
plants,
buildings,
equipment,
computers
Market trends,
shifts in
demographics,
national statistics,
skills in car
manufacturing
Architect
practice
Fees from
Architects,
draughtspersons, clients
administrative
staff
Offices,
computers,
boardrooms
Newly proposed
housing
development,
population forecasts
Bicycle shop
Owner-manager,
members of
family, labourer
Counters,
shelves, tools,
equipment
Knowledge of
models, price lists,
membership list at
the mountain bike
club
Owner’s equity,
profits, loans
Physical
resources
Information
resources
Figure 1.1 below illustrates the management process as a logical sequence of decisions.
Managers start by planning for the future by setting specific goals, they then organise
the workforce by giving each employee specific responsibilities, lead their subordinates
and finally control the performance of the organisation/department/section to ensure
that the organisation’s goals will be achieved.
Resources
Human
Financial
Physical
Information
Organising
Planning
Leading
Performance
Achieve
goals
Products
Services
Productivity
Profit
Controlling
Figure 1.1 The four fundamental management functions
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10
management principles
However, at any given time, a manager is likely to be engaged in several management
functions simultaneously. This is depicted in Figure 1.2 below. The solid lines indicate
how, in theory, the functions of management are performed. The dotted lines represent
the true reality and complexity of management.
The external environment
Planning
(Part 2)
Managers determine the organisation’s vision,
mission, and goals and decide on a strategy to
achieve them
Controlling (Part 5)
Managers monitor
progress and take
corrective steps to
reach the mission and
goals
Organising (Part 3)
Managers group
activities together,
establish authority,
allocate resources, and
delegate
Leading (Part 4)
Managers direct and motivate members of the
organisation to achieve the mission and goals
Figure 1.2 The interactive and complex nature of the management functions
Figure 1.2 serves as the structural framework for this book. It is important to
emphasise again that this book is based on the systems approach to management.
The systems approach to management incorporates many of the other approaches to
management (see Chapter 2) and is considered a contemporary approach that can
deal with many current management challenges that occur outside as well as inside the
organisation itself.
1.4 DEFINITION OF MANAGEMENT
Management can be described as the process of planning, organising, leading, and
controlling the scarce resources of the organisation to achieve the organisation’s mission
and goals as productively as possible.5
This definition of management may sound daunting at first. However, the following
will explain the keywords in the definition.
First, management is a process. This means that management consists of a series of
steps and decisions that are made on a continuous basis. We are all very familiar with
the concept of a ‘process’. Preparing breakfast is a process; so too is cleaning a room or
refuelling your car.
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introduction to management
11
Secondly, planning is the management function that determines where the
organisation wants to be in the future. In other words, planning states the goals (financial
and non-financial) that the business organisation must achieve in order to be successful.
Organisations have different plans/goals for the long term, medium term and short
term. We therefore differentiate between strategic (long- term), tactical (medium-term)
and operational plans (short-term).
A car manufacturer, such as Toyota, may plan to replace all its current models
by electric cars before 2030. This is an example of a strategic plan (goal) that will
have an influence on the entire organisation and how it functions. All managers and
workers will be affected by this strategic plan and goal. Top management will also be
committing billions of rand to achieve this strategic plan and goal. However, strategic
plans and goals are very broad and must be translated into tactical plans to be more
specific and measurable. Whereas strategic plans are made by top management, tactical
plans are made by middle management (such as financial, human resources, research
and development, marketing, and operations managers) to support the organisation’s
strategic plan and goals. The operations manager in this case will have to create mediumterm plans and goals such as ‘to replace all employees in routine jobs with robots within
the next three years’ to support the strategic plan and goals.
Tactical plans (made by middle management) are translated into operational
plans. Operational plans are made by lower management (often called ‘first-line’ or
‘supervisory management’) and these are shorter-term plans which may have daily,
weekly and monthly schedules.
Top management is responsible for the overall strategic plans. Middle management is
responsible for tactical plans. First-line managers make operational plans.
Thirdly, organising is another step in the management process. Once the goals and
plans have been determined, responsibilities must be assigned to specific departments
to ensure that the goals and plans are achieved. Tasks, roles, and responsibilities have
to be defined to ensure that each person knows what he or she is responsible for
within the organisation. Thus, organising involves the development of a framework or
organisational structure to indicate how and where people and other resources should
be deployed to achieve the set goals.
Sports teams also apply the principles of organising. For example, in a rugby, soccer or
baseball team, each player has a specific position in which he or she plays. Each player
knows exactly what is expected of him or her in that specific position. The sports teams use
the principles of organising to ensure that all players contribute to the team’s goals.
Fourthly, managers are responsible for getting things done through other people. A
further step in the management process is therefore to lead the human resources of the
organisation and motivate them in such a way that they will be willing to work productively
to reach the organisation’s mission and goals. Leading the organisation, means making
use of influence and power to motivate employees to achieve organisational goals.
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Fifthly, controlling is another step in the management process. The aim of control
is to monitor the performance of each individual, section and department in the
organisation to ensure that there are no deviations from the plans and goals. For
example, an organisation might have a goal to increase sales by ten per cent within one
year. However, after the first three months, management finds that the organisation’s
sales have declined by two per cent due to the economic climate. Management then
has to rectify the deviation in order to get back on track. To do this, management
may decide to appoint more sales managers, give discounts to certain clients or it may
even decide to reconsider its goals. The COVID-19 pandemic caused almost every
business organisation in South Africa and the world to reevaluate their goals and adapt
their goals to reflect the realities that the pandemic caused.
Lastly, managers perform the management process to ensure that their business
organisations perform well and attain their goals as productively as possibly. Attaining
these goals (financial and non-financial) will enable the business organisation to produce
high-quality products, render excellent service, create jobs, satisfy its customers … and
remain sustainable over the long term.
Levels of management
Top
managers
Middle
managers
First-line
managers
Marketing Finance Operations Human Research
Other
resources
and
areas
development
Areas of management
Figure 1.3 Classification of managers according to level and functional area
1.5 DIFFERENT LEVELS AND KIND OF MANAGEMENT IN THE ORGANISATION
The four management functions must be performed by all managers in all organisations,
but managers focus on different areas (departments) of the business organisation. They
work at different levels and deal with different challenges. Managers are therefore
classified into two categories:
1. According to their level in the organisation (the top, middle, and lower or first-line
managers)
2. By the functional or specialist area of management for which they are responsible
(See Figure 1.3 above).
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1.5.1 Top management
Top management represents the relatively small group of managers at the top of the
management hierarchy. Top management is responsible for the performance of the
entire organisation.
This level of management comprises, for example, the board of directors of a
company, senior partners in an accountancy firm, the directors of a building company,
chief executives, as well as management committees (consisting mainly of members
of top management). Top management is responsible for the organisation as a whole,
as well as for determining its vision, mission, goals, and overall strategies. They make
decisions that affect the entire organisation. For instance, top management of an airlines
company may decide to close its non-profitable routes between certain destinations;
the top management of a car manufacturer may decide to relocate its manufacturing
plant to a country where they can operate more profitably. Their decisions are long-term
and future-focused. They also focus on changes that occur outside the organisation that
may offer opportunities or pose threats to the organisation in future. These changes
include, amongst others, political changes such as the stability of the government in a
country, a pandemic such as the COVID-19 pandemic, the stability of power supply,
legislation regarding minimum wages and import taxes.
In 2019, BBC World News launched a new weekly programme, In Business Africa, to look
at the trends shaping Africa’s future. Each week, In Business Africa focuses on what is
happening on the continent in order to inform business owners, managers and workers of
issues such as:
■
■
■
What it takes to develop products that are truly made in Africa
Africa’s move towards cashless transactions
How major infrastructure projects are transforming transport across the continent and the
opportunities and challenges that is offered to trade and travel.
Source: Media Update. 2019. Available at: https://www.mediaupdate.co.za/media/146096/bbc-worldnews-announces-the-launch-of-in-business-africa (Accessed: 20 September 2020).
1.5.2 Middle management
Whereas top management focuses on the organisation as a whole, middle management
is responsible for specific departments of the organisation. Middle management
is primarily concerned with implementing the strategic plan formulated by top
management. Middle management in larger organisations will include the financial
manager, marketing manager, purchasing manager, operations manager, research and
development manager, and the human resources manager. Mining companies, as well
as other companies, will often have a safety, health, risk and environment manager.
Middle management is concerned with medium-term planning, organising functional
areas (their specific departments), leading (by means of the departmental heads),
and controlling the performance of their specific departments. Middle managers also
continually monitor environmental influences that may affect their own departments.
The head of the finance department must monitor the environment for possible changes
in tax legislation, the marketing manager must monitor the environment for possible
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new competitors that may enter the market, the human resources manager must be
aware of changes in legislation regarding overtime work, while the operations manager
must be aware of new technologies that could make their current machines obsolete.
1.5.3 Lower/first-line management
Departments in an organisation are divided into smaller segments. These segments are
called sections and they are managed by lower or first-line managers. The marketing
department, for instance, could be subdivided into the product design section, the
marketing communication section, and so on. Lower management also includes
supervisors or forepersons. Mining companies such as African Rainbow Minerals or
Harmony Mines refer to their first-line managers as ‘supervisors’.
First-line managers deal with the monthly, weekly and daily management of their
sections. They have to ensure that the plans made by middle managers are implemented.
They therefore report to middle management. The operations manager (middle
management) in a manufacturing plant may have a goal to replace all of the old machines
and equipment with more environmentally friendly ones within three years; the firstline managers will then have to ensure that monthly, weekly and daily plans are in place
to ensure proper maintenance of the old machines for the following three years.
Whereas top management and middle management deal with other managers, firstline managers deal directly with the workforce. Being a first-line manager (supervisor)
is one of the most difficult, demanding, and challenging jobs in any organisation.6 The
primary concern of a first-line manager is to apply policies, procedures, and rules to
achieve a high level of productivity in his/her section, to provide technical assistance
to workers, to motivate subordinates, and to ensure that the section’s goals are reached.
First-line management therefore holds great power to increase or decrease the
productivity in the organisation through their day-to-day interaction with the workers.
First-line management must also ensure that they skill and reskill the workers to ensure
that they have the right skills for the future and remain employable.
For the sake of clarity and convenience, we have distinguished only three levels
of management. Some organisations will have a fourth level, namely team leaders.
Obviously, the size of an organisation plays an important role in the number of
levels encountered in practice. This is because one person can manage only a limited
number of people. A one-person business may have only one level of management and
the owner therefore embodies top, middle, and lower management. However, large
organisations with thousands of employees have many more levels of management and
an organisational structure that is complex. (We shall deal with this issue in greater
detail in Chapter 8).
Although we have distinguished different levels of management (top, middle and
first-line), the four fundamental functions of management are all performed at each
of these levels. The complexity of decisions made at the different levels differ; so too
does the time span covered by the decisions. Figure 1.4 below illustrates how the four
management functions of planning, organising, leading, and controlling can differ for
the three management levels in a specific organisation. The time spent on the different
management functions can also differ from one organisation to another or between
different industries. Research on the time spent by top, middle and first-line management
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on each of the four management functions is inconclusive. Figure 1.4 therefore depicts
the situation for a specific organisation only and should not be generalised to apply to
all types and sizes of organisation.
Planning
Organising
Leading
Controlling
28 %
36 %
22 %
14 %
Top
managers
Middle
managers
First-line
managers
18 %
15 %
33 %
24 %
36 %
51 %
13 %
10 %
Figure 1.4 Time spent on functional activities by organisational level: an example
1.6 AREAS OF MANAGEMENT
Another factor that influences the classification of managers (see Figure 1.3 above) is
the type of activity they manage. Almost all organisations will have a general manager,
as well as a marketing, finance, human resources and operations (production) manager.
Organisations in the mining industry will also have safety, health and environment
managers (called SHE). A pharmaceutical company may have a research and
development manager. Some organisations, especially larger ones, may have a public
relations manager.
The general manager makes strategic decisions that influence the organisation as a
whole, its managers and workers. The general manager of a construction company may
decide to outsource the administration function of the company in order to focus on
the construction process. This decision will have an impact on the financial manager,
the human resources manager, the operations manager, the receptionists and all other
managers and employees. The general manager’s strategic plan should also consider any
potential threats and opportunities that may arise over the next few years, such as new
legislation regarding the safety of buildings. The general manager must also decide on a
structure for the entire organisation (for example, who will report to whom), must lead
from the top and must monitor and control the performance of the entire organisation
to ensure that it reaches its mission and goals. In order to do her job as a general manager,
she has to get the specialised input from other managers in the organisation, such as the
marketing manager, finance manager as well as operations manager.
The marketing manager is responsible for the formulation of a marketing strategy
to ensure that this strategy enables the general manager to achieve his or her overall
strategic goals for the business organisation. The marketing manager must therefore
segment the market, based on criteria such as the age of potential clients, income,
reasons for buying the product … or any other relevant criteria. She must then decide
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which market segments to target in order to attain the organisation’s mission and goals.
The marketing manager must also decide how to position the business organisation
to differentiate it from similar types of business. Furthermore, she is responsible for
making decisions regarding the product (its design and packaging), price, promotion
(advertising, personal selling and so on) and distribution.
It is important to note that strategic management and strategic marketing do not refer to
the same types of decision. Strategic management focuses on the entire organisation.
Strategic marketing focuses only on the marketing function. These two terms cannot be used
interchangeably as they differ profoundly.
The financial manager has to make decisions regarding issues such as how to finance a
new project and how to invest its funds to ensure that the organisation prospers. The
financial manager is also responsible for reporting on the financial performance of the
organisation. A major challenge for a financial manager is to manage the cash flow of the
organisation. The financial manager will be the first one to acknowledge that profit and
cash are not the same!
Managing cash flow is a major priority for a financial manager. An organisation can be very
profitable but still go bankrupt as it may not be able to pay its short-term debt. Profit does
not equal cash!
The production or operations management function focuses on the physical production
of products or the delivery of a service. The operations manager has to determine the
optimal way of producing a product or service. In Toyota’s production plant in Durban,
the production manager is responsible for, amongst other things, ensuring that the
layout of the plant is energy efficient and safe and that all processes required to assemble
the cars are well aligned. In a hospital, the operations manager must ensure that the
layout of the hospital is patient-friendly, that operating theatres can cope with demand
and that admission and other processes run smoothly.
The purchasing function entails the acquisition of all products and materials
required by the business to function profitably, namely raw materials, components,
tools, equipment, and inventory. For a car dealer, inventory will refer to the new as
well as used cars in the showroom, motor parts, and so on. The purchasing manager
has to be in contact with suppliers to ensure a good relationship, must determine the
economic quantities to order, and must know the prices at which goods can be bought.
The purchasing manager must be a good negotiator as prices of goods and parts often
have to be negotiated with suppliers. He or she also has to keep the inventory up to date
to ensure continuity of functioning.
The research and development function is responsible for developing new products
and improving old ones. This function plays a crucial role in organisations that operate
in fast-changing industries, such as information technology, communications, and the
pharmaceutical industry. Research and development of a vaccine to curb the spread of
the COVID-19 virus emphasised the importance of this function in the pharmaceutical
industry worldwide.
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The human resource function entails finding the right people for the job, training
and developing them and ensuring fair remuneration/compensation for management
and all employees. Finding the right people means that the human resources manager
must recruit candidates, select the most suitable one for the job and appoint that person.
In South Africa, laws govern this process so the human resources manager has to be well
informed regarding laws such as the employment equity law. To ensure that employees
and managers are suitably skilled, the human resources manager must ensure that a
sound performance management system is in place and that performance appraisals
are done regularly and fairly. Assessing the performance of employees helps the human
resources manager to identify skills shortages and to design training and development
opportunities to improve on the shortage of these skills. Finally, the human resources
manager must ensure fair remuneration for each employee and manager. Remuneration
is more than paying a salary. It includes other benefits such as medical aid contributions,
paid annual and maternity leave, free transport to and from work and a healthy and safe
work environment.
The public relations function aims to create a favourable and, hopefully, an
objective image of the organisation and establish good relations with the organisation’s
stakeholders. An organisation’s stakeholders include its shareholders, managers and
employees, customers, suppliers, the community and the government.
In organisations where safety is an issue, such as in mining companies, oil refineries
and the building industry, one will also find a safety, health and environment (SHE)
function. The SHE manager must suggest proactive measurements that prevent
incidents before they manifest as accidents and must ensure the safety of managers
and employees. This function is also responsible for looking after the mental health
of employees, with issues such as worker stress and burnout, and for ensuring that
programmes are in place to assist employees who may need them. The management of
health includes managing HIV/AIDS in the workplace. Environmental managers are
in charge of all policies and procedures relating to recycling, waste disposal, pollution
and nature conservation. Ensuring that all necessary steps are taken and implemented
during a pandemic is the responsibility of the SHE manager in larger organisations.
All of the above functional managers are responsible mainly for their own department’s
specific managerial activities. Financial managers, human resources managers, purchasing
managers, and the other functional managers perform the same management functions
as the general manager. However, the focus and time horizons that their planning,
organising, leading and controlling decisions cover differ from those of the general
manager. The general manager focuses on the long-term success of the organisation as
a whole; functional managers focus on their own department’s performance, ensuring
that it enables the organisation as a whole to achieve its mission and goals.
1.7 THE DIFFERENT ROLES THAT MANAGERS PERFORM
During the course of their work, managers are required to perform certain roles in
addition to the management functions. Henry Mintzberg, a famous management
theorist, studied the activities of a group of managers and came to the conclusion that
managers perform about ten different roles, grouped into three categories: interpersonal,
information and decision-making roles.7
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As far as the interpersonal role is concerned, three groups of activities can be
distinguished. First, all managers have to perform duties that are ceremonial and
symbolic in nature. When the mine manager of a platinum mine delivers a speech at the
opening of a new mine, he or she acts as a figurehead for the mine. The supervisor who
takes the attendees on a tour of the plant after the opening is also acting in a figurehead
role. Second, all managers have a role to play as a leader. This role includes motivating
employees, appointing new personnel, training them, promoting the most suitable
candidate, and dismissing employees who do not perform. The third role within the set
of interpersonal roles is liaison, which aims at maintaining good relations within and
outside the organisation. In a production plant, the maintenance manager must make
continual contact with the production manager to ensure proper maintenance of the
equipment. The maintenance manager must also make contact with outside suppliers of
the equipment used in the maintenance process to ensure availability of new machines
or machine parts.
Managers’ information role enables them to obtain information from colleagues,
subordinates, and department heads as well as outside stakeholders, which they can
use to make sound decisions. This information role of the manager involves monitoring
or gathering information on trends and passing on relevant information to colleagues,
superiors, and subordinates. The manager is, therefore, a vital link in the organisation’s
communication process. The manager’s information role also entails acting as a
spokesperson for his or her department or for the organisation as a whole (in the case
of the general manager).
The third set of managerial roles is grouped into what is known as the decisionmaking role. First, a manager is regarded as an entrepreneur, using the information that
he or she obtains to identify new business opportunities or threats or ways to improve
the organisation’s functioning. Second, in this decision-making role, a manager also
has to deal with and solve problems such as how to improve productivity or which
departments to restructure or even close down. Third, managers must make decisions
about the allocation of resources to different projects or departments. In their role
as negotiators, managers often have to negotiate with individuals, other departments
or organisations and trade unions regarding goals, standards of performance and the
allocation of resources.
The role distribution framework is especially useful in explaining how complex the
job of a manager is and why managers cannot move systematically from planning to
organising to leading and ultimately to controlling. The volatility of their environment
requires a more flexible managerial style.
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Interpersonal role
Figurehead
Leader
Relationship builder
Decision-making role
Entrepreneur
Problem solver
Allocator of resources
Negotiator
Information role
Monitor
Analyser
Spokesperson
Figure 1.5 The overlapping role distribution of managers (according to Mintzberg)
1.8 MANAGERIAL SKILLS AND COMPETENCIES
Although managers are found at all levels and in all departments and sections of an
organisation, the optimal mix of management skills required at the different levels (top,
middle and lower management levels) differ. Figure 1.6 below depicts the different
skills needed at top management level versus those required at middle and lower-level
management. It also shows how these skills differ from the dominant skills required by
non-managers (workers).
The three major skills needed by all managers are:
1. Conceptual
2. Interpersonal
3. Technical.
There are three main skills identified as prerequisites for sound management.8
First, all managers need conceptual skills to be able to view the organisation and
its parts holistically. Conceptual skills involve the manager’s thinking and planning
abilities to ensure that the organisation is prepared for the future. They also include the
manager’s ability to think strategically about the organisation and how it will exploit
opportunities and minimise threats caused by a changing business environment.
Interpersonal skills refer to the ability to work with people. Poor communication
is one of the main causes of conflict between employees in the workplace.9 A manager
should be able to listen carefully to other managers and workers, communicate clearly,
show real empathy, deal with conflict, understand people’s behaviour, resolve conflict,
optimise diversity and motivate both groups and individuals. Managers have to ensure
that the workplace provides ample opportunities for employees to explore, experiment
and learn. This should keep the workforce motivated.10
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Technical skills refer to the ability to use the knowledge or techniques of a specific
discipline to reach specific goals. Knowledge of accountancy or engineering or
personal selling is an example of a technical skill that can be used to perform a task.
A manager at a lower level in particular requires a sound knowledge of those technical
activities (such as accounting) that he or she must supervise. However, the time spent
on technical activities decreases when a first-line manager gets promoted to a middle
management position.
Top
management
Middle
management
Conceptual
Lower
management
Non-managers
(workers)
Conceptual
Conceptual
Interpersonal
Conceptual
Interpersonal
Interpersonal
Technical
Interpersonal
Technical
Technical
Technical
Figure 1.6 Managerial skills needed at various managerial levels
As illustrated in Figure 1.6 above, the major difference between non-managers (workers)
and managers is the shift in focus from technical skills to interpersonal and conceptual
skills. Promotion from worker to manager is, unfortunately, often based on the worker’s
technical ability and not on his or her managerial competency. An engineer who is
excellent in his job as an engineer may be promoted to a management position purely
because he or she is a good engineer — and not because he or she has the potential to
be a good manager. This is often the case in South Africa because of the severe shortage
of suitably skilled managers.
New managers often mistakenly continue to rely on the technical skills with which
they are familiar rather than on interpersonal skills which involve communication skills,
motivation and negotiation skills and the skills to deal with conflict in the workplace.
It is therefore essential that management training is provided to non-managers (such as
geologists, engineers and accountants) when they are promoted to managerial positions.
In South Africa, the National Qualifications Framework (NQF) defines management
competence from basic management competence to advanced competence. Ten levels
of competence are described with NQF Level 10 the highest level of competence. Each
level clearly specifies what a manager must know, what the skills are that the manager
must have, and what value orientation the manager must have to be declared ‘competent’
at that level. ‘Competent’ means that the manager can apply the necessary knowledge
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and skills profitably in a work situation. A qualification, such as a university degree, does
not make one competent. However, it should provide a student with the knowledge
component of the competence.
Being promoted from non-manager (worker) to manager is a stressful situation.
In fact, it means a career change for the newly-promoted manager. A geologist who is
promoted to a management position in a mine changes her career from being a geologist
to being a manager. This means that the geologist has to be retrained and prepared for
the new task that lies ahead. The geologist-turned-manager is no longer responsible
for her performance only. She now has to manage the performance of others and deal
with excessively high workloads and unrealistic deadlines. The new manager will also
be faced with changes in relationships with colleagues and may now have to discipline
someone who was previously on the same level in the organisation as herself.
The new challenges that the newly-appointed manager will face means that she will
have to acquire a new set of competencies which will be very different from her previous
competencies needed when she was a geologist.
In the 1960s, organisations queued for the services of graduates, such as those with
an MBA degree. However, the situation has changed profoundly. Today’s organisation
finds itself in a different environment where managers need more than just classical
management skills to do their jobs. Change in the form of new technologies, robots
replacing employees who do routine jobs, diseases to cope with in the workplace,
power outages, new wars, legislation, labour movements, a mobile workforce and so
on pose new challenges to managers in South Africa, Africa and the rest of the world.
Additional pressures in South Africa are caused by crime, violence, poor infrastructure
(such as power outages), corruption, shortages of skilled people at all levels, and a loss
of investor confidence. Today’s managers are required to learn and educate themselves
continually in a large number of disciplines.
1.9 MANAGEMENT AND ORGANISATION PERFORMANCE
It was explained in the introduction that the business organisation is a social structure
that can best satisfy the unlimited needs of society by means of the productive use
of society’s scarce resources. Achieving the highest possible satisfaction of needs
with scarce resources is known as the fundamental economic principle. The task of
management in a free-market economy is to manage in such a way that the organisation
makes a sustainable profit, that is, earns the highest possible income with the lowest
possible costs. Of course, this should be done with due consideration of the social
responsibility of the organisation towards the community in which it operates, as well
as the environment for which it needs to care (called the triple bottom line).
The terms ‘efficiency’ and ‘effectiveness’ can cause major confusion and are often used
interchangeably due to a lack of clarity as to what they mean. An example will hopefully
help to clarify the difference between the two:
If a manufacturer manufactures a top-quality electric car for use in South Africa it can be
called efficient as it is doing things correctly by delivering high-quality cars. However, the
manufacturer should consider the threat of power outages in South Africa that will have ➜
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a definite influence on the use of electric cars. To manufacture the high-quality car may not
be effective, meaning it is not doing the right thing with its scarce resources due to the
threat and unpredictability of power outages in the country.
It should be clear from our previous discussions that management is an important social
institution. Judging by the search for improved standards of living in society worldwide,
management continues to grow in stature. There are, however, many challenges facing
management in the changing environment. This makes management a constantly
evolving discipline.
1.10 THE SCOPE OF MANAGEMENT
The study of management traditionally focused on business management and
therefore the management of business organisations such as Sasol, Vodacom, financial
institutions, architect firms, hardware stores — to name but a few. This does not mean,
however, that the practice of management is limited to large business or medium-sized
organisations only. Effective and efficient management practice is equally important in
smaller business organisations as well as in non-profit organisations such as government
departments, charity organisations, municipalities, universities and schools, sports
clubs, and even political parties. In fact, good management practice is applicable to
every organisation where people work together to achieve a set of goals.
1.10.1 Large business organisations
Any successful nation needs large business organisations with the necessary resources,
managed by competent managers, in order to compete in a very competitive business
environment. These large corporations, such as Sasol and MTN, all have to pay tax to
the government on the profit that they made within a specific financial year. The better
these corporations are managed and the more profit that they make as a result thereof
means that the government receives more money to spend on services such as education,
health, social welfare, housing and security. Countries therefore need large corporations
that are well-managed to make a profit that in turn can be used to improve the standard of
living of the citizens of a country. Well-managed, successful large corporations therefore
have a direct impact on every individual’s life. In the fast-changing world that business
organisations have to survive, and hopefully thrive, continuous management training
and development is essential to ensure that managers have the right competencies to
steer their organisations during turbulent times.
Medium-sized and small business organisations also play an essential role in providing
products and rendering services which society needs. These organisations also pay tax
to the government on the profit that they made within a specific financial period. The
tax that large corporations, as well as medium-sized and small business organisations,
pay to the government, as well as personal income tax paid by individuals, value-added
tax (VAT) on products bought and the tax on imported items, fuel levies and so on all
contribute to a government’s income. The role of management in creating successful
business organisations cannot be overstated: it influences every citizen’s life in some
way or another. Not only do sound management decisions lead to successful business
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organisations, but the ripple effect of these management decisions are far-reaching. The
only real way for government to get more money is through more people paying income
tax, and more companies paying company tax. This means that our economy has to grow
and create more jobs. The government of a country is therefore directly responsible for
the standard of living in a country through the management decisions that they make
regarding the scarce resources of the country.
In South Africa, we also find small businesses, called micro businesses. The South
African Revenue Services (SARS) considers a natural person (sole proprietors and
partners in a partnerships) or a company (including a close corporation and a cooperative) as a micro business if the qualifying turnover for the year of assessment does
not exceed R1 million.11
1.10.2 Non-profit organisations
Although non-profit organisations such as government-subsidised universities and
schools, healthcare facilities, public libraries and charity organisations may not
have to be profitable to attract investors, they must still employ sound management
principles if they are to survive and achieve their mission and goals. South Africa’s
vast new government structure, which involves a central government, nine provincial
governments and thousands of local governments, schools, clinics, and service
centres, make tremendous demands on scarce resources and pose a real challenge
to management.
Poor management of scarce resources creates poor countries
Of the world’s 28 poorest countries, 27 are in sub-Saharan Africa. Projections by the World
Bank also show that extreme poverty is showing few signs of improvement in sub-Saharan
Africa. The report identifies problems caused by conflict, weak institutions due to poor
management, and a lack of resilience as major barriers to improving the outlook for the poor
in sub-Saharan Africa. Being poor, according to this report, is not just defined by a lack of
income but also having no access to education, basic utilities, health care, and security.12
South Africa, and Africa, with its desperate need to overcome poverty and improve
the standard of living of its citizens, can be successful only if it improves its level
of management skills and accepts the challenges that face management in all
its organisations.
1.11 THE APPROACH FOLLOWED IN THIS BOOK
Management is a complex subject. To make matters more challenging, management
is not an exact science, and there is therefore not a single best way of dealing with
management issues. There is no recipe that managers can follow to make their
organisations, departments or sections successful. There are different approaches to
dealing with today ’s management challenges, each approach claiming that it may have
the answer to dealing with management challenges. However, a very popular approach
that most management theorists and practitioners follow is the management process
paradigm or framework indicated in Figure 1.7 below.
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management principles
Part 1: The nature of management
Chapter 1: Introduction to management
Chapter 2: The evolution of management theory
■ Chapter 3: Managing in a changing environment
■
■
Part 2: Planning
Chapter 4: Strategic planning
Chapter 5: Planning
■ Chapter 6: Managerial decision-making
■ Chapter 7: Information management
■
■
Part 3: Organising
Chapter 8: Organising and delegating
Chapter 9: Managing change: Culture, innovation and technology
■ Chapter 10: Managing diversity
■
■
Part 4: Leading
Chapter 11: Leadership
Chapter 12: Individuals in the organisation
■ Chapter 13: Groups and teams in the organisation
■ Chapter 14: Motivation
■ Chapter 15: Communication and interpersonal relationships
■
■
Part 5: Controlling
■
Chapter 16: Control
Part 6: Contemporary management issues
■
■
Chapter 17: Ethics, corporate social responsibility and corporate governance
Chapter 18: New challenges for management
Figure 1.7 A conceptual framework for studying management
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25
The functions that most management experts (academics and practitioners) single out
when explaining management, are planning, organising, leading, and controlling. These
four management functions are performed continuously by managers and therefore
form a process.
These four management functions also constitute the structure of this book. Using
the four fundamental management functions as the basic premise in this book, we shall
discuss the concepts, principles, theories, and techniques that enable the organisation
to function productively and profitably.
In dealing with the context of management, Part 1 (Chapter 2) continues with an
examination of management theories, while Chapter 3 provides an overview of the
environment in which South African managers operate.
Part 2 examines the first fundamental management function, namely planning. In
simple terms, planning means determining the organisation’s future direction, its vision,
mission, goals and possible strategies to attain these. Chapters 4 to 7 deal with planning
and planning-related issues.
Part 3 deals with the second management function, namely organising. Organising
principles and related issues, such as change management and diversity, are dealt with
in this part of the book. The challenge of organising is to ensure that an organisational
structure is created that supports the organisation’s chosen strategy and that clearly
indicates the responsibilities of each person in the organisation.
Part 4 examines the third management function, namely leading. Leading subordinates
means that a manager needs a sound understanding of individuals, teams and groups in the
organisation. The manager also needs to know how to motivate his or her employees and
how to communicate effectively. These matters are dealt with in Chapters 11 to 15.
Part 5 deals with controlling, the fourth management function. Managers need to
monitor the organisation’s performance continually to ensure that the organisation stays
on track. Should deviations from the planned results occur, they should be rectified
as soon as possible. All resources must be monitored and controlled which makes a
control system essential for all organisations.
Part 6 looks at two important management issues namely ethics in business and new
challenges that managers will face in the future. These are two very pertinent issues in
South Africa and Africa and will therefore be approached from an African perspective.
1.12 SUMMARY
This chapter introduced the reader to the concept of management and the management
process. By way of introduction, we pointed out that the business organisation
satisfies the changing needs of people in a market economy. These organisations need
professional management in order to achieve their goals successfully.
In this introductory chapter, management is explained as a process comprising
four fundamental functions. These functions are planning, organising, leading, and
controlling. They take place at various levels in the organisation and are practised by all
managers, regardless of their level or function. Management requires certain knowledge,
skills, and a value orientation to perform their management responsibilities successfully.
These aspects are called management competencies. Management competencies can be
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26
management principles
acquired through both training and development and experience. Management training
and development should be a national priority in South Africa as competent managers
enable business organisations to be competitive nationally and internationally.
REFERENCES
1. Country Economy. nd. ‘Unemployment’. Available at: https://countryeconomy.com/
unemployment (Accessed: 20 September 2020).
2. World Economic Forum. 2019. ‘Africa’s future is innovation rather than industrialization’.
Available at: https://www.weforum.org/agenda/2019/09/africa-innovation-rather-thanindustrialization/ (Accessed: 20 September 2020).
3. World Economic Forum. 2016. ‘What is the fourth industrial revolution’. Available at:
https://www.weforum.org/agenda/2016/01/what-is-the-fourth-industrial-revolution/
(Accessed 20 September 2020).
4. BBC News. 2019. ‘Eskom crisis: Arrests over $50m South Africa power station “fraud”’. Available
at: https://www.bbc.com/news/world-africa-50854186 (Accessed: 20 September 2020).
5. Griffin, RW. 2017. Fundamentals of management, 8th ed. Boston: Cengage Learning, p 7.
6. Lussier, RN. 2014. Management Fundamentals: Concepts, Applications, & Skill Development.
London: Sage Publications, p 9.
7. Ibid, p 6.
8. Small Business Chronicle. 2019. ‘What Causes Employee Conflict in the Workplace?’.
Available at: https://smallbusiness.chron.com/causes-employee-conflict-workplace21264.html (Accessed: 20 September 2020).
9. Cable, D. 2018. ‘Why People Lose Motivation — and What Managers Can Do to Help’.
Harvard Business Review. Available at: https://hbr.org/2018/03/why-people-losemotivation-and-what-managers-can-do-to-help (Accessed: 20 September 2020).
10. SARS. nd. Available at: https://www.sars.gov.za/FAQs/Pages/302.aspx (Accessed: 20
September 2020).
11. Patel, N. 2018. ‘Figure of the week: Understanding poverty in Africa’. Brookings. 2018.
Available at: https://www.brookings.edu/blog/africa-in-focus/2018/11/21/figure-ofthe-week-understanding-poverty-in-africa/ (Accessed: 20 September 2020).
CASE STUDY
In a radio interview on 24 October 2017, Cape Talk’s Kieno Kammies asked Richard van Rensburg,
Deputy Chief Executive Officer (CEO) of Pick n Pay, about the company’s decision to launch the
spaza initiative in the Western Cape after it had successfully converted spaza shops in Gauteng.
Pick n Pay has launched a pilot program partnering with spaza shops in townships to offer the
informal market a convenient service. The supermarket has worked with its suppliers to upgrade
the spazas with new refrigeration and information technology systems, amongst others.
One of the many success stories to convert an informal spaza shop into a formal store is
described below.
Pick n Pay converts spaza shop into store in Diepkloof
On 25 February 2016, Pick n Pay opened the first spaza-to-store conversion in Diepkloof
township in Soweto as it looks for more markets in a tighter economy. This strategy by Pick
n Pay comes as the number of new malls being built has dropped. The move will allow Pick n
Pay to move more rapidly at a lower cost into lower-income areas. Shoprite has already been
very prominent in these areas. ➜
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27
Pick n Pay has 12 full-format stores in Soweto.
Mr Chris Reed, spokesperson for Pick n Pay, said that many independent township traders
were experiencing tough times as the economy tightens and competition becomes more
intense. ‘When we talk to spaza owners about the challenges, and how we might help, they
frequently identify better access to quality products at good prices, a reliable distribution
system, good business management systems, and business advice and mentorship as priority
areas for them,’ he said.
Mr Solly Legae and his family own and run the first of these new types of store. Mr Legae
has had a spaza in Diepkloof since 1972. He said that this new initiative from Pick n Pay will
change the face of retail in the townships forever. ‘Before, we were just buying and selling,’
Mr Legae said. ‘Now there is a vast difference in how I am running the business,’ he added.
In managing the store, Mr Legae has received mentoring and advice from a Pick n Pay
franchisee. He had to be trained to use, amongst others, systems for ordering and managing
stock. Because business is about economies of scale, Mr Legae feels that he can now
compete against foreign traders and Shoprite’s Usave format.
CASE STUDY QUESTIONS
Question 1
Explain why Pick n Pay’s decision to get involved in converting spaza shops into formal
stores can be considered a strategic management decision.
Question 2
Mr Legae now owns and manages his own store. Provide five examples of short-term
management decisions that he will have to make to ensure that his store remains
successful in the short term.
Question 3
Although not stated clearly in the concise case study, what are the scarce resources that
Mr Legae will have to manage in order to make his store profitable? Your answer should
provide at least two examples of each type of resource that one typically finds in such a
store (such as human resources).
The following table will help you to answer the above question.
Resource
1 Human
Example of such a resource
1 Cashier
2
2
1 Profit
2
3
1 Computer
2
4 Information
1
2
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management principles
Question 4
What are the major reasons why Mr Legae chose to change his spaza into the new
Pick n Pay concept?
Question 5
Briefly explain the managerial functions and roles that Mr Legae will be responsible for
as owner-manager of his new business?
Question 6
1. What type of management training has Mr Legae received to prepare him for his
challenge as the general manager of his spaza-to-store shop?
2. Recommend additional management training and development that may help
Mr Legae become a more competent general manager.
Question 7
How will Pick n Pay’s spaza-to-store concept make a difference to the standard of living
of those living in Diepkloof ?
MULTIPLE CHOICE QUESTIONS
Question 1
In management, the term ‘resources’ refers to
1. people
2. people, finance and information
3. profit, people and planet
4. people, finance, physical resources, information.
Question 2
First-line managers
1. Deal directly with the workforce
2. Are responsible for the daily, weekly and monthly results of their sections
3. Are often called ‘supervisors’
4. All of the above.
Question 3
Planning, organising, leading and controlling are called
1. managerial roles
2. management functions
3. management competencies
4. management skills.
Question 4
South African Airways (SAA) top management has decided to close down its nondecision.
profitable routes between certain destinations. This is an example of a
1. strategic
2. tactical
3. operational
4. policy
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introduction to management
29
Question 5
How many of the following statements are correct?
■
There is one best way of managing a business organisation
■
Management is an exact science
■
First-line managers are often called supervisors
1. none
2. one
3. two
4. three
Question 6
The manager responsible for the production process in a business organisation is called
the
1. public relations manager
2. operations manager
3. financial manager
4. general manager.
Question 7
Despite the managerial functions for which managers are responsible, Mintzberg has
also identified certain roles that they must fulfil. These roles are
1. Planning and interpersonal roles
2. Negotiating and information sharing
3. Interpersonal, decision-making and information sharing
4. None of the above.
Question 8
According to the South African National Qualifications Framework (NQF), which of
the following levels of competence indicates a manager who is exceptionally competent
as a manager?
1. 1
2. 5
3. 8
4. 10
Question 9
All managers in South Africa must
1. complete a university degree
2. register with the SA Institute of Professional Managers
3. do a learnership at a business organisation
4. none of the above.
Question 10
Which one of the following statements is correct?
1. small business organisations do not pay tax on the profits that they make
2. business organisations should focus only on profitability goals
3. business organisations should have goals that focus on profitability, people and the
environment
4. ‘cash’ and ‘profit’ are the same concepts.
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management principles
PARAGRAPH QUESTIONS
Question 1
Briefly explain the role of business organisations in a market-driven economy. Your
answer must focus on:
1. Why business organisations exist
2. Society’s scarce resources
3. The changing needs of society
4. The standard of living of society.
Question 2
Explain to a non-manager what management encompasses by focusing specifically on
the following:
1. Management as a process
2. The scarce resources of an organisation
3. The management functions
4. The financial and non-financial goals of a business organisation.
Question 3
Briefly describe how the job of a supervisor differs from that of a middle-level manager.
In your answer you must refer to:
1. The types of decision that each manager makes
2. The time horizon of each manager’s decisions
3. The dominant management skills required by supervisors.
Question 4
Briefly discuss five major challenges faced by managers on the African continent. Refer,
amongst others, to the challenges posed by the COVID-19 pandemic to business
organisations in Africa.
Question 5
Depict diagrammatically and briefly discuss the systems approach to management. Your
diagram must contain the following elements:
1. Management as a process
2. The four scarce resources
3. The four management functions
4. The goal(s) of an organisation
5. The business environment.
ESSAY QUESTIONS
In less than 300 words, describe why and how managers can make or break a society
through the quality of their management decisions. Your answer should deal with at
least the following aspects:
1. The changing needs of society
2. The scarce resources of a society
3. Profit, people and the planet
4. The influence of management decisions on a society ’s standard of living.
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2
THE EVOLUTION OF
MANAGEMENT THEORY
THE
PURPOSE
OF THIS
CHAPTER
A sound knowledge of the evolution of any subject is necessary to
understand where the subject came from, where it is now, and where
it is going. Modern managers can learn from the different management
approaches that have dominated the past decades; they can critically
assess the relevance of each of these approaches to the management
challenges that they currently face. Understanding the evolution of
management empowers managers to know what has worked in the past
… and what has not worked. It prevents managers from repeating costly
mistakes made by their predecessors. It helps today’s managers develop
a feel for why the managerial approaches that worked in earlier times do
not necessarily work today. The challenge to present and future managers
is therefore not to memorise historical names and dates but to appreciate
what the different management approaches offer the modern manager in
dealing with today’s unique challenges.
This chapter looks at the management theories and principles that
have stood the test of time, from the earliest documented theories to
modern theories. The chapter also puts the management approach
followed in this book (the systems approach) into perspective and
therefore provides the basis for understanding the way in which
management concepts are dealt with in the book.
There is no ‘one best way’ of managing or a management ‘recipe’
that can guarantee success for managers. The fast-changing business
environment is simply too complex to apply a specific management
approach in all situations that a manager will face. It is therefore
important that managers are familiar with different theories and their
relevance in diverse situations.
LEARNING
OUTCOMES
This chapter will enable learners to:
■
Briefly describe the history of management from the time of the
Egyptians (building the pyramids) to today
■
Explain how the changing environment forces management theory
to evolve
■
Give an overview of the various classical and contemporary
management theories
■
Defend the use of different management theories in different
environments
■
Defend the relevance of the systems approach to management in
today’s turbulent business environment
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management principles
Identify and describe the management principles that have stood
the test of time
■
Present basic arguments regarding the relevance of the various
management theories to today ’s managers in South Africa, Africa
and globally
■
Briefly sketch current and near-future management realities and
challenges.
■
KEY
CONCEPTS
Bureaucratic approach
Classical approaches
■
Contemporary approaches
■
Contingency approach
■
Cross-boundary management
■
Entrepreneurial capitalism
■
Fayol’s 14 principles
■
Hawthorne Studies
■
Human Relations Movement
■
Interim management
■
Knowledge management
■
Learning organisation
■
Managerial capitalism
■
Outsourcing
■
Process approach
■
Quantitative Management Theory
■
Re-engineering
■
Scenario development
■
Scientific Management School
■
Six Sigma
■
South African Excellence Model
■
Systems approach
■
Total quality management (TQM)
■
■
2.1 INTRODUCTION
As stated previously, there is no single best way to manage a business organisation to
ensure that it survives or thrives in the long term. A fast-changing business environment
simply does not allow managers the luxury of applying a simple management solution
to all the challenges that they face. We therefore need to look at different management
theories to provide managers with alternatives to dealing with today’s management
realities. When faced with a management decision, managers can seek guidance from
these theories and apply those elements of the different theories that are relevant in
solving a specific management challenge.
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33
The evolution of management thoughts and theories reflects how management dealt
— and is still dealing — with the issue of satisfying the changing needs of society. It
shows how managers have, over decades, tried to find solutions to optimise the scarce
resources of a business organisation in order to enable it to make a profit and survive
over the long term. It also explains the dominant issues and culture of a specific time,
and management’s different approaches to dealing with them.
Ancient civilisations developed and practised many of the basic principles
and approaches to management discussed in this book. The Egyptians used the
management principles of planning, organising and controlling when building the
pyramids, from roughly 2550 to 2490 B.C.1 Alexander the Great, is known for his
strategic plans to outwit the enemy, organising his troops and leading by example.
During his leadership, from 336 to 323 B.C., he expanded his empire to such an
extent that he became the most powerful man in the world.2 Despite all the evidence
that management principles have been applied for many centuries, management
as a science with a unique body of knowledge and professional management are
products of the nineteenth century.3 In the nineteenth century, entrepreneurs, like
Henry Ford (inventor of the Ford motor car), Alexander Graham Bell (inventor of
the telephone) and Colonel Harland David Sanders (founder of Kentucky Fried
Chicken) were capitalists who risked their own money in organisations that they
managed themselves. They were thus owner-manager of their businesses. They were
self-appointed managers who bore the risk alone and took all the profits. The oneperson business was a typical example of how capitalism was organised. This kind of
capitalism is known as ‘entrepreneurial capitalism’.
Capitalism has changed drastically, however, since the end of the nineteenth century.
The technological innovation resulting from the Industrial Revolution, especially the
invention of the steam engine, made mass production possible. This resulted in cheaper
and more affordable products. Factories were erected where employees could come
together to manufacture goods previously produced on their own land — or for which
there had been no need before. This meant that people had to change their agrarian
lifestyle to an industrialised one. They left their farms and relocated to cities where there
were work opportunities in factories. They were now exposed to a work environment
that was profoundly different from the agrarian environment that they knew well. Many
of their sought-after farming skills were obsolete in the new manufacturing environment.
They may have been experienced farmers but were inexperienced factory workers and
needed reskilling.
The relocation of people from farms to cities meant that a need was created for new
products and services such as housing, sanitation, transport, schools, hospitals and
postal services.
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management principles
Management in antiquity
1. Entrance
2. Entrance cut by grave robbers
3. Subterranean chamber
4. Grand Gallery
5. King’s chamber, relieving
chambers, granite portcullis slabs
6. Queen’s chamber
7. Shaft
8. Limestone plugging the air shaft
A = ‘Air shafts’.
Khufu’s
pyramid
interior
view
The pyramid of Cheops is located close to the western side of Cairo. It was built by the
Pharaoh Cheops to serve as a necropolis after his death. The Egyptians were meticulous
planners. Planning and preparation of the pyramid took about ten years. The construction
took about 20 years, and involved 100 000 workers (20 000 simultaneously on site). The
pyramid is composed of 2,5 million stones, disposed in 220 layers. Each stone has, on
average, a weight of two to ten tons.
The Egyptians recognised the need for planning, organising, and controlling. In the
construction of the pyramid, astronomers and architects, amongst other experts, were
responsible for planning. The organisational structure was rigid, indicating definite lines
of authority to the 100 000 people who worked on the project. The project was controlled
meticulously: the south-east corner of the 13-acre tomb is only one centimetre higher than
the north-west corner.
To satisfy the needs of a changed society, an organisation far larger than the individual
entrepreneur was needed. Thus, the company or corporation as an organisational form,
with shareholders and suppliers of capital, was born. This resulted in suppliers of capital
(such as shareholders) who did not manage and managers who did not supply capital.
This is profoundly different from entrepreneurial capitalism where the entrepreneur or
founder of a business (such as Colonel Harland David Sanders) appointed himself as
the manager of the business and was solely responsible for the success of the business.
As a result of the split between owners and managers, a need for professional
managers developed. Being a new discipline at that time, managers had to invent their
own solutions to management problems. Managers had their own theories about the
organisation and its management — hence the different approaches to management.
2.2 WHY STUDY MANAGEMENT THEORY?
Business literature abounds with management theories that complement each other,
contradict one another or that simply become a buzz word in management circles. One
way of appreciating the different management theories is to research the origins of these
theories and to find out why a certain theory became popular during a certain period
in time.
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the evolution of management theory
35
To create a management theory, theorists have to:
■
Identify the dominant variables in the business environment (such as political
changes or changes in technology)
■
Rely on observation of what happens in the real workplace
■
Make assumptions
■
Construct a model or theory that explains their answers to the above.
Out of the many management theories that have developed over time, some parts of each
theory have survived and been incorporated into contemporary theories on management.
Without knowledge of how management changed over the last decades and centuries,
learners of management will only have their limited experience of management as a basis
for dealing with management challenges. History should expose learners of management
to additional alternatives that they should consider when practising management.
In short, managers should know the different classical or contemporary management
concepts, tools, and techniques so that they are able to select the best approach(es)
when needed.
2.3 UNDERSTANDING THE DIFFERENT MANAGEMENT THEORIES
All management theories are based on assumptions. An assumption of a theory
could be that ‘people are merely machines’ or that ‘robots are better employees than
humans’. Another assumption could be that ‘people are emotional beings’ and should
be treated with respect. These assumptions, and many others, form the basis of how
each management theory attempts to deal with the productivity issue. Productivity is a
complex issue and management theorists provide their own explanations and solutions
to optimising a business organisation’s scarce resources and improve productivity in the
organisation. Ultimately a business organisation must survive — and thrive — over the
long term by making a profit, looking after its people and respecting the planet.
When studying the evolution of management theory, one should bear in mind that
any subject is shaped over time by environmental influences. As shown in Figure 2.1
below, certain environmental forces are responsible for the evolution of management
theory, including social, economic, technological, political, international, and ecological
forces. Social changes, for instance, that had a profound influence on management
theory were society’s change in attitude towards child labour, women in the workplace,
sexual harassment and quality-of-life issues.
As the environmental forces change, management has to change too to adjust to the
new realities.
Technological changes: implications for managers
New technological breakthroughs in communication — such as videoconferencing via the
Internet — have caused managers to reassess their approaches to management. Today’s
managers have to find new ways of working with people at arm’s length. This is very evident
after the COVID-19 pandemic that forced many managers and workers to work from home.
Work has become more knowledge based. Knowledge workers use their brains more than
their hands.4 The knowledge worker owns the means of production, namely knowledge, in
the new economy. Knowledge is highly portable, which leads to a mobile workforce.
➜
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management principles
New organisational structures need to be implemented as hierarchical structures cannot
accommodate this type of workforce. These structures include more flexible forms such
as networks or even virtual organisations. These new structures, in turn, affect the way in
which managers lead and control the activities of their subordinates — many of whom they
may never see.5
2.4 THE THEORIES OF MANAGEMENT
The theories of management can be classified into two main schools of thought, namely:
1. Classical approaches
2. Contemporary approaches.
At a certain point in time, for example, directly after World War II, each of these theories
proposed a solution to the most pressing management problems of that time.
Ec
ial
on
c
So
om
ic
Political
Evolution of:
Management
thought
Body of theoretical
knowledge
l
ica
Ec
og
ol
ol
og
ica
l
n
ch
Te
International
Figure 2.1 Environmental forces that shape management thought
Managers usually prefer one or a combination of these approaches and therefore tend
to apply that approach in the workplace. This becomes their style of management —
a style that they feel comfortable with. This can cause conflict in the workplace as
their approach may clash with that of other managers’ or subordinates’ approaches to
management. For example, an engineer-turned-manager may approach management
issues by focusing on production output in order to attain her business goals. This
management approach may clash with the approach of a salesperson-turned-manager
who may emphasise employee wellbeing and customer satisfaction over production
output goals.
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the evolution of management theory
37
With all the changes taking place in the world as a result of the COVID-19 pandemic
we are in the midst of a fundamental rethinking of what business organisations are
and why they exist. We therefore have to rethink how they should be managed. If
organisations existed decades ago to benefit from mass production, the playing fields
for the manager have most certainly changed. The focus for managers today is no longer
on input-output only; the well-being of people and the planet have now become a major
focus of management decisions. The classical management approaches discussed below
therefore provide valuable input in creating new management approaches and cannot
be ignored by modern managers. However, today’s managers also need to be aware of
the limitations of these approaches.
The different management approaches discussed below provide ample evidence of
how management has evolved from emphasising production and output to a new era
of empathy.6
2.4.1 The classical approaches
The classical approaches extend from the late nineteenth century to the 1920s. These
management approaches developed in response to changes in the environment (see
Figure 2.2 below) that required a new way of thinking about managing a business
organisation.
Classical approaches
Contemporary approaches
nisatio
n
Re-eng
ineerin
g
ment
anage
g orga
Learnin
ality m
Total q
u
theory
gency
Contin
System
s theo
ry
ement
manag
tative
Quanti
relatio
Human
ns
ageme
nt
cracy
e man
Bureau
istrativ
Admin
Scienti
fi
c man
ageme
nt
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
Figure 2.2 The evolution of management theory
Scientific management school
As a supervisor at the Philadelphia Midvale Steel Company in the late 1800s, Frederick
W Taylor, a mechanical engineer, became interested in ways to improve the productivity
of workers. He studied the work of individual workers to discover exactly how they
performed their tasks. Taylor believed that there was one best way to perform any task.
He analysed each aspect of each task and measured everything that was measurable.
Unnecessary physical movements that slowed production down were identified and
eliminated, and the exact sequence of activities was determined. A standard time for
the accomplishment of each task was then determined. This allowed him to describe
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management principles
performance objectives quantitatively, such as the number of units that a worker should
produce per shift. This is known as time-and-motion study.
Taylor’s scientific approach to analysing a task addressed a pressing problem of that
time: how to judge whether an employee had put in a fair day’s work. He believed that
money motivated workers. Knowing what amounted to a fair day’s work, he supported
the individual piecework system as the basis for pay. If workers met a specified
production standard, they were paid a standard wage rate. Workers producing more
than the set standard were paid a higher rate for all the units produced, not just those
exceeding the standard. His experiments to determine the best way to do a job inspired
others to undertake similar studies in other industries.
However, fierce critics of Taylor’s approach to management state that this scientific
approach has a dehumanising effect on workers. It treats them as machines whose
movements must comply with rigid standards. The approach ignores the fact that
workers are humans and therefore have emotions that cannot be switched off when
at work. Because of the severe criticism against Taylor’s management theory, Harvard
Business Review reintroduced Taylor’s scientific approach to management under the
new label of business reengineering.7
The focus of scientific management
FW Taylor used the scientific method to study work and determine the most efficient way to
perform specific tasks.
Frank and Lillian Gilbreth focused on work simplification as an answer to the
productivity question. Being a bricklayer himself, Frank Gilbreth studied the movements
of bricklayers and determined that many of their body movements (bending, reaching,
stooping, trowelling) could be combined or eliminated. He changed an 18-step process
into a five-step process and increased productivity by about 200 per cent.8
Henry L Gantt’s main concern was productivity at shop-floor level. His major
contribution to scientific management is a chart showing the relationship between work
planned and completed on one axis and time elapsed on the other, called the Gantt chart.
Principles of efficiency were thus established during this period by using scientific
methods to determine the most efficient way to do things. In short, scientific management
focused on the issue of managing work — not on managing people.
This approach to focusing primarily on managing work has obvious limitations.
First, workers cannot be viewed simply as parts of a smoothly running machine. They
are human beings with ambitions, fears, hopes, and other emotions who search for
meaning in their work. Secondly, the assumptions about the motivation of employees
are stated too simplistically in these approaches. Money is not the only motivator of
workers. Other things also motivate people, such as challenging work or recognition
for performance. Thirdly, this approach to management creates the potential for the
exploitation of labour and, therefore, possible strikes by workers. Fourth, in a broader
sense, this approach can lead to ignorance of the relationship between the organisation
and its changing external environment as the focus remains on internal issues, namely
the workers and their productivity.
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The process (or administrative) approach
While scientific management focused on increasing the productivity of the worker
through job standardisation and simplification, the process approach to management
grew out of the need to find guidelines for managing complex organisations such as
factories. As output increased and operations grew in these industries, organisations had
to deal with more complex problems than merely the productivity of workers. Planning
and the organisation of people in the workplace became major challenges for business.
The focus of the process approach
The process approach to management focuses on the five elements (functions) of
management: planning, organising, staffing, directing, and controlling. These five elements
form a process.
Henri Fayol, who was managing director of a large French coal mining company, is
recognised as the greatest European management pioneer.9 He was interested in the
administrative side of operations. He described the practice of management as being
different from finance, production, marketing, and other typical business functions. He
argued that management was applied in business, government, sports clubs, schools —
and even in the home.
Fayol’s experience led him to conclude that there were five basic functions of
administration:
1. Planning
2. Organising
3. Commanding
4. Coordinating
5. Controlling.
Planning called for the formulation of goals. Organising focused on the effective
coordination of resources to attain the set goals. Commanding was the art of leading
people. Coordinating the activities of groups to provide unity of action ensured a
smoothly functioning organisation. Controlling involved seeing that everything was
done according to the set plans and that the stated goals were indeed attained.
Fayol formulated guidelines for managers to follow. These guidelines form 14
principles for effective management. The argument that ‘managers are born, not made’
is not true, according to Fayol. According to him, management is a skill — something
that one can learn once its underlying principles are understood.
Fayol’s 14 principles
1.
2.
3.
4.
Division of labour: specialisation increases output by making employees more efficient.
Authority and responsibility: authority gives managers the right to give orders. However,
along with authority goes responsibility.
Discipline: employees must respect the rules that govern an organisation.
Unity of command: an employee must receive commands from one superior only.
➜
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5.
Unity of direction: all operations with the same goal should have one manager and one
plan only.
6. Subordination of individual interest to the common good: the interests of an individual
or group should not take precedence over the interests of the organisation.
7. Remuneration: rewards for work should be fair to the worker and employer.
8. Centralisation: the proper degree of centralisation versus decentralisation should be found.
9. Hierarchy: the line of authority in an organisation should run in order of rank from top
management to the lowest level of the organisation.
10. Order: resources should be in the right place at the right time.
11. Equity: managers should be fair to their employees.
12. Stability of staff: a low personnel turnover rate enhances the attainment of goals.
13. Initiative: subordinates should be given the freedom to conceive and carry out their
plans, even though some mistakes may result.
14. Team spirit: this will give the organisation a sense of unity.
Source: Adapted from Fayol, H. 1930. Industrial and general administration. Geneva: International
Management Institute.
The bureaucratic approach
Max Weber, a German sociologist, was mainly concerned about how organisations are
structured to deal with the thousands of employees working in them. He developed
a theory of bureaucratic management that stressed the need for a strictly defined
hierarchy, governed by clearly defined regulations and authority.10
Weber’s ideal bureaucracy is based on legal authority. Legal authority stems from
rules and other controls that govern an organisation in its pursuit of specific goals.
Managers are given the authority to enforce the rules by virtue of their position.
Obedience is not owed to an individual person but to a specific position in the hierarchy
of the organisation. These positions would outlive the people who occupy them. Today,
one would refer to the rigid rules, processes and procedures as ‘red tape’.
Weber’s approach to management has stood the test of time relatively well. In
South Africa, with its relatively few managers and large numbers of unskilled workers,
devotion to rules and other controls set by managers is still a relevant way of managing.
Strict hierarchical structures are found in banks, universities, the South African Police
Services, mining companies and many more.
One of the major limitations of this approach is that bureaucratic rigidity results in
managers being compensated for doing what they are told to do — not for thinking.
Managers are often rewarded for complying with old, sometimes even outdated, rules
whereas the contemporary business environment requires managers to continuously
improve on current practice. Hence rules may become ends in themselves. Limited
organisational flexibility and slow decision-making are also limitations which, in today’s
turbulent environment, can lead to golden business opportunities being lost.
Human relations movement
The early approaches to management emphasised the work itself at the expense of the
people doing the work. The Depression of the 1930s, its manifestations amongst people
and other major changes in the business environment, caused managers to challenge
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these approaches and their relevance in a changing society. Managing people became
the major issue facing managers, and managers became more oriented to human
relations and behavioural science than to simply the work itself.
The human relations approach to solving the productivity problem grew out of a
famous series of studies conducted at the Western Electric Company’s Hawthorne
Works in Chicago, Illinois from 1924 to 1933. These studies eventually became known
as the Hawthorne Studies.11
The Hawthorne Studies investigated the relationship between the level of lighting
in the workplace and worker productivity. As lighting improved, so did productivity.
Surprisingly, as lighting conditions were made worse, there was still a tendency for
productivity to improve. It was obvious that something besides lighting influenced the
workers’ productivity.
Researcher Mayo and his associates decided that a complex chain of circumstances
had actuated the productivity increases observed. Management’s concern for the
well-being of their subordinates and sympathetic supervision enhanced the workers’
performance. This phenomenon was subsequently labelled the ‘Hawthorne effect’. The
studies concluded that group pressure, rather than management demands, had the
strongest influence on worker productivity. In short, employees were more motivated
by social needs than economic needs.
Mayo and his colleagues pioneered the use of scientific methods in their studies of
people in the work environment. Later researchers, especially psychologists, sociologists,
and anthropologists, used more sophisticated research methods and became known as
behavioural scientists rather than human relations theorists.
Maslow and McGregor are two well-known behavioural scientists. Maslow suggested
that human beings have five levels of needs.12 The most basic need is the physical need
for food and water; the most advanced need is the need for self-actualisation or personal
fulfilment. Maslow argued that people try to satisfy their lower-order needs before
attempting to satisfy their higher-order needs. Managers can facilitate this process
and attain the organisational goals by removing obstacles and encouraging behaviours
that satisfy both the needs of the worker and the organisation. (See Chapter 14 for a
discussion of Maslow’s hierarchy of needs.)
McGregor distinguished two alternative basic assumptions about people and their
approaches to work.13 These two assumptions which he called Theory X and Theory
Y take opposite views on people’s commitment to work. Theory X managers assume
that work is distasteful to workers who must be motivated by force, money or praise.
Theory Y managers on the other hand assume that people approach their work as an
opportunity to develop their talents.
The major contribution of the human relations approach to management was the fact that
this approach viewed workers as human beings and not as machines.
Like all approaches to management, the human relations approach and the behavioural
science perspective have their own limitations. The belief that a happy worker is a
productive worker is too simplistic. Economic aspects of work remain important to
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workers, as FW Taylor (scientific approach to management) believed. Many factors
play a role in the productivity of workers: their values, attitudes, perceptions, learning,
motivation and many other factors.
Microsoft, voted top employer in South Africa
The Top Employers Institute has released its ranking of the top employers in South Africa for 2020.
The ranking is based on a number of key areas including:
■
■
■
■
■
■
■
■
■
Talent strategy
Workforce planning
On-boarding
Learning and development
Performance management
Leadership development
Career and succession management
Compensation and benefits
Culture.
The Top Employers Institute then evaluates the implementation of these practices and reviews
how they are supported through strategy, ownership, practices, measurement and technology.
Microsoft was named as the top South African employer in 2020, moving up from third
place in 2019. Telecommunications company Vodacom took second place (2019: 6th), while
professional services company Accenture took third place.
Source: Business Tech. 2019. Available at: https://businesstech.co.za/news/business/356313/theseare-the-10-best-companies-to-work-for-in-south-africa/ (Accessed: 20 September 2020).
The quantitative management theory
The quantitative school believes that management is primarily about ‘crunching the
numbers’. This school argues that management decisions should be based on quantifiable
information. Developed during World War II to find solutions to warfare issues, the
quantitative management approach uses mathematical models to solve management
problems. As the war ended and the mathematical models and techniques that were
kept secret during the war began to be released, management theorists started to test
their applicability to business problems. In the early 1950s the use of these quantitative
techniques to solve management problems became known as management science and
were popularised in a book by Stafford Beer called “Management Science”.14
Although one can distinguish between management science, operations research and
statistics, they are closely related. A management science model is an abstract representation
of an existing problematic situation. It can be in the form of a graph or chart, but most
frequently a management science model consists of a set of mathematical relationships.
The quantitative approach to management comprises:
Management science
■
Operations research (OR)
■
Statistics.
■
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Management science deals with the development of mathematical models to assist
managers in decision-making. These models help managers to simulate real-life
situations with mathematical equations. Tools and techniques used today include
linear programming, Program Evaluation Review Technique (PERT) and Critical Path
Method (CPM) and regression analysis. The greatest contributions of these techniques
are in planning and control activities. They can be used to develop, amongst others,
product strategies, production scheduling, capital budgeting, cash flow management
and inventory control.
Management science is about making management decisions based on numbers.
Statistics and operations research are tools that may be used to assist management in
making such decisions.
The quantitative approach to management is seldom used by managers as the primary
approach to decision-making. It is used mainly as a tool or aid in decision-making, since
many aspects of management decisions cannot be quantified and expressed by means
of mathematical symbols and formulae. The human element of management cannot be
captured in a quantitative sense.
2.4.2 Contemporary approaches
The classical approaches to management discussed above provide the foundation for
management and organisations as they function today. These approaches responded
primarily to the pressing issues of their times, particularly the need for internal efficiency.
They took a simplistic view of the organisation but ignored the interaction between
the organisation and external environment. This environment became increasingly
turbulent after World War II and managers realised that they could no longer focus only
on the internal operations of an organisation. They had to take the business environment
into consideration in their management decisions.
Although these are considered ‘contemporary approaches’, their roots lie in the
classical approaches discussed previously.
The systems approach
The systems approach to management developed in the 1950s.15 This approach
compensated for the two main limitations of the classical approaches — first, that
they ignored the relationship between the organisation and its external environment
and, second, that they focused on specific aspects of the organisation at the expense of
other considerations.
The systems approach to management views an organisation as a group of interrelated
parts with a single purpose: to remain in balance (equilibrium). The action of one part
influences the other parts and causes imbalance. For example, a strike by workers in the
production department of a business has implications for the marketing department,
the human resources department, the finance department and all other departments.
Managers therefore cannot deal with individual parts of an organisation in isolation:
they should view the organisation as a whole and anticipate the effect of their decisions
on the other parts of the organisation. From a systems point of view, management
should (1) maintain a balance between the various parts of the organisation, as well
as (2) between the organisation and its environment. The open system perspective
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of an organisation is illustrated in Figure 2.3 below. This figure depicts a system as an
interrelated set of elements functioning as a whole. It also depicts the organisation as a
system that comprises four elements:
1. Input (resources)
2. Transformation processes (managerial processes, systems, and so on)
3. Outputs (products or services)
4. Feedback (reaction from the environment).
The systems approach to management — the approach followed in this book — is
explained in greater detail in Chapter 3.
The contingency approach
The contingency approach to management developed in the 1960s. The basic premise
of the contingency approach is that the application of management principles depends on
the particular situation that management faces at a given point in time. There is no single
best way to manage. A method highly effective in one situation may not work in another.
Management has to decide whether to use the principles of the scientific, bureaucratic,
administrative, behavioural, or quantitative approaches — or even a combination of these.
In other words, the contingency approach to management tries to direct the available
techniques and principles of the various approaches to management towards a specific
situation in order to realise the goals of the organisation as productively as possible.
EXTERNAL ENVIRONMENT
Resources
Human
Financial
Physical
Information
Input
Organisation
Transformation process
Output
Products
Services
Feedback
Figure 2.3 The open system perspective of an organisation
The contingency approach recognises that every organisation, even every department
or unit within the same organisation, is unique.16 Every organisation exists in a unique
environment with unique employees and unique goals. The superintendent of a hospital
must realise that the environment in which medical specialists in the intensive care unit
function is different from that in which nursing staff in the children’s ward function. In
the former case, management has to adapt to specialists who function individually in an
unstructured environment, each taking responsibility for his or her actions. In the case
of the nursing staff, a strict hierarchy may be necessary to indicate lines of authority to
senior and junior nursing staff. A different management approach is necessary for these
two situations although both may occur in the same hospital. The contingency approach
therefore calls for managers to be flexible and to adapt to the situation at hand.
The characteristics of the situation that must be managed are called ‘contingencies’,
and they can be of use in helping managers identify the situation. These contingencies are:
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The organisation’s external environment (its rate of change and degree of complexity)
The organisation’s own capabilities (its strengths and weaknesses)
■
Managers and workers (their values, goals, skills, and attitudes)
■
The technology used by the organisation (see Figure 2.4 below).
■
■
The manager and aspiring manager in South Africa, Africa — and the rest of the world
— must learn multiple ways to compete, innovate, and lead. This is precisely what the
contingency approach suggests.
Total quality management
Simply put, total quality management (TQM) is a management approach to long-term
success through customer satisfaction. New technologies have empowered customers to
seek out and compare an endless array of products and services from around the globe.
When customers are unhappy with a product or service, they can use social media to
share their displeasure with millions of customers or potential customers.
TQM requires that all managers and employees in an organisation participate in
improving products and services, processes and the culture in the organisation. No
matter what an organisation does to foster improvements — for example, improving
its processes, simplifying its online purchasing experience or identifying new ways of
delivering their products — it is ultimately the customer that determines what quality
is. Total employee commitment can only be obtained when fear is driven from the
workplace, when employees become empowered to make innovative decisions and
management creates a supportive work environment.17
The focus in TQM is on process thinking. A process is a series of steps that take inputs
from suppliers (internal or external) and transform them into outputs that are delivered
to customers (again, internal or external). In a restaurant, for instance, the waiter takes
the order from the customer. This order is then delivered to the chef in the kitchen. The
chef is the internal customer of the waiter. The chef then prepares the meals and delivers
the meals to the waiter. In this case the waiter has now become the internal customer of
the chef. The customer will then decide whether this process was of high quality or not.
TQM drives managers and workers to be more analytical and creative in all processes
in order to become more competitive and effective in their functioning.
External
environment
Organisation’s
capabilities
Most
suitable
management
approach
Managers and
workers
Technology
Figure 2.4 Major contingencies
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Using TQM as a competitive advantage does not apply only to manufacturing
organisations. A university, for example, can introduce TQM in order to be more
responsive to customers (students, academic staff, and other groups that use its services)
in an environment characterised by increased competition from universities abroad and
other training institutions.
TQM should not be confused with quality control. While TQM emphasises actions
to prevent mistakes, quality control consists of identifying mistakes that may already
have occurred.
Six Sigma
Just like TQM, Six Sigma focuses on improving processes in an organisation. Six Sigma
focuses on, amongst others, identifying possible causes of defects, reducing cycle times
and the cost of operations and improving the return on investment of an organisation.
It is based on a problem-solving methodology called DMAIC, which stands for define,
measure, analyse, improve, control. DMAIC incorporates a variety of statistical and
other improvement tools. The term ‘Six Sigma’ is based on a statistical formula that
equates to a mere 3.4 defects per million. The Six Sigma philosophy is to have all critical
processes in an organisation, irrespective of the functional area, at a Six Sigma level of
capability.18
Six Sigma was initially designed to improve manufacturing processes, but these days
the techniques are applied to various business areas, including sales, human resources,
and customer service.
The learning organisation
Organisations are a collection of individuals working towards a common goal. A
learning organisation requires each individual in the organisation to keep on learning.
Individuals need one another to produce excellent outcomes; this will enable the
business organisation to compete locally as well as globally.
According to Peter Senge,19 an expert on learning organisations, a learning
organisation requires of each manager and employee to:
■
Become committed to lifelong learning
■
Challenge one’s own assumptions and generalisations about the organisation and
the world around it
■
Share a vision for the organisation
■
Encourage active dialogue in the organisation
■
Promote systems thinking.
Learning organisations and the people in them learn constantly … and they learn faster
than their competitors. They learn from their successes and also from their failures
and they share these with their colleagues. In a learning organisation, all managers and
employees know that continuous learning is expected and rewarded.
Re-engineering
Re-engineering entails a fundamental reappraisal of the way that an organisation
operates. Hammer and Champy,20 re-engineering experts, urge managers to ask a very
basic question about what they would do: ‘If I were recreating this organisation today,
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given what I know and given current technology, what would it look like?’ In other
words, managers should imagine that they are starting with a clean piece of paper. This
could mean a quantum leap in reinventing the organisation and not merely incremental
steps in doing so.
Re-engineering: a quantum leap
In the extreme, re-engineering assumes the current process is irrelevant – it doesn’t work,
it’s broken, forget it! Start over.
Organisations may stagnate when their members, including management, focus on their
immediate environments — such as their jobs and departments — rather than on the
larger environment in which they work and influence the lives of others. Re-engineering
thus involves rethinking and redesigning the processes connecting organisational
members with people, such as customers and suppliers, outside the organisation. Speed
of product delivery, quality of service, and reducing overhead costs are some of the
issues that re-engineering can address.
Re-engineering in a bank
A typical problem with processes in larger organisations such as banks is that customers
must speak to various employees for different inquiries. For example, if a bank customer
enters the bank to apply for a loan, an ATM card and change her residential address, the
customer might have to visit three different desks in order to be serviced. This process
can be completely re-engineered to become more satisfying to the customer and more
cost-effective to the bank. The Information Technology Department in the bank can create
processes where information and documents can be exchanged by the different departments
in order to service the customer’s request. The customer will then be able to deal with one
employee only who will provide the customer with all the information required. The
re-engineered processes therefore enable the bank to provide a one-stop service for all three
of the customer’s inquiries.
Re-engineering considers the entire organisation, including its suppliers and customers.
It is constant and relentless in its focus on integrating four key drivers — people,
processes, technology, and infrastructure — to create and sustain value for customers
while managing costs.
Compared to TQM, re-engineering has a bigger emphasis on:
1. Drastic change — not merely incremental change — throughout the core processes
of an organisation
2. A profound respect for the smallest but most important details that make an
organisation successful in the eyes of its customers.
Successful re-engineering is an ongoing rather than a one-off project. Well-managed reengineering programmes encourage organisations to examine themselves continually
in order to learn and generate new processes to meet the challenges of the changing
business world.
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2.5 CURRENT AND NEAR-FUTURE MANAGEMENT REALITIES
The rapidly-changing business environment requires of managers to continuously find
new ways of competing. The current and near-future environment can be described
as revolutionary — in contrast to previous environments that were described as
evolutionary. Evolutionary environments are predictable. They change gradually, which
makes it possible to detect trends that can be forecast to determine what the future
holds. On the other hand, a revolutionary environment is known for its unpredictable,
drastic change. Forecasting becomes impossible in these environments. Managers
therefore need to become familiar with scenario development, that is, the visualisation
of alternative futures for the organisation. Being able to forecast the environment, such
as the demand for an organisation’s services, enabled organisations in the past to employ
workers on a relatively permanent basis. However, scenario development does not allow
such long-term employment. An organisation needs to be able to respond rapidly to
changing scenarios and therefore needs flexibility in its workforce. Outsourcing is one
way of ensuring that the organisation remains flexible but still has access to the right
skills when needed.
There is a strong tendency in modern organisations to break down internal barriers
caused by functional ‘silos’ (such as separate departments for marketing, finance,
human resources, and operations) and to replace them with process-driven, customerfocused, and multidisciplinary structures. Managers therefore need to understand the
‘big picture’, that is, they need to be able to assess the implications of their decisions on
different people, processes, systems, and so on that make up the organisation. This is
often called cross-boundary management.
Working with robots
The coming decades will see society and the workplace transformed profoundly as people
will be working alongside robots. Toyota and Honda, although rival Japanese companies,
are working together to create the next generation robots. Toyota has already built a nursing
aide, called Robina, to look after the elderly. Japan’s Ministry of Health, Labour and Welfare
expects to face a shortage of 337 000 nursing care workers in 2025 and robots, such as
Robina, will have to alleviate the severe shortage of nurses.21
Robina’s brother, Humanoid, can do the dishes, take care of the sick and even entertain
people by playing the violin.
Honda has created Asimo, a humanoid that can interpret human emotions, movement and
conversation.
It is estimated that robots will replace up to 20 million factory jobs by 2030.22
Managers will also have to work increasingly with a mobile workforce who will be
appointed on a project basis — not a permanent basis. Individuals will be appointed
because of their expertise in a specific area crucial to the success of the project.
However, once the project is completed, these knowledge workers will move on to the
next project, taking their knowledge with them. The modern manager’s challenge is
therefore to manage the knowledge supplied by the experts. This knowledge needs to
be stored in a knowledge warehouse for future use.
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Managers will also become increasingly mobile in the future and will be appointed to
manage specific projects only. Once the project is completed, the manager will move on
to another job in another location. The expert managers may therefore not become part
of the permanent staff of the organisation. This new tendency of ensuring that the best
manager heads specific projects, called interim management, means that the workforce
of organisations will be in a state of constant flux. Both managers and workers will be
constantly on the move to other assignments.
To ensure that mobile managers and workers comply with an organisation’s primary
values and the ethical rules it expects managers and workers to follow, behaviour will
be driven by a strict code of ethics. Corporate governance, specifically the latest King
Report on Corporate Governance in South Africa, spells out some of these behaviours
with which directors, managers, and workers have to comply. Although all business
organisations should comply with general corporate governance rules and regulations,
individual business organisations will have their own set of values and behaviours with
which their managers and employees will have to comply.
The task of managing workers who are more on the move than was previously the
case means that managers will be exposed increasingly to diversity issues. Managers
will have to shift their philosophy from treating everyone alike to recognising individual
differences and responding to the differences in acceptable ways.
2.6 SUMMARY
This chapter focused on the major approaches to management challenges during the
past decades and even the past century. It should be clear from our discussion of the
evolution of management theory that this evolution was — and still is — the result of
changes in the environment. The different management approaches can therefore be
studied meaningfully only if they are seen against the dominant culture of their time.
The classical approaches to management developed from the late nineteenth
century through the early 1950s. The emphasis was on the internal functioning of the
organisation. Taylor introduced the scientific management approach which looked,
inter alia, at the one best way to complete production tasks.
At about the same time, the process or administrative management perspective
appeared. Writers such as Fayol looked at the management functions, namely
planning, organising, leading, and controlling, as a means of improving productivity in
the organisation.
Weber attempted to establish an overall management system based on bureaucracy.
His emphasis was on specialised positions, structured relationships, and rules and
regulations.
The human relations approach, as well as the behavioural science approach to
management, focused on the worker, groups, and organisational processes as a possible
solution to the productivity problem.
The quantitative management approach developed as a result of the invention of
computers and enabled experts to apply mathematical techniques to management problems.
The contemporary approaches have developed since World War II. The business
environment became increasingly turbulent and managers could no longer focus
on internal issues only. The interaction between the external environment and the
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organisation became the focus of the systems theory of management. According to this
theory, an organisation is an open system which is influenced by and influences the
external environment.
The contingency approach developed from the systems approach. According to the
contingency approach, there is no single best way to manage. The characteristics of the
situation, called contingencies, will determine the best way to manage a specific situation.
The learning organisation approach to management is also based on the systems
approach and stresses lifelong learning, sharing successes and failures with other
managers and employees, sharing a vision for the organisation, and active dialogue
within the organisation.
Total quality management (TQM) looks at continuous improvement and
emphasises never being satisfied with quality. Re-engineering, on the other hand,
postulates reinventing the organisation and not merely taking incremental steps in
doing so. This could mean a quantum leap for the organisation in order to adapt to an
extremely turbulent environment.
Six Sigma is a quality initiative that focuses on defects per million. At the Six Sigma
level, the expectation is a mere 3,4 defects per million.
Today ’s managers need an eclectic approach to managing the contemporary, flexible
organisation. They need to take from different theories what are still relevant today and
find unique ways of managing. This is particularly evident when one looks at current
and near-future realities that may require radically new management approaches.
REFERENCES
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pyramids’. Available at: https://planningengineer.net/egyptians-were-the-first-recordedproject-managers-planning-pyramids/ (Accessed: 20 September 2020).
2. Kets de Vries, M. 2014. ‘11 Leadership Lessons from Alexander the Great’. INSEAD
Knowledge. Available at: https://knowledge.insead.edu/blog/insead-blog/11-leadershiplessons-from-alexander-the-great-3697 (Accessed: 20 September 2020).
3. Witzel, M. 2012. A History of Management Thought. New York: Routledge, p 2.
4. Horibe, F. 2015. Managing Knowledge Workers. New Jersey: John Wiley and Sons, chapter 1.
5. Ibid, chapter 1.
6. McGrath RG. 2014. ‘Managements three eras: A brief history’. Harvard Business Review.
Available
at:
https://hbr.org/2014/07/managements-three-eras-a-brief-history
(Accessed: 20 September 2020).
7. Landry JT. 2012. ‘HBR lives where Taylorism died’. Harvard Business Review. Available
at: https://hbr.org/2012/11/hbr-lives-where-taylorism-died (Accessed: 20 September
2020).
8. Economist. 2008. ‘Frank and Lillian Gilbreth’. Available at: http://www.economist.com/
node/12060343 (Accessed: 6 January 2020).
9. Peaucelle, J-L & Guthrie, C. 2015. Henri Fayol: The Manager. London: Routledge.
10. Schiller, J. 2013. Bureaucratic Management. Grin Verlag ebooks, p 1.
11. Christensen CM & Raynor ME. 2003. ‘Why hard-nosed executives should care about
management theory’. Harvard Business Review. Available at: https://hbr.org/2003/09/
why-hard-nosed-executives-should-care-about-management-theory (Accessed: 6 January
2020).
1.
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the evolution of management theory
51
12. Economist. nd. ‘Max Weber’. Available at: http://www.economist.com/node/12762398
(Accessed: 7 September 2016).
13. McGuire, KJ. 2012. Maslow’s hierarchy of needs: an introduction. Grin Verlag ebooks, pp 5−7.
12. McGregor, D. 1966. Leadership and Motivation: Essays. Boston, Massachusetts: MIT Press,
based on the full essay.
13. International Federation of Operational Research Societies. 2006. Available at: https://
onlinelibrary.wiley.com/doi/pdf/10.1111/j.1475-3995.2006.00565.x (Accessed: 20
September 2020).
14. Norton DP. 2000. ‘Is management finally ready for the “systems approach”’. Harvard Business
Review. Available at: https://store.hbr.org/product/is-management-finally-ready-for-thesystems-approach/b0009e?sku=B0009E-PDF-ENG (Accessed: 20 September 2020).
15. Abba, M, Yahaya, L & Suleiman, N. 2018. ‘Explored and critique of Contingency Theory for
Management Accounting Research’. Journal of Accounting and Financial Management, vol 4,
no 5, pp 40–41.
16. ASQ Quality Press. 2013. TQM: Introduction to and overview of Total Quality Management,
Kindle edition. Wisconsin: ASQ Quality Press.
17. Evans, JR & Lindsay, WM. 2014. An introduction to Six Sigma and process improvement, 2nd
ed. Mason, Ohio: South-Western College Publishing, p 3.
18. Senge, P. 1999. The Fifth Discipline: The Art & Practice of The Learning Organization, Audio
CD – Abridged, Audiobook. New York: Random House Audio.
19. Hammer, M & Champy, J. 1993. Re-Engineering the Corporation: A Manifesto for Business
Revolution. New York: Harper.
20. Japan Times. 2018. ‘Fill the gap in nursing care worker’. Available at: https://www.
japantimes.co.jp/opinion/2018/06/26/editorials/fill-gap-nursing-care-workers/#.
XhDNpEczbIU (Accessed: 20 September 2020).
21. Cellan-Jones, R. 2019. ‘Robots “to replace up to 20 million factory jobs” by 2030’ BBC
News. Available at: https://www.bbc.com/news/business-48760799 (Accessed: 20
September 2020).
CASE STUDY
The scientific approach to management
Frederick Taylor is known for his scientific approach to management. A well-known example
of the scientific management theory is the pig iron experiment. Iron was loaded onto rail
cars by workers — each lot weighing 92 pounds (41.73 kg) and known as a pig. On average
12.5 tons were loaded onto the rail cars per day, but Taylor believed that scientific
management could be used to increase this to almost 48 ton per day. Through experimenting
with various procedures and tools, Taylor achieved this as follows:
■
■
■
■
He carefully matched each of the jobs to each of the workers’ skills and abilities
He provided the workers with the correct tools
He provided workers with clear instructions about how to do each job
He then created worker motivation by providing a significantly higher daily wage.
It is believed that through the use of scientific management, Taylor increased productivity on
the shop floor by almost 200 per cent.
Source: Based on Taylor, FW. 1911. The Principles of Scientific Management. New York: Cosimo Inc.
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CASE STUDY QUESTIONS
1. Based on the information provided in the case study above, briefly describe Taylor’s
scientific approach to management.
2. Provide three reasons why Taylor’s approach to management was so popular during
his time as a manager.
3. State the main advantages and disadvantages of the scientific approach to
management for a modern business organisation that has a very mobile workforce.
4. Defend the relevance of the scientific approach to management for an organisation
in Africa that employs mainly migrant workers.
5. Which of Taylor’s viewpoints regarding management are still relevant in managing
a modern business organisation?
6. Criticise Taylor’s approach to management from a humanistic perspective.
MULTIPLE-CHOICE QUESTIONS
Question 1
Which one of the following correctly matches the management expert with his
management theory?
1. Peter Drucker, quantitative management school
2. Henri Fayol, process approach to management
3. Abraham Maslow, management science
4. The Hawthorne Studies, hierarchy of needs.
Question 2
Which one of the following describes the scientific approach to management correctly?
1. The approach focuses primarily on workers’ individual needs
2. The approach is based on the assumption that people are lazy
3. It deals mainly with the issue of structuring an organisation
4. It focuses primarily on the job that must be done.
Question 3
Which one of the following statements is correct?
1. The scientific approach to management focuses mainly on the changing external
business environment
2. The contingency approach to management suggests that appropriate management
behaviour is determined by the unique elements of each situation
3. Small businesses do not interact with the external environment
4. Total quality management and quality control are similar management approaches.
Question 4
Fayol’s management approach is still very relevant today in
1. government departments
2. large corporations
3. small business organisations
4. all of the above.
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the evolution of management theory
53
Questions 5–8
Which description in column B best describes the management theory listed in column A?
Question
Column A
Column B
5.
Theory Y
1. There is no single best way to
manage
6.
Quantitative management approach
2. Assumes people relish work
7.
Contingency approach
3. Focuses on the interaction
between organisation and
environment
8.
Systems approach
4. Operations management and
management science
Question 9
In a call centre where client queries regarding a specific service are dealt with, the
expectation by the call centre’s top management of a mere 3,4 incorrect replies to
.
customers per million queries refer to
1. total quality management
2. Six Sigma
3. the learning organisation
4. re-engineering.
Question 10
How many of the following describe the business environment that today’s managers
are faced with when managing a business organisation or department in a business
organisation:
■
robots replacing employees who do routine jobs
■
increasing numbers of employees who are motivated purely by money
■
an increased emphasis on short-term profitability
■
more diversity in the workplace.
1.
2.
3.
4.
one
two
three
four
PARAGRAPH QUESTIONS
Question 1
Provide three reasons why today’s managers should understand the classical approaches
to managing a business organisation.
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management principles
Question 2
State the differences between the scientific school and human relations school of
management. Refer specifically to each school’s viewpoint regarding:
■
The importance of work versus that of people
■
Their focus on internal versus external issues.
Question 3
Explain what advantages the quantitative school of management offers production
managers in a steel factory.
Question 4
Critically compare the management concepts ‘total quality management’ and ‘reengineering’.
