IIE Module Guide BMNG5111

BUSINESS MANAGEMENT 1A
MODULE GUIDE 2014
(First Edition: 2012)

This manual enjoys copyright under the Berne Convention. In terms of the Copyright
Act, no 98 of 1978, no part of this manual may be reproduced or transmitted in any
form or by any means, electronic or mechanical, including photocopying, recording or
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DID YOU KNOW?

Student Portal

The full-service Student Portal provides you with access to your academic
administrative information, including:
 an online calendar,
 timetable,
 academic results,
 module content,
 financial account, and so much more!

Module Guides or Module Manuals

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‘Module Purpose’ and ‘Textbook Information’ including the online ‘Module Guides or
‘Module Manuals’ and assignments for each module for which you are registered.

Supplementary Materials

For certain modules, electronic supplementary material is available to you via the
‘Supplementary Module Material’ link.

Module Discussion Forum

The ‘Module Discussion Forum’ may be used by your lecturer to discuss any topics
with you related to any supplementary materials and activities such as ICE, etc.

To view, print and annotate these related PDF documents, download Adobe
Reader at following link below:
www.adobe.com/products/reader.html

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IIE Module Guide BMNG5111

IIE Library Online Databases

The following Library Online Databases are available to you. Please contact your
librarian if you are unable to access any of these.

EBSCOhost
This database contains full text online articles.
http://search.ebscohost.com/
User name and password: Please ask the librarian

Inmagic
The Online Public Access Catalogue. Here you will be able to
search for books that are available in all the IIE campus libraries.
https://library.iie.ac.za/InmagicGenie/opac.aspx
No password required

SABINET
This database will provide you with books available in other
libraries across South Africa.
http://reference.sabinet.co.za/sacat
User name and password: Please ask the librarian

e-Brary
This database provides access to full text online books, some of
which form part of the IIE recommended reading lists.
http://site.ebrary.com/lib/iieza
Password: Use your Student Number

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Table of Contents
DID YOU KNOW? ..................................................................................................... 2
Using this Guide ........................................................................................................ 6
Introduction ............................................................................................................... 7
Module Resources .................................................................................................... 8
Module Purpose ........................................................................................................ 8
Module Outcomes ..................................................................................................... 8
Module Pacer ............................................................................................................ 9
Assessments ........................................................................................................... 15
Glossary of Key Terms for this Module .................................................................... 17
Learning Unit 1: The Business World and Business Management........................... 27
1 Key Concepts Covered in this Learning Unit .................................................... 27
2 Recommended Additional Reading .................................................................. 33
3 Recommended Digital Engagement and Activities ........................................... 33
4 Interactive Work Space .................................................................................... 33
Learning Unit 2: Entrepreneurship ........................................................................... 36
1 Key Concepts Covered in this Learning Unit .................................................... 36
2 Recommended Additional Reading .................................................................. 46
3 Recommended Digital Engagement and Activities ........................................... 47
4 Interactive Work Space .................................................................................... 48
Learning Unit 3: Establishing a Business................................................................. 50
1 Key Concepts Covered in this Learning Unit .................................................... 50
2 Recommended Additional Reading .................................................................. 59
3 Recommended Digital Engagement and Activities ........................................... 60
4 Interactive Work Space .................................................................................... 60
Learning Unit 4: The Business Environment ............................................................ 63
1 Key Concepts Covered in this Learning Unit .................................................... 63
2 Recommended Additional Reading .................................................................. 73
3 Recommended Digital Engagement and Activities ........................................... 73
4 Interactive Work Space .................................................................................... 74
Learning Unit 5: Corporate Social Responsibility ..................................................... 76
1 Key Concepts Covered in this Learning Unit .................................................... 76
2 Recommended Additional Reading .................................................................. 83
3 Recommended Digital Engagement and Activities ........................................... 83
4 Interactive Work Space .................................................................................... 83
Learning Unit 6: Introduction to General Management ............................................ 86
1 Key Concepts Covered in this Learning Unit .................................................... 86
2 Recommended Additional Reading .................................................................. 89
3 Recommended Digital Engagement and Activities ........................................... 90
4 Interactive Work Space .................................................................................... 90
Learning Unit 7: Planning ........................................................................................ 92
1 Key Concepts Covered in this Learning Unit .................................................... 92
2 Recommended Additional Reading .................................................................. 99
3 Recommended Digital Engagement and Activities ..........................................100
4 Interactive Work Space ...................................................................................100
Learning Unit 8: Organising ....................................................................................103

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1 Key Concepts Covered in this Learning Unit ...................................................103

2 Recommended Additional Reading .................................................................108
3 Recommended Digital Engagement and Activities ..........................................108
4 Interactive Work Space ...................................................................................109
Learning Unit 9: Leading ........................................................................................111
1 Key Concepts Covered in this Learning Unit ...................................................111
2 Recommended Additional Reading .................................................................117
3 Recommended Digital Engagement and Activities ..........................................117
4 Interactive Work Space ...................................................................................118
Learning Unit 10: Controlling ..................................................................................120
1 Key Concepts Covered in this Learning Unit ...................................................120
2 Recommended Additional Reading .................................................................123
3 Recommended Digital Engagement and Activities ..........................................124
4 Interactive Work Space ...................................................................................124
Bibliography ...........................................................................................................126
Plagiarism ..............................................................................................................127

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Using this Guide

This guide has been developed to support your use of the textbook prescribed for
this module. There may be occasions when the textbook does not provide sufficient
detail regarding a particular idea or principle. In such instances, there may be
considerable additional detail included in the guide. However, this guide should not
be used as a stand-alone textbook, as the bulk of the information that you will need
to engage with will be covered in the prescribed textbook.

In addition, each Learning Unit in this guide could contain three (3) different types of
engagement, referred to as Interactive Work Spaces, as listed below:
1. Izimvo Exchange – Izimvo is an isiXhosa word for ideas and so this is the
exchanging or sharing of ideas. These are in-class debates or discussions
linked to the subject matter and/ or current affairs.
2. Activities – These are varied interactions in which you can engage with the
subject matter.
3. Revision Exercises – These are questions/ tasks based on theory.

The purpose of the Interactive Work Space is to provide opportunities for you to
engage with the subject matter in the Learning Unit both in and outside the
classroom in preparation for assessments. In different modules there would be more
or less emphasis on the different types of engagement, depending on the nature and
objectives of the particular module.

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Introduction
This module will introduce you to the field of business management. The rapidly
changing and competitive context within which a business operates will be examined
and the purpose of a business in society discussed. The exciting field of
entrepreneurship will be investigated and the decisions relating to starting a business
explored. You will also learn about the contemporary issues relating to corporate
social responsibility.

Learning Units 6–10 focus on the primary functions of management. You will discuss
various management processes and principles which will lay a foundation for
understanding what managers do and why it is so important. The success of
business organisations relies on how well management is able to use resources
effectively and adapt to changes in the business environment. This module will
prepare you for your journey to becoming a successful business manager.

This module guide has been structured in such a way as to guide you through your
prescribed textbook, draw attention to important information and explain key
concepts. Activities are provided for you to engage with the material.