Question 5
Discuss any three contemporary approaches to management in terms of their relevance
to managing business organisations in South Africa and Africa. You should focus,
amongst others, on the following:
■
The relevance of the assumptions on which each approach is based
■
The advantages that each of these approaches have for business organisations
operating in South Africa and Africa.
ESSAY QUESTION
Due to increasing competition from countries such as India and China where labour
costs are low, South African organisations have to cut their costs drastically to remain
competitive. Identify and discuss a specific approach to management that should enable
South African and African organisations to improve their processes and systems to
become more competitive in the global market.
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THE
PURPOSE
OF THIS
CHAPTER
3
3
LEARNING
OUTCOMES
Management Principles 7e.indb 55
MANAGING IN A CHANGING
ENVIRONMENT
This chapter describes and explains the constantly changing environment
in which business organisations function. Managers have to clearly
understand all the relevant changes in the business environment to
ensure that their management decisions reflect these changes. The term
‘business environment’ refers to both the internal as well as the external
environment. Management can control the internal environment; the
external environment, however, is uncontrollable. Being an open system,
the organisation is influenced by changes in the business environment.
These changes could either pose a major opportunity for managers to
exploit, or they could pose a threat to the existence of the business. This
became very clear after the outbreak of the COVID-19 pandemic at the
end of 2019. Business organisations, such as those providing sanitation
services, prospered during the pandemic whereas many other businesses,
including restaurants, conference centres, hotels and hairdressing salons
had to close down as a result of the restrictions placed on the movement
of people.
Because the business environment constantly changes, management
needs to continuously find solutions to new challenges in order to ensure
that the organisation remains successful. New technology, a shortage
of relevant skills, job-hopping, power outages, changes in legislation, a
brain-drain crisis, new global competitors, limited access to water and
many more changes occur all the time. Management must deal with
these changes in their decision-making.
This chapter looks at changes in the external environment (macroand market-business environments) and the internal environment
(micro-business environment) and how management can align the
business organisation with these changes.
This chapter will enable learners to:
Clearly state why business managers must understand the business
environments in which they have to manage
■
Depict diagrammatically and explain the systems approach to
management
■
Explain the main characteristics of the business environment
■
Depict diagrammatically and discuss the macro-, market, and
micro-environments, and the variables that comprise each of these
environments
■
Propose ways in which management can prepare their organisations
for environmental changes.
■
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management principles
KEY
CONCEPTS
Entropy
Macro-environment
■
Management environment
■
Market environment
■
Micro-environment
■
Open system
■
Synergy
■
Systems theory
■
■
3.1 INTRODUCTION
When most of the management theorists discussed in Chapter 2 were alive, the
business environment was relatively stable and predictable. The changes that occurred
in the external business environment were gradual and slow; the internal business
environment was relatively stable. However, this is certainly not the case for the modern
manager. Managers today have to make management decisions that reflect the volatile
business environment in which business organisations have to survive. They often
have to deal with uncertainty and unpredictability and find creative solutions to new
management problems. The modern manager therefore cannot use a ‘management
recipe’ that prescribes what to do when faced with management decisions. The modern
manager often has to find ground-breaking, innovative solutions to business problems
that arise due to the many and complex changes in the business environment.
The last decades of the previous century are likely to be regarded as the beginning
of significant change, starting with the collapse of the Berlin Wall on 9 November
1989. This signalled the end of the Soviet Union and the threat of communism to the
West. Furthermore, after a thousand years of turbulence, Europe united in 1992 to
form the European Union (EU). The EU is the largest economy in the world and is
also the world’s largest trader of manufactured goods and services.1 In South Africa,
the establishment of democracy in 1994 produced majority rule for the first time in
300 years. However, the South African population is still waiting on post-apartheid
promises. The unemployment figures in South Africa are telling. The jobless rate
currently runs close to 30 per cent, compared with 20 per cent in 1994, indicating how
the country is going backwards. Beyond the figures, corruption has become endemic
and there is an ever-widening wealth gap to the point where South Africa is now judged
to be one of the most unequal societies worldwide, according to World Bank research.2
Natural disasters, such as the bushfires in Australia in 2019–2020 and the droughts
in, amongst others, Lesotho, Malawi, South Africa and Sudan, had far-reaching effects
on food production and food prices. For the first time in recorded history, Mozambique
has been hit by two cyclones in a single season causing major damage to the
infrastructure used by individuals as well as business organisations. Currently, the crisis
in Syria, the migrant crisis in Europe, the Black Lives Matter movement, assassinations
of key military figures and radical religious groups are transforming the world. Out
of this political turbulence and natural disasters, a new world order is emerging with
new economic and political alliances forming. All of these changes impact on business
organisations and therefore on managers and the decisions that they have to make.
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57
Eskom’s power outages pose major challenges to local businesses
Managers of local businesses have to deal with major challenges due to the load-shedding
schedules of Eskom, South Africa’s major supplier of electricity. The power outages pose
different challenges to different types of business.
The owner of a bakery in Linden, Johannesburg, said she is throwing out as many as 15
loaves of unbaked bread daily — about a 10th of what she produces at her bakery and
coffee shop. When fridges shut down, cheesecakes, mousses and trays of tiramisu ‘are going
off’ and have to be thrown away.
Across the road, a hardware shop has come to a standstill. When the power goes out, local
contractors are forced to stop working and so do the hardware store’s orders and sales. The
normal eight-hour workday is suddenly reduced to a three-and-a-half-hour workday. Delivery
trucks, that should be on the road doing deliveries, are parked behind the hardware store.
Truck drivers must still be paid their salaries even though the business owner does not
generate any income when no orders can be delivered.
Around the corner, the screens on electronic fuel pumps at the petrol station are blank. The
owner and manager of the petrol station are worried about turnover and having to pay staff.
‘If you can’t operate, you can’t make money,’ he says. A generator would cost more than
R100 000 which he says he simply cannot afford. He is also concerned about the noise and
fumes caused by generators as there are houses and a nursery school near the gas station.
Electricity shortages are also killing business at the printing shop. The owner is very
concerned about the impact of these shortages on his staff and their employment. If the
business goes under, staff will lose their jobs.
The situation at the butchery is just as challenging to the manager. Although the manager
had a generator installed a few months ago, he complains that petrol prices are close to
record levels. Running the generator is expensive and doesn’t provide nearly enough energy
to keep all the lights on, fridges cold and meat band saws working.
Source: Fin24. 2019. Available at: https://www.news24.com/fin24/Economy/lights-out-load-sheddingand-the-impact-on-local-business-20190215 (Accessed: 20 September 2020).
Surprises, shocks, and changing trends in the environment have an influence on business
organisations in different ways. The shift from production to knowledge-based societies,
from local to global involvements by business organisations, new management paradigms,
employees working from home, and the changing role of business in society also
determine the ways in which organisations are managed to change. Yet, many managers
still do not fully accommodate the implications of a changing environment when making
management decisions. Managers can only manage their organisations efficiently and
effectively if they closely consider the relationship between the organisation and its
environment, the threats and opportunities that exist in the environment, the trends that
appear and disappear, and how all of these form part of a broad environmental system.
The systems theory to management deals specifically with the interaction between
organisation and business environment. A brief overview of systems theory will help
managers to understand the relationship between the organisation and its changing
environment. Such a discussion is also necessary to better understand the approach to
management followed in this book.
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management principles
3.2 CONCEPTS OF SYSTEMS THEORY
3.2.1 The organisation as a micro-system of its environment
A system can be defined as a set of interrelated elements (micro-systems) functioning as
a whole.3 A business organisation is an example of such a system that operates in a specific
environment. The business organisation as an open system comprises many subsystems,
such as the financing subsystem, marketing subsystem, production subsystem and so
on. Business organisations are dependent on the external environment in which they
operate and vice versa. The organisation and its environment therefore depend on each
other for their survival. This mutual dependence is illustrated in Figure 3.1 below.
Figure 3.1 depicts how a business organisation obtains resources or inputs from
the environment in the form of people (labour), physical resources (raw materials),
capital (financial resources), and information (knowledge and expertise). The
organisation, through their managers and workers, then transforms these inputs from
the environment into outputs in the form of products and services for the marketplace.
Managers are responsible for managing this whole process efficiently and effectively in
an environment that constantly changes. Sound management decisions will enable the
organisation to survive despite all the changes that it faces; poor management decision
making will cause the business to close down, resulting in job loss.
Inputs from the
environment
Human
Financial
Physical
Information
Transformation or
processing of inputs
Manufacturing and
operational systems
Technology
Expertise
Information
Management process
Outputs to the
environment
Products
Services
Job opportunities
and others
Planning
Organising
Leading
Controlling
Figure 3.1 A systems perspective of an organisation
3.2.2 The systems approach in management
To appreciate the systems theory in management, four basic concepts must be
understood. These concepts are:
1. An open system (as opposed to a closed system)
2. Subsystems
3. Synergy
4. Entropy.
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59
The systems approach to management implies that the organisation is an open system
which influences and is influenced by its environment. In this regard, management
needs to be well informed about changes in the environment in order to adapt to such
changes in time.
The term ‘subsystem’ refers to smaller systems within larger systems. The human
body (system) for example comprises many subsystems, such as a respiratory system,
nervous system, digestive system and muscular system. The business as a system
comprises subsystems such as a marketing system, finance system, operations system
and administrative system. Each subsystem influences and is influenced by other
subsystems in the business organisation.
Synergy is another concept of the systems theory that can be applied to management.
It means that the whole (all the subsystems together) is greater than the sum of its parts
(each individual subsystem). In other words, if the various sections or departments in
the organisation cooperate as subsystems, they become more productive than would
have been the case if they had functioned individually and in isolation.
This also applies to the management process. The functions of management should
not be seen as independent and isolated components of the management process, but
rather as interdependent components that complement one another in their pursuit
of synergy.
Entropy is the opposite of synergy. When a system, including an organisation, does
not adapt to changes in the environment, it will disintegrate and fail to exist. The system
therefore lacks any energy and ceases to function.
The overview of four important concepts in systems theory applies to all types of
business organisations as all organisations function as open systems.
3.3 THE COMPOSITION OF THE MANAGEMENT/BUSINESS ENVIRONMENT
As stated earlier, the importance and influence of environmental change on the successful
management of the organisation became apparent in the last decades of the previous
century when environmental forces changed the organisational landscape forever. The
1970s were characterised by oil price and energy shocks. The 1980s experienced a shift
from local to global business and the emergence of fierce competition from Japan and
other Asian countries. In the 1990s, new ways of communicating, from fax machines
to cellphones and the Internet, revolutionised the way we have come to think about
business organisations. The term that describes business survival in the twenty-first
century is the term ‘relentless innovation’. In this century, product innovation alone
will not create a competitive advantage for an organisation. Organisations should
constantly think in terms of innovation in all areas of an organisation, including the
supply chain, talent development, the sales processes, strategic planning, customer
engagement and even working with competitors (rather than working against them).
Relentless innovation requires a new mindset of managers and workers — one that
allows everyone in the organisation to become an innovator.4
Instabilities in the business environment increased the need for managers to study
environmental influence and change.
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management principles
Innovation: harnessing the African sun
In Africa, hundreds of millions of people have poor grid connections or no electricity at
all. Azuri’s Paygo system allows rural residents to pay small monthly installments for a
solar panel that can generate enough electricity for two lights and a cellphone. But Azuri’s
innovation did not stop here. Azuri also offers a path to more power for its customers. Once
a panel is paid off, users can either keep the system or upgrade to a larger one that can
sustain more lights and a television. The implications could be significant. Customers in
rural areas now have easy access to electricity and light, no time or money is wasted to buy
kerosene fuel, and there are no dangerous indoor fumes.
Source: https://www.azuri-group.com/
Figure 3.2 below depicts the business or management environment comprising three
different environments. Managers need to understand all of these environments
and sub-environments to ensure that their decisions reflect changes in any of these
environments.
The business environment comprises the:
■
■
■
Macro-environment (remote external environment)
Market environment (competitive/industry environment)
Micro-environment (internal environment).
First, the micro-environment refers to the organisation itself. This includes all the
subsystems that comprise the organisation, such as its marketing system, information
system, finance system and production system. It therefore refers to the internal
environment of the organisation. Management has control over the internal environment
through the application of the management process. The internal (micro-)environment
of each business is unique as all business organisations have different resources, different
processes, different strengths and weaknesses, operate in different environments and so
on. As a manager, one would like to compete on the organisation’s strengths but also be
aware of the weaknesses in the organisation to minimise them.
The second component of the business environment is the market- or task
environment which surrounds the organisation. It describes the specific industry
in which a business organisation has to operate. It forms the buffer between the
organisation and the remote macro-environment. The market-environmental variables
indicated in Figure 3.2 below are relevant to organisations in a particular industry; they
determine the nature and strength of competition in a specific industry. The structure of
industries differs, and managers therefore have to understand what the dominant forces
are in the industries in which they compete. The running shoe industry, for example,
is dominated by a few, very strong competitors, namely Nike Inc, Reebok and Adidas®.
These dominant players in the industry can dictate prices in the industry, designs of
shoes and distribution channels. Other industries comprise many small competitors,
each with a small market segment. In some industries, prices may even be determined
by government.
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managing in a changing environment
61
The organisation has a negligible
effect on the macro-environment
Microenvironment
Mission and
goals of the
organisation
■ The organisation
and its
management,
eg marketing,
financial and
purchasing
management
■ The resources of
the organisation,
eg human
resources, capital
and expertise
■ Organisational
culture
■
Market environment
The market,
comprising:
■ Consumers, their
needs, purchasing
power and
behaviour
■ Suppliers
■ Intermediaries
■ Competitors
■ Substitute products
■ Possible new
entrants
■ Labour unions
Macroenvironment
Political
environment
■ Economic
environment
■ Social
environment
■ Technological
environment
■ International
environment
■ Ecological
environment
■
The macro-environment influences the
organisation directly, eg the effect of
interest rates on financial management
or legislation with which human resource
management must comply
Figure 3.2 The composition of the management environment
The key variables in the market environment are as follows:
Consumers, whose needs and preferences for products and services change
continuously
■
Suppliers, who supply or do not wish to supply products, raw materials, services,
and even finance to the organisation
■
Intermediaries, who compete with one another to distribute an organisation’s
products or services
■
Competitors, who compete for the same customers’ attention
■
Labour unions, which deal with the supply of labour.
■
All these variables create specific opportunities and threats in a particular industry.
Management’s primary task in this environment is to identify, evaluate, and utilise
opportunities in the market, minimise threats, and develop its strategy in such a way
that it can deal with competition in that industry.
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Changes in the hospitality industry
The hospitality industry has changed dramatically during the last few years … and
continues to change, especially after the outbreak of the COVID-19 pandemic. Worldwide,
Airbnb has over 150 million users. On any given night more than 2 million people stay in
Airbnb accommodation. Almost 700 000 companies use Airbnb rentals instead of booking
their employees into hotels or guesthouses when travelling. Almost 50 per cent of Airbnb
bookings are made through mobile devices. The average rate for an entire house on Airbnb is
the same or lower than the cost of a single hotel room.
Airbnb has changed the structure of an entire industry which was originally built on the
concept of owning or renting hotels or guesthouses, having large reception areas, restaurants,
swimming pools and so on. The company does not own any of the real estate listings, nor
does it host events; it acts as a broker, receiving commissions from each booking.
Source: iProperty Management. 2020. Available at: https://ipropertymanagement.com/research/
airbnb-statistics (Accessed: 20 September 2020).
The third environmental component, the macro-environment, exists outside the
organisation and the market environment. It is also referred to as the remote environment.
It comprises six distinct sub-environments, often referred to as the PESTIE environment:
■
The political environment involves the government with its political and legislation
regulations as the primary components. In South Africa, managers should be wellinformed about changes in labour law, taxes, minimum wages, dispute resolution,
the Competition Act 89 of 1998 and so on.
■
The economic environment in which factors such as inflation, recessions, exchange
rates, and the monetary and fiscal policy of the government influence management
decisions.
■
The social environment in which changes in people’s lifestyles, urbanisation,
life-expectancy, changing demographics and values make certain demands on
the organisation.
■
The technological environment that is responsible for the pace of innovation and change.
■
The international environment in which foreign trends, changing international
laws, standardisation of products and new political alliances between countries
influence the organisation and the market environment. Further examples include
international accounting standardisation, international standards for fruit and
vegetables and international standardisation of corporate governance.
■
The ecological environment comprises laws on pollution, the protection of natural
resources such as flora and fauna, the mining of mineral resources, access to water
and quality of air.
Some authors also refer to infrastructure as a seventh macro-environmental variable.
This variable refers to manufactured improvements such as roads and bridges, pipelines,
communication networks and railway lines. In this book, we consider infrastructure to
be part of the technological environment.
The individual organisation has no control over the macro-environment. It is the
responsibility of managers to prepare the organisation for changes in this environment.
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3.3.1 Main characteristics of the management/business environment
To understand the complexity of the business environment (macro-, market and
micro-environments) one needs to understand its principal characteristics. These
characteristics include:5
■
Constant changes. The business environment changes constantly. Some of the
changes are minor whereas other changes may require managers to make drastic
management decisions to align the organisation with the changes.
■
The interrelatedness of environmental factors or variables. Because of this
interrelationship, a change in one external factor may cause a change in many or
all other factors in the environment. For example, a drastic fall in the value of the
Rand could mean that imported goods such as medicines, cars, and fuel become
more expensive. This could trigger higher inflation, followed by increased interest
rates. This in turn could mean that consumers will have less money to spend on
luxury items such as holidays.
■
Increasing instability. The interdependence between environmental factors
results in increasing instability and change in the environment. Environmental
fluctuations are greater for some industries and businesses than for others.
■
Environmental uncertainty. Some business organisations function in an
environment of great uncertainty; others face more stable environments.
■
The complexity of the environment. The business environment for some
industries changes rapidly. Other industries may face fewer and slower changes.
A baker has to cope with far fewer environmental variables than an electronics
manufacturer and therefore functions in a less complex environment.
The environment is becoming increasingly unpredictable. The current business
environment is revolutionary, which is profoundly different from the evolutionary
environment of the 1990s and earlier. Evolutionary environments change gradually,
which makes them predictable. Revolutionary environments are unpredictable and fastchanging (see Chapter 9).
These characteristics emphasise how important it is for management to focus on
both the internal as well as external environments (macro- and market) when making
management decisions.
3.4 THE INTERNAL OR MICRO-ENVIRONMENT
The micro-environment is the internal environment of the organisation and the main
environment in which management plans, organises, leads, and controls the activities
of the organisation. The management process therefore plays itself out in the microenvironment as managers have to utilise the scarce resources of the organisation and
transform these into products or services for which there is a need.
The internal environment also refers to the organisation’s strategy for competing
in the business world (its vision, mission, strategic goals and chosen strategies). It
further refers to how the organisation will implement its strategy (the organisational
structure, leadership and culture, the allocation of resources, reward systems and
training interventions).
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Managers have to assess the internal environment of an organisation to determine the
strengths and weaknesses of the organisation, its departments or sections. There are
different approaches to assessing the capabilities of the organisation. Three of the most
popular approaches are:
1. The functional approach to internal assessment which looks at the organisation’s
different functional areas (such as marketing, finance, operations, human resources)
2. The value chain approach which looks at the organisation as a chain of activities
that must be performed to produce a product or service (see Figure 3.3 below)
3. The resource-based view of an organisation which looks at how an organisation’s
available resources can be used to give it a competitive advantage. As stated
previously, the four resources that managers have to manage are people, finances,
physical resources and information.
Receive
components
Assemble
cars
Send cars
to dealerships
Target
marketing
After-sales
service
Procurement
Technological development
Human resources
Infrastructure
Figure 3.3 Value chain for a car manufacturer
The value chain at leading car manufacturers
The value chain at leading car manufacturers will play itself out as follows:
■
■
First, the manufacturer will receive components from the suppliers and these components
will be stored until needed at the assembly line
Next, the cars will be assembled at the assembly line
➜
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■
■
65
The finished cars will then be sent to wholesalers, retailers or individual customers
A leading manufacturer will now prepare the offering to meet the needs of targeted
customers (for example, the promotional mix)
The final step is to perform the last services, such as the final quality check, after-sales
service, complaints and training of salespeople.
Other activities that will not contribute directly to the physical assembly of the car are:
■
■
■
■
Getting goods and services at the best possible prices
Developing technology to ensure that the manufacturer creates a competitive edge
Ensuring that the best possible and suitably-skilled people are employed in all their
departments and sections
Good infrastructure, such as the most up-to-date information systems.
Lastly, it is essential for any leading car manufacturer to determine their own strengths and
weaknesses so that they can compare themselves to their competitors in the market.
The micro-environment can be controlled by management. Managers at all levels
(top, middle and first-line) must have a very clear understanding of the capabilities
of their organisations, departments or sections. Understanding the capabilities of the
organisation will help managers deal with the challenges posed by a constantly changing
external environment (macro- and market environments).
3.5 THE MARKET OR TASK ENVIRONMENT
The environment that immediately surrounds the organisation is known as the
market environment (also called the task or industry environment). As shown in
Figure 3.2 above, it comprises all the variables that constitute an industry: the market,
suppliers, intermediaries, competitors, substitute products, possible new entrants, and
labour unions.
3.5.1 The market
The market for the organisation’s products or services consists of people who have needs
to be satisfied. These people must also have the financial means to satisfy their needs.
These needs constantly change so that new products and services must be provided;
other products and services become obsolete as people’s needs change.
Products that may become obsolete in the near future
■
■
■
■
■
■
The car mirror will be replaced by cameras and monitor systems
Credit cards will be replaced by digital bits
Wireless technology (such as Bluetooth) will be used in the place of cords and chargers
Most live human operators (such as call centre operators) will give way to robots
Drones, instead of the post office, will deliver packages
Private ownership of cars will give way to sharing them (for example, Uber).
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Market research should provide managers with valuable information regarding possible
new trends in the purchasing behaviour of its customers. Management should also
realise that changes in their markets are influenced directly by the variables in the
macro-environment. For example, demographic trends affect the number of consumers,
while economic factors determine the purchasing power of consumers, and cultural
values exert particular influences on the purchasing behaviour of consumers. Mobile
payments methods and e-commerce, for example, are a definite current trend. So too
is male grooming in South Africa, and products related to this trend have become
increasingly popular.6
Only once marketers have analysed the size, profile and location of their market
segments can they select appropriate marketing strategies to target these market
segments.
3.5.2 Suppliers
According to the systems approach to management, the organisation is regarded as
a system that attracts inputs from the environment and converts these into outputs
(products and services) for which there is a need.
If an organisation is unable to draw the essential inputs of the right quality, quantity,
and price to attain its goals, then it cannot hope to succeed in a competitive market
environment. Virtually all organisations, be they manufacturing, trading, or contracting
organisations, depend on regular supplies of materials.
Organisations are also dependent on suppliers of capital. Banks, building societies,
shareholders, mortgage bonds, and the like are such suppliers. Small organisations, in
particular, often have difficulty attracting capital.7
Another environmental variable on which businesses depend is the supply of
labour by trade unions and other representative groups which are ‘suppliers’ with
which organisations, particularly those in manufacturing and mining, have complex
relations. Trade unions only exist because their members are employed. Pressure from
trade unions on employers for higher wages and so on often lead to excessive costs for
businesses. These costs have to be absorbed by the business despite the employees
not improving the productivity of the business organisation. Trade unions and their
members therefore need a very clear understanding of how the economy works. They
need to become a part of the solution to low productivity or else they may cease to
be relevant.8
Cosatu loses members
The Congress of South African Trade Unions (Cosatu) has lost almost 320 000 members in
the past three years and its affiliates are blaming the organisation’s leadership in the face
of deep internal fights over money for subscription. Cosatu’s political and organisational
reports show the federation’s membership continues to decline. The federation’s membership
dropped sharply from 1 923 436 members in 2015 to 1 605 973 members in 2018, a 16.5 per
cent decline.
Source: IOL. 2018. Available at: https://www.iol.co.za/news/politics/cosatu-bleedsmembers-17047443 (Accessed: 20 September 2020).
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3.5.3 Intermediaries
Besides consumers and competitors in the market environment, intermediaries also
play a vital role in bridging the gap between the manufacturer and the consumer.
Intermediaries include wholesalers and retailers, commercial agents and brokers. In
South Africa, spaza shops form an important part in the distribution of basic consumer
goods. Spaza shops often buy in bulk from wholesalers and repackage the products in
smaller packs. This adds value by making the products more affordable to consumers
and bringing the products closer to the consumer.
Financial intermediaries such as banks and insurers also play a role here. Managerial
decision-making on intermediaries is complicated by the dynamic and ever-changing
nature of intermediaries. In addition to sales via wholesalers or retailers, new
intermediaries must now be considered by managers. Such intermediaries include
websites, franchises, brand stores and call centres. Even pop-up stores should be
taken into account when considering intermediaries. In the insurance industry,
Artificial Intelligence (AI) has become a popular intermediary for many consumers.
Insurers had to adapt their entire business model to accommodate this change in
consumer preference.9
3.5.4 Competitors
A market economy is characterised by, amongst other things, a competitive market
environment. Therefore, every organisation that tries to market a service or product
in the market environment is constantly up against competition — and it is often
competitors and not consumers that determine the actual quantity of a particular
product to be marketed, including the price levels for that product. In addition,
organisations compete not only for a market share for their product, but also with other
organisations for specific types of labour, capital, and materials.
Competition differs from industry to industry and is determined by five forces (see
Table 3.1 below):
1. The threat of new entrants (competitors) or competitors departing
2. The bargaining power of clients and consumers
3. The bargaining power of suppliers
4. The threat of substitute products or services
5. The number of existing competitors.
McDonald’s position as the global leader in the fast-food restaurant market is partly
a result of the company’s effectiveness in responding to the five forces in its industry
environment. Michael Porter’s five forces analysis model identifies the most relevant
external factors that influence business organisations in a specific industry.10
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Table 3.1 McDonald’s five forces analysis
Weak
Moderate
Strong
Competitive rivalry or competition
(strong force)
✓
Bargaining power of buyers or
customers (strong force)
✓
Bargaining power of suppliers (weak
force)
✓
Threat of substitutes or substitution
(strong force)
Threat of new entrants or new entry
(moderate force)
✓
✓
Source: Panmore Institute. nd. Available at: http://panmore.com/mcdonalds-five-forces-analysis-portersmodel (Accessed: 22 January 2020).
Table 3.1 illustrates the five forces responsible for competition in the fast-food restaurant
industry, using McDonald’s as an example. It shows that competition, customers
and substitute products are strong forces that determine competition in this specific
industry. The threat of new entrants is a moderate threat while suppliers do not really
pose a threat in this industry. Competition, for example, in this industry, is fierce as
there are many fast-food outlets of various sizes, including other global fast-food chain
restaurants as well as small outlets. Most medium and large restaurant chains market
their products aggressively. Furthermore, McDonald’s customers can easily switch to
other restaurants such as Burger King® or KFC. Thus, this element of the five forces
analysis of McDonald’s shows that competition is amongst the most significant of the
external forces regarding the business.
According to Michael Porter, the collective strength of these five forces determines
the competitiveness in an industry, and therefore also its profitability. Competition
varies from intense in industries such as the pharmaceutical industry, to moderate such
as in mining and aviation. An industry is often dominated by one of these forces.
The market environment causes opportunities and threats to organisations in the
same industry. A threat to one organisation may be an opportunity for another. When
applying for funding, gender equality in the workplace may be a major advantage
to a specific university who has a sound ratio of women to men in top management
positions. A university whose top management structure is dominated by men may find
it very difficult to attract any funding.
Management must be well informed and sensitive to trends in the market
environment to enable it to timeously make the most of opportunities and to avoid
possible threats. There are certain tools available to managers to use for this purpose.
These tools include: environmental scanning (see Section 3.8.1 and Chapter 4) and
information management (which is discussed in Section 3.8.1 and in Chapter 7).
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Potential development of
substitute products
Bargaining power of
suppliers
Rivalry
among
competing
firms
Bargaining power of
consumers
Potential entry of new
competitors
Figure 3.4 Competitive forces in an industry
3.6 THE MACRO-ENVIRONMENT
3.6.1 The composition of the macro-environment
Apart from the market environment, organisations also operate in a larger macroenvironment (sometimes called the remote environment). This macro-environment
consists of sub-environments that constantly change and therefore have an influence on
the organisation. These sub-environments represent the uncontrollable environmental
forces, also referred to as megatrends.
As indicated in Figure 3.2 above,
contemporary literature on management divides the macro-environment
Micro
into six sub-environments (called
PESTIE), namely:
1. Political
2. Economic
Market
3. Social
4. Technological
5. International
Macro
6. Ecological.
In the study of the macro-environment,
the emphasis is on the changes caused
by the uncontrollable macro-variables
and their implications for management.
These changes, if well managed by
management, can pose major opportunities for the organisation.
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Figure 3.5 The constant interaction between
the three business environments
Source: David, FR. 2001. Strategic management:
Concepts and cases. New Jersey: Prentice-Hall,
p 100.
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However, if management is not proactive, the same changes can cause major threats to
the organisation.11
3.6.2 The technological environment
Technology refers to the knowledge of how to do something, whether it is age-old
technology for making wine, or high-tech technology for manufacturing the latest
electric cars.
Technology is involved in every process of a business organisation: from
manufacturing to marketing to managing. Technology not only determines how the
organisation makes products or serves customers, but also affects the organisation’s
markets and the organisation’s ability to compete in those markets. Technological
change therefore affects the entire organisation and has strategic implications for
organisations as well as industries.
Some major technological breakthroughs over the last centuries
■
■
■
The invention of the assembly line made mass production of cars possible.
Although modern society perceives the following as part of our daily lives, they were
major technological breakthroughs in their specific times:
❏
The printing press (1430)
❏
Photography (early 19th century)
❏
Cement (first millennium BC)
❏
Steam engine (1884)
❏
The assembly line (late 19th century)
❏
Personal computers (1970s)
❏
The telephone (1876)
❏
Sanitation (mid-19th century)
❏
Internet (1960s)
❏
Optical lenses (13th century)
❏
Anesthesia (1846).
The first wheelbarrow
The wheelbarrow was invented thousands of years after the wheel was invented. The
wheelbarrow is still a major labour-saving device with a huge influence on productivity.
Source: The Atlantic. nd. Available at: http://www.theatlantic.com/magazine/archive/2013/11/
innovations-list/309536/ (Accessed: 22 January 2020).
Technological progress forces management to rethink the ways in which their
organisations produce products and market their services, treat their customers or
compete in the marketplace. Superior management of technology and innovation
within the organisation can be an important source of competitive advantage to a
business organisation.
3.6.3 The economic environment
After technology, which is primarily responsible for changes in the environment, the
economy also causes major changes in the business environment. Economic changes
that may cause an opportunity or threat to an organisation include a country’s growth
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rate, levels of employment, consumer income, the rate of inflation, the exchange rate,
interest rates and many more. These economic forces ultimately result in prosperity or
adversity and have specific implications for an organisation and its management.
Declining purchasing power due to economic pressure on customers leads to a
change in buying behaviour, as well as a change in the type of product sought. The toy
industry is an industry severely affected by the state of the economy in a country. The
United Kingdom (UK) toy market is the fourth largest in the world, behind the US,
China and Japan. However, the current uncertainty caused by BREXIT (Britain exiting
the European Union) has had a profound impact on the spending patterns of Britons
during the 2019 Christmas season. Customers were not buying freely and made fewer
trips to shopping centres, preferring to buy toys online. This change in buying behaviour
meant that customers made fewer impulsive purchases.12
The fluctuating South African Rand
The South African Rand is currently the second-most volatile and politicised currency
globally, as its volatility is directly linked to political instabilities and occurrences.13 The
volatile rand has profound repercussions for all businesses in South Africa. A weaker rand
generally enhances the price competition of South African goods in export markets. A
stronger rand, on the other hand, can benefit local manufacturers who import raw products
as inputs into their production process.
Poultry production in South Africa is one of the endeavours that is very sensitive to the
volatility of the rand. Local farmers are struggling to compete with cheaper imports, citing
poultry production as an expensive endeavour locally, compared with imports from the
United States of America (USA). The price level at which chicken, for example, is being
imported from the USA is just not sustainable for local chicken farmers, and they are unable
to compete with these prices.
Source: Engineering News. 2017. Available at: https://www.engineeringnews.co.za/article/inflationcompetition-and-rand-volatility-challenges-for-the-food-and-bev-industry-2017-03-17 (Accessed: 20
September 2020).
The economic environment not only influences other business environments, but is itself
influenced by trends such as crime, fraud, confidence in the government and investors’
perception of a country’s stability. The lockdown imposed by the South African government
in 2020 (due to the COVID-19 pandemic) had profound economic implications for
businesses and individuals in South Africa. Many South Africans lost their jobs during the
COVID-19 lockdown as businesses were not allowed to open for months.
These economic trends demand constant vigilance on the part of management and
may require them to revisit the mission, goals, and strategy of the organisation to assess
whether they are still achievable.
3.6.4 The socio-cultural environment
Socio-cultural change is very sensitive to cross-influences by other variables, especially
technology and the economy. Consumption is therefore explained not only in economic
terms as a function of income, but also as a function of an individual’s behaviour (attitudes,
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values, motivation, etc) and pressure from groups, such as family members, the peer
group, social media friends and the community. Behaviour is not static however, and a
community’s values, expectations, way of life, and habits change over a period of time.
Private ownership in the near future
Will the concept of private ownership disappear by 2025? Probably not completely, but
Millennials will certainly view it differently. It is already starting to change. Look at your
entertainment choices: we no longer own music or movies, we just curate collections on
Netflix, Spotify, and the like — where all the content actually lives.
To own everything is considered old-fashioned, and certainly not cool! The generation
of Millennials have jumped headlong into the sharing economy. Millennials are far more
interested in buying into subscription services rather than buying actual things.
They’re not even interested in buying things such as houses or cars. Part of this has to do
with Millennials not having the economic security enjoyed by society over the last 70 years
or so. But another part is that technology has facilitated a mass communal lifestyle built
around sharing resources.
Source: PC Magazine. nd. Available at: http://www.pcmag.com/article2/0,2817,2489562,00. asp
(Accessed: 23 January 2020).
The culture of a particular country is not absolutely homogeneous. There are numerous
sub-cultures based on nationality, religion, population group, or geographical area,
each of which modifies the environment and has implications for management. An
organisation is at the centre of social change. On the one hand, it contributes to social
change, on the other hand, it has to adapt to changing social trends.
Managing employees from five generations
An article in the Harvard Business Review states that for the first time in history, five
generations will soon be working side by side. The article highlights the challenges that this
poses to managers as they will have to motivate employees much older or much younger
than themselves. Each generation is motivated to work by different needs and wants.14
Generational identity influences workplace attitudes and practices that affect job burnout and
turnover rates. Millennials, the youngest generation in the workforce, may have less tolerance
for high-stress jobs. As such, they may quit jobs where they feel unhappy, despite fewer job
options due to a lack of experience. Older employees, such as baby boomers and Gen Xers,
may be able to tolerate the stress of being in a job even if they are unhappy. They do not
necessarily possess the educational or relevant technological background of their younger
co-workers. In either case, employees may become less satisfied with their situation, leading
to job burnout and possible erosions in the quality of customer service provided.15
Social problems such as crime, discrimination, violence, xenophobia, the collapsing of
family structures, racism, sexism, substance abuse, obesity, the HIV/AIDS epidemic
and poverty also bring about developments which are responsible for change in the
environment. Management cannot afford to ignore these social influences when making
business decisions.
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3.6.5 The ecological/natural environment
The ecological or natural environment contains the limited natural resources from
which an organisation obtains its raw materials; organisations also dispose of their
waste into the natural environment. Organisations are becoming increasingly aware of
the natural environment and the interdependence between the organisation and the
natural environment. This interdependence presents opportunities as well as threats
to organisations. Threats include a shortage of resources, the rising cost of energy, the
cost of pollution, and damage to the country’s natural resources. Industries, like the
fishing industry and forestry, depend on the natural environment for their supplies.
Furthermore, the Eskom power outages have a crippling effect on productivity in
businesses. Direct stress on infrastructure elements such as substations, traffic lights not
working, sewer pumps not being able to operate and many more negative effects have
forced management to consider alternative and more environmentally-friendly sources
of energy in manufacturing their products or rendering services.
Therefore, management must take timely steps to limit, as far as possible, any
detrimental effects the organisation may have on the environment, not only to prevent
unfavourable attitudes towards the organisation, but, most importantly, in order to
conserve, maintain, and manage the country’s dwindling natural resources.
It is against this background that sustainability issues such as green industries,
buildings and transport are becoming crucial for management. A quest for lower carbon
dioxide emissions is putting pressure on the car industry to manufacture cars that are
less dependent on fossil fuels and more dependent on electricity. Other industries
are pressurised to generate and use solar and wind power, opening up opportunities
to produce green energy. New buildings, for example, can be designed and built to
generate their own solar power to drive their air conditioners and heating systems.
Alternative sources of energy
The crippling effect that Eskom’s power outages have on South African businesses has
created major opportunities for farmers in the Karoo, especially those who own farms just
north of the Northern Cape town of De Aar. Kalkbult, one such farm, was identified by the
Norwegian energy company, Scatec Solar, as perfectly suitable for the installation of solar
panels. On sunny days, the 312 000 solar panels on this farm generate enough power for
35 000 households.
South Africa’s renewable energy sector is seen as a global leader.
South Africa has an average of 2 500 hours of sunshine a year, putting it amongst the top
countries in the world in terms of solar energy potential. Furthermore, the Department of
Energy calculates that renewable energy could create 462 000 jobs in South Africa by 2030.
It has already created 25 000 jobs.
Source: South African National Energy Development Institute. nd. Available at: http://www.sanedi.
org.za (Accessed: 23 January 2020).
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3.6.6 The political environment
Management’s decisions are continually affected by the course of a country’s politics,
especially political pressures exerted by the ruling government and its institutions in the
business environment. As a component of the macro-environment, the state influences
the business environment and the organisation primarily as a regulating force. By
promulgating and enforcing laws, it influences the environment with measures that
are usually politically directed, thus steering development and economic policy in a
certain direction. The policy of the South African government is aimed at maintaining
a market economy and private ownership, but it will intervene where monopolistic or
other conditions impede the functioning of the market or their political power. The
government also influences business organisations through the annual budget, taxation,
import control (or lack of it), promotion of exports, import tariffs to protect certain
industries against excessive foreign intervention, price control and many more.
The perceived stability of a government and the integrity of its leader and government
officials have a major influence on the actions of investors. These perceptions either
attract or deter local and foreign investors to invest in a country.
3.6.7 The international environment
Businesses such as Vodacom that operate internationally find themselves in a far
more complex business environment than those operating regionally or nationally.
Each country has unique environmental factors, their own technology, economy,
culture, laws, politics, markets, and competition which differ from country to country.
International and multinational organisations in particular are affected by international
trends and events.
Businesses or countries that do not comply with international laws and expectations
may face sanctions and boycotts. These can take on different forms, such as quotas
on exports or imports, an embargo to disrupt export, the freezing of property assets,
restrictions on trade, cancellation of fishing rights and so on.16
3.6.8 Conclusion
In a market economy, the organisation exists in a dynamic environment in which
technological innovation, economic fluctuations, changing ways of life, and
international and ecological variables, as well as political trends, are continually
changing the environment and ultimately affecting it. Insight into trends and events
in the environment, especially the ability to forecast the implications of these for
managerial decision-making, are a top priority for management, since past experience
in the rapidly changing environment is often of little help when management has to
deal with new problems. Knowledge of trends in the environment and identification
of environmental dimensions that largely determine the progress of a business are
also necessary for decision-making in order to maximise profitability. This knowledge
requires the environment to be scanned to enable management to identify threats
and challenges in the environment in good time and where possible, transform these
into opportunities.
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3.7 INTERFACES BETWEEN THE ORGANISATION AND THE ENVIRONMENT
The previous overview of the different business environments and sub-environments
clearly shows the complexity and dynamics involved in making management decisions.
Managers cannot simply focus on the internal operations of their business organisations,
departments or sections. Managers are required to be proactive in performing their
responsibilities. A reactive approach to dealing with a turbulent business environment
is certain to lead to catastrophe.
3.7.1 Environmental change and the organisation
Change is a difficult concept to define. In simple terms it means changing the status
quo — changing a state of stability to one of instability, moving from the predictable to
the unpredictable, or from the known to the unknown. It is unmeasurable and it causes
uncertainty. No one factor is responsible for change, and it occurs in specific areas and
societies in various ways and at different rates.
Change has different implications for different organisations. An organisation’s
systems, structure, strategy, style, expertise, culture, and mutual values must accommodate
change in the environment. Change in the environment may seriously disrupt a once
harmonious relationship with the organisation. To ensure its survival, management must
make adjustments in one or more of the organisation’s interfaces with the environment,
namely its systems, strategy, structure, and so on. The extent of these adjustments will
depend on the nature, speed, and complexity of environmental change.
3.7.2 Uncertainty in the environment
Although no business environment is without some degree of uncertainty, certain
industries are more prone to turbulence in the environment than others. Manufacturers
of chairs face a relatively stable environment while manufacturers of high-technology
components have to deal with constant changes. A clothing manufacturer functions in
an environment that is relatively simple, but dynamic due to changes in styles, fashion
and consumer tastes. Car manufacturers operate in a complex but relatively stable
environment with a moderate level of uncertainty. Managers working for Volkswagen
South Africa, for instance, have to cope with numerous suppliers, regulations, trade
unions, exchange rates and competitors. However, changes in design and manufacturing
technology in the motor industry are relatively slow compared to some other industries.
Some industries face a complex and dynamic environment with a high level of
uncertainty. Such an environment has many variables so that its nature is continually
changing because of technological change and resultant changes in competition and
market behaviour.
3.7.3 Crises in the environment
Analyses of the environment in which an organisation exists do not safeguard
organisations and its managers from unexpected events in the environment that can
strike without warning. No-one could predict the severe droughts in Africa in 2020, the
bushfires and floods in Australia, the COVID-19 pandemic, the protests and strikes in
America, France, Thailand and many other countries.
Crises such as these influence organisations in different ways and this is precisely
why they react differently to such influences from the management environment.
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3.8 WAYS IN WHICH MANAGEMENT CAN PREPARE FOR ENVIRONMENTAL
CHANGES
Insight into trends in the management/business environment and the ability to predict
their implications for decision-making are management priorities. The extent to which
the environment influences the management of an organisation therefore depends
primarily on the type of organisation and the nature of the environment. The response
to environmental change revolves mainly around environmental assessment (see
Chapter 4) and information management (see Chapter 7).
3.8.1 Information management
For management to have knowledge of possible changes in the environment, its
information management system should make adequate provision for environmental
assessment. The importance of environmental assessment is illustrated in the following:
■
The environment is constantly changing — hence management should make a
conscious effort to assess it in an effort to keep up with change
■
Environmental assessment is necessary to determine whether factors in the
environment constitute a threat to the organisation’s current mission, goals, and
strategy
■
Assessment is also necessary to determine which factors in the environment offer
opportunities to the business organisation.
The more vulnerable the organisation is to change the more essential environmental
assessment becomes.
3.8.2 Strategic responses
Once management has adequate information and insight into its environment, it has
to decide on a strategic response to the changes that are forecast. The response may
be minor or it may be major with drastic implications for the entire organisation. A
strategic response could be to sell non-core businesses or to retrench workers. Strategic
responses also include merging with another business, expanding into new markets, reengineering a business organisation, and so on.
3.8.3 Structural change
Another type of response to environmental change is to adapt or redesign an
organisation’s structure. Organisations in an environment with a low level of uncertainty
may, for example, maintain a bureaucratic type of structure in which basic rules and
a system of stereotyped actions are sufficient for successful existence. In contrast,
organisations that operate in an environment with a high level of uncertainty prefer a
more flexible structure with fewer levels of authority and fewer rules in order to deal
with environmental change more efficiently.
3.9 SUMMARY
In this chapter we looked at the business environment in which managers operate.
More specifically, we focused on how this environment constantly changes. The
systems approach to management focuses on the interaction and interdependence of
the business organisation and the business environment.
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We examined the management/business environments by looking at the micro-, market,
and macro-environments. The micro-environment refers to the internal environment
— the organisation itself. Managers can control this environment by performing the
four management functions. The market environment refers to the buffer between the
organisation and the macro-environment; it is the field in which organisations in the same
industry compete. Porter’s five forces model is used to determine the nature of competition
in different industries as well as the profit potential of industries.
The macro-environment is the remote environment in which all business organisations
and industries function. It comprises the following sub-environments: political, economic,
social, technological, international, and ecological. A change in any of these variables
can create an opportunity for an organisation or can pose a threat to the organisation.
Managers must be prepared for changes in the environment. An effective and efficient
management information system is therefore essential to provide managers with relevant
information. Scanning the environment will enable managers to identify changes in the
business environment. Managers have to respond strategically to environmental change
to ensure that the organisation remains aligned with these changes.
REFERENCES
1. European Commission. 2019. Available at: https://ec.europa.eu/trade/policy/euposition-in-world-trade (Accessed: 20 September 2020).
2. France24. 2019. ‘South Africa still waiting on post-apartheid promises’. Available at: https://
www.france24.com/en/20190422-south-africa-still-waiting-post-apartheid-promises
(Accessed: 20 September 2020).
3. Von Bertalanffy, L. 1968. General Systems Theory: Foundations, Developments, Applications.
Revised edition. New York: George Braziller, p 30.
4. Yeramyan, P. 2014. ‘The six defining traits of the successful 21st century organization’. Forbes.
Available at: https://www.forbes.com/sites/gapinternational/2014/09/03/the-six-definingtraits-of-the-successful-21st-century-organization/#491239181c60 (Accessed: 22 January 2020).
5. UK Essays. 1970. Available at: https://www.ukessays.com/essays/business/thecharacteristics-of-business-environment-business-essay.php (Accessed: 22 January 2020).
6. EuroMonitor International. 2018. ‘Consumer lifestyles in South Africa’. Available at: http://www.
euromonitor.com/consumerlifestyles-in-south-africa/report (Accessed: 23 January 2020).
7. US Chamber of Commerce. 2019. ‘We Ask: What’s your biggest challenge? Entrepreneurs
Say: It’s financing’. Available at: https://www.uschamber.com/co/run/business-financing/
business-financing-challenges (Accessed: 20 September 2020).
8. Gon, S. 2019. ‘Unions protect workers’ rights “at all costs” – which costs are too high’. Business
Day. Available at: https://www.businesslive.co.za/bd/opinion/2019-01-02-unions-protectworkers-rights-at-all-costs--which-costs-are-too-high/ (Accessed: 20 September 2020).
9. Faurie, J. 2019. ‘Profiling the intermediary of the future’. FA New. Available at: https://
www.fanews.co.za/article/talked-about-features/25/straight-talk/1146/profilingtheintermediary-of-the-future/26761 (Accessed: 20 September 2020) .
10. Porter, ME. 1980. Competitive Strategy: Techniques for Analysing Industries and Competitors.
New York: Free Press.
11. Kelly, M & Williams, C. 2016. BUSN. Boston, Massachusetts: Cengage Learning, pp 7−14.
12. Peachey, K. 2020. ‘Christmas magic vanishes for the UK toy industry’. BBC News. Available
at: https://www.bbc.com/news/business-51195790?intlink_from_url= (Accessed: 20
September 2020).
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13. Tukstra, J. 2017. ‘Inflation, competition and rand volatility challenges for industry’.
Engineering News. Available at: https://www.engineeringnews.co.za/article/inflationcompetition-and-rand-volatility-challenges-for-the-food-and-bev-industry-2017-03-17
(Accessed: 20 September 2020).
14. Knight, R. 2014. ‘Managing people from 5 generations’. Harvard Business Review. Available
at: https://hbr.org/2014/09/managing-people-from-5-generations (Accessed: 20
September 2020).
15. Abate, J, Schaefer, T & Pavone, T. 2018. ‘Understanding Generational Identity, Job Burnout,
Job Satisfaction, Job Tenure and Turnover Intention’. Journal of Organizational Culture,
Communications and Conflict, vol 22, issue 1 (online research article).
16. Association for Free Research and International Cooperation. 2019. ‘US sanctions against
African countries’. Available at: https://afric.online/16197-us-sanctions-against-africancountries/ (Accessed: 20 September 2020).
CASE STUDY
Vodacom: threats and opportunities in the business environment
Vodacom is a leading African communications company. It launched in March 1994
and currently provides a wide range of services, including data, mobile and fixed voice,
messaging, financial services, Enterprise IT and converged services to 110 million customers.
Vodacom values communication and believes that communication improves quality of life,
enables efficiency, connects supply and demand, and supports the sharing of information and
data between individuals and businesses. With its roots in South Africa, Vodacom has grown
its mobile network business to include operations in Tanzania, the Democratic Republic of
the Congo (DRC), Mozambique, Lesotho and Kenya.
Vodacom operates in a fast-changing business environment. Both its internal and external
environments change at an unprecedented rate. One of its major concerns is the threat of a
cyber-attack which could result in service interruption and/or the breach of confidential data.
This would have a profoundly negative impact on customers, revenues and reputation, and
potential costs associated with fraud and/or extortion. Vodacom uses world-class security
vendors commissioned to enhance sophisticated attacker detection.
Vodacom’s chairperson made the following statement in the Vodacom Annual Report of 2019:
‘In South Africa, our largest market, macroeconomic uncertainty and a sluggish economy
have dented business, investor and consumer confidence. While we have seen some
encouraging developments at a political and policy level, with Government’s stated
commitment to tackle corruption and stimulate investment, the country still faces some
deep challenges. The recent electricity load-shedding — which had a negative impact on
the national economy and posed particular challenges for our network — was a sobering
reminder of some of the hurdles that lie ahead.’
Vodacom has to survive under unstable economic and market conditions. The mobile
communications industry is often subject to unpredictable and higher direct and indirect
taxes in the countries where Vodacom operates. Other volatile macroeconomic conditions
— such as fluctuating foreign exchange and inflation rates — can weaken consumer and
business spend, reducing revenue and impacting negatively on operating costs and capital
expenditure. The company has to constantly adjust their products and services to continue to
serve customer needs. Consumer spending is furthermore constrained by low wage growth,
➜
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Geopolitical influences furthermore could impact on Vodacom’s vendor strategy. Lack of
supply by key suppliers may negatively impact on operational activities and delivery of
quality of service. Vodacom continues to invest in the upliftment of future Black Economic
Empowerment suppliers. Top management closely monitors the political situations around
their key suppliers.
Technology failure could cause Vodacom major headaches as the company’s customer value
proposition is based on the reliable availability of a high-quality network. A major failure in
critical network or information technology assets — for example, through natural disasters,
insufficient preventative maintenance, or malicious attack — would have a profound impact
on customers, revenues and reputation.
Vodacom is also experiencing intensified competition from a variety of new and existing
technology providers, new market entrants and competitors. The company uses a team
of experts that analyse and provide insight into customer behaviour to better position the
company’s products and services. Vodacom’s ability to remain competitive in the new and
changing market may be negatively affected if the current projects to roll out fibre, digital
services, financial services and converge products is not done successfully and in a timely
manner. Top management has therefore decided to focus on future growth areas that include
fibre, digital services, converged services and financial services.
The business environment in which Vodacom operates is complex and heavily regulated by
the government. A breach of regulatory requirements could expose Vodacom to significant
financial and reputational damage. Vodacom also has a policy of zero-tolerance towards
bribery by any manager or employee.
Source: Vodacom. 2019. Available at: http://www.vodacom-reports.co.za/integrated-reports/ir-2019/
pdf/full-iar-hires.pdf (Accessed: 20 September 2020)
CASE STUDY QUESTIONS
Question 1
Draw a diagram that depicts the micro-, market, and macro- business environments.
Clearly differentiate between the internal and external environments in your diagram.
Question 2
Refine the diagram that you constructed in Question 1 above by subdividing each of the
three business environments into its sub-environments.
Question 3
Based on the information provided in the case study above, list three challenges in
the economic environment that have a direct influence on the long-term profitability
of Vodacom.
Question 4
Write a short report (maximum 100 words) in which you describe the macroenvironment in which Vodacom has to survive.
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Question 5
Based on the information provided in the case study, briefly describe the market
environment in which Vodacom operates.
Question 6
Provide three examples of the ways in which Vodacom’s top management has prepared
the company for changes in the business environment.
MULTIPLE-CHOICE QUESTIONS
Question 1
The business environment comprises the
1. remote
2. industry
3. internal
4. all of the above.
environment(s).
Question 2
The external business environment consists of the
1. macro2. macro- and market
3. macro-, market and micro4. market and task.
environment(s).
Question 3
Refer to the Vodacom case study. Which one of the following statements describes the
macro-environment in which Vodacom has to survive correctly?
1. Vodacom’s managers can control the macro-environment
2. Vodacom’s macro-environment is best described by Porter’s five forces model
3. The macro-environment does not influence Vodacom’s long-term profitability
4. Managers refer to the macro-environment as the PESTIE environment.
Questions 4–6
Which description(s) in column B best describe(s) the environment stated in column A?
Question
Column A
Column B
4.
Micro-
1. A country’s unemployment rate is a variable in this
environment
5.
Market
2. Managers can control this environment
6.
Macro-
3. This environment is a closed environment
4. Porter’s five forces model can be used to determine
profitability in this environment
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Question 7
.
The systems approach to management
1. is the only modern approach to management
2. focuses on the interaction and interdependence between the organisation and the
external environment
3. focuses on the external environment only
4. can only be applied to big corporations.
Question 8
How many of the following describe an organisation’s micro-environment?
■
suppliers
■
competitors
■
a country’s infrastructure
■
the organisation’s strategic plan.
1.
2.
3.
4.
one
two
three
four
Question 9
Which of the following statements are correct?
1. Management must ensure that they have perfect and complete information
regarding the macro-environment
2. Management can be proactive by continuously scanning the business environment
3. Good managers can predict the future correctly
4. All of the above.
Question 10
Access to water will become critical to all types of industry in the future. Water scarcity
environment.
therefore is a variable in the
1. micro2. market
3. task
4. macroPARAGRAPH QUESTIONS
Question 1
Depict diagrammatically and briefly describe the business environment. Your diagram
and description must focus on:
1. The external versus the internal business environments
2. The sub-environments of each of the three business environments.
Question 2
Based on the systems approach to management, explain the importance that the
business environment has for management decision-making.
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Question 3
Compare Taylor’s scientific approach to management and the systems approach to
management in terms of their views regarding the three business environments (macro-,
market and micro-).
Question 4
Explain how Porter’s five forces model can be used to describe the profitability of a
specific industry.
Question 5
Recommend three ways in which management can prepare for change in the business
environment.
ESSAY QUESTION
Write a well-structured report (maximum 200 words) to convince a critic of the systems
approach to management of the value of this approach in today’s business world. Your
report should deal with the following:
1. A description of the systems approach to management
2. The assumptions on which the systems approach to management are based
3. The nature of the modern business environment
4. Reasons why you consider the systems approach to management to be more relevant
to today’s managers than the scientific approaches (such as Taylor’s approach) to
management.
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4
Part
2
Management Principles 7e.indb 83
STRATEGIC PLANNING
PLANNING
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4
STRATEGIC PLANNING
THE
PURPOSE
OF THIS
CHAPTER
This chapter deals with the process of creating a strategic plan for
an organisation. The strategic plan is the most important plan in an
organisation as it guides decision-making at all levels. The objective of
strategic planning is to ensure the long-term survival of the organisation
in a volatile environment. For the organisation to survive in the long
term, management has to focus on the future and choose strategies that
will enable it to prosper in a constantly changing environment. In doing
this, management needs to formulate a vision and a mission statement,
scan the external environments for opportunities and threats, assess
the organisation’s capabilities, formulate long-term goals, and choose a
strategy or strategies that will ensure survival in the changing environment.
This chapter looks at all of the components of a strategic plan.
A sound knowledge of strategic planning is essential for managers
at all levels of the organisation. Strategic planning provides the
guidelines that all managers need in order to enable them to formulate
the plans and goals for their own units, departments, and sections (see
Chapter 5). Strategic planning also relies heavily on top management’s
ability to make sound decisions (see Chapter 6) and to search for relevant
information (see Chapter 7).
LEARNING
OUTCOMES
This chapter will enable learners to:
■
Depict the strategic management process (strategic planning,
strategy implementation and control) diagrammatically
■
Explain what strategic planning encompasses
■
Defend the importance of strategic plans in the hierarchy of
organisational plans
■
Differentiate between the three levels of strategy
■
Explain the process to follow in order to create a strategic plan
■
Explain each component that should be dealt with in a strategic plan
■
Recommend different approaches, tools and techniques that can be
used when formulating a strategic plan
■
Compile a basic strategic plan for an organisation.
KEY
CONCEPTS
Management Principles 7e.indb 85
Balanced scorecard (BSC)
Corporate combinations
■
Corporate governance
■
Decline strategy
■
Differentiation strategy
■
External environmental assessment
■
■
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Financial ratios
Focus strategy
■
Growth strategy
■
Internal assessment
■
Long-term goals
■
Low-cost leadership strategy
■
Mission statement
■
Resource-based view
■
Scenario planning
■
Strategic management
■
Strategic planning
■
Strategy implementation
■
Strategy maps
■
Value-chain approach
■
Vision statement
■
■
4.1 INTRODUCTION
In the fast-changing business environment, all business organisations need to plan
for future changes that may influence their businesses. These changes can originate in
the micro-environment (internal business environment) or in the market or macroenvironments (the two external environments). To ensure that all managers and workers
focus on the same goals, a hierarchy of plans exists to guide decision-making at all levels
of the organisation. At the top of the hierarchy one finds the strategic plan followed by
the tactical and then the operational plans at the lower levels of the planning hierarchy.
The strategic plan provides focus on all other plans in the organisation. It states the
direction that the organisation has chosen for its future as well as its ‘game plan’
(strategy) to compete in the business world. The strategic plan should be built around
the organisation’s unique strengths; it also endeavours to minimise its weaknesses in
order to enable the organisation to compete with other organisations. The strategic plan
also deals with major opportunities and threats that the changing business environment
(see Chapter 3) poses to the organisation.
Management’s priorities for the future can be clearly seen in an organisation’s
strategic planning document. The strategic plan of Toyota, for example, has clear
guidelines regarding the company’s focus on people, processes, price, products and
profit. In their plan, one will find information on Toyota’s strategies regarding future
eco-friendly cars and their plans to expand into emerging markets in the future. The
plan also clearly states how Toyota will go about retaining its leadership in the hybridcar market. Renault’s strategic plan focuses on their company’s entry into emerging
markets such as Brazil and Russia.1
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What strategic planning is about
Toyota focuses on specific areas to ensure that they are prepared for the future. Figure 4.1
below highlights the five focus areas, namely, people, processes, products, profit and price.
The company’s strategic plan clearly states what their vision is regarding all five of these
focus areas.
e
opl
Pe
Reform
operations
Pro
fit
Leadership
Product
Profit
achievement
Price
Process
Overhaul business
model and support
services
Sales efficiency
and growth
Desirable products
Figure 4.1 Toyota’s five focus areas
As stated earlier, a sound knowledge of what strategic plans encompass is essential
for managers at all levels of the organisation in order to ensure that each manager
aligns his or her department’s or section’s plans with the overall strategic plan of the
organisation. Managers and workers in Toyota, for example, know that the company’s
focus is on five areas, namely the five Ps as seen in Figure 4.1 above. All managers’ and
workers’ performance must therefore be aligned and will be measured against these
five areas.
But what is strategic planning and how important is it to the contemporary
organisation? A meaningful answer to this question requires us to consider how the
world has changed and how management has had to cope with these changes (see
Chapter 3). Currently, the Coronavirus is a reality that has changed the way businesses
operate virtually overnight. Restaurants, for example, had to change their strategies to
move away from serving customers in an enclosed space to delivering take-away food.
Also, as a result of the Coronavirus residential universities have had to change their way
of teaching to online teaching. Strategic management is about change, and planning to
survive — and thrive — amidst these kinds of change.
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The first half of the twentieth century, especially the period before World War II,
was characterised by a steady business environment in which inflation was virtually
unknown, interest rates remained steady, urbanisation was not seen as a viable alternative
to farming, and the business environment was an unexplored field. During this era
there was no shortage of natural resources and the rate of technological development
was much slower than it is today. There were few unforeseen changes in the business
environment and little effort was required to keep up with the pace of change.
However, this situation has changed drastically since the end of World War II.
Today’s business environment is more turbulent than ever before. In fact, one can
describe the environment as revolutionary — as opposed to evolutionary. Evolutionary
environments are predictable; revolutionary environments change at such a rate that
they cannot be predicted. The Coronavirus has most certainly revolutionised the way
businesses operate and managers and workers interact.
One of the ‘culprits’ that has caused — and is still causing — revolutionary change,
is technology. Technology, especially the advances in communication and information
technology, has changed the face and the pace of business. The Internet has catapulted
society into the information and knowledge era. In this era, South African and other
African organisations have to compete in the borderless world against established
competitors such as the USA, a united Europe, a highly competitive Finland and New
Zealand. In formulating their strategic plans, South African companies such as TFG
(The Foschini Group) comprising amongst other business units: American Swiss,
@home, Exact and Markham, now have to compete with international players that
make their products available to anyone, anytime, and anywhere in the world through
the Internet.
Strategic planning creates and projects. It is concerned not with things as they are, but with
things as they might be and ought to be.
Source: Adapted from Rand, A. 1943. The fountainhead. London: Penguin Classics, p vii.
Managers need a tool to help them ensure that the organisation survives in this changing
environment. One such tool is strategic planning.
4.2 STRATEGIC PLANNING: WHAT IT ENCOMPASSES
Simplistically stated, ‘strategic planning’ refers to the process of proactively aligning
the organisation (internal environment) with threats and opportunities caused by
changes in the external environment. The focus of strategic planning is depicted in
Figure 4.2 below.
Past
Present
Future
Figure 4.2 The focus of strategic planning
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89
The main focus of strategic planning is the changing future — not the present or the
past. Strategists at a coal mine, for example, need to ask themselves: ‘What does coal as
an energy source in the future hold for us?’ They may come up with an answer that is
profoundly different from their current reality. They have to plan strategically to ensure
that the coal mine can thrive in a society that has become increasingly eco-sensitive.
Coal, for example, is not a clean energy source. Mining, transport, storage and burning
are fraught with mess as well as danger. Furthermore, deep mines put workers in
intolerably filthy and dangerous conditions. Opencast mining, now the source of much
of the world’s coal, destroys topsoil and gobbles water. Transporting coal brings a host
of environmental problems. At the same time, society is demanding cleaner energy and
less pollution.
Should a coal mining company consider the future to be the starting point in their
planning (that means, strategic planning), they would have to ask themselves: ‘What
does the future hold for a coal mine? What substitutes may be discovered that may
replace coal as an energy source? What if current energy supplies do not meet our
demand to mine coal? What if a new international competitor enters our market and
poaches our major clients?’
It is obviously not only coal mining companies that face a different future. A small
takeaway outlet may face customers who increasingly want healthy food, grown
organically, packaged in bio-degradable packaging and delivered to their doorstep.
Hotels, guest houses and bed and breakfasts face the new way of accommodation,
namely Airbnb.
Because strategic planning deals with an environment that is constantly changing, an
organisation needs to be flexible to adapt to these changes. Strategic planning therefore:
■
Is an ongoing activity (a process) as the business environment continuously
changes
■
Requires well-developed conceptual skills and is performed mainly by top
management
■
Focuses on the organisation as a whole and not only on specific departments in the
organisation
■
Is future-oriented
■
Is concerned with the organisation’s vision, mission, long-term goals, and strategies
■
Aims at integrating all management functions
■
Focuses on opportunities that may be exploited, or threats that may be dealt with,
through the application of the organisation’s resources
■
Has to comply with corporate governance principles.
The discussion of strategic planning in this chapter is based on Figure 4.3 below. It is
important to emphasise again that strategic planning is performed by top management
with input from managers at other levels. Tactical planning and operational planning are
performed by middle and lower management.
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management principles
Vision
Mission
Capabilities
Opportunities
and threats
Strategic goals
Strategy
Implement through: functional tactics, annual objectives, policies
Institutionalise through: structure, leadership and culture, reward system,
training, resource allocation
Strategic control
Figure 4.3 The strategic management process (planning, implementation and control)
A major implication of the above is that one group of managers (top management)
formulates the strategic plan, whereas other groups of managers (middle and lower
management) have to put these plans into action. Top management therefore has to
make sure that the plans are clear and understandable to those managers who have to
implement the strategic plans in their departments or sections.
Note that the implementation and control of the strategies do not form part
of strategic planning. They have been depicted here to complete the strategic
management process.
The corporate strategy (also called the ‘grand strategy’) is the course charted for an
organisation as a whole and specifies which set of businesses the organisation should
be in and in which markets it intends to compete. The City Lodge Hotel Group (see
Figure 4.5 below) decided at corporate level to focus on four businesses, namely,
Courtyard, City Lodge, Town Lodge and Road Lodge. The set of decisions about which
new businesses to enter, which businesses to buy, and possibly which businesses to sell,
represent The City Lodge Hotel Group’s corporate strategy. In short, the corporate
strategy focuses on the organisation’s scope of activities and resource deployment.
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91
etc
Operations
Purchasing
Finance
Marketing
PROPERTY (PTY) LTD
Figure 4.4 The levels of strategy: single-business organisations
Corporate
strategy
THE CITY LODGE FAMILY OF HOTELS
Business
strategy
Functional
strategy
Marketing
Finance
Business
development
Others
Figure 4.5 The levels of strategy: multiple-business organisations
In a nutshell
Strategies are formulated at:
■
■
■
Corporate level
Business level
Functional level.
Business strategy determines how best to compete in a particular industry or market.
It is concerned with the strategies for each unit or business within a corporation. The
City Lodge Hotel Group has a unique business strategy for each of its four businesses
as they compete in different markets. Courtyard hotels focus on the upmarket traveller,
whereas the Road Lodge hotels focus on business travellers on a tight budget. The
business strategies for these businesses differ in order to gain a specific advantage in the
markets in which they operate. Although each business has its own strategy, the focus of
all of these strategies should be on the achievement of the corporate goals.
Functional-level strategies are derived from business-level strategies. A function is
a department in which people have the same types of skill or use the same resources
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to perform their jobs. Town Lodge hotels will, for example, have marketing, finance,
human resources, and other functional strategies. Each functional-level strategy states
the goals that functional managers propose to pursue to help the business attain its goals.
The marketing strategy for Town Lodge hotels could be to increase its market share
in the two-star accommodation business or to ensure that they retain their leadership
position in this market segment.
Ensuring consistency of strategies across all three levels is an important issue in
strategic planning. Functional strategies must be aligned with the business strategies;
the business strategies must be aligned with the corporate strategies.
4.3 THE STRATEGIC PLANNING PROCESS
Although each of the components of the strategic planning process is explained
separately in the sections that follow, we should always remember that these components
are interdependent. For example, when formulating the mission statement, top
management needs information on the internal and external environments. A realistic
mission statement should take into account the capabilities (internal environment) of
the organisation, as well as the threats and the opportunities in the external environment.
4.3.1 The vision
For top management to lead the organisation to success in the future, it needs an
inspiring vision that everybody in the organisation — and the external stakeholders
— shares in and is excited about.2 Ethiopian Airlines has as its vision ‘to be the most
competitive and leading aviation group in Africa by providing safe, market-driven and
customer-focused passenger and Cargo Transport, Aviation Training, Flight Catering,
Maintenance Repair and Overhaul (MRO), Ground Services, Domestic and regional
services by 2025’. This vision shows that Ethiopian Airlines is already preparing for
2025.3 The company’s vision pushes managers and workers within the company to
look outside of themselves to see not what they currently are but what they could be
in the future. The vision should provide a clear sense of what the organisation hopes to
become — an anchor for decision-making in the organisation. The vision is the end, not
the means of getting to the end.
The success of a vision statement depends largely on how well it is shared with the
organisation’s stakeholders. These stakeholders include the organisation’s shareholders,
its employees, customers, suppliers, the community in which it operates, and the
government. These stakeholders all have vested interests in the future of the organisation.
Employees, for example, want to know that the organisation can provide them with job
security — now and in the future, shareholders want to know that their investments
will grow over the long term, customers want to know that they have bought a quality
product or service from a reputable organisation, and so on.
A clear vision is important to an organisation for the following reasons:4
■
It portrays the dream that the organisation has for the future
■
It promotes change
■
It provides the basis for a strategic plan
■
It helps to keep decision-making in context
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■
■
93
It should motivate managers and workers and focus the recruitment of talent
It should lead to job satisfaction, commitment, loyalty, pride, esprit de corps, clarity
about the organisation’s values and improved productivity.
Some vision statements are written in conversational prose; some are crisply outlined in
point form; some are vague and abstract on some topics but clear and precise on others.
There is no template for the style of a vision statement.
4.3.2 The mission statement
The vision statement reflects the perfect future; the dream that the organisation has
for itself. This dream is stated in Ethiopian Airlines’ vision statement (see Section
4.3.1). This vision statement shows that a vision statement should not be specific. In
the strategic plan of Ethiopian Airlines, we therefore find more specific information
regarding the future of the Airlines in their mission statement.
Ethiopian Airlines mission statement
■
■
■
To become the leading aviation group in Africa by providing safe and reliable passenger
and cargo transport, aviation training, flight catering, MRO and ground services whose
quality and price value proposition is always better than its competitors
To ensure being an airline of choice to its customers, employer of choice to its employees
and an investment of choice to its owner
To contribute positively to the socio-economic development of Ethiopia in particular
and the countries where it operates in general, by undertaking its corporate social
responsibilities and providing vital global air connectivity.
Value statement
■
■
■
■
As an airline, safety is our first priority
EA is a high performance and learning organisation
We are an equal opportunity employer
We treat internal and external customers the way we would want to be treated.
Source: Ethiopian Airlines. nd. Available at: http://www.ethiopianairlines.com/corporate/strategicplan (Accessed: 23 March 2020).
The vision statement guides the formulation of the mission statement. The mission
statement aligns the organisation with its dream in terms of its:
1. Products
2. Market
3. Technology.
These three form the core components of any mission statement. Management will
typically ask the following questions when formulating a mission statement:
■
What is (are) our business(es) (in other words, our product or service)?
■
Who is our client (our market)?
■
How will we provide this product or service to the client (technology)?
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The answers to these three questions should clearly set the organisation apart from
similar organisations. It should state what makes the organisation unique and therefore
provide the organisation with a competitive edge. A mission statement should create
a focus for all managers and employees in the organisation. Because the mission
statement will state management’s priorities and focus areas, it will also serve as the
basis for resource allocation. Based on the mission statement of Ethiopian Airlines, one
can expect that top management will allocate the majority of resources toward safety
issues, reliability of the service that they provide, meeting stakeholders’ expectations
(employees, customers, suppliers, investors, the community). The mission statement
of Ethiopian Airlines also clearly states that they want to be profitable in the long term
(‘investor of choice’).
In addition to the core components that should be dealt with in a mission statement,
organisations should also address the following components in their mission statement
to clarify top management’s intent:5
■
Concern for survival/growth/profitability (the organisation’s concern for financial
soundness)
■
Philosophy (the values, ethics, and beliefs of the organisation)
■
Public image (social responsibility)
■
Employees and all other stakeholders
■
Distinctive competence (how is the organisation different from or better than its
competitors?).
These components should be adjusted to reflect the important issues of a specific
industry or organisation. For example, a mining company should also refer to SHERQ
(safety, health, environment, risk, quality) in their mission statement. A software
development company may want to adjust its mission statement to refer to innovation
as a key focus area.
Figure 4.6 below depicts clearly how a mission statement influences all managers and
workers in an organisation. First, top management must live the mission statement so
that other managers and workers can see that top management focuses their decisions
on realising the mission statement. Second, the key performance areas (KPAs) for the
whole organisation must be stated in the mission statement. The KPAs are clearly stated in
Ethiopian Airlines’ mission statement. Some of these KPAs are safety, reliability, quality
and price, stakeholders’ expectations, and social development. Third, top management
must ensure buy-in from managers at all levels of the organisation. However, the ultimate
responsibility for the mission statement lies with top management. Fourth, the KPAs
referred to in the mission statement must be cascaded down all the way to each manager
and employee’s individual performance contract. Finally, if each individual achieves his
or her goals, the organisation will achieve its goals.
In today’s diverse work environment, many organisations have a specific section in
their mission statements that deals with the values of the organisation. This ensures that
all managers and employees know what behaviour is acceptable in the organisation —
and what is unacceptable.
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Top management to create the mission
statement
State key performance areas (KPAs)
Get buy-in from everyone in the
organisation
Base individual’s performance contracts
on KPAs
Figure 4.6 From overall mission statement to individual KPAs
4.3.3 Assessing the internal environment
We stated that the vision is management’s dream of the perfect future for the organisation.
The mission statement, however, states what the organisation must be to align itself
with that vision. To ensure that the mission statement is realistic, management must:
■
Evaluate the organisation’s (internal) capabilities
■
Evaluate the opportunities and threats posed by
the changing external environment.
Identify
The assessment of the internal capabilities
(strengths and weaknesses) of an organisation gives
management a clear picture of unique strengths that
the organisation may possess which they can use to
outwit their competitors. The internal assessment
also highlights the weaknesses that the organisation
may have that competitors may exploit. The end result
of an internal environmental assessment is called the
organisational profile. This profile should depict the
strategically important strengths and weaknesses
on which the organisation should base its strategy.
Figure 4.7 illustrates internal analysis as a three-step
process. By following these steps, management is able
to identify those factors that:
1. Give the organisation a competitive advantage
2. Meet the basic business requirements
3. Make it vulnerable to the realities of the volatile
business environment.
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strategic
internal factors
Evaluate
strategic internal
factors
Develop input for
the strategic
planning process
Figure 4.7 Steps in
the development of an
organisational profile
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Step 1: Identify strategic internal factors
In Step 1, managers identify and examine key aspects of the organisation’s basic
capabilities, limitations, and characteristics — those internal capabilities that are most
critical to success in a particular industry or competitive area. Factors strategic to
pathologists would be speed, safety and reliability of transport of blood specimen from
the patient to the pathologist. For a small e-commerce business their website is a critical
strategic internal factor. A grocery retailer must focus on the range of their products and
stock management.
Strategic internal factors can also vary between organisations in the same industry.
For example, the strategies of Edgars stores and a very exclusive women’s boutique would
be based on different internal strengths: Edgars on its strength in mass marketing, credit
facilities, extensive advertising, and specialised managerial skills; the exclusive women’s
boutique on relationship building, one-of-a-kind items, image, and customer loyalty.
But how do managers decide which factors are truly strategic for the survival of
their specific business organisation? To help managers with this challenging task, the
following approaches have been identified.
The evaluation of functional segments
The functional approach to internal assessment concentrates on assessing the
capabilities of the functional departments in an organisation. This would mean making
a thorough analysis of its marketing, financial, production, human resources, research
and development, and external relations functions. In Table 4.1 below, the focus is on
general management as one of the key internal factors in an organisation, and the factors
listed have been identified as potential strengths or weaknesses. This table serves as an
illustration of how one of the segments of the organisation has been assessed in terms of
those factors which are critical to its success.
According to Table 4.1, the major strengths of this organisation are its clear and
realistic mission statement, its policies and procedures, its integration with other
systems, and its reaction to external changes. Weaknesses in the general management
function are the organisational structure and planning systems.
The value-chain approach
A second approach to identifying an organisation’s strengths and weaknesses (internal
assessment) is called the value-chain approach. The value-chain approach can be used
in any type of business to assess its strengths and weaknesses.
The value chain looks at an organisation as a chain of activities that transforms inputs
into outputs that customers value.
The value chain distinguishes between two types of activity in an organisation:
1. Primary activities
2. Secondary activities.
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Table 4.1 The development of an organisational profile
Key internal factor
Potential strengths and weaknesses
++
1. Clear and realistic mission statement
+
–
++
2. Organisation’s image
+
3. Planning systems
–
4. Organisational structure
–
5. Policies and procedures
––
++
6. Effectiveness and utilisation of control systems
+
7. Alignment with organisational culture
+
8. Innovative decision-making
+
9. Integration with other systems
++
10. Reaction to external changes
++
Figure 4.8 below depicts a typical value chain. The primary activities are those
involved in the physical production (or delivery) of the product (or service). In the
case of a coffee shop, these activities will relate to everything involved in the actual
offering of the coffee to the customers. This would mean that coffee beans have to be
sourced and bought from suppliers. Then they must be stored in a storeroom at the right
temperature. The coffee must then be produced when a customer orders a cup of coffee.
The coffee shop can then launch a new type of coffee by offering customers a sample of
the coffee beans to take home. Finally, the owner of the coffee shop may issue loyalty
cards to customers to make sure that they return to the coffee shop.
The secondary activities provide the platform that allows the primary activities
(actual offering of a cup of coffee) to take place. These include infrastructure, human
resource management, research and development, technology, systems, and procurement.
Infrastructure refers to all departments such as management, finance, legal, marketing
and so on which are required to keep the coffee shop operational. The coffee shop also
needs human resources (a manager, barista, waiters and other staff) and will have to find
these resources, train them and pay them salaries and other benefits. Constant research
and development will be necessary to ensure that the coffee shop offers the latest in
coffee trends. The coffee shop will have to use technology not only to ensure consistency
in their products and service, but customers may also want to access Wi-fi while in the
shop. Systems such as the ordering system must ensure that customers get their right
cup of coffee without delay. Procurement involves procuring the raw material for the
final product. The owners of the coffee shop may appoint agents to travel to Asia, Latin
America and Africa for the procurement of high-grade coffee beans.
The value-chain approach surveys the costs across the series of activities that the
organisation performs in order to determine where the organisation has low-cost
advantages or high-cost disadvantages. In the case of the coffee shop the owners may
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General administration
M
Human resource management
gin
ar
Research and development
Technology and systems
Procurement
Outbound
logistics
Marketing
and sales
After-sales
service
gin
Operations
ar
Inbound
logistics
M
Secondary activities
have a high-cost disadvantage as far as obtaining the coffee beans is concerned due to
the small amount of coffee that they order. However, they may have a low-cost advantage
in terms of marketing as most of their marketing is through word-of-mouth.
Low cost does not have to be the only yardstick that can be used to determine
an organisation’s strengths and weaknesses if the value-chain approach is used.
Differentiation and response time can also be used as measurements to analyse strengths
and weaknesses.
Primary activities
Figure 4.8 The value-chain approach to internal assessment
The resource-based view (RBV) of an organisation
A third approach to assessing an organisation’s strengths and weaknesses is called the
resource-based view (RBV) of an organisation. The underlying assumption in this
approach to internal assessment is that organisations differ in fundamental ways because
each organisation possesses a unique mixture of resources. For example, Pfizer is a
pharmaceutical company that is known for its research capabilities. Pfizer’s purpose is
to innovate to bring therapies that significantly improve patients’ lives. Research and
development are at the heart of fulfilling Pfizer’s purpose. It has vast resources for researching
new medicines. Another contender in the pharmaceutical industry is Aspen, a supplier of
generic pharmaceuticals. Aspen is the ninth largest generic company in the world.6 Aspen’s
resources are profoundly different from those that give Pfizer its competitive advantage.
Aspen’s unique resources include its production capabilities that can be used for a wide
variety of product types. It has manufacturing sites on four continents. However, it does
not have major research capabilities as it provides generic medicines.
According to the resource-based view of an organisation, it is more feasible to
exploit external opportunities using existing resources in a new way rather than trying
to acquire new skills for each different opportunity or threat.7 There are three types of
resource according to the resource-based view of an organisation:
1. Tangible assets are those resources found on an organisation’s balance sheet (such
as property and warehouses).
2. Intangible assets are assets that one cannot see or touch but are critical to a
creating competitive advantage for an organisation (such as brand names, patents,
knowledge of the market).
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3. Organisational capabilities refer to the ability of an organisation to turn inputs into
outputs (such as an organisation’s capability to transform its raw material into final
products faster or cheaper than its competitors).
For a resource to be valuable to an organisation – therefore a strength – it must be:
■
Superior to the resources of competitors (for
example, a better location)
■
Scarce so that competitors struggle to get hold of
the resource (an example would be access to safe
and affordable water for companies in the coal
Strategic/
mining industry)
competitive
■
Difficult to imitate (anthracite, for
example, is of a much higher quality
than other types of coal and its
Base
properties cannot be imitated)8
■
Under the control of management
■
Slow to depreciate
Peripheral
■
Difficult to substitute
(water, for example, has no
Figure 4.9 The hierarchy of resources
substitute).
Figure 4.9 depicts as a hierarchy the types of resource (tangible and intangible) or
capabilities that an organisation possesses. Strategic resources or capabilities are the
unique resources or capabilities of an organisation that cannot easily be emulated
by competitors.
The three most important resources to business organisations
The World Economic Forum worked with partners at Stanford University and Ernst & Young
and conducted a global survey of more than 1 000 leaders at entrepreneurial companies to
learn what organisations need to be successful.
Three resources were consistently ranked above all others:
1. Access to markets
2. The supply of human capital
3. Access to funding.
Source: Endeavour Insight. 2014. Entrepreneurship: Ecosystems Insight. Available at: http://www.
ecosysteminsights.org/the-three-most-important-succeed/ (Accessed: 23 March 2020).
Strategic resources or capabilities should be nurtured and continuously improved to
ensure that they remain strategic. Base resources are those resources that an organisation
cannot operate without. To Toyota these would be its plant and equipment. Peripheral
resources are necessary resources but can easily be outsourced. Toyota can easily
outsource resources involved in the recruitment of employees, the selection of the
best applicant for a job, infrastructure as a service, website design, administration and
many more.
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The product/market evolution
A fourth approach to internal assessment is the product/market evolution approach.
The requirements for success in an organisation’s product/market relationship changes
over time. Management can therefore apply the framework of a product life cycle to
identify strengths and weaknesses in the internal environment as an ongoing exercise.
Products and services go through four phases: the introductory phase is followed
by the growth phase, then the maturity phase and finally, the decline phase. Based on
this concept, key success factors during the introductory phase of the product’s life
cycle would revolve around marketing capabilities to create awareness of the product.
An example would be 3D televisions. 3D may have been around for a few decades, but
only after considerable investment in advertising from broadcasters and technology
companies are 3D televisions available for the home. Blu-ray player equipment is
currently enjoying the steady increase in sales that is typical of the growth stage.
Manufacturers of DVD players and the equipment needed to play them have established
a strong market share. However, they still have to deal with the challenges of other
technologies. This is characteristic of the maturity stage. Video recorders are currently
in the decline stage as it has become easier and cheaper for consumers to switch to other
more modern formats.9
Using financial analysis
Financial analysis is a fifth approach to assessing the strengths and weaknesses of an
organisation. However, it should be kept in mind that financial analysis provides an
organisation with a picture of its strengths and weaknesses that is based on past data.
Organisations often use the balance sheet and income statement in their financial
analyses to determine their strengths and weaknesses. The key financial ratios that are
used are:
■
Liquidity. Liquidity ratios refer to an organisation’s ability to meet its short-term
obligations. The optimum ratio differs from industry to industry.
■
Leverage. Leverage ratios look at the source of the organisation’s capital, such
as its owners or outside creditors. It could measure the percentage of total funds
provided by creditors against the percentage provided by owners.
■
Activity. Activity ratios measure how well the organisation is using its resources.
An important ratio for companies such as Edcon would be to determine the average
length of time it takes to collect on credit sales.
■
Profitability. Profitability ratios measure how well an organisation is managed.
An organisation can measure its gross profit margin, that is, the total profit margin after
the cost of sales has been deducted from the income they have generated. For example,
the gross profit percentage of 36 per cent is realistic for a hardware store; for a beverage
manufacturer a gross profit percentage of 57 per cent is achievable.10 Organisations in
these industries can measure themselves against these yardsticks to determine whether
their sales and cost of sales are weaknesses or strengths.
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Five approaches to determining an organisation’s strengths and weaknesses (internal
assessment) are:
1. Functional approach
2. Value-chain approach
3. Resource-based view
4. Product/market evolution
5. Financial ratios.
Step 2: Evaluate strategic internal factors
Once the strategic internal factors have been identified, the next issue that arises is what
are the potential strengths and weaknesses of the organisation? A factor is considered
a strength if it is a competency or a competitive advantage for an organisation. For
example, Rolls Royce’s image and quality are two distinct competencies for that
organisation and these competencies should be exploited to the full. A weakness, on the
other hand, is something that an organisation does poorly. Examples of weaknesses for a
car manufacturer include a lack of management vision, the poor image of the cars, fuelinefficiency, outdated designs, a volatile workforce. Classifying something as a strength
or weakness is not a subjective exercise. Management can use one, or a combination, of
the following to identify their organisation’s strengths and weaknesses:
■
A comparison with the organisation’s performance in the past
■
A comparison with competitors’ performance
■
A comparison with industry ratios
■
Benchmarking.
Many managers start their planning efforts by comparing their current results with the
organisation’s previous years’ results. A major problem of this very popular approach,
however, is that managers may compare their current performance to their own very
poor results of the past. Any improvement on the poor results may then wrongly be
considered a strength. However, if the factor was to be compared with an industry
standard or yardstick, it might in fact be a weakness.
Comparing the organisation’s capabilities with those of major competitors is a
second approach that managers might use to evaluate the organisation’s strategic
internal factors. Road Lodge, the one-star lodge, can compare its internal factors to
that of Formula 1 hotels to determine its strengths and weaknesses. Road Lodge will
compare itself in terms of factors such as occupancy rate of its hotel rooms, customer
satisfaction ratings and number of re-bookings by previous customers.
Determinants of success differ from industry to industry. Each industry has its
own ratios that measure success. In the hotel and tourism industry occupancy rates
of hotel rooms are essential for survival in the industry. The success of a university
or training institution is measured in terms of the percentage of graduates finding a
relevant job after graduation. In the restaurant business, key determinants of success
include cost control, meeting health and safety regulations, cash flow and the number of
return customers.
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Occupancy rates in the hotel industry
PwC’s 5th edition of the ‘Hospitality Outlook: 2015 – 2019’ stated that in the year 2019 the
overall occupancy rate for hotels across all sectors in South Africa continued to increase,
rising to an estimated 58.3% from 54.4% in 2014. Five-star hotels achieved a high of 80%
occupancy in 2019.
Source: PwC. nd. Available at: https://www.pwc.co.za/en/press-room/hotel-news.html (Accessed: 20
September 2020).
The five-star Belmond Mount Nelson Hotel in Cape Town can now use the occupancy
rate yardstick to determine whether this strategic factor is a strength or weakness to the
hotel. In other words, is the Belmond Mount Nelson Hotel performing better (strength)
or worse (weakness) than its competitors in terms of occupation of hotel rooms?
Benchmarking is another approach that can be used to identify an organisation’s
strengths and weaknesses. Benchmarking is the process of measuring an organisation’s
internal processes and identifying, understanding and adapting it to be the best in its
class. Benchmarks do not necessarily come from organisations in the same industry; it
can be set by organisations in other industries. An airline may want to improve on the
time that it takes to do routine maintenance on aircraft between flights, such as refuelling,
cleaning and tyre checks. Indy 500 racing team pit crews have a similar maintenance
process. They also have similar requirements, namely to get their vehicles back on the
track as quickly and as safely as possible. The pit crews’ maintenance turnaround times
can be used as a benchmark by the airlines company to reduce the time between flights.
Determining the strengths and weaknesses of an organisation is not a subjective
exercise. Yardsticks like the ones previously mentioned should be used to identify the
organisation’s capabilities.
These yardsticks are:
■
■
■
■
The organisation itself (its previous performance)
Competitors
Industry ratios
Benchmarks.
Although the identification (Step 1) and the evaluation (Step 2) of key internal factors
have been discussed as two separate steps, it should be stressed that, in practice, they
are not differentiated.
Step 3: Develop input for the strategic planning process
The results of the second step could be applied to determine those internal factors that:
■
Provide an organisation with an edge over its competitors — factors around which
to build the organisation’s strategy
■
Are important capabilities for the organisation to have but are typical of every
competitor in the industry
■
Are currently weaknesses in the organisation — managers should avoid strategies
that rely on those key vulnerabilities.
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The results obtained in this final step in the internal analysis process serve as inputs into
the strategic planning process.
In the next section, we discuss a further input into the strategic planning process,
namely the assessment of the external environment (macro- and market environments).
4.3.4 The external environment
Chapter 3 dealt in great detail with the organisation and the environment in which it
operates, therefore the focus in this section will be on how to identify key variables in
the external environment that can cause the organisation to thrive (opportunities) or
pose major threats to the organisation’s survival. Since organisations do not operate in
a vacuum, they should constantly be aware of key variables (forces) in their external
environment that may change. These forces may be in the macro-environment and/or
the market environment. Management should also be on the lookout for new trends that
may develop in the business environment as they will have to prepare the organisation
for these changes.
‘It is not the strongest nor most intelligent of the species that survive: it is the one most
adaptable to change.’ (Charles Darwin)
The same can be said of the organisation in the constantly changing business environment.
The macro-environment includes forces that originate beyond any single organisation’s
immediate environment. These forces constantly change. This uncontrollable, remote
environment is composed of the political, economic, social, technological, international
and ecological environments, often called the PESTIE environment (see Chapter 3).
When assessing the economic environment, managers should analyse factors such
as the stage of the economic cycle, inflation and interest rates, and unemployment
levels. An assessment of the political environment should address a possible change
in government, changes in tax laws, protection laws, special incentives, and other
political issues, such as the nationalisation of mines. The societal environment includes
factors such as attitudes towards the health of workers, quality of life, life expectancy,
the population growth, the increasing/decreasing gap between the rich and poor,
urbanisation and the career expectations of the population.
The market environment is also constantly changing. Market environmental factors
include: competitors, customers, suppliers, potential entrants, and substitute products
(see Porter’s five forces model in Chapter 3). Management should identify any trends
that may pose a threat or opportunity to the organisation in the future.
An organisation’s survival depends to a large degree on the ability of management
to anticipate trends and/or changes in the external business environment (macro- and
market) and to prepare in advance for these changes. It is therefore necessary to predict
the type of environment that the organisation will face in the future. In this regard, the
steps illustrated in Figure 4.10 below are recommended to ensure that the organisation
is proactive in terms of possible changes — and not merely reactive.
The selection of critical environmental variables is usually a responsibility of
top management. Time and money constraints obviously preclude the forecasting of
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all possible variables in the external environment. The most important variables that
should be forecast are those that drive an industry. For example, the birth rate of the
population is significant for manufacturers of educational toys for children. The birth
rate of the population in turn is greatly affected by variables such as the educational level
of parents and the lifestyles of the population.
The changing face of competition
Until very recently, competition was visible and direct. Car manufacturers competed with
other car manufacturers, banks competed with other banks and travel agents had to outwit
other travel agents. In most cases, competition was benign, giving an organisation ample
opportunity to respond and recover to competitors’ new strategies.
However, cross-industry competitors are powered by technology; they can come from
anywhere. Consider, for example, the following industries:
■
■
■
Banking: M-Pesa, a mobile phone-based money transfer service has become a dominant
way of transferring funds in countries such as Kenya. It is giving traditional bricks-andmortar banking institutions a serious run for their money.
Taxi business: This industry is facing tough competition from Uber. Uber is an excellent
example of the on-demand economy, making simple promises: reliable and affordable
transportation at the push of a button.
Male grooming: Gillette has established global dominance in the men’s shaving
market by investing heavily in research and development and innovation. Today it finds
a challenge in the form of a global fashion trend that has young men sporting stubble or
maintaining a beard.
Source: Founding Fuel. 2015. Available at: https://www.foundingfuel.com/column/new-rules-ofbusiness/the-changing-face-of-competition-that-can-knock-you-down/ (Accessed: 23 March 2020).
Many organisations find that environmental forecasting is beyond their capabilities.
They therefore obtain basic forecasts from sources such as government agencies and
professional research firms. Important South African sources of information for
forecasting include the Bureau of Market Research at the University of South Africa,
Statistics South Africa, the Bureau for Financial Analysis at the University of Pretoria,
and the Institute for Futures Research at the University of Stellenbosch.
Publications such as the Financial Mail, Finance Week, South African Journal of
Business Leadership, and Business Day also provide useful information. It is important
to note that the ultimate responsibility for the evaluation and interpretation of the
information supplied by these institutions and publications lies with the organisation
and not the forecasters.
If an organisation is capable of gathering primary data, a number of quantitative and
qualitative forecasting techniques can be applied. The choice of technique depends on
considerations such as the nature of the forecast decision, the usefulness and accuracy
of available information, the accuracy required, the time available, and the cost and
importance of the forecast. (Popular approaches to forecasting are discussed in Chapter 5.)
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The next step in forecasting environmental
variables is the development of an environmental
profile. An environmental profile is a summary of the
key environmental factors evaluated for their potential
impact on the organisation. An environmental profile
for an organisation manufacturing roof trusses for
low-cost housing will clearly show ‘interest rates’ as
an environmental factor with huge impact on the
business.
The final step in environmental forecasting is to
monitor the critical aspects of management forecasts.
These aspects include those referred to in Steps 1 to 4 in
Figure 4.10.
Once an organisation is thoroughly aware of its
own strengths and weaknesses (internal assessment)
and of the opportunities and threats in the external
environment, it is in a position to identify and
evaluate realistic strategies that are in line with the
organisation’s mission and long-term goals.
However, the environment has become increasingly unpredictable. Managers nowadays have to imagine
alternative futures and prepare the organisation for
any of these possibilities.
Scenario planning is a tool used for creating these
futures. It came into prominence in the 1970s, when it
was credited with helping Royal Dutch/Shell to cope
with uncertainties in the oil industry. Royal Dutch/
Shell used scenario planning as an opportunitymanagement tool.
105
Select critical
environmental
variables
Select sources
of information
Evaluate
forecasting
techniques
Develop an
environmental
profile
Monitor
forecasts
Figure 4.10 Steps in
environmental forecasting
Scenarios can be built as follows:11
■
Determine which forces will make or break the organisation in the next few years.
In the building industry, one such make-or-break variable is a rise in interest rates.
■
Put together a scenario-building team and information-gathering network
that focuses on forces that seem most likely to have a significant impact on the
organisation.
■
Sketch ‘what if ’ scenarios that deal with the most influential external forces in the
environment. Possible scenarios for an organisation in the building industry will
deal with: what if the interest rate increases? What if the interest rate remains the
same, what if the interest rate drops? Limit the number of scenarios to three, that is,
the worst case, a status quo world, and a fundamentally different but better world.
■
Assess the implications of each scenario.
■
Identify signs which could indicate that a particular scenario is materialising.
■
Reassess your organisation vision in the light of the scenarios.
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Scenario planning is based on the assumption that you cannot control or predict the
future. It helps management envision equally plausible ways in which the future might
unfold and chart appropriate responses.
4.3.5 Translating the mission into long-term goals
The assessment of both the external and internal environments will indicate to
management whether the mission statement is realistic. This statement has to reflect
reality as it is the document that guides decision-making in the organisation. It
also serves as the basis for performance contracting for managers at all levels in the
organisation as well as for workers. However, the mission statement is a broad statement
indicating the organisation’s intent. It often contains words such as ‘most cost-effective
producer of ’ or ‘to be the leader’. ‘Most cost-effective’ and ‘airline of choice’ are vague
terms that lend themselves to different interpretations. The mission statement therefore
still needs to be translated into measurable, long-term goals to ensure that it is clearly
understood by everyone in the organisation. The balanced scorecard (BSC) is used by
many organisations in South Africa, including Edcon, Kumba Resources, universities
and government departments.
Kaplan and Norton12 state ‘what you measure is what you get’. An organisation’s
measurement system affects the behaviours of managers and employees. BSC includes
financial measures to measure profitability, liquidity, cost and any other measures
that focus on financial performance. Kaplan and Norton have added three additional
dimensions to measure namely:
1. Operational measures on customer satisfaction
2. Internal processes
3. The organisation’s innovation activities as these drive future financial performance.
These perspectives must be linked to the mission statement to ensure that the
organisation’s purpose is achieved.
The four BSC perspectives measure the following:
1. The financial perspective includes measures such as operating income, return on
capital employed, and economic value added.
2. The customer perspective looks at measures such as the number of new customers,
customer retention, customer defection and customer satisfaction.
3. The third perspective of the BSC, namely internal business processes, deals
with continuous improvement, throughput and quality. Measures can include the
number of mistakes made during a certain process (such as the registration process
at a university), the number of new processes incorporated into the business during
the past year, and productivity measures.
4. The learning and growth perspective focuses on, amongst other things, the
competency of employees, innovative ideas generated by employees, managers and
staff retention.
The four perspectives of the BSC do not operate in isolation. They are closely related.
For instance, if employees are competent (learning and growth perspective), they
should be able to improve continuously on the processes of the organisation (internal
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Objectives
Measures
Targets
Initiatives
Measures
Targets
Initiatives
Customer
‘To achieve our
vision, how should
we appear to our
customers?’
Objectives
Initiatives
Targets
Measures
Financial
‘To succeed
financially,
how should we
appear to our
shareholders?’
Objectives
business processes perspective). This should enable the organisation to improve on their
customer service (customer perspective). This will eventually contribute to bottom-line
improvement (financial perspective).
Although the ‘pure’ BSC comprises four perspectives, organisations should adapt
the above perspectives to reflect their own unique key drivers. In the airline as well
as the mining industry, safety, health and the environment are key focus areas for
organisations. They should therefore include ‘safety, health, environment, risk and
quality’ as another dimension of their BSC.
Kaplan and Norton13 have also created a new tool, called ‘strategy maps’. A strategy
map visually represents how an organisation creates value. According to Kaplan and
Norton, you can only measure what you can describe. They argue that sustained value
creation depends on managing four key internal processes: operations, customer
relationships, innovation, and regulatory and social processes. Strategy maps can visually
link those processes to desired outcomes; the tool therefore allows an organisation to
align processes, people, and information technology to achieve superior performance.
Initiatives
Targets
Measures
Internal business
processes
‘To satisfy our
shareholders
and customers,
what business
processes must
we excel at?’
Objectives
Vision and
strategy
Learning and
growth
‘To achieve our
vision, how will we
sustain our ability to change and
improve?’
Figure 4.11 The balanced scorecard
4.3.6 Choosing a strategy
The choice of a strategy is guided by the organisation’s mission statement and its longterm goals (see BSC, discussed in the previous section). When choosing a strategy or
a combination of strategies, strategic planners decide on a core idea about how the
organisation can best compete in the marketplace. The term used in strategic planning
for this core idea is ‘generic strategy’.
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There are three types of generic strategy:14
1. Low-cost leadership
2. Differentiation
3. Focus.
An overall low-cost leadership strategy attempts to maximise sales by minimising
costs per unit and hence prices. Several things can be done to minimise costs. First, as
workers gain more experience in producing a particular product, productivity should
increase and unit costs decrease. This is called a ‘learning curve’ or ‘experience curve’.
Second, an organisation can expand the size of its operations. As the size of operations
increases, the costs per unit decrease because the fixed costs (plant, equipment, and
others) are shared by a larger number of products. This is referred to as ‘economy of
scale’. An example of this is the reduction in the price of plasma screen television sets
over the years as a result of economies of scale.
Differentiation is the second generic strategy that distinguishes an organisation’s
products or services from those of its competitors. The rationale for differentiation is
that the organisation can charge higher prices (and make more profit per unit) for a
product that customers perceive to be different from similar products offered by rivals.
Differentiation may be in terms of quality, the production process, design, reputation,
friendliness to the environment or any number of other attributes. Virgin Airlines is
a company known for ‘innovation, quality and a sense of fun’. Virgin Airlines has
taken to the skies in an effort to make air travel affordable and enjoyable. Nike Inc.
believes that they offer the athlete the equipment they need to succeed.15 City Lodge
hotels differentiate themselves by offering affordable, no-frills accommodation to
the traveller.
The third generic strategy is to focus on a specific product line or a segment of
the market that gives an organisation a competitive edge. Harley-Davidson® focuses
on a specific segment of the motorcycle market, namely heavyweight motorcycles.
This focus enables the company to differentiate itself from other manufacturers
of motorcycles.
4.4 GRAND STRATEGIES
Once an organisation has chosen a generic strategy — or core idea — it should
decide on a more specific grand strategy for each business. Grand strategies should be
developed for both single-business and multi-business organisations (Figures 4.3 and
4.4 above). Single-business organisations limit their operations to one major industry.
A multi-business organisation such as the City Lodge Hotel Group develops a business
strategy for each business. The City Lodge Hotel Group will therefore have a different
business strategy for its Courtyard hotels, City Lodge hotels, Town Lodge hotels and
Road Lodge hotels.
Single-business organisations, such as a hardware store, address the same issues as
multi-business organisations, but their scope is more limited.
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Pfizer’s strategy
Pfizer is committed to being a leader in healthcare and to changing lives for the better by
providing access to safe, effective and affordable medicines to those who need them.
But in South Africa, the company faced a major challenge.
How do you provide medicine to those who need medication but cannot afford expensive
medication? Pfizer crafted a clever strategy to support their mission statement. They
established Pharmacia, a generic subsidiary with the aim of producing quality original
generic medicines for the South African market. It is the only Pfizer generic company.
Source: Pfizer. nd. Available at: http://www.pfizer.co.za/ (Accessed: 23 March 2020).
The City Lodge Hotel Group has to look at different strategies to find out which strategy
or combination of strategies will enable each business unit to attain its mission and
long-term goals. There are many strategies that they can consider. However, when one
looks at all of these strategies it becomes clear that they are either:
■
Growth strategies
■
Decline strategies
■
Corporate combination strategies.
This choice of strategies is depicted in Figure 4.11 above. The choice of a strategy
depends on an organisation’s strengths and weaknesses as it should choose a strategy
that maximises its strengths and minimises its weaknesses. The choice of one will also
depend on the opportunities and threats in the external environment.
4.4.1 Growth strategies
Internal growth strategies
Should City Lodge hotels or any other organisation decide that they want to grow the
business to ensure sustainable profitability, it can consider internal growth strategies.
These strategies are usually relatively low in risk as the organisation keeps its focus on
what it already does well. One such internal growth strategy is called a ‘concentration
growth strategy’. This strategy implies ‘sticking to the knitting’. It involves concentrating
on improving what one is already doing. Resources are directed towards the continued
and profitable development of a known product, in a known market, using a known
technology. What these (product, market, technology) are, will be found in the mission
statement, as they are the core components of a mission statement.
A concentration growth strategy can be accomplished by attracting new customers,
increasing the consumption rate of existing customers, or ‘poaching’ from the
competition. The City Lodge Hotel Group can offer their business travellers a package
where they can bring their spouses with them for a minimal additional fee. This is a lowrisk strategy as the hotel group is familiar with the service they provide, and know their
market and the technology that they use to provide the accommodation service.
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Concentration
Market development
Internal
Product development
Growth
Grand
strategies
Decline
Innovation
Integration
External
Corporate
combinations
Diversification
Figure 4.12 Grand strategies
The core components of a mission statement are:
■
■
■
Product
Market
Technology.
The four internal growth strategies discussed in this section focus on changing one of the
core components. For example, if the strategy focuses on the product, the strategy is called
‘product development’. If the strategy focuses on the market, the strategy is called ‘market
development’.
Known skills and capabilities are a major advantage in this low-risk strategy. However,
organisations choosing this strategy are susceptible to new competitors and innovations.
City Lodge hotels also have to compete with the popular Airbnb establishments
nowadays.
Toyota’s market penetration strategy
One of Toyota’s strategies is to attract more customers in the company’s current markets.
To ensure this, Toyota offers products for every market segment. For example, the company
has sedans, trucks, SUVs, luxury vehicles, sports cars and other product lines for every
type of customer. Whenever customers’ needs change, Toyota will ensure that they have a
new product to satisfy the new need. This internal growth strategy enables the company to
maximise sales volume, which ensures profits despite relatively low selling prices.
Source: Thompson, A. 2016. Available at: http://panmore.com/toyota-generic-strategy-intensivegrowth-strategies (Accessed:23 March 2020).
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Market development is a second internal growth strategy that can be considered by an
organisation that wants to grow, but still, focus on what they are currently doing. Market
development is closely related to a concentration strategy. The market development
strategy also builds on existing strengths and skills. Market development is a strategy by
which an organisation sells its present products in new markets by opening additional
new outlets or attracting other market segments. A steel manufacturer may want to
expand their operations into China due to the many business opportunities in this large
country.
Challenges when expanding into China
When preparing for a business trip to China:
■
■
■
■
Carry a boatload of business cards!
Bring your own interpreter
Speak in short sentences
Wear a conservative suit.
Source: Graham, JL. & Lam, NM. 2003. ‘The Chinese Negotiation’. Harvard Business Review. Available
at: https://hbr.org/2003/10/the-chinese-negotiation (Accessed: 23 March 2020).
A third internal growth strategy that can be considered by an organisation who feels that
they want to compete in the arena that they know well is called ‘product development’.
Product development implies modification of existing products or additions to present
products to increase market penetration within existing customer groups. Toyota chose
this strategy when it introduced the Toyota Prius hybrid car that runs on petrol and
electricity. Nissan followed with their Nissan Leaf. Honda, Chevrolet, Lexus and Ford
are other car manufacturers that developed hybrid cars.
While the first three internal growth strategies discussed here are relatively low
in risk, the fourth internal growth strategy, namely ‘innovation’, is a riskier strategy.
Organisations choosing this strategy continuously search for original or novel ideas.
An innovative strategy can focus on creating innovative products, creating new ways
of getting their products to the market, designing new processes, or it could focus on
any other area in which they can innovate. The first bank that made cell phone banking
possible chose an innovation strategy which was risky at that time as there was no
proof that this strategy could work in the banking industry. Virgin Active’s system
to book activities at the gymnasium from your own cell phone is another example
of an innovation strategy based on improving their internal processes. Self-checkin facilities at airports are also innovative ways of speeding up the check-in time for
airline passengers.
Internal growth strategies comprise:
■
■
■
■
Concentration strategies
Product development strategies
Market development strategies
Innovation strategies.
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External growth strategies
Internal growth strategies do not always provide the answer to an organisation regarding
how to compete in an industry to remain profitable. Organisations often have to look
for growth opportunities outside of their organisation. Higher risk external growth
strategies, comprising integration and diversification, can also be considered if they
are in line with the organisation’s mission.
Backward vertical integration is the strategy followed by an organisation seeking
increased control of its supply sources. This strategy is very attractive if there is
uncertainty about availability, cost, or reliability of deliveries by suppliers. An example
of this strategy would be Sappi (a paper producer) acquiring a plantation to secure raw
material supplies for the future (see Figure 4.13 below). A plant nursery may want to
propagate plants themselves to ensure that they have a constant supply of plants in the
nursery. This would overcome the risk of suppliers not delivering plants on time.
When the strategy involves the acquisition of a business nearer to the ultimate
consumer, it is called ‘forward vertical integration’. An example would be a car
manufacturer purchasing a car dealership in order to sell its cars. Forward vertical
integration is an attractive alternative if an organisation is receiving unsatisfactory
service from the distributor of its products.
CNA
(bookstore)
Sappi
(paper producer)
Horizontal
integration
Forward vertical
integration
Mondi
(paper producer)
Backward vertical
integration
Purchase of
plantation
Figure 4.13 Integrative growth strategies
Horizontal integration is a long-term growth strategy by which one or more similar
organisations are taken over for reasons such as scale-of-operations benefits or a larger
market share. Such acquisitions provide access to new markets on the one hand, and get rid
of competition on the other. The integration of two paper producers, two restaurant chains,
or two world boxing associations, for example, would be classified as horizontal integration.
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Diversification growth strategies may be appropriate to organisations that cannot
achieve their growth objectives in their current industry with their current products and
markets. Often, businesses diversify to manage risk by minimising potential harm to the
business during economic downturns. Other reasons for an organisation to diversify
could include the following:
■
The markets of current businesses are approaching the saturation or decline phase
of the product life cycle
■
Risk can be distributed more evenly
■
Current businesses are generating excess cash that can be invested more profitably
elsewhere
■
Synergy is possible when diversifying into new businesses.
Concentric diversification involves the addition of a business related to an
organisation in terms of technology, markets, or products (the core components of
a mission statement). In this type of grand strategy, the new business selected must
possess a high degree of compatibility with the current businesses. The key to successful
concentric diversification is to take advantage of at least one of the organisation’s major
strengths. A major strength could be an organisation’s knowledge of the market or its
processes that can easily be adapted for other types of business or any other strength
that it possesses. Telkom’s strategy to also provide Internet access to its clients is an
example of concentric diversification based on the company’s knowledge of the market
as well as its technical know-how.
Conglomerate diversification involves seeking growth by acquiring a business
because it represents the most promising investment opportunity available. Neither
the new markets nor the new products have to be technologically related to the
products currently being offered by an organisation. This strategy can be chosen to
offset deficiencies such as seasonality, a lack of cash, or a lack of opportunities in the
marketplace. However, this strategy is not without its pitfalls, the primary one being the
lack of managerial experience in the new business.
Virgin’s diversification strategy
Virgin is a leading international investment group and one of the world’s most recognised
and respected brands. Conceived in 1970 by Sir Richard Branson, the Virgin Group has gone
on to grow successful businesses in sectors ranging from mobile telephony, travel, financial
services, leisure, music, holidays, and health and wellness. Virgin started as a small mail
order record company and has diversified successfully into many different types of business.
Source: Virgin Group Ltd. nd. Available at: https://www.virgin.com/about-us (Accessed: 23 March 2020).
4.4.2 Decline strategies
We often read about relatively successful organisations selling off some of their
major assets or even selling a division of the organisation, often resulting in the loss
of many jobs. Edcon selling the household goods retailer Boardmans as well as CNA,
the retailer of stationery, is an example of a decline strategy where Edcon is getting
rid of its businesses noncore to its clothing business. A further prominent example is
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PepsiCo Inc, which expanded rapidly from the late 1970s to the mid-1990s through the
acquisition of several non-core business lines. Eventually, PepsiCo had to sell off several
of these non-core businesses − including Pizza Hut, KFC, and Taco Bell in order to
maintain its focus on snack food and beverages.16
The situation described above could be justified in situations in which an organisation
needs to:
■
Refocus its activities on its core businesses in order to remain or become profitable
by cutting costs drastically
■
Eliminate operational inefficiencies
■
Obtain funds to pay off debts
■
Focus on other opportunities that are more attractive
■
Restrategise during a period of economic uncertainty.
The decline strategies discussed in this section are:
■
■
■
■
Turnaround
Divestiture
Harvesting
Liquidation.
An organisation can find itself with declining profits for many reasons but still be worth
saving. South African Airways (SAA) is a good example. Poor management, inadequate
financial control, price and product competition, a high-cost structure, and a change
in the pattern of demand are some of the possible factors that can lead to a decline
in profits. In such circumstances, turnaround is an appropriate strategy, as it focuses
on eliminating inefficiencies in an organisation. Top management usually looks at cost
and asset reduction to reverse declining sales and profits. In their turnaround strategy,
SAA focused, amongst others, on maintaining financial stability, strengthening the
balance sheet, cost management (including overheads), revenue management, cash
management, network optimisation, performance excellence through staff engagement,
improved governance, performance management and benchmarking.17
A divestiture strategy — another decline strategy — involves the sale of a business
or a major component of it, to achieve a permanent change in the scope of operations.
Reasons for divestiture vary. It may arise when top management recognises that one
of their businesses presents a mismatch with their other businesses. Another reason
may be the financial needs of an organisation: the cash flow or financial stability of an
organisation can be greatly improved if businesses or components of businesses with a
high market value can be sold, as in the case of Edcon selling off CNA and Boardmans.
Harvesting is an appropriate decline strategy when an organisation seeks to
maximise cash flow in the short run, regardless of the long-term effect. Harvesting
is generally pursued in organisations that are unlikely to be sold for a profit but are
capable of yielding cash during the harvesting. Management can decrease investments,
cut maintenance, and reduce advertising and research in order to cut costs and
improve cash flow. This strategy could have detrimental effects on the organisation’s
long-term survival.
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In selecting liquidation as a strategy, the owners and strategic managers of an
organisation admit failure and recognise that this least attractive of all strategies is the
best way of minimising the loss to the stakeholders of the organisation. Liquidation can
therefore be seen as the most extreme form of the decline strategies in that the entire
organisation ceases to exist. Planned liquidation may be a worthwhile strategy for an
organisation, because the organisation can liquidate its assets for more cash than the
market value of its shares.
Liquidation as a strategy
Liquidation is indeed a strategy! In the case of a business failing ‘beyond repair’ it is a simple,
clean solution. There’s no transition plan to worry about and no buyers with which to negotiate.
When liquidating an organisation must list all its assets and sell them off to customers,
competitors, suppliers or in an auction. Anything that’s left from the proceeds of the sale,
after paying off all your creditors and any other shareholders in the business, belongs to the
owners of the business.
By liquidating a business one can at least extract some of the value of the business —
although it may be far from the full value of the business. One of the reasons for this is that
one can usually only sell the physical assets of the business. A business’s good reputation,
its employees, its know-how and relationships with customers are hard to liquidate. Even
physical assets are not sold at full value.
When management decides that their only option is to liquidate the business, they have to
conduct a detailed inventory of all assets and decide on the best way to sell them.
Source: Blackman, A. 2014. Available at: http://business.tutsplus.com/tutorials/the-most-effectiveexit-strategies-for-your- business--cms-20492 (Accessed: 23 March 2020).
Well-known South African public institutions that were liquidated for reasons such as
poor management and fraud, include: Athletics South Africa, Walter Sisulu University,
ANC Youth League, Limpopo Province, Tshwane Metropolitan Municipality, Boxing
South Africa and many more.18 Companies that were also liquidated in South Africa
include 1Time Airlines as well as the Southern Kings (the Super Rugby franchise which
is currently under provisional liquidation).19
Although the different strategies discussed above are treated as separate, organisations
can implement multiple grand strategies simultaneously.
4.4.3 Corporate combinations
Recently, four corporate combination strategies have gained popularity in South Africa,
Africa and many countries abroad. One such corporate combination strategy that is
very popular in South Africa is called a joint venture ( JV). Businesses that want to bid
for a specific tender in South Africa but do not have all the necessary skills, resources,
infrastructure or capital often look for partners with whom they can join forces through
joint ventures. A JV has the advantage that the partners are not trapped in longterm business partnerships or shareholding scenarios. JVs are an integral part of the
South African business scene due to the importance of broad-based black economic
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empowerment (B-BBEE). In South Africa, the amended B-BBEE Codes of Good
Practice came into effect on 1 May 2015. These new codes place a lot of emphasis on
ownership in business. ‘Ownership’ accounts for 25 points on the B-BBEE scorecard and
it is also a priority element. If a business is not going to score any points on ownership,
it will struggle to achieve a good B-BBEE level. Through JVs business organisations can
overcome this obstacle by joining forces with black-owned companies to increase their
‘ownership’ score.20
Broad-based black economic empowerment (B-BBEE) in South Africa
The fundamental objective of the Broad-based Black Economic Empowerment Act 53 of 2003
is to advance economic transformation and enhance the economic participation of black
people in the South African economy.
Criteria against which businesses in South Africa are rated on the generic B-BBEE scorecard
include:
1. Ownership
2. Management control
3. Employment equity
4. Skills development
5. Preferential procurement
6. Enterprise development
7. Socio-economic and sector-specific contributions.
Source: BEE Navigator. nd. Available at: http://www.bee-scorecard.co.za/bee_information.html
(Accessed: 23 March 2020).
A strategic alliance is when two or more businesses join resources in order to attain
a specific goal. In May 1997, Air Canada, Lufthansa, Scandinavian Airlines, THAI and
United Airlines established the Star Alliance network. For the first time, these carriers
began working together to offer airline passengers worldwide reach and a better travel
experience.21 Airlines such as these are usually not in competition for the same routes
but provide similar products or services that are directed toward the same target
audience. The Protea Hotel Group has formed a strategic alliance with Budget car
rentals. This strategic alliance enables both businesses to gain competitive advantage
through access to the strategic partner’s resources, markets, databases, technologies and
so on. Other advantages that a strategic alliance offers both partners include growth
through expansion, sharing of technical and operational know-how, more time for each
partner to focus on its core business, cost reduction and better exposure to customers.
However, strategic alliances do not only provide advantages to the partners. One of the
major disadvantages of a strategic alliance could be incompatible cultures of the two
organisations. This could cause major conflict between managers and employees.
While only some resources of each of the companies are used in a joint venture or
a strategic alliance, mergers and acquisitions involve the total pooling of resources
by two or more organisations. Business organisations grow in two main ways, either
organically or by merging with or acquiring other business organisations. Merger and
acquisition strategies therefore bring separate business organisations together to form
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larger ones. The reasoning behind the forming of a merger or an acquisition is that ‘one
plus one makes three’. The two companies together are more valuable than two separate
organisations. Mergers and acquisitions are particularly alluring to management when
times are tough. Organisations may want to buy other business organisations to create a
more competitive and cost-efficient organisation. Both organisations may hope to gain
a greater market share or achieve greater efficiency. Target organisations will often agree
to be purchased when they know they cannot survive alone.
Although the terms ‘merger’ and ‘acquisition’ are often used interchangeably, these two
terms do mean slightly different things. A merger takes place when two organisations —
often of about the same size — agree to operate as a single new organisation. Daimler-Benz
and Chrysler ceased to exist when the two organisations merged to form a new company,
DaimlerChrysler.
When one organisation takes over another and clearly establishes itself as the new owner,
the purchase is called an acquisition. From a legal point of view, the target (‘weaker’)
organisation ceases to exist. The buyer organisation ‘swallows’ the other and the buyer’s
shares continue to be traded.
By merging or acquiring another organisation, management hopes to gain the following
benefits:
■
■
■
■
■
Staff reductions
Economies of scale
Access to new technology
Higher sales
Visibility in the industry.
Many mergers and acquisitions fail because of the incompatibility of the different
cultures of the organisations involved. People issues can also sink the new organisation.
The merging organisations may have treated their employees differently before the
merger or acquisition took place. This ‘differentness’ can cause frustration and even
anxiety in the new organisation where the two differing organisational cultures will be
fighting for dominance.
The success of a merger and/or acquisition is by no means assured. On the contrary,
a majority fall short of their stated goals and objectives. While some failure can be
explained by financial and market factors, a substantial number can be traced to human
resource issues and activities.22
4.5 THE SELECTION OF GRAND STRATEGIES
The selection of a grand strategy starts with the identification of the recent grand
strategy or strategies. External factors (such as a change in legislation) and internal
factors (such as the organisation’s management competence and experience) should
be well understood when considering different strategies. So should the behavioural
considerations affecting the choice of strategies in an organisation (see Section 4.6)
as they also play a major role in selecting a strategy or combination of strategies for
an organisation. The choice of a strategy may seem like a very scientific process, but
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it is far from that. The choice of a strategy reflects
Identify the
the current strategists’ preferences in terms of risk
present grand
that they are comfortable with, time horizon of the
strategy
strategy, and the strategists’ personalities.
Change the composition of the team of strategists
who have to choose a strategy and you will most
probably find that the new team chooses a different
strategy or set of strategies.
Conduct a
Organisations offering one product or service
portfolio analysis
need to choose a strategy for this one business only.
However, the choice of a strategy for a multi-business
organisation is more complex.
Consider again the City Lodge Hotel Group. The
group comprises four distinct brands of hotels, namely
Select a grand
the Courtyard (four stars), City Lodge (three stars),
strategy
Town Lodge (two stars) and Road Lodge (one star).
We refer to these four different hotels as the
City Lodge Hotel Group’s ‘portfolio of products’.
Knowing how to manage multiple businesses
or units calls for a knowledge of portfolio
Evaluate the
management. The portfolio approach is a useful
selected strategy
aid to multiple business organisations in which
each business is managed as a separate business or
profit centre. The portfolio approach provides a
Figure 4.14 The grand
strategy selection process
visual way of identifying and evaluating alternative
strategies for the allocation of corporate resources.
Although many different approaches to portfolio management can be identified, we
shall focus only on the Boston Consulting Group growth/share matrix, a widely used
approach in this regard.
In the Boston Consulting Group growth/share matrix (or the BCG growth/share
matrix), each of an organisation’s strategic business units (SBUs) is plotted according to its:
■
Market growth rate (percentage growth in sales)
■
Relative competitive position (market share).
City Lodge Hotel Group will plot their four brands (Courtyard, City Lodge,
Town Lodge and Road Lodge) according to each business unit’s market growth rate
and relative competitive position in the industry. See Figure 4.15 below for an example.
The horizontal axis represents the market share of each SBU of a fictitious organisation
relative to the industry leader. The industry leader is the organisation with the biggest
market share in that specific industry. The vertical axis represents the annual market growth
rate for each SBU’s particular industry. SBUs are plotted on the matrix once their market
growth rates and relative market shares have been computed. Figure 4.15 represents the
BCG matrix for a company with multiple SBUs, such as South African Breweries or Edcon
or the City Lodge Hotel Group. Each circle represents a business unit. The size of the
circle represents the proportion of corporate reserves generated by that SBU.
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STARS
QUESTION MARKS
SELECT FEW
Market growth rate
119
REMAINDER
DIVESTED
Net users of
resources
Net suppliers of
resources
DOGS
Low
CASH COWS
High
HARVESTED/LIQUIDATED
Relative competitive position (market share)
Low
Figure 4.15 The Boston Consulting Group growth/share matrix
On the BCG matrix, businesses are classified as stars, cash cows, question marks, and
dogs. Stars are businesses in rapidly growing markets with large market shares. These
businesses should be quite profitable. They require substantial investment to maintain
their dominant position in a growing market. This requirement is often in excess of what
can be generated internally.
If an SBU has a low market growth but a high market share it often generates a large
amount of cash that can be used to support other SBUs, especially question marks (highgrowth, low-share SBUs that normally require a lot of cash to maintain). These cashgenerating businesses are called ‘cash cows’ because they can be ‘milked’ for resources
to support other businesses. Cash cows are the foundation of the corporate portfolio.
Question marks are high-growth, low-share SBUs that normally require a lot of cash
to maintain. Management must decide whether they want to invest additional cash in
converting these SBUs into stars or to phase them out.
The BCG matrix calls SBUs with a low market share and market growth the ‘dogs’
in an organisation’s portfolio. A dog is usually a candidate for divestiture or liquidation.
Such an SBU is in a saturated, mature market with intense competition and low
profit margins.
If a portfolio analysis is conducted, management should be in a position to select a
grand strategy for the corporation. A strategy for ‘dog’ businesses, for example, would
be to cut on maintenance or research and development — a strategy called ‘harvesting’.
An alternative to the BCG matrix
Many alternatives to the BCG matrix exist. A website that contains information on the GE/
McKinsey matrix can be accessed at http://www.mgmtguru.com/mgt499/TN9_4.htm.
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Management needs to ask and answer several searching questions about its strategies
in order to evaluate the strategies selected. The most important question is whether the
strategies will achieve the mission and long-term goals of the organisation.
4.6 FACTORS AFFECTING STRATEGIC CHOICE
The choice of a grand strategy or strategies requires a clear decision that allows an
organisation to attain its goals. If an examination of the different strategies identifies
a clearly superior strategy, the decision is relatively simple. However, such clarity is
the exception which makes most decisions in this regard judgemental. Several factors
influence the decision to implement a specific strategy. We shall discuss some of the
more important factors further on in this section.
First, corporate governance plays a major role in strategic planning and therefore
in the choice of a strategy or combination of strategies. The King Report on Corporate
Governance in South Africa acknowledges that there is a move away from the single bottom
line (that is, profit for shareholders) to a triple bottom line which embraces the economic,
environmental and social aspects of a company’s activities. The board is responsible for
ensuring that the organisation has implemented an effective ongoing process to identify risk,
measure its potential impact on the environment and society against a set of assumptions,
and then activate what it believes is necessary to manage these risks proactively. The
board should therefore decide on what risk that company is prepared to take and the
risks it will not take in pursuance of its mission and long-term goals.23
The personality of the Chief Executive Officer (CEO) plays a major role in the
choice of a strategy.24 CEOs who focus on ‘what is in it for me’ tend to make bolder
strategic choices to attract attention, resulting in big wins or big losses. Good CEOs
and other leaders, however, will put the success of the organisation above their own
personal aspirations.
Factors that can influence the choice of a strategy are:
■
■
■
■
■
■
■
Corporate governance guidelines pertaining to risk management
Previous strategies chosen
Dependence on external factors
Attitude towards risk
Personalities of strategists
Alignment with the organisation’s mission and long-term goals
Proper timing.
Some organisations are extremely dependent on one or more external factors, such as
suppliers, customers, or competition. These organisations may have to choose a strategy
that they would normally not choose in order to maintain their relationship with specific
external factors.
Top management’s attitude to risk — and more specifically the chief executive
officer’s attitude — strongly influences strategy selection. Where attitudes favour risk,
the range of strategic choices expands; where management is risk-averse, strategic
choices are limited, as risky alternatives are eliminated before strategic choices are made.
Risk-averse managers will probably consider internal growth strategies first, followed by
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decline strategies. Corporate combinations are high-risk strategies and will probably
not be considered by a team of risk-averse managers.
Pressures from an organisation’s mission, long-term goals, and culture heavily
influence strategic choice. The mission statement and all goals have to be analysed to
determine whether a specific strategy fits in with the direction and entire set of goals
that management chooses. Furthermore, if a strategy is compatible with the norms and
values (culture) shared by management and employees, the likelihood of success is greater.
The success of an organisation’s strategies also depends on proper timing. A
seemingly good strategy may be disastrous if undertaken at the wrong time.
A construction company that decides to concentrate on the first-time home owner for
the following two years may be detrimentally affected by a sharp increase in interest
rates. The same strategy may be very successful if the organisation decides to hold off
entering this market until interest rates have settled down.
4.7 SUMMARY
The strategic plan is the ‘guiding star’ that should provide the focus of planning at tactical
and operational levels. Strategic planning addresses issues such as the formulation of
the vision and mission, the assessment of the external and internal environments, the
formulation of long-term goals, and the choice of strategy. The strategic plan is futurefocused and often covers a period of five years. In some industries — such as the oil
exploration industry — the strategic plan may even cover periods of up to 30 years.
In order to clarify strategic planning, we discussed this concept as a process,
starting with the formulation of an organisation’s vision and mission, then assessing the
organisational capabilities (strengths and weaknesses) and threats and opportunities
from the external environment and, finally, formulating long-term goals for the
organisation. Once these steps have been completed, management is in a position to
choose a realistic strategy that can lead to the attainment of the organisation’s mission
and goals. Management will first decide on a generic strategy (low-cost leadership,
differentiation or focus strategy) before they choose specific business/grand strategies
for their different business units.
We discussed various grand strategies that organisations can implement. These
strategies are either growth, decline or corporate combination strategies.
In the examination of the different strategies, it has been evident that a superior
strategy seldom comes to the fore, which makes most decisions in this regard judgemental.
We therefore also discussed behavioural considerations that affect strategic choice.
REFERENCES
1.
2.
3.
Huffington Post. 2011. ‘Toyota’s audacious goal: Double profit by 2015’. Available at: http://
www.huffingtonpost.com/2011/03/09/toyotassales_n_833322.html (Accessed: 23
March 2020).
Knutson, C. 2015. ‘7 attributes of an effective strategic plan’. Engineering Management
Institute. Available at: https://engineeringmanagementinstitute.org/7-attributes-of-aneffective-strategic-plan/ (Accessed: 20 September 2020).
Ethiopian Airlines. nd. Available at: http://www.ethiopianairlines.com/corporate/
strategicplan (Accessed: 23 March 2020).
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Lipton, M. 1996. ‘Demystifying the development of an organisational vision’. Sloan
Management Review, (Summer), pp 84–85.
5. McMurray University. nd. ‘Components of an effective mission statement’. Available at: http://
www.mcm.edu/~lapointp/missionstatementcomponents.html (Accessed: 23 March 2020).
6. Biotech and Pharmaceutical Industries. nd. Available at: http://pharma.about.com/od/
Generics/a/Top-Generic-Drug-Companies.htm (Accessed: 23 March 2020).
7. Jurevicius, O. 2013. ‘Resource based view’. Strategic Management Insight. Available at:
https://www.strategicmanagementinsight.com/topics/resource-based-view.html
(Accessed: 23 March 2020).
8. World Coal Association. nd. ‘What is coal?’. Available at: http://www.worldcoal.org/coal/
what-coal (Accessed: 23 March 2020).
9. Product Life Cycle Stages. nd. ‘Product life cycle examples’. Available at: http://
productlifecyclestages.com/productlife-cycle-examples/ (Accessed: 23 March 2020).
10. Butler Consultants. nd. ‘Free Industry statistics – sorted by highest gross margin’. Available at: http://
research.financial-projections.com/IndustryStats-GrossMargin.html (Accessed: 23 March 2020).
11. Harvard Business Review. 2016. Scenario planning reconsidered, pp 1–4.
12. Kaplan, RS & Norton, DP. 1992. ‘The Balanced Scorecard – measures that drive
performance’. Harvard Business Review, ( January/February), pp 71–79.
13. Kaplan, RS & Norton, DP. 2004. Strategy maps: Converting intangible assets into tangible
outcomes. Boston: Harvard Business School Press.
14. Porter, ME. 1980. Competitive strategy: Techniques for analyzing industries and competitors.
New York: Free Press.
15. Luenendonk, M. 2019. ‘Stand out from the crowd | Examples of differentiation’. Cleverism.
Available
at:
https://www.cleverism.com/stand-crowd-examples-differentiation/
(Accessed: 23 March 2020).
16. Financial Times. nd. Available at: https://www.independent.co.uk/news/business/pepsicoto-spin-off-pizza-hut-and-kfc-1284827.html (Accessed: 23 March 2020)
17. Parliamentary Monitoring Group. 2014. ‘South African Airways Turnaround Strategy’.
Available at: https://pmg.org.za/committeemeeting/16966/ (Accessed: 23 March 2020).
18. Van Onselen, G. 2013. ‘Ten bankrupt South African public institutions’. Business Day Live.
Available at: http://www.bdlive.co.za/opinion/columnists/2013/09/04/ten-bankruptsouth-african-public-institutions (Accessed: 23 March 2020).
19. Sport24. 2016. ‘EP Kings confirm provisional liquidation order’. Available at: http://
www.sport24.co.za/Rugby/ep-kings-confirm-provisional-liquidation-order-20160310
(Accessed: 23 March 2020).
20. SA-Tenders. nd. Available at: https://www.sa-tenders.co.za/content/hints-tips-and-news/
joint-ventures-and-b-bbee (Accessed: 23 March 2020)
21. South African Airways. nd. ‘About Star Alliance’. Available at: http://www.flysaa.com/za/
en/footerlinks/aboutUs/starAlliance.html (Accessed: 23 March 2020).
22. Schuler, R & Jackson, S. 2001. ‘HR Issues and Activities in Mergers and Acquisitions’.
European Management Journal, 19(3): 239–253.
23. Institute of Directors Southern Africa King IV. 2016. ‘Draft King IV™ Report on Corporate
Governance for South Africa 2016’. Available at: https://www.iodsa.co.za/page/Integrated
Reports (Accessed: 23 March 2020).
24. Chatterjee, A & Hambrick DC. 2007. ‘It’s all about me: Narcissistic Chief Executive Officers
and their effects on company strategy and performance’. Sage Journals. Available at: http://
asq.sagepub.com/content/52/3/351.short (Accessed: 23 March 2020).
4.
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CASE STUDY
Sappi limited
Sappi is a global company focused on providing dissolving wood pulp, paper pulp and paperbased solutions to its direct and indirect customer base across more than 160 countries. The
company’s dissolving wood pulp products are used worldwide by converters to create viscose
fibre for fashionable clothing and textiles, acetate tow, pharmaceutical products as well as a
wide range of consumer and household products.
The following excerpt comes from the Sappi Annual Report for 2019.
Guided by our strategy, we measure our progress holistically against our mission,
collaborating and partnering with stakeholders as we strive to be a trusted and sustainable
organisation with an exciting future in wood fibre.
Our key strategic objectives are:
1. Achieve cost advantages
2. Rationalise declining businesses
3. Maintain a healthy balance sheet
4. Accelerate growth in higher margin growth segments.
In addition to standard items on the board’s agenda, 2019 focus areas included:
External overviews of global and regional economies and related developments. Each serious
safety incident was reviewed in detail. Biotech and related research and development. A
renewed focus on new products, the exciter (R&D) programme and go-to-market strategies.
The acquisition of Matane pulp mill in Canada. Carbon emissions and reduction of Sappi’s
carbon footprint. Human resource capacity building and transformation for the Southern
Africa region. Review of regional market peculiarities. A review of the Code of Ethics and
related policies, such as anti-trust and anti-fraud and corruption policies. A review of
cyber-security risks. The Sefate employee share scheme. Land reform in South Africa. Cost
reduction targets and strategies.
The following depicts how Sappi transforms input into output:
Source: Sappi Corporate Governance. 2019. Available at: http://sappi-reports.co.za/reports/sappiair-2019/corporate-governance.php (Accessed on 23 March 2020)
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CASE STUDY QUESTIONS
1. Do you consider the above excerpt to be strategic, tactical or operational of nature?
Provide at least two reasons for your answer.
2. Sappi’s annual report also refers to the company’s collaboration and partnership
with stakeholders
■
List at least five stakeholders of a company like Sappi
■
Give an example of what each stakeholder expects from Sappi as a company.
You can structure your answer as follows:
Stakeholder
1 Eg: Employees
Expectation/Claim
Eg: Safe work environment
2
3
4
5
3. In the annual report reference is made of Sappi’s commitment to be a ‘…sustainable
organisation with an exciting future in wood fibre’. How does this relate to triplebottom-line reporting?
4. In the section on ‘key strategic objectives’ Sappi’s annual report refers specifically to
(1) decline and a (2) growth strategy. Explain what each of these strategies mean.
5. Restructure the 2019 focus areas so that they clearly refer to either (1) external or
(2) internal environmental issues. You can use the following as a guideline to
structure your answer:
External environmental issues (macro
and market environments)
Internal issues (micro-environment)
1 Eg: Land reform in South Africa
1 Cost reduction strategies
MULTIPLE-CHOICE QUESTIONS
Question 1
The plan that provides direction to all decisions made in an organisation is called a
plan.
1. tactical
2. operational
3. strategic
4. short-term.
Question 2
Which of the following best describes strategic planning?
1. Strategic planning focuses on the present
2. Strategic planning is also called tactical planning
3. Strategic planning focuses on aligning the organisation with its changing environment
4. Strategic planning focuses mainly on improving the internal processes in an organisation.
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Question 3
is ‘to become the world’s leading consumer
The Ford Motor Company’s
company for automotive products and services’.
1. long-term goal
2. strategy
3. vision
4. mission.
Question 4
‘We provide environment-friendly educational toys to pre-school children through our
.
franchised outlets’ is an example of a
1. vision statement
2. mission statement
3. long-term goal
4. strategy.
Question 5
The core components of a mission statement are
1. people, planet, profit
2. profit, people, productivity
3. productivity, market, technology
4. product, market, technology.
.
Question 6
How many of the following are approaches that can be used to determine an organisation’s
strengths and weaknesses (internal assessment)?
■
Functional approach
■
Value-chain approach
■
Resource-based view
■
Financial ratios.
1.
2.
3.
4.
one
two
three
four
Question 7
The picture from the Sappi Annual Report 2019 which shows how the company
.
transforms input into output depicts part of Sappi’s
1. secondary activities
2. value-chain activities
3. balanced scorecard
4. portfolio matrix.
Question 8
The resource-based view of an organisation focuses on
an organisation’s capabilities.
1. tangible assets
2. intangible assets
3. organisational capabilities
4. all of the above.
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Question 9
The external business environment comprises the
1. macro-environment
2. micro-environment
3. macro- and market environments
4. macro-, market and micro-environments.
.
Question 10
Which of the following belong together?
1. Internal growth strategy, retrenchment, corporate combination
2. External growth strategy, horizontal forward integration, vertical integration
3. Decline strategy, turnaround, product development
4. Corporate combination, joint venture, internal growth.
PARAGRAPH QUESTIONS
Question 1
Explain what a mission statement encompasses by looking at the following:
1. What a mission statement is
2. The core components of a mission statement
3. Additional components of a mission statement.
Question 2
Explain what the resource-based view of an organisation encompasses by specifically
focusing on what makes a resource valuable to an organisation.
Question 3
‘All industries are basically the same and the profit potential in all industries are therefore also
the same.’ Comment on this statement. Base your arguments on Porter’s five forces model.
Question 4
Diagrammatically depict the four dimensions of the balanced scorecard (BSC) and
briefly explain each of the dimensions.
Question 5
State the differences between the following corporate combination strategies:
1. Joint venture
2. Strategic alliance
3. Merger
4. Acquisition.
ESSAY QUESTION
Diagrammatically depict and explain how an organisation can formulate a strategic
plan. Your answer must deal with all of the components of a strategic plan. Limit your
answer (excluding your diagram) to 1 000 words.
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5
THE
PURPOSE
OF THIS
CHAPTER
LEARNING
OUTCOMES
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PLANNING
In Chapter 4 we looked at strategic planning and stated that the strategic
plan of an organisation guides all other plans — and decisions — in
the organisation. Strategic plans are formulated by top management.
However, middle and lower management have to translate these
strategic plans into plans — and goals — for their own departments and
sections within the organisation. In short, top management formulates
the strategic plans; middle and lower management have to implement
these plans.
This chapter gives an overview of planning as a management function.
It also looks at goal formulation as it is an integral part of planning. The
chapter examines the nature of planning and the reasons why managers
need to plan. It explains how planning is the pivot around which
the other management functions revolve. It also looks at the various
kinds of plan that managers formulate, namely strategic (discussed in
Chapter 4), tactical, and operational plans. A logical planning process
is demonstrated which should enable managers to plan more effectively.
The goals of an organisation are depicted as a hierarchy to ensure
proper alignment of all the goals at the different levels and areas of the
organisation. The goals must be clear and easy to understand, therefore
this chapter also looks at the criteria for well-formulated goals. Clearly
defined goals make effective control possible. If goals are clearly defined,
deviations from the planned goals can be detected in time and rectified
to ensure that the organisation remains on course.
Despite the importance of planning and goal formulation, many
managers are reluctant to plan. This reluctance can, however, be
overcome by a sound understanding of what planning and goal
formulation encompasses and by knowing which tools are available to
use in the planning and goal-formulation process.
This chapter will enable learners to:
Explain the nature and importance of planning — including goal
formulation — as a management function
■
Differentiate between strategic, tactical, and operational plans and
goals
■
Depict and discuss the hierarchy of plans and goals in an organisation
■
Differentiate between standing and single-use plans
■
Defend the use of planning and goal-formulating tools
■
Apply the management by objectives (MBO) process to set goals at
the individual level
■
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Translate the organisation’s balanced scorecard (BSC) into a scorecard
for their department, section and for individuals (see Chapter 4)
■
Identify and discuss barriers to planning
■
Recommend ways of overcoming planning barriers.
■
KEY
CONCEPTS
Balanced scorecard
Budgets
■
Corporate governance
■
Forecasts
■
Gantt chart
■
Intermediate plans
■
Long-term plans
■
Operational planning
■
Planning
■
Planning process
■
Policies
■
Programme
■
Programme evaluation and review technique (PERT)
■
Project
■
Rules
■
Scheduling
■
Shareholders
■
Short-term plans
■
Single-use plans
■
Stakeholders
■
Standard operating procedures
■
Standing plans
■
Strategic planning
■
Tactical planning
■
Zero-based budgeting (ZBB)
■
■
5.1 INTRODUCTION
All managers engage in planning and goal formulation. In small organisations managers
often plan informally while planning in larger organisations is done very formally
and plans and goals are carefully documented. However, planning is not done only
by business managers. The mountain climber has to plan a route to the top of the
mountain. The architect has to draft a plan that the building contractor can understand
when building a house. The Springbok rugby selectors plan for possible replacements
due to injury or poor performance of a rugby player.
Top management in business organisations have to formulate plans (strategies) and
goals that will enable the organisation to survive in a very turbulent environment. The
current Coronavirus pandemic has forced managers to create new business models, new
strategic plans and re-align their goals with these new plans. Middle management (the
financial, research and development, marketing manager, and so on) have to translate
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top management’s plans and goals into plans and goals for their functional areas
(departments). First-line managers then translate these into plans and goals for specific
sections in the organisation.
Despite the importance of planning as a management function, it offers both pros
and cons to organisations that have to survive in the modern business environment
which is constantly changing. On the one hand, planning offers a focus for all activities
in the organisation. On the other hand, planning may create too much rigidity and may
not be able to accommodate changes that occur in the business environment. Airlines,
for example, must plan to ensure that they match the demand from their customers for
specific flights, but their plans should be flexible enough to accommodate unexpected
changes such as adverse weather conditions, strikes by disgruntled workers and a
shortage of fuel at certain destinations.
When we use the term ‘planning’ in this chapter, we refer to formal planning which
includes goal formulation as this is an integral part of planning. Formal planning
encompasses developing a comprehensive hierarchy of plans and goals to integrate and
coordinate activities in the organisation. The strategic plan (including the strategic
goals) serves as the focal point for all other plans and goals; the strategic plan must
be cascaded down into medium-term tactical plans and goals; these must in turn be
translated into short-term operational plans and goals. A hierarchy therefore depicts
these three types of plans and goals. Planning and goal formulation is concerned with
what the organisation has to do as well as how it is to be done.
5.2 THE NATURE AND IMPORTANCE OF PLANNING
The purpose of a profit-seeking organisation — such as Sasol, Woolworths, Telkom or the
local hardware store — is to realise an above-average return for its shareholders and to satisfy
the claims of its other stakeholders. These stakeholders include employees, customers,
suppliers, the community, and the government. The objective of every plan made by
managers in these organisations is therefore to facilitate the attainment of this purpose.
Planning occurs in all organisations and at all levels of the organisation. Planning is the
task of all managers — from top management right down to the most junior manager in the
organisation. However, the kinds of plan that managers at different levels of the organisation
are responsible for vary in terms of such aspects as focus or time span covered (see Section 5.3).
In South Africa, with its severe shortage of suitably skilled managers, planning plays
a crucial role in steering an organisation towards success. Companies in the mining
industry in South Africa, for instance, have to plan carefully for the future to ensure that
they have suitably skilled managers and workers in the mines. Management skills are
listed as one of the twelve most critical skills needed in South Africa … and there is a
severe shortage of these skills.1
Planning forces managers to set clear goals and to be proactive — and not reactive
— in pursuing these goals. It forces management to consider possible changes that may
occur in the future and then prepare timeously for these changes. Planning ensures that
managers and workers focus their efforts on the attainment of the same goals.
Sound plans are also essential when monitoring the progress of an organisation
towards goal attainment. Actual results can be measured against clearly stated goals and
deviations from the goals can be identified and rectified timeously.
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The increasing complexity of organisations is another factor that makes planning
essential. Modern organisations often comprise a network of subcontractors who work
for the organisation on a specific project. Once the project is completed, they move
on. These subcontractors need to understand the plans and goals of the organisation to
ensure that they align their activities with them. Many companies employ thousands
of temporary staff during peak seasons. Edcon, for instance, has 14 000 permanent
employees and 25 000 temporary employees. It is essential that these temporary
employees should be well informed about the goals of Edcon as they play a major part
in the success of the company.2
Managers also need to plan for possible late deliveries of raw material, strikes by
workers, electricity outages, potential malfunctioning of machinery, a shortage in
supplies, and so on. Many more reasons can be cited to emphasise the importance of
planning for organisations in South Africa and the rest of Africa. However, the above
should convince the critics of planning of the importance of this management function
in organisations.
5.3 KINDS OF ORGANISATIONAL PLAN
The kinds of plan — and goals — made by top management, middle management, and
lower management (supervisors) differ in many respects. Top management typically has
to formulate plans (strategies) for the entire organisation, middle management drafts plans
(tactics) for specific functional areas in the organisation (such as the finance or marketing
departments) to support top management’s plans, lower management formulates
operational plans for their specific smaller sections to support middle management’s plans.
To formulate realistic plans, managers need to understand that the different kinds
of plan — and goals — in an organisation form a hierarchy. This hierarchy is illustrated
in Figure 5.1 below and resembles a pyramid. In all pyramids (and hierarchies) the
stability of the entire structure depends on each row of building blocks supporting the
row above it and next to it. The entire pyramid or hierarchy will collapse if one row of
building blocks is out of place. This is exactly how the different kinds of organisational
plans and goals support one other.
5.3.1 Strategic plans
Strategic plans are plans designed to ensure that the organisation as a whole is aligned
with the changing external environment (see Chapter 4). These plans are formulated by
top management and focus on the entire organisation. Strategic planning for a financial
institution will focus on issues such as: should the organisation expand into other
countries or should they close some of their less profitable branches? Or should the
financial institution change from a traditional brick-and-mortar bank to a technologydriven bank? Or maybe the financial institution should merge with another institution
to dominate the current market. To realise such changes, careful planning is essential.
Planning at strategic level includes:
Creating a vision (dream) of the future for the entire organisation
■
Translating the vision into a realistic mission statement (the mission statement
provides more detail than the vision statement)
■
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■
■
131
Translating the mission statement into measurable long-term goals
Choosing a strategy/strategies to attain the above (explained in depth in Chapter 4).
Strategic planning reflects the following characteristics:
■
Strategic plans have an extended time frame, often more than five years. However,
the time frame depends on the type of industry and may be longer or shorter than
five years. In the fashion industry strategic planning will cover a period of only a
few months whereas strategic planning in the forestry industry may cover periods
of thirty or forty years.
■
They focus on the entire organisation and not just certain departments in the
organisation. The City Lodge Hotel Group’s strategy to expand its operations into
Nairobi with its Fairview hotel, had an influence on the entire organisation as its
systems and processes etc had to adapt to this newcomer in its portfolio of hotels.3
■
Strategic plans look at reconciling the organisation’s resources with threats and
opportunities in the external environment.
■
They focus on creating and maintaining a competitive advantage for the organisation.
■
These plans also take synergy into consideration. Where synergy between an
organisation’s strategic business units cannot be optimised, top management may
plan to close down some of the business units or sell them.
CHANGES IN THE ENVIRONMENT
Structuring the organisation
Determining what kind of
people we need
necessary for
Plans (goals)
Determining how we
should lead them
Furnishing standards
of control
Figure 5.1 Importance of planning
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Strategies do not attempt to outline in-depth and in detail how an organisation is to
accomplish its goals. Tactical and operational plans are therefore needed to implement
the strategies at middle and lower management levels. The balanced scorecard (BSC)
is a tool that can be used at strategic, tactical and operational level to ensure that all
divisions and individuals in the organisation focus on the same key performance areas.
5.3.2 Tactical plans
Whereas strategic plans focus on the entire organisation and its interaction with
the external environment, tactical planning deals primarily with people and action
to implement the strategic plans. The focus could be on the functional areas in an
organisation, such as the marketing, finance, operations, human resources, purchasing,
research and development, amongst others. A tactical goal of the marketing manager
for a chain of bookstores could be to increase its brand recognition amongst university
students to 30 per cent within the next three years. In the same chain of bookstores, the
operations manager may have a goal to redesign the layout of each bookstore within the
same period. The financial manager in this chain may have a tactical goal to earn at least
ten per cent on excess cash over the following two years.
Table 5.1 explains how tactical plans differ from strategic plans.
Table 5.1 The difference between strategic and tactical plans
Type of plan
Focus
Time frame
Specificity
Information
required
Strategic
Entire
organisation
Long term
Directional,
broad
Difficult
to gather
information
Tactical
Functional areas
Medium term
More specific
Information
more focused
on specific
issues
Of importance in formulating tactical plans for the different functional areas is the issue
of synergy. All of these plans should be congruent — that is, they should contribute to
the attainment of the organisation’s overall goals.
5.3.3 Operational plans
Operational plans are developed by lower level managers. In some industries, such as the
mining industry, lower level managers are called supervisors or first-line managers. These
managers focus on carrying out tactical plans to achieve operational goals. Operational plans
are narrowly focused and have relatively short time horizons (monthly, weekly, and day to
day). For instance, the supervisor at a mine may formulate an operational plan to ensure that
all work shifts for the next week are properly staffed. An airline pilot will complete a flight
plan for each flight to ensure a safe and comfortable flight for the crew and passengers.
There are two basic forms of operational plan, namely single-use plans and standing
plans. Single-use plans are used for non-recurring activities, such as the refurbishment
of some of the City Lodge hotels in the Western Cape.
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Plans that remain roughly the same for long periods of time are called ‘standing
plans’. Specific types of single-use and standing plans are illustrated in Figure 5.2 below.
A programme is a single-use plan for a large set of activities. The upgrading of all
national and international airports in South Africa by Airports Company South Africa
(Acsa) before a specified date is an example of such a programme. A programme
manager manages a portfolio of projects and is responsible for the programme meeting
its deadlines. A programme manager will have project managers working under him or her.
A programme can consist of different projects. The upgrading of all nine major
airports in South Africa can be seen as nine separate projects, each with its own project
manager. A project plan guides each project and should state clearly the scope of the
project, time, cost, risk and quality issues relating to the specific project.
A project goes through the following phases:4
1. Initiating
2. Planning
3. Executing
4. Controlling
5. Closing (see Figure 5.2 below).
Project management and general management share many similarities but also have
differences. General management focuses on the long-term survival of an organisation;
project management has a definite beginning and end. A project is also a unique, onceoff undertaking whereas general management is an ongoing process.5
Initiating
Closing
Controlling
Planning
Executing
Figure 5.2 The five phases of a project
Before starting on the upgrading of the nine major airports in South Africa, plans had
to be submitted to indicate the cost of upgrading the existing runways, upgrading the
departure halls, the number of workers required to complete the projects, the raw
material needed to upgrade the parking areas, cashflow planning and so on. A budget is
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frequently thought of in financial terms only. However, budgets are also used to plan the
allocation and utilisation of human, physical, and information resources.
Programmes, projects, and budgets are all single-use plans. They require the
manager to make unique decisions and to solve unique problems. Policies, standard
procedures and methods and rules, on the other hand, are standing plans that have
already been approved and must be applied consistently throughout the organisation.
Policies are general statements that guide decision-making in the organisation.
Policies should also ensure that a business organisation complies with a country’s
legislation. Policies limit an area in which decisions are to be made and ensure that the
decisions are consistent with the organisation’s goals. A mining company may have a
policy regarding the allowed hours of overtime work per week per worker. This policy
has to be in line with the national legislation pertaining to overtime work.6
Strategic plans
Tactical plans
Operational plans
Non-recurring activities
Recurring activities
Single-use plans
Standing plans
Programmes
Policies
Budget
Projects
Standard
procedures and
methods
Rules
Figure 5.3 Types of operational plan
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Standard procedures and methods refer to the steps or tasks that must be taken
to achieve a specific purpose. In a garage workshop the procedure to deal with cars
booked for a service could be as follows: cars booked in prior to 06h30 will be
serviced the same morning; after servicing the car it must be quality checked by the
workshop manager. If the workshop manager is satisfied with the work done, the car
must be cleaned. Only after it has been cleaned will the receptionist phone the owner
to collect it. There will also be standard procedures for a car booked in late. The
standard procedure ensures that the service that is provided by the workshop is of
consistent quality.
A rule is a statement that either prescribes or prohibits action by specifying what an
individual may or may not do in a specific situation. For instance, a restaurant may have
a rule that all waiters must leave their personal belongings at the reception desk before
starting their shift. In the intensive care unit of a hospital there may be a rule that all
nurses must wear disposable, sterilised gloves when working with patients.
For managers to formulate realistic operational plans, they need clear guidance
from strategic and tactical plans. Only if the different kinds of plans are understood,
will lower-level managers be able to derive their sections’ plans from plans at a
higher level.
5.4 THE TIME FRAME FOR PLANNING
Why do managers responsible for town planning plan ten years or more ahead, whereas
the managers at a clothing boutique have no plans that extend beyond a few months?
Why does Grootegeluk Coal Mine in Limpopo plan years ahead to ensure that the
mine will have sufficient water for its mining operations in 2025? These differences
in the time frame for planning have nothing to do with the quality of management
— or specifically planning — in these organisations. The reason for the different
time frames has to do with the future impact of the decisions that these managers
currently make. The decision to plan a new town entails an investment of billions of
Rands that will take decades to recoup. The clothing boutique turns over its entire
inventory every season and may have only a one-year renewable lease. To ensure
sufficient water for its mining operations may mean that Grootegeluk Coal Mine will
have to build dams — a project that will obviously take years to plan, have approved
and complete.
Top management usually makes plans that commit resources for long time periods.
Top management at the City Lodge Hotel Group had to commit vast resources when
they decided to open the Fairview Hotel in Nairobi. However, the supervisor in the
breakfast restaurant in the hotel rarely — if ever — makes plans that commit the hotel
well into the future. This shows us that plans, and therefore also goals, formulated
at different management levels cover different time frames. This is illustrated in
Figure 5.4 below.
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Now Time frame
Long-term or strategic planning
Top
management
Tactical planning
Middle management
Operational planning
Lower management
2017 2018 2019 2020 2021 2022 2023
Figure 5.4 The levels and time frames of the different kinds of plan
5.4.1 Long-term plans
Strategic planning focuses on the future and extends beyond the organisation’s current
realities. The time frame that strategic planning covers can be considered as long
term. The time span for strategic planning varies from one organisation to the next
— as was stated in a previously. The time frame for strategic plans should take into
account variables such as the stability of the relevant industry and turbulence in the
business environment.
5.4.2 Medium-term plans (tactical plans)
Medium-term plans refer to the medium-term planning carried out by middle
management for the various functional departments in the organisation. This includes
planning for the research and development, marketing, financial, operations, human
resources, administration, and other functions. Medium-term plans are components of
long-term goals and plans that focus on the contribution that the different departments
must make to help implement the strategic plan.
5.4.3 Short-term plans (operational plans)
Short-term (or operational) plans are concerned with periods of no longer than a year.
They are developed by lower management to achieve the operational goals. Short-term
plans are concerned with the day-to-day activities of the organisation and the allocation
of resources to particular individuals in accordance with particular projects, budgets,
and so on, in order to fulfil certain aims. In a takeaway restaurant the scheduling of
workers for the different shifts will be considered an operational plan.
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5.5 STEPS IN THE PLANNING PROCESS
Planning is carried out in identifiable, logical steps. Essentially the same steps are
followed in planning, irrespective of the complexity of the situation — whether it is
planning the refurbishment of an airport lounge or renovating a small pet parlour.
Figure 5.5 below depicts these logical steps.
Step 1: Identifying changes that necessitate planning
In a stable environment it would be easy to plan. However, the volatile environment
in which modern organisations have to survive requires continual planning. The first
step in planning is therefore to identify any changes that necessitate planning. These
changes can occur in the external or internal environments of a business organisation. A
change in the flight schedule of a major domestic airline could mean that a countrywide
provider of fresh flowers has to re-plan their internal activities to ensure that the picking
of flowers, and the despatch thereof, is aligned with the new flight schedule.
Step 2: Establishing goals
Once the changes have been identified, goals need to be formulated to give direction to
all major plans. These goals form a hierarchy, starting with the vision at the top of the
hierarchy. The vision is then translated into a mission statement, which is translated into
long-term goals for the organisation. These in turn are translated into functional goals,
and so on. (Goal formulation is discussed in Section 5.8.)
Step 3: Drawing up premises (assumptions)
The third step is for management to agree on the planning assumptions or premises. All
plans are based on assumptions. It would be surprising if the individual members of the
organisation’s management team all have the same assumptions regarding the future of
the organisation. One manager may expect a major technological innovation, such as
the Internet, to have a profound impact on the way that the organisation goes about its
business. Another may feel that the impact would be minimal. The use of different sets
of premises (assumptions) by different managers can be detrimental to an organisation.
Consistent assumptions should, therefore, be agreed upon by top management — and
shared with other managers — to ensure that subordinate managers base their plans
upon the same assumptions.
Step 4: Developing various courses of action
It seldom happens that there is a plan for which there are no alternatives. The fourth step
in the planning process is, therefore, to search for and examine various courses of action.
Step 5: Evaluating various courses of action
When evaluating various courses of action, managers will have to decide on criteria
that will enable them to choose the best option or course of action. They may decide
on criteria such as cost, implications for cash flow, influence on current staff, alignment
with the brand image, customer preferences, or any other relevant criteria. All options
must then be assessed against these criteria.
The number of options in most situations is legion, and the numerous variables and
limitations may be complex. This makes the evaluation of options a difficult task.
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Consider, for instance,
Future opportunities in the light
of: the changing market, competition, customers’ needs, own
strengths, own weaknesses
Consider, for instance,
Where we want to be
What we want to accomplish
(eg reduce cost)
When we want to accomplish it
Consider planning
premises
Consider, for instance,
Our assumptions about the
external environment (macroand market) and the internal
environment in which our plans
will operate
Identify
alternatives
Consider, for instance,
Which are the most promising alternatives in terms of our
goals (eg to reduce costs)
Compare alternatives in the light of
goals sought
Consider, for instance,
Which alternatives are most
viable in terms of our goals
(eg to reduce costs)
Choose an
alternative
Consider, for instance,
The course of action we will
pursue (eg re-engineer the
organisation)
Formulate supporting plans
Consider, for instance,
Plans to retrain workers in new
systems and processes
Develop
budgets
Consider, for instance,
Future sales
Expenses
Identify changes that
necessitate planning
Vision, mission
goals
Figure 5.5 Steps in the planning process
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Techniques that are widely used for the evaluation of possible options are risk analysis,
decision trees, and preference theories. A decision matrix is a simple yet effective tool
to use to evaluate all the options of a decision. When using the matrix, managers must
create a table with all of the options in the first column and all of the factors that affect
the decision in the first row. Users then score each option and weigh which factors are of
more importance. A final score is then calculated to reveal the best option.
Another very simple technique is the T-chart. The chart ensures that all the positives
and negatives are taken into consideration when making a decision.7
Step 6: Selecting a course of action
The real point of decision — the sixth step — is now reached. The manager selects the
course of action that he or she chooses to follow; they may even decide to follow several
courses rather than a single one.
Step 7: Formulating derivative plans
Planning is seldom complete when a decision is made. For example, the decision to
change the menu of a group of take-away fast-food outlets to serve only vegan food will
have to look at derivative plans dealing with the new layout of the outlets, retraining of
staff, updating of the kitchen facilities as well as the processes and systems in each outlet.
Step 8: Budgeting
The eighth and final step in the planning process is the conversion of the plans into
budgets. Through budgeting, managers ensure that they have the resources available to
carry out the plans to achieve the organisation’s goals.
5.6 BARRIERS TO EFFECTIVE PLANNING
At this stage of our discussion of planning as the fundamental function of management,
it may sound strange to say that not all managers are keen planners. However, managers
are often reluctant to plan.
The dynamic and complex environment in which managers work requires careful
consideration during planning. Planning is therefore an ongoing process as plans have to
be continuously updated when change occurs. Managers need to be well-informed about
changes in technology that may affect the organisation, new innovations by competitors,
changes in customer preferences, new legislation, and many other possible changes.
In order to plan effectively, all managers need a clear understanding of the organisation
as a whole. They must know which resources their organisation can utilise in order to
attain the vision, mission, and goals of the organisation in a changing environment.
They need to understand the strategy that the organisation is following. They also need
to understand the goals of their own and of other sub-units (departments, divisions,
or sections).
Managers may be reluctant to plan as they may not understand the principles of
formulating goals (see the sections that follow). They may also lack confidence in their
own ability and that of their subordinates and may be concerned that well-formulated
plans may expose them as less productive. Fear of failure may be another reason why
managers are reluctant to formulate goals; by not setting goals for their sub-units,
managers cannot be accused of not attaining their goals.
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Resistance to change is another reason why managers may be reluctant to plan. Almost
by definition, planning involves changing one or more aspects of an organisation’s
current solutions to enable it to adapt to the ever-changing external environment.
Organisational changes may be required in one or more elements of the organisation
— the organisational structure, the reward system, or work hours, to mention just a few.
In planning for change, management almost inevitably encounters resistance. This
resistance may be so severe that a manager may decide not to implement his or her plans
for the sake of not ‘rocking the boat’. (see Chapter 9 on managing change.)
Planning is time-consuming and expensive. Managers sometimes become so
involved in their day-to-day activities that they neglect their management task of
planning. Setting up a planning system and gathering information to make it work
requires time and effort from many people. This high cost of planning — especially
when it is introduced into an organisation for the first time — is often expected to be
justified with tangible results. Since this is difficult to do, planning is often reduced to a
superficial process.
Some managers believe that crisis management is inevitable and that planning —
good or poor — is of little use in the constantly changing business environment.8
Barriers to effective planning discussed in this section include:
■
A lack of knowledge of the constantly changing external environment
■
Lack of understanding of the business’s strategic plan
■
Poor understanding of the principles of goal formulation
■
Resistance to change
■
Managers believing that crisis management is inevitable
■
Planning being time-consuming and expensive.
Although the barriers to planning might seem insurmountable, there are guidelines that
managers can use to overcome them:
■
Effective planning should start at the top of an organisation. Top management’s
sincere involvement in planning sets the stage for subsequent planning at middle
and lower management levels, and stresses the importance of planning to everyone
in the organisation.
■
Management should realise the limitations of planning. Although it may sound
paradoxical, good planning does not necessarily ensure success — adjustments and
exceptions are to be expected as a plan unfolds.
■
The role that line and functional managers play in the planning process cannot be
overemphasised. Since they are the individuals who have to implement the plans,
their involvement in planning is obvious. People are more committed to plans they
have helped to shape.
■
Communication plays a vital role in planning. Managers and all other employees
should have a clear understanding of the grand strategy of the organisation (for
example, to reduce operating costs), as well as of the functional strategies (for
example, the marketing and production strategies) and of how they are interrelated.
■
Plans should continuously be revised and updated. Planning should be seen as a
process and not a once-off activity. New information on changes in the business
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environment, an unexpected strike by factory workers, or the discovery of a
hazardous substance in a pharmaceutical product being developed, are examples of
events that make planning a dynamic process.
■
Contingency planning may be very useful in a turbulent environment. Contingency
planning is the development of alternative courses of action to be taken if an
intended plan is unexpectedly disrupted or rendered inappropriate.
5.7 PLANNING TOOLS
There are planning tools that managers can use to ensure that their plans are realistic
and attainable, yet still challenging. Like in all other occupations, managers also have to
learn how to use these planning tools properly in order to compile the plans. Some of
the popular planning tools used by managers are discussed in the sections that follow.
5.7.1 Forecasting
An important prerequisite for planning is to have some idea of what is likely to happen in
the future as far as the organisation is concerned. A forecast is therefore a projection of
conditions expected to prevail in the future based on both past and present information.
Forecasts can be subjective, that is, based on experience and intuition. Forecasting can
also be based on past trends that are projected into the future. This is referred to as
extrapolation. Causal modelling can also be used as a forecasting technique where the
relationships (cause-and-effect) between variables become the basis for forecasting.9
Forecasting starts with the identification of factors that might provide opportunities
or pose threats to the organisation in the future. Areas of forecasting that are of the
utmost importance to most organisations are sales and revenue forecasting and
technological forecasting. Sales forecasting, as the term implies, is concerned with
predicting future sales. Monetary sources, derived mainly from sales, are necessary to
finance both current and future operations. Knowledge of future sales is thus vital to
the organisation.
Examples of poor forecasting
‘The abolishment of pain in surgery is chimera. It is absurd to go seeking it today. Knife and
pain are two words in surgery that must forever be associated in the consciousness of the
patient.’ (Dr Alfred Velpeay, 1839)
‘The population of the earth decreases every day, and if this continues, in another ten
centuries the earth will be nothing but a desert.’ (Montesquieu, 1743)
‘That [the atom bomb] is the biggest fool thing we have ever done ... The bomb will never go
off, and I speak as an expert in explosives.’ (Admiral Will D Lehy to President Truman, 1945)
‘My figures coincided in fixing 1959 as the year when the world must go to smash.’
(Henry Adams, 1903)
‘What, sir, would make a ship sail against the wind and currents by lighting a bonfire under
the decks? I pray you excuse me. I have no time to listen to such nonsense.’ (Napoleon to
Robert Fulton, inventor of the steam engine)
➜
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‘The demonstration that no possible combination of known substances, known form of
machinery and known form of force can be united in a practical machine by which man
shall fly long distances through the air, seems to the writer as clear as it is possible for the
demonstration of any physical fact to be.’ (Simon Newcomb, astronomer, 1903)
The term ‘sales forecasting’ is appropriate not only to organisations that sell goods or
services. All kinds of organisation depend on financial resources which necessitate
forecasting. A traditional university must forecast future student numbers when
planning to expand its classroom facilities; a hospital needs to forecast its income from
patients, and airlines have to forecast the number of tourists who may visit a specific
country during a specific period. In these cases, revenue forecasting would seem to be a
more appropriate term than the more conventional term ‘sales forecasting’.
Technological forecasting focuses on the prediction of what future technologies are
likely to emerge and when they are likely to be economically feasible. Research by the
World Economic Forum identified the following as major technologies for the period
2018 to 2020:
1. Advanced robotics and autonomous transport
2. Artificial intelligence and machine learning
3. Advanced materials, biotechnology and genomics.10
Managers must be able to anticipate new technological developments in their industry.
This gives the organisation an advantage over its competitors whose products or services
may become obsolete as a result of new technology.
Although sales and revenue forecasting and technological forecasting are vital, other
types of forecasting are also important to many organisations. Resource forecasting
projects future needs for human, financial, physical, and information resources.
Economic forecasting focuses on factors such as the inflation rate, interest rates, and the
potential level of unemployment in a country. Some organisations undertake market
forecasting and the forecasting of possible new legislation that might affect them. In
fact, virtually any component in an organisation’s external environment (macro- and
market environments) is an appropriate variable for forecasting.
5.7.2 Budgeting
A budget is a financial plan that deals with the future allocation and utilisation of
resources over a given period. Budgets are typically thought of in financial terms,
but also in terms of the allocation and utilisation of raw material, labour, office space,
machine hours, computer time, and so on. A budget can be seen as a tool that managers
use to translate future plans into quantitative terms (Rand and cents).
Although budgeting is an important part of planning, it also serves as a control
mechanism for evaluating organisational activities. A budget exercises control in
two ways:
■
It sets limits on the number of resources that can be used by a department or unit
■
It establishes standards of performance against which future events will be compared.
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Characteristics of budgets
■
■
■
■
■
■
They are most frequently stated in monetary terms
They cover a specific period (usually one year)
They contain an element of management commitment
They are reviewed and approved by an authority higher than the one that prepared them
Once approved, they can be changed only under previously specified conditions
They are periodically compared with actual performance, and variances are analysed and
explained.
Generally, budgets help managers to coordinate resources and projects and they help
to define the standards needed in all control systems. They provide clear guidelines on
an organisation’s resources and on their utilisation. Budgets also facilitate performance
evaluations of managers and units by assessing a business organisation, unit, department
or section against specific standards.
Zero-based budgeting (ZBB) is a planning technique that plays an important role in
organisations going through change. In traditional budgeting, departmental managers
need to justify only increases over the previous year’s budget. For example, a manager
may increase her department’s advertising budget by ten per cent each year. This method
of budgeting works well if very little change occurs in an organisation and the future is
much the same as the current realities. In the case of ZBB, no reference is made to the
previous level of expenditure as it is considered irrelevant in the changing situation.
Every department function is reviewed comprehensively and all expenditures rather
than only increases are approved. ZBB is a technique by which the budget request has
to be justified in complete detail by each division manager starting from the zero base.
The zero base is indifferent to whether the total budget is increasing or decreasing.11
5.7.3 Scheduling and monitoring
The Gantt chart
The Gantt chart is a graphic planning and control method in which a project is broken
down into separate tasks. Estimates are then made of how much time each task requires
as well as the total time needed to complete the entire project. The starting and end
dates of the tasks are indicated on the chart.
When planning a new training programme for salespeople, the essential activities of
the programme must be determined. These activities are depicted on the vertical axis in
Figure 5.6 below. This chart shows that some of the activities require the completion of
other activities before they can begin (for example, the training needs analysis must be
completed before the design of the programme can start).
Once the basic activities have been determined, a target completion date must be set
for each activity. This is depicted on the horizontal axis. The next step is to determine
the duration of each activity. If the programme starts on 2 January, registration must
start on 1 November of the preceding year.
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Training needs analysis
Design of programme
Training of facilitators
Launching of
programme
Printing of study
material
Registration of students
Programme starts
1
May
1
Jun
1
Jul
1
1
Aug Sep
1
Oct
1
Nov
1
Dec
2
Jan
Figure 5.6 Gantt chart
Once the activities, as well as the activity duration, completion time, and latest starting
time have been determined, the Gantt chart can be drawn.
Managers can monitor the progress of the project by comparing actual progress with
planned progress.
PERT
PERT, an acronym for programme evaluation and review technique, is a planning
tool that uses a network to plan projects involving numerous activities and their
interrelationships. The key components of PERT are activities, events, time, the critical
path, and possibly cost (see Figure 5.7 below).
These components are explained in the following example: If a construction
company is awarded the project by the South African government to upgrade the N3
highway between Heidelberg and Villiers, the construction of the highway will comprise
several events for the company. Each event will require multiple activities. Time can be
measured in a variety of ways. In this case, because of the length of the project, it will be
measured in weeks and months to determine the critical path. Knowledge of a critical
path is essential, because it determines the length of time it will take to complete the
highway by identifying how long each activity will take. In the case at hand, it could be
essential for the construction company to complete the highway before the beginning of
the December school holidays. There may even be a penalty payable to the government
if the project is not completed by a certain date. The critical path is the longest or most
time-consuming sequence of events and activities in a PERT network. This should
enable management to work out the time it will take to construct the highway in order
to ensure that it is completed on time. Four steps can be followed in developing a PERT
network as discussed in the sections that follow.
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1
A-2
2
E-7
B-6
3
F-5
6
H-4
End
8
Start
C-4
D-10
4
5
G-7
7
145
J-1
9
I-6
0
Circles = Events
Arrows and letters = Activities
Numbers = Time in months
Double arrows = The critical path, or how long it should take to complete the project
Figure 5.7 A PERT network
Step 1 List all activities and events
All the activities and events that must be completed to realise the objective should
be listed (see Figure 5.7 above). Each should be assigned a letter. In constructing the
highway, relevant events for the construction company would include: design of the
highway, approval of the plans, preparing detours for traffic, closing off certain sections
of the highway, demarcating the boundaries of the highway, felling trees, and so on. In
Figure 5.7 we have identified nine such events. Each event comprises activities.
Step 2 Determine completion times
The time to complete each activity, and therefore each event, should be determined. In
Figure 5.7, time is measured in months. Event 2 should take two months to complete,
Event 3 six months, and so on.
Step 3 Arrange tasks chronologically
Arrange tasks in the sequence in which they should be completed. In Figure 5.7, for
example, E must be completed before H can begin. Note that activity D is independent
of the other activities. The numbered circles signify the completion of an event. In
Figure 5.7, 1 represents the start of the project and 9 the completion date.
Step 4 Determine the critical path
The critical path should be determined. To do this, total the time it takes for each path
from start (1) to end (9). Path 2 – 6 – 8 – 9 takes 2 + 7 + 4 + 1 months, thus 14 months.
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Path 1– 3 – 6 – 8 – 9 takes 16 months. Path 1 – 4 – 7 – 8 – 9 takes 18 months. Path 1 – 5 –
9 takes 10 months. The critical path is 1 – 4 – 7 – 8 – 9. The project should therefore take
18 months to complete. PERT allows managers to monitor a project’s progress, identify
possible bottlenecks, and shift resources as necessary to keep the project on schedule.
5.8 GOAL FORMULATION
Formulating business goals involves introspection into what makes an organisation
successful, and what managers want its future to be. Goal formulation begins by asking:
‘What are the overall goals for the business as a whole?’ The answer to this question will
then trigger goal formulation at departmental as well as section level.
The hierarchy of plans clearly differentiates between:
Strategic plans
■
Tactical plans
■
Operational plans.
■
Goals must be formulated for each of these three levels to ensure that the plans are
focused on the same end result — the mission statement. The goals in an organisation
therefore also form a hierarchy, ranging from the broad purpose of the organisation,
and its mission, to very specific individual goals (see Figure 5.8 below). This is evident
in the following example that illustrates goal formulation in a South African mining
company. (Bear in mind that only one of the general mine manager’s goals is depicted
in Figure 5.8. There are obviously other goals for which this manager will also be
held responsible.)
Goal formulation: An example
In this example, the mine needs to keep costs below R35 per ton in order to be profitable
and to remain competitive in the international market. Should the mine exceed this
limit, it would reduce the company’s planned profits and may have to close down. The
maintenance managers and the production managers have cost goals that will ensure
that the mine keeps within the overall goal.
In turn, maintenance managers require that their assistant maintenance managers
(plant and mining) achieve cost goals that will ensure that they remain within their R20
per ton cost goal. If any one of the managers fails to achieve their goals, the company’s
profits will be harmed, which will impact not only on the mine, but also on the other
stakeholders — shareholders, employees, customers, suppliers, the community, and
the government.
5.8.1 The focus areas
A well-written mission statement will provide clear guidelines in terms of the key focus
areas of the organisation when its long-term goals are formulated. These focus areas — also
called key performance areas — are areas that have been identified by top management
as crucial in the attainment of the organisation’s mission. The key performance areas
stated in the mission statement therefore clearly highlight top management’s priorities
for the future. Words or phrases in the mission statement, such as ‘lowest cost producer’,
or ‘most innovative’, or ‘superior returns for our shareholders’, indicate what the goals
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have to focus on. These words or phrases in the mission statement lend themselves to
different interpretation, however, and therefore have to be translated into something
more specific and measurable. What does ‘lowest cost producer’ mean? Or how is ‘most
innovative’ interpreted by managers and employees in different sections and levels of
the organisation?