Please note that you are expected to read and research beyond your prescribed
textbook and this module guide. This is necessary to enhance your own learning and
understanding. Useful references are provided to assist you in developing a deeper
understanding of the content.

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Module Resources
Prescribed Book for Erasmus, BJ, Strydom, JW and Rudansky-Kloppers, S. 2013.
this Module Introduction to business management. 9th edition. Cape Town:
Oxford University Press.

Please note that this Module Guide is intended to support your

learning – the content of this module is in the prescribed
textbook. You will not succeed in this module if you focus on
this Module Guide only.
Recommended You will be referred to additional reading in your Module Guide.
Additional Reading Access to the Internet will be a requirement for this module.
Digital and Web This module has additional digital resources available – log on
Resources to the Student Portal, and follow the links to Supplementary
Digital Material

Other Web Resources and Web links you could access are
provided throughout this module guide.

Students should however be keeping up to date with business

news through websites such as:
 Bloomberg. 2013. [Online] Available at:
http://www.bloomberg.com/ [Accessed 11 December
2013].;
 Business Day. s.a. [Online] Available at:
http://www.bdlive.co.za/ [Accessed 11 December 2013].;
 Fin24. 2013. [Online] Available at: http://www.fin24.com/
[Accessed 11 December 2013].;
 Moneyweb. 2013. [Online] Available at:
http://www.moneyweb.co.za [Accessed 11 December
2013].

Module Purpose
The purpose of this module is to provide students with a broad introduction to the
field of business management and the business environment. Students will develop
an understanding of the basic management activities involved in the establishment
and on-going management of a business.
Module Outcomes
MO1 Demonstrate knowledge and understanding of the concepts, principles
and practices of management in the business world.
MO2 Apply knowledge of management activities in a business context.
MO3 Evaluate the impact that different business environments have on the
business and managerial roles.
MO4 Explain the role that corporate social responsibility plays in an
organisation.

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Module Pacer
Code BMNG5111 Hour Sessions 38 Credits 12
Learning Unit 1 Theme: The Business World and Notes on this LU
Business Management
Sessions: 1–4 Objectives:
Related Outcomes:  Explain, in your own words,
 MO1 the role which business
organisations play in making
available products and
services for society;
 Describe the needs of society
and its limited resources;
 Distinguish between the main
economic systems in the
world;
 Distinguish between the
different need-satisfying
institutions of the market
economy and their
contributions towards
satisfying the needs of
society;
 Describe and comment on
the nature of business
management and its
development as a science;
 Distinguish between and
comment on the different
business management
functions.
Learning Unit 2 Theme: Entrepreneurship Notes on this LU
Sessions: 5–8 Objectives:
Related Outcomes:  Explain entrepreneurship in
 MO1 your own words;
 Explain the role of
entrepreneurship and small
businesses in the economy;
 Discuss the state of
entrepreneurship in South
Africa;
 Distinguish between the
different entrepreneurial traits
and characteristics;

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Learning Unit 2 Theme: Entrepreneurship Notes on this LU

(CONTINUED)
Sessions: 5–8 Objectives:
Related Outcomes:  Comment on the skills,
 MO1 resources and industry
experience required to
become an entrepreneur;
 Distinguish between and
comment on the different
elements of the
entrepreneurial process;
 Distinguish between and
comment on the different
ways in which to enter the
business world;
 Explain what a feasibility
study is and its value to the
entrepreneur.
Learning Unit 3 Theme: Establishing a Business Notes on this LU
Sessions: 9–12 Objectives:
Related Outcomes:  Understand and explain the
 MO1 key aspects to be considered
when choosing the form of
ownership of a new business;
 Distinguish between the main
forms of enterprises found in
South Africa;
 Explain the objectives and
importance of, and need for a
business plan;
 Describe and comment on the
aspects to be included in a
business plan;
 Identify and discuss the
location factors of a business.
Learning Unit 4 Theme: The Business Notes on this LU
Environment
Sessions: 13–16 Objectives:
Related Outcomes:  Explain, in your own words,
 MO3 the meaning of environmental
change;
 Explain the composition and
characteristics of the
business environmental
model;

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Learning Unit 4 Theme: The Business Notes on this LU

Environment (CONTINUED)
Sessions: 13–16 Objectives:
Related Outcomes:  Distinguish between and
 MO3 discuss the sub-environments
of the environmental model;
 Describe and comment on
how each of the
environmental variables in the
micro, market and macro-
environments influence an
industry or business
organisation;
 Distinguish between and
comment on the differences
between opportunities,
threats, strengths and
weaknesses;
 Discuss how and why
environmental scanning is
conducted.
Learning Unit 5 Theme: Corporate Social Notes on this LU
Responsibility
Sessions: 17–19 Objectives:
Related Outcomes:  Explain “corporate social
 MO4 responsibility” (CSR) in your
own words;
 Explain the rationale for
implementing CSR
programmes in business
organisations;
 Explain corporate
governance;
 Distinguish between the
stakeholders of a business
organisation (company);
 Provide reasons why it is
important for a business
organisation to engage with
its stakeholders and how to
engage with stakeholders;
 Describe the concept
“sustainable development” in
your own words;
 Explain the contribution of
CSR to sustainable
development.

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Learning Unit 6 Theme: Introduction to General Notes on this LU

Management
Sessions: 20–23 Objectives:
Related Outcomes:  Explain the role of
 MO1 management in business;
 Describe the four
fundamental management
functions;
 Explain the management
process;
 Discuss the different levels
and functional areas of
management;
 Describe the skills needed at
different levels of
management;
 Discuss the various roles of
managers;
 Explain the development of
management theory and the
various schools of thought in
management.
Learning Unit 7 Theme: Planning Notes on this LU
Sessions: 24–27 Objectives:
Related Outcomes:  Explain, in your own words,
 MO2 the nature of planning as a
management task;
 Describe the importance of
planning as the first step in
the management process;
 Distinguish between the
elements in the planning
process;
 Evaluate whether goals are
meaningful;
 Describe and comment on
goals, distinguish between
the different organisational
goals, and discuss the
hierarchy of goals;
 Differentiate between
strategic, functional and
operational planning;
 Differentiate and comment on
the different strategies that
could be implemented to
accomplish different goals.

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Learning Unit 8 Theme: Organising Notes on this LU

Sessions: 28–31 Objectives:
Related Outcomes:  Describe and comment on the
 MO2 importance of organising as a
management task;
 Discuss the fundamentals of
organising;
 Explain and comment on
“informal organisation”;
 Distinguish between and
comment on the factors that
influence organising.
Learning Unit 9 Theme: Leading Notes on this LU
Sessions: 32–35 Objectives:
Related Outcomes:  Describe “leadership” in your
 MO2 own words;
 Distinguish between
leadership and management;
 Distinguish between the
different components of
leadership;
 Describe and comment on the
major leadership theories;
 Identify and discuss
contemporary leadership
issues and emerging
approaches to leadership;
 Explain why it is important for
managers to understand the
motivations for employee
behaviour;
 Differentiate between and
comment on groups and
teams in the organisation;
 Describe a simple
communication model, in your
own words.