The mission statement of SA mining company
To be the lowest cost provider of coal
to industries in South Africa
Organisational goal
To realise an above-average return for our
shareholders
General mine manager
Other general managers
Total production cost of the mine
must be R35/ton or less
Maintenance manager
Production manager
Cost may not exceed
R20/ton
Cost may not exceed
R15/ton
Plant manager
Mining manager
Cost may not exceed
R7/ton
Cost may not exceed
R13/ton
Figure 5.8 The goals of a South African mining company
The strategic goals of the organisation, guided by the vision, mission statement and
strategies of the organisation, will often focus on such areas as the following:
■
Finance
■
Customers
■
Internal processes
■
Learning and innovation.
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The above four dimensions are the focus areas suggested by Kaplan and Norton in the
balanced scorecard (see Chapter 4). These focus areas ensure that the organisation
focuses on short-term issues (finance) as well as long-term issues (customers, internal
processes and learning and innovation).12
However, organisations should adapt the balanced scorecard to reflect the
key performance areas of the specific organisation. For example, an organisation
could add a ‘risk’ dimension to the above four dimensions if they operate in a
high-risk environment.
5.8.2 Properties of well-formulated goals
Understanding the nature of goals — especially their hierarchy and areas of focus
— enables managers to formulate goals for the organisation, for its departments and
sections, and for the individuals in them, that focus on the mission of the organisation.
The balanced scorecard was designed to ensure that all goals in the organisation
are well aligned and focus on the same key performance areas (see Chapter 4). A wellconstructed balanced scorecard should reflect all the properties of well-formulated
goals. Figure 5.9 below depicts only one of the dimensions of a balanced scorecard, but
shows what well-formulated goals look like.
Goals need to meet certain specifications in order to fulfil their managerial
purpose. These are specificity, flexibility, measurability, attainability, congruency,
and acceptability. Goals that meet these specifications should be easy to understand
and implement.
Specificity
Good goals should be specific and should indicate what they are related to, the time
frame for accomplishing them, and the desired results. For example, a goal should
not only state that ‘cost must be reduced by 12 per cent’, it should be much more
specific and state that ‘operating cost must be reduced by 12 per cent within the next
two years’.
Flexibility
The turbulent environment in which organisations operate in South Africa and abroad
makes it necessary for management to modify the goals from time to time. Organisations
are often ‘guilty’ of not changing their goals when the conditions on which the goals were
based subsequently change. This could result in the unfair ‘punishment’ of managers
and employees who then cannot attain these goals.
Measurability
Measurability means that goals should be stated in terms that can be evaluated or
quantified objectively. The primary reason why goals should be measurable is to
facilitate control — goals often evolve into control standards for performance appraisal.
The poorly formulated goal ‘to improve on customer satisfaction’ can be made more
measurable by stating that the organisation wants to improve its customer satisfaction
rating to a rating of at least 85 per cent within the next 18 months.
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Objective
Rating
Key
Key
performance
performance
(five-point
area (KPA)
indicator
scale is
(KPI)
used)
Initiatives
Resources
Blockages
required
Customer
Rating on
80 % (before
Conduct
Managers
Culture not
satisfaction
Customers
28 February
survey once
Staff
supportive
Satisfaction
2010)
a year. Install
Computers
of good
electronic
Survey
customer
customer
Information
service
relations
Others
Index
3
149
management
programme
Figure 5.9 The balanced scorecard illustrates the properties of well-formulated goals (customer
dimension)
Attainability
Goals should be realistic and attainable, but should also provide a challenge for
management and workers. People are most productive when goals are set at a motivating
level — a level high enough to challenge, but not so high that it frustrates or so low that
it leads to boredom.
Congruency
Goals should be congruent with one another. Congruency means that the attainment
of one goal should not preclude the attainment of another. A marketing goal to increase
visibility of a specific brand through an advertising campaign could be incongruent with
the financial goal of ‘cutting cost in all areas of the business by 20 per cent over the next
12 months’. Incongruent goals may lead to friction and conflict between departments and
sections. This can be overcome if managers are allowed to function across boundaries.
Acceptability
Managers are most likely to pursue goals that are consistent with their values, attitudes,
perceptions and preferences. The collaboration of managers at all levels in the goalformulation process is therefore important. While the other specifications of goals
discussed in this section may be influenced by management, they cannot influence the
acceptability of goals.
5.8.3 The degree of openness
We can also distinguish between official and operative goals. The official goals of the
organisation are those that society expects the organisation to pursue. They are derived
from the vision and mission of the organisation, and the organisation espouses these
official goals formally and publicly in annual reports and company publications.
Operative goals represent the private, unpublished goals of an organisation. The
operative goals of Volkswagen might include delaying the launch of a new motorcar
until after the dust has settled with regard to their emissions scandal. A university might
have an operative goal of an eight per cent budget increase because it recognises that its
formal request for a 16 per cent increase is unlikely to be granted by the government.
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5.9 THE PROCESS OF GOAL-SETTING
Organisations use different goal-setting processes. These processes range from
centralised to decentralised goal-setting.
In some organisations, the board of directors sets the goals for the organisation as a
whole, for each department as well as each section in the organisation. This ensures that all
goals focus on the organisation’s mission statement. A retail company may decide at head
office that in all its retail outlets at least 40 per cent of managers must be from designated
groups before the end of 2023. When goals are set in this way, we speak of centralised goalsetting. One of the advantages of centralised goal-setting is that it can be done by highly
specialised people who understand the working of the entire organisation.
Although centralised goal-setting has important advantages, it also has significant
disadvantages. One major disadvantage is that the goal-setters may know little about
the particular opportunities and problems faced by lower-level managers. Lower-level
managers may also resist directives coming from above if they do not understand the
reasons for them.
Decentralised goal-setting takes place when managers at each level of an organisation
have the dominant influence on their unit or department’s goals.
Decentralisation in Hyatt hotels
Hyatt Hotels Corporation, with its headquarters in Chicago, USA, is a leading global
hospitality company with a portfolio of 20 premier brands. As of 30 September 2019, the
Company’s portfolio included more than 875 properties in over 60 countries across six
continents. This broad geographic reach means that Hyatt’s operations are very decentralised
and that their managers and staff represent a mix of cultures, languages and ethnicities.
It also means that the hotels operate under many different local laws and regulations,
manage a myriad of social, economic, and political conditions, and operate under varying
levels of infrastructure capacity and development. Decentralisation was therefore a logical
choice as Hyatt cannot meaningfully implement a one-size-fits-all strategy on a global scale.
Source: Hospitality Net. 2019. Available at: https://www.hospitalitynet.org/organization/17001488/
hyatt.html (Accessed: 29 March 2020).
Two basic approaches to decentralisation can be identified, namely the top-to-bottom
approach and the bottom-up approach. In the top-to-bottom approach to goal-setting,
the board of directors or corporate-level managers set the corporate goals and the head
of each division or business unit sets the goals for his or her division or business unit
in line with the corporate goals. The same applies to the other organisational levels,
although higher-level managers usually approve the goals of lower-level managers.
In the bottom-up approach, the lower levels set their goals, and higher-level managers
set their goals to be in line with the lower-level goals. This approach is sometimes less
likely to yield a coordinated effort and congruent goals, as some managers tend to fall into
the trap of tunnel vision and therefore focus only on what is important for their unit.
A combination of the top-to-bottom and the bottom-up approaches is an approach
to goal-setting used by many organisations — this approach stresses the importance of
the purpose and mission of the organisation as formulated by top management, but also
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takes into account the strengths and weaknesses of each division.
Whether goals are proposed from the bottom or imposed from the top, once
agreement has been reached, there should be a firm commitment at all levels to provide
the resources and achieve the results.
Finally, it should be noted that the decision to use centralised or decentralised goalsetting affects strategy selection, the organisational structure, and the management of
the organisation in general.
5.10 TECHNIQUES FOR GOAL-SETTING
In the previous section we discussed the process of setting goals by considering centralised
versus decentralised goal-setting and some of its advantages and disadvantages.
We have also examined the establishment of goals at top, middle, and lower
management levels. We shall now move on to the question of setting goals for the
individual in an organisation.
The balanced scorecard (BSC) discussed in Chapter 4 and earlier in this chapter, is used
by organisations in all industries. The BSC as a goal-setting tool ensures that all departments,
sections and individuals in the organisation focus on the same key performance areas.
Another technique designed to achieve the integration of individual and
organisational goals is called management by objectives or MBO. MBO is based on
the belief that the joint participation of subordinates and superiors in translating or
converting broad organisational goals into more specific individual goals has an impact
on employee motivation. In other words, MBO is based on the belief that you are
motivated to perform more efficiently in an organisation if you participate in selecting
your own personal goals. Obviously, these goals must support the organisation’s strategic
goals. MBO is therefore a disciplined approach by individuals to works towards the
organisation’s goals.
MBO managers focus on the end result — not the activity.13 They delegate tasks
by ‘negotiating a contract of goals’ with their subordinates without dictating a detailed
roadmap of how to do it. Stated differently, MBO is about the end, not the means of
achieving the end. The principle behind MBO is to make sure that everybody within the
organisation has a clear understanding of the strategic goals of the organisation, as well
as their own roles and responsibilities in achieving those goals.
MBO refers to goal formulation at the individual level.
The importance of objectives or goals in management can best be seen by showing how
MBO works in practice.14 Figure 5.10 below illustrates this process.
For an MBO programme to be successful, the process should start at the top of the
organisation and should have the active support of the top managers. Top management
must create an organisational culture that is supportive of a goal-oriented approach.
Before the process of MBO is implemented in an organisation, top management should
explain to subordinates why it has adopted the process. Management and subordinates
should then be informed about MBO and their role in it. Top management should tell
subordinates what MBO will do for the organisation, for each department and section,
as well as each individual in the organisation. Top management should stress the fact
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that it actively supports and is committed to MBO.
The goal
hierachy
Evaluation and
feedback
Job output
Performance
targets
Determination
of checkpoints
Discussion of
goals
Figure 5.10 The process of MBO
The goal hierarchy
Having adopted the MBO philosophy in an organisation, it is necessary for each
subordinate involved in the MBO process to have a clear understanding of the hierarchy
of plans and goals in the organisation. Subordinates should also be informed of which
areas management is focusing on (key performance areas) over the next period. If one
of the focus areas is to reduce costs, the subordinate should understand why this is
important to the organisation.
Job output
The goal-setting process starts with a discussion between the manager and the subordinate
regarding the outputs for which the latter is responsible. The key performance areas as
well as the key performance indicators of the subordinate — as agreed upon in his or
her performance contract — should be discussed to ensure that both parties are familiar
with the subordinate’s job output. The key performance areas (KPAs) must be aligned
with the organisation’s KPAs.
Performance targets
The subordinate formulates performance targets in predetermined areas of
responsibility for a forthcoming period. Each goal should be as quantitative as possible,
specific, concise, and time related. Each goal should be in writing and should meet the
specifications for well-formulated goals as set out in Section 5.8.2.
Discussion of goals
During this stage the subordinate meets with his or her superior to discuss potential
performance targets. The purpose of this discussion is to arrive at a set of goals that the
subordinate and the superior have developed jointly and to which both are committed.
Involvement is the key element at this stage. Goals dictated by a superior do not evoke
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full commitment from their subordinates. By the same token, failure by a superior to
participate fully and actively in this step leads subordinates to believe that management
places little value on MBO.
Training
and
development
Monitor and
feedback
Strategic
goals
Individual
goals (using
MBO)
Tactical
goals
Operational
goals
Figure 5.11 From strategic goals to goals for individuals
Superiors play the critical role of counsellors in the goal-setting discussion. They should
ensure, amongst other things, that the subordinates’ goals are indeed attainable and that
these goals will facilitate goals at the higher levels of the goal hierarchy. The goal-setting
process may, however, take the form of a struggle. The employee may want to set easy
targets to ensure their achievement, whereas the supervisor may want to set challenging
targets to increase work performance.
The discussion between the subordinate and the superior should also spell out the
resources that a subordinate needs in order to work effectively towards goal attainment.
A subordinate should know which human resources he or she is allowed to mobilise (for
example, the number of marketing researchers from the marketing department), the
financial resources available to him or her (budget), the physical resources allocated to
him or her (office space, computers, vehicles, warehouses, and so on), and the information
resources at his or her disposal (such as reports, surveys and financial statements).
Determination of checkpoints
A subordinate’s progress needs to be measured periodically and checkpoints need to be
established for this purpose. If the goals are established for a one-year period, it may be a
good idea for the subordinate and the superior to meet on a more regular basis to discuss
progress to date. These periodic reviews not only monitor the subordinate’s progress,
but also provide an opportunity to adjust goals that have become unrealistic in the light
of changing conditions or uncontrollable events — such as the loss of productive hours
due to a strike or the resignation of a key person in a project.
Evaluation and feedback
At the end of the predetermined performance period, the superior should meet with the
subordinate to review the degree of goal attainment. The meeting should focus on goal
analysis and a discussion of the results actually achieved. The supervisor should also
give feedback to the subordinate on his or her progress.
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From the discussion above, it should be clear that a great deal of planning and
commitment from top management, superiors, and subordinates is necessary to
implement MBO successfully. It is also evident that changes in an organisation may
have to be made in areas such as communication between managers and subordinates in
order to facilitate the MBO process. The question now arises: is it really worthwhile for
an organisation to adopt the MBO philosophy? The benefits that are discussed below
should convince a critic of MBO that it is a very useful planning tool if used correctly.
Some of the major benefits that organisations experience when they implement MBO are:
■
Improved employee morale through participation in goal-setting
■
Buy-in into the organisation’s strategic goals
■
Increased clarity of the outputs that have to be delivered
■
Improved communication resulting from the process of discussion of goals
■
Identification of development areas for individuals
■
Training and development of individuals aligned with the organisation’s strategy.
MBO also has limitations, one of them being the overburdening of the manager and the
subordinate with the administration of the process. The formulation of goals can be timeconsuming, leaving both managers and employees less time in which to do other work.
5.11 SUMMARY
Chapter 4 focused on strategic planning — the starting point in the planning process. In
Chapter 5 we looked at planning as a primary management function. All plans should be
aligned to ensure that they support the strategic plan of the organisation.
Different kinds of organisational plans can be identified, namely strategic, tactical,
and operational. These plans form a hierarchy — from broad strategic plans at the top
to detailed operational plans at the bottom of the hierarchy. Strategic plans focus on
the entire organisation, are formulated by top management, and have an extended
time frame, often five years or more. Tactical plans are more specific and concrete than
strategic plans. These plans are formulated by middle management and focus on areas
such as marketing, finance, purchasing and human resources. The time horizon of
tactical plans is usually from one to three years. Operational plans are narrowly focused
and have relatively short time horizons. They are usually formulated by middle level and
lower-level managers.
There are two basic forms of operational plan, namely single-use plans and standing
plans. Single-use plans are formulated for non-recurring activities and standing plans
for recurring activities. Managers may not use their own initiative when standing plans
have to be implemented.
We examined the planning process by discussing each of its steps, from identifying
changes that necessitate planning to the final step, which is the development of budgets.
Although planning is the fundamental management function, managers are
sometimes reluctant to plan. The reasons for this reluctance could be managers’ lack of
environmental knowledge, a lack of organisational knowledge, resistance to change, and
various other reasons. To overcome resistance to change, managers can use planning
tools such as budgets, forecasts, the Gantt chart, and PERT.
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Goals or objectives form an integral part of planning. Organisations and managers
have multiple goals that are sometimes incompatible and that may lead to conflict within
an organisation. The coordination of goals is of vital importance to an organisation if
all the goals are to move the organisation in the same direction. In order to develop
congruent goals, they should be differentiated in terms of four variable factors, namely
the organisational level, the focus, the degree of openness, and the time frame.
If the organisation is to attain its goals, these need to be specific, flexible, measurable,
attainable, congruent, and acceptable. The balanced scorecard is often used to construct
goals as it leads to clearly understandable and measurable goals.
The procedure for setting goals may range from centralised to decentralised goalsetting. Centralised goal-setting takes place when the goals of an organisation are
formulated by top management — these goals encompass the entire organisation.
Decentralised goal-setting takes place when managers at each level of an organisation
have the dominant influence on their departments’ goals. Two basic approaches can be
identified in this case, namely the top-to-bottom approach and the bottom-up approach.
A popular technique for integrating individual and organisational goals is called
‘management by objectives’ (MBO). MBO is a widely discussed and used planning
technique nowadays, and is based on the belief that the joint participation of
subordinates and superiors in translating broad organisational goals into more specific
individual goals has a positive impact on employee motivation. Although MBO is not a
perfect goal-setting or planning technique, it is preferred to other planning techniques
in which there is a notable absence of calculated incremental effort to shape or influence
the direction in which an organisation is heading.
REFERENCES
Kwach, J. ‘List of scarce skills in South Africa in 2020’. Briefly. Available at: https://briefly.
co.za/26159-list-scarce-skills-south-africa-2020.html (Accessed: 29 March 2020).
2. Edcon. nd. Available at: http://www.edcon.co.za/careers-working.php (Accessed: 29
March 2020).
3. City Lodge Hotel Group. nd. Available at: https://clhg.com/hotels/901/Fair view-HotelNairobi (Accessed: 30 March 2020).
4. Project Insight. nd. ‘5 Basic phases of project management’. Available at: https://
projectinsight.com/project-management-basics/basic-project-management-phases
(Accessed: 30 March 2020).
5. Crowe, A. 2018. The PMP Exam: How to Pass on Your First Try. Sixth Edition. Kennesaw,
GA: Velociteach.
6. The South African Labour Guide. nd. Available at: https://www.labourguide.co.za/
conditions-of-employment/763-working-hours-and-overtime (Accessed: 1 April 2020).
7. Read Write Think. nd. ‘T-chart’. Available at: http://www.readwritethink.org/classroomresources/printouts/chart-30225.html (Accessed: 1 April 2020).
8. Tanner, R. 2020. ‘Seven reasons why managers fail to plan’. Management is a Journey®.
Available at: https://managementisajourney.com/seven-reasons-why-managers-fail-toplan-2/ (Accessed: 1 April 2020).
9. The Economist. 2012. Numbers Guide: The Essentials of Business Numeracy, 5th ed, Chapter 5
10. World Economic Forum. 2016. ‘The Future of Jobs’. Available at: http://www3.weforum.
org/docs/WEF_Future_of_Jobs.pdf (Accessed: 1 April 2020).
1.
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11. Based on Lussier, RN. 2008. Management Fundamentals: Concepts, Applications, Skill
Development, 5th ed. Mason, Ohio: South-Western Cengage Learning.
12. Harvard Business Review. 2005. ‘The Balanced Scorecard: Measures that drive performance’.
13. Kotelnikov, V. nd. ‘Management by Objectives (MBO)’. 1000 Ventures. Available at: http://
www.1000ventures.com/business_guide/mgmt_mbo_main.html (Accessed: 1 April
2020).
14. Liraz, M. 2013. How to Implement MBO in Your Business. Kindle edition (page unknown).
CASE STUDY
Balanced scorecard for a hotel
Royal City Hotel is a four-star boutique hotel in the centre of Durban. It belongs to a South
African family who opened the hotel in 1955 and has been passed on from generation to
generation in the same family. The hotel offers luxury, en-suite bedrooms to mainly South
African tourists who want to explore Durban and its surroundings. The family owns only
this hotel and does not intend to open more hotels. The hotel offers accommodation and
breakfast but does not have any other facilities, such as a swimming pool, gymnasium or spa.
The hotel has always been very popular with local tourists and has been a huge financial
success. However, in the past two years, three new hotels across the road have opened
their doors. All three hotels provide accommodation as well as all modern comforts, such as
hairdressing salons, small gymnasiums, luxury restaurants, swimming pools, and so on.
The latest financial results of the hotel showed poor performance: Room occupancy was
down by 35 per cent compared to the previous year, operating costs increased by 25 per cent
during the same period, staff turnover increased by 12 per cent.
This poor performance forced top management of the hotel to set clear goals for the hotel.
During a ‘bosberaad’ top management agreed to change their product offering and agreed on
the following goals for the hotel:
1. Decrease the service costs per room by 12 per cent within the next year
2. Increase the average room rate from R 1 800,00 per night to R 2 250,00 per night
3. Attain a rating of at least 85 per cent on the independent Customer Satisfaction Index
every year
4. Implement a new online booking system within two years
5. Retrain all reception staff to be able to work with the new online booking system within
two years
6. Convert two of the smallest adjacent rooms into a compact gymnasium within the next
18 months.
Top management is positive that the above changes will improve the revenue as well as
productivity of the hotel and will help to re-establish it as the preferred hotel of many South
African tourists.
CASE STUDY QUESTIONS
1. Make a recommendation to top management to use the balanced scorecard (BSC),
as a tool to formulate clear goals for the hotel. Provide at least three sound reasons
for your recommendation.
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2. Based on the information provided in the case study above, compile a balanced
scorecard for Royal City hotel.
3. Explain to top management of the hotel what their BSC really means.
4. Explain how the BSC can become the focus of all managers and workers in the hotel.
MULTIPLE-CHOICE QUESTIONS
Question 1
Which one of the following statements is correct?
1. Planning is the responsibility of top management only
2. Top management focuses primarily on the internal environments when planning
for the future
3. Supervisors are responsible for tactical planning in the organisation
4. Strategic plans are translated into tactical and operational plans.
Question 2
The management functions are best described as
1. planning, leading, organising, controlling
2. planning, organising, leading, controlling
3. leading and motivating
4. monitoring and controlling.
Question 3
Planning activities include
1. forecasting
2. goal formulation
3. scenario planning
4. all of the above.
Question 4
Complete the figure below that depicts the strategic goal hierarchy in an organisation.
1. Single-use plans
2. Policies and procedures
3. Tactical goals
4. None of the above completes the figure correctly.
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Question 5
plans should ensure that the organisation is aligned with opportunities
and threats in the external environment.
1. Tactical
2. Operational
3. Strategic
4. None of the above.
Question 6
The upgrading of the N1 highway between Pretoria and Polokwane is called a
1. programme
2. project
3. recurring plan
4. standard plan.
.
Question 7
are standard plans and must be applied consistently throughout an
organisation.
1. Budgets
2. Programmes
3. Projects
4. Policies.
Question 8
The terms ‘activity, event, critical path, network’ relate to
1. the balanced scorecard
2. the Gannt chart
3. PERT
4. regression analysis.
Question 9
focuses on ‘finances’, ‘customers’, ‘internal processes’ and ‘learning and
innovation’ as dimensions for goal formulation.
1. The balanced scorecard
2. The Gantt chart
3. PERT
4. Regression analysis.
Question 10
MBO means that managers:
1. focus on the end, not the means
2. involve subordinates in formulating their individual goals
3. must ensure that subordinates understand the organisation’s strategic plan
4. all of the above.
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PARAGRAPH QUESTIONS
Question 1
Briefly discuss strategic, tactical and operational plans by highlighting any similarities
and differences between them.
Question 2
Explain how project management differs from general management.
Question 3
Explain how the balanced scorecard helps managers to focus on short-term as well as
long-term goals. Your answer must deal specifically with the dimensions that comprise
the balanced scorecard.
Question 4
What possible reasons can managers cite for their reluctance to plan?
Question 5
Briefly discuss management by objectives as a goal-setting approach at individual level in
an organisation. Your answer must focus specifically on how management by objectives
enables an organisation to cascade their strategic goals down to goals for individuals in
the organisation.
ESSAY QUESTION
You have recently been appointed as head of a section in a medium-sized business. The
section has been very poorly managed in the past — mainly as a result of very poor
planning done by your predecessor. Explain how you will go about ensuring that proper
plans are in place for this section in future.
Hint: You will have to summarise almost the entire chapter in order to answer this
question properly. You should limit your answer to less than 900 words (three pages) to
ensure that you focus on the essence of planning and not on peripheral issues.
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6
THE
PURPOSE
OF THIS
CHAPTER
LEARNING
OUTCOMES
KEY
CONCEPTS
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MANAGERIAL DECISION-MAKING
Managers at all levels of an organisation and in all functional areas are
constantly faced with changes in the management environment of
their organisations — opportunities and threats emanate from the
organisation’s external environment, whilst strengths and weaknesses
can come from its internal environment. Managers need to steer their
organisations successfully through these changes and they need to
evaluate alternative courses of action to deal with opportunities, threats,
strengths and weaknesses. Thus, managers are required to make decisions
in order to solve problems and to take advantage of organisational
strengths and weaknesses. This chapter explores creative problem solving
and managerial decision-making. First, we will differentiate between
problems, problem solving and decision-making. Second, the various
types of managerial decisions and conditions of decision-making will be
explored. Third, the various decision-making models and group decisionmaking will be explained, followed by techniques for improving group
decision-making. The chapter will then conclude with recommended
tools for decision-making under the various decision-making conditions.
This chapter will enable learners to:
Differentiate between problems, problem solving, and decision-making
■
Compare the different types of managerial decisions and decisionmaking conditions
■
Explain the various decision-making models
■
Describe group decision-making
■
Suggest techniques for improving group decision-making
■
Recommend tools for decision-making under the various decisionmaking conditions.
■
Brainstorming
Decision-making conditions
■
Decision-making process
■
Delphi technique
■
Group decision support system
■
Nominal group technique
■
Non-programmed decision
■
Optimising
■
Problem solving
■
Programmed decision
■
Satisficing
■
■
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6.1 INTRODUCTION
All managers, regardless of their skills, the level at which they are involved in an
organisation, or the functional area in which they are placed, perform the four
fundamental management functions of planning, organising, leading, and controlling.
While performing these functions, managers are constantly faced with strengths and
opportunities that need to be explored, as well as threats and weaknesses that need to
be solved and decisions that need to be made. When planning, a manager must make
decisions regarding goals and when, where, and how they will be met. When organising, a
manager needs to make decisions regarding the most appropriate organisational structure.
When leading and motivating staff, managers need to decide on the most appropriate
style to follow in order to be as effective and efficient as possible. When controlling,
a manager is expected to compare actual performance with planned performance and,
whilst doing so, may notice that organisational goals have not been met. Thus, a problem
exists that needs to be solved and the manager needs to decide on corrective actions to
take. Decision-making is therefore a central aspect of all four fundamental management
functions. When managers perform these functions with effective decision-making, they
will have fewer problems to solve. Regardless of its goals, the organisation’s long-term
survival depends on its managers’ problem solving and decision-making skills. Decisions
are central to the success of any manager. Successful managers make better decisions
than their competitors, they make faster decisions and they ensure that their decisions
are successfully implemented. In this chapter, we shall explore creative problem solving
and decision-making as part of the armour of the effective and efficient manager.
COVID-19
31 December 2019. The day that the first outbreak of the Coronavirus (COVID-19) disease was
reported from Wuhan, China. Since the first outbreak in China, the virus spread to Thailand. The
outbreak was declared a Public Health Emergency of International Concern — a pandemic —
on 30 January 2020 by the World Health Organisation (WHO). By 2 August 2020, the number
of confirmed cases worldwide has exceeded 18 000 000. It took over three months to reach the
first 100 000 confirmed cases, but only 12 days to reach the next 100 000. By 15 September
2020, the WHO confirmed 29 155 581 cases of the virus with 926 544 deaths across the globe.
As the outbreak spreads, the world’s biggest companies have begun painting a bleak picture
of broken supply chains, disrupted manufacturing, empty stores and flagging demand for
their wares. A major vulnerability for businesses is their increasing reliance on China as
a supplier and customer over the last 10 or 20 years, forcing many businesses to relook at
responsible supply-chain and procurement strategies. Since the Lunar New Year holiday
in China on 12 February 2020, many Chinese workers have been homebound, disrupting
factories that assemble electronics or make automotive parts. At Microsoft, for example,
the virus has hampered production of its laptop and tablet computers, and it cut its sales
forecast for the division that makes those products, scrapping a projection it had issued
just a few weeks earlier. Many businesses experienced supply-chain problems, for example
homebuilders who depend on China for the supply of lighting parts. At the same time,
Chinese consumers were buying less, for example, sales of iPhones and other devices of the
Apple company in China have declined.
The effects of the virus has the world behaving in ways not seen since World War II. South
Africans watched the effects in China, Europe and the USA with the sure knowledge that they
were heading the same way soon — which it did! By 23 March 2020, most global financial
markets were down (in South African Rand terms) around 30 per cent.
➜
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Worst hit countries were Italy (-40 per cent) and Spain, Germany and France (-38 per cent).
China was down just 10 per cent whilst South Africa was down 33 per cent. Overall, (this
was on 23 March 2020) we were seeing, the quickest fall in financial markets since the Great
Depression. Managers and world leaders had to make some of the toughest decisions ever.
Fear of the virus had prompted many companies to suspend international travel by employees.
That drop in demand, combined with their own concerns about the virus, has prompted many
airlines to cancel flights. South African Airways cancelled 162 flights between 17 and 31
March 2020, of which 38 were international and 124 regional, due to the virus outbreak.
Amazon, the go-to site for online shoppers and merchants alike, took steps to get their hands
on inventory as the COVID-19 outbreak continued to spread. Amazon sources many products
it sells on its e-platform from China, where plants are shuttered and production for all sorts
of products had slowed. On March 4, 2020, the company issued a warning that their Prime
service would be slower than normal as more consumers chose to shop online amid virus
concerns. Amazon Prime is a paid subscription service offered by the company that gives
users access to services that would otherwise be unavailable, or cost extra, to the typical
Amazon user, for example, free two-day delivery.
Companies also struggled because investors became more reluctant to lend them money.
Appetite for new bonds, especially those issued by less-creditworthy businesses, had fallen
off. Some Wall Street analysts expressed optimism that the Federal Reserve and other
central banks would cut interest rates to help offset the economic stress caused by the virus.
Such cuts would help lower borrowing costs, giving consumers a fresh incentive to spend,
and businesses to invest. Those hopes were buoyed when the Federal Reserve Bank indeed
decided to cut the benchmark US interest rate by half a percentage point on 3 March 2020,
and again by one percentage point on 15 March 2020, in an attempt to limit the economic
and financial fallout from the virus. The US central bank has not made cuts like these since
late 2008, during the global financial crises. On 19 March 2020, the South African Reserve
Bank followed with a decision to cut the repo rate with 100 points. By July 2020, the Bank
has cut the repo rate by a total of 300 basis. In Germany, the state-run bank KfW was
authorized to lend as much as $610-million to companies affected by the virus. In the UK, the
Bank of England cut rates back to 325-year lows, while the Chancellor (similar to the SA’s
Finance minister) revealed a £30-billion fiscal package. Japan passed two packages of small
business loans, one $4.6-billion package and one $15-billion package.
As the virus spread, along with it came misinformation, inaccurate and dangerous
information on social media regarding the virus. Technology platforms had to make hard
decisions and adopt sharply different policies on coronavirus misinformation, with evidence
that Twitter became the hotbed of such information. Some platforms, such as Pinterest and
WeChat, restrict users’ ability to communicate about the outbreak at all.1
In South Africa, the impact of the virus was also felt. China is South Africa’s largest supplier
of imports and its biggest buyer of exports. A decline in the demand for Chinese steel and
copper manufacturing industries’ products would mean a weaker demand for South Africa’s
largest exports to China. The South African tourism industry also came under pressure.
With about 95 000 Chinese tourists coming to South Africa every year, tourism is one of the
seriously affected economic areas. China is also South Africa’s largest supplier of mobile
phones, supplying 85 per cent of the country’s mobile phone imports. The disruption had a
knock-on effect on the wider telecommunications sector. Early March 2020, the Shoprite
Group estimated that the impact of the virus on its business could mean a loss of R100 million
in turnover. The group decided on a number of responsible strategies, for example orders that
would normally go to Chinese companies, were replaced by orders to other countries such as
India, Bangladesh, Romania, Ukraine and Poland. The Group anticipated challenges for sourcing
items like electrical blankets and heaters for the 2020 winter.
➜
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As the number of infections in the country continues to rise, online shopping was one of the
trends that continued to thrive beyond the crisis. People were buying more and more online
from companies such as Takealot and less in actual shops, a trend that accelerated in the
months to come.
On the evening of 23 March 2020, President Cyril Ramaphosa announced the South African
government’s sweeping measures in a bid to stem the outbreak of the virus in the country. By
imposing a 21-day lockdown, the government hoped to avoid the spread of the virus in public
places. This decision required a careful balance between the impact thereof on people’s
livelihoods and the economy of the country, and the human cost of delaying the action in terms
of people getting sick and possibly dying, the outcome of the lockdown was still unknown.
On the morning of 25 March 2020, the South African Reserve Bank (SARB) announced their
decision that they will begin buying South African Government securities in the open market. No
limits nor end date was mentioned, just that this will continue until liquidity conditions normalise
and the amount and maturity of the bond purchases will be at the discretion of the SARB. By the
time of writing this book, the end date and limits of this decision are not yet known.
The old saying that ‘If China sneezes the entire world gets a cold’ could not be truer than
during the most challenging management times described above.
Source:
1. World Health Organisation. Rolling updates on coronavirus disease (COVID-19). Available online:
https://www.who.int/emergencies/diseases/novel-coronavirus-2019/events-as-they-happen
[Accessed 20 March 2020]
2. Eavis, P. 2020. How bad could it get? Companies gauge the Coronavirus impact. Available online
https://www.nytimes.com/2020/02/28/business/economy/companies-coronavirus-economy.html
[Accessed 3 March 2020]
3. Omarjee, L. & Khumalo, S. 2020. Coronavirus will likely know SA mining, tourism and telecoms
– report. Available online https://www.fin24.com/Economy/South-Africa/coronavirus-will-likelyknock-sa-mining-tourism-and-telecoms-report-20200229-2 [Accessed 3 March 2020]
4. Smith, C. 2020. Coronavirus impact could mean R100m loss in turnover for Shoprite – CEO.
Available online https://www.fin24.com/Companies/Retail/coronavirus-impact-could-mean-r100million-loss-in-turnover-for-shoprite-group-ceo-20200225 [Accessed 3 March 2020]
6.2 THE RELATIONSHIP BETWEEN PROBLEMS, PROBLEM SOLVING, AND
DECISION-MAKING
Managers at all managerial levels are responsible for setting goals (see Chapter 5).
Whenever these goals are not being met, a problem exists. In other words, a problem
exists whenever managers perceive a difference between what has actually happened
and what they wanted to happen.
The outbreak of the Coronavirus has created a management environment that the
world has never seen before — an environment with realised outcomes vastly different
from planned outcomes. The outbreak was declared by the World Health Organisation
as a pandemic, causing a huge impact on people’s lives, families and communities. By
the time of writing this book, the international response to this virus continued to
develop. One thing we knew for sure — organisations were facing several significant
problems and challenges to which they needed to respond swiftly. For example, the
Shoprite Group identified a problem in terms of its supply chain. The Group was reliant
on supply chains from China but with production capacity of China being under strain
due to the virus, rapidly depleting stock levels were becoming a significant risk for
the Shoprite Group, which needed to address the problem, by looking at alternative
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sourcing. Another example is the tourism and hospitality industries worldwide that
came under severe strain — people simply did not make use of these services in order
to contain the virus. Organisations operating in these industries especially faced
cash flow and financial problems soon after the outbreak reached their communities.
Various governments, including the government of South Africa, the United States, the
United Kingdom, Germany and Japan, pledged financial assistance for small businesses
especially in the airline and hotel industries hurt by the downturn in business.2
Problem solving can be defined as the process of taking corrective action that will
solve the problem and that will realign the organisation with its goals. Decision-making,
on the other hand, can be defined as the process of selecting an alternative course of
action that will solve a problem. Managers need to make a decision whenever they are
faced with a problem. Although certain problems cannot be solved and others do not
deserve the time it would take to solve them, managers are responsible for achieving the
goals of the organisation. Therefore, they need to attempt to solve most problems. This
can be done by applying a decision-making model, which will be discussed in Section 6.5.
6.3 TYPES OF MANAGERIAL DECISIONS
Although managers in large organisations, government offices, hospitals, and schools
may be separated by background, lifestyle, and distance, they must all make decisions
involving several options and outcomes. These decisions vary in terms of their content
and frequency.
In general, the decisions made by managers are either programmed decisions or nonprogrammed decisions. Rather than being distinct categories, these types of decisions
represent a continuum, with highly programmed decisions at one end and highly nonprogrammed decisions at the other.
Decisions can be identified as programmed or non-programmed decisions.
6.3.1 Programmed decisions
Decisions are programmed to the extent that they are repetitive and routine. There
are definite methods for obtaining a solution to some decisions, so that they do not
have to be investigated anew each time they occur. The managers of most organisations
face large numbers of programmed decisions in their daily operations. Such decisions
should be made without spending unnecessary time and effort on them. Examples of
programmed decisions at the Shoprite Group is the mark-up of products or ordering
products whenever inventory reaches a certain level. Other examples are the processing
of graduation candidates at a university and the processing of the admission of athletes
to a sports club.
Managers can usually handle programmed decisions by means of policies, standard
operating procedures, and rules (see Chapter 5). These factors enable the decisionmaker to eliminate the process of identifying and evaluating options and making a
new choice each time a decision is required. While programmed decisions limit the
flexibility of managers to some extent, they free the decision-maker to devote attention
to other, more important decisions.
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6.3.2 Non-programmed decisions
Decisions are non-programmed to the extent that they are novel and ill-structured.
Non-programmed decisions have never occurred before. They are complex and elusive
and there is no established method for dealing with them. Managers at all levels of an
organisation make non-programmed decisions.
The decisions that managers had to make as a result of a changing environment due
to the effects of the Coronavirus, are all examples of non-programmed decisions —
they are novel and ill-structured and have never occurred before. For example, at the
Shoprite Group, their supply-chain was disrupted and they needed to seek new sources
for many of their products. Within a few weeks, even days, the effects of the virus were
felt severely in the hospitality and entertainment industries, where management in
these industries had to make non-programmed decisions in terms of finances, staff layoffs, and the safety of their customers and staff. Soon, the same effect was felt in all other
industries across the globe. Organisations, especially small businesses, had to lay-off
some or all of their staff, governments had to make tough decisions regarding the safety
of their citizens and the economic activity in their countries. Decisions such as these
are complex and require the use of creative problem solving. Techniques to encourage
creative problem solving are discussed in Section 6.7.
6.4 DECISION-MAKING CONDITIONS
By identifying the type of decision as well as the conditions under which it will be
made, managers should be in the position to make better decisions. The conditions
under which decisions are made are certainty, risk, and uncertainty, as depicted in
Figure 6.1 below.
Certainty
Outcomes of options
predictable
Risk
Uncertainty
Outcomes of options
unpredictable
Figure 6.1 Decision-making conditions
6.4.1 Certainty
A decision is made under conditions of certainty when the available options and the
benefits or costs associated with each are known in advance. No element of change
intervenes between the option and its outcome. Under conditions of certainty, managers
are simply faced with identifying the consequences of available options and selecting
the outcome with the greatest potential benefit.
As we may expect, managers rarely — if ever — make decisions under conditions
of certainty, because the future is seldom known with perfect reliability. The purchase
of government securities is made under at least near certainty. Barring the fall of the
government, R1 000 invested in a South African Government security for one year at
ten per cent will yield R100 in interest. During a crisis, such as the one described during
the outbreak of the COVID-19 virus, even an investment in government securities may
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not be certain. During the outbreak, the South African Reserve Bank announced that
they will buy back these securities in the open market in order to add liquidity in the
market and to promote the smooth functioning of the domestic financial markets.
6.4.2 Risk
When making a decision under conditions of risk, the manager does not know the
outcome of each alternative in advance, but can assign a probability to each outcome.
Decisions under conditions of risk are perhaps most common.
Probability falls into two categories. Objective probability is based on historical
evidence. It refers to the likelihood that a particular state of events will occur, based
on hard facts and figures. Managers cannot be sure that certain events will occur, but,
by examining past records, they can determine the likely outcome of an event. The
probability of obtaining either heads or tails on the toss of a fair coin is 50 per cent:
the coin is equally likely to land face up or face down. Thus, there is a condition of risk.
The COVID-19 outbreak and subsequent effect of the freefall on global financial
markets, were described by some financial and investment managers as the ‘known
unknown’ — we know that the world has become smaller and more interconnected and
we know that global supply chains have become increasingly fragile and susceptible to
disruptions. As a result of these ‘known’ factors, the global economy will be materially
impacted due to the disruption caused by the Coronavirus outbreak. However, the
‘unknown’ part is the uncertainty surrounding the extent and duration of the impact.3 On
11 March 2020, the Dow Jones Industrial Average (DJIA) entered a bear market for the
first time in 11 years, falling from all-time highs approaching 30 000 to under 19 000 in
just a few short weeks amid the pandemic. A bear market is defined as sustained periods
of downward trending stock prices, often triggered by a 20 per cent decline from nearterm highs. Bear markers are often accompanied (but not necessarily) by an economic
recession and high unemployment, but they can also be great buying opportunities for
the stock market while prices are depressed. As history showed us so many times before,
other markets around the world followed the decline in the DJIA.4 Historical evidence
is available in terms of previous bear markets. Between 1926 and 2017, there have been
eight bear markets, ranging in length from six months up to 2.8 years, for example the
stock market crashes of 1929 and 1987, the global financial crises of 2007–2009, and
the dotcom crash of 2000–2002. Investors and financial advisors can make use of this
historical evidence to provide some guidance in terms of investment decisions.
In many cases, historical evidence is not available, so a manager must rely on a
personal estimate and belief or subjective probability of the situation outcome.
6.4.3 Uncertainty
A decision is made under conditions of uncertainty when there is a lack of information
— the outcome of each alternative is unpredictable and managers cannot determine
probabilities.
The decisions managers had to make during the outbreak of COVID-19 is the best
example of decisions made under conditions of total uncertainty. Why? Decisions
made under conditions of uncertainty are unquestionably the most difficult decisions
you may have to make. In such situations, a manager has no knowledge on which to
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base an estimate of the likelihood of various outcomes. No historical data is available
from which to infer probabilities, or the circumstances are so novel and complex that it
is impossible to make comparative judgements. Although managerial intelligence and
competence are widely available, the ability to deal with uncertainty is rare. Perhaps
the most common occasions for decisions under conditions of uncertainty are those
involving the introduction of new technology (such as fully electric vehicles) or new
markets where management has to rely on its ‘gut feeling’.
A crisis can be defined as an event that is expected to lead to an unstable and
even dangerous environment. A crisis can affect an individual, a group of individuals,
an organisation, a society or even the entire planet. Think about the effects that
climate change has on individuals, organisations and communities worldwide. In an
organisational context, a crisis is the ultimate unplanned activity and the ultimate
test for managers. During a time of crisis, conventional management and decisionmaking practices may not be adequate. Therefore, decision-makers need to be aware
of the various crises that may be sources of uncertainty and risk in their organisations.
These crises fall into seven categories, namely economic, physical, personnel, criminal,
information, reputation, crises and natural disasters. Looking at these seven categories,
the COVID-19 outbreak touched on all seven categories, causing unprecedented
uncertainty worldwide:
1. Economic crises. An economic crisis is regarded as a situation in which the
economy of a country (or even the world economy) experiences a sudden
downturn. Economic recessions and stock market crashes are examples of variables
causing an economic crisis. The COVID-19 outbreak caused a global economic
recession, which was further fuelled by an unfortunate price war in oil markets
between Saudi Arabia and Russia which sent oil prices plunging to levels not seen
since the bursting of the dotcom bubble in 2000, the 9/11 2001 attack in the World
Trade Centre in New York and the second Gulf War.5
2. Physical crises. Physical crisis refers to a situation in organisations experiencing
industrial accidents, problems surrounding the supply of raw material and
components, and product failure. The COVID-19 outbreak caused physical crises
in organisations around the globe in all organisations, but especially those in the
hotel, sport and performing art, furniture and home furnishing, restaurant and bar,
motion picture and sound recording, dentist office, laundry and other personal
services, clothing store, amusement park and casino and scenic transportation
industries.
3. Personnel crises. An organisation may be faced with a personnel crisis during
strikes, workplace violence, or any other reason that prohibit personnel to perform
their jobs adequately. The COVID-19 crises prohibit people to perform their jobs
due to the highly infectious nature of the Coronavirus. The virus, which is new to
the human population, is transmitted mainly by people who cough or sneeze or
stand too closely to each other allowing vaporised droplets to be transmitted to one
another, and also by being in contact with objects which infected people, who are
not necessarily sick, have touched.
4. Criminal crises. This type of crises is caused by criminals — individuals breaking
the rules of law. Theft of money, goods and product tampering may be the cause
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of criminal crises. In the case of COVID-19, governments around the globe made
decisions such as lockdowns to protect vulnerable people such as the aged or
immune-compromised, (in China for example, 14.8 per cent of people aged 80
or older who were diagnosed died) against the spread of the virus. Many people
disregarded these decisions, for example social distancing and personal hygiene.
Another form of criminality that took place was in terms of the overpricing of items
in large demand such as hand sanitisers, face masks and other personal hygiene
items. In South Africa, the government put various meausres in place in its response
to the pandemic, which included a relief package to provide food parcels for the
needy, a temporary social grant increase and the Temporary Employer/Employee
Relief Scheme (TERS) for those whose salaries were affected. The country saw
shameless abuse of all these measures by government officials, politically connected
tenderpreneurs and the corporate sector and a number of ‘COVID-19 millionnaires’
was born while a ruthless pandemic spreads death, pain, grief, poverty and hunger.
5. Information crises. Organisations are relying heavily on information from its
external and internal environment to make decisions and to solve organisational
problems. Organisations also rely heavily on databases on which organisational
information is stored, for example, personnel records, sales records and financial
records. An information crisis can arise in cases when organisational information
is stolen or when organisational records are tampered with or when cyber-attacks
occur. In the case of the COVID-19 outbreak, information crises were also an
issue. As the virus spread, along with it came misinformation, including inaccurate
and dangerous information on social media regarding the virus. Technology
platforms had to make hard decisions and adopt sharply different policies regarding
Coronavirus misinformation.
6. Reputation crises. A reputation crisis exists when an organisation’s competency is
questioned and its reputation is at stake. Few circumstances test an organisation’s
reputation or competency as severely as a crisis. Reputation crises affect stakeholders
within and outside of the organisation. Within the organisation, employees raise
questions, directors are questioned, and shareholders become anxious. Outside
the organisation, customers cancel orders, competitors sense the opportunity
to ‘poach business’, governments and regulators come knocking and lawyers are
not far behind, creating a risky and uncertain environment for the organisation.
Reputation crises may be caused by rumour-mongering or slander. Even countries
can have tarnished reputations. In the case of the COVID-19 outbreak, blame was
levelled at China for the outbreak and for not reporting it immediately to the rest
of the world. World leaders were blamed for not taking action immediately, for
example the governments of the United States of America, Italy and Spain were
blamed for a delayed response, resulting in immense numbers of people becoming
infected by the disease and deaths in these countries. In Italy for example, the
country had on 15 September 2020, 288 761 confirmed cases, with 35 624 deaths.6
7. Natural disasters. Natural disasters not only affect individuals, communities and
organisations, but also have a worldwide effect. Climate change, for example, has
a profound impact on individuals, communities, organisations and continents.
Climate change refers to a change in average long-term weather conditions. This
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change lasts for an extended period of time, typically decades or even longer. There
is sufficient evidence that the global average temperature has increased over the
last century, changes in weather and climate are more frequent, and planet Earth’s
oceans and glaciers are changing — oceans are becoming warmer and more acidic,
ice caps are melting and sea levels are rising. All of these changes have an effect
on organisations and their management’s need to manage it. Organisations are
structured in such a way as to provide society with products and services that are
needed in the conditions that we are used to. Organisations therefore need to be
sensitive to extremes caused by climate change that fall outside this range. The
COVID-19 outbreak is also an example of a natural disaster with unprecedented
effects globally — giving new meaning to a globalised economy. On 26 March
2020, more people in the United States of America have filed for unemployment
benefits than ever before in the history of the country due to the virus.
Table 6.1 below provides a summary of the decision-making conditions (certainty,
risk and uncertainty) and the characteristics of the decisions made under each of the
conditions. In the next section, we will focus on the two decision-making models,
namely the rational and the bounded-rationality model of decision-making.
6.5 DECISION-MAKING MODELS
After looking at the type of decision and the conditions under which the decision
has to be made, managers also need to consider the two primary decision-making
models, namely the rational model and the bounded-rationality model. In the case of
the rational model, the decision-maker should select the best possible solution. This is
known as optimising. In the case of the bounded-rationality model, the decision-maker
uses satisficing — selecting the first option that meets the minimal criteria.
Managers need to know which model to use, and when. They should optimise —
apply the rational model – when they are making non-programmed, high-risk decisions
(caused by the factors identified in Section 6.4) in conditions of uncertainty. This
process is explained in Section 6.5.1. When managers are making programmed, lowrisk, or certain decisions, they should select the first option that meets the minimal
criteria, in other words, they should satisfice.
Table 6.1 Summary of decision-making conditions and levels of certainty
Certainty
Risk
Uncertainty
Decision-maker has complete
certainty
Decision-maker has some
certainty
Decision-maker has no
certainty
Available options and the
benefits or costs of each are
known
Outcome of each alternative
is not known in advance
Outcome of each alternative
is unpredictable
No element of change
intervenes between the
option and its outcome
Probability can be assigned
to each alternative outcome
Probability cannot be
assigned to each alternative
outcome
Decision is a sure thing
Decision is a ‘gamble’
Decision requires ‘guts’
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6.5.1 The decision-making process
Recognise, classify, and define
the problem or opportunity
STAGE 2
Set goals and criteria
STAGE 3
Generate creative alternative
courses of action
STAGE 4
Evaluate alternative courses of
action
STAGE 5
Select the best option
STAGE 6
Implement the chosen option
STAGE 7
Conduct follow-up evaluation
Quantitative
tools
Kepner-Fourie
method
Cost–benefit
analysis
STAGE 1
Group decisionmaking
The decision-making process describes a set of phases that individual decision-makers
or decision-making teams should follow in order to increase the probability that their
decisions will be optimal. Optimal decisions will lead to maximum achievement of
goals and objectives.
In most decision situations, managers go through a number of stages which help them
think through the problem and develop alternative solutions. Figure 6.2 below summarises
each stage in the normal progression that leads to an optimal decision. Note that these
steps are more applicable to non-programmed decisions than to programmed decisions.
Problems that infrequently occur with a great deal of uncertainty require the manager to
utilise the entire process. By contrast, problems that frequently occur with a great deal of
certainty are often handled by policies, standard operating procedures, and rules, making
it unnecessary to develop and evaluate alternatives each time these situations arise.
Figure 6.2 Model of the decision-making process
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Stage 1: Recognise, classify and define the problem or opportunity
The first step in decision-making is recognising that there is a problem/threat or an
opportunity. The problem or opportunity may be classified in terms of the type of
decision (programmed or non-programmed) that needs to be made, the decisionmaking condition (certainty, risk, or uncertainty) and the decision-making model
(the rational or bounded-rationality model) used. After the problem or opportunity
has been classified, it should be accurately defined. An important part of defining the
problem or opportunity is to distinguish the symptoms from the cause of the problem.
For example, a conscientious worker who suddenly starts arriving late at work should
not be defined as an ‘absenteeism situation’. Being late is a symptom of the problem,
not the cause. The cause could be illness, personal problems, transport problems, or
something else entirely. Management should recognise and examine the cause. If
the situation is incorrectly classified or defined, any decisions made will be directed
towards solving the wrong problem. A lack of motivation is not always the cause of
poor work performance. Poor work performance may be a symptom of poor training,
of a mismatch between the organisation’s culture and the values of its employees, or a
symptom of outdated equipment, and so on. In the case of the Shoprite Group during
the outbreak of COVID-19, the company estimated in early March 2020, that the impact
of the virus on their business could mean a loss of R100 million in turnover. This is also
an example of a symptom of a problem. The actual problem lay in the supply chain of
the company, since Shoprite sourced many of its products from China which could not
manufacture these products due to lockdowns in the country. Out-of-stock situations
meant expected losses in turnover for Shoprite.
Stage 2: Set goals and criteria
Generally, in programmed decisions, Stages 2 to 5 need not be followed as criteria
have been set for these decisions. The criteria can be found in policies and such like.
However, in the case of non-programmed decisions, no goals or criteria have been set.
The manager will be responsible for this task. He or she can make an individual decision
or involve a group in decision-making (see Sections 6.6 and 6.7). The foundation of the
decision-making process lies in the managerial goals that give it purpose, direction, and
continuity. A given goal represents an endpoint towards which management directs their
decision-making. The goal should state exactly what the decision should accomplish. In
the case of the effect of COVID-19 on the Shoprite Group, the company had to set
clear goals for creating a sustainable supply chain for all of their products, especially for
sourcing items such as electrical blankets and heaters for the 2020 winter.
Stage 3: Generate creative alternative courses of action
Once a problem or an opportunity has been recognised and goals and criteria have been
set, the next step is to identify various courses of action to deal with the situation. Bear
in mind that it is impossible to identify all available options. However, a systematic
effort should be made to identify as many courses of action as possible.
Innovation and creativity play a major part in generating various courses of action.
Using groups to generate solutions could enhance this process (see Sections 6.6
and 6.7). The availability of information (Chapter 7) and technology should also be
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considered. South African managers are fortunate in that they can tap into the creativity
of a diverse workforce.
The number of available options identified is limited by certain constraints —
mainly time and money. Rarely do managers have enough time or money to identify, let
alone evaluate, an unlimited number of options. Indeed, there may be times when doing
something immediately may be more important than taking a different action at a later
date. Managers often need to balance time and expense against identifying additional
options. During this stage managers need to decide whether they want to consider all
options and optimise their decision (rational model) or search only until a ‘satisficing’
option (bounded-rationality) has been reached. In the case of the COVID-19 impact
on the Shoprite Group, the company identified alternative courses of action. For
example, they considered other countries such as India, Bangladesh, Romania, Ukraine
and Poland as sources of supply.
Stage 4: Evaluate alternative courses of action
Once various courses of action have been identified, the next step is to evaluate the
options. Each option should be evaluated in terms of its strengths and weaknesses,
advantages and disadvantages, benefits and costs. Because each option is likely to have
both positive and negative features, most evaluations involve balancing anticipated
consequences. The evaluation of options may be intuitive or may follow a more
scientific approach. Some of these approaches are discussed in Section 6.8. For the
Shoprite Group, the evaluation of alternative sources of supply was a difficult decision
to make. India, which was identified as an alternative source of supply, like China, is
also a very densely populated country and felt the impact of the virus on its economy
tremendously. By the end of March 2020, one-third of the world was in lockdown, and
even the identified alternative sources of supply for Shoprite were in jeopardy.
Stage 5: Select the best course of action
In the previous two steps, options were identified and evaluated. The next step is to select
the best option. The success rate of the average manager in selecting the best option is
rarely more than 50 per cent: this is only slightly better than deciding on the toss of a
coin. Therefore, this step requires a manager to evaluate each option carefully against the
goals and criteria set during the second stage, with a view to ranking the options in order
of priority. In practice, selecting an option is often subjective. The manager’s experience,
values, internal politics, and so on influence this choice. For the Shoprite Group and most
other organisations, the selection of the best course of action during the COVID-19 was
even less than 50 per cent. During the time, the prediction was that only the strongest
and biggest companies would survive the outbreak of the virus. As indicated in the case
at the beginning of this chapter, the outbreak posed opportunities for online buying and
companies offering these facilities to their customers, provided that they have the stock
to deliver in a safe manner to both customer and delivery staff. For example, in September
2020, the e-commerce company Amazon announced their plans to hire an additional 100
000 employees to keep up with the increased demand in online shopping.
Stage 6: Implement the chosen option
Once an option has been selected, appropriate actions should be taken to ensure that
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it is properly implemented. A decision is only an abstraction and needs to be put into
action. It is possible for a good decision to be damaged by poor implementation, while a
poor decision may be helped by good implementation. Therefore, implementation may
be just as important as the activity of selecting an option.
Decisions should be explained in such a way that all the relevant parties understand
them. Those concerned should understand not only the logic behind a decision, but
also what it is intended to do. A suitable organisational structure, good leadership, a
strong organisational culture, and a fair reward system will enhance the implementation
of decisions. The COVID-19 outbreak has had such a huge impact on people and the
business world, that it changed organisational structures — many business managers
expressed their fears that people have become so accustomed to working from home
that it will take a lot of effort to get them back to the office. Experts predicted that the
virus would ignite digitalisation even more. One fact was for sure, the impact of the
virus required even stronger leadership in organisations than ever before.
Stage 7: Conduct follow-up evaluation
Once a decision has been set in motion, evaluation is necessary to provide feedback on
its outcome. Adjustments are invariably needed to ensure that actual results compare
favourably with planned results — as determined in Stage 2 of the decision-making process.
The process of evaluation closes the feedback loop shown in Figure 6.2 above.
The soundness of a decision may be evaluated against planned results. If necessary,
modifications can be made and further options identified and evaluated. This should
be seen as an opportunity for acquiring new knowledge in order to improve future
decisions. For the Shoprite Group, follow-up evaluation would mean a number of
actions. First, they will need to ensure the quality of the products, the price and service
delivery of the new suppliers. Only if this is satisfying, will their decisions lead to a
sustainable supply chain and an improvement in the company’s turnover.
6.6 GROUP DECISION-MAKING
Stages 2 and 3 of the decision-making process, namely the setting of goals and criteria
and the generation of creative alternative courses of action, rely heavily on creativity
and innovation. Group decision-making can enhance this process, especially in the
case of non-programmed decisions where there is usually a great deal of uncertainty
regarding the outcome. The complexity of many of these decision-making situations
requires specialised knowledge in a number of fields.
Whether groups make better decisions than individuals working alone has been the topic
of extensive discussion. Groups are subject to social factors when making decisions. These
factors include social conformity, levels of communication skill, dominance by a specific
group member, and so on. While groups often make better decisions than those made by
the average group member, their decisions consistently fall short of the quality of decisions
made by the best individual member. Group decision-making, therefore, has certain
advantages and disadvantages. The advantages of group decision-making are as follows:
■
A variety of skills and specialised knowledge can be used to define and solve a
problem or recognise an opportunity — this will lead to better quality decisions
■
Multiple and conflicting views can be taken into account
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Beliefs and values can be transmitted and aligned
More organisation members will be committed to decisions, since they have
participated in the decision-making process
■
Participation in problem solving and decision-making will improve the morale and
motivation of employees
■
Allowing participation in problem solving and decision-making train people to
work in groups through developing group process skills.
■
■
On the other hand, group decision-making also has some potential disadvantages:
■
It may be more time-consuming and lead to slower decision-making
■
Groups are more likely to satisfice than an individual, especially when group
meetings are not run effectively
■
One group member, or a sub-group, may dominate and nullify the group decision
■
It may inhibit creativity and lead to conformity and ‘groupthink’. Groupthink is
discussed in Chapter 13.
Various techniques exist that managers can use to improve group decision-making. In
the next section, these techniques are discussed.
6.7 TECHNIQUES FOR IMPROVING GROUP DECISION-MAKING
In order to overcome the disadvantages and to capitalise on the advantages of group
decision-making, various techniques have been suggested to make group decisionmaking more creative. We shall consider a selection of four of the many techniques
available. These four techniques are brainstorming, the nominal group technique, the
Delphi technique, and group decision support systems (GDSS). These techniques
are illustrated in Figure 6.3 below. Although Figure 6.3 indicates where the different
techniques are mainly used, the techniques can be used at any management level.
Delphi
Top
management
Nominal
Group
Decision
Middle management
Lower management
Brainstorming
Figure 6.3 Group decision-making techniques
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6.7.1 Brainstorming
One of the problems of decision-making groups is that group norms develop over time,
and group members tend to conform to dominant group opinions. As a result, the
creativity of a decision-making group declines after having peaked early in the forming
of the group.
Brainstorming is a technique used to stimulate creative or imaginative solutions
to organisational problems. Group participants informally generate as many ideas as
possible without evaluation by others. This prohibition should encourage contributions
from members who are particularly shy, have divergent ideas, or have low status within
the group. During idea generation, group members are encouraged to build on, but
not criticise, ideas produced by others. This cross-fertilisation is assumed to produce a
synergistic effect. The object is to generate as many ideas as possible in the belief that the
more ideas conceived, the greater will be the likelihood of one outstanding idea emerging.
The following rules govern brainstorming sessions:
Criticism is prohibited. The judgment of the creative or imaginative solutions to
organisational problems should be withheld until all the solutions have been generated.
■
No ‘Yes, but ...’ comments are allowed.
■
Imaginative solutions are welcome. The wilder and more ‘far out’ the solution, the better.
■
Quantity is important. The greater the number of solutions, the greater the
likelihood that there will be an outstanding one.
■
The combining of various solutions and the improvement of suggested solutions
are encouraged.
■
Brainstorming sessions usually last from thirty minutes to an hour. A one-hour session
can generate up to 150 ideas. Typically, most of the ideas will be impractical, but a few
will merit serious consideration. Brainstorming has been used with encouraging results
in the field of advertising, new product development, and so on.
It is important to note that brainstorming is merely a process for generating ideas.
The next two techniques go further by offering methods of actually arriving at a
preferred solution.
6.7.2 Nominal group technique
This technique is a structured group decision-making technique. The nominal group
technique restricts discussion or interpersonal communication during the decisionmaking process. Group members are all physically present, as in a traditional committee
meeting, but members operate independently.
A problem is usually presented with the following steps taking place:
Seven to ten members meet as a group. Before any discussion takes place, each
member independently writes down his or her ideas on the problem.
■
The group leader systematically gathers information from all participants. Each
member presents one idea to the group. No discussion takes place until all the ideas
have been recorded.
■
The ideas are clarified through a guided discussion.
■
The group leader then instructs participants to vote on their preferred solutions.
■
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■
■
Each member silently and independently ranks the ideas.
The process may conclude with an acceptable solution.
The nominal group technique is appropriate for situations in which groups may be affected
by a dominant person, conformity, or ‘groupthink’ because it minimises these effects.
6.7.3 Delphi technique
Decisions often have to be made by experts in different geographical areas. In this case
neither brainstorming nor the nominal group technique can be used, as both techniques
require the presence of participants. The Delphi technique is a decision-making
technique that does not require the physical presence of the participants. Companies
such as Woolworths Holdings Limited, which owns various retail divisions namely
Woolworths, Country Road, David Jones and Woolworths Financial Services in most
South African towns and cities can use this technique to change, for example, the layout
of their stores by involving store managers around the country.
The Delphi technique involves using a series of confidential questionnaires to refine
a solution. In this technique the group’s members never meet face to face. The following
steps characterise the Delphi technique:
■
The problem is identified and members are asked to provide potential solutions
through a series of carefully designed questionnaires
■
Each member anonymously and independently completes the first questionnaire
■
The results of the first questionnaire are compiled at a central location, transcribed,
and reproduced
■
Each member then receives a copy of the results
■
After viewing the results, members are again asked for their solutions. The results
typically trigger new solutions or cause changes in the original position
■
The last two steps are repeated as often as necessary until consensus is reached.
Brainstorming, the nominal group technique, and the Delphi technique should not be
seen as competing choices, but as complementary techniques.
6.7.4 Group decision support systems
Group decision support system (GDSS) is a generic term that refers to various kinds
of computer-supported group decision-making systems. Most of the GDSSs can
be used to support face-to-face groups as well as groups that communicate through
electronic media.
The process of brainstorming can be supported by sophisticated computers, called
electronic brainstorming. In an electronic brainstorming session, the participants have
at their disposal networked workstations. Instead of contributing their ideas in a roundrobin fashion, they simply type in their suggestions. These ideas are disseminated
to the other group members without an identifying mark. Thus, anonymity is
preserved and the group members can respond more freely than in a conventional
brainstorming session.
Figure 6.4 below depicts an example of a group decision support system, namely
the electronic meeting. This technique blends the nominal group technique with
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sophisticated computer technology. Group members sit around a horseshoe-shaped
table, empty except for a series of computer terminals.
Issues are presented to participants and they type their responses onto a computer
screen. Individual comments, as well as aggregate votes, are displayed on a projection
screen in the room. Electronic meetings can be as much as 55 per cent faster than
traditional face-to-face meetings.
Swivel chair
Projection screen
U-shaped table
Individual
monitors
and keyboards
Figure 6.4 Typical GDSS configuration for a face-to-face meeting
In a real-time Delphi, a computer conference is substituted for the mail questionnaires
of the conventional Delphi. This allows participants to respond immediately to the
comments anonymously entered by the other members of the group. In this way, the
time required to complete the Delphi is much reduced.
In deciding which of the techniques to use for improving group decision-making,
management should consider issues such as time and money costs, the potential for
interpersonal conflict, commitment to the solution, and many more. In general, it can be
said that top management commonly uses the Delphi technique for a specific decision.
Brainstorming and the nominal group techniques are frequently used at middle and
lower management level where work groups are involved.
6.8 TOOLS FOR DECISION-MAKING
Various tools are available to assist managers in performing Stage 4 of the decisionmaking process (the evaluation of alternative courses of action) and Stage 5 (the
selection of the best option). In this section we will discuss quantitative tools for
decision-making, the Kepner-Fourie method, and the cost–benefit analysis.
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6.8.1 Quantitative tools for decision-making
Many of these techniques have their origin in the quantitative management school (see
Chapter 2) and propagate the use of mathematical relations in solving management
problems.
Our objective in this section is to make you aware of these techniques — not to
turn you into a mathematician. For the same reason, we will use the dominant model
in this chapter as a guide, that is, the conditions of decision-making — certainty, risk,
and uncertainty. Figure 6.5 below will serve as the point of reference for our discussion
in this section.
Top
management
Middle management
Lower management
Condition
Tool
Uncertainty
Simulation
Capital budgeting
Risk
Break-even analysis
Decision tree
Pay-off matrix
Probability analysis
Certainty
Queuing theory
Linear
programming
Figure 6.5 Conditions of decision-making and quantitative decision-making tools
Decision-making tools in conditions of certainty
Linear programming
Of all the quantitative tools identified, linear programming is perhaps the most
frequently and extensively used. It is a quantitative tool for optimally allocating scarce
resources for competing uses to maximise benefits (such as profits) or minimise losses.
The resources in question may be human, financial, physical, or informational.
The so-called ‘travelling salesman problem’ is a classic linear programming application.
The problem is to determine the shortest or least costly route for a salesperson to travel
to visit a set list of cities. The salesperson must visit each city only once, never retrace
any steps, and return to the starting city. Linear programming is capable of determining
which route is the shortest or least costly to follow.
Queuing theory
Many airlines introduced self-check-in systems for its passengers travelling with only
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hand luggage in order to avoid unnecessary waiting in check-in lines. The decisionmaking tool used by these airlines’ management is called queuing theory.
Queuing theory is a quantitative tool for analysing the costs of waiting lines. The
objective of queuing theory is to achieve an optimal balance between the cost of
increasing service and the amount of time individuals, machines, or materials must wait
for service.
Not only are there costs associated with allowing a queue, but there are also costs
associated with increasing service to prevent them. The problem is to determine the
best balance between the cost of upgrading service and the amount of time users of a
service must wait in line. In such situations, queuing theory can be used to identify an
optimal solution to maximising service with minimum costs.
Decision-making tools in conditions of risk and uncertainty
In this section, probability analysis, the pay-off matrix, decision tree, break-even analysis,
capital budgeting and simulation will be discussed as possible decision-making tools in
conditions of risk and uncertainty. The following LeisureNet example will be used for
illustrative purposes.
Death of a business
LeisureNet was a very successful and profitable company, yet it is viewed as one of South
Africa’s most spectacular corporate failures. A turnaround specialist from Coronation FRM,
Peter Flack, was invited to sit on their board during September and October 2000. He found
that the company had deteriorated so far and so fast that all that could be done was to close
it. LeisureNet made all the wrong decisions and the lessons drawn from their failure need to
be learned by every manager. This is Flack’s account of what went wrong.
First, the board of LeisureNet had become dysfunctional. The company decided to expand
offshore and had built 22 Health & Racquet (H&R) Clubs in Australia, Britain, Germany, and
Spain. The previous joint chief executive officers of LeisureNet had recently been transferred
to Healthland International Limited so the young managing director of the South African
operations had been approached to take the job as CEO of LeisureNet. However, he had not
accepted the position and the terms of his appointment had not been finalised. So clearly
there was a question of a leadership vacuum. The previous leaders had sold almost all of
their interests in LeisureNet and had been awarded a substantial and meaningful stake, free
of charge, in Healthland International Limited.
Second, LeisureNet had been used to fund, staff, and train employees of Healthland. The
H&R Club business had been pillaged to establish Healthland’s operations and all available
cash had been invested in Healthland and little, if any, in the H&R Club business. The result
was a lack of maintenance and refurbishment at H&R Clubs.
Third, the company had no coherent strategic plan. Over the previous five years, the
company had, in addition to the health and fitness business, acquired a food business, a
golfing business, an education business, a casino bid, a gymnasium equipment business, a
restaurant, and the six-member Imax theatre chain.
➜
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The accounting system, sales system, marketing, and human resources procedure were
well thought out. In moving offshore, the business there had adopted the best of the local
operating systems, acquired a standard management information system, and had recruited
the most senior of the local managers.
The glaring omission, however, related to the position of chief financial officer and the
treasury and cash management functions for this massively cash hungry growth business in
a state of rapid development. Ultimately, this gap in the management structure caused the
downfall of Healthland. Finally, there was no action plan of any kind.
Source: Adapted from Flack, P. 2001. ‘Death of a Business’. Succeed Magazine, June/July.
Probability analysis
The term ‘probability’ refers to the estimated likelihood, expressed as a percentage that
an outcome will occur. LeisureNet, in deciding to embark on a restaurant business,
could have determined — objectively or subjectively — what the probabilities were
of an 80 per cent occupancy rate under conditions of high inflation compared with
conditions of low inflation. Management could then have compared this outcome to
an alternative course of action. The alternative could have been to embark on the Imax
theatre chain. A mathematically calculated answer should indicate to management the
value (in rand) of each alternative.
There are two complementary approaches to using probability analysis, namely payoff matrices and decision trees. Both are amongst the most helpful quantitative tools
available to a manager.
Pay-off matrix
The pay-off matrix is a technique for indicating possible pay-offs, or returns, from
pursuing different courses of action. Each option is pursued under different states of
nature, or circumstances beyond the control of the decision-maker.
Table 6.2 Pay-off matrix showing alternative pay-offs
Alternatives
States of nature (level of inflation)
Low
High
Restaurant business
R16 m
R8 m
Imax theatre chain
R6 m
R2 m
Table 6.2 above shows the possible pay-offs to LeisureNet from pursuing each alternative
under the two levels of inflation. As indicated in the pay-off matrix, if LeisureNet decided
to become involved in the restaurant business under a low level of inflation, anticipated
revenues would be R16 million. If they decided to become involved in the Imax theatre
group under a high level of inflation, anticipated revenues would be R2 million. The
anticipated revenues can now be used in a decision tree.
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Decision tree
A decision tree is a graphic illustration of the various solutions available to solve a
problem. It is designed to estimate the outcome of a series of decisions. As the sequence
of the major decision is drawn, the resulting diagram resembles a tree with branches.
The expected value of becoming involved in the restaurant business, according to
Figure 6.6 below, is R9.6 million. This is higher than the R2.8 million expected value of
becoming involved in the Imax theatres. Management would therefore opt for the first
alternative — becoming involved in the restaurant business.
Break-even analysis
Another technique that can be used to evaluate alternative courses of action, and to
select the best option, is the break-even analysis. This technique involves the calculation
of the volume of sales that will result in a profit. It requires a forecast of the sales volume
and the cost of production. The break-even point is then calculated as the level of sales
where no profit or loss results. For example, LeisureNet could have calculated how
many members of the Health & Racquet Clubs were necessary in order to break even.
Expected value
= (80 % x R8m) + (20 % x R16m)
= R6.4m + R3.2m
= R9.6m
Expected value
= (80 % x R2m) + (20 % x R6m)
= R1.6m + R1.2m
= R2.8m
Build
Buy
Build
Buy
Manage
Sell
new
existing
new
existing
all
franrestaurant restaurant restaurant restaurant theatres chises
Manage
all
theatres
Sell
franchises
Options
Anticipated
pay-off
R8m
Event and
probability
High
inflation
(80 %)
R16m
Low
inflation
(20 %)
R2m
R6m
High
inflation
(80 %)
Low
inflation
(20 %)
Alternative
courses
of action
Restaurant
IMAX
Figure 6.6 A decision tree
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Capital budgeting
Capital budgeting is a technique that can be used to evaluate alternative investments.
It involves a process by which each alternative investment is analysed in financial terms
and placed on the capital budget. Various methods exist to analyse investments in
financial terms. For example, the payback period can be used to calculate the years it will
take to recover the initial cash invested. The alternative that offers the shortest payback
period (in years, months, etc) is then preferred. Another method computes the average
rate of return of each investment and selects the investment with the highest average
rate of return. A more sophisticated technique is the net present value of an investment,
which is the present value of the future benefits less the cost. It is the difference between
what is to be received, in current worth, and what will be paid for it.
Simulation
Simulation is a quantitative tool for imitating a set of real conditions so that the likely
outcomes of various courses of action can be compared. These methods involve
constructing and testing a model of a real-world phenomenon. South African Airways
use simulators to train and retrain pilots. These simulators are particularly useful
for solving complex problems such as the failure of one of a Boeing 747’s engines
upon take-off. It is too costly and dangerous to expose each South African Airways
pilot to these conditions in reality. Pilots are exposed to real-life situations, but on a
manageable scale.
In business, simulation can be used with mathematical models to predict the
possible outcomes of investment and pricing decisions, proposed inventory control
systems, assembly-line scheduling routines, various design specifications, and various
competitive strategies. Organisations are making increasing use of computers to run
business simulations. This allows managers to save time and money and keep themselves
better informed, allowing them to make better and more informed decisions.
6.8.2 The Kepner-Fourie method
In the previous section we explained objective quantitative tools for decision-making.
The Kepner-Fourie method combines the objective quantitative approach with some
subjectivity. The subjectivity comes from determining ‘must’ and ‘want’ criteria and
assigning value weights to them. It is a method for comparing alternatives using the
criteria selected in Stage 2 of the decision-making model.
The following example illustrates the use of the method: Let’s state that our objective
is to buy a house, which can be occupied within two months’ time. This is obviously
a non-programmed decision. Table 6.3 below shows the use of the method to decide
which house to buy.
■
Step 1: Compare each alternative to the ‘must’ criteria listed in column 1. Eliminate
any alternative that does not meet the ‘must’ criteria. Houses three and four do not
meet all the ‘must’ criteria and are eliminated.
■
Step 2: Rate each ‘want’ criterion (column 1) on a scale of one to ten (ten being
most important). Note that the same number may be used more than once (ten
for example).
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Step 3: Assign a value of one to ten (ten being the highest) to how well each
alternative meets all the ‘want’ criteria. These values are shown in the vertical
columns labelled House 1 and House 2, and they can be compared for each house.
Again, factors can have equal weights, for example five.
■
Step 4: Compute the weighted scores (WS) for each alternative by multiplying
(horizontally) the importance value by the ‘meets criteria’ value for each house.
Next, add these weighted scores vertically to obtain the total weighted score for
each house.
■
Step 5: Select the alternative with the highest total weighted score as the solution
to the problem. House two should be selected because it has the highest weighted
score.
■
6.8.3 Cost–benefit analysis
The quantitative tools for decision-making make maximum use of objective mathematical
approaches to compare alternatives. The Kepner-Fourie method combines the objective
quantitative approach with some subjectivity. However, managers may be faced with
situations when the benefit received for the cost is uncertain, making these methods
unusable. In such situations, the cost–benefit analysis can be used. It compares the
costs and benefits of each alternative course of action using subjective intuition and
judgement. This method makes the minimum use of mathematics to make the decision.
The advantages (which can be considered the benefits) and disadvantages (which can
be considered the cost) are identified for each alternative.
Table 6.3 The Kepner-Fourie method for analysing alternatives
‘Must’ criteria
House 1
House 2
House 3
House 4
Cost under R500 000
Yes
Yes
No
Yes
Available within two months
Yes
Yes
Yes
No
‘Want’ criteria
Meets criteria
Importance*
House 1
WS**
House 2
WS**
4 bedrooms
8X
5 = 40
10 = 80
2 bathrooms
7X
5 = 35
10 = 70
Double garage
10 X
9 = 90
9 = 90
Near schools
9X
10 = 90
6 = 54
Security
10 X
10 = 100
8 = 80
Pool
5X
6 = 30
9 = 45
385
419
Total weighted score
* Indicates the quantity of importance – on a scale of 10 (high) to 1 (low) – assigned to each
‘want’ criterion as a weight.
** Indicates the weighted score awarded to each alternative.
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6.9 SUMMARY
Problems exist whenever managers perceive a difference between what has actually
happened and what they wanted to happen. Problem solving is the process of taking
corrective action, while decision-making can be defined as the process of choosing
between various courses of action. Decision-making can be classified by its relative
frequency. Programmed decisions are those decisions that are made by habit or policy
and involve simple, common, frequently occurring problems. Non-programmed
decisions deal with unusual or novel problems and require creative thinking. This
chapter is mainly concerned with non-programmed decision-making.
Managers usually make decisions under conditions of certainty, risk, or uncertainty.
Under conditions of certainty, all available options and the benefits and costs associated
with each are known. When making a decision under the condition of risk, the manager
does not know the outcome of each alternative in advance, but can assign a probability
to each outcome. Decisions under conditions of risk are perhaps the most common.
A decision is made under conditions of uncertainty when the available options, the
probability of their occurrence, or their potential benefits or costs are unknown.
Decision-making can be seen as a process, starting with the recognition, classification,
and definition of a problem or opportunity. The other steps in this process are the
setting of objectives and criteria, the generation of creative alternative courses of
action, the evaluation of these courses of action, the selection of the best option, the
implementation of the chosen option, and follow-up evaluation.
To overcome the disadvantages and to capitalise on the advantages of group
decision-making, we presented various ways of making this process more creative. The
techniques discussed were brainstorming, the nominal group technique, the Delphi
technique, and group decision support systems.
To conclude the chapter, we examined various tools for decision-making, namely
quantitative tools (linear programming, queuing theory, pay-off matrix, decision trees,
break-even analysis, capital budgeting, and simulation), the Kepner-Fourie method,
and the cost–benefit analysis.
REFERENCES
1. Smith, C. 2020. ‘Coronavirus impact could mean R100m loss in turnover for Shoprite group
– CEO’. Fin24. Available at: https://www.fin24.com/Companies/Retail/coronavirusimpact-could-mean-r100-million-loss-in-turnover-for-shoprite-group-ceo-20200225
(Accessed 3 March 2020).
2. Cook, N. 2020. ‘Trump pledges financial help to counter coronavirus losses’. Politico.
Available
at:
https://www.politico.com/news/2020/03/09/donald-trump-fiscalstimulus-measures-124347 (Accessed 20 March 2020).
3. Dittberner, A. 2020. ‘Coronavirus: A known unknown’. Old Mutual private client securities.
4–5. Kolakowski, M. 2020. ‘A brief history of US Bear Markets’. Investopedia. Available at:
https://www.investopedia.com/a-history-of-bear-markets-4582652 (Accessed 25 March
2020).
6. World Health Organization. 2020. ‘Coronavirus disease 2019 (COVID-19) Situation
report – 64’. Available at: https://www.who.int/docs/default-source/coronaviruse/
situation-reports/20200324-sitrep-64-covid-19.pdf ?sfvrsn=703b2c40_2 (Accessed 25
March 2020).
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CASE STUDY
Anglo American plc
Anglo American plc is a multinational mining company based in Johannesburg, South Africa
and London, United Kingdom. It is the world’s largest producer of platinum, with around
40% of world output, as well as being a major producer of diamonds, copper, nickel, iron ore
and metallurgical and thermal coal. In 2007, Cynthia Carroll was appointed as CEO of the
company, the first outsider (non-South African) to manage what was a very top-down, maledominated, hierarchical organisation. Ms Carroll served as CEO of the company until 2013.
Ms Carroll always had the view that safety is a key indicator of rigour and discipline in an
organisation. Anglo had been losing about 45 people to fatalities every year for the five years
before she was appointed as CEO. Consequently, her first focus was on safety. In 2007, her
first year as chief executive, Carroll went to Anglo’s Rustenburg platinum mining operation
in South Africa, a key part of the company’s global activities. Within hours of her visit, she
was told that one of the workers had been killed at the mine. She was told at the end of
the day that they had suffered yet another fatality. She gave orders to shut down the mine
complex, to assess the infrastructure and the standards, and to work to retrain people. She
also gave instructions that people will only be returning to work once they feel confident that
they will be working in safe conditions. It was a bold decision that affected around 28 000
mine workers. Carroll knew she would have to win allies for her safety campaign within the
wider industry, the labour unions, and the government. Workers felt scared and threatened
by the decision and resisted the change. Although Carroll felt confident that she had made
the right decision by making the change, she was not supported by mine managers. At the
same time, the company had been transitioning from a largely South African company, to
a global company. Carroll also needed to make another change by taking out a layer of
people reporting to her early on. Also, these strategic changes lead to changes in terms of
the embedded culture and organisational hierarchy. Carroll spent a lot of time with external
stakeholders during these changing times and never received resistance to change from
shareholders — they understood the reasons and ultimate benefits for implementing the
changes. Also, communications and relationships with labour unions were very good —
Carroll never had a major walkout and the company never experienced a strike since they
had built a trusting relationship between all parties.
During her tenure, Carroll also had to face down the threat of a takeover, a downturn in the
commodity cycle, and criticism of her environmental record and strategy decisions, notably,
Anglo’s investment in Minas Rio, a Brazilian iron ore project that went into operation four
years late and at twice the original budget. Minas Rio is a tier-one asset and identified as
a potential acquisition before she was even appointed as CEO. But the fact was, Anglo
had changes that they did not anticipate — and nobody in industry anticipated. Changes
in Brazil’s regulatory environment delayed Anglo’s project. Eventually, Carroll needed
to make tough decisions, not all popular. For example, she had to reduce the number of
staff. Eventually, these decisions and the implementation and maintenance of new safety
standards paid off. The company delivered $3.2 billion of value over and above their
committed number of $2 billion. They reduced the number of fatalities by about 70% and that
cascaded into the industry, which was reduced by about 50%. That’s an achievement!
Source: Financial Times. 2018. Available at: https://www.ft.com/video/d8edd628-8afa-4c53-90da7f7968d9ff58 [Accessed 9 January 2019].
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CASE STUDY QUESTIONS
Question 1
During her tenure as CEO of Anglo American, Cynthia Carroll had to make a number of
executive decisions. For each of the following decisions that she made, classify them in
terms of (i) the type of decision made and (ii) the decision-making condition.
1. The decision to shut down Anglo’s Rustenburg platinum mining operation to assess
its infrastructure and standards and to retrain people.
2. The decision to delayer the organisation by taking out a layer of people reporting
directly to her.
3. The decision the reduce the number of staff working in the mine.
4. The decision to implement and maintain new safety standards.
Question 2
Explain the use of a decision tree in decision-making. Apply the use of a decision tree
to the Anglo-American case study in terms of the implementation and maintenance of
new safety standards.
Question 3
Various techniques exist that can improve group decision-making in an organisation.
Identify the stakeholders that Ms Carroll could involve in making use of group decisionmaking in Anglo American plc when she gave orders to shut down the Rustenburg
platinum mining operation in South Africa.
MULTIPLE-CHOICE QUESTIONS
Question 1
.
Decision-making can be defined as the
1. process of taking corrective action that will solve a problem and that will realign the
organisation with its goals
2. process of selecting an alternative course of action that will solve a problem
3. stimulation of creative and imaginative solutions to organisational problems
4. optimal allocation of organisational resources.
Question 2
A local university needs to decide whether an applicant qualifies for post graduate studies.
This is an example of a
decision.
1. programmed
2. unstructured
3. non-programmed
4. group.
Question 3
During crises situations, management and leaders need to make
decisions, often based on information that can change on a daily basis.
These are examples of
decisions.
1. programmed
2. routine
3. non-programmed
4. structured.
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Question 4
When deciding on the commission to be paid to their brokers, a commercial bank
estimates that business in their investment management and life insurance department,
has a 30 per cent chance of dropping by 5 per cent, a 20 per cent chance of dropping by
10 per cent and a 50 per cent chance of dropping by 15 per cent.
, and
This is an example of decision-making taken under conditions of
.
more specifically decisions based on
1.
2.
3.
4.
uncertainty; historical evidence
risk; subjective probability
certainty; objective probability
certainty; subjective probability.
Question 5
A commercial bank decides to seek growth by acquiring an educational business because
it represents the most promising investment opportunity available.
This is an example of a decision taken under conditions of
1. certainty
2. risk
3. uncertainty
4. volatility.
.
Question 6
When the commercial bank made decisions such as the one described in question 5,
and apply the
decision-making model.
they should
1. optimise; bounded-rationality
2. satisfice; rational
3. satisfice; bounded-rationality
4. optimise; rational.
Question 7
Which of the following quantitative tools for decision-making is the most appropriate
one to use under the conditions explained in question 5?
1. Capital budgeting
2. Queuing theory
3. Pay-off matrix
4. Delphi technique.
Question 8
Which one of the following group decision-making techniques is the most appropriate
to use by middle-level managers of an organisation?
1. Delphi technique
2. Brainstorming
3. Nominal group technique
4. Linear programming.
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Question 9
An organisation needs to make an important decision that involves the five different
international jurisdictions where they have operating licenses.
The most appropriate group decision-making technique for them to use is
1. the nominal group technique
2. the Delphi technique
3. brainstorming
4. simulation.
.
Question 10
A retail store applies the queuing theory for analysing the costs of clients waiting in
queues in their different branches.
By applying the queuing theory, the retail store is trying to achieve and optimal balance
and the
.
between the
1. cost of preventing individuals from waiting for service; bank’s return on investment
2. productivity of their tellers; satisfaction of their clients
3. cost of increasing service; amount of time individuals must wait for service
4. number of individuals waiting for service; capacity of their tellers
PARAGRAPH QUESTIONS
Question 1
Explain the relationship between problems, problem solving and decision-making in an
organisational context.
Question 2
Distinguish between the various types of decisions made by the managers of an
organisation.
Question 3
Explain the conditions under which decisions are made in an organisation. Illustrate
your answer by means of practical examples from the business environment.
Question 4
Compare the various techniques that an organisation can use to enhance group decisionmaking.
ESSAY QUESTION
Various tools are available to assist managers in especially two stages of the decisionmaking process, namely the evaluation of alternative courses of action and the selection
of the best option. Discuss these tools for decision-making and distinguish between
the tools that are most appropriate for use by top, middle and lower management of an
organisation.
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7
THE
PURPOSE
OF THIS
CHAPTER
LEARNING
OUTCOMES
KEY
CONCEPTS
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INFORMATION MANAGEMENT
In the previous chapter we looked at managerial decision-making at
the different levels of management. In order to make sound business
decisions, managers rely on a steady stream of reliable, accurate, and
timely information from both inside and outside the organisation. In an
era where information is available in almost any format and at all times,
managers run the risk of information overload. This chapter deals with
ways of managing information to use in problem solving and decisionmaking processes.
This chapter will enable learners to:
Explain the link between decision-making and information
management
■
Explain what an information system comprises
■
Identify the characteristics of useful information
■
Classify information systems according to their use in operational
and managerial support
■
Explain how a management information system can support
decision-making
■
Discuss ethical issues in information systems
■
Explain the role of managerial end-users in developing an
information system
■
Develop a generic information system for managers.
■
Artificial intelligence (AI)
Business-to-business e-commerce
■
Business-to-consumer e-commerce
■
Business-unit strategy
■
Consumer-to-consumer e-commerce
■
Corporate strategy
■
Data
■
Decision support systems (DSS)
■
Electronic commerce (e-commerce)
■
Electronic mail (email)
■
Ethics
■
Executive information systems (EIS)
■
Expert systems (ES)
■
Extranet
■
File transfer protocol (FTP)
■
Functional strategy
■
■
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Hardware
Information
■
Information reporting systems (IRS)
■
Information system (IS)
■
Information systems strategy
■
Internet
■
Intranet
■
Management information system (MIS)
■
Operations information system
■
Software systems analysis
■
Systems design
■
Systems implementation
■
Systems investigation
■
Telnet
■
Virtual reality (VR)
■
World Wide Web
■
■
7.1 INTRODUCTION
In the late 1940s, Herbert A Simon popularised the notion that management was
primarily a decision-making process. He later received the Nobel Prize for economics
for his work on managerial decision-making. He argued that all managerial activities
involve the conscious or unconscious selection of particular actions. In many cases,
the selection process consists simply of an established reflex action or habit. In other
cases, the selection is the product of a complex chain of activities. He suggested that for
any decision there are numerous possible solutions, any of which may be selected. By
applying the decision-making process, the possible options are narrowed down to the
one that is selected.
Essential to the process of narrowing down options is information — which is
provided by an organisation’s information system. The quality of the decision is related
to the quality of the information, whereas the quality of the information depends on the
accuracy with which data is gathered, coded, processed, stored, and presented. These
are the main elements of an information system.
Electronic technology designed to process and transport data and information has
been developing at exceptional rates for more than four decades. This information
technology (IT) revolution has significantly affected employees, managers, and their
organisations. It has created opportunities as well as challenges for millions of companies
and individuals. The challenges facing managers are extremely high — managers need
to learn to maximise the advantages offered by IT, while avoiding the many pitfalls
associated with it.
The purpose of this chapter is to introduce and provide an overview of information
management. As managers, we need to understand the uses of information systems in
today’s business environment. We discuss the fundamental concepts of information
systems, identify the characteristics of useful information, and examine ways in which
information systems can support managerial activities. The many kinds of information
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systems available are classified and described. To conclude the chapter, we address
the ethical issues of information systems and discuss the development of a generic
information system that can be used by most types of organisation.
Davos 2020: The future of work
The World Economic Forum Annual Meeting in Davos-Klosters, Switzerland, is the foremost
creative force for engaging the world’s top leaders in collaborative activities to shape the
global, regional and industry agendas at the beginning of each year. In 2020, it brought
together 3 000 participants from around the world, with the aim to assist governments
and organisations in tracking progress towards the Paris Agreement and the Sustainable
Development Goals, and facilitate discussion on technology and trade governance.
Many leaders and executives worldwide, believe that we are at the beginning of the Fourth
Industrial Revolution. Since the 1700s, various revolutionary changes occurred. The First
Industrial Revolution (which began between 1760 and 1820 and ended in 1840) focused on
the use of water and steam to power machinery. The Second Industrial Revolution (which
began between 1840 and 1870 until 1914) focused on replacing water and steam with
electrical power. The Third Industrial Revolution (also called the Information Technology
Revolution) began in the late 1950s until the late 1970s. The current and Fourth Industrial
Revolution is often described as an extension of the previous one, focused on computer
hardware, robotics and massive computing power to expand information technology.
Developments in genetics, artificial intelligence, robotics, nanotechnology, 3D printing and
biotechnology are all building up one another.
This revolution is changing our world of work. Although these changes are creating
opportunities for new types of jobs, it also poses risks and threats. All types of organisations
need to adapt to these changes — even industries and countries need to adapt as a result
of these changes. Experts also believe that the outbreak of the COVID-19 virus (which we
discussed in Chapter 6) would further ignite this revolution, digitalisation and automation. By
now we have all heard the statistics: in the next five years, more than half of all workplace
tasks will be performed by machines. Many jobs, as we know them, will cease to exist.
Paper after paper, warns of the impact of automation on working people. In 2018, humans
performed 71 per cent of jobs, whilst machines performed 29 per cent. According to the
World Economic Forum Report of 2018, the prospects are that in 2022, humans will perform
58 per cent of jobs, whereas machines will perform 42 per cent. In 2025, machines will take
over by performing 52 per cent of jobs, compared to humans performing only 48 per cent
of jobs.1 These figures clearly indicate that technology is part of our future and will play a
huge role in how managers manage their organisations. To manage the future organisation
successfully, new skills are needed. As the demand for mathematics, computing and data
analysis grows, so too will the need for human attributes like creativity, critical thinking,
persuasion and negotiation.2
It is not only workers that need to be concerned about acquiring new skills. Organisations
too should seek new ways to appeal to a new generation of workers. Millennials (workers
born between 1983 and 2000) and Generation Z (workers born between mid-to-late 1990s
and early 2010s) will be the majority of the workforce in 2020. These generations are already
starting to reshape the relationship between employer and employee, based on certain
characteristics. For example, these generations prefer decentralised working environments. ➜
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As individuals learn new skills, they also need to unlearn some old skills. In other words, old
skills need to be disrupted to pave the way for new skills, which can be a very hard thing
to do. However, a deviation from conventional business practice is the only way that can
prepare us for the unpredictability in the job market.3
Technologies also have the potential to benefit humankind in numerous ways, but only if they
are used responsibly and ethically. Take artificial intelligence as an example: the algorithms
behind this technology, capable of misleading entire populations and disrupting democracy,
can also be used to diagnose diseases like cancer at an early stage, leading to better health
outcomes. Another example is the expansion of the Internet of Things (IoT). This could put
jobs and personal data at risk, but if rolled out responsibly, could revolutionise people’s health,
safety, finances and daily planning. Powerful gene editing tools could — in the wrong hands
— be used to engineer viruses capable of wiping out entire populations, but could equally
be harnessed to save endangered species and eliminate debilitating hereditary diseases.
While there are concerns about the impact disruptive technologies will have on the lives of
individuals and societies, there is little doubt that the decade ahead will be dominated by
innovation. World leaders are focused on how to develop and apply technologies that benefit
both people and the planet, and will look to society to shape their development.
The changing workplace as discussed in the previous box has major implications for
contemporary organisations, individuals, governments and societies, thus requiring
them to adapt to these changes proactively. It will have an effect on how we conduct
business and how we live our private lives. Organisations need to be mindful of
these changes and the implications for their organisations, especially in terms of the
information management function.
7.2 THE LINK BETWEEN DECISION-MAKING AND INFORMATION
In Chapter 3, the external and internal environments in which the organisation operates
were discussed. An information system transforms data from an organisation’s external
and internal environments into information that can be used by managers in the
decision-making process (see Figure 7.1).
From the internal or micro-environment, data pertaining to organisational resources,
marketing, financial, purchasing, supply chain, and human resources are used. From the
market environment, data pertaining to consumers, competitors, intermediaries and
suppliers is used. From the macro-environment, data pertaining to the technological,
ecological, economic, social and international sub-environments is used. The
information system is then responsible for transforming this data into useful, timely
and accurate information that decision-makers can use to solve problems, overcome
challenges and make use of business opportunities.
As highlighted by Davos 2020: The future of work information is a clear indication
that the world of work is changing and technological factors play a major role as drivers of
these changes. For example, the number of available options to solve problems is much
greater today than ever before because of improved technology and communication
systems. Second, the cost of making errors in decisions may be excessive because of the
complexity and magnitude of operations, automation, and the domino effect of an error
in decision-making throughout the organisation. By the same token, the benefits may
be numerous, if the correct decisions are being made.
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Because of these trends and changes in the Fourth Industrial Revolution, it is
extremely unwise to rely on a trial-and-error approach to decision-making. Managers
need to become more sophisticated — they must learn how to manage the information
in their fields. In what follows, we will focus on computer-based information systems
that support managerial decision-making in organisations.
INTERNAL ENVIRONMENT
Organisational resource data
Marketing data
Financial data
Purchasing and operations data
Human resources data
Other data
EXTERNAL ENVIRONMENT
Consumer data
Competitor data
Intermediaries data
Supplier data
Technological data
Ecological data
Economic data
Social change data
International data
Other data
INFORMATION
SYSTEM
Transforms data into
information
DECISIONMAKING
Figure 7.1 The relationship between an organisation’s information system and decision-making
Discovery Health Medical Scheme
The core purpose of the Discovery Health Medical Scheme (DHMS) is to achieve in a
sustainable manner, the best possible value for its members which comprises the benefits,
quality of care and service levels to members relative to their contributions to the scheme.
DHMS is an open medical scheme, meaning that any member of the public can join the
scheme, subject to its rules.
On 31 December 2018, DHMS covered 2 819 139 members — the largest open medical
scheme in South Africa with a market share of 56.6 per cent. For the year ended December
2018, the scheme realised a normalised operating profit of R8.3 billion and were operational
in 19 countries.4
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7.3 WHAT IS AN INFORMATION SYSTEM?
7.3.1 A definition of an information system
We tend to use the terms ‘data’ and ‘information’ interchangeably, although there is a
definite distinction between the two concepts. Data refers to raw, unanalysed numbers
and facts about events or conditions from which information is drawn. The financial
statements that organisations draw up at the end of each financial period contain
various unanalysed numbers. For example, financial statements provide the sales, gross
profit, net profit, taxes paid, interest on long-term bonds, and so on. In the case of
Discovery Health Medical Scheme (as referred to in the previous box), the scheme’s net
healthcare result, investment income and normalised operating profit for the year ended
31 December 2018, are examples of the scheme’s data. As soon as this data is processed
and analysed, managers and decision-makers will have information which can be used in
the problem solving and decision-making processes. In other words, data pertaining to
Discovery Health Medical Scheme needs to be transformed into valuable information.
For example, by comparing the scheme’s normalised operating profit for 2013 with that
for 2018 or the number of countries in which they were operational in 2013 compared to
the number in 2018. These comparisons will provide stakeholders of the scheme with a
better indication of the scheme’s financial performance for the year 2018. Data pertaining
to Discovery Health Medical Scheme therefore needs to be transformed into information
to be of value to stakeholders and decision-makers. The Scheme’s normalised operating
profits for 2013 and 2018 were R4 billion and R8.3 billion respectively. In 2013, they
were operational in five countries, compared to 19 countries in 2018. Both these figures
showed a positive growth for DHMS during the period of comparison.5
Management information is information that is timely, accurate, and relevant to a
particular situation. Management information enables management to establish what
should be done in a specific situation.
A system, as defined in Chapter 1, comprises subsystems that form a whole. These
subsystems are linked and interact in such a way that they achieve a goal.
An ‘information system’ can now be defined as the people, procedures, and other
resources used to collect, transform, and disseminate information in an organisation.
Stated differently, an information system accepts data resources as input and processes
them into information products as output.
7.3.2 The basic components of an information system
An information system utilises hardware, software, and human resources to perform
the basic activities of input, processing, output, feedback, control, and storage. This is
illustrated in Figure 7.2.
Information systems receive data as input, for instance the sales figures from each
of its strategic business units. The information system needs to process this data by
organising and analysing it in a meaningful way to provide information as output to
managers. Managers may want to know the growth rate of sales, earnings per share,
return on common equity, and so on. The information, and not the data, should enable
management to make decisions. This information must then be stored. Storage refers to
the activity by which data and information are retained for subsequent use. Discovery
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Health Medical Scheme could use magnetic tapes, computer disks, or other means of
storage for this purpose. Finally, an information system provides feedback on its activities
in order to determine whether the system meets established performance standards.
Human resources
TRANSFORMATION
INPUT
DATA
OUTPUT
INFORMATION
Software resources
Hardware resources
Control
FEEDBACK
Storage
Procedures
Figure 7.2 An information systems model
Information systems include certain resources that contribute to their informationprocessing activities. ‘Hardware resources’ is a broad term that denotes the physical
components of a computer system. The four main categories of computer system
components are:
1. Input devices, such as keyboards, optical scanning devices, and magnetic ink
character readers which allow one to communicate with one’s computer.
2. A central processing unit (CPU), which consists of electronic components that
interpret and execute the computer programmes’s instructions. The CPU can be
seen as the ‘brain’ of the computer.
3. Output devices, for example printers, audio devices, and display screens.
4. Auxiliary storage refers to all addressable data storage that is not currently in a
computer’s main storage or memory. Synonyms for auxiliary storage are external
or secondary storage for example, magnetic disks and tapes, optical disks such as
compact disks and Blu-ray, and flash drives.
Software resources are the programs or detailed instructions that operate computers.
These resources include:
■
System software, which manages the operations of a computer
■
Application software, which performs specific data-processing or text-processing
functions such as a word-processing package or a payroll program
■
Procedures that entail the operating instructions for users of an information system.
The human resources required to operate an information system include specialists and
end-users. Specialists are people who develop and operate information systems, such
as systems analysts, programmers, and computer operators, while end-users are people
who use the information produced by a system. Managers are end-users of information.
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The toll on information systems in the World Trade Centre attacks
On 11 September 2001, the World Trade Centre in New York was attacked by terrorists. The
financial toll on computerised information systems was:
■
US$500 million one-time cost to replace hardware destroyed in the attack
■
US$15,8 billion cost of restoring all IT and communications disrupted by the attack
■
US$8,1 billion long-term IT cost to enterprises.
7.4 CHARACTERISTICS OF USEFUL INFORMATION
Information must have certain benefits over raw data to be considered a value-added
resource to the organisation. There are certain characteristics that information should
have in order to be useful and of value to the organisation. These characteristics are:
■
Quality (accuracy). Information is of high quality if it portrays reality accurately.
The more accurate the information, the higher its quality.
■
Relevance. Managers and employees often receive information that is of little use.
Information is relevant only when it can be used directly in problem solving and
decision-making processes.
■
Quantity (sufficiency). Managers and employees often complain about
information overload. Quantity is the sufficient amount of information available
when users need it — more is not always better.
■
Timeliness (currency). Timeliness means the receipt of the needed information
while it is current and before it ceases to be useful for problem solving and
decision-making processes. Receiving information too late can have a detrimental
impact on an organisation.
Information must be:
■
Accurate
■
Relevant
■
Sufficient
■
Current
The above mentioned four characteristics of useful information, namely accuracy,
relevance, sufficiency, and currency, are interrelated and are essential to the provision
of information that serves as a value-added managerial resource. In what follows, we
examine how organisations organise information systems so that they can provide
managerial end-users with information that is all of those things.
7.5 ORGANISING INFORMATION SYSTEMS
An organisation’s corporate or grand strategy feeds down, through divisional or business
unit strategies, into a number of functional strategies, such as the marketing strategy, the
financial strategy and also the information systems (IS) strategy. Most organisations
organise information systems in such a way that it has similar status as other functions
of the organisation. Figure 7.3 illustrates the hierarchy of an organisation’s strategies
(compare this figure with Figure 4.4 in Chapter 4).
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IS strategy, as one of an organisation’s
functional strategies, may have various substrategies. Examples are the IT strategy and
Corporate
the communications strategy. These substrategy
strategies can then be developed in more
detailed strategy elements. For example,
Divisional or business
an IT strategy can be developed into a
unit strategies
hardware and software strategy and the
communications strategy can be developed
Functional strategies
into a data strategy and a voice strategy. In
this way, the information systems strategy
is viewed as an element of a system of
Figure 7.3 Hierarchy of an
strategies. In many organisations, the
organisation’s strategy
information technology function operates
as a business within a business, supporting all other functional units in a variety of ways.
Table 7.1 below provides examples of some functional units and the IT applications
that typically support them.
Senior IS managers and most IS functions have both line and staff responsibilities.
Because of this shared responsibility, IS is a hybrid function in most organisations. The
next section focuses on the classification of IS.
7.6 CLASSIFICATION OF INFORMATION SYSTEMS
Information systems perform operational and managerial support roles in organisations.
Figure 7.4 below provides a conceptual classification of information.
Table 7.1 Organisational functions and supporting information technology applications
Function
Supporting IT applications
Production and
operations management
Information technology can support this function by means of
the automation of product design and a component catalogue.
Product development can also be supported by means of materials
logistics and factory automation.
Marketing management
Information technology can support the distribution function by
means of warehouse automation, shipping and receiving of goods
and components. Information technology can also support the
sales function by means of order entry, sales analysis and the
calculation of commission. In terms of service and after-sales
service, information technology can be used to analyse failure
and to determine the effectiveness of call centres.
Financing and
accounting management
Information technology can support record keeping, financial
planning, financial reporting, investment analysis and financial
control.
Administrative
management
Information technology can support administrative management
systems by means of various office systems, personnel records,
and performance assessments.
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7.6.1 Operations information systems
The purpose of operations information systems is to support business operations. These
systems process data generated by and used in business operations. Their use is also very
popular abroad. The major categories of such systems and the roles they play are:
■
Most organisations use transaction-processing systems (TPS) to record and
process data resulting from business transactions, such as sales, purchases, and
inventory changes. In the case of Discovery Health Medical Scheme, various
transactions need to be recorded and processed, for example, the claims of its
members, claims of service providers, payments of claims to service providers,
and so on. Transaction processing systems produce a variety of documents and
reports for internal and external use. They also update the databases used by an
organisation for further processing by its management information system.
■
Operations IS can make routine decisions that control physical processes. In the
case of Discovery Health Medical Scheme, a process control system can be used to
pre-authorise hospital admissions of members of the scheme.
■
Office automation systems (OAS) transform traditional manual office methods
and paper communications media. These systems support office communication
and productivity. Examples of office automation applications are electronic mail
(email), desktop publishing, and teleconferencing. Teleconferencing has become very
popular in South Africa because of the long distances that managers and employers
have to cover to attend meetings. In the case of Discovery Medical Health Scheme,
accounts, claims and other information can be emailed to members instead of using
the postal service to deliver hard copies of this information. They can also make use of
teleconferencing to communicate with their centres spread across the country.
INFORMATION SYSTEMS
Operations information
systems
Transaction-processing
systems
Process control systems
Office automation
systems
Management
information systems
Information-reporting
systems
Decision support
systems
Executive information
systems
Other
classifications
Expert systems
Artificial intelligence
Virtual reality
Business function
information systems
The Internet
The extranet
The intranet
Electronic commerce
Figure 7.4 The classification of information systems
7.6.2 Management information systems (MIS)
The term ‘management information systems’ has several popular meanings. Many
writers use the term as a synonym for ‘information systems’. In this text we use MIS to
describe a broad class of IS, the goal of which is to provide information on and support
for decision-making by managers.
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Management information systems support the decision-making needs at the
operational, tactical, and strategic levels of management.
At the operational level, decisions are mainly structured, and MIS process transactions
as they occur in order to update internal records and provide reports and documents.
At the tactical level, decisions are semi-structured, and middle managers receive
results from the operational level. At this level, information is needed on important
matters such as problems with suppliers, abrupt sales declines, or increased consumer
demand for a particular product line. In addition, middle managers also access data
from external sources to support their own planning and control activities.
At the strategic level, decisions are unstructured. Top management needs information
from internal and external sources in order to gauge the organisation’s strengths and
weaknesses, as well as opportunities and threats in the external environment. Information
on the financial performance of the organisation is derived from internal sources and
is needed by top management to make sound financial decisions. Management needs
information on quarterly sales and profits, on other relevant indicators of financial
performance (such as share value), on quality levels, on customer satisfaction, and on
the performance of competitors. Information from external sources is more difficult
to obtain and to computerise than internal information. Top management also needs
information on interest rates, possible changes in tax laws, the latest technological
breakthroughs, substitute products, and other variables (see Chapter 3).
Providing information and support for managerial decision-making at all levels
of management is a complex task. Several major types of IS are needed to support a
variety of managerial end-user responsibilities. These types of MIS, as indicated in
Figure 7.4, are information-reporting systems, decision support systems, and executive
information systems.
Information-reporting systems (IRS)
Information-reporting systems provide managerial end-users with the information
reports they need for making decisions. These systems access databases on internal
operations containing information previously processed by transaction-processing
systems. Data on the external environment is obtained from external sources.
Decision support systems (DSS) are a natural progression from transactionprocessing systems and information-reporting systems. They are computer-based
information systems that provide interactive information support to managers during
the decision-making process. Decision support systems use:
■
Analytical models
■
Specialised databases
■
The decision-maker’s own insights and judgement
■
An interactive, computer-based modelling process to support the making of semistructured and unstructured decisions by the individual manager.
Electronic spreadsheets and other decision support software allow a managerial enduser to receive interactive responses to ad hoc requests for information posed as a series
of ‘what if ’ questions. When using a DSS, managers are exploring possible options and
receiving tentative information based on different sets of assumptions.
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Executive information systems (EIS)
Executive information systems are MIS that are tailored to the strategic information
needs of top management. The function of computer-based executive information
systems is to provide top management with immediate and easy access to information on
the organisation’s critical success factors — that is, the factors critical to accomplishing
the organisation’s strategic goals. Executives usually consider various factors critical to
the success and survival of their organisations, such as an insightful understanding of
socio-economic and technological trends, innovative thinking, an understanding of
the impact of legislation and changes in legislation on the business environment and
ways to deal with it, and the key success factors pertaining to the industry that they are
competing in.
7.6.3 Other classifications of information systems
There are several major categories of IS that provide unique or broader classifications
compared to those just mentioned. These are IS that can support business operations
as well as managers at the operational, tactical, or strategic levels of an organisation.
Examples are expert systems, business function IS, the Internet, the extranet, the
intranet, and electronic commerce (or e-commerce).
Expert systems (ES), Artificial intelligence (AI) and Virtual reality (VR)
Artificial Intelligence in the medical profession6
When diagnosing a cancer patient to determine the presence and type of cancer they have,
a doctor would analyse the patient’s test results. Correctly diagnosing cancer as well as its
type is a cornerstone of successful treatment. Today, a doctor would typically turn to the
literature on the subject and examine similar cases. The doctor also has another option,
namely to enter the patient’s test results and medical history into a computer programme and
let the computer compare to millions of similar pathology records. Since there are types and
subtypes of cancer that are very rare and difficult to distinguish, different subtypes of cancer
may require dramatically different treatment plans.
To address this problem, a team from MIT’s Computer Science and Artificial Intelligence
Laboratory introduced a model that aims to automatically distinguish the type of lymphoma —
a group of blood cancers. The model uses many techniques, among them are Natural Language
Processing and Machine Learning. The elaborated framework analyses pathology reports,
which provide a comprehensive scope of measurements, observations, and interpretations
made by pathologists — all expressed in natural language. With detailed feature analysis,
their system generates meaningful features and medical insights into lymphoma classification.
The model assists doctors to make a more accurate diagnosis based on more comprehensive
evidence. Imagine what great impact would such a system could make if expanded across
other institutions.
An expert system (ES) is a programme that is designed to solve problems within a
specialised domain that ordinarily requires a human expert. By mimicking the thinking
of the human expert, the system can perform the analysis, design, or monitoring,
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make decisions and more. In fact, such systems were built long ago, and were the first
successful implication of Artificial Intelligence (AI). But due to the poor development
of AI, the Expert Systems did not live up to the business-world expectations and the
term itself was left out from the IT-world lexicon. Now, with the rapid development
and prominent advancements of AI, Machine Learning, Deep Learning and Natural
Language Processing we are about to observe the comeback of ESs. They can be called
different names, but the essence stays the same — solving expert-level issues.
An ES has a number of major components. First, the human expert, that transfers
his or her expert knowledge to the knowledge engineer. The knowledge engineer is
responsible for transferring this knowledge to the knowledge base. The power of the
ES stems from the specific knowledge regarding a narrow domain which one stores.
The knowledge base of an ES contains both factual and heuristic knowledge. The next
component of the ES is the inference engine, also known as the reasoning mechanism.
It provides a methodology for reasoning about information in the knowledge base. The
goal of this component is to deliver a recommendation. Therefore, it combines the facts
of a specific case (input data) with the knowledge contained in the knowledge base. The
next component of the ES is the user interface, which refers to the hardware and the
software that provides interaction between the programme and its users. The user may
or may not be an expert. These components are depicted in Figure 7.5 below.
Human expert
Knowledge engineer
Knowledge base
Inference engine
User interface
User
Figure 7.5 Components of an expert system
ESs can be used in various organisations to solve various kinds of problems and to make
various kinds of decisions. For example, to detect insurance application fraud, to predict
stock market movements, and airline and cargo scheduling.
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The use of ESs in business organisations, has a number of advantages, for example:
Expert knowledge becomes available. The knowledge and wisdom of many experts
are mined and structured in an ES, which can relatively easily be retrieved and used
■
New information and research are added. As new information and new research
become available, this can be added to the existing body of knowledge in the ES.
The ES can also be of great help by offering knowledge of similar cases
■
Automation and speed. ESs offers great speed and reduces the amount of work of
individuals
■
Reduced error and risk. If used correctly and responsibly, an ES’s error rate is lower
than when compared to human errors
■
ESs assist even non-experts. ESs can be used as a training tool for inexperienced
employees and non-experts.
■
Artificial intelligence (AI) is a field of computer science that is devoted to giving
machines features that are associated with human intelligence. These include reasoning,
evaluation, learning, language recognition, decision-making and problem solving.
Expert systems were the first successful implication of AI for the purposes of business.
Their decision-making was rule-based and consisted of a number of ‘if-then’ rules. For
example, if the price of a share falls more than 10 per cent, sell. Rule-based systems
such as these are the simplest form of AI. However, such an approach was not enough
for powerful ESs, since it could not deal with many real-life issues. For example, these
systems often failed when faced with a new, not ‘coded’ situation.7 For example, during a
stock market crash, like the ones we have seen in the global financial crises in 2008/2009
and during the COVID-19 outbreak of early 2020, these ‘not coded’ situations held a
number of good buy options for investors.
A shift from the rule-based approach to ESs to a more data-driven approach, paved
the way for a new era in AI. This new era was characterised by an increase in computing
power capabilities and data which became easier to access and inexpensive to store.
This changed the AI paradigm. Instead of a system that draws conclusions based on
predefined rules, AI-software began to use data-driven and probability approaches. This
software also exposed large quantities of known facts to a learning mechanism, thereby
creating a system making predictions or identifications of unseen cases. In essence, this
is referred to as Machine Learning.8
AI is not limited to information technology, medical sciences or the business world
— it is being used extensively in people’s personal lives as well. For example, Siri is one
of the most popular personal assistants offered by the Apple company in iPhone and
iPad products. The friendly female voice-activated assistant interacts with the user on a
daily routine and assists him or her to find information, get directions, send messages,
make voice calls, open applications on the phone and add events to the calendar.
Another example is Netflix, a popular content-on-demand service that uses predictive
technology to offer recommendations on the basis of consumers’ reaction, interests,
choices and behaviour. The technology examines data from a number of records to
recommend movies based on the customers’ previous likes and reactions.9
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Virtual reality (VR) is the simulation of a real or imagined environment that can
be experienced visually in three dimensions. Originally, VR referred to immersive
virtual reality, which means the user becomes fully immersed in an artificial,
computer-generated 3D world. The virtual world is presented in full scale and relates
properly to the human size. It can represent any 3D setting, real or abstract, such as
a building, a sculpture or a crime scene. Virtual worlds can be animated, interactive
and shared. Through immersion, the user can gain a deeper understanding of the
virtual world’s behaviour and functionality. VR can also refer to applications that are
not fully immersive, such as a mouse that navigates through a 3D environment on a
graphics monitor.
Business function information systems
Information systems directly support the business functions of accounting, finance,
human resource management, administration, purchasing, marketing, and operations
management. Such IS are needed by all business functions. For example, marketing
managers need information on sales performance and trends — provided by marketing
IS. Financial managers need information on financing costs and investment returns —
provided by financial IS.
The Internet
The Internet is a loosely configured, rapidly growing web of thousands of corporate,
educational, and research computer networks around the world. The US Department
of Defence created it in 1969, and it was designed to survive a nuclear war. Instead of
routing messages through central computers, the Internet makes use of computers
linked by different paths. Each message sent bears an address code that speeds it
towards its destination. Messages usually arrive in seconds. Information on the Internet
is potentially available to almost everyone in the world. It offers almost unlimited
communication opportunities. One drawback in communication through the Internet
is the limited privacy of information sent over it. As a result, finding methods to make
information secure is a high priority of both researchers and users.
Internet access usually provides four primary capabilities:
1. Electronic mail (email) enables users to send, receive, and forward messages from
people all over the world. Users can reply to, save, file, and categorise received
messages. Email makes participation in group decision support systems such as
electronic brain-storming, electronic meetings, and real-time Delphi possible.
2. Telnet enables users to log in to remote computers and to interact with them.
Users’ computers are remotely connected to computers at other locations, but act
as if they were directly connected.
3. File transfer protocol (FTP) enables users to move files and data from one computer
to another. Users can download magazines, books, documents, software, music,
graphics, and much more.
4. World Wide Web (or ‘the Web’) is a set of standards and protocols that enable users
to access and input text, documents, images, video, and sound on the Internet.
The Web is non-linear by design and permits users to jump from topic to topic,
document to document, and site to site.
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As web-based systems began to flourish, businesses gained efficiency by integrating the
individual systems that supported their value chains. This led to the introduction of
enterprise resource planning (ERP) systems. These complex, comprehensive systems
cover most of the value-chain elements and are used to purchase parts and supplies,
accept customer orders, maintain work-in-process inventories, service customers,
support sales people and help to manage many other important activities.
The extranet
The extranet is a wide area network that links an organisation’s employees, suppliers,
customers, and other key stakeholders electronically. Unlike the Internet, the general
public does not have access to an extranet. The purpose of an extranet is to provide vast,
reliable, secure, and low-cost computer-to-computer communication for a wide variety of
applications, such as sales, marketing, product development, and employee communications.
The intranet
The intranet is a semi-private internal network where access is limited to an
organisation’s employees. It uses the infrastructure and standards of the Internet and
the Web. It enables managers and employees to communicate with one another and to
access internal information and databases for which they have been cleared, through
their desktop or laptop computers. Sensitive information, such as employee salaries and
performance appraisals, can be restricted to particular authorised employees.
Electronic commerce
Electronic commerce (e-commerce) can be defined as ‘the process of buying and selling
goods and services electronically by means of computerised business transactions’. The
Internet has emerged as the dominant technology for conducting e-commerce. On
almost a daily basis we read in newspapers of some new organisation that will sell its
products or services online.
Three types of e-commerce exist:
1. Business-to-consumer
2. Business-to-business
3. Consumer-to-consumer.
Business-to-consumer (B2C) e-commerce involves selling products and services
to customers (who are the end-users of its products and services) over the Internet.
Takealot.com is an example of a company selling products over the Internet to the
customer. It is a South African e-commerce company based in Cape Town, selling
anything that you can imagine: television sets, laptops, cell phones, kitchenware and
so on. Although this may be the most visible expression of e-commerce to the public,
the fastest growing area of e-commerce is business-to-business (B2B) e-commerce,
which refers to electronic transactions between organisations — one business makes a
commercial transaction with another business.
B2B e-commerce typically occurs when a business is sourcing materials for their
production process; or a business needs the services of another for operational reasons;
or a business re-sells goods and services produced by others. Many B2B transactions
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take place over the Internet — for example, the Ford Motor Company buys and sells
billions of US dollars worth of goods a year via Internet linkages.
Lastly, consumer-to-consumer (C2C) e-commerce allows customers to interact
directly with each other. Traditional markets require businesses to have customer
relationships, in which a customer goes to the business in order to purchase a product
or service. In C2C markets, customers can sell goods and services directly to each other.
C2C is made possible when an Internet-based business acts as an intermediary between
and amongst consumers. An example is a Web-based auction where consumers can buy
and sell directly to one another, often handling the entire transaction via the Web.
Information systems can be classified as either operations or management information
systems.
Examples of operations information systems are transaction-processing systems, process
control systems, and office automation systems. Examples of management information
systems are information-reporting systems, decision support systems, and executive
information systems. However, some information systems cannot be classified as either
operations or management information systems, for example, expert systems, business
function information systems, the Internet, the extranet, the intranet, and e-commerce.
The Cambridge Analytica and Facebook Scandal10
In March 2018, the New York Times, working with The Observer of London and The
Guardian, obtained a cache of documents from inside Cambridge Analytica. The latter is a
data firm principally owned by donor Robert Mercer. The documents proved that the firm,
where the former Donald Trump aide Stephen K. Bannon was a board member, used data
improperly obtained from Facebook to build voter profiles of the United States of America
voters. The news put Cambridge Analytica under investigation and Facebook into its
biggest crisis ever.
In 2014, The New York Times reported that contractors and employees of Cambridge
Analytica acquired the private Facebook data of tens of millions of users, and used this
data to build and sell psychological profiles of the American voters to political campaigns.
Cambridge received warnings from its own lawyer, since they violated American election
law. Furthermore, people at Cambridge and its British affiliate, the SCL Group, were in
contact with executives from the Lukoil, the Kremlin-linked oil giant, as Cambridge built its
Facebook-derived profiles. Lukoil was interested in the ways data was used by Cambridge
to target American voters. The articles reported on these facts, drew an instant response
in Washington. Lawmakers in the United States demanded Facebook’s Chief Executive,
Mark Zuckerberg, to testify before Congress. Lawmakers in Britain also investigated
Cambridge Analytica’s role in disinformation and the country’s referendum to leave the
European Union.
Although The New York Times initially reported that Cambridge harvested data from over
50 million Facebook users, Facebook’s chief technology officer Mike Schroepfer later issued
a new estimate for the number of users who were affected: as many as 87 million, most of
them in the United States.
➜
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In his first appearance before the US Congress, Mr Zukerberg faced tough questions about the
company’s mishandling of personal data and said Facebook was investigating tens of thousands of
applications to see what information was harvested. After interrogated by the House committees
in the United States, the consensus was that social media technology — and its potential for
abuse — had far outpaced Washington, and that Congress may have to step in to close the
gap. Even Mr Zukerberg seemed to suggest he could be open to some regulation, but neither he
nor lawmakers seemed sure about how exactly to regulate this new breed of companies.
The Cambridge Analytica and Facebook scandal described above, serves as proof that
the information systems field offers many opportunities for unethical behaviour. In the
next section, we will focus on ethical issues of information systems.
7.7 ETHICAL ISSUES OF INFORMATION SYSTEMS
Ethical issues deal with what is generally considered right or wrong. A number of
technology trends are responsible for a rise in ethical issues. The following are considered
the most important current trends:11
■
Dependence on computerised information systems. More and more
organisations depend on information systems for their critical operations. As a
result, their dependence on information systems and their vulnerability to system
errors and poor data quality have also increased. Rules and laws have not yet
adjusted to this dependence and standards for ensuring the accuracy and reliability
of information systems are not universally accepted or enforced.
■
Decline in data storage costs. Advances in data storage techniques and rapidly
declining storage costs have been responsible for the multiplying databases on
individuals — employees, customers, and potential customers. These databases
are maintained by private and public organisations. Advances in data storage have
made routine violation of individual privacy cheap and effective.
■
Advances in data analysis techniques. Advances in data analysis techniques
for large pools of data make it possible for organisations to access highly detailed
personal information about individuals (as we have seen in the Cambridge Analytica
and Facebook scandal). With contemporary data management tools, organisations
can assemble and combine the myriad pieces of information stored on computers
far more easily than in the past. For example, by putting together the credit card
purchases, telephone calls, magazine subscriptions, mail-order purchases, banking
records, police records and Website visits of an individual. Used effectively, this
information can be used to reveal his/her credit information, driving habits, tastes,
associations and political interests. Organisations with products to sell then use this
information to help them target them during their marketing campaigns.
■
Networking advances. Copying data from one location to another and accessing
personal data from remote locations is much easier. This advancement also raises
ethical issues.
■
Mobile device growth. Lastly, the growth in the use of cell phones and especially smart
phones increases ethical issues. Individual cell phones may be tracked without user
consent or knowledge. The COVID-19 outbreak of early 2020 serves as an example,
when cell phones were used to track people who were tested positive for the virus.
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There are various moral dimensions of information systems. The main moral dimension,
for the purposes of our discussion, are the following:
■
Information rights: privacy and freedom in the internet age. Privacy refers to
the claim of the individual to be free from surveillance or interference from other
individuals or organisations, including the state. Claims to privacy are also involved
in the workplace —many employees are subject to electronic and other forms of
high-tech surveillance. Information technology and systems threaten individual
claims to privacy and freedom by making an invasion of privacy cheap, profitable
and effective.
■
Property rights: intellectual property. Intellectual property is intangible
property created by individuals or organisations. Information technology has made
it difficult to protect it since computerised information can be so easily distributed
and copied on networks. Organisations should, in their code of conduct, cover
patents, copyrights and trade secrets. A patent grants the owner an exclusive
monopoly on the ideas behind an investment for a specified period. Copyright is a
statutory grant that protects the creators of intellectual property from having their
work copied by others for any purpose during a specified period. Any intellectual
work product, for example a formula, device, pattern or compilation of data, used
for an organisations’ purpose, can be classified as a trade secret, provided it is not
based on information in the public domain.
■
Accountability, liability and control. Along with privacy and property rights,
new information technologies are challenging existing liability laws and social
practices for holding individuals and institutions accountable. If a person is injured
by a machine controlled, in part, by software, who should be held accountable
and, therefore, held liable? Should a public bulletin board or an electronic service,
permit the transmission of pornographic or offensive material (as broadcasters), or
should they be held harmless against any liability for what users transmit (as is true
of common carriers, such as the telephone system)? What about the Internet? If
you outsource your information processing, can you hold the external vendor liable
for injuries done to your customers?
■
Systems quality: data quality and system errors. The debate over liability and
accountability for unintentional consequences of system use raises a related but
independent moral dimension: What is an acceptable, technologically feasible level
of system quality? At what point should system managers accept minor system
errors and release their product to the market?
■
Quality of life: equity, access and boundaries. The negative social costs of
introducing information technologies and systems are beginning to mount along
with the power of the technology. Many of these negative social consequences are
not violations of individual rights or property crimes. Nevertheless, these negative
consequences can be extremely harmful to individuals and societies. Computers
and information technologies can potentially destroy valuable elements of our
culture and society even while they bring us benefits. If there is a balance of good
and bad consequences of using information systems, who do we hold responsible
for the bad consequences?
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In the previous section, we addressed artificial intelligence (AI) which holds a number
of benefits for society. However, AI also has the ability to destroy valuable elements of
our society and became a new frontier for ethics and risk assessment. According to the
World Economic Forum, the following are the most important ethical issues of AI.12
■
Unemployment. What happens after the end of jobs? The hierarchy of labour
is concerned primarily with automation. As we’ve invented ways to automate jobs,
we could create room for people to assume more complex roles, moving from the
physical work that dominated the pre-industrial globe to the cognitive labour that
characterises strategic and administrative work in our globalised society. Look at
trucking that currently employs many individuals. What will happen to them if
the self-driving trucks promised by Tesla’s Elon Musk become widely available in
the next decade? But on the other hand, if we consider the lower risk of accidents,
self-driving trucks seem like an ethical choice. The same scenario could happen to
office workers, as well as to the majority of the workforce in developed countries.
This is where we come to the question of how we are going to spend our time. Most
people still rely on selling their time to have enough income to sustain themselves
and their families. We can only hope that this opportunity will enable people to
find meaning in non-labour activities, such as caring for their families, engaging
with their communities and learning new ways to contribute to human society. If
we succeed with the transition, one day we might look back and think that it was
barbaric that human beings were required to sell the majority of their time engaged
in physical labour activities.
■
Inequality. How do we distribute the wealth created by machines? Our
economic system is based on compensation for contribution to the economy, often
assessed using an hourly wage. The majority of companies are still dependent on
hourly work when it comes to products and services. But by using AI, a company
can drastically cut down on relying on the human workforce, and this means that
revenues will go to fewer people. Consequently, individuals who have ownership
in AI-driven companies will make all the money. We are already seeing a widening
wealth gap, where start-up founders take home a large portion of the economic
surplus they create. If we truly imagine a post-work society, how do we structure a
fair post-labour economy?
■
Humanity. How do machines affect our behaviour and interaction? Artificially
intelligent robots are becoming better and better at modelling human conversation
and relationships. When used correctly, this could evolve into an opportunity to
nudge society towards more beneficial behaviour. However, in the wrong hands, it
could prove detrimental.
■
Artificial stupidity. How can we guard against mistakes? Intelligence comes
from learning, whether you’re human or machine. Systems usually have a training
phase in which they ‘learn’ to detect the right patterns and act according to their
input. Once a system is fully trained, it can then go into a test phase, where it is
hit with more examples and we see how it performs. However, the training phase
cannot cover all possible examples that a system may deal with in the real world.
These systems can ‘be fooled’ in ways that humans wouldn’t be. For example,
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random dot patterns can lead a machine to ‘see’ things that aren’t there. If we rely
on AI to bring us into a new world of work-efficiency and security, we need to
ensure that the machine performs as planned, and that people can’t overpower it to
use it for their own ends.
■
Racist robots. How do we eliminate AI bias? Though artificial intelligence is
capable of a speed and capacity of processing that’s far beyond that of humans, it
cannot always be trusted to be fair and neutral. Google and its parent company
Alphabet are one of the leaders when it comes to artificial intelligence, as seen in
Google’s Photos service, where AI is used to identify people, objects and scenes.
But it can go wrong, such as when a camera missed the mark on racial sensitivity, or
when a software used to predict future criminals showed bias against black people.
We shouldn’t forget that AI systems are created by humans, who can be biased and
judgmental. Once again, if used correctly, or if used by those who strive for social
progress, artificial intelligence can become a catalyst for positive change.
■
Security. How do we keep AI safe from adversaries? The more powerful a
technology becomes, the more can it be used for nefarious reasons as well as
for good reasons. This applies not only to robots produced to replace human
soldiers, or autonomous weapons, but to AI systems that can cause damage if
used maliciously. Because these fights won’t be fought on the battleground only,
cybersecurity will become even more important. After all, we’re dealing with a
system that is hugely faster and more capable than us.
■
How do we protect against unintended consequences? What if artificial
intelligence itself turned against us? This doesn’t mean by turning ‘evil’ in the way
a human might, but rather with terrible unforeseen consequences. In the case of
a machine, there is unlikely to be malice at play, only a lack of understanding of
the full context in terms of the intended use of the machine. Imagine an AI system
that is asked to eradicate cancer in the world. After a lot of computing, it spits out
a formula that does, in fact, bring about the end of cancer — by killing everyone
on the planet! The computer would have achieved its goal of ‘no more cancer’ very
efficiently, but not in the way humans intended it.
■
How do we stay in control of a complex intelligent system? The reason humans
are on top of the food chain is not down to sharp teeth or strong muscles. Human
dominance is almost entirely due to our ingenuity and intelligence. We can get
the better of bigger, faster, stronger animals because we can create and use tools
to control them: both physical tools such as cages and weapons, and cognitive
tools like training and conditioning. This poses a serious question about artificial
intelligence: will it, one day, have the same advantage over us? We can’t rely on just
‘pulling the plug’ either, because a sufficiently advanced machine may anticipate
this move and defend itself. This is what some call the ‘singularity’: the point in
time when human beings are no longer the most intelligent beings on earth.
■
Robot rights. How do we define the humane treatment of AI? While
neuroscientists are still working on unlocking the secrets of conscious experience,
we understand more about the basic mechanisms of reward and aversion. We
share these mechanisms with even simple animals. In a way, we are building
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similar mechanisms of reward and aversion in systems of artificial intelligence.
For example, reinforcement learning is similar to training an animal: improved
performance is reinforced with a virtual reward. Right now, these systems are fairly
superficial, but they are becoming more complex and life-like. Could we consider
a system to be suffering when its reward functions give it negative input? Once we
consider machines as entities that can perceive, feel and act, it’s not a huge leap
to ponder their legal status. Should they be treated like animals of comparable
intelligence? Will we consider the suffering of ‘feeling’ machines?
Some ethical questions are about mitigating suffering, some about risking negative
outcomes. While we consider these risks, we should also keep in mind that, on the
whole, this technological progress means better lives for everyone. Artificial intelligence
has vast potential, and its responsible and ethical implementation is up to us.
7.8 DEVELOPING AN INFORMATION SYSTEM
Most managers are not IS specialists. However, they are IS users as well as staff
departments, such as accounting, operations, marketing, purchasing, and so forth. The
manager’s performance will, in part, depend on the quality of the IS support available.
It is therefore imperative for end-users to have a say in the development efforts of IS
specialists in order to ensure that the system meets their information requirements.
7.8.1 Systems investigation
An information system is usually conceived, designed, and implemented through a
systematic development process in which end-users (managers) and technical staff
design systems based on an analysis of the specific information requirements of an
organisation, or of departments in an organisation. In this way, a systems development
life cycle emerges, as illustrated in Figure 7.6 below. All the activities involved in the
development cycle are closely related and interdependent, with the result that several
development activities can, in practice, occur at the same time.
The first step in the IS development life cycle is to determine the nature and scope
of the need for information. If the need is incorrectly or incompletely defined, the entire
process could address the wrong issues. The management of a retail store, such as Edgars,
may need information on annual sales, bad debt, effective customer service, styling of
merchandise, and quality control. A life insurance company may need information on the
effective training of agency management, new product development, and the productivity
of clerical operations. Management has to define these needs clearly so that the systems
specialist knows which systems to utilise in order to generate the information.
Since the development process may be costly, systems investigation frequently
requires a preliminary study, known as a ‘feasibility study’, to be conducted. The
purpose of the feasibility study is to evaluate different systems, to analyse the costs
and benefits of each option, and to propose the most feasible system for development.
A feasibility study therefore determines the information needs of prospective users
and the objectives, resource requirements, cost benefits, and feasibility of proposed
projects. The findings of a feasibility study are usually formalised in a written report and
submitted to management for approval before development begins.
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Management
information
systems
Operations
information
systems
Other
classifications
Executive
information
systems
Expert
systems
Middle
management
Decision
support
systems
Business
function
systems
Lower
management
Informationreporting
systems
Internet,
extranet,
intranet,
e-commerce
Top
management
Business operations
211
Office automation systems
Transaction-processing
systems
Process control systems
Figures 7.6 The relationship between management information systems and levels of management
Systems
investigation
Systems
analysis
Systems
design
Systems
implementation,
maintenance,
and security
Figure 7.7 The information systems development life cycle
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7.8.2 Systems analysis
Systems analysis involves many of the activities used when a feasibility study is
conducted, but is a more in-depth study of end-user information requirements. The
first step in systems analysis involves a study of the information requirements of an
organisation and its end-users. Managers at Edcon stores, for example, should specify
clearly that they need information on the annual sales of all of its retail divisions for
the year and a comparison of the annual sales with the previous five years’ sales. They
should also state that they need the annual amount of account holders’ bad debt for each
branch per year compared to the previous five years’ bad debt, and so on. Managers at a
financial services provider, such as Sanlam, should specify that they need information on
every new product that has been developed, and on the success of these products in the
market. They should also specify the need to compare their new product development
with new products offered by rivals, such as Old Mutual.
The second step in systems analysis is to understand the current system that is to be
improved or replaced, and to determine the importance, complexity, and scope of the
problem at hand. Much of this phase involves gathering information on what is being
done in this regard, why it is being done, how it is being done, who is doing it, and what
major problems have developed.
The third step is to determine the system requirements for a new or improved
IS. This means finding out an end-user’s specific information requirements as well
as the information-processing capabilities required for each system activity to meet
these information needs. For example, management at Edcon could specify that they want
the information in bar chart form, and that they want only top management to access the
information on their own personal computers.
7.8.3 Systems design
Whereas systems analysis describes what a system should do to meet the information
requirements of end-users, systems design specifies how a system will accomplish this
goal. The systems specialist plays a major role because the area now being focused on is
seldom one in which management plays an active part. Systems design involves logical
and physical design activities. Logical design activities involve the development of a
logical model of the proposed system. A logical data-flow diagram is used to depict
the system, its procedures, and the flow of information graphically. Physical design
activities entail the process of developing specifications for a proposed physical system.
This process includes the design of report layouts, screens and input documents, forms,
and physical file structures. The design specifies what types of hardware, software, and
human resources are needed.
Once the proposed system has been designed, it is implemented.
7.8.4 Systems implementation, maintenance, and security
The systems implementation phase involves acquiring hardware and software,
developing software, testing programmes and procedures using both artificial and
live data, developing documentation, and carrying out a variety of other installation
activities. Systems implementation also involves the training of end-users and
operating personnel.
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Systems maintenance involves monitoring, evaluating, and modifying or enhancing
a system once it is up and running. It includes a post audit, which establishes whether a
system satisfies the system specifications and how efficiently the system investigation
activities were conducted.
Systems security is an issue that must be addressed in the design and implementation
stages. At Sanlam, only top management should have access to new product
developments since this is confidential information that Sanlam’s competitors could
use to outperform them.
As users of IS, managers have a major role to play during the systems investigation,
systems analysis, and — to a lesser extent — systems design phases. Lack of end-user
involvement in systems development almost certainly guarantees the failure of an IS
because it will not satisfy the requirements of the organisation.
7.9 SUMMARY
Computer-based information systems play a vital role in the operations, management,
and strategic success of organisations. Information systems transform data obtained
from an organisation’s external and internal environments into information that can be
used in decision-making.
An information system uses the resources of hardware, software, and people to
perform input, processing, output, storage, and control activities that transform data
resources into information products. Data is first collected for processing (input), then
manipulated or converted into information (processing), stored for future use (storage),
or communicated to the ultimate user (output), according to the correct processing
procedures (control).
Conceptually, information systems can be classified as either operations or
management information systems. Operations information systems process data that is
generated by and used in business operations. The major categories of such systems are
transaction-processing systems, process control systems, and office automation systems.
Management information systems constitute a broad class of information systems,
the function of which is to provide information and support decision-making by
managers. Types of management information systems needed to support a variety of
managerial end-user responsibilities including information-reporting systems, decision
support systems, and executive information systems.
Several major categories of information systems provide unique or broader
classifications than operations information systems and management information
systems. Examples are expert systems, artificial intelligence, virtual reality, business
function information systems, the Internet, the extranet, the intranet, and e-commerce.
An information system is usually conceived, designed, and implemented
through a systematic development process comprising the following steps: systems
investigation, systems analysis, systems design, systems implementation, maintenance,
and security.
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REFERENCES
1–3. Bruce-Lockhart, A. 2020. ‘Davos 2020: Here’s what you need to know about the future of
work’. World Economic Forum. 2020. Available at:
https://www.weforum.org/agenda/2020/01/davos-2020-future-work-jobs-skills-whatto-know/ (Accessed: 27 March 2020).
4–5. Discovery. 2018. ‘Integrated annual report’. Available at: https://www.discovery.co.za/
marketing/integrated-annual-report-2018/?page=1 (Accessed: 27 March 2020).
6–8. Azmin. 2020. ‘Difference between artificial intelligence and expert system in 2020’. Azati.
Available at: https://azati.ai/the-return-of-expert-systems/ (Accessed: 28 March 2020).
9. Saeed, F. 2020. ‘9 powerful examples of artificial intelligence in use today’. IQVIS. Available
at:
https://www.iqvis.com/blog/9-powerful-examples-of-artificial-intelligence-in-usetoday/ (Accessed: 27 March 2020).
10. Conessore, N. 2018. ‘Cambridge Analytica and Facebook: The scandal and the fallout so
far’. The New York Times. Available at: https://www.nytimes.com/2018/04/04/us/
politics/cambridge-analytica-scandal-fallout.html (Accessed: 30 March 2020).
11. ‘Ethical and social issues in information systems’. Available at: http://wiki.stoa.usp.br/
images/0/02/MIS-cap4.pdf (Accessed: 27 March 2020)
12. Bossmann, J. 2016. ‘Top 9 ethical issues in artificial intelligence’. World Economic Forum.
Available at: https://www.weforum.org/agenda/2016/10/top-10-ethical-issues-inartificial-intelligence/ (Accessed: 30 March 2020).
CASE STUDY
ACE, a consumer products company
ACE, a consumer products company specialising in freshly baked goods, is facing short-term
supply problems for many of the raw material that they use in their baking. The company
considers the development of an optimisation model to solve the problem of choosing and
balancing amongst various product recipes.
The inputs to the optimisation model include a series of different recipes for many products,
short-term supply levels of raw materials, and the production requirements for their finished
products. The output of the model is the choice of recipes that will maximise production by
using existing supplies of raw materials. When the short-term supply situations change, the
model can be revised and a new set of recipes can be chosen.
The model has a major impact on the way the management of the business view the
allocation of input — including raw materials, labour and machinery. Initially, the manager
considered allocating scarce raw materials to products by setting priorities amongst
products. The model showed that it was more advantageous to start with production
requirements and then allocate scarce resources by optimising the mix of product recipes.
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CASE STUDY QUESTIONS
Question 1
ACE designed an optimisation model to solve their problems pertaining to the choosing
and balancing of various product recipes. Explain the basic components of this model
and illustrate your answer by means of a diagram.
Question 2
To be of value to ACE, the optimisation model should provide the company with
information that has certain characteristics. Explain these characteristics.
Question 3
To develop the optimisation model, ACE needed to go through a systematic development
process. Discuss this process and apply each step of the process to ACE.
Question 4
Information systems can conceptually be classified as operations information systems,
management information systems and other classifications (such as the Internet,
extranet, and so on). Where would you classify the optimisation model developed by
ACE? Substantiate your answer.
MULTIPLE-CHOICE QUESTIONS
Question 1
ACE receives an order to provide 200 loaves of breads per day, seven days per week to
the local hospital. The cost per product unit is R8,50.
The unit cost of the bread is an example of
1. information
2. data
3. management information
4. an information system.
.
Question 2
to perform the basic activities of
.
An information system utilises
1. data and information; financial planning
2. hardware, software and human resources; input, processing, output, feedback,
control and storage
3. computers; input, processing and output
4. information technology; operational efficiency.
Question 3
Information-reporting, decision support and executive information systems are
information systems.
examples of
1. operations
2. management
3. integrated
4. expert.
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Question 4
A wide area network that links an organisation’s employees, suppliers, customers, and
.
other key stakeholders electronically are known as the
1. intranet
2. extranet
3. internet
4. enterprise resource planning.
Question 5
Top management usually needs
1. decision support; business function
2. information reporting; e-commerce
3. decision support; process control
4. executive information; expert.
and
systems.
Question 6
An information system whereby expertise is transferred from a human being to a
computer, the knowledge is stored in the computer and users call on the computer for
system.
specific advice as needed, is known as a(n)
1. business function information
2. decision support
3. expert
4. executive information.
Question 7
When an organisation needs a network where access is limited to its employees, they
.
should use the
1. Internet
2. extranet
3. intranet
4. World Wide Web.
Question 8
An insurance company wants to launch an innovative product. They are using electronic
spreadsheets and other software that allows their management to receive interactive
responses to requests for information posed as a series of ‘what if ’ questions.
The insurance company is using a(n)
1. information reporting
2. decision support
3. executive information
4. business function information.
system.
Questions 9 and 10
A new information system is usually conceived, designed and implemented through a
systematic development process in which end-users and technical staff design systems
based on an analysis of the specific information requirements of an organisation.
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Question 9
stage of the development process, the current system (that is
During the
to be improved or replaced) is examined to determine the importance, complexity and
scope of the problem at hand.
1. systems investigation
2. systems analysis
3. systems design
4. systems security.
Question 10
Training of end-users and operating personnel is part of the systems
stage in the development process.
1. implementation
2. analysis
3. design
4. investigation.
PARAGRAPH QUESTIONS
Question 1
A very direct and specific link exists between decision-making and information
management. Explain this link.
Question 2
Define the term ‘information system’ and explain the components thereof.
Question 3
Classify information systems according to their use in operational and managerial
support.
Question 4
Explain the process involved in the development of a generic information system for
managers.
ESSAY QUESTION
Information systems perform operational and managerial support roles in organisations.
Discuss the conceptual classification of information systems in an organisation.
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3
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8
THE
PURPOSE
OF THIS
CHAPTER
LEARNING
OUTCOMES
ORGANISING AND DELEGATING
This chapter deals with organising as the process that creates a structure
for the organisation which will enable its people to work effectively
towards its vision, mission, and goals. It also deals with delegation as an
important part of a manager's task.
This chapter will enable learners to:
Explain the concepts of organising, organisation, and organisational
structure
■
Discuss the importance of organising in attaining the organisation’s
vision, mission and goals
■
Describe the steps to follow (the organising process) in designing an
organisational structure
■
Explain the principles of organising that should be considered in
designing an organisational structure
■
Comment on how the principles of organising are applied in the
different types of organisational structure
■
Explain the ‘structure follows strategy’ adage
■
Discuss organisational design for the future
■
Explain the design or redesign of jobs as a motivational factor
■
Design and provide implementation guidelines for a delegation
process.
■
KEY
CONCEPTS
Accountability
Authority
■
Centralisation
■
Chain of command
■
Coordination
■
Decentralisation
■
Delayering
■
Delegation
■
Departmentalisation
■
Division of work
■
Downsizing
■
High involvement
■
Job design
■
Network structures
■
New venture units
■
Organisation
■
Organisational chart
■
■
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Organisational design
Organisational structure
■
Organising
■
Pooled interdependence
■
Power
■
Product departmentalisation
■
Reciprocal interdependence
■
Responsibility
■
Sequential interdependence
■
Span of control
■
Specialisation
■
Standardisation
■
Team approach
■
Unity of command
■
Virtual network organisation
■
■
8.1 INTRODUCTION
Look at a painting. Whether it is a centuries-old masterpiece like the Mona Lisa by
Leonardo da Vinci, or modern art by South African artist Portchie, you see colour,
texture and shape. Look more closely, and you’ll see the artist’s study technique
composing and organising the work. Artists start off with a blank canvas. Then they
decide whether the picture will be a landscape, a portrait, an abstract, or a still life.
While many different styles, such as Impressionism and Cubism, have evolved over the
centuries, one ideal has held fast: an artist must know the rules of composition. Paint is
organised on canvas to convey emotion — awe, anger, love, comfort or knowledge. The
artist’s eye organises, but he or she begins by determining the medium and organising
materials — colours, brushes, and lighting — that will best bring a personal vision to
life. Colours are transferred from their blobs on a palette to their personal placement on
the canvas. The artist structures the work to embody an emotion, to tell a story, plant an
idea, or provide beauty.
In an organisation, managers follow the same process as that of an artist as explained
above. Managers organise and deploy resources to achieve the mission and goals of
the organisation. Today’s managers work for organisations, and they support, and
must be supported by the organisation. By organising their resources, such as people,
technology, and knowledge, and by marshalling their strengths, managers can support
the organisation despite economic downturns, or major disruptions like pandemics to
achieve organisational goals. While beauty may not be the manager’s goal as in the case
of a painting, organisational design can be a work of art.
With its plans and goals clearly formulated, an organisation must decide on how to
organise its resources optimally.
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How a South African company turned constraints into global strengths
On 28 September 2016, the shareholders of South African born international brewer, SABMiller,
approved the company’s acquisition by Anheuser-Busch InBev for $104 billion. The deal paved
the way for the creation of what is now by far the world’s largest brewing company.
For a company that started out selling beer to miners in Johannesburg during the gold
rush of the late 1800s (SAB was founded in 1895 as Castle Brewery and became the first
industrial company to list on the Johannesburg Stock Exchange in 1897), it has been quite
a journey. How did a brewing company from a developing country rise to compete with the
multinational brewing behemoths from the developed world? A series of interviews with
senior executives and managers who presided over the growth of what was then South
African Breweries’ (SAB) during and after the 1990s are revealing.
After building up a monopoly-like position in the beer market in South Africa, the company
went in search of new markets. With a vision to be the most admired company in South
Africa, a partner of choice, an investment of choice and an employer of choice, it used its
experience in South Africa in its entry strategies abroad.
SAB’s path reflects the differences between multinationals from developed and emerging
markets in terms of location choices, sequencing, time horizons and motivation.
A two-phased expansion path emerges to explain the remarkable success story. The first
pillar of SAB’s international expansion was a focus on developing markets. Coming from a
developing country itself, the company would cope better with emerging market conditions
than brewers from the developed world. These ventures became a powerful base for SAB
to take on developed markets. The second was to expand into developed countries. This
became necessary as it became clear the company was overexposed to emerging markets.
After a few early forays into South Africa’s neighbouring countries prior to 1993, SAB
executives realised that the company could exploit its knowledge of institutional shortcomings
in its home country. It would use this experience to adapt more easily than its competitors to
conditions in developing countries would. And so began the first part of its internationalisation
strategy: a rapid expansion into emerging markets worldwide. Through a series of acquisitions
and joint ventures throughout the 1990s, SAB gained a foothold in various countries in
Africa, Eastern Europe and Asia. Although many were geographically distant (like Hungary,
Czech Republic, China and India), they echoed South Africa in terms of their socioeconomic
development. Eastern Europe, for example, was still emerging from political reform in the wake
of communism, and infrastructural, institutional and economic weaknesses persisted.
By expanding into countries that shared socioeconomic characteristics with South Africa,
SAB was able to make use of its experience to turn a perceived drawback — institutional
weakness — into a strength. As one respondent explained:
‘To be quite frank, we actually accepted that we would live with the political risk and poor
institutions. We did not really shy away from high-risk countries unless, of course, there was
a raging civil war that we would have to wait to subside.’
Once it had established this expansion plan, SAB diversified into developed markets such as
Italy and the US. As one interviewee put it:
‘Investors became sceptical of companies whose only business was in emerging markets.’
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In 2002, it took a step closer to consolidating its position as a multinational brewing giant
when it acquired US-based Miller Brewing Company and became SABMiller.
The advantages that SAB gained from its experience in its home country are many. One was
employee aptitude. SAB employees had built up an extraordinary resilience, flexibility and
entrepreneurial spirit through their exposure to the unsteady South African environment of
the 1980s. The company survived labour trouble, survived interest rates at 25%, inflation at
16% to 17%, survived political disorder and political violence. This robustness, combined
with an ability to connect with many different cultures, gave the company a valuable
flexibility in its risk, location and investment choices.
Another strength was its ability to use its knowledge to turn around neglected breweries
and businesses. The experience it gained in South Africa, with its large rural population and
pockets of poor infrastructure, meant that finding innovative ways to overcome challenges
was embedded in the company’s DNA.
SAB also had a philosophical edge over many competitors. Its risk appetite was much
bigger. By comparison, a company like Anheuser-Busch had a conservative approach to
risk and international expansion. For example, Anheuser-Busch did not react to the rapidly
changing global brewer consolidation until it was too late. When it did, it realised that it
had little emerging market experience. This weakness meant that in 2008, Anheuser-Busch
was unable to avoid a hostile takeover by InBev. This gave rise to AB Inbev, then the world’s
largest brewer. AB Inbev, in turn, was compelled to make an offer for SABMiller to acquire
complementary emerging market presence.
SABMiller’s long journey from the mine heaps of Johannesburg to global brewing colossus
may appear to have come to an abrupt end after its acquisition by AB Inbev in 2016.
Nevertheless, what is clear is that its extraordinarily successful approach continues to hold
many lessons for aspiring global companies from the developing world.
Sources:
Luiz, J, Stringfellow, D and Jefthas, A. 2019. Global Strategy Journal, Volume 7, Issue 1
(83–103). Available at: http://www.isaca.org/knowledge-center/cobit/pages/south-african-brewerieslimited.aspx
(Accessed: 26 November 2019).
For SABMiller to become part of the world’s largest brewing company, requires managerial
skills and the concerted effort of all of its employees. Each manager and employee had to
know exactly what he or she had to deliver to ensure that the resources of SABMiller were
utilised optimally and that no unnecessary duplication of activities took place. Founded
in Johannesburg and surviving the challenges of a developing country, SAB learned the
importance of the optimal usage of limited resources, including scarce skilled human
resources. Furthermore, the company also learned how to survive other threats from the
environment, such as economic hardship and political turmoil, which made the company
resilient before they expanded their development strategy to developed countries.
For a company such as SAB to attain its vision to be the most admired company,
a partner of choice, an investment of choice and an employer of choice, someone in
the organisation must perform the necessary tasks to ensure that the organisation’s
vision, mission and goals are attained. Various strategies can be followed to attain
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organisational goals (you may refer to Chapter 4 where the strategic management
process was discussed). In the case of SAB, a two-phased expansion strategy was chosen,
leading to the remarkable success of the company. In terms of the organising task of
management, the identification of a specific strategy to implement, needs to be followed
by the determination of all the necessary tasks that need to be executed to attain the
goals of the organisation. Management must determine effective ways of dividing
the major tasks into subtasks, combining these subtasks, and coordinating them. The
determination of tasks, dividing tasks into subtasks, the combination of tasks and the
coordination of tasks are all part of the organising function of management. Therefore,
we can state that organising is the function most visibly and directly concerned with the
systematic coordination of the many tasks that must be performed in an organisation
and, consequently, the formal relationships between the people who perform them.
Organising is the process of creating a structure for the organisation that will enable its
people to work effectively towards its vision, mission, and goals.
This chapter deals with the principles and the process of structuring an organisation in
such a way that it is aligned with its plans and goals. The structuring of the organisation
poses a big challenge to managers. There is no single best structure that matches a
specific plan or strategy. In trying to find the most suitable structure for an organisation,
management needs to understand and be guided by the principles of organising.
8.2 ORGANISING, ORGANISATION, AND ORGANISATIONAL STRUCTURE
Before we focus on a detailed discussion of organising, it is important to differentiate
between the terms ‘organising’, ‘organisation’, and ‘organisational structure’. Organising
refers to the process of creating a structure for the organisation that will enable its
people to work effectively towards its vision, mission, and goals. In the case of SAB, it
will be the process of determining which tasks each of the managers and workers should
perform, who will perform them, and how these tasks will be managed and coordinated.
If a change in the environment (such as the outbreak of the pandemic in early 2020)
necessitates a change in the organisation’s plans and strategy, the structure will have to
be realigned with the new realities. However, it may also happen that an organisation
changes its structure, and then needs to adapt its strategy to fit its new structure. We will
elaborate on this point in Section 8.4.
Organising can therefore be seen as an ongoing and interactive process that occurs
throughout the life of an organisation.
Organisation refers to the end result of the organising process. The process of organising
consists of assigning the tasks necessary to achieve the organisation’s goals to the relevant
business units, departments, or sections, and then providing the necessary coordination
to ensure that these business units, departments, or sections work synergistically. In a
small organisation or a small department this is relatively simple — it is usually a matter
of deciding which tasks need to be done and allocating them to various subordinates.
In large organisations, such as SABMiller and later Anheuser-Busch InBev, the process
of organising becomes very complex. It involves dividing the work of the organisation,
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allocating it logically to business units, departments, and sections, delegating authority,
and establishing coordination, communication, and information systems to ensure that
everyone is working together to achieve the goals of the organisation.
Remember that we use the terms ‘goal’ and ’objective’ interchangeably in this book.
We shall specify in each case as to what type of goal we are referring (for example, an
organisational, functional or even an individual goal).
The task of dividing up the work, allocating responsibility, and so on, is referred
to as the ‘design of the organisational structure’. An organisational structure refers
to the basic framework of formal relationships between responsibilities, tasks, and
people in the organisation. A typical way of illustrating an organisational structure
is by means of an organisational chart. This is a graphic representation of the way in
which an organisation is put together. It shows, amongst other things, authority and
communication relationships between jobs, departments and units. Figure 8.1 depicts a
simplified example of an organisational structure.
Chief
Executive
Officer
Strategic
planning
specialist
Director:
Research and
development
Director:
Finance and
accounting
Director:
Manufacturing
Director:
Human
resources
Director:
Purchasing and
supply chain
Director:
Responsible
business
Manager:
Industrial
engineering
Manager:
Factory
Manager:
Quality
control
Figure 8.1 A simplified organisational structure
An organisational structure, as depicted in Figure 8.1, provides a blueprint for deploying
organisational resources, and specifically human resources. Every organisational chart
has a vertical and a horizontal dimension. The vertical dimension represents the vertical
hierarchy that establishes the chain of command, or who reports to whom. The six
directors in Figure 8.1, report to the Chief Executive Officer (CEO). Also note the chain
of command from the CEO, down through the director of manufacturing to the lower
levels of management such as the factory manager. Horizontal specialisation establishes
the division of labour and allows for specialisation. For example, directors of marketing,
accounting and finance, and responsible business have very different specialised skills sets.
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8.3 REASONS FOR ORGANISING
Organising is an indispensable function in the management process. Plans devised and
strategies formulated will never become a reality if human and other resources are not
properly deployed and the relevant activities suitably coordinated. Management is not
possible if lines of authority and responsibility are not clear. Likewise, control is out of
the question if people do not know what tasks they are responsible for.
Looking at Anheuser-Busch InBev (AB InBev), the company had a portfolio of over
500 brands, 260 breweries and 13 000+ owned retail locations around the world in 20191.
To sustain their business, the company needed to organise their resources effectively
and efficiently. Organising is an imperative function in any kind of organisation for the
following reasons:
■
Allocation of responsibilities. Organising leads to an organisational structure
that indicates clearly who is responsible for which tasks. In the case of a brewing
company such as AB InBev, the goal of producing and selling a certain volume
of beer per year will typically require a variety of tasks such as manufacturing,
bottling, logistics (such as transport), and marketing. In each of these functions,
the managers’ and subordinates’ responsibilities need to be clarified. In the
simplified organisational structure depicted in Figure 8.1, it will mean that the
responsibilities of each director will be clarified, followed by the responsibilities of
each manager. This should be done all the way right down to the individual level of
the organisational structure so that each individual knows exactly what is expected
of him or her.
■
Accountability. This implies that the responsible employees will be expected
to account for the outcomes, positive or negative, for that portion of the work
directly under their control. Accountability links results directly to the actions of
an individual, section, department, or business unit. The main difference between
responsibility and accountability is that responsibility can be shared (or delegated
to a lower level in the organisational hierarchy) while accountability cannot. Being
accountable not only means being responsible for something but also ultimately
being answerable for your actions.
■
Establishing clear channels of communication. Looking at Figure 8.1, organising
ensures that clear upward, downward, horizontal and lateral communication
channels are established. Communication will discussed in detail in Chapter 15.
■
Resource deployment. Organising helps managers to deploy resources
meaningfully. This means that organising helps managers to optimise the utilisation
of resources across the organisation, in all business units, departments, sections and
by all individuals.
■
The principle of synergy enhances the effectiveness and quality of the work
performed. All business units, departments, sections and individuals in an
organisation must work together to ensure that planned goals are attained. A wellorganised organisation can lead to synergy, which means that the cooperation
of two or more departments or sections to produce an output is greater than the
sum of their separate effects. Such a synergistic effect enhances the effectiveness
and quality of the overall work performed in the organisation. Eventually, it will
contribute to the overall effectiveness and efficiency of the organisation.
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Division of work. The total workload is divided into activities to be performed by
an individual or a group of individuals. Organising means systematically grouping
a variety of tasks, procedures and resources. This is possible because the organising
process also entails an in-depth analysis of the work to be done, so each individual is
aware of his or her duties.
■
Departmentalisation. The related tasks and activities of individual employees are
grouped together meaningfully in specialised sections, departments or business units
so that experts in various fields can deal with their specialised tasks. The organisational
structure illustrated in Figure 8.1 indicates an example of an organisation dividing its
total workload into six units or departments, where each unit is performing similar
tasks, such as the unit responsible for marketing and another is responsible for
finance and accounting and so on.
■
Coordination. The organisation structure is responsible for creating a mechanism
to coordinate the activities in the entire organisation. Eventually, each individual
employee, every unit and department, need to work in a coordinated fashion to
attain the overall goals, mission and vision of the organisation.
■
All the above-mentioned reasons for organising direct the organisation towards attaining
its vision, mission and goals.
8.4 THE ORGANISING PROCESS
The point of departure in the organising process is the vision, mission, goals and
strategies of the organisation that were formulated during the strategic planning phase
(see Chapter 4). The organising process itself consists of the following steps:
Step 1: Outline the tasks and activities to be completed to achieve organisational
goals
The first step in the organising process involves outlining the tasks and activities to be
completed in order to achieve the organisational goals. Once these tasks and activities
are outlined, jobs must be designed and assigned to individual employees within the
organisation. ( Job design is discussed in more detail in Section 8.8.)
Step 2: Develop an organisational structure
The next step in the organising process is to develop an organisational structure
that will support the strategic, tactical, and operational plans of the organisation.
(Organisational design is discussed in more detail in Section 8.7.) This entails grouping
the organisational members into work units or departments such as illustrated in
Figure 8.1, developing an integrating mechanism to coordinate the efforts of diverse
work groups, and determining the extent to which decision-making in the organisation
is centralised or decentralised (centralisation and decentralisation will be discussed in
more detail in Section 8.6.3).
Step 3: Implement a controlling mechanism
Finally, a control mechanism should be put in place to ensure that the chosen organisation
structure does indeed enable the organisation to attain its vision, mission and goals.
Figure 8.2 below summarises the stages in the organising process.
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Outline the
tasks and
activities to be
completed
Develop an
organisational
structure
229
Implement a
controlling
mechanism
Figure 8.2 The organising process
This simplistic illustration of the design of an organisational structure, supports the
notion that structure follows strategy, which is often attributed to the landmark work
of Alfred Chandler. Chandler traced the historical development of large American
corporations such as DuPont, Sears and General Motors. His research indicated that
the strategy of the organisation determines the various activities and tasks performed
in the organisation, the technology used in the organisation and the environment
in which the organisation operates, and each of these influences the structure of the
organisation. Therefore, the organisation should adapt its structure to fits its strategy,
rather than the other way around. However, in practice, it sometimes happens that the
structure of the organisation can constrain or even dictate strategy. During the outbreak
of the COVID-19 pandemic late 2019/2020, numerous organisations were forced to
retrench many of their employees. By the time of writing this book, the Commission
for Conciliation, Mediation and Arbitration (CCMA) in South Africa expressed
concern over increasing numbers of large-scale retrenchments amid the COVID-19
crisis.2 Such retrenchments could result in organisational structural changes, which
will force management to also change their strategies. In such circumstances, strategy
follows structure.
The organising process should be guided by certain organising principles to ensure
that the structure is sound. These principles are the focus of the next section.
8.5 PRINCIPLES OF ORGANISING
Managers at all levels of an organisation need to organise human, physical, financial
and information resources to achieve the organisational vision, mission and goals.
The principles of organising should guide managers in this process. Table 8.1 below
summarises these 13 principles.
8.5.1 Unity of command and direction
‘Unity of command’ means that each employee should report to only one supervisor.
Reporting to more than one supervisor can be very confusing to employees as
supervisors may focus on different aspects of the work. Unity of direction means that
all tasks and activities should be directed toward the same mission and goals.
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Table 8.1 Principles of organising
■
Unity of command and direction
■
Authority
■
Chain of command
■
Accountability
■
Span of control
■
Power
■
Division of work
■
Delegation
■
Standardisation
■
Downsizing
■
Coordination
■
Delayering
■
Responsibility
8.5.2 Chain of command
‘Chain of command’ (also referred to as the ‘scalar principle’) states that a clear, unbroken
chain of command should link every employee with someone at a higher level, all the
way to the top of the organisation.
8.5.3 Span of control
‘Span of control’, also called ‘span of management’, refers to the number of subordinates
reporting to a manager. It is humanly possible for a manager to deal with only a certain
number of employees. If more than a realistic number of employees report to a manager,
the manager’s task becomes impossible to perform. The fewer employees supervised,
the smaller or narrower the span of control. The more employees supervised, the greater
or wider the span of control. The span of control is in proportion to the height of the
organisation — or its number of levels. A flat organisation exists when there are few
levels with wide spans of control, whereas a tall organisation exists when there are many
levels with narrow spans of control.
8.5.4 Division of work
A major challenge faced by managers is to determine how the work should be divided.
With the division of work, employees have specialised jobs. Related jobs can then be
grouped together in a section or department. Employees generally have specialised
jobs in a functional area such as accounting, administration, marketing, purchasing, or
human resource management.
8.5.5 Standardisation
Managers should employ the principle of standardisation when structuring the
organisation. Standardisation is the process of developing uniform practices that
employees are to follow in doing their jobs. The purpose of standardisation is to develop
a certain level of conformity.
8.5.6 Coordination
Coordination means that all departments, sections, and individuals within the
organisation should work together to accomplish the strategic, tactical, and operational
goals of the organisation. Coordination entails integrating all organisational tasks
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and resources to meet the organisation’s goals. In general, the degree of coordination
between tasks depends on their interdependence. In the case of a coal mining company,
the exploration, extraction, beneficiation, and logistics departments or sections depend
on each other for information and resources. The exploration section must, for example,
provide the extraction section with the right quality and quantity of information
regarding coal deposits. This is crucial for the extraction section (mining) to reach their
goal of a certain cost per ton. In a restaurant, the waiters depend on the chefs to provide
them with ordered dishes within a realistic time; the chefs depend on the waiters to
give them the correct orders. The greater the interdependence between departments or
sections, the greater the coordination required.
Three major forms of interdependence can be identified, namely pooled
interdependence, sequential interdependence, and reciprocal interdependence.
1. In departments or units that exhibit pooled interdependence, operations exist
with little interaction; the outputs of the units are pooled at organisational level.
Failure of any unit could threaten the entire organisation. TFG Limited is regarded
as one of the foremost independent chain-store groups in South Africa, listed
on the Johannesburg Stock Exchange since 1941 and operates in Africa, London
and Australia. South Africans are familiar with stores such as Markham, Foscini,
Sportscene, Totalsports and @Home. These different stores operate with little or
no interaction. However, at organisational level, the success or failure of one affects
the success or failure of TFG Limited.
2. In sequential interdependence, the output of one department or section becomes
the input for the next. The second department or section is directly dependent
upon the first to finish its work before it can begin its assigned task. Sequential
interdependence is typically found in a production-line set-up, such as the paper
manufacturer Sappi. To manufacture paper, wood fibre arrives at their mills as
whole tree trunks, wood chips or paper pulp from other paper mills. Pulping of
the wood pulp supplies the sequential manufacture of papermaking, calendaring,
cutting and wrapping, despatch, paper in the marketplace and eventually recycling.3
In this example, papermaking is dependent on pulping, calendaring is dependent
on papermaking and so on and therefore sequential interdependence occurs in
papermaking at Sappi.
3. Reciprocal interdependence refers to a situation in which the outputs of one
department or section become the inputs for the second department, and vice
versa. For example, in a hospital, the sections such as intensive care, paediatrics,
and so on, provide inputs to surgery. After surgery, patients are sent back to the
respective sections.
8.5.7 Responsibility, authority and accountability
These three terms are closely related and are often used interchangeably by managers
and employees. It is, however, important that managers understand the difference
between the concepts when they are involved in the organising process. Responsibility
is the obligation to achieve goals by performing required activities. When strategic,
tactical, and operational goals are set, the managers and other individuals responsible
for achieving them should be clearly identified. Authority is the right to make decisions,
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issue orders, and use resources. (Authority is discussed in more detail in Section 8.6.)
Accountability is the evaluation of how well individuals meet their responsibilities.
Managers are accountable for everything that happens in their departments or sections;
they can delegate responsibility and authority, but never their accountability.
Accountability has its roots in the classical management theories (see Chapter 2), in the
division of labour into parts, and in explicit job specifications. Consistent with Taylor’s
scientific management style, and with the norms of fairness — employees in organisations
are deemed accountable for that portion of the work under their direct control.
8.5.8 Power
‘Power’ refers to the ability to influence the behaviour of others in an organisation. The
following kinds of power can be distinguished in organisations:
■
Legitimate power is the authority that the organisation grants to a particular position.
For instance, the position of managing director gives more power to its incumbent
than does the position of first-line manager.
■
The power of reward is the power to give or withhold rewards, which can be of a
financial or a non-financial nature. The head of a department, for example, has the
power to allocate or withhold rewards after a performance appraisal has been done.
■
Coercive power is the power to enforce compliance through fear, either psychological
or physical. Stated differently, coercive power is the ability to influence a person’s
decision-making by taking something away as punishment or threatening punishment
if the person does not follow instructions. For example, a performance bonus can be
taken away should an individual not perform according to expectations.
■
Referent power relates to personal power and is a somewhat abstract concept.
■
People follow a person with referent power simply because they like, respect, or
identify with him or her.
■
Expert power is based on knowledge and expertise, and a leader who possesses it has
special power over those who need his or her knowledge.
8.5.9 Delegation
Delegation is the process of assigning responsibility and authority for attaining goals.
Responsibility and authority are delegated down the chain of command from a person
at a higher level in the organisation to a person at a lower level. (Delegation is discussed
in more detail in Section 8.9.) Looking at Figure 8.1 above, the CEO may delegate some
of his or her responsibilities to the Director: marketing or the Director: Responsible
Business. However, the CEO may never delegate his or her accountability to lower
levels of management.
8.5.10 Downsizing and delayering
Downsizing is a managerial activity aimed at reducing the size of an organisation’s
workforce. Downsizing may be achieved by reducing the number of employees in one
or more departments — leaving the organisational unit intact — or through eliminating
a departmental unit by, for example, outsourcing its activities.
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Examples of corporate downsizing can be found across the globe. In South Africa
specifically, job losses as a result of downsizing are increasing. According to the
Quarterly Labour Force Survey, unemployment in South Africa is increasing in almost
all industries — which is a concerning matter in an economy that is not promising to
improve over the short term. The COVID-19 outbreak further put tremendous pressure
on the economy, where predictions in May/June 2020 were that the country could
reach an unemployment rate of 40 per cent due to the impact of the virus.4
Delayering is the process of reducing the number of layers in the vertical management
hierarchy. Looking at Figure 8.1, delayering will mean, for example, removing all the
directors in such an organisational structure. Delayering is the traditional way to achieve
a flatter organisational structure. Delayering can improve business communication since
messages have to pass through fewer levels of management. The downside of delayering
is, as in the case of downsizing, a reduction in the workforce and an increase in
job losses.
Downsizing is the process of reducing the size of an organisation’s workforce. Delayering
is the process of reducing the number of layers in the vertical management hierarchy and a
reduction in the size of an organisation’s workforce.
8.6 AUTHORITY
Authority has been defined in the previous section as the right to make decisions, issue
orders, and use resources. It includes the right to take action to compel the performance
of duties and to punish default or negligence. In the formal organisational structure,
the owners of an organisation (shareholders) possess the final authority. They appoint
a board of directors and give them authority to manage their investments in the
organisation. The directors appoint managers, who in turn give a certain authority to
subordinates — and in this way authority flows down the hierarchical line. This formal
authority passed downwards from above is known as ‘delegation of authority’.
Authority resides in positions rather than in people — managers acquire authority by
means of their hierarchical position in the organisation, rather than from their personal
characteristics. When a manager steps down from his or her position, that authority
is relinquished.
For managers to structure an organisation that is well-aligned with its vision,
mission and goals, they need to understand the different types of authority. These are
formal and informal authority, line and staff authority, and centralised and decentralised
organisational authority.
8.6.1 Formal and informal authority
Formal authority refers to the specified relationships amongst employees. It is
the sanctioned way of getting things done, illustrated by the organisational chart.
Informal authority refers to the patterns of relationship and communication that
evolve as employees interact and communicate. It is the unsanctioned way of getting
things done.
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8.6.2 Line and staff authority
Line authority entails the responsibility to make decisions and issue orders down the
chain of command. Line managers are those managers in the organisation who are
directly responsible for attaining the organisation’s goals. Line authority originates at
top management level, with the directors, and is delegated to the heads of the different
units, departments, or sections, such as the human resources department or the research
and development department, as illustrated in Figure 8.1. It is then delegated further
down the various hierarchical levels to the level where the basic activities are carried out.
Staff authority entails having the responsibility to advise and assist other personnel.
Looking at Figure 8.1, the strategic planning specialist indicated in this organisational
structure, has staff authority — the responsibility to advise and assist on strategic
planning matters. Another example could be specialists assisting and advising on legal
matters. The presence of such staff specialists frees line managers to do what they are
contracted to do — manage research and development, marketing, finance and so on
of the organisation.
Certain people in staff positions function only as specialists in an advisory capacity. This
means that line managers may choose whether or not to seek the advice of the specialist.
A typical example is an economist at a bank. He or she advises the line managers on the
prevailing economic variables such as interest rates, inflation, and Reserve Bank policy.
Conflict often arises between people in line and staff positions because line managers
regard staff managers as a threat to their authority. Hence staff managers are not consulted,
and complain that they are underutilised. As soon as line managers are obliged to rely
too heavily on the advice of staff managers, they feel that they are too dependent on
their expertise and this may make them feel threatened. Differences in perception may
also cause conflict, especially if line managers feel that staff managers are infringing on
their lines of authority, have too idealistic a perspective, or are usurping the prestige of
the line managers. However, the staff manager’s perception may be that the other party
unnecessarily opposes all new ideas.
In functional authority, staff personnel have the right to issue orders to line personnel
in established areas of responsibility. For example, the purchasing department assists
the sales personnel by keeping appropriate stock levels. If the purchasing personnel
determine that a specific order quantity is the most economic one, they may issue an
order to a line manager to order that specified quantity.
Staff managers may also have both line and staff authority. This is called ‘dual-line
authority’. For example, a labour relations manager advises and assists all departments
in an organisation. However, such a manager may also have line authority within the HR
department and may issue orders (a line function) to his or her subordinates.
8.6.3 Centralised and decentralised authority
The major difference between centralised and decentralised authority is in who makes
the important decisions in an organisation. In centralised authority, important decisions
are made by top managers. In decentralised authority, important decisions are also
made by middle and lower management.
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Decentralisation has become very popular in South African organisations as a method
of empowering employees. By decentralising power and authority, a more democratic
organisation is created in which managers at the lower levels can decide on issues such
as the allocation of resources in their departments, differentiated salaries for employees,
flexible work hours, and so on.
In centralised authority, important decisions are made by top managers. In decentralised
authority, lower levels can decide on certain issues.
In deciding whether to centralise or decentralise authority, the following factors should
be considered:
■
The external environment: The more complex the environment and the greater the
uncertainty, the greater the tendency is to decentralise.
■
The history of the organisation: Organisations tend to do whatever they have done
in the past. Hence there will be a tendency to follow the history of the organisation
when it comes to centralisation or decentralisation.
■
The nature of the decision: The riskier the decision and the higher the costs
involved, the more pressure there will be to centralise decision-making.