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Learning Unit 10 Theme: Controlling Notes on this LU

Sessions: 36–38 Objectives:
Related Outcomes:  Explain “management control”
 MO2 in your own words;
 Provide an overview of the
purpose of control;
 Distinguish between the
elements of the control
process and how the control
process functions;
 Distinguish between the
different types of control;
 Distinguish between and
comment on the
characteristics of an effective
control system.

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Assessments
Integrated Curriculum Engagement (ICE)
Minimum number of ICE activities to complete 4
Weighting towards the final module mark 10%

Assignments/ Projects Assignment

Weighting 25%
Duration 10 hours
Submit after LU5
Learning Units covered LU1–5
Resources required The prescribed textbook and at least four other relevant
textbooks, e-books or articles. You will require library
and web access.

Tests/ Examination Test Examination

Weighting 30% 35%
Duration 1 hour 2 hours
Total marks 60 120
Open/ closed book Closed book Closed book
Resources required N/A N/A
Learning Units covered LU1–5 LU1–10

Assessment Preparation Guidelines

Format of the Assessment Preparation Hints
(The Focus/ Approach/ (How to Prepare, Resources to
Objectives) Use, etc.)
Assignment This assignment will challenge You will need to start preparation
you to do some independent well in advance. Consult the
reading and research on the recommended additional
material covered. readings in the relevant learning
This assignment has been units.
designed with two question
styles in mind, the first being an
essay to offer critical debate and
source integration. The second
question is a practical-based
question to ensure that you
apply your theoretical
knowledge to a case study.

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Assessment Preparation Guidelines

Format of the Assessment Preparation Hints
(The Focus/ Approach/ (How to Prepare, Resources to
Objectives) Use, etc.)
Test Questions will be theory-based, To prepare effectively for this
and will consist of a variety of test you can include the following
formats. There may be limited in your preparation:
multiple choice and/ or match-  Ensure that you work
the-column questions, but the through all the revision
majority of questions will consist questions and activities in
of short questions and longer the LUs tested;
paragraph questions. Practical  Check if you are confident
examples may be requested that you could answer
and a case study may be questions relating to all of
included. the learning objectives for
the LUs tested.
Examination Questions will be theory-based, To prepare effectively for this
and will consist of a variety of examination you can include the
formats. There may be limited following in your preparation:
multiple choice and/ or match-  Ensure that you work
the-column questions, but the through all the revision
majority of questions will consist questions and activities in
of short questions and longer the LUs tested;
paragraph questions. Practical  Check if you are confident
examples may be requested that you could answer
and a case study may be questions relating to all of
included. the learning objectives for
the LUs tested.

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Glossary of Key Terms for this Module

Term Definition My Notes

Achievement One of the traits of an entrepreneur

motivation which refers to a person’s higher-than-
average need to achieve (Erasmus et al,
2013).
Authority This is the right to command or give
orders (Erasmus et al, 2013).
Budgetary control A formal plan expressed in financial
terms that indicates how resources are to
be allocated to different activities
(Erasmus et al, 2013).
Business Described as “all the factors or variables,
environment both inside as well as outside the
business organisation, which may
influence the continued and successful
existence of the business organisation”
(Erasmus et al, 2013).
Business ethics A subset of ethics that focuses on
deciding between right and wrong at the
workplace and in business generally
(Erasmus et al, 2013).
Business plan A written document that spells out where
the business is heading and explains in
detail how it is going to reach that
destination. (Nieman & Nieuwenhuizen,
2009, p.103).
Business trust An increasingly popular but complex form
of enterprise managed by trustees for the
benefit of beneficiaries. It has unique
characteristics that distinguish it from
other forms of enterprise. (Erasmus et al,
2013).
Business world “…a complex system of individuals and
business organisations, that in a market
economy, involves the activity of
transforming resources into products and
services in order to meet peoples’ needs”
(Erasmus, et al, 2013).
Capital (Limited “ …buildings, machinery, cash registers,
resource of computers and other products produced,
society/ factor of not for final consumption, but for making
production possible the further production of final
consumer products” (Erasmus et al,
2013).

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Term Definition My Notes

Command Type of economic system where the

economy state owns and controls the community’s
(Communism) resources or factors of production.
Individuals own no land, factories or
equipment (Erasmus et al, 2013).
Competition Businesses compete with each other for
a share of the market, labour, capital and
materials. In the market environment,
competition is the situation where
businesses offering more or less the
same product or service compete for the
patronage of the same customers
(Erasmus et al, 2013).
Co-operative An uncommon form of business used
societies when certain economic advantages can
be obtained through joint action by
members. In South Africa they are mainly
found in agriculture where farmers
benefit financially from buying and selling
through being part of a co-operative
society (Erasmus et al, 2013).
Corporate Recognises corporations as legal
citizenship persons with certain rights and
responsibilities in the same way that
individual citizens have rights and
responsibilities as members of a
community. As a legal entity, a
corporation has certain rights and is
bound by responsibilities (Erasmus et al,
2013).
Corporate Entrepreneurship that takes place within
entrepreneurship an existing business.
(also known as
Intrapreneurship)
Corporate social A company’s commitment to invest pre-
investment (CSI) tax profits in community-based projects.
CSI does not refer to a company’s
contribution to society through its core
business activities or local business
development (Erasmus, et al, 2013).

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Term Definition My Notes

Corrective action Required in situations where actual

achievements do not match the required
standards (Erasmus et al, 2013).
Creativity The creation of something new, such as
a new business, by developing a new
product or service. Basically creativity
involves new ideas but includes
innovation which is the application of
these new ideas (Erasmus et al, 2013).
Delegation Assigning responsibility and authority for
achieving organisational goals (Erasmus
et al, 2013).
Departmentalisati Process of grouping activities into
on departments (Erasmus et al, 2013).
Economic In inventory management, it is the most
ordering quantity efficient quantity to order when
considering both inventory carrying costs
and inventory ordering costs (Erasmus et
al, 2013).
Economic Society must choose how it will use its
principle scarce resources to maximum effect in
order to satisfy its needs (Erasmus et al,
2013).
Entrepreneurial The process of identifying, creating or
process sensing an opportunity where others do
not see it and finding and combining
resources to pursue the opportunity until
it becomes a successful business
(Erasmus et al, 2013).
Entrepreneurship “The act of initiating, creating, building,
expanding and sustaining a venture,
building an entrepreneurial team, and
gathering the necessary resources to
exploit an opportunity in the marketplace
for long-term wealth and capital gain”
(Van Aardt et al, 2011, p.4).
Entrepreneurship The process by which individuals pursue
opportunities without regard to resources
they currently control (Erasmus, et al,
2013).