■
The strategy of the organisation: This determines the types of market, technological
development, and any competition to which the organisation is subject.
■
Skills of lower-level managers: If lower-level management is not in a position
to make sound decisions, decision-making in the organisation will probably be
centralised. If lower-level managers are well qualified, top management can make the
most of their skills by decentralising.
■
The size and growth rate of the organisation: It is impossible to manage a very large
organisation without decentralising. The larger and more complex an organisation
is, the greater the need for decentralisation will be. In an organisation that is growing
rapidly, management will have to bear the burden of an increasing workload, and
therefore be obliged to shift some of the decision-making authority to lower levels,
and thus to decentralise.
Advantages of decentralisation
■
By decentralising, the workload of top management is reduced, enabling them to
devote more attention to strategies.
■
Decision-making improves because decisions are closer to the core of action and
time is not wasted by first referring the matter to a higher authority.
■
There should be improved morale and initiative at the lower levels of management.
These managers feel that they participate in managing the organisation and are
prepared for greater responsibilities. They should experience a great deal of job
satisfaction.
■
Decentralisation of decision-making renders it faster and more flexible. This is
necessary in a rapidly changing environment.
■
Decentralised authority also fosters a competitive climate in the organisation.
Managers are motivated to participate in this competition because their performance
is constantly compared with that of their colleagues.
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Disadvantages of decentralisation
There is the danger of loss of control. The primary objective of organising, namely to
integrate sub-units, will be defeated without a certain degree of centralisation. Too
much decentralisation will result in sub-units or departments moving away from the
centres of decision-making.
■
There is a danger of duplicating tasks. For example, there could be HR sections in
the decentralised sub-units that keep personnel records, while these records are also
being kept up to date at head office.
■
Decentralisation of authority requires more expensive and more intensive
management training and development to enable managers to execute delegated
tasks.
■
Decentralisation also demands sophisticated planning and reporting methods. Even
if there is delegation, top managers are and will always be accountable for attaining
the goals of the organisation, and they must continually receive feedback on the
situation.
■
Table 8.2 The advantages and disadvantages associated with decentralisation
Advantages
Disadvantages
Reduced workload for top managers
Defeats integration of sub-units
Improved decision-making
Potential loss of control
Improved training, morale, and initiative
Danger of duplication
Faster and more flexible decision-making
More expensive and intensive training
required
Fosters a competitive climate
Demands sophisticated planning and
reporting methods
The shift towards decentralisation in South African organisations and organisations
abroad does not come without its challenges. More individual authority at middle and
lower management levels requires thorough management training and development.
Managers need to be aware of the impact that their decisions could have on the survival
of the organisation. A prerequisite for such knowledge in the current turbulent business
environment is continuous management training and development.
8.7 ORGANISATIONAL DESIGN
In the previous sections, the principles of organisation have been presented and
discussed. Managers need to understand these principles in order to structure a
sound organisation.
Organisational design refers to the arrangement of positions into work units or
departments and the interrelationship amongst them within an organisation. We
shall consider organisational design by demonstrating the organisational chart and
discussing the various types of departmentalisation. In this, we must bear in mind that
the choice of an organisational structure should always be viewed against the strategy
of the organisation.
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8.7.1 Organisational chart
We have seen in Section 8.2 that the organisational chart is a graphic representation
of the way in which an organisation is put together. It shows, amongst other things,
authority and communication relationships between jobs and units.
8.7.2 Departmentalisation
Departmentalisation can be described as the grouping of related activities into units or
departments. The various departments created constitute the organisational structure
as they appear on the organisational chart. To support the chosen strategy (the strategic
plan), management must decide on the type of departmentalisation that best supports
the strategy.
Functional departmentalisation
The functional organisational structure, as shown in Figure 8.3 below, is the most basic
structure; in it the activities belonging to each management function are grouped
together. One set of activities, for example, comprises advertising, marketing research,
and sales, which belong together under the marketing function. Another set of activities,
for example debtors and creditors, is grouped under the financial function.
Managing director
Marketing
manager
Production
manager
Research and
development
manager
Human
resources
manager
Financial
manager
Figure 8.3 Functional departmentalisation
Functional departmentalisation is often used by organisations with a single product
focus. In order to build competitive advantage in providing their products or services,
such organisations require well-defined skills and areas of specialisation. Dividing tasks
into specialist areas enables personnel to focus on their area of expertise only. However,
this structure poses major challenges in terms of coordination of the specialist functions.
Specialists may view the organisation solely from their own perspective. The
marketing manager may see an opportunity or threat exclusively from a marketing
perspective, whereas the financial manager may approach the same issue from a purely
financial perspective. To overcome potential conflict between the different departments,
the chief executive must ensure that proper coordination mechanisms are in place.
Product departmentalisation
In product departmentalisation, departments are designed in such a way that all activities
concerned with the manufacturing of a particular product, or group of products, are
grouped together in product sections. This means that all the specialists associated
with such products are grouped in product sections. The rationale for this structure is
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that the marketing, financing, and personnel needs involved in the production of, say,
diesel engines will differ considerably from those in the manufacture of cigarettes. An
example of product departmentalisation is shown in Figure 8.4 below. This is a logical
structure for large organisations providing a wide range of products or services. The
advantages of this structure are that the specialised knowledge of employees regarding
particular products is used to maximum effect, decisions can be made quickly within
a section, and the performance of each group can easily be separately measured. The
disadvantages are that the managers in one particular section may concentrate their
attention almost exclusively on their particular products and tend to lose sight of those of
the rest of the organisation. In addition, the administrative costs could increase, because
each section has to have its own functional specialists, such as market researchers and
financial experts.
Managing director
Food
brands
Textile
brands
Healthcare
brands
Hospital
brands
Figure 8.4 Product departmentalisation
Location departmentalisation
An example of location departmentalisation is illustrated in Figure 8.4 above. This
is a logical structure for a business that manufactures and sells its goods in different
geographical regions. This structure gives autonomy to area managers, which is
necessary to facilitate decision-making and adjustment to local business environments.
This structure is also suitable for a multinational business — such as AB InBev, which
operates and markets its range of products worldwide — because each country
in which the multinational operates will be culturally unique and will have to be
approached differently.
Customer departmentalisation
Customer departmentalisation is appropriate when an organisation concentrates on a
particular segment of the market or group of consumers or, in the case of industrial
products, where the organisation sells its products only to a limited group of users.
Figure 8.6 below illustrates an example of customer departmentalisation. This structure
has the same advantages and disadvantages as product departmentalisation. Unlike
a functional structure in which activities are grouped according to knowledge, skills,
experience, or training, a structure based on product, location, or customers resembles
in some respects a small privately-owned business. It is more or less autonomous in
action, and is accountable for its profits or losses. However, unlike an independent small
business, it is still subject to the goals and strategies of the whole organisation.
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Managing director
Managing director:
Europe
Chairman:
USA
Managing director:
Africa and Asia
Figure 8.5 Location departmentalisation
Managing director
President:
Household
President:
Professional
President:
Pharmaceutical
President:
Industrial
Figure 8.6 Customer departmentalisation
Multiple departmentalisation
Particularly large and complex organisations find it necessary to use several of the
departmental structures described above to create a hybrid organisation. Any mixture
of structures can be used. The next sections discuss some of the most common
combinations.
Matrix departmentalisation
Matrix departmentalisation combines functional and product departmental structures.
The employee works for a functional department, such as finance, but is also assigned to
one or more products or projects. The major advantage of matrix departmentalisation
is flexibility — it allows the organisation to organise temporarily for a project. The
major disadvantage is that each employee reports to two superiors — a functional and
a project superior — which violates the unity of command principle. Coordination can
also be difficult. Figure 8.7 illustrates a matrix structure.
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CEO
Project
manager 1
Project
manager 2
Project
manager 3
Manager:
Finance
Manager:
Marketing
Manager:
Operations
Team
Team
Team
Team
Team
Team
Team
Team
Team
Figure 8.7 Matrix departmentalisation
Divisional departmentalisation (strategic business units)
Large, complex, and global organisations with related products and services usually
have a divisional structure which is departmentalised into semi-autonomous strategic
business units. Figure 8.8 below illustrates an example of divisional departmentalisation.
With the divisional (or ‘M-form’) structure, any combination of the other forms of
departmentalisation may be used by the organisation and within its divisions. When the
organisation has unrelated diversified business units, they usually use the conglomerate
structure, based on autonomous profit centres. In this case top management focuses on
portfolio management to buy and sell businesses without great concern for coordinating
the separate divisions. For example, Johnson & Johnson has over 250 separate companies
that are encouraged to act independently.5
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CEO
Product
division 2
Human
resources
Manufacturing
Product
division 1
Accounting
Human
resources
Manufacturing
Accounting
Figure 8.8 Divisional departmentalisation
Network structure
This describes an interrelationship between different organisations. A network
organisation usually performs the core activities itself but subcontracts some or many
of its non-core operations to other organisations. One of the big challenges for a
network organisation is to coordinate its network partners’ activities to ensure that they
contribute to the network organisation’s mission and goals. Figure 8.9 below illustrates
an example of a network structure.
Designer
Manufacturing
Central hub
Human resources
agency
Marketer
Figure 8.9 Network structure
New venture units
These consist of groups of employees who volunteer to develop new products or
ventures for the organisation. These groups use a form of matrix structure. When the
project is complete it can be adopted into any of the following organisational structures:
■
The new products or ventures become a part of traditional departmentalisation,
such as functional, product, location, or customer departmentalisation
■
The products are developed into a totally new department
■
The new products grow into divisions.
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Team structure
Probably the most widespread trend in departmentalisation in recent years has been
the implementation of team concepts. The vertical chain of command is a powerful
means of control, but passing all decisions up the hierarchy takes too long and keeps
responsibility at the top. The team structure gives managers a way to delegate authority,
push responsibility to lower levels and be more flexible and responsive in the competitive
global environment. Figure 8.10 below illustrates an example of the team structure.
CEO
Figure 8.10 The team structure
The virtual network structure
This builds on the features of the network organisation. It is no longer necessary for
the organisation to have all its employees, teams, departments, and subcontractors in
one office or facility. Information technologies enable the organisation to integrate its
internal employees, teams, and departments with its external network of subcontractors
in order to achieve specific goals. In the virtual organisation, people who are spread out
in remote locations work as though they were in one place. Figure 8.11 below illustrates
an example of a virtual network structure.
The virtual organisation is a streamlined model that fits the rapidly changing
environment. It provides flexibility and efficiency because partnerships and relationships
with other organisations can be formed or disbanded as needed.
However, a disadvantage associated with the virtual organisation is that the levels of
reciprocal and sequential interdependence are much higher than those of the network
organisation. They tend to be instantaneous — that is, any time and any place — for
the networked employees, teams, departments, and subcontractors. The boundaries of
the virtual organisation are also more open than in a network organisation because of
the use of advanced information technologies that seamlessly knit all partners together.
Examples of the information technologies used to create the virtual organisation are
electronic commerce, extranet, and intranet, which have been discussed in Chapter 7.
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Employees
contracted
on flexitime
Employees in
satellite office,
same country as
home office
Home
office
Employees in
satellite office in a
different country
than home office
Independent
contract
workers
Suppliers
Figure 8.11 The virtual network structure
8.7.3 Organisational design for the future
Whoever you spoke or listened to amidst the COVID-19 pandemic, politicians,
journalists, colleagues, academics, friends, all were in agreement that we are living in
unprecedented and uncertain times. Africa specifically, has not recuperated from the
2008/2009 global financial crises. Having contributed proportionally little to the
climate change challenge, Africa together with the rest of the world, face numerous
climate change challenges such as severe droughts and flooding. In South Africa, state
capture also played a significant role in the country’s economic turmoil and uncertainty.
So, the world was unstable even before the pandemic broke out. South Africans were
already living with uncertainty and huge challenges and threats. COVID-19 played its
part in contributing tremendously to its uncertainty, challenges and threats.
The various organisational structures explained in this chapter, can be seen on a
continuum starting with organisational structures associated with strictly defined
hierarchies, such as the functional, product, location and customer departmentalisation
structures. Workforces comprised of baby boomers (employees born between 1946 to
1964) mainly prefer these structures. This is followed by the matrix departmentalisation
and divisional (or M-form) structures, which are the preferred structured for workforces
comprised of the X-generation (employees born between 1965 and 1976). The next
generation, namely the Y-generation (employees born between 1977 and 1992) prefers
a flat organisational structure and are often referred to as ‘digital entrepreneurs’. The
Z-generation (people born from 1993) have multi-careers and prefer the team structures
— where individuals come together as a team around a project, and once the project
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is completed, the team dissolves.6 Contemporary organisations found themselves in
a position where their workforce comprises of all four of these generations, in other
words, a workforce consisting of baby boomers, generation X, Y and Z employees.
Where do we go from here? The COVID-19 pandemic and the worldwide
lockdowns, lead to employees working from home — creating virtual organisational
structures. The pandemic also moved organisations towards leaner, more agile and
operationally effective and digitised ways of working so that they can survive and thrive
in a volatile, unstable, complex and ambiguous environment. Most organisations will
probably not go back to the structures they had before the pandemic, which is a good
example of a change in organisational structure that forces organisations to change their
strategies to ensure an alignment between structure and strategy. Twitter, for example,
provide guidance for their employees to work from home and amidst the pandemic in
May 2020, already indicated that the company would keep this policy even after the
COVID-19 crises.
8.8 JOB DESIGN
Once the organisational structure is in place, management must consider the design of
jobs to motivate the incumbents of the different positions in the structure to contribute
towards the organisation’s goals. Job design refers to the process of combining the
tasks that each employee is responsible for. Job design is a crucial part of organising
as it affects job satisfaction and productivity. Empowering employees to be involved in
designing their own jobs motivates them and increases their productivity.
This obviously requires employees to have a very clear understanding of the entire
organisation and the way it operates.
8.8.1 Job specialisation
Job specialisation, or job simplification, refers to the narrowing-down of activities to
simple, repetitive routines. This approach to job design is often used in industries where
many of the employees are illiterate or very inexperienced in the workings of a business.
The term ‘job specialisation’ should not be confused with ‘person specialisation’, which
refers to individuals with specialised training, such as medical specialists, lawyers,
geologists, and engineers.
When designing jobs, managers need to consider motivating elements such as job
specialisation and job expansion.
Job specialisation originated with the work of Adam Smith. The famous opening words
of his book ‘Wealth of nations’ describe a basic form of specialisation in a pin factory and
the subsequent increased productivity: ‘One man draws the wire, another straightens it, a
third cuts it, a fourth points it, a fifth grids it at the top for receiving the head. Ten persons,
therefore, could make amongst them upwards of forty-eight thousand pins in a day... But if
they had all wrought separately and independently, and without any of them having been
educated to this peculiar business, they certainly could not each of them have made twenty.
This would have meant that 200 pins at most would have been made instead of 48 000.’
Source: Adapted from Campbell, RH, Skinner, AS & Todd, WB. (eds). 1976. Adam Smith: An inquiry into
the nature and causes of the wealth of nations. Oxford: Clarendon Press, p 15.
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8.8.2 Job expansion
Job expansion is almost the opposite of job simplification — it is the process of making
a job less specialised. Jobs can be expanded through job rotation, job enlargement, and
job enrichment. Job rotation involves performing different jobs for a set period of time.
Many organisations appoint management trainees and then develop their conceptual
skills by rotating them through the various departments of an organisation. Job
enlargement stems from the thinking of industrial engineers. They wanted to increase
a job’s scope in order to break the monotony of a limited routine. A job is enlarged
when an employee carries out a wider range of activities of approximately the same level
of skill, such as a typist whose job is enlarged to include general administration tasks.
The expanded job will be more interesting because it is more varied. Job enrichment is
implemented by adding depth to the job. It is based on Herzberg’s two-factor theory
of motivation, which is described in detail in Chapter 14. Herzberg argued that job
rotation and job enlargement do not enhance employee motivation. A worker should
be provided with actual control over the task to make the job more motivating. Job
enrichment entails increasing both the number of tasks a worker does and the control
the worker has over the job.
Jobs can be expanded through job rotation, job enlargement, and job enrichment.
Two other forms of job enrichment exist, namely the development of work teams
(which is discussed in Chapter 13) and the job characteristics model (see Chapter 14).
8.9 DELEGATION
The job of a manager is to get the work done through the efforts of others. It is neither
desirable nor is it possible, in many instances, for managers to perform all the work
for which they are held responsible. Delegation is the process through which managers
assign a portion of their total workload to others. In this process, authority is also passed
on to an employee, who then has the authority to deploy the necessary resources in
order to complete the delegated task.
There are different reasons why managers delegate. Delegation is important from
the organisation’s perspective as it promotes succession planning. Should the manager
retire, resign, or get promoted to a higher level, a subordinate will more easily be able to
move into the manager’s position. From a manager’s point of view, delegation is used to
enable the manager to get more management work done. Subordinates also profit from
delegation. By participating in more challenging jobs, subordinates learn to develop
their decision-making and problem-solving skills and, in the process, improve their
managerial skills.
Even though managers delegate authority, they remain accountable for the
completion of the job. They are accountable both for their own actions and for those of
their subordinates. Managers may hold subordinates responsible for a job, but they are
still accountable to their own superiors for the work.
According to the parity principle, neither the manager nor the subordinate should
be held responsible for things beyond their control or influence. The parity principle
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stipulates that authority and responsibility should be co-equal. This means that, when a
manager assigns the responsibility for a task to be performed, he or she must also give
the subordinate the full authority to perform the task. For example, the employee who
is asked to drive across town and pick up a load of timber (responsibility) should also
be given the right (authority) to request a vehicle from the vehicle pool to accomplish
the task. This principle is often violated. Employees almost always feel they have been
assigned more responsibility than authority to act.
8.9.1 Principles of effective delegation
The delegation process is essential to every manager, for this is how managers get
others to share in the organisation’s drive for performance. A common failing of less
effective managers is that they try to be responsible for everything. In so doing, they
are overloaded, and not very efficient managers. This phenomenon is evident in South
African managers, due to the shortage of suitably qualified managers. Consequently,
the subordinate suffers because of the manager’s failure to delegate and develop
the subordinate.
Below are some principles that can be used as guidelines to help managers be more
effective in delegation.
■
Explain the reason(s) for delegating. Subordinates should understand that
delegation has advantages for themselves, for the manager, and for the organisation.
■
Set clear standards and goals. Employees should participate in the process of
formulating goals for the delegated task and should also agree with the criteria laid
down for measuring their performance. This participation will foster successful
delegation.
■
Ensure clarity of authority and responsibility. Subordinates must understand the
tasks and authority assigned to them, recognise their responsibility, and be held
accountable for the results.
■
Involve subordinates. Managers should motivate subordinates by including them
in the decision-making process, informing them of their progress, and enabling
them to improve their knowledge of and skills in the delegated task. An informed
employee is more likely to accept well-designated tasks and perform them properly.
■
Request the completion of tasks. By providing the necessary direction and
assistance, managers can see to it that employees complete the tasks assigned to
them according to the agreed-upon standards and goals.
■
Provide performance training. The effectiveness of delegation depends on
the workers’ ability to perform tasks. Managers should continually evaluate
the responsibilities delegated and provide training to help workers overcome
shortcomings.
■
Provide feedback to the subordinate. Timely and accurate feedback should be
given to subordinates on a regular basis. The feedback should include both positive
and negative feedback regarding the subordinate’s performance. The way forward
should also be discussed with the subordinate.
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8.9.2 The advantages of delegation
The management process relies on the concept of delegation. Therefore, it is important
for aspiring managers to understand this concept and to know the advantages of
implementing it. When applied properly, delegation has several important advantages:
■
Managers who train their staff to accept more responsibility are in a good position
themselves to accept more authority and responsibility from higher levels of
management.
■
Delegation encourages employees to exercise judgement and accept accountability.
This improves self-confidence and willingness to take the initiative, and is a great
training method.
■
Better decisions are often taken by involving employees who are ‘closer to the
action’ and know more about the practical execution of tasks.
■
Quicker decision-making takes place. If subordinates have the necessary authority,
they do not have to refer to top management before taking certain decisions.
8.9.3 Obstacles to effective delegation
When one is given something to do and one knows how to do it well, there is a natural
tendency to do that task rather than to give it to someone else. However, one of the
first things managers need to learn is to delegate those tasks that they know best. By
delegating the tasks that one knows best, one can move on to other tasks that will offer
further personal growth. Also, it is easy to supervise subordinates who are doing things
of which one has detailed knowledge.
There are a number of personal and psychological barriers that impede the
delegation process for managers. A further review of these barriers may be helpful to
us as managers:
■
A manager may fear that his or her own performance evaluation will suffer if
subordinates fail to do a job properly.
■
The manager may also feel that the subordinate will not do the job as well as he
or she can do it. This may stem from a lack of confidence in subordinates and the
perception that they are not up to doing the job.
■
Managers are often too inflexible or disorganised to delegate, or sometimes they
feel that it takes too long to explain to subordinates how to do the job and that they
may as well do it themselves.
■
Managers may also be reluctant to delegate because they fear their subordinates
will do the job better than they can. Subordinates, on the other hand, sometimes
fear that they will fail and thus expose themselves to disciplinary action. They may
try to avoid work responsibilities and risk, and feel that there are no additional
rewards for completing a task. Sometimes there is confusion about who is actually
responsible for the job.
Managers often inherit organisations that have been designed by others. It is possible
that the current design of the organisation itself may be an impediment to delegation.
If there are problems in delegation, managers should review all the elements of the
organising function to determine the root cause of such organisational stumbling
blocks. The following are examples of organisational impediments to delegation:
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Delegation is not effective if authority and responsibility are not clearly defined. If
managers do not know which tasks to delegate and what is expected of them, they
will not be able to delegate decision-making to their subordinates. This situation
requires a clarification of duties from above or from the manager’s boss.
■
When a manager does not make subordinates accountable for task performance,
there is a likelihood that this responsibility will be passed on to others, creating
additional staff and communication burdens.
■
In the absence of or with poorly developed job descriptions, individuals may not
have a good understanding of what is expected of them.
■
8.9.4 Overcoming obstacles to effective delegation
Most of the impediments to delegation can be minimised by a greater awareness on
the part of the manager that such obstacles exist. One way of overcoming obstacles to
effective delegation is to create a culture of continuous learning.
Managers should realise that there is more than one way to deal with a situation
and they should, therefore, not compel subordinates to apply their methods. Managers
should clearly state the outcome that the subordinate must deliver (such as a safe
work environment), but should give subordinates maximum freedom to perform their
delegated tasks. When mistakes are made, the subordinate should be assisted to find
solutions to problems.
Improved communication between subordinates and managers removes obstacles
to delegation. Close communication will reveal the strengths and weaknesses of
employees, enabling managers to know which tasks can be appropriately delegated
in the knowledge that the job will be done properly. Training helps subordinates to
understand their responsibilities, authority, and accountability.
Subordinates should be made aware of the extent of their contribution to achieving
the goals of the organisation. Managers should be able to analyse the organisation’s
goals and task requirements and determine to what extent employees are capable of
performing the task they wish to delegate. They should be able to trust their employees
and have faith in their ability to complete the task successfully. When employees cannot
perform the job effectively, the manager’s job is to teach them how to do it.
8.9.5 The delegation process
We have discussed how essential the delegation process is to the manager. Similarly, the
process is also essential to the growth and well-being of subordinates. Delegation does
not take place automatically — it is something a manager must initiate. Conditions are
constantly changing in today’s organisations, so it is important for managers to review
the changing requirements with their subordinate staff. Of course, in the case of new
staff members, more time is required to ensure that they understand their jobs and what
is expected of them.
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1
2
3
4
5
Decide on the
tasks to be
delegated
Decide who
should perform
the tasks
6
Feedback
Provide
resources
Delegate
Step in
Figure 8.12 The delegation process
Figure 8.12 illustrates the recommended steps in the delegation process:
1. Decide on the tasks to be delegated. Tasks of a repetitive nature, or minor chores,
can easily be delegated. It is important, however, to delegate more challenging tasks
in order to develop employees and create self-confidence. Try delegating those
tasks that you know best how to do.
2. Decide who should perform the tasks. In this instance, the time available, the
competency required, and the experience of the subordinate should be taken into
account. You may also want to rotate certain tasks amongst employees in order to
create a more flexible workforce.
3. Provide sufficient resources to carry out the delegated task. These resources include
people resources, financial resources, physical resources (such as computers),
and information resources. Without sufficient resources, the subordinate cannot
perform the task. This is the nature of authority. All too often, the manager delegates
the work to be done, but fails to give the individual control over the necessary
resources to perform the task.
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8.10 SUMMARY
In this chapter, we explained the second element of the management process, namely
organising. Organising has been defined as the process of creating a structure for the
organisation that will enable its people to work effectively towards its vision, mission,
and goals. We discussed organisation, organisational structure, and the reasons for
organising. We also discussed the organising process, followed by a definition of the
most important principles pertaining to organisation: unity of command and direction,
chain of command, span of control, division of work, standardisation, coordination,
responsibility, authority and accountability, power, delegation, downsizing, and
delayering. Finally, we discussed authority, organisational design, job design, and
delegation in greater detail.
Managers often complain about stress due to an overload of work. This is often
a result of ineffective delegation. By following the steps in the delegation process,
managers will reduce their own workload to focus more on management challenges;
develop their subordinates; and increase productivity in the organisation.
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7. FlySAA. nd. ‘Brief history’. Available at: https://www.flysaa.com/about-us/leadingcarrier/about-saa/brief-history (Accessed: 18 January 2019).
8. South Africa Travel Online. 2019. ‘SAA flight news in 2020 & comprehensive history’.
Available at: https://www.southafrica.to/transport/Airlines/SAA-flights/SAA-newsoffers.php (Accessed: 16 July 2019).
9. Head, T. 2019. ‘Developing: SAA will be split into three departments – here’s how it will
work’. The South African. Available at: https://www.thesouthafrican.com/news/saa-splitthree-details-how-will-it-work/ (Accessed 16 July 2019).
10. Wasserman, H & Cronje, J. 2019. ‘SAA placed in business rescue from today’. Fin24.
Available at: https://m.fin24.com/Companies/TravelAndLeisure/breaking-saa-placed-inbusiness-rescue-from-today-20191205 (Accessed: 27 May 2020).
11. Reuters. 2020. ‘South African Airways faces wind-down or liquidation as cash runs out’.
Available at: https://www.reuters.com/article/us-safrica-saa/south-africanairways-faceswind-down-or-liquidation-as-cash-runs-out-idUSKCN2252O6 (Accessed: 26 May 2020).
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CASE STUDY
South African Airways7
South African Airways (SAA) is South Africa’s national carrier and largest airline. Its
headquarters are in Airways Park on the grounds of the OR Tambo International Airport in
Kempton Park, Gauteng. Currently, SAA flies to 35 destinations worldwide from its hub at
the same airport. A brief history, highlighting major changes and advances impacting the
structure of the airline, is given below.
South African Airways was founded on 1 February 1934 with the South African government’s
acquisition of Union Airways. Forty staff members and eight aeroplanes were acquired to
form SAA, under the control of the South African Railways and Harbours Administration (now
Transnet). SAA started charter operations in the same year. In 1935, the carrier acquired
South West African Airways and also expanded its fleet of aircraft. In the same year, SAA
moved its operations to Rand Airport as it became obvious that Johannesburg would become
South Africa’s aviation hub. During the next year, SAA took over all Rand–Cape Town
services from Imperial Airways and again expanded its fleet.
The period from 1946 to 1952 was a period of extreme growth. The first intercontinental
service was introduced and there was a spike in passengers and cargo carried as well
as an increase in fleet and staff. Air hostesses were first introduced in 1946. In 1948,
Palmietfontein Airport became SAA’s hub, taking over from Rand Airport. This year witnessed
a host of changes for the airline in terms of its operations and services, and the introduction
of films onboard its Skymaster aircraft.
The period from 1953 to 1973 is known as the jet age in aviation. SAA’s first jet arrived on
3 May 1952 in Palmietfontein after a 24-hour journey, with five refuelling stops en route. In
the 1980s, SAA acquired 23 brand new Jumbo jets, including the long-range Boeing 747SP,
which was specially acquired to overcome many countries prohibiting SAA from using their
airspace due to the countries’ political environment at the time. International condemnation
of the apartheid regime in South Africa during the 1980s also posed many difficulties for
SAA. For example, the airline itself faced hostility, with their local and foreign offices being
attacked. The US banned all flights by South African-owned carriers, including SAA. SAA’s
flights to Perth and Sydney in Australia were ended.
With the demise of apartheid in the early 1990s, SAA was able to restore its services to
former destinations, introduce new destinations and expand into the rest of Africa and
also Asia. On 1 June 1990, an important date for SAA, South African companies signed a
domestic air travel deregulation act. Flights to New York’s JFK International Airport resumed
in November 1991 after the US dropped economic sanctions imposed on South Africa in
1986, and South Africa’s planes were able to fly for the first time over Egypt and Sudan.
Flights to Milan were introduced for the first time and services to Athens were re-introduced.
During 1992, the airline entered the Miami market and re-entered Australia, flying directly
to Perth.
In 2003, media reports started appearing about the South African government’s plan to
restructure and overhaul the state-owned enterprise Transnet (SAA’s parent company), due to
dismal financial performance. This included splitting SAA from the company to operate under
a separate identity.
➜
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During May 2007, SAA launched an 18-month comprehensive restructuring programme.
The main purpose was to ensure that the airline became profitable. SAA’s business
was streamlined, and employees were reskilled in a bid to improve worker morale and
management/worker relations. SAA’s business was divided into seven subsidiaries, allowing
SAA to concentrate on its core business of passenger and cargo transport; rationalising
international routes (for example, Paris was dropped); cutting 30 per cent of the airline’s
managers as well as other employee retrenchments. The restructuring programme was
expected to save SAA R2.7 billion. By June 2009, R2.5 billion was saved.
SAA is in financial difficulty and is making news headlines very often due to
mismanagement, their inability to settle debt with various banks and further restructuring
programmes to save the airline. In 2017, for example, the National Airline required yet
another bail-out and considered once again drastic route restructuring. They reduced flights
on their most profitable route Cape Town – Johannesburg, which allowed SAA to scale
back their fleet from 50 aircraft to only 40.8 Sadly, restructuring plans such as these proved
not to be enough, and until 2019, SAA still struggled financially. By February 2019, their
Chief Executive revealed plans to operate the airline through three separate departments,
as part of their new major restructuring plan. The proposed units SAA plan to operate from
are domestic (which will focus on flights that solely operate through South Africa); regional
(which will focus on routes and destinations across the continent with a heavy focus on
Southern Africa); and International (which will focus on the big, longer-haul flights that cross
continents and travel the furthest afield).9
On December 5, 2019, the Minister of Public Enterprises Pravin Gordhan issued a statement
to confirm that SAA will be placed into business rescue. This decision was taken by its
board and supported by the South African government. The decision was taken to restore
confidence in SAA and to safeguard the good assets of SAA and help to restructure and
reposition the entity into one that is stronger, more sustainable and able to grow and
attract an equity partner.10 Since then, SAA has been fighting for its survival. Its fortunes
deteriorated further when the Coronavirus pandemic forced it to suspend all commercial
flights. By April 23, 2020 the airline already offered severance packages to its workforce
of roughly 5 000 people after the South African government said it would not provide more
funds for rescue efforts. If SAA’s employees do not accept the offered packages, SAA
will have to make an urgent application for an order discontinuing the business rescue
proceedings and placing SAA into liquidation. Since 2011, SAA received more than 20 billion
rand in bailouts from government, a drain on public resources at a time of weak economic
growth.11
CASE STUDY QUESTIONS
Question 1
At SAA two types of restructuring can be distinguished. Identify these two types and
differentiate between them.
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Question 2
Access the following website which provides the leadership team of SAA: https://www.
flysaa.com/about-us/leading-carrier/about-saa/saa-leadership. From the leadership team,
which of these positions would you regard as line functions? Substantiate your answer.
Question 3
COVID-19 had a huge effect on SAA. In your opinion, what effect did the virus have on
SAA’s structure?
Question 4
The landmark work of Alfred Chandler supports the notion that structure follows
strategy. In your opinion, does this notion hold true for SAA during the COVID-19
pandemic? Substantiate your answer.
MULTIPLE-CHOICE QUESTIONS
Question 1
The management function most visibly and directly concerned with the systematic
coordination of the many tasks that must be performed in an organisation and,
consequently, the formal relationships between people who perform them, in order to
.
work effectively towards this mission is
1. planning
2. organising
3. leading
4. controlling.
Question 2
Identify the wrong statement from the following:
1. Organising will help an organisation to deploy human resources, financial resources,
and information resources in the most effective, productive and profitable manner.
2. The organisational structure of an organisation is responsible for creating a
mechanism to coordinate the activities of the entire organisation.
3. An organisational structure needs to ensure that communication is effective and
that all information required by managers and employees at all levels reaches them
through the correct channels so that they can perform their jobs effectively.
4. An organisation first needs to develop an organisational structure and then
formulate its corporate strategy.
Question 3
A flat organisational structure will lead to levels of management with
spans of control.
1. a few; narrow
2. many; narrow
3. many; wide
4. a few; wide.
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Question 4
In a production line set-up, the output of one unit becomes the input for the next unit.
The second unit is directly dependent upon the first unit to finish its work before it can
begin its assigned task.
According to Thompson, this is called
1. pooled
2. synergistic
3. sequential
4. reciprocal.
interdependence.
Question 5
power, based on the
The managing director of an organisation has
authority that the organisation grants to his or her particular position.
1. coercive
2. referent
3. legitimate
4. expert.
Question 6
An organisation appoints company secretaries to render services to their top
management and to advise line managers regarding ethics and corporate governance
issues in the company.
Company secretaries have
1. line
2. centralised
3. expert
4. staff.
authority in the organisation.
Question 7
Which of the following factors will influence an organisation to decentralise authority?
a) The organisation is operating in a complex and uncertain environment.
b) The organisation obtains new products through a strategy of research and development.
c) Lower level managers are not in a position to make sound decisions.
d) The organisation is large, complex and operates in countries all over the globe.
e) It has a history of centralising authority in the organisation.
1.
2.
3.
4.
ab
abd
bcd
cde
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Question 8
Which of the following are advantages that an organisation can expect from
decentralising authority?
a) Decentralised authority will improve decision-making
b) Decentralised authority will foster a competitive climate in the organisation
c) There will be a lesser need for management training and development
d) Decentralisation demands sophisticated planning and reporting methods
e) There should be improved morale and initiative at the lower levels of management.
1.
2.
3.
4.
abde
abe
bcd
bcde
Question 9
organisational structure:
The following characteristics are typical of a(n)
(i) independence of various organisations, such as suppliers, (ii) a common project,
(iii) time and space have no incidental impact, (iv) information technologies are in the
core management processes.
1. virtual
2. product
3. location
4. customer.
Question 10
To delegate effectively, managers should use the following guidelines:
a) Explain the reasons for delegating
b) Provide performance training
c) Provide feedback to subordinate
d) Delegate responsibility, authority and accountability to subordinates
e) Request the completion of tasks
f) Although managers can assign the responsibility for a task to a subordinate, the
subordinate should never have the full authority to perform the task.
1.
2.
3.
4.
abce
bcd
bcf
de
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PARAGRAPH QUESTIONS
Question 1
Explain the importance of organising in attaining the goals of an organisation.
Question 2
Describe the organising process in designing an organisational structure.
Question 3
Explain the principles of organising that should be considered in designing an
organisational structure.
Question 4
Explain the various types of organisational structure.
Question 5
Discuss organisational designs for the future.
Question 6
Explain the design or redesign of jobs as a motivational factor in organisations.
Question 7
Explain the delegation process and guidelines that managers should follow when
delegating tasks to subordinates.
ESSAY QUESTION
The job of a manager is to get the work done through the efforts of others. It is neither
desirable, nor is it possible for managers to perform all the work for which they are
responsible and they need to assign a portion of their workload to others. This is called
delegation. Give a full discussion of delegation within an organisational context.
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9
THE
PURPOSE
OF THIS
CHAPTER
LEARNING
OUTCOMES
KEY
CONCEPTS
Management Principles 7e.indb 257
INNOVATION AND TECHNOLOGY
Every organisation faces change. Change is part of life and therefore also part
of the ‘life’ of a business organisation. Change can originate in the external
environment or within the organisation itself. It can be revolutionary or
evolutionary (gradual). Organisations can benefit from change if they
manage the change process carefully. Successful organisations recognise
change and adapt to them timeously. Managers have to lead organisations
and its people through the change process and deal with issues such as
resistance to change, fear of change and productivity loss during the
change process and even turnover of key workers during this process.
This chapter examines change management by dealing with the
following issues: environmental forces that require organisations to
change, the different types of change, the process to follow to bring about
change in the organisation, and how to overcome resistance to change.
The chapter also looks at the concept of organisational culture and how
to align it with the chosen strategy and the organisational structure.
This chapter will enable learners to:
Explain how environmental change forces the organisation to adapt
in order to survive
■
Expound on how internal change can be planned
■
Depict and discuss the change process
■
Identify and discuss the four main areas of organisational change
■
Recommend ways of overcoming resistance to change
■
Explain what the concept of organisational culture encompasses
■
Discuss the importance of managing the organisational culture in
order to change the organisation
■
Explain briefly what an organisational culture analysis (OCA)
encompasses
■
Explain the importance of aligning the organisation’s culture with
the chosen strategy and structure.
■
Change agent
Change intervention
■
Change process
■
First-order change
■
Organisational culture
■
Organisational culture analysis (OCA)
■
Organisational development (OD)
■
Planned change
■
Reactive change
■
Resistance to change
■
■
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9.1 INTRODUCTION
Growing urbanisation, the Coronavirus pandemic, countries who are in ‘lockdown’, the
complete disruption of delivery channels, global warming and advances in technology
are only some of the changes that affect all business organisations across the world.1 The
United Nations predicts that urban populations will grow by 72 per cent in 2050. This
growth will mainly happen in African and Asian countries. Coca-Cola, for instance, sees
water scarcity in the future as a threat to its own sustainability. In developed countries,
people are growing older while other countries are experiencing an increase in their
overall population growth rate. This change will affect the labour force making it more
difficult for companies to acquire talent in developed countries due to a large percentage
of the workforce being older, and even old. There is also a shift in economic power
from Western markets to Brazil, Russia, India and China (BRIC). New technological
developments are also creating totally new industries. For example, Amazon is seeking
approval from the Federal Aviation Administration (FAA) to deploy a drone delivery
system. This change in delivery will turn the industry on its head!
Although the above changes are profound, less dramatic changes also require of
managers to deal with change on a daily basis. These ‘less dramatic changes’ could
include: an important supplier closing its business, new legislation regarding minimum
wages, the relocation of a main road that goes through a town, a major product
breakthrough by a competitor and so on.
In Chapter 3, we examined environmental change and how the many variables in the
environment, impact on the organisation. We stated that the organisation is an open system.
This means that the organisation is influenced by the forces of change in the environment.
The organisation either has to respond to these forces or face possible failure.
Dealing with change is a complicated process, at the heart of which lie people and
their natural resistance to change. The change process therefore poses major challenges to
managers at all levels of the organisation. How organisations manage change will inevitably
mean the difference between success and failure in a very volatile business environment.
All kinds of business had to creatively learn to adapt to the COVID-19 pandemic. However,
some businesses have used the changing environment — and especially ‘social distancing’
— as a major drive for growing their businesses. For instance, professional cleaning services
that sanitise offices, restaurants, homes and even public roads are in high demand. So too
are restaurants and retail shops that are geared to prepare food and deliver it to people’s
homes. Even gymnasiums had to change their business models profoundly by turning their
cycling, yoga and other studios into virtual studios where people can train at home.
Changing the way that a business used to serve their customers requires bold decisionmaking during periods of change. Chefs in traditional sit-down restaurants had to learn
how to prepare food and present it professionally in take-away boxes, instead of plates.
Residential universities had to change their way of presenting lectures in a lecture room
to presenting the lectures online to students who do not all have the same access to
computers, wi-fi, electricity and so on. These residential universities had to find a way of
providing online lectures to all students in a fair way by not discriminating against those
students who do not have access to wi-fi or the internet.
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Figure 9.1 below shows some of the environmental forces of change that coerce
organisations to adapt in order to survive — and hopefully thrive — in the changing
environment.
The macro- and market forces which were described as external forces in Chapter 3
are responsible for the ever-faster environmental changes and these eventually impact
on organisations by creating pressure for change. When the pace of change in the
environment outstrips the pace of change inside the organisation, the organisation will
run into problems. If organisations do not align their visions with the environment, or
adapt their missions, goals, strategies, structures, and organisational cultures to change,
they will fail. And if leaders and managers do not sense the need for change and do not
look beyond the boundaries of their ‘comfort zones’, they will lead their organisations
to failure. Ultimately, their competitors, with increased productivity and improved
quality, will overtake them.
A brief overview of change inside the organisation and of the process of change will
help to clarify the concept of ‘change management’.
Evolutionary versus revolutionary changes
To be able to manage change, we need to understand the difference between evolutionary
versus revolutionary change. When a courier company decides to use solar-driven cars,
instead of petrol cars, to deliver its parcels, the change would be considered ‘gradual’.
However, if the courier company decides to use drones to deliver its parcels, the change will
be considered ‘revolutionary’.
Evolutionary change is often localised. Using solar-driven cars will impact mainly on the
operations of a courier without major repercussions to other parts of the system. The
organisation as a whole remains intact and no overall change of its former state occurs in
spite of the incremental change to its fleet of cars.
Replacing petrol-driven cars with drones indicates a revolutionary, radical change. This will
require a massive re-engineering of the entire organisation. This revolutionary change will
have an influence on employees who may need new skills, new administration systems, new
ways of contacting customers, and many more radical changes.
Change management in the next decade will involve more of the revolutionary variety — and
less of the evolutionary variety. This is due largely to the many technological breakthroughs
that are revolutionising the way in which business is conducted. To cope with the change,
managers will be expected to show a level of courage that was not previously required.
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Management Principles 7e.indb 260
Failure of
communism
■ Government
ideologies
■ Legislation
■ Human rights
■ Employment
Equity Act
■ Labour laws
Demographic
trends
■ Education
■ Health issues
■ Business
ethics
■ Gender and
race issues
■ Changing
lifestyle
■
■
■
■
■
Increased
international
cooperation
such as:
Nepad,
Commonwealth of
Nations,
European
Union (EU),
and so on
International
forces
New technologies
Change in organisational culture
Re-engineering
New systems
New vision
New mission
Change in strategy
Change in structures
(restructuring)
■ New operations
■
■
■
■
ORGANISATIONAL CHANGE REQUIRED
More threats to organisations
■ More opportunities for
organisations
Increased
demand and
exploitation
of natural
resources
■ Increase
in waste
production
■ Climate
change
■ Possible
negative
impact of
genetically
modified
crops on the
environment
■
Ecological
forces
Faster change
■ Increased competition
■ Increased productivity
■ Increased quality
■
Political forces
Social forces
■
ENVIRONMENTAL CHANGE
■
■
More
countries
join market
economy
■ Free trade
■ Global
competition
■ Free flow of
capital
■ Trade union
activities
■
New products
Computerisation of
processes
■ New and
faster
production
■ New and
faster
communication
■ Information
technology
■ Internet
■
■
Economic and
market forces
Technological
forces
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management principles
Figure 9.1 Forces of changes driving the need for organisations to change
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9.2 CHANGE INSIDE THE ORGANISATION
In the introductory paragraph, the examples given dealt mainly with change that emanates
from the external environment, such as changes in legislation, the COVID-19 pandemic
and outbreaks of other highly-contagious diseases, technological breakthroughs, a new
competitor entering the market, a new economy, and so on. Yet, a variety of forces
inside the organisation may also cause change. Whenever owners decide to change
their business model, revise the commission structure for salespeople, choose different
strategies to become more competitive, organisational change will result.
Managers can respond to the internal need for change in two basic ways, namely,
either through reactive change or planned change. Because of the fact that change
is often unexpected, managers may respond to it in a reactive way. This approach
is usually hurried and poorly planned, and is sometimes called crisis management.
Planned change, on the other hand, is a change process that is planned and executed in
anticipation of future events and changes. It involves the entire organisation, or at least
a major part of it. Managers should plan for change whenever possible and should plan
the implementation of the change initiatives carefully. This requires going through a
change process.
9.3 THE CHANGE PROCESS
Changing an entire organisation or just certain sections of an organisation is a very
challenging task. And even if an outside consultant informs management that a change
is required, managers may still not respond to the change for a variety of reasons. The
reasons could include, mistrust in management, internal politics, fear of losing your job
and poor communication regarding the need for the change.
Managers must understand how change affects the organisation, and they must know
when and how to set a change process in motion. A logical and planned process is more
likely to be successful than an ill-conceived effort. Although many change processes are
presented in various textbooks, the one depicted in Figure 9.2 below takes a holistic
approach to organisational change.
The change model illustrated in Figure 9.2 begins with a recognition of change — the
trigger for change. This is probably the most difficult step of the change process, because
management often lacks the insight to recognise the need for change as evolutionary
change can be so incremental. Revolutionary change, like the change caused by the
COVID-19 virus, is often so drastic that managers need to ‘rock the boat’ to deal with
the change — something that managers often do not want to do. Revolutionary or
drastic change requires strong leaders who can create a vision of the future that managers
and employees want to share in — despite the uncertainties created by the change. (In
Chapter 8 which deals with leadership, the argument is made that the real job of leaders
is to sense the need for change and to initiate it.) The need for change may be triggered
by a change in any of the business environments.
This means that change may become simply inevitable. Management can also initiate
change themselves if they believe that there is a better business model for their business,
more efficient processes and systems, lower-risk production methods, or a better
strategy for the organisation. However, it is critical to also determine if the organisation
is ready for the intended change.2
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Determine the desired outcome of the change intervention
UNFREEZE
The trigger for change
Plan for implementation
Implement
Evaluate and follow up
REFREEZE
Select an appropriate change technique
CHANGE
Diagnose the causes
Figure 9.2 Steps in the change process
Once the need for change has been identified and is clearly defined, managers must
state the desired outcome of the change intervention. This may be a new organisational
structure that decentralises decision-making to improve performance, a new reward
system to pay for performance, and so on. A clothing retailer may state that they want
to reduce, within two years, their range of clothes to only include locally manufactured
clothes, in order to get rid of the expensive imported clothes.
Managers must diagnose the causes that necessitated change. If the cause of change
was ‘declining sales’, managers must look for causes such as unrealistic sales forecasts, an
outdated way of selling clothes, an unproductive sales force, an outdated product range,
a poorly-structured commission structure.
A final step in the initial change process requires management to select a change
technique or a change agent to lead the organisation through the change. If the need for
change revolves around new skills, retraining may be required. If a change in technology
caused the change, the implementation of new systems might be required.
After the change technique has been chosen, management must plan its
implementation by considering such things as the cost of change, budget implications,
target dates, resources needed and the influence this will have on the morale of managers
and workers. Once the change intervention is implemented by the change agent, it must
finally be evaluated to see if the change has been successful. If the change intervention
is not completely successful, further change may be necessary.
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Many change interventions involve the organisation’s strategy, its structure, its
technology, and its people. We therefore need to look closely at these areas of change in
the organisation.
9.4 AREAS OF ORGANISATIONAL CHANGE
Many organisational changes take place in the so-called ‘areas of organisational change’,
namely in strategy, structures, technology, and people. When change takes place in any
one of these areas, that change will generally bring about change in another area or areas.
Lewin’s change model
Different models can be used to implement
change in an organisation. Lewin’s change
model is a popular one.
Lewin’s change model
This model comprises three stages:
1. Unfreezing current behaviour
2. Changing behaviour
3. Refreezing behaviour.
In order to cause change, according to Lewin, one must ‘unfreeze’ the current behaviour.
To improve productivity, an organisation may inform the workforce of impending lay-offs or
the closure of certain of its plants. To change the behaviour of the workforce, management
may decide to create training interventions to help individuals and teams improve their
productivity. Alternatively, management may decide to negotiate with the workforce for
specific reward packages. To ensure that the implementation of the change is successful,
management then needs to ‘refreeze’ the behaviour. This can be done, for instance, through
a permanent upward adjustment of salary for those performing well in the organisation.
Source: Cummings, TG & Worle, CG. 2013. Organisational change and development, 10th ed. Australia:
Cengage Learning, p 22.
The four major areas of organisational change are illustrated in Table 9.1 below.
Table 9.1 Areas of organisational change
Strategy
Structure
Technology
■ Bureaucracy (levels,
■ Production
Goals
Corporate
span of control,
technology
strategies (growth,
departmentalisation) ■ Information
■ Authority (formal,
decline, corporate
technology
■ Systems technology
combinations)
informal)
■ Functional strate­gies ■ Decision-making
■ Operations
(marketing, finance,
(centralised,
technology
■ Control systems
human resources,
decentralised)
■ Organisational design
and so on)
■ Strategic redirection
(re-engineering,
downsizing,
restructuring)
■
■
Management Principles 7e.indb 263
People
Knowledge and
skills
■ Motivation
■ Performance
management
■ Reward allocation
■ Behaviour
■ Culture (beliefs,
values, attitudes)
■
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We shall briefly discuss each of these areas of organisational change.
9.4.1 Change in strategy
Most organisations have strategic plans outlining the future course of the business (see
Chapter 4). Any change to these will mean a change in the functional strategies of the
organisation, as well as changes in any of the other areas of change. Edcon’s decline
strategy to sell off non-core businesses (CNA and Boardmans) will have a profound
influence on their product offering.
9.4.2 Changing the organisational structure
A change in strategy should normally result in a change of structure. This may involve
reducing the management levels, enlarging the span of control, merging departments
or sections, revising authority, or deciding to decentralise decision-making. Changing
an organisation’s structure is very difficult because of the vested interests of managers,
employees, and unions. This is especially true in cases of a change in the overall design
of an organisation in order to make the organisation more streamlined.
To compete in the fast-changing business environment, organisations often have
to become more flexible in order to meet the needs of their clients. Management
may therefore have to outsource its non-core departments, such as the information
technology department, management training and development, and legal services.
In the very uncertain business environment caused by the Coronavirus pandemic,
businesses such as pharmacies and restaurants may have to outsource the delivery of
their products to other businesses who already have a fleet of motorcycles and drivers
who can deliver the products to their clients’ homes.
Included in structural change is also the improvement of processes or what is often
called the ‘business architecture’. At a training institution, traditional classroom-style
lectures may, for example, be replaced by e-learning or interactive tutor sessions.
Another well-known structural change involves outsourcing those areas that can be
better performed by specialist suppliers.
9.4.3 Technological change
This may involve replacing people with robots, altering equipment or introducing new
engineering processes, production processes, or systems. About 35 per cent of current
jobs in the United Kingdom are at high risk of computerisation over the following
20 years, according to a study by researchers at Oxford University and Deloitte.3 Similar
research conducted in the USA estimates that 47 per cent of jobs in the USA are ‘at risk’
of being automated in the next 20 years.4 Technology has compelled organisations to
undergo changes at an enormous rate. A change in technology, on the other hand, can
also lead to a change in strategy or structure.
9.4.4 Changing people
A change in the organisation’s strategy may necessitate a change in the job description
of many employees, their mindsets and behaviours. Many managers and workers may
find change traumatic and may resist any attempts to change the organisation. In certain
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cases, managers and employees may even have to reapply for their own jobs. A strategy
change may require completely new competencies by managers and workers. Internal
competition for jobs may cause hostility amongst colleagues.
Changing the beliefs, values, and behaviour of people also entails changing the
corporate culture of the organisation. Just as an individual’s personality determines
his or her behaviour, shared values and beliefs form the basis of a particular culture
that influences the behaviour and performance of the organisation. In many cases a
corporate culture, such as a performance-driven culture, a teamwork-driven culture or
a power-driven culture, impacts negatively on the strategies and performance of the
organisation, and may have to be changed. (The question of changing a corporate culture
is discussed in more detail in Section 9.6.) Despite possessing a thorough knowledge
of the areas of organisational change, and putting in place a process of planned change,
most organisations fail in their efforts to change. The reasons for this failure often
revolve around resistance to change. This should be expected, as change is essentially
about people adapting to it.5
9.5 RESISTANCE TO CHANGE
Organisational change efforts often run into some form of manager and employee
resistance. Change triggers emotional reaction because of the uncertainty involved
in terms of job security, possible retrenchments, new managers to report to, and so
on. Therefore, in planning for change, management should always take resistance by
managers and workers into account. This can be done by understanding the reasons
why people resist change. These reasons are discussed in the sections that follow (see
Figure 9.3 below).
Threatened self-interest
Both managers and employees will resist change if they think it will cause them to lose
something of value. Some people are relatively comfortable with change while others
may be completely change-resistant. Managers and employees may fear losing their
jobs, their status in the organisation and in society, their access to the organisation’s
resources. They may even fear losing their houses or other possessions.
Uncertainty
Perhaps an even bigger cause than the threat to self-interest is uncertainty. People’s
inherent aversion to change is caused by the uncertainty created by the change as well
as the unknown repercussions of the change.
Lack of trust and misunderstanding
Even when management proposes change that will benefit everyone, people will still
resist if they do not fully understand the reasons for changing. Such a situation is most
likely to occur when there is a lack of trust between the parties involved. Distrust
and suspicion often result in rumours and distorted information and may become an
effective obstacle to change. Clear and honest communication is essential to overcome
any misunderstandings.
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Threatened self-interest
Uncertainty
Lack of trust
Misunderstanding
Different perceptions
Low tolerance for change
General:
Inertia
Timing
Surprise
Peer pressure
Figure 9.3 Reasons for resistance to change
Different perceptions
Perceptions of the costs and benefits of a proposed change depend on what individuals
think change will mean for themselves and their organisation. Differing perceptions of
the benefits of proposed change occur when information on the change is not properly
shared with managers and employees. Employees are often exposed to different, and
often less, information than management and may not understand the reasons for
change as well as the full consequences of change.
Low tolerance for change
People often resist change because they fear they will not be able to develop the new
competencies necessary to perform well. Although individuals often understand the
necessity for change, they may be emotionally unable to accept the change.
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General reasons
There are also several general reasons why people resist change, regardless of the actual
content of the change:
■
Inertia. People do not want to change the status quo. The old way of doing things
may have been comfortable and easy.
■
Timing. Change may be resisted because of poor timing.
■
Surprise. People do not react favourably to surprises. If the change is sudden,
unexpected or extreme, resistance may be almost a reflex reaction.
■
Temporary fad. Managers and employees may believe that the change is simply to
impress others and not essential to improve the organisation’s performance.6
■
Peer pressure. Work groups sometimes resist new ideas because of antimanagement attitudes.
Note that resistance to change should always be regarded as an important signal for
further enquiry into the initiative for change. Employees’ assessment of the initiative
may be more accurate than that of management; they may know that a change will not
work because of their own experience and exposure.
9.5.1 Overcoming resistance to change
Resisting change is a human response and management should take steps to counter
it. Reducing resistance may cut down on the time needed for change to be accepted. A
number of methods that may be useful in decreasing resistance to change are examined
in the sections that follow.
Education and communication
People should be educated about planned changes before they occur. The nature as well
as the logic behind the change should be communicated to employees in a way that they
will understand. This can be done by means of one-on-one discussions, presentations to
groups, discussion forums, reports, and so on. It should be borne in mind that the fact that
the change initiative has been communicated does not mean that managers and workers
are informed about the issue. A financial manager explaining the cashflow situation of an
organisation must consider his or her target audience and adapt the presentation to the
level of understanding of the target group. So too must all other communicators of the
necessity for change ensure that their audiences understand their messages.
Participation and involvement
Participation in the change initiative is generally considered to be an effective technique
for overcoming resistance to change. Prior to change, those who oppose it can be
brought into the decision-making process. Participation gives employees a chance to
express their fears about proposed changes. It is also important in bringing together
those affected to help implement the change.
Facilitation and support
Facilitation involves providing the necessary resources that employees need to carry out
the change and perform their jobs properly. This often includes decentralising authority.
Psychological support may be required where levels of employee fear and anxiety are high.
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New confidence
Denial
Anger
Acceptance
Self-esteem
Confusion
Depression
Crisis
Time
Figure 9.4 Psychological reactions to change
Negotiation and rewards
It is often best to negotiate a proposed change with the parties involved and to reach
an agreement. Negotiated agreements involve conceding something to the other party
in order to reduce resistance. A drastic intervention to overcome a change barrier
may sometimes be to remove the persons resisting change from the organisation or to
remove or replace the change agent.
The best way to overcome resistance to change is probably a combination of the
above with the emphasis on participation and reward.
9.5.2 Why efforts to change fail
In addition to the above reasons why management experiences resistance to change,
other valid reasons may also explain why efforts to change fail.
The starting point in the management of change should be ‘the story of the company’.
It is difficult to think of an organisation outside of its context. Context involves heritage,
values, shared experiences, norms, and myths. An organisation’s current capacity and
appetite for change are contingent on this history. This acknowledgement of history is
therefore crucial in managing the change process. It is essential to understand the past
if we are to make sense of why things are what they are.7 (See the five main principles of
the Toyota Company in the box below.)
Five main principles of Toyota
1. Always be faithful to your duties, thereby contributing to the Company and the overall good
2. Always be studious and creative, striving to stay ahead of the times
3. Always be practical and avoid frivolousness
4. Always strive to build a homelike atmosphere at work that is warm and friendly
5. Always have respect for spiritual matters, and remember to be grateful at all times.
Source:Toyota. nd. Available at: http://www.toyota global.com/company/history_of_toyota/75years/
data/conditions/precepts/index.html (Accessed: 19 April 2020 ).
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Kotter singles out the following reasons why change in an organisation may fail:8
Too much complacency
When complacency levels are high, transformations always fail because followers will
not move out of their comfort zones.
Failing to create a sufficient coalition to make change happen
A few individuals without much power cannot manage change. Neither can the chief
executive single-handedly manage change. A strong enough coalition of key players is
required. This coalition should preferably comprise senior managers and employees
(including representatives from trade unions) as well as young ones. These two
groups often have diverse views on a matter. These contrasting views may even lead to
innovative solutions.9
The absence of an exciting vision
A vision should sketch the ‘perfect future’. This exciting future should be shared by
managers and workers throughout the organisation. The vision plays a key role in
producing meaningful change by helping to direct the thoughts and actions of large
numbers of people.
Under-communicating the vision
A vision is of value only if it is shared. Organisations use different ways of communicating
the vision. Most listed companies have a copy of the vision in their annual report. Some
organisations display their vision statements in their reception areas, offices, and so on.
To ensure that all managers and employees understand the vision, some organisations
use video presentations as a way of communicating the ‘perfect future’. Also popular is
an industrial theatre to use actors to present the change to workers in a playful way.
Permitting obstacles to block the vision
Obstacles such as the organisational structure, remuneration structure, or mindsets of
managers and employees can block change. Such structures will have to be removed
when they become inconsistent with the new vision.
Failing to create short-term wins
Efforts to change lose momentum if there are no short-term goals to meet and celebrate.
However, declaring victory too soon may also impact negatively on the success of the
change initiative.
Neglecting to anchor changes firmly in the corporate culture
Change is embedded in the organisational culture only when it becomes ‘the way
things are done here’. Managers need to understand that resistance to change can come
from individuals as well as from organisational systems. Being sensitive to factors
that may cause resistance to change can help managers to implement the initiative for
change successfully.
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9.6 CULTURE AND CHANGE
The changes that many organisations are forced to make in an ever-changing business
environment are often so fundamental that they involve transforming an organisation’s
very essence — its corporate culture. Because the culture of an organisation plays such
an important part in both organisational performance and change, an examination of the
concept is necessary. An organisational culture should be well aligned with the organisation’s
strategy and structure. If not, the culture can be a potent source of resistance to change.
Every organisation has a particular culture, which is almost like a personality. It
comprises an omnipresent set of assumptions that are often difficult to fathom and that
directs activities within the organisation.
Just as an individual’s personality determines his or her behaviour, shared values
and beliefs form the foundation of a particular culture that influences the actions and
activities in that organisation.
9.6.1 Definition of the concept of culture
Organisations are made up of people and not simply of buildings, production facilities,
products, markets, strategic analyses, and technological innovations. Every organisation
has its own unique personality, which is known as its corporate culture. The heart and
soul of an organisation is its people. The concept of ‘culture’ is difficult to define, so
studying a number of perspectives on culture may help in defining it.
Corporate culture can be defined as the beliefs and values shared by people in an
organisation. It refers to a set of basic assumptions that work so well in a specific business
organisation that they are regarded as valid assumptions within the organisation. These
assumptions are upheld as the correct way to do things or to understand problems in the
particular organisation. The term ‘basic assumptions’ refers to the following:
■
Beliefs or convictions about the world and how it works
■
Values, which are the organisation’s assumptions about which ideals are worth
pursuing, such as striving for success or avoiding debt.
Managers and employees who have worked for different organisations should be
familiar with the ‘basic assumptions’ that are maintained in different organisations. In
some organisations, challenging the leaders’ viewpoints regarding business issues is
appreciated and considered as ‘assertive’; in other organisations this could be a careerlimiting approach. In some organisations creativity is appreciated; in others the status
quo should be maintained.
9.6.2 Elements that determine and express a corporate culture
An organisation’s culture is portrayed by numerous elements, such as symbols, rituals and
customs, ideologies, language, tales, assumptions, relationships, and humour (or lack of it).
Symbols
The symbols of organisational culture may include the architecture of the buildings,
landscaping around the buildings, the arrangement of offices, the extent to which
parking bays are reserved for senior management, the name of the organisation, the use
of its logo, and the way that outsiders are treated. The unification of Sasol’s corporate
culture was the driver behind this petrochemical giant’s decision to move its business
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units and activities from a scattering of locations across Johannesburg into a single
purpose-built building in Sandton, Johannesburg. To further strengthen its culture, the
building is designed around an open atrium to ensure unplanned meetings between
managers and employees from different departments can take place.
According to Steve Jobs’s biography, his headquarters also had to be designed
around a huge open atrium in order to be a place that ‘promoted encounters and
unplanned collaborations’ between managers and workers from different departments.
An unexpected encounter with a colleague in the atrium could then lead to creative
solutions to pressing issues. The ‘open-atrium design’ of headquarters is very different
from the closed-offices designs of many other corporate headquarters.10
Rituals
Rituals refer to practices and reactions that occur repeatedly and have a certain
significance within the organisation. These rituals set certain boundaries and
relationships between employees, managers, customers, unions, and so forth. Such
rituals include awards, celebrations and farewell parties.
Ideologies
The beliefs, moral principles, and values underlying decision-making within an
enterprise may be explicit and set the tone and pace, or may be barely visible at all in
the organisation.
Sometimes the value systems of various managers in the organisation differ radically
and are totally conflicting. An attempt should be made to resolve such problems and to
tighten up the organisation’s ideology.
To ensure that everybody in the organisation understands its values, these values
should be expressed in behavioural terms. The value ‘we are honest’ may be interpreted
differently by different people. When this value is expressed in behavioural terms, such
as: ‘We declare all presents given to us by customers immediately’, it should be easier for
everybody in the organisation to live by the same set of values.
Language
Language and language usage are important manifestations of corporate culture. One
of the factors here is that certain language groups have certain values and customs.
Thus, one might find in a predominantly English-speaking organisation, that there are
different value systems compared with, for example, a predominantly Afrikaans- or
Xhosa-speaking organisation. Moreover, the continual use of certain words and phrases
tells its own story about the prevailing corporate culture within an enterprise. In certain
enterprises strong, aggressive words and phrases such as ‘destroy all competitors’ and
‘price wars’ clearly express the type of culture that prevails.
Tales
Often stories circulate in an organisation depicting certain qualities and characteristics
considered unique to the organisation. These stories can be based on facts, fiction, myths,
sagas in the organisation, and so on. Stories provide clues to managers and employees
about behaviour that is appreciated or not tolerated in the organisation. It often depicts
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dramatic moments in the life of the organisation in a heroic way. For example, the basic
value of equality amongst members of an organisation can be demonstrated in these
stories. In this way, stories may be told about a certain superior/manager who risked her
or his life to save workers who were trapped in a mine.
Assumptions
Different groups in an organisation may make different assumptions about the way that
certain tasks should be performed. These differences may result in misunderstandings
and conflict. Some enterprises may even have the experience that people with different
professional training belong to different groups with divergent assumptions. Even
employees who belong to different unions can manifest different assumptions. It is a
well-known fact that there is often disagreement between production and maintenance
personnel on the way things should be done. It is vital that an organisation recognises
the various groupings and the assumptions on which they base their decisions.
Relationships
This refers to relationships that may arise as manifestations of a particular corporate
culture. The reference here is too specific types of relationships, such as relationships
between managers and subordinates or the relationships between managers of different
departments. In a previous example, we referred to the open-atrium design of an
organisation’s headquarters. This design symbolises the importance of cross-functional
relationships between all members of an organisation as they will cross paths in the
atrium at some stage during the day.
Humour
Humour can convey certain messages about corporate culture. Jokes about cultural
outsiders indicate a definite boundary between ‘us’ and ‘them’. In this way, employees
identify with the organisation. Such humour may subtly focus attention on divergent or
corresponding assumptions.
Organisational culture analysis (OCA)
Organisational culture analysis is a means of determining the here and now of what life is
really like in an organisation — a quick barometer of the difference between current culture
and that which is desired. It is an analysis of whether or not conditions for competence exist,
and if they do not, which conditions oppose them. The analysis also indicates whether the
planned changes have any flaws.
The OCA measures three conditions for competence in terms of an organisation’s culture:
1. Collaboration: measures leadership values, the accessibility of leaders, and the credibility
of leaders
2. Commitment: determines the extent to which the sharing of power is formalised, the
extent to which people are allowed to do what needs to be done, and the extent to which
mutual reliance and respect (team values) are established
3. Creativity: determines the extent to which personal control over work is allowed, the
extent to which excitement (not boredom) is created, and the faculty for problem solving.
Source: Productivity SA. nd. Available at: www.productivity.co.za (Accessed: 19 April 2020).
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The elements of a culture form the content of that culture. Culture is an asset to the
organisation, but if not properly managed, can also be a liability. It is an asset because
cultural alignment eases communications (people know how things are done), facilitates
decision-making (people know what to do), makes control more effective (people know
what is expected of them), and it may generate pride and cooperation. The results are
efficiency, good products, satisfied customers, and higher profits.
Culture becomes a liability when important shared beliefs and values interfere
with the strategy and structure of the organisation. This condition may be found
in government organisations when the ideology of a new regime is brought into the
organisation and its proponents mistrust members of the prior regime, and vice versa.
Such a culture is a significant liability because personal ideological beliefs cannot always
be expected to match the dominant ideology of an organisation’s culture. This difficulty
may be dealt with by focusing on protocols for behaviour in the organisation.11
Realigning an organisation’s culture with a chosen strategy and structure is a timeconsuming process. It often starts with an analysis of the current culture and the
identification of differences between the current culture and the desired culture.
9.6.3 Changing the organisational culture
Appealing to managers to change behaviors, thinking, values, and beliefs, rarely works,
according to corporate culture guru, Professor Hrebiniak.12 Professor Hrebiniak states
further that culture-changing activities such as white-water rafting, rock climbing,
paint-ball wars, sensitivity training, and other teambuilding exercises alone rarely have
long-lasting effects on an organisation’s attempt to change its culture. Spirits may be
lifted or behaviour changed for a while, but managers soon fall prey to the same old
organisational structures, incentives, processes, and controls.
To change an organisational culture, management must focus on four of the factors
and conditions that affect it (see Figure 9.5 below).
Structure
and
process
Incentives
People
Controls
Figure 9.5 Factors to change in order to change an organisational culture
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1. Structure and process. Organisations, big or small, can change their structures and
processes to change the organisational culture as this will have an influence on all
members of the organisation. To create a culture of responsibility and decision- making,
management can decentralise autonomy. A hotel group, for example, can decentralise
decision-making so that hotel managers in the different countries or regions can
make decisions that will better satisfy their specific customers and their needs.
2. People. Appointing an outsider may bring in new innovative ideas of how to
improve the business. He or she will also not ‘carry any baggage’ or have any
personal relationships in the organisation to protect. New appointees will also not
be contaminated by the old organisational culture or internal politics. Managers
can even be rotated in the organisation. In short, new people, ideas, and strategies
can have a positive effect on culture change.
3. Incentives. Many organisations reward people for length-of-service and not for
performance. People are therefore rewarded for doing the same things in the same
way over an extended period of time. A new incentive system will affect behaviour
and performance and attract new resources and capabilities, which can lead to
culture change.
Organisational culture guru, Professor Hrebiniak, Wharton School, University of
Pennsylvania
‘Don’t try to change an organisation culture per se. Focus on changing some of the factors
and conditions that affect culture, rather than directly on culture itself.’
Professor Hrebiniak’s presentation to Wharton Executives, September 2011.
Source: Wharton @ Work. 2011. Available at : https://executiveeducation.wharton.upenn.edu/thoughtleadership/wharton-at-work/2011/09/four-steps-culture-change/#sthash.4FuLua68.dpuf (Accessed: 19
April 2020).
4. Changing and enforcing controls. It is important that managers should give
continuous feedback to departments/sections/individuals, evaluate performance,
identify gaps in performance and take remedial action to get the organisation back
on track. Emphasis should be on the achievement of stated organisational and
individual goals. These actions or emphases will help to shape new behaviours,
task interactions, and ways of thinking. This in turn will re-emphasise a culture of
learning and achievement.
9.7 ORGANISATIONAL DEVELOPMENT (OD)
Organisational development is the ongoing planned effort by managers and leaders to
manage change as a means of improving organisational performance. It involves planned
interventions to improve the skills and abilities of employees and to eliminate aspects of
the organisation that limit employee and organisational growth and performance.
The interventions which the OD managers usually undertake range from diagnostic
activities — which assess the current condition of an organisation — to surveys, training
and development, intergroup activities, teambuilding sessions, conflict resolution, reengineering projects, coaching, consultation, and counselling.13
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The support of top management is important to the success of OD projects and
efforts at managing organisational change. Development activities usually take place
throughout an entire organisation and therefore need the approval of top managers.
OD is more than simply change management. Organisational interventions
emphasise ‘process’ rather than ‘problems’. OD initiatives focus on identifying the
behavioural interactions and patterns that cause and sustain problems. OD specialists
therefore are behavioural scientists.
OD interventions are time-consuming and expensive. There is also no guarantee
that the intervention will indeed bring about the necessary behavioural changes. It
could even cause psychological harm to certain individuals as well as a possible invasion
of their privacy. Any potential OD intervention should therefore be considered with
great sensitivity towards the individuals and teams that will be influenced by this type
of intervention.
9.8 SUMMARY
Change in the environment (external or internal) is usually responsible for the internal
pressures and needs to change or modify a substantial part of the organisation. Reactive
change is the response to unexpected change, whereas planned change anticipates
future change. Even though leaders and managers may realise that something is wrong
and that change has to take place to improve the performance of the organisation, they
often find it difficult to effect change for a variety of reasons, such as mistrust, a lack of
teamwork, complacency, a lack of leadership skills, fear, or simply resistance to change.
Managers should understand when and how to change the organisation and they must
take steps to overcome any resistance to change. They should follow a planned process
of change to modify any of the major areas of organisational change, namely the areas of
strategy, structure, technology, and people.
Another area of organisational change which we examined in some detail is the
concept of corporate culture and its importance in any effort at change. Corporate or
organisational culture reflects the shared beliefs and values of people in the organisation.
These shared beliefs and values drive the behaviour of the organisation. It follows that if
change management intends to change the behaviour of the organisation, it will have to
modify the organisational culture. Changing the culture of an organisation is a daunting
task that should be managed with great sensitivity to all involved.
Finally, we looked at OD as the planned effort by managers to manage change as
a means of improving organisational performance. OD interventions must be driven
from the top (top management) as it will influence individuals and teams throughout
the entire organisation.
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REFERENCES
1. Enterprise Risk Management Initiative. 2014. ‘How global changes can affect the business
environment’. Available at: https://erm.ncsu.edu/library/article/emerging-risks-globaltrends-affects (Accessed: 17 April 2020).
2. Carnall, C. 2014. Managing Change in Organisations. 6th ed. Harlow: Pearson Education
Limited, p 7.
3. University of Oxford. Department of Engineering Science. nd. Available at: https://www.
oxfordmartin.ox.ac.uk/blog/automation-and-the-future-of-work-understanding-thenumbers/ (Accessed: 19 April 2020)
4. Stylianou, N, Nurse, T, Fletcher, G, Fewster, A, Bangay, R & Walton, J. 2015. ‘Will a robot
take your job?’. BBC News. Available at: http://www.bbc.com/news/technology-34066941
(Accessed: 20 April 2020).
5. Corelli, C. 2015. ‘Five stages most people experience when changes occur in a company or
department’. CDP Inc. Available at: http://www.cdp-inc.com/articles/five-stages-most-peopleexperience-when-changes-occur-company-or-department (Accessed: 22 April 2020).
6. Rick, T. 2011. ‘Top 12 reasons why people resist change’. Meliorate. Available at: http://
www.torbenrick.eu/blog/change-management/12-reasons-why-people-resist-change//
(Accessed: 22 April 2020).
7. Lynda Gratton. nd. Available at: http://www.lyndagratton.com/ (Accessed: 23 April 2020).
8. Kotter, JP. 1999. ‘Reading change’. Boston: Harvard Business School Press, pp 3–16.
9. Gratton, L. 2000. Living strategy: Putting people at the heart of strategy. London: Pearson.
10. Patel, S. 2015. ’10 examples of companies with fantastic cultures’. Entrepreneur. Available at:
https://www.entrepreneur.com/article/249174 (Accessed: 24 April 2020).
11. Gutterman, AS. 2015. Organisational Culture: A Guide for Growth-oriented Entrepreneurs.
Growth-Oriented Entrepreneurship Project Report, p 9.
12. Wharton University of Pennsylvania. 2020. ‘Wharton @ Work’. Available at: http://
executiveeducation.wharton.upenn.edu/thought-leadership/wharton-at-work/category?c
=8262B584F2FF42F2AAC8E9A8923905C1 (Accessed: 24 April 2020).
13. Massachusetts Institute of Technology: Human Resources. nd. Available at: https://hr.mit.
edu/managers/od-consulting (Accessed: 25 April 2020)
CASE STUDY
Change management: The City Lodge Hotel Group (CLHG)
In 2009 the City Lodge Hotel Group (CLHG) introduced a sustainable energy management
pilot project at its Town Lodge, Sandton hotel. Following the success of the pilot project
which was focused on changing the behaviour of hotel staff in relation to energy usage, the
programme was later rolled out across the group’s 52 South African hotels, leading to a
15 per cent energy saving.
Content with the change that occurred in its staff’s behaviour, the group is implementing
technology and equipment changes to further increase energy savings. It is now installing
LED lighting, other energy efficient lighting, and heat pumps for the efficient heating of water.
City Lodge’s ongoing energy efficiency initiative involves constant metering and monitoring
and has involved considerable training of hotel staff around the country.
➜
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By installing LED lighting and other energy efficient lighting, the group will save around
R4 million a year. Eskom, as part of its own drive to encourage the installation of LED
technology, is contributing to this CLHG project.
Hotels across the group’s four brands — Courtyard, City Lodge, Town Lodge and Road Lodge
— will receive a lighting makeover. More than 45 000 lamps will be changed.
CLHG is adding water monitoring to its ‘dashboard’ that enables it to track water usage. It is also
looking at further opportunities to make energy savings in air conditioning and laundry operations.
Mr Clifford Ross, Chief Executive of the CLHG, stated: ‘The way we do things has changed
considerably over the past four years and the efficient use of resources has now become
engrained into our operational culture. Our aim is to constantly monitor our energy efficiency,
always looking for new ways to improve on what we are doing. It makes good business
sense for us and helps us to help the environment.’
Currently the CLHG is undertaking a large-scale solar project, one of the most widespread
ventures of its kind undertaken by a hotel group in South Africa. Once completed, this project
will provide 10% of CLHG’S total energy requirement. This will see nearly 4000 solar panels
being installed across South Africa.
Source: City Escapes - City Lodge Hotel Group. 2019. Available at: https://clhg.com/blog/2019/09/
solar-panel-installations/ (Accessed: 19 April 2020).
CASE STUDY QUESTIONS
1. In the case study above, Mr Cliff Ross refers to ‘behavioural changes’ that had to be
managed across all hotels in the group. What possible behavioural changes could
he be referring to?
2. According to the literature, what are the major benefits that the CLHG could have
wished to attain with this change initiative? Which benefit does Mr Ross specifically
refer to in the case study?
3. Based on the information in the case study, was a culture change required in order
to attain the hotel group’s goals? Give at least two reasons for your answer.
4. Identify four factors that CLHG had to focus on to ensure that a culture change
takes place in all of their hotels.
5. Identify the information in the case study that deals specifically with these four factors.
MULTIPLE-CHOICE QUESTIONS
Question 1
1.
2.
3.
4.
change can be described as gradual change.
Revolutionary
Evolutionary
Strategic
None of the above.
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Question 2
The COVID-19 pandemic is a change in the
controlled by management.
1. macro2. market
3. micro
4. industry.
environment and cannot be
Question 3
is a person from inside or outside the organisation who helps an
A
organisation transform itself by focusing on such matters as organisational effectiveness,
improvement, and development.
1. bureaucrat
2. first-line manager
3. human resources manager
4. change agent.
Question 4
change model, successful change requires unfreezing
According to
current behaviour, changing behaviour and refreezing behaviour.
1. Handy ’s
2. Lewin’s
3. Vroom’s
4. none of the above.
Question 5
‘The way we do things around here’ refers to an organisation’s
1. mission
2. structure
3. culture
4. systems.
Question 6
The beliefs and values shared by people in an organisation are called
1. corporate culture
2. internal politics
3. group-think
4. leadership.
.
.
Question 7
Roma Pharmaceuticals (Pty) Ltd has an annual ceremony at the end of the year when
top performers in the company are rewarded with an expensive corporate gift. This is an
that expresses the corporate culture at the company.
example of a
1. symbol
2. ritual
3. tale
4. none of the above.
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279
Question 8
refers to the ongoing planned effort by managers and leaders in an
organisation to manage change as a means of improving organisational performance.
1. Internal communication
2. Culture audit
3. Organisational culture analysis
4. Organisational development (OD).
Question 9
The Organisational Culture Analysis (OCA) measures
1. commitment
2. creativity
3. collaboration and commitment
4. collaboration, commitment and creativity.
.
Question 10
An employee of Paint-for-Colour CC describes the business as ‘… bureaucratic, slow
moving and change-resistant …’. The employee is referring to this close corporation’s
.
1. mission
2. strategy
3. culture
4. none of the above.
PARAGRAPH QUESTIONS
Question 1
Explain four areas of organisational change that the modern organisation will have to
deal with in order to remain competitive.
Question 2
Provide reasons why managers and employees may resist change in an organisation by
highlighting personal dispositions that may lead to the resistance.
Question 3
A friend of yours tells you that she has tried everything possible to get her employees to
accept the new processes that she has implemented in her retail business. ‘However,’ she
said, ‘all my efforts to get my employees to accept the new processes have failed.’
■
Based on sound change management principles, list five reasons that could have
caused her initiatives to fail.
■
What could she have done to overcome the failure to implement change in her
business successfully?
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Question 4
Explain specific ways in which top management can ensure that a change in corporate
culture becomes visible to the following stakeholders:
■
Employees
■
Shareholders
■
The government
Question 5
Explain three approaches that managers can follow to ensure that change is embedded
in the organisation.
ESSAY QUESTION
Pizza Egoli (Pty) Ltd has eight outlets in Gauteng. All these outlets are owned by the
company itself; none are owned by franchisees. Decisions are centralised and are made
by the original founder of the business. All outlets use wood fires when making the
pizzas. However, due to clients complaining about the time that it takes to make the
pizzas, top management has decided to completely revise the processes in the outlets
— from ordering the pizzas to receiving the final product. This meant that at least two
employees per outlet would become redundant and lose their jobs as new types of skill
will be required in the outlets. Suggest a change process to top management to ensure
that the change that the outlets are facing will be managed successfully.
Your answer must include at least the following:
A graphical depiction of the logical change process that you will follow
■
A brief explanation of each step in the change process
■
Parties that will be involved in each step of the change process.
■
(Present your answer on an A4 paper. Your presentation must include your graphical
depiction as well as your brief explanations.)
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10
THE
PURPOSE
OF THIS
CHAPTER
LEARNING
OUTCOMES
KEY
CONCEPTS
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MANAGING DIVERSITY
AND INCLUSION
This chapter directs the learner’s attention to the management of
diversity and inclusion as a mechanism to improve organisational
effectiveness. It aims at equipping the learner with knowledge, skills
and competencies to create an environment that allows all workers to
contribute optimally to organisational goals and experience personal
growth. This includes creating a conducive environment that allows
all employees to have access to jobs as well as facilitating fair and
positive treatment in the workplace. The learner is introduced to skills
and competencies to develop employees so that they are comfortable
working with others from a wide variety of ethnic, racial, religious, and
various other backgrounds.
This chapter will enable learners to:
Define and distinguish diversity from what it is not
■
Identify the primary and secondary dimensions of diversity
■
Recommend strategies for managing diversity and inclusion
■
Describe the opportunities and the challenges presented by diversity
■
Define ethnocentrism and stereotyping
■
Recognise and explain cultural differences
■
Recommend approaches for managing cultural diversity
■
Suggest ways of managing diversity and inclusion effectively in
organisations
■
Train others in diversity and inclusion issues in the organisation.
■
Achievement
Afrocentric
■
Ascription
■
Career success
■
Degree of involvement
■
Dimensions of diversity
■
Diversity
■
Diversity paradigm
■
Ethnocentrism
■
Ethno-relativism
■
Eurocentric
■
Exclusivity
■
Inclusion
■
Monoculture
■
Particularism
■
■
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Pluralism
Power distance
■
Quality of life
■
Radically pluralist society
■
Social orientation
■
Stereotyping
■
Uncertainty avoidance
■
Universalism
■
■
10.1 INTRODUCTION
We South Africans have commonly referred to ourselves as the ‘rainbow nation’ because
our nation includes people of many different races, languages, religions and ethnicity.
While we all share the important dimensions of the human species, biological and
environmental differences separate and distinguish us as individuals and groups. This
vast array of differences constitutes a spectrum of human diversity and causes us to
perceive and interpret similar situations differently.
The same message — different interpretations
An African professor, on sabbatical to the USA, was lecturing to postgraduate students. She
posed a simple problem that she usually puts to her African students: ‘There are five birds
sitting in a tree. You take a slingshot and shoot one of them. How many birds are left in the
tree?’ Most of her American students said ‘four’. They said, ‘One subtracted from five leaves
four.’ Almost all of her African students said ‘zero’. ‘If you shoot one bird, the others will fly
away,’ they said.
The bird-in-the-tree story illustrates one of the most fundamental aspects of managing
people with different life experiences — they may interpret reality very differently. By
the time people enter organisations, the way they perceive and respond to the world
around them will largely have been determined by the environment in which they were
brought up. One’s family, friends, type of school attended, as well as the culture in which
one is brought up, shapes one’s cognition and influences one’s perceptual bias.
One of the major challenges facing South African organisations is managing workforce
diversity and inclusion. Working with people whose values, attitudes, beliefs, perceptions,
languages, and customs are very different from one’s own can make for costly misunderstanding, miscommunication, misperception, misinterpretation, and misevaluation.
We have seen, in the opening anecdote, that those who were of African descent gave
zero as an answer. Having been brought up in an environment where children would play
using slingshots or stones, they knew from their experience that if you threw anything
at a flock of birds and hit one of them, they would all fly away. Here, principles of logic
and arithmetic are violated, yet the answer based on their cultural experience is correct.
If, on the other hand, we apply arithmetical logic, those of non-African descent are seen
to be equally correct. As to which one of the answers is right or wrong depends (in
this particular case) on whether the evaluator is of African or non-African descent. This
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simple example illustrates the impact of culture or environment on people’s behaviour;
it highlights the need to manage — and utilise — diversity effectively in organisations.
Many countries in the world can be described as radically pluralist societies.
Such societies comprise practically every conceivable kind of human plurality; their
populations are extremely heterogeneous in terms of race, ethnicity, culture, language,
sexual orientation, religion, conceptions of good or bad, etc. Safeguarding such a
society from the potentially destructive conflicts that arise so easily in radically pluralist
or diverse societies is a complex task.1 South African society can at best be described as
a radically pluralist society, therefore the potential for destructive conflicts exists if the
design of its social institutions does not ensure fairness to all its members.2
Table 10.1 below reports the National Economically Active Population (EAP) by
population group (ethnicity) and gender which illustrates ethnic and gender diversity
in South Africa.
Table 10.1 Profile of the nationally Economically Active (EAP) distribution by population and
gender group
Race
Male
Female
Total
African
42.7%
35.8%
78.5%
Coloured
5.2%
4.4%
9.6%
Indian
1.7%
1.1%
2.8%
White
5.1%
4.0%
9.1%
Total
54.7%
45.3%
100%
Source: Statistics South Africa, (QLFS 3rd Quarter, 2017).
Another major aspect of diversity in South Africa is the number of languages spoken by
its population. While there are said to be eleven official languages in South Africa, sign
language makes the 12th one as depicted in Table 10.2 below.
Table 10.2 South African linguistic diversity
Language
% of Total
Afrikaans
13,5
English
9,6
isiNdebele
2,1
isiXhosa
16
isiZulu
22,7
Sepedi
9,1
Sesotho
7,6
Setswana
8
Sign language
0,5
SiSwati
2,5
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Language
% of Total
Tshivenda
2,4
Xitsonga
4,5
Other
1,6
Source: South Africa Languages and Culture. nd. Available at: https://www.sa-venues.com/sa_languages_
and_culture.htm (Accessed: 23 June 2020).
South Africa is a nation in the midst of a profound transformation. Diversity in South
Africa is all the more dynamic and complicated as a result of a history of legislated race
separation. Even after two decades after the demise of the apartheid regime, South
Africa is still experiencing demands by previously disadvantaged groups (PDGs) for
inclusivity in decision-making and in the sharing of wealth in the workplace. Under
the former apartheid system, South African organisations operated in an environment
of protectionism propped up by government support. The best jobs were reserved for
white employees. There was, therefore, limited workforce diversity to be managed.
In 1994, apartheid ended with the adoption of a new constitution and South Africa
redefined itself as a democratic, non-racial society. More recently, parliament passed
the Employment Equity Act, which seems to have spurred greater debate on the issue of
transforming the country’s business organisations towards true diversity and inclusion.
Yet, despite the new constitution and government legislation mandating employment
equity, most South African organisations remain white male-dominated, as indicated
in Table 10.3 below. White men still occupy the bulk of empowered and well-paid
management positions.
As can be seen from Table 10.3, at top management level, 67.7% (54.5% male and
13.2% female) of positions are occupied by white South Africans, 14.3% by black South
Africans, 9.4% by Indian South Africans, and 5.2% by coloured South Africans. Foreign/
other nationals make up 3.4%. As can be seen from Table 10.1 above, representation of
the white group at the top management level, at 67.7%, is more than six times their
economically active population (EAP).
Table 10.3 Employment Representation by Occupational level, race and gender (percentages)
Occupational level
Male
Female
Other
Nationals
A
C
I
W
A
C
I
W
M
F
Top Management
9.6
3.3
6.8
54.5
4.7
1.9
2.6
13.2
2.9
0.5
Senior Management
14
4.7
7.1
38.1
8.1
3.1
3.8
18
2.4
0.8
Middle Management
20.4
5.0
4.9
21.1
21.7
4.7
3.9
15.4
2.0
0.8
Junior Management
32.7
5.8
2.9
10.2
29.0
5.5
2.7
9.4
1.3
0.4
Semi-skilled
44.8
5.8
1.4
2.4
32.1
6.2
1.5
3.4
2.1
0.3
Unskilled
49.3
5.7
0.5
0.8
34.2
5.3
0.3
0.4
2.7
0.7
Non-permanent staff
39.4
5.6
0.8
2.5
39.0
5.8
0.8
2.7
2.4
1.0
Source: Commissioner for Employment Equity Annual Report 2017–2018, 59.
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Both the top and senior management level positions are occupied by white South
Africans followed by black South Africans then by Indian South Africans, by coloured
South Africans and lastly by foreign nationals as shown in Table 10.3 above. This table
also reveals that the top and middle management level positions are predominantly held
by men compared to women.
The diversity figures at top and senior management levels in the tables might provide
an explanation for the pressure that organisations are receiving from the South African
government to address the imbalances, more so because the majority of the population
follow in the category of the previously disadvantaged group as can be seen from Table 10.1.
In certain cases, this pressure has created resentment and dysfunctional conflict which
poses unique diversity challenges for South Africa. The implication for all this is that
managing diversity and inclusion in South Africa is not only the right or profitable thing
to do, as for example in the USA where the majority of the population are white, but is
also a necessity for survival. This also calls for a true understanding of what diversity is
and how to value, include and manage a diverse workforce in organisations. The recent
worldwide cry against discrimination spurred by George Floyd’s murder demonstrates
an urgent need to manage diversity and inclusion effectively.
10.2 MISCONCEPTIONS OF DIVERSITY
Because of all the early misconceptions about diversity, it would probably be easier to
understand what diversity is by first ascertaining what it is not.
Diversity is not culture
A crucial mistake many people make in defining diversity is to equate it with culture.
They think diversity training means teaching people about ‘what Asians are like’,
‘characteristics of blacks’, or ‘what women want’. While this approach may appear sound
on the surface, it is inherently flawed because all it does is reinforce stereotypes. That is
what we are trying to overcome by valuing diversity in our organisations. This approach
reinforces an ‘us versus them’ mentality. It only focuses on the ways in which we are
different, without including the ways in which we are alike. It is exclusive, not inclusive.
Valuing diversity extends far beyond culture to include all the primary and secondary
dimensions illustrated in Figure 10.1 below.
Figure 10.1 explains in what ways we are all similar and different in a wide variety
of dimensions. The primary dimensions include variables such as race, age, ethnicity,
physical qualities, gender, and sexual orientation. These are variables that people cannot
change. However, in this global village in which we live, it is important to note that one
aspect of the primary dimensions — sexual orientation — is not perceived as such in
all countries. In over 70 countries, sexual orientation is not recognised as a dimension
and is punishable by imprisonment or even death.3 This calls for an awareness as one
interacts with diversity from other countries. The secondary dimensions of diversity are
not as fixed, and they include variables such as education, religious beliefs, and work
background, to name but a few. Thus, culture is only one of the dimensions of diversity.
By recognising that diversity is a phenomenon that applies to everyone, we can realise
that it is a quality that we can all value and support.
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Secondary dimensions
Education
Marital
status
Primary dimensions
Religious
beliefs
Age
Gender
Parental
status
Ethnicity
Person
Sexual
orientation
Physical
ability
Military
experience
Race
Work
background
Geographic
location
Income
Figure 10.1 Dimensions of diversity
Diversity is neither equal employment opportunities nor affirmative action. People
tend to assume that diversity is just a repackaging of equal employment opportunities
(EEO) and affirmative action (AA), which are mainly about ‘quota filling’. This is a
detrimental and divisive view. While EEO and AA are necessary steps and have their
place in correcting past imbalances, they are distinctly different from valuing diversity
and inclusion as shown in Table 10.4 below.
Table 10.4 The major differences between EEO/AA and diversity
EEO/AA
Workforce Diversity
Legally driven: Workplace programmes
derive from legal framework outlawing
discrimination
Productivity driven: Depends upon
organisational initiative; internally driven
proactive
Government driven: Compliance, eg with
recruitment targets
Organisation driven: Business case arguments
part of rationale
Melting-pot approach: Equality through
samenesss, based on merit
Mosaic salad approach: Taking equality further
through contribution of ethnic minorities
Numbers driven: Aims to increase proportion
of under-represented groups in senior roles
Moving beyond statistics: valuing differences,
recognising benefits of workforce diversity
Main focus: Gender and race
Main focus: Maximising employee potential
Approach: Liberal
Approach: About groups as well as individuals
Radical approach: May include positive
action to redress past discrimination
Mosaic result approach: equality through
difference
Source: Adapted from Cornelius, N. 2002. Building Workplace Equality: Ethics, diversity and inclusion.
London: Thomas, p 28.
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Both EEO and AA are laws that are imposed on people and create an adversarial
environment. Also, there is the belief that these two concepts mean that less qualified
people should be given jobs, instead of more qualified, ‘traditional’ employees. The
insinuation is that we have to help the designated classes of people because they are not
really qualified enough to succeed on their own merits. This only adds to the conflict,
reinforces stereotypes, and destroys the very same people it is meant to serve by having
them promoted to levels of seeming incompetence if not accompanied with appropriate
training and development to empower them to do the job.
As shown in Figure 10.2 below, unless management responds effectively to these
reactions, the organisations will continue to experience a decline in productivity,
increased retrenchments, and unemployment, which would result in a poor economy.
Valuing diversity, on the other hand, affirms that people’s differences are an asset
rather than a burden to be tolerated. In valuing diversity, we acknowledge that we may
have preconceived ideas which can blind us from seeing the value that non-traditional
employees bring. Only the most qualified candidate is given the job; but we have to
transcend our biases about what is ‘most qualified’. An organisation that emphasises
quota filling as part of its diversity effort will undermine the true intent of valuing
diversity; instead, emphasis should be put on accelerated training and development of
the previously disadvantaged groups to equip them with requisite competences, which
will enable them to do the job effectively.
Affirmative action in a slump economy
Reaction of previously
disadvantaged workers
Reaction of previously
privileged workers
Organisational/management response
If not managed properly
If managed properly
Bitterness, antagonistic fear,
anger, guilt and aggression:
Leads to decline in productivity, increase in retrenchment and
unemployment. Hence, poor
economy.
Shared will to survive, valuing of
differentness:
Leads to productive, supportive,
transparent, effective organisations. Hence, prosperous economy.
Figure 10.2 Affirmative action in a slump economy
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Diversity is not an absence of standards
People sometimes believe that valuing diversity means, ‘anything goes’ — that we give
up our standards for hiring and promoting people. In fact, diversity is the very opposite.
Because we are removing our preconceived ideas about who is qualified for a job, we
must create better definitions of actual job requirements. For true equality to happen,
there needs to be less emphasis on race, gender, and other differences, and an increased
focus on a person’s capabilities, and system adjustments that support diversity. Only
this approach will create a process that is naturally equal for everyone.
Diversity is not a vendetta against white males
To some, diversity symbolises a more enlightened society, a reflection of our future
as global citizens. To others, it breeds resentment. These two extreme views are at
the heart of the issue of diversity and inclusion — and are the reason why efforts to
promote diversity so often fail. Although well-intentioned, a focus on only culture, race,
and gender, which ignores ability and competence — and which blames the white male
for past injustices — only intensifies the division between groups, instead of bringing
them together to create a more productive workplace.
Understandably, the historical, homogeneous group of white male workers created
the South African workplace on the basis of their own similar backgrounds, styles,
perspectives, values, and beliefs. But the changes in the international and national
management environment regarding diversity and inclusion have forced organisations
to change, and now even the needs of the original homogeneous group have changed.
Unfortunately, the people who created the system are often labelled ‘the bad guys’
when the system needs updating. In effect, positioning diversity and inclusion so that
one group must take continuous blame for the past makes the ultimate goal — greater
unity — impossible.
While it is important to acknowledge the past wrongs, it is critical to look to the
future by addressing the past imbalances without blaming and condemning one group.
■
■
■
■
Diversity is not culture
Diversity is neither equal employment opportunities (EEO) nor affirmative action (AA)
Diversity is not an absence of standards
Diversity is not a vendetta against white males.
10.3 WHAT IS DIVERSITY AND INCLUSION?
Now that we have explored the misconceptions about diversity and inclusion and what
it is not, let us look at what it is.
■
■
■
■
■
■
Diversity is about demographics
Diversity is about profitability
Diversity is about values
Diversity is about behaviour
Diversity is a long-term process
Diversity is about inclusive leadership.
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Diversity is about demographics
Major demographic changes have occurred in South Africa during the past decade. We
have moved from a situation in which the law regulated where people could live, what
kind of work they could do, and with whom they could socialise, to a situation where
the human rights of people are protected by a modern constitution. These changes have
had a major impact on the way organisations function, on whom they employ, and with
whom they do business.
Diversity is about profitability
While affirmative action focuses on eliminating discrimination or righting past wrongs,
valuing diversity is a bottom-line issue about increasing productivity and profitability.
In fact, valuing diversity is one of the few social issues in which the business community
is actually leading the way. Why? Because it is profitable, it fosters teamwork, and it
helps organisations identify and meet the needs of their customers and consumers.
The organisations that have understood and used their understanding of diversity
innovatively have found that they have a competitive advantage in the marketplace.
Diversity is about values
Having said that diversity is a business issue, we must also affirm that it relates to people’s
values. Although people are sometimes more comfortable in keeping this an impersonal
issue — ‘strictly business’ — diversity has to do with human rights, civil rights, and
people’s deeply held beliefs and other mosaic differences. It forces people to question
years of social conditioning to which they have been subjected since birth. For some
people, diversity is even related to their religious beliefs. How do we balance people’s
rights to their personal values with the organisation’s right to create a productive
workplace? The answer is delicately, tactfully, respectfully, and also firmly, openly, and
persistently. We admit that valuing diversity is a personal decision; we focus on diversity
as a business decision.
Diversity is about behaviour regardless of our personal beliefs, our organisations
expect us to work in the most productive possible manner, and valuing diversity is much
more productive than not valuing it.
Diversity is a long-term process
Diversity is a large-scale change effort that extends far beyond training, and must
therefore be viewed as a long-term process. Organisations that make a long-term
commitment to a comprehensive strategy, which includes diversity training, will not be
disappointed and will be able to see lasting benefits.
Diversity is about inclusive leadership4
You cannot embrace diversity without inclusion because diversity is what you have
and inclusion is what you do with it. Inclusive leadership helps organisations adapt to
diverse customers, markets, ideas and talent. According to the research by Bourke and
Espedido, such leaders display the following traits:
1. Visible commitment: They articulate authentic commitment to diversity, hold
others accountable, and make diversity and inclusion a personal priority
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2. Humility: They are modest about capabilities, admit mistakes, and create the space
for others to contribute.
3. Awareness of bias: They show awareness of personal blind spots, as well as flaws in
the system, and work hard to ensure a meritocracy.
4. Curiosity about others: They demonstrate an open mindset and deep curiosity
about others, listen without judgement, and seek with empathy to understand
those around them.
5. Cultural intelligence: They are attentive to others’ cultures and adapt as required.
6. Effective Collaboration: They empower others, pay attention to diversity of
thinking and psychological safety, and focus on team cohesion.
Diversity is not a problem but a mixture of people with different group identities
within the same social system. It is an opportunity.5
■
Diversity is not only a human resource department’s responsibility, but everyone’s.
■
Diversity is not just about race and gender, nor the previously disadvantaged
groups in the workplace. Diversity is about your internal customers (employees)
and external customers (prospective clients).
■
Diversity is not exclusive but inclusive — it is about all of us.
■
Diversity is about creating a culture where each individual can thrive and
contribute to the organisation.
■
Diversity and inclusion is not another fad. If you look at your workforce today and
compare it to five or ten years ago and then try to imagine it five or ten years into the
future, you will see that diversity is not a fad. Do the same analyses for your customer
base. The changes we see happening now will continue for the foreseeable future.
■
10.3.1 What is workforce diversity?
Many people in South African organisations are experiencing difficulty in meeting
the challenge of adapting to people who are different from themselves. The term used
to describe this challenge is ‘workforce diversity and inclusion’ which means that
organisations are becoming more heterogeneous in terms of gender, race, ethnicity,
ability, age, and other aspects of differentness, as shown in Tables 10.1 and 10.2 and
Figure 10.1 above.
10.4 DIVERSITY DEFINED
To encompass all the ideas, we have discussed so far in this chapter, we can define
diversity as follows:
Diversity refers to the mosaic of people who bring a variety of backgrounds, styles, perspectives,
values, and beliefs as assets to the groups and organisations with whom they interact.
This definition has three notable points. First, it describes diversity as a mosaic, which
is different from the traditional idea that diversity is a melting pot. A mosaic enables
people to retain their individuality like the ingredients of a salad, while contributing to
a collectively larger picture. Second, this definition of diversity and inclusion applies
to and includes everyone; it is not exclusionary. According to this definition, we are all
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diverse. Finally, this definition describes diversity as an asset, as something desirable
and beneficial. We may be different, but being different is not wrong.
Inclusion is defined by SHRM as, ‘the achievement of a work environment in which
all individuals are treated fairly and respectfully, have equal access to opportunities
and resources, and can contribute fully to the organization’s success.’ Whilst diversity
refers to the traits and characteristics that make people unique, inclusion refers to
the behaviours and social norms that ensure people feel welcome and have a sense of
belonging in the organisation. It includes organisational efforts to make employees
of all backgrounds feel valued, welcomed, and equally treated which contributes to
organisational success. Inclusive organisational culture makes people feel respected and
valued for who they are as an individual or group. When workers feel welcomed, they
are much more likely to be more motivated, productive and committed to their work.6
10.4.1 The platinum rule
A key component of ‘what diversity is’ revolves around the use of the platinum rule,
which is an extension of the well-known golden rule. While the golden rule is to treat
people as you want to be treated, the platinum rule goes further and says: ‘Treat others
as they want to be treated’.
The platinum rule is the cornerstone of diversity behaviour, as presented in this
chapter because it demonstrates respect and honouring of our differences by assuming
others may want to be treated differently from us. It also implies that we need to ask
others what they want, and tell others what we want. Using the platinum rule takes
diversity and inclusion beyond culture, and ensures that everyone is included and
everyone wins.
The platinum rule
Treat others as they want to be treated.
10.4.2 General dimensions of diversity
The worldwide shift in demographics, changing immigration patterns, and social
change are all factors that affect the work environment. In the USA, for example, the
population, and therefore the workforce, is growing more slowly than at any other time
since the 1930s, the average age of the population is rising, more women are entering
the workforce, and immigrants will represent the largest share of the increase in the
workforce.7 South Africa is exposed to similar variables that impact on the productivity
of the workforce, transforming it into a diverse workforce necessitates the management
of diversity. A brief overview of the following general dimensions of diversity will help
explain the need for its management:
■
Gender issues
■
Age
■
Marital status
■
Physical ability
■
Language.
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Gender issues
Women are entering the labour market in increasing numbers every year. This means
that organisations must deal with issues such as work–family conflicts, childcare, dualcareer- couples, and sexual harassment. Seven out of ten women in the labour force have
children which means that organisations should take some responsibility for childcare.
One issue surrounding gender as a dimension of diversity is the ‘glass ceiling’ syndrome,
which refers to the difficulty women have in advancing themselves. Only a handful of
women reach top management positions in organisations. In the USA it is estimated
that men hold 97 per cent of their top positions. In South Africa, as shown in Table 10.3
above, men hold 77,1 per cent in 2017 of the top positions, but they held, 86 per cent
in 2003 and 79,4 per cent in 2013. There has been a relatively small percentage change
over a seventeen-year period.
Age
In the USA, the supply of younger workers has been dwindling over three decades, with
the result that older workers represent a significant component of the labour force.8
The COVID-19 pandemic which has adversely affected retail and hospitality industries
where many of the younger workforce are employed has made the situation worse.9
In South Africa the youth unemployment has been inordinately high for many years
and is one of the country’s major socio-economic challenges.10 Both older and younger
workers present management with challenges. Older workers are more cautious, less
likely to take risks, and less open to change, though their experience makes them high
performers. Young entrants into the South African labour force often present challenges
in the fields of communication and management training.
Marital status
Marital status is a variable that adds to the complexity of diversity in organisations,
with the increase, for instance, of single-parent families. The challenge for management
is to recognise these differences and use them as strengths. Providing alternative
work arrangements such as job-sharing and flexible work time could address some of
these challenges.11
Physical ability
People with disabilities are also subject to stereotyping, prejudice, and discrimination.
These people prefer managers to focus on abilities, rather than on disabilities.
Language
Having 12 official languages (including sign language) in South Africa poses a great
challenge to organisations. Sensitivity needs to be shown in the choice and the use of
language policy within organisations. Managers should have the knowledge and skills to
deal with the general dimensions of diversity as discussed above. However, especially in
the South African context, they need to know in particular, how to manage the cultural
dimension of diversity, which we discuss in Sections 10.8 to 10.10.
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10.5 REASONS FOR THE INCREASED FOCUS ON MANAGING WORKFORCE
DIVERSITY
Why do South African organisations such as Microsoft South Africa and Siemens
Southern Africa currently spend vast amounts of money on programmes to sensitise
their workforce to diversity issues? While many of the issues surrounding diversity
have been around for some time, many organisations have adopted a renewed concern
as new trends in the workforce are surfacing. Organisations worldwide are becoming
increasingly diverse along many different dimensions, including cultural diversity.
Several different factors account for these trends and changes. A brief overview of each
factor will put the renewed focus on diversity in perspective.
The single biggest challenge surrounding the issue of diversity and multicultural
management is the changing composition of the labour force. Changing demographics
in the labour force, together with legislation on affirmative action in some countries, are
major forces contributing to increased diversity. In South Africa the female component
of the workforce is increasing. Women currently make up nearly half of the labour force
in South Africa, and the trend is likely to continue. It is particularly amongst black
women that this trend is occurring.12
Microsoft in South Africa
Microsoft South Africa has been named as the top company to work for across all industries
and also the best ICT employer in South Africa in 2020 by Top Employers Institute. The
ranking is based on employers that provide excellent employee conditions, nurture and
develop talent throughout all levels of the organisation, and which strive to continuously
optimise employment practices. Microsoft South Africa was also previously nominated and
voted for numerous times by the National Research Foundation as one of South Africa’s
top ten companies to work for in 2005 and again in 2011. This ranking was released in
Johannesburg on 24th August 2011. It is said to a unique international HR policy and practice
benchmarking project conducted by the CRF Institute South Africa and is the culmination of
months of rigorous research with findings independently audited by Grant Thornton South
Africa. Diversity management and inclusion are one of the areas ranked.
Microsoft is a subsidiary of the world’s largest software company which was started
by Bill Gates and Paul Allen back in the 1970s. The South African office was opened in
1992. Microsoft produces software that is suitable for large and small businesses, project
managers, schools, gamers, cellular devices, media, etc. It has an enormous range of
applications and tools which businesses can build into custom-made solutions. It competes
in industries from mining and manufacturing to retail and banks. Microsoft has huge
resources for research, development, expansion, and internal staff programmes.
The company culture in the South African office is one that has a strong sense of community
spirit and embraces diversity.
Source: Microsoft. Diversity and inclusion Report 2019. Available at: https://query.prod.cms.
rt.microsoft.com/cms/api/am/binary/RE4aqv1 (Accessed: 29 March 2020).
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Another factor contributing to increased diversity in organisations is the globalisation
of business. More and more organisations are entering the international marketplace,
including South African organisations who are moving into other African countries
and the rest of the world. Many multinational corporations today have more employees
outside of their Homebase country than within it. Ford, for example, today employs less
than half its total workforce on US soil.
This brief overview of the issues of diversity and inclusion in managing across
cultures, differences and borders confirms the importance of examining the influence
of culture on management. South African business can now freely do business with
the rest of the world, including the rest of Africa. This means that managers must
develop new skills and awareness to handle the unique challenges of global diversity:
cross-cultural understanding, the ability to build networks, and the understanding of
geopolitical forces.
The awareness that cultural diversity improves the quality of the workforce is another
important reason for the renewed focus on the management of diversity. In fact, most,
if not all, South African organisations operating in a period of sweeping transformation
should implement strategies to deal with diversity issues.
10.6 THE NEED FOR MANAGING DIVERSITY AND INCLUSION IN SOUTH
AFRICA
In addition to the reasons for the present worldwide interest in diversity and multicultural
management are the complexities of the South African situation. South Africa has
already been described as a radically pluralist society where race and ethnicity are the
most visible dimensions of its diversity. Many cultural differences exist between ethnic
groups such as Euro-Africans, coloureds, Asian-Africans, and black Africans. There are
also differences within each group. Each of these groups shares a common history, while
at the same time maintaining a uniqueness which makes the managing of diversity and
inclusion a complex issue.
10.6.1 Imbalances in the South African business world
The imbalances between the different ethnic groups in South Africa result in managerial
and economic imbalances. We can identify three categories of management problems
relating to the South African workplace that create an urgent need for research and
education in this regard.
1. The first issue that relates to the imbalances in South African organisations, and
which forms an integral part of any policy or strategy on diversity management, is
the question of affirmative action. This is an employment policy that aims to ensure
that South African institutions reflect the character of the country as a whole. Many
business organisations are developing policies to correct this imbalance.
2. The second management issue is the question of economic empowerment. Pressure
for the transfer of economic power is evident. The government is being blamed for
not doing enough to make black economic empowerment possible. However, the
government has now adopted and forcefully implemented policies, generally referred
to as a programme of ‘black economic empowerment’ or BEE, to foster the emergence
of a black capital-owning class. The most far-reaching aspect of this unprecedented
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wealth redistribution programme is the introduction of ‘Sector Empowerment
Charters’ (SECs) by which the government began to compel the private sector to turn
over ownership of 25–50 per cent of the economy to these ‘previously disadvantaged
individuals’(PDIs) and bring a greater number of them into management ranks by
2014, a target that has not been met, hence putting more pressure on the Government.
Organisations such as the African Federated Chamber of Commerce (NAFCOC),
the Black Management Forum (BMF), and some labour unions had proposed the
3-4-5-6 policy whereby 30 per cent of directors, 40 per cent of senior management,
50 per cent of middle management, and 60 per cent of the workers of all businesses
should have been black by the year 2000.13 This target was also not met. The capital
base of black organisations could provide only a fraction of what would be needed
for substantial economic empowerment. The stokvel sector could initially provide
only about R1 billion for this purpose even though now it has grown to be massive
and controls vast financial resources. It currently holds an estimated R49.5 billion
in member savings and has some 11.6 million participants.14 Based on their study,
Bophela and Khumalo recommend that, ‘to reduce unemployment, alleviate poverty
and inequality, stokvels need to become an integrated part of economic transformation
strategy.’ They assert that, ‘the stokvel industry holds opportunities for growing the
economy and absorbing the unemployed through the exploitation of existing and new
markets.’15 More and more black consumers are, however, buying insurance policies
not only from the black-controlled insurance corporations such as African Life and
Metropolitan Life, but also from the mutual insurance giants Sanlam and Old Mutual.
Change in the control of these giants could change the ownership of the economy
overnight.16 The other question surrounding the transformation of economic power
has been whether black people have the entrepreneurial and managerial expertise to
make such an urgent transformation feasible.
3. The third management issue in the debate on managerial and economic
transformation in South Africa is the quest for a new management philosophy.
Activated by the affirmative and empowerment movements, and supported by a
rich diversity of articles, books, and conference papers, this issue is challenging
the theoretical foundations of South Africa’s Euro-American-Asian management
theories, approaches, and practices. Based on the premise that the environment of
organisations in developing countries is different from that of Western and Asian
industrialised countries, management theories and practices from the developedcountry context may have only limited applicability in the context of a developing
country such as South Africa and a developing continent such as Africa.
The above discussion on the reasons for the present focus on the management of
diversity and inclusion — including a brief overview of the complex South African
situation — shows how imperative it is for South African managers to implement
diversity and inclusion strategies.
10.6.2 The benefits of managing diversity and inclusion
Organisations in South Africa have generally not been highly successful in managing
women and cultural diversity in the workplace. Proof of this is the fact that women
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and black people in South Africa are clustered at the lower management levels as can
be seen in Table 10.3 above. This indicates that they are not progressing and that their
full potential is not being utilised. Managing the issues of diversity, inclusion and
multiculturalism is crucial to organisational success.
When organisations, such as Microsoft, decided to invest in diversity management
training programmes for their managers and employees, top management expected
certain benefits from this investment. Table 10.5 below lists six arguments that support
the belief that managing diversity can improve organisational performance.
Organisations which manage diversity, inclusion and multiculturalism will have
a competitive edge in the market, because they create higher morale and better
relationships in the workplace. Research has shown that diverse groups tend to be more
creative than homogeneous groups. The presence of cultural and gender diversity in
a group leads to freer discussion and reduces the risk of ‘groupthink’. Moreover, the
simple act of learning about other cultural practices enables organisations to expand
their thinking in other fields as well. South African organisations can certainly expand
their thinking on the advantages of diversity management.
10.7 MANAGING WORKFORCE DIVERSITY
Managing workforce diversity is different from valuing diversity and inclusion because
it addresses the organisational processes that can reinforce — or hinder — the ability
to create an environment that values diversity. These organisational processes include
hiring, promotion, communication, and power allocation in organisations.
In the past, most organisations used what is called the ‘melting pot’ approach to
managing diversity in the workplace. This assumes that people who are different would
somehow automatically want to assimilate. Now organisations have realised that
employees do not set aside their cultural values and lifestyle preferences when they
come to work. The challenge for a manager is to create a work environment in which
different lifestyles, family needs, and work styles are accommodated. The melting pot
assumption is being replaced by the mosaic approach, which recognises and values
differences and emphasises inclusion of all employees. In the next sections we shall look
briefly at some of the approaches to managing diversity and inclusion in organisations.
Managing diversity and inclusion can yield enormous results in innovation, new ideas
and improved productivity.17
Table 10.5 The benefits of managing diversity and inclusion
Six arguments for managing cultural diversity
Cost
argument
As organisations become more diverse, the cost of a poor job in integrating
workers will increase. Those who handle this well will create cost
advantages over those who don’t.
Resource
acquisition
argument
Organisations develop favourable reputations as prospective employers for
women and previously disadvantaged groups. Those with the best reputations
for managing diversity will win the competition for the best personnel. As
the labour pool shrinks and changes composition, this edge will become
increasingly important.
➜
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Marketing
argument
For multinational organisations, the insight and cultural sensitivity that
members with roots in other countries bring to the marketing effort should
improve these efforts in important ways. The same rationale applies to
marketing to sub-populations with domestic operations.
Creativity
argument
Diversity of perspectives and less emphasis on conformity to norms of the
past (characterising the modern approach to management of diversity) should
improve the level of creativity.
Problemsolving
argument
Heterogeneity in decision-making and problem-solving groups potentially
produces better decisions through a wider range of perspectives and more
thorough critical analysis of issues.
System
flexibility
argument
An implication of the multicultural model for managing diversity is that
the system will become less determinant, less standardised, and therefore
more fluid. The increased fluidity should create greater flexibility to react to
environmental changes (reactions should be faster and at less cost).
297
Source: Cox, TH & Blake, S in Harvey, C & Allard, MJ. 1995. Understanding Diversity: Readings, Cases, and
Exercises. New York: Harper Collins, p 67.
10.7.1 Approaches to managing diversity and inclusion
The idea that diversity should be managed originated in the 1960s, and since then the
following three approaches have been identified:
1. The golden rule approach. According to this approach, it is best to treat everyone
in the same way: ‘Treat others as you want to be treated.’ Good intentions of
not treating other people badly inspired this theory. However, people from the
dominant culture — who have the good intentions — assume that they should treat
people according to their own standards and consequently, individual differences
are ignored.
2. The ‘right-the-wrongs’ approach. This approach takes the form of affirmative
action. ‘We don’t have enough of the previously disadvantaged people, such as
black people and women — we’d better hire some, to make up for all these years of
negligence.’ This approach creates a backlash, because ‘traditional’ employees feel
that they will be overlooked so that ‘a quota can be filled’. It creates an ‘us versus
them’ mentality, which is unproductive.
3. The ‘value-of-differences’ approach. This approach recognises differences and
acknowledges that they exist, but does not require people to be assimilated into
the dominant culture. It allows for the individual mosaic of people to create the
aggregate picture of an organisation.
Approaches to managing diversity:
■
■
■
The golden rule approach
The ‘right-the-wrongs’ approach
The ‘value-of-differences’ approach.
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When you join an organisation and become an employee, you carry your ‘differentness’
with you. When you are faced with a situation that involves managing others different
from yourself, your reaction or solutions will depend on how much you know,
understand, include and value the ‘differentness’ of others.
Managing diversity and inclusion is a management orientation that is not limited to
one department or to a specific management level of the organisation. It is an overall
approach, which seeks the commitment of the whole organisation if any success is
to be achieved. There is also no one particular policy which necessarily guarantees
the required results. Organisations differ in the ways in which they implement a
policy of diversity and inclusion. Table 10.6 below illustrates, that there is a range of
diversity management policies which organisations implement. In the first stage, most
organisations start without any active efforts towards diversity and inclusion. At this
level, the organisations resist AA policies and believe in mono-culture organisations
without any policies to encourage the inclusion of PDGs. Once the organisations
receive pressure from the government and other bodies for inclusion, they then move
to a second stage of compliance with EEO and AA policies. At this stage there are very
little and erratic management efforts in implementing diversity and inclusion policies.
There is limited commitment to mentoring and training initiatives to empower PDGs to
contribute meaningfully to the organisation. As organisations come to a realisation that
effectively managing workforce diversity and inclusion offers a competitive advantage
and improves productivity, they move to the third stage of valuing and managing
diversity and inclusion. In this third stage they go beyond positively responding to EEO
and AA policies to proactively developing and embracing workforce diversity. This
stage is characterised by an enabling and empowering environment with mentoring
and training programmes aimed at building skills and competencies in all employees
that would enhance their performance. This stage is what is referred to in Table 10.6 as
the learning-effectiveness paradigm in managing diversity. This table shows the range of
diversity management policies which organisations implement.
Research in South Africa indicates that alternative work schedules like flexitime,
job sharing, and the compressed workweek could be used to respond to the diverse
needs of the workforce. Flexitime increases employee autonomy and responsibility, in
choosing the schedule that meets individual needs. Job sharing meets the needs of those
employees who cannot work on a full-time basis, but require a permanent career job.
The compressed workweek is a week of four ten-hour days, which allows employees
more leisure and private time.18
Understand the ‘differentness’
Vusi, one of your employees, comes to you with a request to take off three days’ work to
attend his father’s funeral. You recall that he had exactly the same request the previous year
and took two days off to attend his father’s funeral.
1. What is your initial reaction?
2. What do you say to Vusi?
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When managing a diverse workforce, you encounter challenges with regard to all the
different dimensions of diversity. In Vusi’s case your assumptions, and hence your
decision on the matter, will depend on your cultural background and that of the
employee. Vusi is a black African, therefore it could well be that one of the dead fathers
was his biological father, while the other one was his father’s brother. All the brothers of
a father are regarded as fathers to his offspring, and all the sisters of a mother are called
‘mother’ by her children.
If you are not aware of this custom, you could immediately assume that Vusi is a
liar and therefore untrustworthy. Such an assumption could destroy your working
relationship and therefore have an adverse effect on an employee’s performance. This
example indicates that we need to understand each other’s ‘differentness’ to be able to
manage diversity effectively.
10.7.2 Diversity paradigms: strategies for diversity management
In the last few years in America, managing diversity has become an increasingly
significant research and organisational issue. Yet, the meaning of managing diversity has
remained elusive.19 However, Thomas and Ely developed a theoretical paradigm of three
different perspectives on how organisations perceive the task of managing diversity.20
They classify the perspectives as discrimination and fairness, access and legitimacy, and
learning and effectiveness.
They found that, while most organisations in the USA have applied the first two
perspectives, very few organisations were using the third perspective. Ely and Thomas
suggest that it is only the third perspective that will enable organisations to benefit
adequately from managing diversity.21 Table 10.6 shows the focus of diversity efforts,
human resources practices, effectiveness measures, and strengths and weaknesses of
each of the three paradigms.
In South Africa, with the legacy of apartheid still entrenched in the minds of both
leadership, management, and workers, most organisations are ‘trapped’ in the first
paradigm of managing diversity. The emphasis is on the discrimination-and-fairness
perspective or what can be termed as ‘righting the wrongs’. The legal mandate, as
expressed in the Employment Equity Act, has led to conflict and dissension since
virtually every organisation in South Africa is under pressure to transform its worker
and leadership profiles rapidly. South African Labour Minister, Mildred Oliphant, gave
employers who do not meet employment equity criteria as stipulated by law, six months
to rectify the situation. She indicated that companies that don’t rectify the situation
within the next six months would face the ‘full might of the law’.22 Diversity and inclusion
initiatives implemented in South Africa and other countries indicate that organisations
have a long way to go before they can apply the learning-effectiveness paradigm. In these
countries, diversity efforts are still centred on the first two paradigms.
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Table 10.6 Diversity paradigms
Discrimination –
fairness
Access –
legitimacy
Learning –
effectiveness
Focus
Creating equal
opportunity, assuring
fair treatment, and
compliance with equal
opportunity laws
Match internal
employee demographics
to customer and
marketplace served
Incorporate
diversity into the
heart and fabric of
the mission, work,
and culture of the
organisation
Human
resource
practices
Recruitment of women
and previously disadvantaged groups
(PDGs). Mentoring and
career development
for women and PDGs
Recruitment of
employees from diverse
groups to match external
demands
Redesigned and
transformed
to enhance
performance of all
employees
Effectiveness
Recruitment numbers.
Retention rates of
women and PDGs
Niche markets captured.
Degree of diversity
amongst employees
All employees feel
respected, valued,
and included
Weaknesses
Strengths
Does not capitalise
on diversity of all
employees. Emphasis
on assimilation
Does not affect
mainstream of company
business; diversity
confined to specific
market segments
All employees
respected, valued,
and included
Source: Adapted from Thomas, DA & Ely, RJ. 1996. ‘Marketing differences matter: A new paradigm for
managing diversity’. Harvard Business Review, (September–October), pp 79–90.
Lessons on leaders in diversity and inclusion from top global companies
Amongst the lessons from leaders in diversity and inclusion of top global companies
are:
■
Recognise the shift in global understanding. This means going beyond the
secondary dimensions of diversity mentioned in Figure 10.1 to include generation,
personality- type and thinking style. The focus is on meeting the needs of the
individual, not just on HR-centred initiatives.
■
Build an inclusive environment where multiple voices are heard and respected.
■
Use multiple practices and measures to include diverse and changing experiences.
■
Ensure leaders model diversity and inclusion to set the tone for the rest of the
members of the organisation to follow. Leaders cannot afford to pay lip service to
diversity and inclusion if the organisation is to reap its benefits. They have to walk
the talk.
■
Recognise the connection between innovation and diversity and inclusion. Diversity
and inclusion increase innovation and creativity and reduces business risk.
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The most and least frequently implemented initiatives
Research conducted in the UK, Ireland, the USA, and South Africa in a management of
diversity study reveals that emphasis is put on selection, induction, and communication
initiatives in all countries except the USA, which emphasises flexibility and the
individual. These three countries are also similar in terms of least frequently implemented
initiatives. In particular, training staff and managers in diversity, and adopting a strategy
approach to managing diversity, are low priorities for their organisations. Mentoring
schemes for staff are low on the list of priorities for all four of the countries. Literature
on diversity frequently presents mentoring in relation to diversity, yet the results of this
survey suggest that it is not being implemented.23
The most and least successful initiatives
For the UK and Ireland, the most successful initiatives relate to objective and fair
processes (as in terms of selection, induction, and open criteria), and to creating a culture
that empowers. For North America, the most successful initiatives relate to flexibility and
an individual focus. However, for South Africa the most successful initiatives relate to fair
process (as in terms of selection), but they then focus on flexibility (as in benefits).24
There is considerable overlap across all four countries with regard to those initiatives
that are viewed as least successful. There is a common difficulty regarding decision-making
within organisations from all four countries. In addition, for South Africa, the UK, and
North America, there is concern regarding the success of ‘open criteria’. This is interesting,
as the survey suggests that open criteria are frequently being implemented, but are not
succeeding. This leads us to question the commitment of organisations to the success of
appraisal training. South African organisations are also struggling with defining diversity
as a business goal and with strategies for managing diversity and inclusion. It is interesting
that, in South Africa, developing a diversity policy and publicising the organisation as a
diversity-oriented organisation is very low on the list. In addition, the main focus of South
African organisations is compliance with new legislation.25
What managers need to keep in mind while conducting the first diversity and inclusion
initiatives:
■
■
■
■
■
■
Expect resistance — some employees may initially become offended
Be willing to take some heat
Understand that the culture will not change overnight
Be cautious when forming partnerships with advocacy groups
Be ready for surprises when you start probing real issues
Be accountable for what you say you are going to do — many people are watching to see
what happens.
10.8 CULTURAL DIVERSITY
As pointed out previously, South Africa is known as a rainbow nation because of its cultural
and linguistic diversity, amongst other factors. For South Africa to thrive and survive
in the competitive global market it needs to draw on this diversity and create positive
synergies. In this section we shall review the cultural dimensions identified by Hofstede26
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and Trompenaars27 and contextualise these for the South African situation according to
the categories of Eurocentrism and Afrocentrism. We shall discuss some of the problems
posed by these differences and consider suggestions for some possible solutions and
synergies that can promote productivity and competitiveness in South Africa.
Co-workers from diverse cultures run the risk of misinterpreting one another on
the basis of language, non-verbal messages, cultural values pertaining to time, work
styles, presentation styles, and understanding of the organisational culture. These
misinterpretations can be called ‘cultural collisions’. If both people in this kind of
interaction feel mistreated, misunderstood, frustrated, or impatient at the same time,
nothing will be accomplished; no creative solutions will arise. Many writers on cultural
differences, such as Trompenaars, Hofstede, and Adler, have attempted to address
these and a variety of other problems that impact on management in cross-cultural
organisations.28 South African organisations are not exempt from the problems that result
from cultural diversity and its effects. We shall first define culture (see also Chapter 9),
and then discuss South African cultural values, based on the cultural dimensions of
Hofstede and Trompenaars, highlighting problems and possible solutions. Anecdotes,
cases, and personal experiences will be used to illustrate these differences.
There are many definitions of culture but we shall focus on one that is relatively
encompassing.
10.8.1 A definition of culture
Culture is:
■
■
■
■
A shared system of meanings. Culture dictates what groups of people pay attention
to; how the world is perceived; how the self is experienced; and how life itself is
organised. Individuals of a group share patterns that enable them to see the things in the
same way, and this holds them together.
Relative. There is no cultural absolute. People in different cultures perceive the world
differently and have different ways of doing things, and there is no set standard for
considering one group as intrinsically superior or inferior to any other.
Learned. Culture is derived from your social environment, not from your genetic make-up.
Collective. Culture is a collective phenomenon that is about shared values and
meanings.
Source: Hoekclin, S. 1993. In Christie, P, Lessem, R & Mbigi, L. African management: Philosophies,
concepts and applications. Randburg: Knowledge Resources.
Trompenaars compares the relationship of culture to humans with that of water to fish.
In another simile, he describes culture as appearing in layers in the form of an onion as
shown in Figure 10.3 below.29 The outer layer consists of the explicit products of culture,
such as the observable realities of the language we speak, the food we eat, and the homes
we live in. The middle layer of culture consists of our norms and values.
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The visible aspects of culture (artefacts and products)
How different groups of people speak, dress, eat, and other aspects such as
their art and technology, which are easy to see, but hard to interpret without
knowledge of the other levels.
The social aspects of culture (norms and values)
This level reveals how people explain or justify the first
level of culture. This includes their values, habits, customs,
traditions, rituals (marriage, death, etc) relating to social
organisations.
The unconscious aspects of culture
(implicit basic assumptions)
The things that are shared in the
minds of a group. The beliefs
that members of a group take
for granted; their ideas and
assumptions that govern the other
aspects. These include the beliefs
(right or wrong) that members of
a group share, their perceptions,
values, norms, and attitudes.
Figure 10.3 The different levels of culture (the onion principle)
Sources: Adapted from Schein, EH. 1992. Organisational culture and leadership. San Francisco: Jossey Bass
Publishers, p 17; Trompenaars, F & Hampden-Turner, C. 1998. Riding the waves of cultures: Understanding
diversity in global business. London: The Economist Books, p 22.
Norms reflect our sense of what is right and wrong, and values provide definitions of what is
good and bad. The core part of the onion analogy consists of assumptions about our existence
as humans. According to Trompenaars, ‘To answer questions about basic differences in
values between cultures it is necessary to go back to the core of human existence.’30
The previous definitions indicate that culture is an all-encompassing phenomenon
of human nature. We only discover that our culture is different when we encounter
others of another culture. There is no place in which this is more likely to happen than
in the organisations where we work. Working relations are brought to the test when
we seek to solve a problem by different means from others of different cultures, using
different cultural lenses. Organisations in South Africa that comprise diverse cultures
must meet the challenge to manage cultural differences efficiently and effectively if they
are to be competitive in the global market.
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10.8.2 Different responses from different world views
Culture affects our perception of self and the world around us. We all develop individual
worldviews, based on the culture in which we were brought up. Cultural values, which
vary from person to person, are the standards we use to determine whether something
is right or wrong. Trouble arises when we believe that only our own culture makes
sense, espouses the right values, and represents the right and logical way to behave. In
South Africa today, the culture and race dimensions of diversity probably overshadow
the general dimensions of diversity. The following are some worldviews based on the
cultural dimension of diversity identified in organisations.
Ethnocentrism
Ethnocentrism is the belief that one’s own group, culture, or subculture is inherently
superior to other cultures and groups. It is racism. Viewing one’s own culture as the best
culture is a natural tendency for most people. It is this tendency that makes workplace
diversity and inclusion so difficult to manage, since most theories of management
presume that managers and workers share similar values, beliefs, motivations, and
attitudes about work and life in general. These theories presume that there is one
set of behaviours that best help an organisation to be productive and successful, and
should therefore be adopted by all employees. In many countries this is not the case.
In South Africa, the white male-dominated business organisation is a good example
of ethnocentrism.
Ethnocentrism is the belief that one’s own group, culture, or subculture is inherently superior
to other cultures and groups.
The following three perceptual attitudes are related to ethnocentrism (racism):
1. Stereotyping which is an assumption that group averages or tendencies are true for
each and every member of that group. While it is important to depict characteristics
that are typical of specific groups, such depictions are both valuable and dangerous.
They are valuable because they alert managers to diversity in their employees.
They are dangerous because it is easy to fall into the trap of assuming that a group
tendency is true of all individual employees. To be effective in managing cultural
differences, caution should be taken not to treat people as representatives of
a group.
2. Generalisation, which is the perception or assumption that a group of people has
certain collective characteristics.
3. Prejudice, which is a preconceived judgement or opinion about a group of people.
When these attitudes are present in a negative way and are acted upon, they can result
in discrimination.
Monoculture
A monoculture is produced by a standard set of cultural practices. It is a culture that
accepts only one way of doing things. The assumption that people who are different
are somehow deficient makes it difficult to take advantage of their many values, beliefs,
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and abilities that may enhance the success of the organisation. A monoculture in any
organisation creates a dilemma for women, blacks, immigrants, and other culturally
diverse people who are expected to behave like members of the dominant group.
Such diverse employees may feel under pressure to conform or may be the victims
of stereotyping.
Pluralism
Pluralism refers to the accommodation of several cultures or subcultures in a country or
an organisation. A movement towards pluralism should seek to integrate fully into the
organisation the employees who would feel isolated or marginalised.
Ethno-relativism
Ethno-relativism is the belief that all groups, cultures, or subcultures are inherently equal.
Organisations worldwide are making conscious efforts to shift from an ethnocentric
monoculture to one of pluralism and ethno-relativism. Employees in a monoculture (as
is the case in many South African organisations in which white males still dominate),
may not be aware of the positive values and attributes of other cultures and may
assume that their own culture is superior. Through effective training, employees can be
helped to accept different ways of thinking and behaving. Organisations that overcome
the problems of monoculturalism take advantage of the diverse abilities of their
human resources.
The following website contains a list of resources relating to multiculturalism and diversity
in the workplace: www.library.gsfc.nasa.gov/SubjectGuides/Multiculturalism.htm
10.9 SOUTH AFRICAN CULTURAL VALUES
As shown in Table 10.1 above, South Africa is predominantly a nation of five cultural
influences or ethnic groups: the black African majority, the Afrikaners, the English
speakers of British descent, the coloureds, and the Asians. The black Africans consist of
nine tribal groups, each with its own cultural heritage, language, and sense of identity.
The African value system is commonly referred to as Afrocentric, and that of the whites
as Eurocentric.31 Although it is slowly changing, South Africa’s management class is
almost exclusively white and male and draws from only a small section of the African
social spectrum. Research conducted amongst the black managers in South Africa
reveals that their management style, which reflects their African values, differs from that
of their white counterparts.32
We shall use the two categories, Afrocentric and Eurocentric, to signify all the
diverse cultures in South Africa, in order to simplify our discussion and understanding
of the cultural dimensions in this country. (Nevertheless, we must bear in mind that
there are always individuals within a culture group who are outside the norm.) The
rest of our discussion will be based on a set of cultural dimensions defined by Hofstede
and Trompenaars as they apply to the two categories. These cultural dimensions are
summarised in Table 10.7 below and discussed in detail thereafter.
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Table 10.7 Cultural dimensions in South Africa
Dimensions
Afrocentric
Eurocentric
Social orientation
Collectivism
Individualism
Power distance
Large power distance
Large power distance
Uncertainty avoidance
High uncertainty avoidance
Low uncertainty avoidance
Goal orientation (masculinity)
Quality of life (femininity)
Career success
Relationships and rules
Particularist
Universalist
Degree of involvement and
expression of feelings
Diffuse and effective
Specific and neutral
How status is accorded
Ascription
Achievement
Time orientation
Past, present, future
(synchronous)
Present as means for future
(sequential)
10.9.1 Social orientation: Individualism vs collectivism
Individualism pertains to societies in which the ties between individuals are loose —
everyone is expected to look after himself or herself and his or her immediate family.
Collectivism, as its opposite, pertains to societies in which people are integrated
from birth onwards into strong, cohesive in-groups, which continue to protect them
throughout their lifetime in exchange for unquestioning loyalty.33
It is generally accepted that Africans, regardless of their background, tend to group
together in a collectivist manner.34 Studies in South Africa support this contention. In
Africa the individual’s behaviour cannot be interpreted solely from an individualistic
perspective. The African career is formed within a framework of shared values, norms,
and belief systems. No one in the African context lives for himself or herself. People live
for the community. In South Africa, the collective experience of being oppressed as a
group has further intensified the bonds of solidarity amongst black people, and by so
doing has further enhanced the communalistic values of African people.35
The collectivist African perform best when operating anonymously, with group
goals. They avoid expressing their real feelings about organisational issues. If problems
are brought into the open, they are dealt with communally. That is why in South Africa
the black workers’ unions are stronger than others. When one worker has a problem, and
that problem is not effectively solved by management, all the other workers join together
and go on strike. When workers in other branches of the organisation learn about the
situation, they join in and the strike spreads, leading to a decline in productivity and
income, and to possible retrenchments.
The opposing positions of the individualist and the collectivist ways of life may lead to
difficult situations. According to Trompenaars, individualists ‘work for extrinsic money
rewards’, while collectivists ‘prefer to share the fruit of their efforts with colleagues
[rather] than to take extra money for themselves’.36 These differences are reflected in
the structure of the organisation, and in the way that the business is conducted. In
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an individualistic organisation people act and make decisions alone — this is a sign
of achievement. The collectivist organisation assigns status by the number of helpers
surrounding a person. As the organisation varies, so does the motivation structure. The
individualist prefers individual rewards, while the collectivist prefers a reward that will
benefit the entire group.
There is also a difference in the type of discipline and correction that is effectively
used. Take arriving late for work as an example. In the individualistic society, a letter
informing the employee of the infringement and of potential disciplinary action will
usually serve to correct the errant behaviour. The letter affects only the individual. On
the other hand, such a letter has no impact on the employee in the collectivist society.
Instead the employer must contrive to make the employee aware of the negative effect
his or her behaviour has on others. It might be more effective to single him or her out
for not supporting the collective (peers or colleagues). Management should therefore
be prepared to be flexible in dealing with these differences.
10.9.2 Power distance
Power distance, as a cultural dimension, is an index of the relationship between superior
and subordinate; it reflects the degree of formal difference, or inequality, between them.
According to Hofstede and to Blunt and Jones, who have done research in Africa,
both black and white Africans maintain a relatively large power distance.37 In South
Africa there is considerable dependence of subordinates on bosses. The attitude of
subordinates to this circumstance is either willingness or resentment; accepted or endured.
In the case of tribal (patriarchal) leadership, such dependence tends to be willingly
preserved. When, on the other hand, dependence is resented and rejected, it is referred
to in psychology as counter-dependence.38 This kind of imposed dependence, endured
with resentment, typified life during the apartheid era and is still evident in formal
organisations today.
Power distance in the African culture
In the African culture, people do as expected of them, and when in doubt they wait for
direction from above. Groups and alliances are commonplace. Relations between such
groups are belligerent and untrusting as witnessed by tribal feuds in South Africa and
Africa as a whole. Almost all issues involving management and workers in South Africa
are seen as win or lose situations. Even relatively trivial matters evoke strong feelings
and are bitterly contested. This could be attributed, amongst other things, to the two
cultures’ similar orientation to power distance. However, power in the Eurocentric culture
is based on expertise and the ability to give rewards, while in Afrocentric culture, power is
based on family or friends, charisma, and sometimes the ability to use force. That is why
political systems are changed by changing people at the top in a revolutionary way and not
necessarily by procedure in an evolutionary way as in the USA, for example. Thus, to get rid
of the apartheid system, the top leadership had to change. This is characteristic of the highpower distance culture.
Source: Hofstede, G. 1991. Cultures and organisations. London: McGraw-Hill.
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Managing people
There is still much protest in South Africa against oppression by management. As stated,
by Schuitema: ‘We should recognise that people will only give willingly if the leadership at
work pay the appropriate price which is to care essentially about the people and not to care
essentially about what they get out of the people.’
Sources: Schuitema, E. 1995. ‘Pick of the crop: Hot pointers for SA managers’. People Dynamics, 13(11)
(November), pp 28–32; Joffe, A. 1995. ‘Seeing things differently’. Productivity SA 21(30) (May), pp 10–15.
Traditional authorities, indigenous law, and customary law are fully recognised in
South Africa and incorporated in the Constitution.39 A council of traditional leaders
is established to advise the national government on traditional issues and matters of
national interest. In a strong tribal culture, authority is willingly accepted and respected,
and hence there is an unequal but accepted distribution of power.
In South Africa, as a society characterised by large power distance, there is a great
emotional distance between subordinates and their bosses. Subordinates do not usually
or easily approach and contradict their superiors. Current research in South Africa
affirms this stance and proposes a different approach that would allow for subordinates
to approach their bosses in an attempt to improve communications and build
relationships.40 Management can attempt to promote participation and relationshipbuilding activities in order to address this need.
Butler’s research has determined that autocrats provoke absenteeism in South African
formal organisations, which results in low productivity levels.41 The preservation of a
large power distance fosters an acceptance of inequality, whether it entails voluntary
dependence or imposed dependence. An insidious problem in South Africa is that a
pattern of polarisation is manifested between dependence and counter-dependence,
and this polarisation has a high potential for conflict.
Power distance is the same for both cultures in South Africa. Thus, there is not much
conflict between the cultures in this dimension. However, the American organisation
wishing to manage in South Africa will find many obstacles with which to contend.
For the Eurocentric South African culture, the Americans are too democratic in their
decision-making process. For the Americans, the Eurocentric South African culture is
too ‘autocratic’ — time is lost waiting for higher management to make decisions. There
will also be difficulties dealing with the black South African culture. The Afrocentric
culture is very dependent on trusted leadership, and the American manager must be
prepared to work hard at building trust if decisions are to be accepted.
10.9.3 Uncertainty avoidance
Uncertainty avoidance is a dimension that refers to the extent to which people are
made nervous by situations that they consider to be contingent, unplanned, unclear,
or unpredictable, and the extent to which they try to avoid such situations by adopting
strict codes of behaviour and belief in absolute truths.42 In South Africa, high uncertainty
avoidance is manifested in the Afrocentric culture43 and low uncertainty avoidance in
the Eurocentric culture.44
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Again, the two predominant cultures in South Africa are not as polarised on this
dimension as they are on some of the others. However, there is more of a difference than
there is in power distance. A typical difficulty that may be encountered is in granting
initiative to employees. Those with low uncertainty avoidance (Eurocentric) believe
that employees should be granted flexibility in their positions. The high uncertainty
avoidance group (Afrocentric) like to have all tasks strictly outlined for them, so that
no errors can occur. Another difficulty, as we have seen in the list above, is that those
with high uncertainty avoidance are reluctant to compromise with opponents. When a
group only sees one way of doing things, it makes negotiation a very difficult task.
Uncertainty avoidance in South Africa
Studies by Blunt and Jones reveal that South African and other southern African cultures are
generally characterised by high uncertainty avoidance. Their findings reveal the following
elements in the manifestation of high uncertainty avoidance:
■
■
■
■
■
■
■
■
■
More emotional resistance to change
Less risk taking
A preference for clearly laid-out rules and regulations that should not be broken
A strong feeling that conflict in organisations is undesirable and to be avoided whenever
possible
A tendency to want to restrain the initiative of employees
Reluctance to compromise with opponents
Suspicion and distrust of foreigners as managers
More ritualised behaviour
Managers who are more involved in detail.
Source: Blunt, P & Jones, M. 1992. Managing organisations in Africa. Berlin: Walter de Gruyter.
10.9.4 Goal orientation: Quality of life vs career success
Goal orientation, as a cultural dimension, is based on the opposing characteristics
defined by Hofstede as career success (‘masculinity’) versus quality of life (‘femininity’).
The Eurocentric career success or ‘masculine’ culture is assertive, ambitious, and
competitive. It strives for material success and respects what is big, strong, and fast.
The Afrocentric quality of life or ‘feminine’ culture, on the other hand, emphasises
nurturance, a concern for relationships, and concern for the living environment.45
According to Hofstede’s studies, South Africa is rated as a career success society,
which indicates the predominance of Eurocentric culture in goal orientation. The work
of Blunt and Jones indicates that the black African culture emphasises quality of life.
Denying an Afrocentric worker, the opportunity to attend a funeral, or giving him or
her a written warning for staying away a little longer at the funeral of a close relative,
would destroy pride and dignity and cause further polarisation and dissent amongst
other black workers. While Eurocentric culture is concerned with material success,
position, and rewarding individual merit, Afrocentric culture is concerned with the
commonality of all people, vision, values, and efforts, and rewarding common vision for
communal effort.
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The cultural differences in the dimension of goal orientation also intensify situations of
inequality. Those who espouse the career success view are more likely to take strong,
extreme positions on issues. They might attempt to force subordination, which could be
dysfunctional in organisations.
10.9.5 Relationships and rules: Universalism vs particularism
Universalism and particularism are the two orientations that determine attitudes and
judgements in regard to the cultural dimension of rules and relationships.
Apartheid, a policy of separation of white and black people, enforced rules in
a universalistic pattern. All persons falling under the rule were treated the same.
Regardless of whether you were from another country, if you came to South Africa you
would be treated as all other black people if you were black, or as all other white people
if you were white. The rules have now changed. In organisations still predominantly
managed by white people, rules imply equality — to the extent that there is resistance to
affirmative action policies, which are labelled as ‘reverse discrimination’. The Afrocentric
would argue that this is not reverse discrimination, but reversal of discrimination to
correct past imbalances.46
There are endless problems resulting from the two categories of culture co-existing
in South Africa. While the Eurocentric managers (universalist) base their transactions
on written contracts, their Afrocentric workers (particularist) emphasise relationships
rather than the written agreement. The result of this synergistic problem has been
perpetual strikes, absenteeism, productivity problems, and the like.
The dimension of relationships and rules ‘defines how we judge other people’s
behaviour’.47 The universalist believes that the system must be the same for all or it
will collapse. The particularist feels that the individual circumstances should always be
considered. A broad summary of the conflict arising out of the differing views would be
that they ‘will tend to think each other corrupt’.48 For the universalist, the particularists
cannot be trusted because they work outside the rules. The particularist does not find
the universalists trustworthy because they put rules before friendships.
10.9.6 Degree of involvement: Specific vs diffuse
The specific and diffuse orientations indicate the degree of involvement with which
individuals are comfortable in dealing with other people. South Africa’s Eurocentric
culture is specific while that of the Afrocentric one is diffuse.
Different degrees of involvement
Funerals and weddings provide a good illustration of differences in degree of involvement
as a cultural dimension. In the Eurocentric world, invitations to attend are usually sent out
privately, individually, and exclusively. In the Afrocentric world, because of extended family,
friends, and neighbours, events such as weddings and funerals are a major affair, and are
‘open’, to avoid rejecting anyone by forgetting to invite them. Communalism, the need to
belong, and the fear of rejection are illustrated in social relationships amongst people.
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The differences in degree of involvement reveal a dichotomy in South African attitudes
to social life. Amongst the South African Afrocentrics, friendship continues after work
and business activities end. ‘Socialisation outside of the office is common. It is under
those relaxed conditions that managers talk politics, sports, and sometimes business.’49
By contrast, the Eurocentrics are interested primarily in getting the job done and are
thus accused by the Afrocentrics of being exploitative. The Eurocentrics, in turn, accuse
Afrocentrics of being lazy. A lot of time is spent on working out agreeable workable
solutions between these two opposites in an attempt to find a new approach that would
expose the talent in each worker.50
There is great potential for miscommunication in the difference between the specific
and diffuse orientations. The Eurocentric specific orientation compartmentalises
people in specifically defined areas of life, such as the workplace, while the Afrocentric
diffuse culture regards people in every aspect of their life. According to Trompenaars,
both views have dangers: ‘the specific extreme can lead to disruption, and the diffuse
extreme to a lack of perspective; a collision between them results in paralysis.’51 There
must be a balance between the two.
10.9.7 How status is accorded: Achievement vs ascription
The achievement versus ascription orientation refers to the way in which power
is determined in a society, whether by achievement or by ascription based on the
admiration of others. Admiration is based on attributes such as age, gender, family
lineage, or type of qualification or skill possessed. In the latter case, status is generally
independent of a task or particular function. We would argue that in South Africa the
Eurocentrics are achievement-oriented and the Afrocentrics ascriptive. In South Africa,
as in other African countries, age is a very important factor. It is believed that the older
you grow, the wiser you become, due to the many experiences that you have undergone.
Even if a young person does not agree with the older person, it is improper to oppose
their opinion, which must be respected.
Achievement is very important to the Eurocentric South African culture and the
American culture. They respect superiors in the hierarchy only when the superior has
shown that they have knowledge. This is in direct contrast to the ascription-oriented
Afrocentric culture where respect is accorded to a superior based on his or her position
in the organisation. Managers in the achievement-oriented world vary in age, gender, and
proficiency. This is very difficult for the ascriptive society, which is used to respecting
male, middle-aged managers.
Power in Africa
Koopman states that: ‘power in Africa bubbles up from the bottom and is bestowed upon
the leader through the will of the people. It is a personal power base. Power in the Western
world, by contrast, emanates from some higher authority in the organisation, in the form of
positional power within the hierarchy, and reflects a material position vis-à-vis others in the
organisation as opposed to a social relationship in the context of ubuntu.’
➜
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Ubuntu is defined as: ‘a concept that brings to the fore images of supportiveness,
cooperation, and solidarity, ie communalism. It is the basis of a social contract that stems
from but transcends the narrow confines of the nuclear family to the extended kinship
network, the community — it places great importance on working for the common good,
as captured by the expression: “Umuntu, ngamuntu, ngabantu” (literally translated: a
person is a person through other human beings): “I am because you are, you are because
we are”.’
Under ubuntu the admiration of the community is seen as more important than individual
achievement. Thus, your status is derived from contribution to the community based on your
talents. Popularity is the indicator rather than your individual bank account.
Sources: Koopman, A. 1993. ‘Transcultural management: In search of pragmatic humanism’. In Christie,
P, Lessem, R & Mbigi, L. 1993. African management: Philosophies, concepts, and applications. Randburg:
Knowledge Resources, pp 41–76.
There are problems in negotiation between cultures that are polarised on this dimension
of status. The achievement-oriented society will send as few representatives as possible,
selected for their knowledge and skill to do the job. The ascription-oriented society will
send older and senior position holders, although they may not have the appropriate
knowledge. This in turn is difficult for the achievement-oriented to respect.
10.9.8 Time orientation
The dimension of time orientation relates to the importance that different cultures
attach to the past, present, and future, as reflected in the decisions they make and the
actions taken. This orientation determines whether a culture views time as sequential
(a series of passing events) or as synchronic, with the past, present, and future
interrelated so that the present action is determined by ideas about the future and by
past memories.52
Differences in time orientation are another source of potential conflict between
the two cultures. In the sequential culture (characteristic of Americans and the
Eurocentrics in South Africa), time is very important — being late may disrupt the
entire day’s schedule. Time is a commodity and anyone not respecting time is seen
as lazy, untrustworthy, and unserious. In the synchronous culture (the Afrocentric in
South Africa), punctuality does not seem to be highly valued.
The view of time affects many factors inside the organisation. Take, for example,
the issue of performance assessment. The Eurocentric management uses the most
recent behaviour, combined with future potential, to rate the performance of the
employee. The Afrocentric culture believes that the entire past association with the
organisation should be used to evaluate performance. The differences between the most
recent behaviour and the overall behaviour may vary greatly depending upon what is
happening in the employee’s personal life. The Afrocentric culture believes that this
should be recognised. Differences in time orientation also result in varying levels of
flexibility. The sequential Eurocentrics view time as measurable and controllable. The
synchronic Afrocentrics view time as secondary to relationships and change. This results
in flexibility and responsiveness.
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10.10 SYNERGISTIC SOLUTIONS TO PROBLEMS OF CULTURAL
DIFFERENCES
Those who want to do business in South Africa, with its diversity and variety of local
customs, will benefit from background research on the country’s cultural dimensions.
We have seen from the discussion above that there are two dominant cultures operating
simultaneously in South Africa. Apart from the dimension of power distance, South
Africa’s Eurocentric culture is very similar to the corporate culture of the USA.
Americans, therefore, would not have great difficulty in establishing workable
relationships. However, the following are some general guidelines for doing business
across cultures in South Africa:
■
Obtain appropriate information. Seek information about South African business
conditions and cultures to determine the cultural orientation of the people with
whom you will be dealing, whether Afrocentric or Eurocentric.
■
Be formal and respectful. While age is amongst the important factors in South
Africa (as well as in tribal authority), if you show sincerity, respect, and empathy,
you will receive a positive response. In the Afrocentric cultures, respect for elders
tends to be the key to harmony. This could help solve trust and authority problems.
Table 10.8 below demonstrates some differences that may be recognised between the
two broad categories of culture, and suggests what each group needs to do towards
achieving synergistic outcomes.
10.11 DIVERSITY TRAINING
The above discussion on the complex dimensions of diversity, which include noncultural as well as cultural dimensions, explains why organisations worldwide focus on
the management of diversity, inclusion and cultural diversity, or multiculturalism.
Reasons why organisations are designing and implementing diversity and inclusion training
and development initiatives:
■
■
■
■
■
■
There is an increasingly diverse customer population
There is an increasingly diverse employee population
It is important to retain top talent
It is necessary to minimise the risk of litigation
It is the right thing to do and is an aspect of corporate social responsibility
It fosters learning and effectiveness in organisations.
Many South African organisations are grappling with transformation. Although the
challenges posed by the diversity of the workforce have been the focus of researchers
and writers on the subject, they have met with mixed reactions from South African
practitioners. Some organisations simply ignore the situation and treat their diverse
workforce as if it were homogeneous. The results are usually reflected in poor
performance of individuals as well as the organisation. They urgently need to implement
policies and strategies to deal with both the cultural and the non-cultural dimensions
of diversity.
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Table 10.8 Towards cultural synergistic outcomes
Differences to be recognised in relationships
By Afrocentrics
By Eurocentrics
Greater emphasis on the non-personal –
Eurocentrics focus on the product or problem.
Seek out and develop long-term
relationships in all aspects of people’s lives.
Clear separation between work and family.
Focus on relationships more than the rules.
The ‘get-to-know-you’ attitude and phase is
crucial.
Eurocentrics are concerned with immediate
career success and individual achievement.
Work is not accomplished through
relationships but needs individual motivation.
Negotiations are focused on people and
relationships first.
Recognise the importance of the extended
family in life and work.
General conduct and demeanour
For Afrocentrics
For Eurocentrics
Be prepared to be specific and timely when
working towards an end goal.
Be prepared to be patient with randomness
and free flow when working towards an end
goal.
Each participant may not have several realities
on an issue.
Each participant may have several realities on
an issue depending on the particular situation.
Schedules are not subordinate to relationships.
Schedules are typically subordinate to
relationships.
Appointments are usually not approximations.
Appointments are usually approximations.
Do not always expect assistance for your
extended families in times of need or duress.
Be prepared to assist employees and their
extended families in times of need or
duress.
What to do
For Afrocentrics
For Eurocentrics
Get appropriate information on the culture.
Be patient. Negotiations may take longer.
Be on time.
Build relationships.
Watch out which contract you sign.
Emphasise politeness.
Do not expect close relationships from
colleagues.
Be flexible, even regarding time schedules.
Assume difference until similarities are proven.
Use team approach.
We shall now consider briefly how management should approach these two categories
of diversity.
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10.11.1 Approaches to diversity and inclusion training
Diversity training is specifically designed to better enable members of an organisation
to function in a diverse and multicultural workforce.
In order for managers to respond to the challenges of working with diverse
populations, they must recognise the difficulties that employees may have in coping with
diversity. These difficulties include resistance to change, racism, and lack of knowledge
about other groups, as well as prejudices, biases, and stereotypes. Some employees lack
the motivation to understand cultural differences, often because of the lack of reward
for doing so. Diversity and inclusion training should therefore focus on:
■
Programmes designed to raise participants’ consciousness and awareness about
differences in values, attitudes, patterns of behaviour, and communication that may
exist across cultures
■
Programmes designed to develop new skills and competencies, including
communication competence.53
Exposure to other people’s culture forms a significant step in any cultural awareness
training.
10.11.2 Management support
Training employees in the issues and attitudes involved in valuing diversity must be
complemented from the top by managerial example and support through:
■
Declaration of commitment to diversity in the mission statement
■
An organisational climate that supports diversity and inclusion
■
Managers who have diversity skills and competence
■
Awareness raising
■
Peer support in the workplace
■
Open communication between subordinates and managers about diversity and
inclusion issues
■
Recognition for employee development of diversity and inclusion skills and
competencies
■
Recognition for employee contributions to enhancing diversity and inclusion goals
■
Organisational rewards for managers’ implementation of organisational diversity
and inclusion goals.54
Diversity and inclusion training and managerial support from the top can do much to
create cultural synergy and to contribute to higher productivity. To this end, diversity
and inclusion training needs to have a new focus that facilitates positive and productive
working relationships.
10.11.3 Summary of spheres of activity for management diversity and
inclusion
Successful management of diversity and inclusion depends on the commitment of the
whole organisation. Many spheres of management activity are involved in preparing an
organisation to accommodate diversity.
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Once a vision for a diverse workplace has been formulated, management can analyse
and assess the current culture (prevailing value system, cultural inclusion, differences,
and systems such as recruitment, training, and promotion) within the organisation, as
indicated by the various spheres of management activity in Figure 10.4 below.
Mindsets about
diversity
Problem or
opportunity?
■ Challenge met or
barely addressed?
■ Level of majority
culture buy-in
(resistance or support)
■
Organisation culture
Valuing differences
■ Prevailing value
system
■ Cultural inclusion
HR management
systems (bias-free?)
■
Recruitment
Training and
development
■ Performance appraisal
■ Compensation and
benefits
■ Promotion
■
■
Cultural differences
Promoting knowledge
and acceptance
■ Taking advantage of
the opportunities that
diversity provides
Greater career
involvement of
women
■
Dual-career families
Sexual harassment
■ Work–family conflict
■
MANAGEMENT
OF
DIVERSITY
Education problems
Improve state schools
■ Educate management
on valuing differences
■
■
Heterogeneity in race/
ethnicity/nationality
Effects on cohesiveness, communication,
morale
■ Effects of group
identity on interaction
(eg stereotyping)
■ Prejudice (racism,
ethnocentrism)
■
Figure 10.4 The spheres of activity for managing diversity
This assessment is followed by a willingness (by the leadership cadre of management)
to change whatever systems and ways of thinking that need to be modified. Throughout
this process people need top management’s support in dealing with the many challenges
and conflicts they will face. Training and support (in the form of delegated power and
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managing diversity and inclusion
317
rewards) are important for the people in pioneering roles. Once management accepts
the need for a strategy to develop a truly diverse and inclusive workplace, three major
steps are involved in implementing such a major change:
1. Building a corporate culture that values diversity and inclusion
2. Changing structures, policies, and systems to support diversity and inclusion
3. Providing diversity and inclusion awareness and cultural competency training.
For each of these efforts to succeed, top management’s support is critical, as is holding
all managerial ranks accountable for increasing workforce diversity.
The implementation of these steps to bring about the necessary changes that will
ensure inclusive diversity in the organisation is anchored in the four basic management
functions of planning, organising, leading, and controlling. Planning applies to
management’s role in developing strategies to promote diversity and inclusion, while
organising, leading, and controlling apply to the implementation phases as we have
discussed them in previous chapters.
10.12 SUMMARY
A common misconception about diversity and inclusion is that they are synonymous
with affirmative action and equal employment opportunity. These are legislated
initiatives, which often create a ‘them-and-us’ situation. In contrast, the acknowledging of
diversity entails an inclusive and positive attitude, which does not focus on the partition
of difference, but celebrates the commonality of difference. Diversity in organisations
means the inclusion of people with different human qualities, or people who belong to
various cultural groups. The general dimensions, which were examined in this chapter,
include issues such as women in the workforce, age, people with disabilities, and the
influence of these dimensions on management. Organisations that manage workforce
diversity and inclusion successfully benefit from such an approach. Many South African
organisations are still insensitive to diversity management and inclusion issues and
should urgently implement policies and strategies to deal with the various dimensions
of diversity and inclusion as well as cultural differences in their planning, organising,
leadership styles, and control activities.
In order for managers to respond to the challenges of working with diverse
populations, they must recognise and be sensitive to the difficulties and needs of
employees. People in all groups are struggling to identify how to relate to people
who are different from them. Most employees want to learn how to handle work
relationships without being affected by stereotypes and prejudices. Understanding what
people want enables them to relate to one another with acceptance; understanding the
needs of employees helps managers respect and accept others. Diversity and inclusion
awareness training, also called diversity competence training, helps people to work
and live together and to handle conflicts related to cultural difference, diversity and
inclusion constructively.
There are a number of supports available to managers who are facing the challenges
of managing workforce diversity and inclusion in the workplace. A primary source of
support are training programmes to assist managers and employees in working through
difficulties they may encounter in coping with workforce diversity and inclusion.
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REFERENCES
1. Lötter, H. 1993. ‘Pluralism, liberal values, and consensus: Like dancing with wolves?’. Acta
Academia, 25(4), pp 13–29.
2. Op cit, p 14.
3. 76 Crimes. ‘72 countries where homosexuality is illegal’. 2019. Available at: https://76crimes.
com/76-countries-where-homosexuality-is-illegal/ (Accessed: 28 June 2020).
4. Bourke, J & Espedido, A. 2020. ‘The key to inclusive leadership’. Harvard Business Review.
Available at: https://hbr.org/2020/03/the-key-to-inclusive-leadership. (Accessed: 23
June 2020).
5. Nkomo, SM & Cox, T. 1996. ‘Diverse identities in organisations.’ In Clegg, S, Hardy, C &
Nord, W (eds) Handbook of organisation studies. London: Sage Publications, pp 338–356.
6. Reiners, B. 2020. ‘How to build an inclusive environment’. Builtin. Available at: https://
builtin.com/diversity-inclusion/inclusion (Accessed: 23 June 2020).
7. Certo, SC. 1994. Modern management: Diversity, quality, ethics and the global environment.
Boston: Allyn & Bacon, p 578.
8. Howel, DR. 2019. ‘The lousy job economy: Young people bear the brunt of a longterm decline in American job quality’. Promarket. Available at: https://promarket.
org/2019/10/16/the-lousy-job-economy-young-people-bear-the-brunt-of-a-long-termdecline-in-american-job-quality/ (Accessed: 26 June 2020).
9. World Economic Forum. 2020. ‘COVID-19: Young workers in the U.S. are likely to be hit
the hardest’. Available at: https://www.weforum.org/agenda/2020/04/young-workerscovid19-economics-united-states-service-industry-coronavirus/ (Accessed 26: June
2020).
10. Cassim, A & Oosthuizen, M. 2014. Brookings. Available at: https://www.brookings.edu/
blog/africa-in-focus/2014/08/15/the-state-of-youth-unemployment-in-south-africa/
(Accessed 26: June 2020).
11. Ngambi, HC. 2001. ‘Job-sharing: An alternative to lay-offs and unemployment in South
Africa.’ South African Journal of Labour Relations, 25(1)(2).
12. Bureau of Market Research. 1993. Report no 199. Pretoria: Unisa.
13. Finansies en Tegniek, 19 May 1995, p 11.
14. Mulaudzi, R. 2020. ‘SA stokvels generate R44bn each year – but members reap little reward’.
UCT Graduate School of Business. Available at: https://www.gsb.uct.ac.za/stokvels
(Accessed: 26 June 2020).
15. Bophela, MJK & Khumalo N. 2019. ‘The role of stokvels in South Africa: a case of economic
transformation of a municipality’. Problems and Perspectives in Management, 17(4), 26–37.
Available at: http://dx.doi.org/10.21511/ppm.17(4).2019.03.
16. Finansies en Tegniek, 19 May 1995, p 11.
17. Gentile, M. 2003. ‘Managing across difference.’ Harvard Business CD.
18. Nkomo & Cox, op cit, pp 338–356.
19. Thomas, DA & Ely, RJ. 1996. ‘Making differences matter: A new paradigm for managing
diversity.’ Harvard Business Review, (September–October), pp 79–90.
20. Ely, RJ & Thomas, DA. 2001. ‘Cultural diversity at work: The effects of diversity perspectives
on work group processes and outcomes.’ Administrative Science Quarterly, 46, pp 229–273.
21. Ibid.
22. Business Tech. 2016. ‘Whites receive preference over blacks for jobs: minister’. Available at:
https://businesstech.co.za/news/government/121615/whites-receive-preference-overblacks-for-jobs-minister/ (Accessed: 26 June 2020).
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319
23. Martins, N. 1999. ‘Managing Diversity in South Africa: How do we compare?’ People
Dynamics, (August), pp 30–33.
24. Ibid.
25. Ibid.
26. Hofstede, G. 1991. Cultures and organisations. London: McGraw-Hill.
27. Trompenaars, F & Hampden-Turner, C. 1998. Riding the waves of cultures: Understanding
diversity in global business. London: The Economist Books, p 22.
28. Trompenaars & Hampden-Turner, op cit; Hofstede, op cit; Adler, N. 1997. International
dimensions of organisational behaviour. Cincinnati: South-Western College Publishing.
29. Trompenaars & Hampden-Turner, op cit, p 22.
30. Ibid.
31. Christie, P, Lessem, R & Mbigi, L. 1993. African management: Philosophies, concepts, and
applications. Randburg: Knowledge Resources.
32. Booysen, L. 1999. ‘Towards more feminine business leadership for the 21st century: A
literature overview and a study of the potential implication for South Africa.’ South African
Journal of Labour Relations, 23(1), pp 31–54.
33. Hofstede, op cit, p 51.
34. Christie et al, op cit.
35. Adonis, M. In Christie et al, op cit.
36. Trompenaars & Hampden-Turner, op cit.
37. Hofstede, G. 1991. Cultures and organisations. London: McGraw-Hill; Blunt, P & Jones, M.
1992. Managing organisations in Africa. Berlin: Walter de Gruyter.
38. Hofstede, op cit.
39. South African Year Book 1996. Cape Town: South African Communication Service.
40. Manning, T. 1995. ‘Pick of the crop: Hot pointers for SA managers’. People Dynamics, 13(11)
(November), pp 28–32; Schuitema, op cit, p 19; Joffe, A. 1995. ‘Seeing things differently’.
Productivity SA, 21(3) (May), pp 10–15.
41. Hofstede, op cit.
42. Butler, J. 1995. ‘Autocrats accelerate absenteeism’. Productivity SA, 21(2) (March), pp 8–10.
43. Blunt & Jones, op cit.
44. Hofstede, op cit.
45. Ibid.
46. The Black Management Forum. 1995. Affirmative action blueprint.
47. Trompenaars & Hampden-Turner, op cit.
48. Ibid.
49. Harris, P & Moran, T. 1996. Managing cultural differences. Houston: Gulf Publishing
Company, p 372.
50. Manning, op cit.
51. Trompenaars & Hampden-Turner, op cit.
52. Koopman, op cit.
53. Tayeb, MH. 1996. Management of a multicultural workforce. New York: John Wiley, p 185.
54. Certo, op cit, p 591.
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CASE STUDY
Virtual Learning Incorporated (VLI) takes a proactive approach to diversity and
inclusion
Gift Nkosi, chief executive officer (CEO) of VLI since 2010, has gained the admiration and
respect of many diversity and inclusion scholars and advocates. Through her leadership,
VLI — a highly diversified and inclusive, advanced-virtual learning corporation with
approximately R300 billion in annual sales and approximately 120 000 employees — has
one of the most successful diversity and inclusion programmes in South Africa today.
Nkosi is most admired for her efforts at creating a work environment that fosters a sense
of belonging, fairness, and offers equal growth opportunities and greater awareness and
sensitivity to the needs of VLI’s diverse employee population. These efforts include crafting a
‘mission success’ statement that clearly delineates the corporation’s commitment to diversity
and inclusion and also hiring executives with the skills and commitment to implementing the
corporation’s diversity and inclusion initiatives.
Another diversity initiative of VLI has been the creation of employee organisations. Examples
of social support networks of this kind include members of the physically challenged groups
at VLI (GLOBAL) organisation, and the Previously Disadvantaged Support Team (PDST). Social
networks such as these are important because they tailor their training and mentoring to the
specific issues of a particular subculture, says John Petersen, research specialist with the
Digital Library division.
Lebo Dlamini, director of Equal Employment Opportunity Office (EEOO), observed that the
specialised unit of Digital Library was understaffed, and proactively initiated a skills audit
and engaged Petersen in an attempt to build capacity in the unit. He was shocked at the
realisation that the whole unit comprises only five per cent blacks and females of its one
thousand employees. He was even more surprised to realise that neither of these groupings
form any part of specialists nor management in the unit. After a lengthy engagement with
Petersen, he indicated to him that they only recruit the best for the unit and due to the
demanding nature of the unit, he prefers to maintain like-mindedness to ensure continuity of
performance excellence.
This audit is threatening the diversity and inclusion leadership that Nkosi and her team had
for so long enjoyed.
CASE STUDY QUESTIONS
Answer the following questions and support your answer with specific information
from the case, text and personal experiences.
1. In what ways has VLI taken a proactive approach toward supporting and encouraging
diversity and inclusion?
2. Can you identify any diversity dimensions from the case? Explain.
3. How do you suggest that Mr Dlamini move forward in addressing findings of his
report in line with Nkosi’s vision?
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MULTIPLE-CHOICE QUESTIONS
Question 1
Inclusive leadership enables organisations to adapt to diverse customers, markets, ideas
and talent.
1. True
2. False.
Question 2
Secondary dimensions of diversity will include the following:
1. Employment background
2. Racial classification
3. Age
4. Sexuality
5. All of the above.
Question 3
Companies that embrace diversity and inclusion innovatively found that they can
in the marketplace?
achieve
a. sustainable advantage
b. collective advantage
c. competitive advantage.
1. a & b
2. a, b & c
Question 4
The phenomenon that creates difficulty for women to advance their careers is referred
.
to as
1. break-ceiling syndrome
2. LIFO syndrome
3. narcism syndrome
4. groupthink syndrome
5. glass-ceiling syndrome.
Question 5
What are the identified approaches to managing diversity and inclusion?
a. The golden rule approach
b. Right-the-wrong approach
c. The platinum theory approach.
1. a & b
2. a & c
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Question 6
Which of the following is the perspective that specifically incorporates mentoring of
women and previously disadvantaged groups (PDG)?
1. Access and legitimacy
2. Learning and effectiveness
3. Learning and mentoring
4. Discrimination and fairness
5. Access and learning.
Question 7
The implicit basic assumptions of culture include
1. norms
2. values
3. attitudes
4. all of the above
5. none of the above.
.
Question 8
Of the differing world views on cultural diversity, racism is more related to
1. monoculture
2. ethnocentrism
3. pluralism
4. ethno-relativism
5. ethno-racism.
Question 9
A Eurocentric value system is commonly associated with
a. particularist
b. individualism
c. achievement.
.
.
1. a & b
2. b & c
Question 10
What do we refer to as the concept that brings to the fore images of supportiveness,
cooperation and solidarity?
1. Pluralism
2. Afrocentrism
3. Ubuntu
4. Heuristics
5. Groupthink.
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PARAGRAPH QUESTIONS
Question 1
According to Trompenaars, every culture distinguishes itself from others by the specific
solutions it chooses to certain problems which reveal themselves as dilemmas. It is
convenient to look at these problems under certain headings. Name three problems and
describe them.
Question 2
Describe three factors that are wrongfully equated to diversity and inclusion.
Question 3
Name and describe four arguments why managing diversity is important.
Question 4
Identify and describe four ways in which organisations can cultivate a diverse workforce.
Question 5
Using the Hofstede National Cultural Framework, name and describe the four largely
independent dimensions, based on patterns of enduring values which provide the
framework for describing national cultures.
ESSAY QUESTION
Understanding what diversity and inclusion are all about is an important aspect of
effectively managing workforce diversity in organisations. Discuss why managing
diversity and inclusion as well as cultural differences are important for South African
organisations. Support your arguments with practical examples.
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Part
4
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LEADING
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11 LEADING
THE
PURPOSE
OF THIS
CHAPTER
LEARNING
OUTCOMES
Management Principles 7e.indb 327
The purpose of this chapter is to examine the third management
function, namely leading. After defining the function, we differentiate
between the concepts of management and leadership and then examine
the components of leadership, paying special attention to the concept of
power and the key terms associated with power — interest and influence.
The theory on leadership is the foundation of the chapter. The early
approaches to leadership include trait theory, behavioural leadership
theories and the contingency theories of leadership. Next, we discuss
charismatic, transactional and transformational leadership. We examine
a number of values-based leadership theories, including authentic
leadership, ethical leadership servant leadership and responsible
leadership and explain how they differ and where they overlap. The
discussion on the theoretical foundations of leadership is concluded
with a short discussion of new developments in leadership that respond
to changing and complex environments, namely agile leadership and
peer-to-peer leadership. The chapter ends with a brief discussion on
leadership and political behaviour in an organisational context.
This chapter will enable learners to:
Define the concept of leadership as a management function
■
Differentiate between leadership and management
■
Discuss the components of leadership
■
Explain why research efforts on trait theory was mostly unconvincing
■
Compare the behavioural leadership research studies in terms of
their findings on the task and people orientation of leaders
■
Discuss the contribution of the contingency theories to the
evolution of leadership theory
■
Explain the differences and overlaps between transformational
leadership and charismatic leadership and between transactional and
transformational leadership
■
Discuss the values-based leadership theories in terms of their
difference in focus on leader behaviour
■
Explain why agile leaders are effective in a wide range of circumstances
but especially in new, changing and ambiguous situations
■
Explain how peer-to-peer leadership can be effective in organisations
with a central network
■
Explain why political behaviour is an integral part of organisational
life.
■
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KEY
CONCEPTS
Management Principles 7e.indb 328
Ability
Accountability
■
Achievement-oriented
leadership behaviour
■
Agile leadership
■
Authentic leadership
■
Authentic transformational
leaders
■
Authoritarian leadership style
■
Authority
■
Autocratic leadership style
■
Behavioural leadership
theories
■
Charismatic leadership
■
Coercive power
■
Collective interests
■
Competence
■
Concern for people
■
Concern for results
■
Consideration
■
Consistency
■
Contingency leadership
models
■
Contingent reward
■
Country club management
■
Credibility
■
Delegating
■
Democratic leadership style
■
Directive leadership behaviour
■
Emotional competencies
■
Emotional intelligence
■
Employee-centred leadership
■
Equipotency
■
Ethical leadership
■
Expert power
■
Hersey and Blanchard’s model
■
Idealised influence
■
Individualised consideration
■
Initiating structure
■
Influence
■
Inspirational motivation
■
Integrity
■
Intellectual stimulation
■
Interests
■
Job-centred leader behaviour
■
Leader−member relations
Least preferred co-worker
Legitimate power
■
Loyalty
■
Leadership grid
■
Management-by-exception
(active)
■
Management-by-exception
(passive)
■
Middle-of-the-road
management
■
Node
■
Node community
■
Openness
■
Participative leadership
■
Pseudo-transformational
leaders
■
Path–goal model
■
Physiological maturity
■
Position power
■
Power
■
Production-centred leadership
■
Rational dynamics
■
Readiness
■
Referent power
■
Relationship behaviour
■
Relationship-oriented
leadership
■
Relevance
■
Responsibility
■
Responsible leadership
■
Reward power
■
Servant leadership
■
Situational leadership theory
■
Supportive leadership
behaviour
■
Task behaviour
■
Task-oriented leadership
■
Task structure
■
Team management
■
The path–goal theory of
leadership
■
Trait theory
■
Transactional leadership
■
Transformational leadership
■
Trustworthiness
■
Willingness
■
■
■
■
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329
11.1 INTRODUCTION
Leadership is a subject that has long fascinated researchers. Throughout the decades,
researchers focused on aspects such as the reason why some people are natural leaders
and others not, whether one can learn to become an effective leader and why people
willingly follow leaders and then stop following them. The numerous researchers who
focused their studies on leadership have answered some of these questions, while many
questions remain unanswered.