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Term Definition My Notes

Environmental The process of measurement, projection

scanning and evaluation of environmental change
(Erasmus et al, 2013).
Feasibility The expectation that an idea or
opportunity will survive and become a
successful business venture (Erasmus et
al, 2013).
Franchise A business concept that is bought from a
franchisor that gives the franchisee (the
person who purchases the concept) the
right to operate a business, using the
franchise company’s name, products and
systems (Erasmus et al, 2013).
Free market An economic system that is based on the
demand for goods and services that are
produced by private organisations
seeking profit. The state, therefore, has
minimum interference in the market
(Erasmus et al, 2013).
Functional An organisational structure that is
organisational designed based on activities belonging to
structure each management function being
grouped together (Erasmus et al, 2013).
Groups Two or more individuals who regularly
interact with one another and who work
for a common purpose (Erasmus et al,
2013).
Human The physical and mental talents and
resources skills of people employed to create
products and services (Erasmus et al,
2013).
Informal groups Groups that form due to the common
interests or to satisfy the social needs of
their members (Erasmus et al, 2013).
Informal Interpersonal relations in a business that
organisation are not defined by the formal
organisational structure – achieved
through informal communication (the
grapevine) (Erasmus et al, 2013).
Innovation The act of introducing something new or
approaching an old concept in a new way
(Erasmus et al, 2013).

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Term Definition My Notes

Intermediaries Organisations that play a role in bridging

the gap between the manufacturer and
consumer (Erasmus et al, 2013).
Inventory Raw materials, work-in-process,
components and finished stock held by
the company (Erasmus et al, 2013).
Joint ventures A joint venture is a generic term
designating some sort of co-operation
between persons or businesses
(Erasmus et al, 2013).
Just-in-time A production system which eliminates the
need to hold inventory as suppliers
deliver materials only as they are needed
(Erasmus et al, 2013).
Legal/ juristic A juristic/ legal person exists
personality independently of its owners and has its
own rights, assets and obligations. It
provides a business with continuity and is
linked to limited liability (Erasmus et al,
2013).
Line authority Authority delegated down through the
line of command (Erasmus et al, 2013).
Location Organising of a business according to
departmentalisati the various locations that it services
on (Erasmus et al, 2013).
Macro- The macro-environment is external to
environment both the organisation and market
environment. It is made up of six
components: the technological,
economic, social, physical, institutional-
governmental and international
environments (Erasmus et al, 2013).
Market economy A system in which individuals themselves
decide what to produce, how to produce
it and at what price to sell their products
(Erasmus et al, 2013).
Market This is encountered directly outside the
environment business. The variables in the market
environment determine the nature and
strength of competition in the industry
(Erasmus et al, 2013).

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Term Definition My Notes

Matrix The matrix structure incorporates the

organisational advantages of the other organisational
structure structures. Project managers and
functional managers both have authority
over the same subordinates (Erasmus et
al, 2013).
Micro- Factors that are within the control (at
environment least to some degree) of organisational
members. It contains the vision, business
functions and resources of the
organisation (Erasmus et al, 2013).
Motivation An inner desire to satisfy an unsatisfied
need (Erasmus et al, 2013).
Natural The production factor of land, including
resources agricultural land, industrial sites,
residential stands, mineral and metals,
forests, water and all such resources that
humankind accesses in nature (Erasmus
et al, 2013).
Operational goals Short-term goals concerning matters
such as a special for a particular month
or short-term additional staff
requirements (Erasmus et al, 2013).
Operational Organisational planning which covers the
planning immediate future. It extends up to about
one year from the present time.
Operational planning is done by lower
management to achieve operational
objectives (Erasmus et al, 2013).
Opportunity A favourable condition or trend in the
market environment that can be exploited
by a deliberate management effort
(Erasmus et al, 2013).
Organisational The beliefs and values shared by people
culture in a business. The “personality” of the
business (Erasmus et al, 2013).
Organisational A particular future state of affairs to be
goals achieved by a business (Erasmus et al,
2013).
Organisational Organisational structure determines how
structure tasks are divided and resources
deployed (Erasmus et al, 2013).

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Term Definition My Notes

Outsourcing Outsourcing occurs when a business

organisation appoints people other than
its full-time employees to complete work
that needs to be done. It usually takes
place when a business organisation
identifies activities that can be completed
by other organisations or individuals that
are particularly skilled at and
experienced in completing those
activities (Erasmus et al, 2013).
Partnership A partnership is a type of business entity
in which partners share profits or losses
of the business undertaking in which they
have invested. A partnership does not
have a legal personality and partners are
jointly and severally liable (Erasmus et al,
2013).
Personal The amount an individual has left over for
disposable personal expenditure on goods and
income services after payment of personal direct
taxes and credit repayments (Erasmus et
al, 2013).
Planning The process in which objectives or goals
are set, and policies, strategies and
procedures to meet these are formulated
(Erasmus et al, 2013).
Power A manager’s ability to influence his or her
employee’s behaviour (Erasmus et al,
2013).
Private company A private company is a company which
may not have more than 50
shareholders. The right to transfer shares
is restricted (Erasmus et al, 2013).
Product Assembles the activities of creating,
departmentalisa- producing, and marketing each product
tion into one department (Erasmus et al,
2013).
Profit Can be considered to be the reward for
meeting the needs of people and it
enables those people who have earned
the profit to live off it (Erasmus et al,
2013).

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Term Definition My Notes

Public company A company whose shares (ownership)

can be bought and sold by the public. It
is subject to more legal requirements
than a private company (Erasmus et al,
2013).
Quality control The process of ensuring that products
and services meet the defined
requirements in order to satisfy
customers' expectations (Erasmus et al,
2013).
Resources Required to produce goods and services
to satisfy society’s unlimited needs.
These resources are, however, very
limited and consist of natural resources,
human resources, capital resources and
entrepreneurship (Erasmus et al, 2013).
Responsibility The duty to perform the task or activity as
assigned (Erasmus et al, 2013).
Sole A business owned and managed by one
proprietorship person, who is personally liable for all
business debts and obligations. For tax
purposes, the owner and his or her
business are one entity, meaning that
business profits are reported and taxed
on the owner's personal tax return
(Erasmus et al, 2013).
Staff authority An indirect and supplemental authority,
usually based on special knowledge in a
particular field (Erasmus et al, 2013).
Stakeholder The process whereby companies interact
engagement with stakeholders so as to understand
and respond to society’s expectations, to
help build better relationships with all
parties and to help align business
practices with societal needs and
expectations (Erasmus et al, 2013).
Stakeholders “Persons or groups who are directly or
indirectly affected by a project, as well as
those who may have interests in a
project and/ or the ability to influence its
outcome, either positively or negatively”
(International Financing Corporation,
2007, p.10).