In this chapter, we find answers to some of these questions by examining the
literature that developed over many decades through the contributions of experts in
the study field.
11.1.1 A definition of leadership
Leadership is an elusive concept judged by the sheer volume and range of definitions to
describe it. One author who conducted a comprehensive review of leadership literature
exclaimed that there are almost as many definitions of leadership as there are people
who have researched the concept.
By sifting through the definitions, the common denominator that emerges is that
leadership and influence are inseparable. Thus, one element of leadership is that it is a
process where one person exerts influence over another person or persons.
A few other essential elements should also be included in a comprehensive
definition of leadership, specifically in an organisational context.1 First, leadership
should be consistent with the intention of the leader. For example, sports stars have a
great influence on their fans, but it is rarely intentional. In organisations, leadership
should be intentional with the purpose to attain specific outcomes. Second, the effect
of leadership should be to benefit the organisation and its stakeholders. Finally, employees
should follow the leader willingly to attain organisational goals.
Combining these elements into a broad definition of leadership, we can say that
leadership is an influence process that produces acceptance or commitment on the part of
organisational members to willingly participate in courses of action that contribute to the
effectiveness of the organisation.2
A vital aspect of leadership is its effect on followers. Leaders need followers to lead
— without followers there can be no leadership. A symbiotic relationship (working
together to their mutual advantage) exists between leaders and followers — without
follower approval, a leader cannot lead. A consequence of leader behaviour is follower
behaviour, which tends to reinforce, diminish or extinguish leadership. Chester Barnard,
one of the pioneers of management theory, asserted that followers have a ‘zone of
acceptance’3 within which they willingly allow themselves to be activated, directed and
controlled by a leader. This ‘zone’ is present in the mind and behaviour of the follower,
not in a hierarchical position or in the leader. People do not blindly follow leaders, but
once a leader–follower relationship develops, an effective leader can direct individuals
and groups to attain organisational goals.
Leadership is an influence process that produces acceptance or commitment on the part of
organisational members to willingly participate in courses of action that contribute to the
effectiveness of the organisation.
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11.2 LEADERSHIP AND MANAGEMENT
The question of whether the two concepts of ‘leadership’ and ‘management’ are the
same, and if not, how they differ, often arises in management literature. John Kotter4
argued that leadership and management are different constructs and that each has its
own unique characteristics and complementary systems of action. He distinguished
between leadership and management by explaining that leaders cope with change and
managers cope with complexity.
Table 11.1 Differences between management and leadership
Leaders cope with change
Managers cope with complexity
■
Setting a directive
■
Planning and budgeting
■
Aligning people
■
Organising and staffing
■
Motivating and inspiring people
■
Controlling and problem solving
‘Leaders’ cope with change by setting directives, aligning people and motivating and
inspiring them. ‘Managers’ cope with complexity by planning and budgeting, organising and
staffing as well as controlling and problem solving.
According to Kotter, organisations need leaders who can lead in business environments
characterised by major, ongoing change. In Chapters 9 and 18 we discuss the forces
of change facing organisations, including technological change, changes stemming
from advances in information technology, changes relating to globalisation, and
environmental changes such as the COVID-19 pandemic.
To deal with change, organisations need leaders to provide a vision (direction), to
communicate and obtain support for the vision (aligning people) and motivate and
inspire people to follow the vision. Such leadership is vital because organisations become
more complex as they operate within a business environment characterised by change.
To deal with this complexity, organisations need managers to achieve their objectives by
performing the management functions of planning, organising, and controlling.
Revisiting the question of whether organisations need managers or leaders, Kotter
maintained that not all leaders are strong managers, nor are all managers strong leaders.
He added that successful organisations value both managers and leaders and incorporate
them at all levels in their groups and teams. However, when organisations prepare
people for executive positions, or when they develop people to lead their organisations
through periods of major change, they should attempt to develop people who have the
qualities of both managers and leaders.
In recent debates about the merits of employing managers or leaders, the view
emerged that contemporary organisations have to survive in a complex and competitive
global business environment and therefore they should employ people who are both
managers and leaders. After all, both management and leading involve exactly the same
thing: ‘The achievement of a specific purpose through others.’5
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Leadership in times of crisis
Facing a ‘landscape-scale crisis’ such as COVID-19 strips leadership back to its most
fundamental element: making a positive difference in people’s lives. Four qualities —
awareness, vulnerability, empathy, and compassion — are critical for business leaders to
care for people in crisis and set the stage for business recovery.
Source: Nielsen, N.C, D’Auria, G & Zolley, S. 2020. Tuning in, turning outward: Cultivating compassionate
leadership in a crisis. McKinsey and Company, 1 May. Available at: https://www.mckinsey.com/
business-functions/organization/our-insights/tuning-in-turning-outward-cultivating-compassionateleadership-in-a-crisis?cid=other-eml-alt-mip-mckandhlkid=7b79871909864bb09d39980eda2aa0b2an
dhctky=11665431andhdpid=8e3cd5b8-4cdd-4d6d-8ef1-16d418aa011c (Accessed: 28 May 2020).
General management theory describes management as a much broader concept than
leading, comprising four management functions of which leading is one function — to
direct and align, motivate and inspire the human resource.
11.3 THE COMPONENTS OF LEADERSHIP
Leading relates to the authority relationships in the organisation, as defined by the
organisational structure. In Chapter 8, we discuss these authority relationships which
also comprise the components of leading, namely authority, responsibility, delegation,
accountability and power.
■
Authority is the right of managers to give commands to and demand actions
from employees. Formal authority is a form of legitimate power first described by
the sociologist Max Weber.6 He was interested in answering the question of why
individuals obey commands from others in the organisations where they work.
Weber made a distinction between power where managers have the ability to force
people to obey, and authority where the recipients of orders obey them voluntarily
because of the hierarchical position of the person with authority.
■
Responsibility is the obligation of employees to attain organisational goals
by performing specified activities, typically defined by their job descriptions.
Managers are always responsible for the results obtained by their sections,
departments or organisations.
■
Accountability is the evaluation of how well individuals meet their responsibilities.
Managers always remain accountable for everything that happens in their sections,
departments, or organisations, even for the successful completion of the tasks
they delegated to subordinates. The often repeated saying ‘the buck stops here’ is
relevant as far as the accountability of managers is concerned. Accountability is the
reason why the chief executive officers (CEOs) of organisations immediately resign
if, for example, the organisation did not meet the expectations of its stakeholders,
or was involved in a scandal or in unethical activities.
■
Delegation is the process whereby the manager assigns responsibility and authority
to a subordinate or subordinates for achieving organisational goals. Managers delegate
responsibility and authority down the chain of command to their subordinates.
A crucial point to remember here is that managers can delegate authority and
responsibility to their subordinates, but they can never delegate their accountability.
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■
The final component of leading is power, a vital factor of leading which we will
discuss in the following section in more detail together with two terms closely
associated with power, namely interests and influence.
The components of leading are authority, responsibility, accountability, delegation and power.
11.3.1 Power, and the key terms associated with power: interests and
influence
Power is a key component of leading and in the literature definitions of power abound,
as evident from the following:
■
‘The medium through which conflicts of interest are resolved … influences who
gets what, when and how ’7
■
‘The potential ability to influence behavior, to change the course of events, to
overcome resistance, and to get people to do things they would not otherwise do’8
■
‘The ability of individuals or groups to persuade, induce or coerce others into
following certain courses of action… [I]t is rooted in control over or access to
resources of a wide variety.’9
The different definitions capture the key terms associated with power — interest and
influence, ‘to get people to do what they would not otherwise do’.
Despite the negative connotations that some of the definitions of power may
conjure, power has two ‘faces’, which explains why the use of power in organisations
is unavoidable. One theorist who made a clear distinction between the two ‘faces’ of
power is McClelland10 who distinguished between personal power (a person who has a
‘me’ orientation) and social power (a person who has a ‘we’ orientation). People with a
personal power orientation may use power to protect their own interests and to pursue
their own goals. The ‘good face’ of power (social power) manifests in a person’s concern
for group goals, for helping the group formulate goals and providing the means to attain
them by empowering people to work hard to attain the goals. Another description of
positive power is that it derives from a ‘socialized need to initiate, influence and lead
and to recognize other people’s needs to achieve their own goals as well as those of the
organization’.11
Notwithstanding conflicting views on the subject, the use of power in contemporary
organisations is crucial because organisations have limited and scarce resources and
to attain their goals, groups, teams and individuals in organisations need resources.
Managers often have to use their power to compete with others to secure resources for
their sections, departments or organisations to attain their goals.
Sources of power
Individuals or managers accrue power from different sources. The most popular view
on the sources of power is that of French and Raven.12 They identified five sources of
organisational power. The five sources derive from a person’s hierarchical position, the
ability to reward or to ‘punish’ others, charisma and expertise. These are either personal
or formal sources of power.13
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Formal sources of power
Organisations confer formal power on individuals in terms of their positions in the
organisational hierarchy, deriving from the following sources:
■
Legitimate power. People accrue legitimate power because of their formal
positions in organisations. Managers, for example, have legitimate power allowing
them to make decisions about resource allocation, information flows, performance
evaluations, task alignment and conflict resolution.
■
Reward power. Reward power rests with a person, for example, a manager in an
organisation may have the ability to give compensation to reward or reinforce
desirable behaviour. In an organisational context, managers can use many
incentives to reward subordinates, such as salary increases, promotions, interesting
assignments, admission to ‘in’ groups, access to crucial information, feedback and
praise, to mention but a few.14 The flipside of this power source is that the recipients
of the rewards must perceive the rewards as being of value to them. As we shall
see in a discussion on workforce motivation (Chapter 14), a reward serves as a
motivator only if the recipient values the reward.
■
Coercive power. A person who is in a position to offer or restrict benefits, inflict
punishment, or control the behaviour of another person, has coercive power. This
type of power is often associated with the negative ‘face’ of power. Coercive power
is based on fear because the person with power has the ability to inflict punishment
or to take action with adverse consequences for the other person. Managers can
retrench people, withhold rewards such as promotions, or directly or indirectly
threaten subordinates with punishing actions.
Personal sources of power
A person’s personal power stems from his or her unique characteristics with or without
the presence of formal power based on hierarchical position.
■
Referent power. Referent power refers to the power of a person because of his or
her personal characteristics or charisma. People will follow and obey such a person
because they like and respect him or her and they accept that the person has power.
In an organisational context the manager who depends on referent power must
be ‘attractive’ to subordinates in the sense that they would want to identify with
the manager, regardless of the other bases of power (legitimate power or power of
reward) that the manager may possess.
■
Expert power. Expert power refers to a person’s power that stems from the
possession of scarce and valued expertise. Expertise is a source of power if it is
the perception in the organisation that the individual possesses knowledge and
understanding pertaining to a specific defined area. For example, the only professor
at a university with expert knowledge of the latest ground-breaking treatment for
cancer may possess expert power. It is necessary that the recipients of a person’s
expert power must perceive the person with expert power as credible, trustworthy
and relevant.15 Credibility means that the person has the right credentials in terms
of knowledge and experience and must be able to show concrete evidence of this.
In our example, the professor may prove her credibility by referring to the number
of research articles she has published in accredited international medical journals,
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earning the respect of her colleagues. Trustworthiness means that the person with
expert power must be honest and forthright. Finally, the knowledge or expertise of
the person must have relevance in the context of his or her expertise. The professor
in our example will have expert power as far as a specific cancer treatment is
concerned, but not in respect of the latest research on tuberculosis.
In addition to the sources mentioned above, Morgan16 argued that power influences ‘who
gets what, when and how’ in organisations. In his view, power in organisations stems
from a number of sources and we briefly discuss a selected few of these sources of power.
■
Control of scarce resources. Organisations transform their resources into the
products they produce or the services they render. They are thus dependent —
for their success and survival — on the resources they need and on the suppliers
of these resources. Those in the organisation who control and allocate resources
such as financial, human, physical and informational resources, accrue power.
The scarcer the resources and the more dependent a person or a group in the
organisation is on its availability, the more resource power the individuals or
groups who control the resources accumulate.
■
Organisational structure. In the selection of an organisational structure,
managers have significant scope when it comes to choices regarding organisational
design, which they can exercise when deciding about aspects such as differentiation
or integration, centralisation or decentralisation and departmentalisation. These
choices may enhance the power positions of the decision-makers.
■
Control of decision processes. The ability of a person to control the outcomes of
organisational decision-making processes can build power, for example, the control
of decision agendas, which may involve preventing or promoting the appearance of
a specific decision on the agenda.
■
Control of knowledge and information. Control over knowledge and
information that defines the reality of decision-making processes is a source of
power. Many principles of organising, such as the chain of command, division of
work and coordinating sections and departments, enable individuals to control
information flows. They can open and close channels of communication, filter,
analyse and summarise information before disseminating it and consequently
model information to suit their own views on issues and to advance their own interests.
■
Control of boundaries. Control over the interface between organisations’ internal
boundaries (between different groups) or externally between organisations and
their environment, including suppliers, customers, intermediaries and competitors
is a source of power. Such control gives a person access to crucial information
about forthcoming changes, and enables him or her to avoid or facilitate such
changes. People in leadership positions, project coordinators and organisational
liaison officers accrue power by controlling organisational boundaries.
■
Coping with uncertainty. The interdependencies that exist in organisations
provide a source of power to people or groups with the ability to cope with
environmental or operational uncertainty. Environmental uncertainties refer to
issues such as the availability of resources, while operational uncertainties may
include issues such as the breakdown of machinery, the closing of a plant and so
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on. Change and uncertainty in one part of an organisation affect other parts. It is a
source of power for an individual or a group in the position to anticipate, plan for,
and control uncertainties. People with this power base may be tempted to preserve
it by ensuring that the uncertainty lingers, or by exaggerating the degree
of uncertainty.
■
Control of technology. New technology, such as machinery, computer hard- or
software, or the implementation of an information system, can affect the balance of
power in organisations and create conflict. People or groups with expert knowledge
of the new technology can use their power to manipulate productivity either
directly or indirectly.
■
Strong informal interpersonal alliances and networks. This is a source of power
in contemporary organisations where employees use social media to gain informal
power.
■
Liaison with organisations outside the organisational boundaries. Interaction
and liaison with significant counter organisations, such as labour unions or lobby
groups, increase the personal power people who deal with them on behalf of
the organisation because they can control the information flows to and from the
counter organisations.
■
Symbolism and the management of meaning. Organisational leaders who are
effective users of cultural tools (corporate culture) use symbols, rituals and stories
to help others make sense of events in an organisation. In so doing, the leader could
wield symbolic power because he or she influences the way others think and act in
specific situations.
■
The deep structure of power. Deep structures underpin power relations in
organisations. It comprises the set of choices made by a system (in this case, an
organisation) about the basic patterns of activity that maintains its existence.
Deep structures are stable because the trail of choices made by the system (an
organisation) rules out many options. Deep structure includes factors such as
economics, race, and social class relations. It determines the roles people occupy in
organisations and thus the type of power they have. For example, a manager who
occupies a powerful position may be unable to use her legitimate power because of
variables in the deep structure of the organisation that prevent it. A typical example
of deep structure is the existence of a powerful ‘old boys club’ in an organisation,
which excludes others, although they may occupy positions of legitimate power on
the organisational hierarchy.
Interests
Individuals in organisations will attempt to protect their own interests and those of the
group or teams to which they belong. Employees have individual interests as well as
collective interests.17
People’s self-interest is the primary motivator of their behaviour (see Chapter 14 on
workforce motivation). For example, individuals may look at a change intervention and
consider how the change may affect their own position relative to, for example, better
remuneration, advancement in the organisation or perhaps obtaining more power
and influence.
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Collective interests derive from organisational design where the organisational structure
and the positions of power created by the structure create groups who share, and will
protect their collective interests, such as the marketing department, or a research team,
or an operational section. Organisational members will support or block decisions that
affect their interests in their various groups.
Managers have to engage in interaction with various individuals, groups or teams
with the aim to influence them to protect the interests of the groups or teams they
manage. This interaction lies at the core of the leading function of managers.
People protect their individual and collective interests.
Influence
In the context of leading, influencing18 is the process leaders follow to communicate
ideas, gain acceptance of them and inspire followers to support and implement the ideas
through change. Influence manifests in a leader’s ability to affect the actions of others
and it affects the relationship between the leader and his or her followers. In a general
sense, people with influence have power, but not all people with power have influence.
Some managers have power, but they are unable to influence their employees. Influence,
in the case of managers, evolves by gaining the agreement of employees to work with
them to achieve specific organisational goals.
What is the relationship between power and influence and when does power convert
to influence?19 To illustrate this process, suppose the manager (agent) has power and
interacts with an employee (target). When the employee consents to behave according
to the wishes of the manager, power has converted to influence. Thus, power involves a
reciprocal relationship between the agent (the manager) and the target (the employee).
When managers or leaders in organisations convert their power into influence and
action, they are engaging in politics. Those with good political skills can use their
bases of power effectively. They use specific influence tactics to obtain compliance. To
illustrate the process, suppose person A (the agent, for example, the manager) wants to
influence the recipient, person B (the target, for example, an employee). Person A may
use one or more of the following tactics:
■
Rational persuasion: Using logical arguments and factual evidence to persuade B
that a proposal or request is viable and likely to result in the achievement of objectives
■
Inspirational appeals: Appealing to B’s values and ideals and arousing enthusiasm
by making an emotional request or proposal or by boosting B’s confidence that he
or she can do it
■
Consultation tactics: Seeking B’s participation in making a decision or planning
how to implement a proposed policy, strategy, or change
■
Ingratiating: Using friendliness, humour or flattery before making a request to B
■
Upward appeals: Persuading B that higher levels of management approved the
request, or appealing to higher levels of management for assistance in B’s compliance
■
Exchange: Promising — explicitly or implicitly — that B will receive rewards or
tangible benefits if he or she complies, or reminding B of a prior favour that he or
she should return
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Coalition: Seeking the aid of others to persuade B to do something or using the
support of others as an argument to convince B to agree
■
Pressure: Threatening, intimidating B or demanding that he or she complies.
■
Contextual factors, especially the hierarchical level of B, should influence A’s selection
of the most effective tactic to use. Rational persuasion is the most effective tactic to use
across organisational levels (upward, downward and lateral). Tactics such as inspirational
appeal, pressure, consultation, ingratiation and exchange are most effective when the
intended influence is downward (to subordinates). When the direction of the influence
is lateral, consultation, ingratiation, exchange and coalition tactics are the most effective.
The influence of leaders on their followers has a strong effect on the overall
performance of the organisation. Many studies were conducted to establish exactly what
it is that enables leaders to influence their followers, but a discussion of the findings is
beyond the scope of this chapter.
We shall now examine the theory on leadership that has evolved over many decades
to contribute to our understanding of leadership.
Influencing is the process leaders follow to communicate ideas, gain acceptance of them and
inspire followers to support and implement the ideas through change.
11.4 THE EARLY APPROACHES TO LEADERSHIP
11.4.1 Introduction
Against the backdrop of the discussion thus far, it is clear that strong leadership is a vital
element of organisational success, although it is not the only contributing factor. Not
surprisingly, leadership is also one of the most researched topics in the social sciences
and in business management research. In numerous studies, researchers have attempted
to determine the key characteristics and behaviour patterns of strong leaders in an
organisational context. Early leadership studies conducted during the mid-twentieth
century in general involved the testing of hypothesis with quantitative data. The results
of these studies were typically published in academic journals and so became part of
the evolution of leadership theory. It evolved from relatively simple to more complex
views on leadership. In the discussion that follows, we examine the major categories of
quantitative analytical research on leadership, including trait theory and the behavioural
and contingency approaches to leadership.
11.4.2 Trait theory
The early leadership studies concentrated on the personal qualities and characteristics
or unique traits of successful leaders. The premise of early trait research was that some
people are born leaders, with characteristics that distinguish them from other people
who are not leaders. The researchers wanted to find out if strong leaders share some of
the same characteristics.
The results of these research efforts were mostly unconvincing because traits vary
from one leader to another and some traits develop only after a leader assumes a
leadership position.
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During the first half of the twentieth century, the emerging field of psychology provided
trait researchers with new tools, such as aptitude and psychological tests which enabled
them to investigate the distinguishing characteristics of strong leaders in dimensions
such as personality, physical traits, abilities, social characteristics and work-related
characteristics. A recurring finding of many of these studies was that the relevancy
of vital traits is often dependent on the specific situation, for example, the type of
organisation or the industry where the leader worked.
Towards the end of the previous century, a renewed interest in trait theory provided
a few promising studies, which indicated that there are some traits that successful
leaders have in common, such as self-confidence, honesty/integrity and drive.20
Scandals worldwide and in South Africa occur in private and public organisations at
an increasing rate, implicating leaders who act dishonestly and betray their organisations
and their followers. One only needs to read the daily newspapers, or watch the news to
realise the extent of the problem in South Africa and reinforce the view that trust is a
vital component of effective leadership.
Managers cannot be effective leaders if their employees do not perceive them as
being trustworthy. Trustworthy leaders have traits such as integrity, competence,
consistency, loyalty and openness.21
■
Integrity refers to a leader’s honesty and truthfulness.
■
Competence denotes a leader’s technical and interpersonal knowledge and skills.
■
Consistency reflects a leader’s reliability, predictability and good judgement in
handling situations.
■
Loyalty entails a leader’s willingness to protect another person.
■
Openness is the degree to which one can rely on the manager to tell the whole truth.
Such leadership is vital in a world where thieving, grafting and fraud are the order of the
day. Elsewhere in the chapter we discuss the values-based leadership theories which are
underpinned by an ethical and moral dimension.
Another concept relating to the traits of successful leaders is emotional intelligence.
Emotional intelligence refers to a leader’s self-awareness and awareness of the feelings of
others. We shall discuss the relationship between leadership and emotional intelligence
in a separate section in this chapter.
Employees perceive leaders as trustworthy if they display traits such as integrity,
competence, consistency, loyalty and openness.
11.4.3 The behavioural approach to leadership
The premise that successful leaders behave differently from unsuccessful leaders
underpins the behavioural approach to leadership. Behavioural approach researchers
attempted to determine how people who lead successfully act, for example, how
they delegate, communicate and motivate their employees. The assumption was
that managers could learn to lead in the one ‘right’ way. The research focused on the
difference between task-oriented and people-oriented leadership styles. In general, the
research indicated that leaders who focus on people generate higher morale amongst
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employees than those that focus on the task although they do not necessarily generate
higher productivity. More effective leaders focus on both tasks and people. The studies
were not successful in producing a definite list of behaviours distinguishing leaders
from non-leaders in every situation, but they facilitated a better understanding of leader
behaviour styles and leader effectiveness.
University of Iowa’s leadership styles
Kurt Lewin and his associates at the University of Iowa conducted research on
leadership styles which they defined as the combination of traits, skills and behaviours
leaders use when they interact with followers. They distinguished between two
leadership styles:22
1. A leader with an autocratic leadership style makes the decisions and limits employee
participation
2. A leader with a democratic leadership style involves employees in decision-making,
encourages their participation and provides feedback.
Robert Tannenbaum and Warren Schmidt23 expanded on the work of Lewin and his
associates and asserted that leadership styles could range from autocratic to democratic
on a continuum, reflecting different degrees of employee participation. The researchers
proposed that deciding whether leadership behaviour should be ‘boss-centred’ (use of
authority by a manager) or ‘employee centred’ (area of freedom for employees) depends
on the manager, the employees and the environment.
The researchers concluded that managers should move toward more employeecentred styles in the long term to enhance employee motivation, decision quality,
teamwork and morale.
Ohio State University studies
An interdisciplinary team of researchers at the Ohio State University conducted a major
study to examine and measure the performance of leaders rather than their traits. The
main contribution of their research was to develop precise operational definitions of
what people in leadership positions do. They developed the leader behaviour description
questionnaire (LBDQ). Analysis of the data obtained by respondents revealed two
descriptions of leader behaviour:24
1. Initiating structure refers to the degree to which a leader provides precise
definitions of role responsibility, plays an active part in scheduling and organising
the work, and in structuring the work context.
2. Consideration refers to the degree of camaraderie, mutual trust, liking and respect
in the relationship between the leader and followers.
A finding of the Ohio studies and one that caused much interest at the time was that
consideration (C) and initiating structure (IS) are independent dimensions of leader
behaviour. In other words, in theory, a leader’s behaviour could be high or low in both
dimensions, resulting in four combinations of leader behaviour, high C/high IS, high
C/low IS, low C/low IS and low C/high IS. Leadership behaviour tends to be average
close to the crossover point in the middle in terms of both dimensions.25
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The University of Michigan leadership studies
A group of researchers, mainly psychologists, at the University of Michigan, conducted
the first phase of the Michigan Studies. They focused on identifying relationships
between leader behaviour, group processes and measures of group performance.
The Michigan researchers26 focused more on productivity than the Ohio researchers.
They selected as their sample a number of pairs of highly productive and unproductive
groups of clerical and railroad workers in their respective organisations. The objective
of the study was to identify the difference in behavioural and organisational factors
between the efficient and inefficient groups. To obtain data on leadership behaviour in
the two types of group they conducted structured interviews with the supervisors of the
sections. The researchers identified two distinctive types of leader behaviour, namely
production centred and employee centred:27
1. Production-centred supervisors emphasise the technical and production aspects
of their jobs in their relationships with employees. They are work-oriented and
treat employees as people who should get the work done.
2. Employee-centred supervisors focus on the human relations aspects of their
employees, such as motivation and training. They have supportive personal
relationships with their work groups.
The results of the studies indicated that employees that are more productive tended to
report on the more employee-centred behaviour of their supervisors. They also reported
greater satisfaction with the job, their supervision, and the organisation as a whole.
Unlike the findings of the Ohio studies, the results of the early Michigan studies
implied that employee-centred and production-centred leadership are distinct — a
leader’s behaviour could either be employee centred or job centred, but not both.
The findings of the studies had a significant impact on developing ideas on
programmes for organisations to develop their managers and their structures.
The leadership grid
Blake and Mouton from the University of Texas distinguished between two approaches
of the managerial role, concern for production and concern for people. They assumed
that both concerns are components of effective leadership. The researchers constructed
the managerial grid, a two-dimensional grid where each concern has a nine-point scale
(a score of one indicates a low concern and a score of nine indicates a high concern),
thus yielding 81 possible combinations of management behaviour. A revised version of
the grid was later developed and renamed the leadership grid, with the two dimensions
renamed concern for people and concern for results.28
1. Concern for people indicates that the leader maintains good relations with
subordinates
2. Concern for results indicates that the major concern of the leader is to accomplish
the task.
To pinpoint the kind of ‘concern’ a leader displays in relation to employees, the
researchers identified five main leadership styles, as presented in Table 11.2 below. The
leadership style of a person leader can fall anywhere between the five styles identified
by the researchers.
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Table 11.2 The leadership styles identified by the leadership grid
Concern for
Results
People
Leadership style
Leadership behaviour
1
(Low)
9
(High)
Country club
management
Concerned about the needs of employees to
form satisfying relationships; results in a friendly
organisation and comfortable work pace
9
(High)
9
(High)
Team management
Emphasises both production and people
needs, attains maximum productivity and
creates a team spirit leading to relationships
of trust and respect
5
5
Middle-of-the-road
management
Seeks to find a balance by attending to
the need to do the work and the needs
of the employees; can result in adequate
performance and good morale of employees
1
(Low)
1
(Low)
Impoverished
management
Do just enough effort to survive in the
organisation
9
(High)
1
(Low)
Authority-compliance
management
Obtain efficiency in operations by arranging
conditions of work to limit interference from
employees to a minimum
Source: Adapted from Hughes, RL, Ginnett, RC & Curphy, GJ. 2002. Leadership: Enhancing the lessons of
experience. New York: McGraw-Hill Higher Education, p 211.
The researchers claimed that team management is the most effective style ‘where a
leader is strong on both dimensions (9, 9), a high–high style’.
The behavioural theories of leadership made a significant contribution to the
evolution of leadership theory, but in general failed to identify consistent patterns of
leadership behaviour and employee responses because results vary over different ranges
of circumstances. Similar to the research relating to leadership traits, research results on
leader behaviour suffers from a tendency to over-simplify complex issues. Nevertheless,
the various research findings provide some insight into managerial effectiveness because
of the differentiation between managers who focus strongly on the task and managers
who focus more on their employees.29
Table 11.3 below summarises the behavioural research studies presented in this chapter.
Table 11.3 A summary of selected behavioural research studies
Focus on task
Focus on employees
University of Iowa
Autocratic
Democratic
Ohio State University
Initiating
Consideration
University of Michigan
Production centred
Employee centred
University of Texas
Concern for results
Concern for people
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11.4.4 The contingency or situational approaches to leadership
The contingency (or situational) approach to leadership acknowledges that predicting
leadership success is more complex than examining the traits and behaviours of
successful leaders. The premise underpinning this approach is that instead of trying to
find a ‘one best style of leadership’, the focus should rather be on the most effective
leadership style for any given situation.
A number of variables or contingencies define a situation and may include the nature
of the work performed by the leaders’ unit, the nature of the external environment, and
the characteristics of followers.
Contingency approach research focuses on the aspects pertaining to a situation
that could enhance the relationship between specific leader behaviours and leadership
effectiveness. The assumption is that different leadership behaviours will be effective in
different situations and that the same behaviour is not the most effective in all situations.
Least preferred co-worker (LPCW theory [Fred Fiedler])30
The LPC contingency model, developed by Fred Fiedler, describes how the situation
determines the relationship between leader effectiveness and a trait measure called ‘the
least preferred co-worker (LPC) score’.
The LPC score is determined by asking a leader to select the co-worker with whom
he or she could work least well. Next, the leader rates this least preferred co-worker
on a scale of 18 sets of adjectives ranging, for example, from friendly to unfriendly,
cooperative to uncooperative and efficient to inefficient. The scoring of the manager of
his or her least preferred co-worker determines the leader’s LPC score, which indicates
whether a leader is task-oriented (a low LPC score) or relationship-oriented (a high
LPC score).
Furthermore, Fiedler proposed that effective group performance depends on the
proper match between a leader’s style of interacting with employees (LPC score) and the
degree to which the situation gives control and influence to the leader.
Situational criteria
Fiedler identified three situational criteria that organisations can manipulate to create a
proper situational match with the behaviour orientation of the leader:
1. Leader-member relations indicate the degree to which the leader has the support
and loyalty of employees and the extent to which the relations with employees are
friendly and cooperative or tense and threatening.
2. Position power of the leader refers to the degree to which the leader has the
authority to evaluate performance and manage rewards and punishments.
3. Task structure may range from structured to unstructured, depending on the
following factors: whether each employee has clearly defined objectives and
responsibilities, the degree to which there are standard operating procedures to
accomplish a task, the existence of a detailed description of the finished product or
service, and criteria to measure performance accurately.
By combining these elements, Fiedler identified eight situations and their degree of
‘favourableness’ for the leader denoting the leader’s influence and control over the
group, as described in Table 11.4 below.
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Table 11.4 Degree of favourableness for a leader in different situations
Situation
Situational criteria
Degree of favourableness
(the leader’s influence and
control over the group)
Leader−
member
relations
Position
Power
Task
Structure
1
Good
High
Structured
Favourable
2
Good
Low
Structured
Favourable
3
Good
High
Unstructured
Favourable
4
Good
Low
Unstructured
Moderately favourable
5
Poor
High
Structured
Moderately favourable
6
Poor
Low
Structured
Moderately favourable
7
Poor
High
Unstructured
Moderately favourable
8
Poor
Low
Unstructured
Unfavourable
Source: Adapted from Yukl, G.1998. Leadership in organizations, 4th ed. Upper Saddle River, New Jersey:
Prentice-Hall International, Inc, p 284.
A task-oriented, controlling leader (low LPC score) is most effective when the situations
are favourable (situations 1, 2 and 3) or very unfavourable (8). The relationship-oriented
leader (high LPC score) tends to be more effective in the intermediate situations, which
are moderately favourable for a leader (situations 4, 5, 6 and 7).
An assumption of the model is that a person’s leadership style is fixed, for example,
if a situation requires a task-oriented leader and the person in the leadership position is
relationship-oriented, either the situation must change or the leader must be replaced
with a leader who is more effective in task-oriented situations.
The path–goal theory of leadership (Robert House)31
Robert House developed the path–goal model to explain how the behaviour of a
leader influences the satisfaction and performance of employees. The effect of leader
behaviour on employee effort and satisfaction depends on situational variables,
including subordinate characteristics and environment variables.
Subordinate characteristics include:
■
The degree to which subordinates want to be told what to do and how to do the job
■
The locus of control of the employee (internal or external)
■
The ability of the employee to perform the tasks to attain goals.
Environment variables include:
■
The task structure
■
The formal authority of the leader
■
The extent to which co-workers contribute to goal attainment and satisfaction.
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Table 11.5 Path−goal theory of leadership — four leadership styles
Leadership
behaviour
Directive
Task
Structure
■
■
Supportive
■
Typically
unstructured and
complex
Little
formalisation
of rules and
procedures to
guide the work
Likely to be
stressful, boring,
tedious or
dangerous
Leader behaviour
■
■
■
■
■
■
■
Tells inexperienced
employees what they are
expected to do
Gives specific guidance
Requests employees to
follow rules and procedures
Schedules and coordinates
their work
Considers the needs of
employees
Displays concern for the
welfare of employees
Creates a friendly climate
in the work unit
Effect
■
■
■
■
■
■
■
Participative
Achievement
oriented
■
■
Typically
unstructured
Likely to be
unstructured,
complex and nonrepetitive
■
■
■
■
■
■
Consults with employees
Seeks the opinions and
suggestions of employees
and takes them into
account
Sets challenging goals
Seeks improvement in
performance
Emphasises excellence in
performance
Shows confidence that
employees will attain
high standards
■
■
■
■
Reduces role
ambiguity
Employees’
expectancy of
success increase
Employees’ effort
increase
An increase in
employee effort and
satisfaction
The leader cultivates
the self-confidence
of employees
Employees have less
anxiety
Reduces the
unpleasant aspects
of the work to the
minimum
Employee effort and
satisfaction increase
because of better
role clarity
An increase in
the enjoyment of
work results in
satisfaction for
employees with
a high need for
achievement and
autonomy
An increase in
employee selfconfidence
Increase in the
expectation of
successfully
accomplishing a
challenging task or
goal
Source: Adapted from Yukl, G.1998. Leadership in organizations, 4th ed. Upper Saddle River, New Jersey:
Prentice-Hall Inc, pp 265−270.
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The situational variables influence the employee’s preferences for a particular style of
leadership to maximise his or her performance and satisfaction.
House furthermore asserted that it is the leader’s responsibility to help employees
attain their goals by motivating them. To increase motivation, the leader should clarify
an employee’s ‘path’ to obtain the rewards the employee values. The leader should assist
the employee to exhibit behaviour that will ensure that he or she accomplishes the task
successfully and receive the desired rewards. To this end, the leader uses one of four
leadership behaviours, namely directive, supportive, participative and achievementoriented (see Table 11.5).
Criticism of the path−goal theory of leadership is that not all the situational factors
are always present in the guidelines for when to use which style, making it difficult to
determine which style to use.
The contribution of the path–goal theory to the study of leadership is that it provides
a conceptual framework for researchers to identify potentially relevant situational
variables that influence leadership styles. The theory also enables managers to think
creatively about increasing employee motivation.
Situational leadership model (Paul Hersey and Kenneth Blanchard)
Hersey and Blanchard proposed a situational leadership model based on the assumption
that there is no best way to influence people. The leadership style a leader should use
with individuals or groups depends on the readiness of the employees the leader is
trying to influence.
Readiness is the extent to which an employee has the ability and willingness to
accomplish a specific task. The concept of readiness relates to specific situations and
includes two related components:32
1. Ability relates to the knowledge, experience, and skill a person or group has to do
a specific task or activity.
2. Willingness relates to the amount of confidence, commitment, and motivation a
person or a group has to accomplish a particular task.
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The readiness of an employee to complete a task ranges from poor ability and little
confidence to good ability and very confident to do the task (see Table 11.6 below).
Table 11.6 Employee readiness
Readiness
Components of readiness
Ability
Willingness
and confidence
Employee behaviour
R.1
Incompetent
Unwilling or
Insecure
Incompetent and lacks commitment and
motivation
or
Incompetent and lacks confidence
R.2
Incompetent
Willing or
Confident
Incompetent, but motivated and makes an
effort
or
Incompetent but is confident if the leader
provides guidance
R.3
Competent
Unwilling or
Insecure
Competent, but not willing to use ability,
or
Insecure or hesitant to do the task alone
R.4
Competent
Willing or
Confident
Competent and committed or
Confident to do the task
Source: Adapted from Hersey, P & Blanchard, KH. 1993. Management of organizational behavior: Utilizing
human resources, 6th ed. Englewood Cliffs, New Jersey: Prentice-Hall Inc, pp 191−192.
Hersey and Blanchard furthermore distinguished between two separate dimensions of
leadership behaviour, namely task behaviour and relationship behaviour:33
1. Task behaviour is the extent to which a leader defines roles, for example, telling
employees what to do in terms of goal setting, organising, establishing timelines,
directing and controlling.
2. Relationship behaviour is the extent to which the leader engages in two-way (or
multi-way) communication, listening, facilitating behaviours, providing emotional
support, and providing feedback.
By combining these two elements, Hersey and Blanchard identified four basic leadership
styles a leader can use, depending on the readiness of a person or group to do the specific
task (situation).
A leader may use different leadership styles with the same individual, depending
on the task that the employee should accomplish. For example, a researcher may be
brilliant, highly motivated and confident to do her work as a researcher working in
a laboratory (the leader would use the S4 leadership style), but unwilling to do the
administrative tasks expected from her, although she has the ability to do it (here the
leader would use the S3 leadership style).
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Matching the leadership style with the level of task readiness determines the most
effective leadership behaviour, as illustrated in Table 11.7 below.
Table 11.7 Effective leadership behaviour (Hersey and Blanchard): Matching employee level of
readiness with the most effective leadership style
Employee
readiness
R.1
(Low)
Leadership style
S1
Telling
Dimensions of leadership
behaviour
Task
behaviour
Relationship
behaviour
High
Low
Leader behaviour
■
■
■
R.2
(Low to
moderate)
S.2
Selling
High
High
■
■
■
■
R.3
(Moderate
to high)
S3
Participating
Low
High
■
■
■
R.4
(High)
S4
Delegating
Low
Low
■
■
■
Gives direct instructions
Sets performance standards
Tells employees exactly what
is expected from them
Gives direction to employees
Encourages them to
contribute their inputs
and uses the inputs when
appropriate
Expresses confidence in
employees
Gives them feedback on their
performance
Assists employees to find
their own solutions to workrelated problems and work
methods
Does not provide the
answers for the problems
(low task structuring)
Encourages employees to
think by asking questions and
acting as a soundboard, but
does not tell them what to do
Delegates and discusses the
result the employee has to
achieve
Observes and measures the
result afterward
Gives recognition when
appropriate
Source: Adapted from Hersey, P & Blanchard, KH. 1993. Management of organizational behavior: Utilizing
human resources, 6th ed. Englewood Cliffs, New Jersey: Prentice-Hall Inc, pp 195−197.
Hersey and Blanchard’s theory has made a positive contribution to leadership theory.
They stressed how essential it is to treat different employees differently, but also treating
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the same employee differently as the situation changes. The practical implication of the
theory is that managers should use opportunities to build the skills and confidence of
employees, rather than assuming that an employee without skills or motivation cannot
improve on his or her performance.34
Despite their deficiencies, contingency theories provide insight into leadership
in the context of different situations and have made significant contributions to our
understanding of leadership (see Table 11.8 below).
Table 11.8 Contributions to leadership theory by contingency theories
Contingency
theory/model
Researcher/s
Contribution of the theory
Least preferred coworker (LPCW theory)
Fred Fiedler
Emphasise that an individual’s leadership style
is fixed, and if a leader is not effective in one
situation, the situation must change or another
leader who is more effective in that specific
situation must replace the leader
The path–goal theory
of leadership
Robert House
Provide a conceptual framework to guide
researchers in identifying potentially relevant
situational variables that influence leadership
styles
Situational leadership
model
Paul Hersey
and Kenneth
Blanchard
Emphasise that managers should treat different
employees differently, and treat the same
employee differently when the situation changes
The model implies that managers should use
opportunities to build the skills and confidence
of employees, rather than assuming that an
employee without skills or motivation cannot
improve on their performance
11.5 CHARISMATIC, TRANSACTIONAL AND TRANSFORMATIONAL
LEADERSHIP
The assumption underpinning the discussion on leadership theories in the previous
section is that leadership is the ability of leaders to influence their employees to achieve
organisational goals. A different view of leaders is that of individuals who define
organisational reality through the articulation of a vision. This view of leadership is not
confined to top managers alone, managers at all levels are stronger leaders if they can
convey the vision of their section, department, group or team to their employees.
11.5.1 Charismatic leadership
Charismatic leaders have traits such as self-confidence, the ability to articulate their
visions, unconventional behaviour and environmental sensitivity. They typically
have excellent communication skills, are enthusiastic, optimistic and energetic. Not
surprisingly, charismatic leaders often appear when the followers’ task has an ideological
component, perhaps explaining why charismatic leaders most often appear in politics,
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religion or unusual business organisations. Examples of such leaders include Nelson
Mandela and Desmond Tutu.
A strong positive relationship exists between charismatic leadership and the
performance and satisfaction of their followers. The followers of charismatic leaders
often develop a strong sense of trust and connection with the leader. They tend to
unconditionally accept the leader and develop self-confidence to attain the leader’s
vision, which in turn may enhance their organisational citizen behaviour. Followers
also unquestionably obey and trust their leader. This type of behaviour is not common
in other leader−follower relationships.35 Charismatic leadership is important when
leading organisations through strategic change because they organise and maintain
activities during such change. However, despite the vital role of charismatic leaders in
large-scale change, too much emphasis on the individual role of a charismatic leader
may result in followers’ reluctance to disagree with the leader given his or her personal
influence on them.
Examples of famous charismatic business leaders include Richard Branson (the
Virgin Group) and Oprah Winfrey (the Oprah Winfrey show and Oprah’s Angel
Network). These leaders use their charisma in a positive manner (the socialised
charismatic leader) and for the benefit of others.36
Charismatic leaders can also use their charisma in a negative way (the personalised
charismatic leader) to attain their own agendas and for self-glorification. Such leaders
represent the ‘darker’ side of charisma.37 Leaders such as Adolph Hitler, Osama bin
Laden and Charles Mason fall into this category.
In the next section, we shall discuss transactional and transformational leadership.
Note that transformational leaders are also charismatic because they express a
compelling vision of the future, usually in an organisational context. They form strong
bonds with followers and align their vision with the needs of followers. While both
charismatic and transformational leaders are concerned with organisational or societal
change, in general transformational leaders use their leadership to the advantage of
their followers, while some charismatic leaders (personalised charismatic leaders) may
pursue their own agendas.
11.5.2 Transactional leadership38
The first researcher to distinguish between transactional and transformational leadership
was James Burns.39 According to him, transactional leaders ‘motivate their followers by
appealing to their self-interest’. An example of a transactional leader is a manager who
exchanges pay and status to employees for the work they perform. Bernard Bass40 refined
Burns’ distinction between transactional and transformational leadership and described
transactional leadership as ‘an exchange of rewards for compliance’. According to Bruce
Avolio,41 transactional leadership occurs when the leader rewards or disciplines the
follower, depending on the acceptability of the follower’s behaviour or performance.
This type of leadership depends on establishing agreements, providing reinforcement,
and giving positive contingent rewards (or the more negative active or passive forms of
management-by-exception). Perceptions of trust, justice and fairness play a vital role in
this leader−follower relationship.
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Bass and Avolio42 developed the full range leadership development model and an
instrument, the multifactor leadership questionnaire (MLQ) to assess a leader’s
transactional and transformational leadership style. The model comprises three
components of transactional leadership and four components of transformational
leadership. The three components of transactional leadership are contingent reward,
management-by-exception (active) and management-by-exception (passive) leadership
behaviour (see Table 11.9 below).
Table 11.9 Components of transactional leadership
Components of transactional leadership
Leader behaviour
Contingent reward
■
Management-by-exception (active)
■
Management-by-exception (passive)
■
(laissez-faire leadership)
Employs goal setting to help clarify what
is expected of followers and the rewards
they will receive for accomplishing goals
and objectives
Acts as monitor whose main aim is to
detect variances between the planned
objectives and actual performance
Takes action only when something goes
wrong, indicating the avoidance or
absence of leadership
Source: Adapted from Avolio, BJ. 2011. Full range leadership development, 2nd ed. Thousand Oaks,
California: Sage Publications Inc, pp 63−66.
Contingent reward is the most effective leader behaviour while management-byexception (passive) indicates a leader’s passive indifference about the task and followers
and represents the weakest leadership behaviour.
11.5.3 Transformational leadership
Transformational leadership is more emotion-based than transactional leadership43 and
involves heightened emotional levels.44 Burns described transformational leadership as a
process in which ‘leaders and followers raise one another to higher levels of morality and
motivation’.45 Apart from their ability to create a strong vision, transformational leaders
(and socialised charismatic leaders), have characteristics such as strong communication
skills, self-confidence and strong moral principles, the ability to inspire trust, a high risk-,
energy- and action orientation and usually a self-promoting personality. Moreover, they
have the ability to empower others — they usually create minimum internal conflict
and have close working relationships with followers.46
The effect of transformational leaders on followers is that followers ‘feel trust,
admiration, loyalty and respect for their leader’.47 Followers of transformational leaders
are motivated to do more than what is expected of them. Transformational leaders
appeal to their followers’ values and their sense of a higher purpose by identifying and
communicating organisational (or societal) problems and by articulating a compelling
vision of how the organisation (or society) can improve.48 This vision links to the values
of both the leader and the followers.
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The effects of transformational leadership in organisations include positive changes
in organisational culture and learning and a move from focusing on self-interest to
focusing on collective interests. In most organisational contexts, transformational
leadership is desirable because it improves employee satisfaction, trust and commitment.
Results of research studies indicate that transformational leadership consistently
promotes greater organisational performance.49 Transformational leaders are also
effective in organisations undergoing major change and transformation. Furthermore,
when transformational leaders develop, support and empower their followers, their
transformational qualities enhance their authentic and ethical qualities. Conversely,
leaders’ authentic and ethical leadership effectiveness have less of an impact if they lack
the empowering capacity of transformational leadership.
The full range leadership development model of Bass and Avolio50 comprises, in
addition to the three transactional leadership components, also four components of
transformational leadership. These components are idealised influence, inspirational
motivation, intellectual stimulation and individualised consideration (see Table 11.10 below).
Table 11.10 Components of transformational leadership
Components of
transformational
leadership
Examples of leader behaviour
Idealised influence
Shows determination, displays unusual talents, takes risks, empowers,
is dedicated to a cause, creates a feeling of joint mission, deals with
crises, uses drastic solutions and has faith in followers
Inspirational
motivation
Inspires and motivates others by providing meaning and challenge,
paints an optimistic picture of the future, enhances team spirit, displays
enthusiasm, articulates and communicates shared organisational goals
and a mutual understanding of what is right and important; provides a
vision of what is possible, and how to attain organisational goals
Intellectual
stimulation
Approaches problems, particularly persistent ones, by questioning
previously used assumptions to solve such problems, stimulates
followers to be creative and innovative and approaches old problems
with new solutions
Individualised
consideration
Shows empathy towards followers’ capabilities, needs and desires and
treats followers as unique, thus reducing frustration and competition;
supports, encourages and coaches followers; demonstrates moral and
ethical conduct
Source: Adapted from Avolio, BJ. 2011. Full range leadership development, 2nd ed. Thousand Oaks,
California: Sage Publications, Inc., pp 63−71.
Effective leaders use both transactional and transformational leadership styles.
Transformational and transactional leadership are interdependent and complementary
and not opposites from one another. Without the more positive forms of transactional
leadership, such as setting goals and expectations and monitoring performance to detect
variances, leaders would be limited in their ability to succeed in performance outcomes.
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In other words, transactional leadership adds to transformational leadership. However,
successful transactional leaders without transformational leadership will not achieve the
same level of performance outcomes.51 Leaders who are able to balance transactional
and transformational leadership over time in various situations and meeting a variety of
challenges tend to be the most effective.52
Criticism against the transformational leadership theory relates to one of the
four “I’s” described above. The idealised influence component may have the effect that
followers find the leader attractive to the extent that they wish to emulate him or
her, which may lead to a dependence on the leader or the leader could even use it to
manipulate followers.
Bass and Steidlmeier53 responded to this criticism by distinguishing between two
types of transformational leaders: (1) the moral, ethical and authentic transformational
leader and (2) the pseudo transformational leader, who is more likely to use
idealised influence in an unethical way to manipulate followers. Such leaders possess
transformational qualities, but are lacking in moral and ethical behaviour.
Authentic transformational leadership requires a moral foundation to enable a
leader to influence the motivation of individual followers to attain organisational goals.
Note the emphasis on performance outcomes. While transformational leaders focus
on encouraging and rewarding follower performance to attain organisational goals, the
drivers of authentic leadership actions (see next section on authentic leadership) are
ethics, morality and high values.
Identifying individuals with the potential to become transformational leaders is
particularly relevant in South Africa. This is because of the unique socio-economic
context of a country in which organisations need to transform rapidly, procure large
numbers of employees from previously disadvantaged groups and develop effective
managers. In addition, major change, including a global and local recession (or even
a depression), the economic, health-related and societal effects of the COVID-19
pandemic and other environmental challenges are forcing organisations to change.
South African organisations need authentic transformational leaders who can lead
them through these changes to remain competitive in a complex business environment.
11.5.4 Emotional intelligence (EQ) and leadership
Various research studies54 established the correlation between a leader’s emotional
intelligence and transformational leadership style. Salovey and Mayer were the first
researchers to use the term ‘emotional intelligence’ (EQ). They defined EQ as ‘the
ability to monitor one’s own and others’ feelings and emotions, to discriminate amongst
them and to use this information to guide one’s thinking and actions’.55
Daniel Goleman’s conception of EQ has moved beyond the original definition
of Salovey and Mayer to include emotional competencies in the workplace. He defined
emotional competencies as ‘a learned capability based on emotional intelligence
resulting in outstanding performance at work’.56
Emotional competence determines the potential of a person to learn the practical
skills that underpin four emotional intelligence clusters. Emotional competence
indicates how much of that potential a person realised by learning and mastering
skills and translating intelligence into capabilities to do a job. Goleman’s emotional
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competence inventory (ECI) involves 20 competencies that distinguish individual
differences in work performance. The competencies support four clusters of general EQ
skills: self-awareness, self-management, social awareness and relationship management.
The ECI is a multirater instrument that is used to measure the emotional competencies
of managers at all levels of the organisation in various organisational settings. The four
clusters of EQ skills entail the following competencies:57
1. Self-awareness: emotional self-awareness, accurate self-assessment, and selfconfidence
2. Self-management: self-control, trustworthiness, conscientiousness, adaptability,
and achievement drive
3. Social awareness: empathy, service orientation, and organisational awareness
4. Relationship management: developing others, influence, communication, leadership, change catalyst, building bonds, and teamwork and collaboration.
The results obtained in many of studies, where the researchers used the ECI instrument
to assess people at all levels, in a wide range of organisations across diverse industries,
indicate that each competence has a significant impact on performance. ‘Star performers’
typically exhibit excellence in six or more of the competencies.58
Commenting on the relationship between leadership and EQ, Goleman quoted evidence
suggesting that emotionally intelligent leadership is key to creating an organisational
climate that develops and supports employees and encourages them to give their best.
Researchers correlated the analyses of data from 3 781 executives with climate
surveys based on the responses of employees working for the executives. The results
suggested that 50−70 per cent of the employees’ favourable perceptions of working
climate linked to the EI strengths of the leader. Another study established a similar
relationship between leaders’ EI strengths and business results.59
Values-based leader behaviours have a moral, authentic and ethical dimension.
11.6 VALUES-BASED LEADERSHIP
The first two decades of the twenty-first century were characterised by shocking ethical
leadership failures, both in the public and private sectors worldwide. South Africa was
not spared. Evidence gathered by the Zondo Commission of Inquiry on State Capture
dominated the news as South Africans listened to evidence revealing how the country
was systematically defrauded by corrupt politicians and their friends, business leaders
and reputable international companies. Greed, corruption, graft and corporate scandals
emerged involving SOE’s and reputable global and local companies. Charismatic and
seemingly transformational leaders revealed an astounding lack of a moral and ethical
dimension, not only in South Africa, but also in the rest of the world. The response of
leadership and management theorists to this leadership failure was to refocus on ethics
and morality as vital characteristics of effective leadership. Values-based leadership
describes behaviours that are based on an ethical and moral foundation. Prominent
values-based leadership research includes authentic leadership, ethical leadership and
servant leadership.
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11.6.1 Authentic leadership
Authentic leaders have insight into their own self and are aware of their strengths,
weaknesses, values and principles.
As explained in the previous paragraph, the evolution of authentic leadership emerged
from an era beset by political and corporate failures. In response to such a leadership
crisis, researchers George, Avolio and Gardener60, to name but a few, turned their focus on
examining and developing the inner qualities of ethical behaviour and morality in leaders.
Bill George61, a leadership consultant, explained the need for moral and ethical leaders:
‘... we need leaders who lead with purpose, values, and integrity; leaders who build
enduring organizations, motivate their employees to provide superior customer service,
and create long-term value for shareholders.’ There was ‘a need to concentrate on the
root construct underlying all positive forms of leadership and its development’ and
the researchers labelled it ‘authentic leadership development’.62 Researchers related
leadership to authenticity or ‘being true to yourself ’, a construct that dates back to
ancient Greece.
Authentic leaders possess ‘a keen insight into their own self and are aware of their
strengths, weaknesses, values and principles. They are consistent in the application
of these principles, despite any external pressures that may encourage them to act in
another way, thus being true to themselves. The consistency of application attracts
followers’.63 Authentic leaders use their own natural abilities and recognise their own
shortcomings, working hard to overcome them. Authentic leaders know who they are,
know what they think and how to behave.64 They are perceived by others as being aware
of their own and others’ values or moral perspectives, knowledge and strengths and are
aware of the context in which they operate. They are confident, hopeful, resilient and of
high moral character.
George65 identified five dimensions of individual and leader authenticity and linked it
to five characteristics that authentic leaders display in everyday behaviour.
1. Purpose or mission: Authentic leaders act with passion. They understand their
purpose and mission.
2. Values: The characteristic of leader authenticity associated with this dimension
is behaviour. Authentic leaders embrace and apply strong values in their everyday
behaviour.
3. Relationships: A characteristic of authentic leaders’ behaviour is connectedness.
They create enduring relationships based on trust.
4. Self-discipline: The characteristic of leader authenticity associated with
this dimension is consistency. Authentic leaders exhibit self-discipline in their
interactions with others.
5. Heart: In their everyday behaviour, authentic leaders act with compassion. They
lead from the heart.
According to George66 organisations driven by their missions and led by authentic
leaders have a better chance of creating long-term stakeholder value than those that are
exclusively profit seeking.
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As the construct of authentic leadership developed, different definitions and
descriptions of authentic leadership emerged. Gardner, Avolio, Luthans, May and
Walumbwa67 attempted to clarify, categorise and integrate these different perspectives.
They identified the critical behaviours of an authentic leader as follows:
1. Self-awareness, which refers to a thorough understanding of one’s internal values,
thoughts, emotions, and beliefs.
2. Self-regulation, comprises the following leader behaviours:
a) internalised moral regulation as behaviour and actions are guided by integrity
and according to the leader’s values and beliefs
b) balanced processing as the leader avoids personal bias and considers diverse
perspectives in decision making
c) relational transparency demonstrated in conversations and behaving with
integrity when interacting with others
d) authentic behaviour by aligning values with intentions and actions.
Authentic leadership occurs when self-awareness and self-regulation behaviours by
both leaders and followers are present, fostered and nurtured, thus stimulating positive
growth and self-development on the part of leader and follower.
Gardner, Avolio, Luthans, May and Walumbwa68 identified a number of factors that
enable leaders to develop their authentic leader behaviour.
a) The personal history of the leader plays a major role, including family influences,
early challenges, educational and work experiences.
b) Authentic leadership behaviour is also influenced by key trigger events in the life of
the leader. This may include crises but also positive events.
c) The exposure to positive role models, such as authentic leaders who behaved
with integrity and a commitment to core ethical values, which created a positive
organisational climate, can influence a leader to exhibit similar authentic leadership
behaviour.
Authentic followership is a positive consequence of authentic leadership and can
result in follower outcomes such as increased follower trust, workplace well-being and
genuine, sustainable performance improvement.69
Avolio and Gardner70 argued that leaders’ authentic leadership behaviour can be
developed by increasing:
a) positive capital such as confidence, optimism, hope and resiliency
b) positive moral perspective
c) leader self-awareness
d) leader self-regulation
e) improvement of leadership processes and behaviours
f) follower self-awareness
g) moderating the impact of organisational climate.
These interventions can lead to more authentic leadership and follower behaviour and
to improved, sustainable organisational performance.71
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Ethical leaders are altruistically motivated, and they demonstrate a genuine caring and
concern for people.
11.6.2 Ethical leadership
In leadership studies, according to Joanne Ciulla72 the question to ask is not ‘what is
leadership?’ but rather ‘what is good leadership?’ By ‘good’, she meant that leadership
that has a moral and an effective dimension. To be called a good leader, he or she has
to be morally good (moral dimension) and good at what they do (effective dimension).
Ciulla described an ethical leader as someone who does the right thing, in the right way,
and for the right reasons.
Historically, the term ethics was viewed from a philosophical perspective. Prior
to the seminal studies by Brown, Treviño and Harrison73 and Brown and Treviño74,
research was scant and fragmented on the topics of evaluating and describing ethical
leadership or the implications of such leadership. The wide-ranging studies by these
authors influenced the ethical leadership construct.
They differentiated between a moral person (the character of the leader) and a moral
manager (the leader’s attempts to influence followers ethically). Treviño, Brown and Harman75
studied the principled manner in which ethical leaders made decisions and concluded
that the ethical leader (as a moral person) is caring, honest, trustworthy and fair, makes
decisions based on principles and acts ethically in their professional and personal lives.
The moral manager communicates his or her ethical principles to followers and the
wider organisation and attempts to influence others in the organisation to act in an ethical
manner through role modelling ethical behaviour, allocating rewards to encourage ethical
behaviour, and consistently giving out an ethical message through all communications76.
Brown and Treviño77 argued that ethical leaders, similar to authentic and
transformational leaders, are altruistically (unselfishly) motivated, and they demonstrate
a genuine caring and concern for people. They are considered to be individuals of high
integrity; they make ethical decisions and serve as role models for others. The authors
identified similarities and differences between ethical leadership and related theories
and argued that the hands-on concern of ethical leaders for their followers to behave
ethically distinguish them from authentic and transformational leaders. Ethical leaders
communicate and emphasise the establishment of ethical standards and accountability
for, and adherence to, those principles.
Brown, Treviño and Harrison78 defined and validated the construct of ethical
leadership by examining seven interlocking studies. The authors used social learning
theory as a theoretical basis for ethical leadership and found that the construct is related
to, but not incorporated, by any of the following,
a) consideration behaviour
b) honesty
c) trust in the leader
d) interactional fairness
e) socialised charismatic leadership as measured by the idealised influence dimension
of transformational leadership
f) abusive leadership.
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Ethical leadership differs from other values-based theories as it emphasises the classic
leader-subordinate relationship. The focus is solely on intra-organisation contextual factors.
Ethical leadership is a predictor of outcomes such as the perceived effectiveness of
leaders; the job satisfaction and dedication of followers and their willingness to report
problems to management.79
Responsible leadership refers to a values-based and ethical principles-driven relationship
between leaders and stakeholders, connected through a shared sense of meaning and purpose.
11.6.3 Responsible leadership
Responsible leadership refers to a values-based and ethical principles-driven relationship
between leaders and stakeholders, connected through a shared sense of meaning and purpose
through which they raise one another to higher levels of motivation and commitment
for achieving sustainable values creation and social change80.
Responsible leaders connect effectiveness with corporate responsibility and a
concern for stakeholders. They tend to see business organisations as a force for good and
aim to achieve mutually-shared objectives by promoting active citizenship internally
and external to the organisation.
Responsible leadership provides a convincing perspective on how to connect
leadership to stakeholder theory because leader-stakeholder relationships are at the
core of this theory.
Responsible leadership addresses gaps in leadership theory relating to questions
such as (1) the role of leadership and leaders in a network of stakeholders, and
(2) how leaders should lead responsibly across various, potentially conflicting needs
and interests.81 Responsible leadership responds to both gaps in leadership theory and
the practical challenges facing leadership because it seeks to define the meaning of
‘responsible’ in the context of leadership. It also expands the view from a traditional
leader-subordinate perspective to leader-stakeholder relationships.
Research on responsible leadership follows two streams. The first seeks to
conceptually and empirically investigate what might be described as responsible
leader mindsets and it reveals the complexity of responsible leadership. The second
attempts to clarify who should be included as a ‘relevant other’ in networks of leaderstakeholder relationships, connecting stakeholder theory to leadership. Responsible
leadership is emerging as a multilevel theory that connects individual, organisational,
and institutional factors and constitutes a fluid field of study.82
Servant leaders ensure that other people’s highest priority needs are addressed.
11.6.4 Servant leadership
Robert Greenleaf developed the concept of leaders as servants of people. According to
him, the primary purpose of a leader should be to serve others. Servant leadership can
range from encouraging and assisting others in their personal development to helping
people find purpose in their jobs. Servant leadership is when the leader ‘transcends
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self-interest to serve the needs of others, help others grow and develop and provide
opportunities for others to gain materially and emotionally’.83
Servant leaders put service before self-interests by choosing to use their talent for
the benefit of individuals and the organisation. They have the ability to listen to others,
to make an effort to understand their problems and show confidence in them. They do
not impose their will on others, but attempt to understand what the group needs or
wants and then to further those interests to the best of their ability.
Servant leaders inspire trust by being trustworthy (see the explanation of these concepts
in the first section of this chapter). Servant leaders help others to find the power of the
human spirit and accept their responsibilities. They show an openness and willingness to
empathise with others and because they create close relationships, they show their own
human vulnerability.84 Servant leaders focus mainly on the growth and well-being of people
and the communities to which they belong. Servant leaders share power, put the needs of
others first and help people to develop and perform to the best of their ability. Greenleaf ’s
explanation of the difference between servant leaders and other leaders lies in the care
taken by the servant leader to ensure that other people’s highest priority needs are addressed.
The similarity between responsible leadership and servant leadership is that both
approaches recognise that leadership is about the constituencies of the leader, such as
stakeholders and followers. Leaders envision a desired future and bring together service
and meaning and leaders and followers or stakeholders raise one another to higher
levels of motivation and morality.85
However, responsible leaders focus on organisational and societal considerations
and not only on helping others grow, which is the focus of servant leaders. The prime
motivation of responsible leaders is to respond to others — not to serve them. Followers
are stakeholders in the view of responsible leaders. Furthermore, responsible leaders are
not necessarily driven by spirituality or an inner calling like servant leaders, although
they are intrinsically motivated.86
11.7 LEADERSHIP IN AN ENVIRONMENT CHARACTERISED BY CHANGE
Agile leadership is the ability of a leader to be able to lead in a wide range of circumstances
especially in new, changing and ambiguous situations.
11.7.1 Agile leadership
Agile leadership87 is the ability of a leader to be able to lead in a wide range of circumstances
especially in new, changing and ambiguous situations. Such leaders use uncertainty to find
opportunity. They are inclined to be obsessive learners and talented innovators who
have the ability (and agility) to operate in any system of thinking and to see issues from
the perspectives of others. It is this ability to think in a number of different ways that
gives such leaders their agility.88
Agile leaders gather input from both inside and outside the boundaries of their
organisations and they trust the opinion of experts. When new information becomes
available, rapid technology changes occur or new digital competitors appear, the agile
leader adapts. Such leaders are experts at dealing with complexity and they are willing
to change course when new information becomes available.
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In the context of agile leadership, being a visionary leader entails the creation of a
compelling, genuine vision and sharing it throughout the organisation, thus creating
a common identity and a sense of destiny. In times of rapid advances in technology,
disruption of business models and new opportunities and threats (such as COVID-19),
a clear vision is critical for the organisation to succeed.
Agile leaders focus on identifying emerging digital opportunities or competitive
threats. Such leaders place great value on digital technologies to gather and analyse data
and they seek new data sources to support their informed decision-making. Prior to
making a decision, agile leaders locate the best available data sources and they apply
applicable analytics. Furthermore, when presented with inadequate or inconsistent
data, they rely on their experience and gut-feel.
Agile leaders need to move rapidly and they must be willing to execute decisions fast,
even if it is not perfect, as speed is vital. In an environment characterised by disruption,
the effectiveness of informed decision-making is significantly reduced if the leader is
unable to act fast. Agile leaders can only be effective if they can execute an informed
decision quickly, despite organisational, structural or monetary barriers.
11.7.2 Peer-to-peer leadership89
Current leadership practices, as discussed in this chapter, do not always align with the
new realities of organisational life in certain industries. As a result, there is a shift from
traditional leadership practices to peer-to-peer leadership.
Peer-to-peer leadership is effective in organisations using an interconnected central
network. The concepts of the node (a person’s computer in a network), node-community
(all the computers in a network), equipotency, (all nodes in a node community on equal
footing) and relational dynamics (the interaction between nodes) frame a new concept
of peer-to-peer leadership.
The work of a manager in an equipotent organisation is to set overall goals, provide
direction and ensure that the network functions well, but not to tell the node community
what to do. In the node community, leadership roles shift rapidly to fit the needs of a
given situation. Information flows freely and those who need it can find it and act on it
immediately. Feedback becomes an organic part of the workflow and corrections take
place immediately.
Big accounting firms use peer-to-peer leadership to great effect. A central
interconnected network enables an audit team to form a node community. As the clerks
and managers work on their specified tasks from their nodes, they add information to the
file that is accessible to the node community. The audit managers review the information
on the audit file and provide immediate online feedback for clerks or managers to do
corrections immediately. Everyone in the node community shares information and
provides input and feedback to each other to complete the audit.
Leadership roles shift when the situation changes. An example is a situation where
expert IT input is required from a clerk in the node community, or a clerk from outside
the community (who will then join the node community) to provide feedback and
direction on a specific IT-related problem. This person takes over a leadership role in
the node community to solve the problem.
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The node community has a common goal — to complete the audit to the highest
standard. The role of the partner allocated to the audit is to formulate overall goals,
provide general direction and see to the health of the network, but not to play an
exclusive leadership role in the node community.
Peer-to-peer leadership is a new way to provide leadership in organisations by using
technology and the interconnectedness of a network where everyone is a sender and a
receiver, and a leader and a follower to attain the goals of the organisation.
The ultimate aim of effective leadership in a business context is the ability to get
employees to attain organisational goals. The various theories that we have discussed
in this chapter represent the findings of researchers who have studied leadership from
different angles, depending on their preferences and the timeline of their research and
the contributions they made to the body of knowledge in the study field of leadership.
11.8 LEADERSHIP AND POLITICAL BEHAVIOUR IN ORGANISATIONS
The idea of organisations where organisational members seek common goals and where
they see politics and politicking as undesirable elements, prevents us from recognising
its necessity. Jeffrey Pfeffer,90 an expert on the subject of the use of power and politics in
organisations, argued that effective managers know that in order to succeed, they need
two competencies or skills: substantive business acumen (to know what to do), and
organisational or political skills (to get it done).
When managers or leaders in organisations convert their power into influence and
action, they are engaging in politics. Those with good political skills can use their bases
of power effectively. They use specific influence tactics to obtain compliance.
Political behaviour in organisations includes activities that are not required as part
of an employee’s formal role, but are performed to influence or attempt to influence
the distribution of advantages or disadvantages in the organisation. Legitimate political
behaviour refers to actions that occur on a daily basis in organisational life, such as
forming alliances or coalitions, using one’s networks to attain goals and so on. Illegitimate
political behaviour includes extreme and damaging behaviour that infringes the rights
of the organisation and its members, for example withholding crucial information
or sabotage.
Any form of major change, such as strategic or structural change, will inspire various
forms of political action from various actors across the organisation. Mobilising support
requires an understanding of interests and power and using one’s knowledge of it to
your advantage to achieve the desired outcomes.
Consider a scenario where a manager is promoting a major change intervention in
an organisation and needs to get buy-in from various other managers before proceeding
with the intervention. The manager can attempt to secure the approval of the other
managers by taking certain political actions.91
The first step would be for the manager to recognise the differences in interests and
goals of the individuals and groups who oppose the idea and find ways to unite them to
yield advantages to all. The manager also needs to identify the individuals and groups
whom the change will affect, and map their interest (as well as their sources and bases
of power).
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It is essential to identify possible supporters and blockers of the change intervention,
the potential stakeholders and the existing coalitions. The manager needs to obtain ‘buyin’ and shared ownership of the decision by finding supporters who will act together
to support the decisions and who would be willing to build coalitions to change the
dissemination of power.
To facilitate the process described here, managers should create and use upwards,
downwards and horizontal networks in their organisations. Lastly, it is worth reminding
oneself that the aim of political action should be to negotiate solutions and outcomes
with the purpose to create win-win outcomes.
Although the perception of political behaviour by managers often rests on negative
assumptions, many effective actions in organisations have at the very least a political
element. Critical organisational issues often require individuals (often managers) to
mobilise the support from individuals or groups in control of organisational resources
to attain the desired outcomes.
To obtain outcomes beneficial to all parties, it is essential for managers to have conflict
management and negotiating skills, which is a topic we shall discuss in Chapter 15.
11.9 SUMMARY
Leadership is an influence process that produces acceptance or commitment on the part
of organisational members to participate willingly in courses of action that contribute
to the effectiveness of the organisation.
Organisations need leaders to deal with change stemming from business environments
characterised by major, ongoing change. To deal with change, organisations need leaders
to provide a vision (direction), communicating and obtaining support for the vision
(aligning people) and motivating and inspiring people to follow the vision. The result
of ongoing change is that organisations become more complex. Managers need to deal
with this complexity in their organisations. To this end, they perform the management
functions of planning, organising, and controlling to attain their organisations’ goals in
an environment characterised by change.
Leaders are able to influence others because they possess power. Power is the
potential to influence behaviour, to change the course of events, to overcome resistance,
and to get people to do things they would not otherwise do. The power leaders have
stems from the following sources identified by French and Raven: legitimate power,
reward power, referent power and expert power. The other components of leadership
are authority, responsibility, accountability and delegation.
The early leadership studies focused on the personal qualities and characteristics of
successful leaders. Traits are the unique personal characteristics of a person and trait
research focused on the characteristics of strong leaders.
Researchers of the behavioural approach to leadership attempted to determine how
people who lead successfully act, for example, how they delegate, communicate and
motivate their employees. The assumption was that managers could learn to lead in
the one ‘right’ way. The contingency theories of leadership focus on the most effective
way to lead in different situations. The LPC contingency model, path—goal model and
Hersey and Blanchard’s theory form part of this approach.
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Charismatic, transactional and transformational leadership have a substantial influence
on the understanding of effective leadership. The value-based leadership theories have
an ethical and moral foundation and include authentic leadership, ethical leadership,
servant leadership and responsible leadership.
Political behaviour in organisations include activities that are not required as part
of an employee’s formal role, but are performed to influence or attempt to influence
the distribution of advantages or disadvantages in the organisation. Legitimate political
behaviour refers to actions that occur on a daily basis in organisational life, such as
forming alliances or coalitions, using one’s networks to attain goals
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60. Ibid.
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71. Ibid.
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81. Ibid.
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83. Ibid.
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86. Ibid.
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88. Ibid.
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93. Ancona et al, op cit, pp M2: 41−45.
CASE STUDY
Leadership during the COVID-19 crisis
By the end of February 2020, leaders worldwide were confronted with the same problem:
the Coronavirus was spreading fast to every continent and most countries in the world. They
had to take action against a deadly enemy and they had scant information on which to base
their decisions on leading their countries through the crisis.
In hindsight, the ones who took the best decisions were disproportionately women, despite
the fact that women account for only 7% of heads of state. The female leaders of Germany,
New Zealand, Norway, Taiwan, Iceland, Denmark, and Finland acted quickly and decisively.
These countries contained the pandemic through early, scientific intervention. They took
action by implementing widespread testing, providing easy access to quality medical
treatment, engaged in aggressive contact tracing, enforced tough restrictions on social
gatherings and implemented lockdown regulations.
Germany’s Chancellor Angela Merkel oversaw the largest-scale coronavirus testing program
in Europe, conducting 350,000 tests each week, enabling the country to detect the virus in
time to isolate and treat patients effectively. Early intervention measures in Taiwan under
the leadership of President Tsai Ing-wen controlled the coronavirus pandemic so successfully
that during April 2020 the country exported millions of face masks to help the European Union
counties and others. In New Zealand, Prime Minister Jacinda Ardern took early action to shut
down tourism and impose a month-long lockdown on the entire country, limiting coronavirus
casualties to one of the lowest rates in the world. In Denmark the prime minister, Mette
Frederiksen, acted firmly in the second week of March closing the country’s borders and a few
days later closing all kindergartens, schools and universities and banning gatherings of more
than 10 people. Her clear instructions to the nation have been widely praised. Finland’s prime
minister, Sanna Marin moved decisively to impose a strict lockdown, including a ban on all
non-essential travel in and out of the Helsinki region. Iceland, under the prime minister, Katrín
Jakobsdóttir’s, leadership, offered free testing to all citizens, not only those with symptoms
and implemented an exhaustive tracing system. Norway’s prime minister, Erna Solberg,
confirmed in a television interview that she had made a point of allowing scientists to make the
big medical decisions and added that she thought her country’s early lockdown and thorough
testing programme had been key to contain the spread of the virus.
➜
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Cami Anderson, a contributor to Forbes, has interviewed social scientists and authors of
books and articles on leadership, human behaviour and gender differences to understand
why female leaders were so effective during a time of worldwide crisis. Through her
interviews, she learned the following about female leadership:
■
■
■
■
It is generally accepted, and research has proven, that women are more other-directed
and emotionally intelligent. However, women are also strong in traditional ‘male’
qualities, such as being decisive and being able to make hard calls but there is a double
standard for women, and because of this, women are more likely to overcome the odds
and become more well-rounded leaders.
Female leaders seek input and they listen — they are not overconfident. A McKinsey
study found that men are more likely to lead by a control and corrective action’. Women
are more likely to cultivate a diverse set of advisors and a network to help them succeed.
They will pay for advice and they will follow it. To be able to accept that you do not have
all the answers and to listen to people with expert knowledge has served the female
leaders well during the coronavirus crisis.
Female leaders rank higher on people-orientation and on vision setting. The McKinsey
study identified vital leadership characteristics and then investigated the tendencies
men and women display under normal circumstances and during a crisis. They found that
women are indeed more people-oriented and also that they spend more time to develop
and coach other leaders in their organisations. Furthermore, the researchers found
that women are inclined (statistically more than their male counterparts) to do more of
the following during a crisis (1) managing ‘expectations and rewards’, which involves
defining roles, clarifying expectations and rewarding expectation targets; (2) ‘inspiration’,
which entails offering a compelling vision of the future and an optimistic plan to
implement the vision; (3) ‘task orientation’ and (4) ‘solving problems in creative and
flexible ways’. In other words, women possess the qualities of transformational leaders,
which we discussed in this chapter on leadership. One example of a transformational
leader is the Prime Minister of Norway’s who held a much-lauded press conference
for the children of her country, however far less attention was given to her visionary
multilateral cooperation plan and the well-executed measures she implemented to stop
the spread of the virus.
Female leaders see and manage risk differently than their male counterparts. Scientists
observed the cortisol levels of both sexes in response to physical stress and found that
men were more likely to fight back and select more risky pathways whereas women were
less likely to experience big changes. In risky situations, women are more likely to make
data-driven, sure-bet decisions as opposed to risky ones where the consequences are
huge and uncertain. The researchers concluded that women are less likely to take risks
during a crisis than men.
After she conducted the interviews, Cami Anderson concluded her article in Forbes: ‘The
story of the spread and unthinkable human tragedies of COVID-19 is the ultimate case study
in high-stakes leadership. I don’t think any of us can afford to miss the lessons here. All
leaders, including men, can learn from what we have seen women do in this crisis.’
➜
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Sources:
Anderson, C. 2020. ‘Why do women make such good leaders during COVID-19?’. Forbes, April 19.
Available at: https://www.forbes.com/sites/camianderson1/2020/04/19/why-do-women-make-suchgood-leaders-during-covid-19/. (Accessed: 1 June 2020).
Hong Fincher, L. 2020. ‘Women leaders are doing a disproportionately great job at handling the
pandemic. So why aren’t there more of them?’ CNN, April 16. Available at: https://edition.cnn.
com/2020/04/14/asia/women-government-leaders-coronavirus-hnk-intl/index.html. (Accessed: 1 June
2020).
Henley, J & Roy, EA. 2020. ‘Are female leaders more successful at managing the coronavirus crisis?’.
The Guardian, 25 April. Available at:
https://www.theguardian.com/world/2020/apr/25/why-do-female-leaders-seem-to-be-moresuccessful-at-managing-the-coronavirus-crisis. (Accessed: 1 June 2020).
CASE STUDY QUESTION
Use the full range leadership development model of Bass and Avolio to explain why
female leaders led their respective countries so effectively during the coronavirus crisis.
Support your answers with appropriate examples from the case study.
MULTIPLE-CHOICE QUESTIONS
Question 1
John Kotter makes a distinction between leadership and management. Which of the
following people’s behaviour can be described as leadership?
1. John formulates goals and plans to achieve the goals.
2. Thabo develops a structure for the assignment of tasks and resources.
3. Jane manages the complexities of policies, processes and procedures.
4. Sylvia communicates the vision and inspires employees.
Question 2
Students elected Vusi, a third-year university student, to serve on the Student
power to protect the interests
Representative Council (SRC). Vusi has
of fellow students at SRC meetings.
1. referent
2. expert
3. legitimate
4. reward.
Question 3
Vivek is an excellent programmer and excels in jobs for clients requiring changes to their
unique and complex information systems. He sets his own goals and believes he can
achieve them. Which one of the following leadership styles identified by Robert House
should Vivek’s manager use?
1. Directive
2. Supportive
3. Participative
4. Achievement-oriented.
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Question 4
The manager of Sally, a newly qualified chartered accountant (CA), instructs her to
audit a new client. Sally is shy, with little self-confidence and she is hesitant to take
on so much responsibility. The leadership model developed by Hersey and Blanchard
leadership style.
proposes that Sally ’s manager should use a
1. S1 − Telling
2. S2 − Selling
3. S3 − Participating
4. S4 – Delegating.
Question 5
Steve is a popular manager at a medium-sized construction company. He has good
people skills resulting in a good morale and team spirit amongst employees. Although
his team sometimes falls behind schedule with a contract, their performance on the
whole is adequate. Identify Steve’s leadership style on the Leadership Grid.
1. Middle of the road
2. Team
3. Impoverished
4. Authority-compliance.
Question 6
Thandi’s LPC score revealed that her leadership style is task-oriented. She works as
a project manager. Although she has a good relationship with all her employees, she
formulates non-negotiable performance goals and schedules and controls activities
accordingly. She links her employees’ rewards to their performance. Sally is an effective
leader because her leadership style fits the situation. Identify her situation according to
Fiedler’s LPCW theory.
1. 1
2. 2
3. 5
4. 6
Question 7
Tom is the chief executive officer (CEO) of a banking group in South Africa. The
organisation is implementing a major change programme. Tom is considered to be the
leadership style.
right person to lead this change because of his
1. authentic
2. transformational
3. transactional
4. ethical.
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Question 8
Mandy is the manager of a post office branch. She sets objectives and standards for
her branch and evaluates the performance of her employees according to the policies
and procedures she receives from head office. She has the authority to recommend
that specific deserving employees receive merit bonuses. Mandy uses
leadership to manage the branch.
1. transactional
2. charismatic
3. transformational
4. servant.
Question 9
Which one of the following would be unacceptable political behaviour for Joseph, the
manager of an academic section who is trying to get the support of academics in the
department for an idea he plans to table at the next departmental meeting?
1. Finding allies who would support him if they can benefit from his plan
2. Using his power and influence as a manager to convince the academics in his section
to support the idea for the good of their section
3. Informing his employees that he would not support their applications for study
leave if they fail to support him
4. Identifying those in the department who will oppose his idea and try to convince
them to support it, before the meeting takes place
Question 10
Identify the form of political behaviour Tom, the manager of a big architectural firm
uses when he offers a promotion to Pete, a junior architect (whose father plans to erect
a big shopping mall) in exchange for securing the contract for the firm?
1. Rational persuasion
2. Exchange
3. Ingratiating
4. Coalition.
PARAGRAPH QUESTIONS
Question 1
Discuss the shortcomings of the trait theory.
Question 2
Would you prefer to work for a leader who has an initiating structure or a consideration
leadership style? Substantiate your answer.
Question 3
Apply Fiedler’s least referred co-worker’s (LPCW) model to your own manager and
explain the context of the section or department he or she manages. Explain why the
manager’s leadership style is effective or ineffective in that specific situation.
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Question 4
Distinguish between servant leadership and responsible leadership and give two
examples of South African leaders who display the respective leadership styles.
Question 5
Describe a specific incident in an organisational context where a manager took specific
political actions and comment on the desirability of these actions.
ESSAY QUESTION
Do an internet search to identify a prominent authentic business leader. Write an essay
on his or her leadership style using the theory on authentic leadership as a framework
for your discussion. Include an introduction and a conclusion in your essay, and use a
proper referencing technique to refer to your sources of information.
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12
12
THE
PURPOSE
OF THIS
CHAPTER
LEARNING
OUTCOMES
KEY
CONCEPTS
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INDIVIDUALS IN THE
ORGANISATION
Human behaviour is complex and each individual in the organisation is
unique. Managers need to manage these individuals successfully as they
are a critical resource of the organisation. Management is about getting
things done through other people in order to attain the organisation’s
mission and goals. It is therefore essential that managers understand
more about the people — individuals, groups, and teams — in the
organisation. This chapter looks at the key variables that determine the
behaviour of individuals in the workplace or when they work from home:
their values, attitudes, perceptions, how they learn, what motivates them,
how their personalities differ, and their different abilities. The chapter
also examines emotional intelligence as a way of differentiating between
average and superior performers. Mentoring and coaching are also
discussed as both are important management interventions that enable
the individual to realise his or her potential in the organisation.
Individuals usually function in a group or team in an organisation,
therefore this chapter also looks at group and team behaviour.
This chapter will enable learners to:
Explain why managers must know how individuals function in an
organisation
■
Explain the key variables that determine human behaviour in an
organisation
■
Suggest ways of improving individual performance in the workplace
■
Recommend mentoring and coaching as management interventions
to help individuals realise their potential in the organisation
■
Explain how emotional intelligence (EI) can be used by
management to ensure that their workforce performs optimally
■
Explain four types of workplace behaviour.
■
Ability
Attitudes
■
Coaching
■
Cognitive strategies
■
Conditioning
■
Emotional intelligence (EI)
■
Halo effect
■
Heuristics
■
Learning
■
Mentoring
■
■
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Motivation
Perceptions
■
Personality
■
Prejudices
■
Shaping
■
Values
■
Workplace behaviours
■
■
12.1 INTRODUCTION
Management is essentially about getting things done through other people in order
to attain the mission and goals of the organisation. As one of the four resources that
managers have to manage, ‘people’ is the only living resource. A sound understanding of
human behaviour is therefore essential for managers to get the best out of the employees.
SABMiller is a producer and distributor of beer and soft drinks. The company has almost
70 000 employees in more than 80 countries.1 These employees come from diverse
backgrounds, have different views of life and the organisation, have different abilities
and levels of motivation, and so on.
Managers need to understand the key determinants of the behaviour of their workers
in order to lead them to attain the organisation’s mission and goals. In South Africa, this
is a daunting task. Not only does South Africa experience a severe shortage of suitably
skilled managers, but South African business is also prone to labour strikes, go-slows,
low productivity and ‘brain-drain’ to name only a few challenges.
The Coronavirus pandemic which started in 2019 in Wuhan, China, profoundly changed the
way that we do business. At least 20% of the global population is currently in coronavirus
‘lockdown’. Countries that implemented a ‘lockdown’ to contain the spread of this virus
include South Africa, Ghana, Tanzania, the UK, China, Italy, France, New Zealand and India.
South Africa is currently enforcing one of the harshest ‘lockdowns’ anywhere in the world.
These ‘lockdowns’ meant that individuals could no longer work in their offices, physically
attend meetings and see clients on a personal basis. Managers and employees had to stay
at home and work from home — if this was at all possible. This caused a major challenge to
managers who had to manage workers who were no longer at the office or in a factory. This
new work environment influenced individual employees differently. Managers had to manage
employees who were at different emotional stages of dealing with the pandemic. Managers
had to deal with their employees’ disbelief, anger, sadness, acceptance and, eventually,
hope. To some individuals the ‘lockdown’ meant a loss of job or income. Some employees,
and managers, were completely demoralised by this new way of trying to do business.
To keep employees motivated during such a strenuous situation meant that managers had to
understand the uniqueness of each individual employee and their specific challenges.
Source: Business Insider. 2020. Available at: https://www.businessinsider.co.za/countries-onlockdown-coronavirus-italy-2020-3?r=US&IR=T
(Accessed: 3 May 2020); BBC News. 2020. Available at: https://www.bbc.com/news/worldafrica-52395976 (Accessed: 3 May 2020).
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Our focus in this chapter is on understanding how individuals function in the organisation
or when they work from home. More specifically, we focus on the key determinants of
human behaviour. Managers do not need to be expert psychologists, sociologists, or
anthropologists, but the modern manager should understand what determines human
behaviour in the workplace or when the employee is working from home. This should
enable the manager to be sensitive to the different values found in the workplace, the
types of personality that suit certain jobs, people’s attitudes regarding their jobs, and so
on. Understanding the individual is a prerequisite for leading employees (Chapter 11),
motivating them (Chapter 14), and communicating with them (Chapter 15). However,
individuals function primarily in groups and teams in organisations and our discussion
in this chapter will therefore look briefly at both groups and teams.
To understand human behaviour in the workplace or in an environment where
employees work from home, one must consider the nature of the relationship between
the individual and organisation. The nature of this relationship is depicted in a
psychological contract. This psychological contract is similar in some ways to a standard
legal contract, but it is less formal. The psychological contract refers to the overall set
of expectations held by an individual in terms of what he or she will contribute to the
organisation. An individual’s contributions refer to the effort that he or she puts into
the job, the competencies of the individual, ability, time, creativity and so forth. The
psychological contract also states what the organisation will provide in return for the
individual’s contributions. These could be the salary that the organisation provides, job
security, benefits (such as paid sick leave), career opportunities, status and promotion
opportunities. Managers must ensure that th