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Term Definition My Notes

Stakeholders Individuals or groups who are affected by

or can affect the business activities of a
company. Primary stakeholders are vital
for the success of the company, while
secondary stakeholders have a less
direct impact (Erasmus et al, 2013).
Standards A planned target against which actual
performance is compared. They are set
at strategic points and form part of the
control process in management
(Erasmus et al, 2013).
Strategic The creation of long-term plans to
planning achieve the strategic goals derived from
the vision and mission statements. These
plans create synergy within the whole
organisation (Erasmus et al, 2013).
Suppliers Individuals who, or organisations that,
provide a business with inputs such as
raw materials, equipment, capital and
labour. These inputs are needed to
produce the products and services which
the business offers (Erasmus et al,
2013).
Sustainable Development that meets the needs of the
development present without compromising the ability
of future generations to meet their own
needs (Erasmus et al, 2013).
Threat An unfavourable condition or trend in the
market environment that can, in the
absence of a deliberate effort by
management, lead to the failure of the
business and its products or services
(Erasmus et al, 2013).
Timeliness A characteristic of an effective control
system, timeliness means that control
data is supplied regularly as needed
(Erasmus et al, 2013).
Transactional A leadership style where the leaders
leadership motivate their followers by appealing to
their self-interest (Erasmus et al, 2013).

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Term Definition My Notes

Transformation The process whereby resources are

transformed into goods and services that
satisfy society’s needs. Also known as
the production process (Erasmus et al,
2013).
Transformational Process in which “leaders and followers
leadership raise one another to higher levels of
morality and motivation” (Erasmus et al,
2013).
Triple bottom line The economic value that corporations
add as well as the environmental and
social value they add or destroy
(Erasmus et al, 2013).
Work team Team made up of a small number of
employees with complementary
competencies who work together on a
project, are committed to a common
purpose, and are accountable for
performing tasks that contribute to
achieving an organisation’s goals
(Erasmus et al, 2013).

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Learning Unit 1: The Business World and Business

Management
Material used for this Learning Unit: My Notes on this
 Prescribed text pp.3–37. Learning Unit:
How to prepare for this Learning Unit:
 Before the first class, be sure that you read Chapter 1
of your prescribed textbook.
 Make notes of any areas where you require further
explanation.
 As you read Chapter 1, consider the following
questions:
o What purpose do businesses serve in society?
o Do businesses only exist to make a profit?
o Which economic system is South Africa
following?
o Which of your needs are satisfied by
government, non-profit-seeking organisations
and businesses?

1 Key Concepts Covered in this

Learning Unit

1.1 Role of Business in Society

The basic objective of business is to develop, produce and

supply products and services to the society within which it
operates. This has to be done in such a way as to allow
businesses to make a profit, which can be used to obtain and
pay for additional resources to continually develop, produce
and supply products and services and to make a living. In the
market economy, businesses are grouped together into
industries. However, businesses are also required to act
responsibly towards the people and the society it serves as
well as to accept stewardship for the natural resources it relies
Study Figure 1.1 on p.5.
on. This is referred to as social or corporate social
Provide a graphic illustration
responsibility.
of the type of resources
which a construction
The role of business in society thus consists of three main
company will use and what
areas:
products and services will be
 Activities involved in the transformation of resources into
delivered to satisfy the need
products and services in order to meet people’s needs
for shelter of a community.
which emphasises four elements, namely:

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o Human activities;
o Production;
o Exchange;
o Profit;
 The market economy, 10 industries in which businesses
are grouped together and the difference between the
formal and informal sector;
 Accepting responsibility for the society it serves; namely,
social responsibility, affirmative action, business ethics,
consumerism and environmental damage.

Read section 1.2 “The role of business in society” on pp.5–12 Note: Paraphrasing
of your textbook. Underline the main ideas related to the three
requires you to rewrite
main areas of the role of business in society as indicated what you have read in
above. Then paraphrase the three areas and elements, other/ your own words.
industries or factors within each area.

1.2 Needs and Need Satisfaction

“A need may have a physical, psychological or social origin,
but no matter what form it takes, it requires satisfaction”
(Erasmus et al, 2013, p.12).

1.2.1 Multiplicity of Human Needs

Human needs are multiple and unlimited and vary according to

the nature of society. Highly developed Western societies will
have different needs to developing societies in Africa. Human
needs that businesses aim to satisfy have been classified by
Abraham Maslow in the following categories:
 Physiological needs; Ensure that you
understand and can
 Security needs;
provide examples of
 Social needs;
Maslow’s different needs.
 Esteem needs;
 Self-realisation (or actualisation) needs.

Read section 1.3.1 “The multiplicity of human needs” on

pp.12–14 of your textbook. Underline the main ideas related to
different human needs as identified by Abraham Maslow. Then
paraphrase the needs and discuss how they can be satisfied
by the products and services developed and produced by
businesses.

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1.2.2 Limited Resources

The limited resources of
We have already mentioned that the objective of business is to society are also known as
satisfy the needs of society. The resources available to satisfy the factors of production.
the needs of society are, however, limited. The resources can
be grouped into four categories:
 Natural resources (also known as the production factor
of land); If you can identify the
 Human resources (also known as the production factor different resources for
of labour); different businesses
 Capital; complete Izimvo Exchange
 Entrepreneurship. Activity 1.

Read section 1.3.2 “Society’s limited resources” on pp.14–16

of your textbook. Underline and paraphrase the main ideas
related to the four categories of limited resources.

1.2.3 Need Satisfaction Cycle

To be able to satisfy the needs of the community, Study Figure 1.6 on p.18.
entrepreneurs have to utilise scarce resources in certain Do you see that if the
combinations in order to produce products and services. The needs of the community
community decides which institutions should be responsible for are not met, the community
the production and distribution of products and services, as will change the system in
well as the role that each institution has to play and the some way?
economic system in which these need-satisfying institutions
are established.
Can you explain the
Three main role-players can thus be identified in the need- economic principle?
satisfaction cycle:
 The community;
 The entrepreneur;
 The economic system.

The process involved in producing products and services that

will satisfy the needs of the community is illustrated and
explained in the need-satisfaction cycle reflected in Figure 1.6
on p.18 of your textbook.

Read section 1.3.3 “Need satisfaction: A Cycle” on pp.16–18 of

your textbook. Study this section and pay attention to some of
the examples discussed.

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1.3 Main Economic Systems

In the discussion on the need-satisfaction cycle, the economic

system is identified as one of the role-players in the cycle. The
need-satisfying institutions are established within the economic
system and each country is confronted with the fundamental
economic problem of which economic system to choose to
solve the problem of what products should be produced.

There are three main economic systems that exist (although

none is ever found in a pure form) and there is often an
interaction between political ideologies and economic systems,
with the latter usually being influenced by politics. The main
economic systems that exist, and which are briefly discussed,
are:
 Market economy – also known as the free-market
economy or system; Can you explain the
 Command economy; difference between the
 Socialism. economic systems?

As no economic system ever exists in a pure form, they occur

as mixed economies incorporating elements of different
systems. Figure 1.8 on p.23 of your textbook illustrates where
different countries fall on the spectrum from command
economy to market economy. In every economic system, the
state intervenes in some way and there are divergent views on
what a state’s role should be.

Study 1.4 “The main economic systems” and Sub-Paragraphs

1.4.1–1.4.6 on pp.18–24 of your textbook. Underline the main
ideas related to the three market systems (market economy,
command economy and socialism), the mixed economic
system and the state and economic systems. Then paraphrase
the discussions identifying the differences between the three
main market systems. Once you have a good
understanding of the
Read section 1.4.7 “Final comments on different economic different economic
systems” from pp.24–26 of your textbook and the summary of systems, complete the
the main market systems in Table 1.2 on p.25 of your textbook. recommended digital
Add the main differences that you have identified above to this engagement activity
table.

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1.4 Need-Satisfying Institutions of the

Market Economy

In Figure 1.6 referred to earlier, it is indicated that the

economic system is chosen to achieve the highest possible
satisfaction of needs using scarce resources. This is obtained
by means of need-satisfying organisations/ institutions that
produce products or services aimed at satisfying the needs of
the community. These organisations deliver different types of
products and services that are all necessary for the growth and
economic well-being of the community they serve. The
different types of need-satisfying institutions are:
 Business organisations;
Think about the purchases
 Government organisations;
you make. Which needs
 Non-profit-seeking organisations.
are satisfied by the
different types of
Read section 1.5 “The need-satisfying institutions of the
institutions?
market economy” (including 1.5.1 “Business organisations”,
1.5.2 “Government organisations” and 1.5.3 “Non-profit-
seeking organisations”) on pp.27–31 of your textbook.
Underline the main ideas related to the different need-
satisfying institutions. Then distinguish between the three
need-satisfying institutions by briefly referring to the type of
products or services that they deliver.

1.5 Nature, Purpose and Task of Business

Management and its Development as a
Science

Economics and business management are seen as related

sciences. Economics is “…a social science that studies how
humans choose different ways of using their scarce resources
to produce products and services” (Erasmus et al, 2013, p.31).
Business management is “...an applied science that is
concerned with the study of those institutions in a particular
economic system that satisfy the needs of a community. In a
mixed-market economy, as is found in South Africa, private
business organisations are the main area of study” (Erasmus
et al, 2013, p.31).

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Other disciplines related to the study of business management

include:
 Anthropology;
 Economics;
 Engineering;
 Law (especially mercantile law);
 Computer science;
 Accounting;
 Psychology;
 Sociology;
 Mathematics and statistics.
Can you answer the
Read section 1.6 “The nature of business management” on
question: Is business
pp.31–35 of your textbook. Summarise this section. Then
management an
paraphrase the description of economics and that of business
independent science?
management and highlight the scientific relationship between
them, and the purpose, task and study of business
management. Also differentiate between the characteristics of
science and how business management measures up against
these. Develop a table listing the characteristics and in the
second column indicate whether or not the field of business
management reveals each of these characteristics described
in your textbook.

1.6 Classifying the Study Material of

Business Management

The various activities that management undertakes to ensure

the optimal functioning of a business organisation require
some degree of specialisation. This specialisation can also be
seen as management areas or business functions and the field
of business management is divided into seven business
functions, namely:
 General management;
 Marketing management;
 Financial management;
 Production and operations management;
 Purchasing management;
 Human resources management;
 Public-relations management.

Read section 1.7 “Classifying the study material of business

management” on pp.36–37 of your textbook. Summarise this
section, ensuring that you identify the various activities that
management must undertake and the seven business
functions.

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2 Recommended Additional Reading

Bradley, J and Donway, R. 2010. Capitalism, Socialism, and
"the middle way" a taxonomy. Independent Review, 15(1)
Summer 2010. , pp.71–87.

Fulcher, J. 2004. Capitalism: A very short introduction. Oxford:

Oxford University Press.

Li, M. 2013. The 21st century: Is there an alternative (to

socialism)? Science & Society, 77(1), September 2011. pp.10–
43.

Nieman, G and Bennett, A. 2006. Business management: A

value chain approach. 2nd edition. Pretoria: Van Schaik.

Zhao, S. 2010. The China model: Can it replace the Western

model of modernization? Journal of Contemporary China,
19(65), pp. 419-436.

3 Recommended Digital Engagement

and Activities
Different people have different viewpoints on capitalism,
socialism and the command economy. Find a short movie on
YouTube which supports one system over another. Share the
link and reference to your movie online with fellow students
and your lecturer.

YouTube. 2013. [Online]. Available at:

http://www.youtube.com/ [Accessed 12 December 2013].

4 Interactive Work Space

4.1 Izimvo Exchange 1

Consider the qualification you are studying. You need to

decide which resources were used in compiling the
qualification package and classify these according to the
following four (4) resource categories:
o Natural resources;
o Human resources;
o Capital;
o Entrepreneurship.

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Also answer and debate the following questions:

o What types of needs in the community are satisfied by
providing the qualification?
o What type of production/ transformation processes are
involved in presenting the qualification?
o Is the qualification a product or a service?

4.2 Izimvo Exchange 2

Read the case study on p.4 of the textbook and then answer
the first question for discussion on p.38. Prepare your answer
as a debate, looking at both sides of the topic.

4.3 Activity

Purpose:
To develop a deeper understanding of needs, limited
resources and the impact of the economic system.

Task:
 Select any product of your choice;
 Identify which needs it satisfies, according to Maslow;
 Discuss the limited resources of society/ factors of
production that the company uses to manufacture the
product; Consult your textbook on
 Evaluate whether, if the country moved towards a pp.38–39 for additional
command economy, there would be any impact on the activities.
company.

Commentary Related to Activity Design:

This activity is designed to prepare you for providing and
analysing real examples.

4.4 Revision Exercise

1. List and briefly discuss the four elements of the

description of a business

2. List the 10 industries into which businesses are grouped

in South Africa.

3. List the needs in Maslow’s hierarchy of needs.

4. Identify and briefly describe the limited resource

categories.

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5. Compare the main economic systems using the following

aspects:

5.1 Main characteristics;

5.2 Driving force;
5.3 Advantages;
5.4 Disadvantages.

6. Briefly discuss the purpose and task of business

management.

7. In your own words, describe “business management” as

a field of study.

8. List the seven business functions.

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Learning Unit 2: Entrepreneurship

Material used for this Learning Unit: My Notes on this
 Prescribed text pp.41–67. Learning Unit:
How to prepare for this Learning Unit:
 Read Chapter 2 of your prescribed textbook.
 Make notes of any areas where you require further
explanation.
 As you read Chapter 2, consider the following
questions:
o What is entrepreneurship?
o Why is entrepreneurship important?
o Do you have what it takes to become an
entrepreneur?

1 Key Concepts Covered in this

Learning Unit

1.1 Different Concepts of What an

Entrepreneur is

Different scientists tend to provide different definitions or views

of whom and what an entrepreneur is. In the field of
management there are also different descriptions and
entrepreneurs have been described as people who:
 Are creative and have innovative ideas;
 Identify opportunities;
 Find resources to pursue these opportunities for
personal gain;
 Take financial risks;
 Bring about change, growth and wealth in the economy;
 Re-energise economies and create jobs;
Can you write your own
 Start, manage and grow small businesses.
definition of
entrepreneurship?
Erasmus et al (2013, p.42) define entrepreneurship as “the
process of creating and building something of value from
practically nothing in the midst of uncertainty and risk, and
having the determination to succeed against all odds.”

Van Aardt et al (2011, p.4) define entrepreneurship as “the act

of initiating, creating, building, expanding and sustaining a
venture, building an entrepreneurial team, and gathering the
necessary resources to exploit an opportunity in the
marketplace for long-term wealth and capital gain.”

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1.2 Renaissance of Entrepreneurship

Entrepreneurs throughout the world have an impact by means

of:
 The establishment of new business and the growth of
existing businesses;
 Generating jobs – traditional job creators, large
organisations, have been replaced by small businesses
as the main providers of jobs;
 Supporting efforts to address problems of Entrepreneurship is vital to
unemployment. a growing economy.

1.3 Entrepreneurship in South Africa

South Africa needs a consistent GDP growth rate of 6% and

higher to ensure economic stability and growth, and
entrepreneurs are seen as making a positive contribution to
obtaining this. Unfortunately, the level of entrepreneurial
Why do you think the level
activity in South Africa is not high.
of entrepreneurship in
South Africa is not high?
Read section 2.2 “Different concepts of what an entrepreneur
Consult the additional
is”, 2.3 “The renaissance of entrepreneurship” and 2.4
readings to obtain more
“Entrepreneurship in South Africa” on pp.42–47 of your
information.
textbook. Underline the main ideas related to the concepts of
renaissance of entrepreneurship and entrepreneurship in
South Africa. Then paraphrase the main concepts of
entrepreneurship and the definition of entrepreneurship.

1.4 The Role of Entrepreneurs and Small-

Business Owners in Society

Entrepreneurship is identified in Chapter 1 as one of the

production factors/ resources needed to develop and produce
products and services that address the needs of the
community. Entrepreneurial spirit can be seen as the spark
that brings the other production factors (natural and human
resources, and capital) into motion, which will usually lead to
the growth of the business organisation. The entrepreneur
brings in creativity and skills that are unique.

Small-business owners, on the other hand, are satisfied with

some autonomy and earning a reasonable income for
themselves and their employees, and seldom have the
intention to grow the business into a large corporation.

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Small business owners are not all entrepreneurs, as

entrepreneurs strive towards growth and usually leave the
business organisation once it becomes large and appoints
effective managers to manage the business.

1.5 Why do Entrepreneurs do what they Do?

This section deals with why entrepreneurs do what they do and

discusses entrepreneurial traits and characteristics, the skills
and industry experience that entrepreneurs need and the
opportunities that arise from outsourcing.

1.5.1 Entrepreneurs’ Traits and Characteristics

Diagram 2.1 summarises the entrepreneurial traits and

characteristics

Achievement motivation – ambition and competition

An internal locus of control – to be in charge of his/ her life

Innovation and creativity – ability to conceive of and

create something new and unique

Risk-taking – calculate the risks before taking them

Energy, confidence, future orientation, optimism, desire

for feedback, high tolerance for ambiguity, flexibility,
passion, commitment and determination, opportunity
orientation and motivation to excel

Table 2.1 Entrepreneurial traits and characteristics

(Developed from: Erasmus et al, 2013, pp.49–
51)

Think about the

entrepreneurs mentioned in
the textbook. Which traits do
they exhibit?

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1.5.2 Entrepreneurs’ Skills and Industry Experience

Two types of entrepreneurs exist:

Can you think of examples
of entrepreneurs and small
 Necessity entrepreneurs are people who become
business owners?
entrepreneurs due to job termination or job
dissatisfaction, thus out of necessity to earn a living.
Often these people do not have access to the resources
or skills necessary to be successful entrepreneurs.

 Opportunity entrepreneurs, however, are people who

choose to enter the field because they see an
opportunity which can be exploited. These entrepreneurs
are usually more successful than necessity
entrepreneurs. More successful entrepreneurs usually
have experience, training and education in a specific
field.

1.5.3 Opportunities Owing to Outsourcing

Outsourcing occurs when a business organisation appoints

people other than its full-time employees to complete work that
needs to be done. It usually takes place when a business
organisation identifies activities that can be completed by other
organisations or individuals that are particularly skilled at and
experienced in completing those activities.

Outsourcing is part of the strategic plan of an organisation to

acquire skills that are unavailable inside of the organisation or
which are not cost-efficient to handle in-house. This trend
creates opportunities for entrepreneurs to provide outsourced
services.

Services most often outsourced: In South Africa, security

 Architectural design; and cleaning services are
typically outsourced.
 Trash and waste removal;
Identify what services are
 Housekeeping;
outsourced on your
 Facility systems;
campus or place of work.
 Landscape maintenance;
 Property appraisals;
 Hazardous material removal;
 Major redesigns;
 Furniture and other big moves;
 Food services.

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1.5.4 Other Reasons for Entrepreneurship

Retrenchment, lay-offs, resignations and even government

privatisations will always contribute to the growth in
entrepreneurship. However, these are not the only reasons for
people becoming entrepreneurs. Entrepreneurs and owners of
small businesses come in every shape, size and colour and
from every type of background, and the reasons why they start
these ventures vary just as much.

Read section 2.5 “The role of entrepreneurs and small-

business owners” and 2.6 “Why do entrepreneurs do what they
do” on pp.47–52 of your textbook. Underline the main ideas.
Then differentiate between entrepreneurs and small-business
owners and identify the main reasons why people become
entrepreneurs, by identifying their traits and characteristics,
their skills and industry experiences, opportunities arising from
outsourcing and the other contributing factors.

1.6 The Small Business

Entrepreneurship is usually strongly associated with the

establishment and ownership of new businesses. In this
section, small businesses are defined and their role in the
economy, explained.

1.6.1 Defining a “Small Business”

Various descriptions of what a small business entails exist.

The National Small Business Amendment Act (Act 29 of 2004)
has added to all these descriptions by describing micro
businesses, very small and small businesses and medium-
sized businesses, detailing the number of employees and
turnover. Erasmus et al (2013, p.53) provide a comprehensive
definition of a small and medium-sized enterprise (SME) and
small, micro and medium-sized enterprise (SMME) as any
enterprise with one or more of the following characteristics:
 Fewer than 200 employees;
 An annual turnover of less than R64 million;
 Capital assets of less than R23 million;
 Direct managerial involvement by owners.

1.6.2 Role of Small Businesses in the Economy

Entrepreneurs and small businesses are seen as a key factor

in economic development due to their contribution in the areas
included in Diagram 2.2.

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Production of products •They combine resources to produce products and

and services services for the society in which they operate

•They have been responsible for most innovations

Innovation
world-wide

•They not only act as suppliers but also distribute

Aiding big businesses
the products and services of big businesses

•They provide many of the new job opportunities

Job creation
needed by a growing population

Table 2.2 Areas in which entrepreneurs play a role in the

economy. (Developed from Erasmus et al,
2013, pp.53–54)

Read section 2.7 “The small business” on pp.52–54 of your

textbook. Underline the main ideas. Then define a small
business in your own words and differentiate between the
different aspects in which the entrepreneur plays a role in the
Why do you think small
economy.
businesses are more
innovative than big
1.7 The Entrepreneurial Process businesses?

Van Aardt et al (2011, p.4) define entrepreneurship as “the act See Chapter 4 of Nieman
of initiating, creating, building, expanding and sustaining a and Niewenhuizen, listed in
venture, building an entrepreneurial team, and gathering the your recommended
necessary resources to exploit an opportunity in the reading list for ideas.
marketplace for long-term wealth and capital gain.”

From this definition it is clear that entrepreneurship is a

process of identifying, creating or sensing opportunities and of
finding and combining resources to pursue the opportunity until Successful entrepreneurs
it becomes a successfully established business. work through this process
carefully.
The entrepreneurial process is graphically illustrated in Figure
2.2 on p.55 of the textbook. According to this process, the
potential entrepreneur goes through various phases of
decision-making before the implementation of a business plan
or launching and managing the new business. The following
factors are key to each next phase/ factor:
 Having what it takes – the personal characteristics,
abilities and skills to be an entrepreneur;
 Having access to resources;
 Having a real opportunity that can be pursued;

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 Conducting a feasibility study on the opportunity;

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 Developing a business plan for a feasible opportunity;

 Combining resources and a feasible opportunity together
by implementing the business plan and launching and
managing the business venture.

The dynamics of the entrepreneurial process are illustrated in

Figure 2.3 on p.56 of your textbook.

1.7.1 Skills Required for Entrepreneurship

The following skills are required to start and manage an

entrepreneurial venture:
 Strategy skills; Be sure you know the
 Planning skills; difference between traits/
 Marketing skills; characteristics and skills
 Financial skills; required for
 Project-management skills; entrepreneurship.
 Human relations skills.

All these skills are important and if the entrepreneur does not
have each and every one, she/ he could obtain it by forming an
entrepreneurial team.

1.7.2 Resources Needed to Start a Business

The entrepreneur must have adequate resources to start a

business or have access to resources.

Three kinds of resources are required to start and build an

entrepreneurial venture:
 Financial resources: Cash, bank overdraft, loans,
outstanding debtors or investment capital;
 Human resources: People such as the management
team, lawyers, accountants and technical or other
consultants;
 Operating/ physical resources: Assets such as vehicles,
offices, equipment, raw materials, machinery and the
factory/ plant.

These resources need to be acquired and that process could

involve risks that should be calculated before starting and
building the venture.

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1.7.3 Business Opportunities

Aspiring entrepreneurs have various options when considering

business opportunities. These could be starting their own new
business, buying an existing business, acquiring a franchise or
even becoming a corporate entrepreneur. Entrepreneurs have
to be careful not to overrate their ideas and to remember that
having a great idea is not the only criteria for success. The
entrepreneur has to be able to transform the idea into a
feasible product or service.

 New Business Idea: New business ideas can come from

the environment that the entrepreneur finds him/ herself
in. The environment could be economic; political; or one
of social trends, fashions that change over time, new
ways in which products are distributed, new ways of
doing things, new services that can be developed, etc.
Changes in the lifecycle of industries (introduction,
growth, maturity and decline) could also lead to new Why do you think these
ideas (see Figure 2.4 on p.59 of your textbook). The industries are identified as
following have been identified as growth industries in the growth industries for
African and South African landscape: entrepreneurs?
o Education;
o Health care;
o Tourism;
o Privatisation of government and semi-government
institutions.

 New Venture Opportunities: A good idea is not

Entrepreneurs are often
necessarily a good opportunity – either as a new venture
too focussed on their
or as an investment – and the entrepreneur needs to
product and not enough on
identify a good new venture opportunity that will work.
the market and
The following are requirements of good investment
competition.
opportunities:
o A clearly defined market need for the product or
service;
o The ability to achieve a sustainable competitive
advantage;
o A potential to grow;
o Is rewarding to investor and/ or entrepreneur;
o The timing of the opportunity is right.
On the internet, research a
 Buying an Existing Business: The advantages and business that is for sale.
disadvantages of buying an existing business are Write down the reasons
reflected in Table 2.1. why buying it would be a
good idea and possible
negative factors.

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Advantages Disadvantages
Customers will be familiar The business location may be
with the business location. undesirable or threatened with
becoming undesirable.
There will be an established The image of the business will
customer base. be difficult to change.
Experienced employees will Employees are inherited
come with the business. rather than chosen.
Planning can be based on There may be difficulties in
known historical data. changing the way the
business is run.
Supplier relationships will There may be liabilities for
already be in place. past business contracts.
Inventory and equipment will The inventory and equipment
be in place. may be obsolete.
Financing may be available Financing costs could drain
from the owner. the cash flow and threaten the
survival of the business.

Table 2.3 Advantages and disadvantages of buying an

existing business (Erasmus et al, 2013, p.62)

 Franchising: The word “franchise” originates from French

and refers to “privilege” or “freedom”. It can be seen as
giving people the opportunity and freedom to own,
manage and direct their own businesses without having
to do so unaided (Van Aardt et al, 2011, p.119).

The Franchising Association of South Africa (FASA,

2012, p.2) describes a franchise as “a grant by the
franchisor to the franchisee, entitling the latter to the use Make sure you understand
of a complete business package containing all the the difference between a
elements necessary to establish a previously untrained franchise and buying an
person in the franchised business and enable him or her existing business.
to run it on an on-going basis, according to guidelines
supplied, efficiently and profitably.”
Do you think people who
A franchise concept provides an opportunity for an buy franchises should be
entrepreneur to start a business that has been classified as
established in the marketplace. When buying a entrepreneurs?
franchise, the entrepreneur becomes a franchisee who
obtained the right to operate a business from the Refer back to your
franchisor, which includes using the franchise name, definition of
products or services and systems. entrepreneurship.

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The Standard Bank Franchise Factor® 2010 survey

indicates that franchising is a growing concept and Compare South Africa’s
makes a contribution to the local economy. At the date of franchise situation with
the survey, 551 franchised systems were operating in Australia and the United
South Africa. The close to 30 000 franchised outlets Kingdom. The information
contribute 12.5% to South Africa’s GDP. can be found on p.63 of
your textbook.
 Corporate Entrepreneurship: This is also known as
intrapreneurship and refers to entrepreneurship in an
existing business. Read the case study on
p.64 to gain better insight
Existing businesses provide corporate entrepreneurship into corporate
opportunities to develop and introduce new products or entrepreneurship.
services or even new business units within large
organisations or even by starting a new business linked
to the existing business. Corporate entrepreneurs use
the resources of the existing business and create
opportunities for the business to diversify or develop new
industries.

1.7.4 Feasibility of the Idea or Opportunity

Ideas have little value until they are converted into products,
services or processes. In order to test whether the idea or
opportunity is a good one, it is subjected to a feasibility test.
The feasibility study is not the same as a business plan and
precedes it. If, through thorough analysis, the idea is shown to
be feasible, the entrepreneur will move to the next stage which
is drawing up a business plan.

Read section 2.8 “The entrepreneurial process” on pp.54–65 of

your textbook. Underline the main ideas related to the
entrepreneurial process, the skills and resources needed to
start a business, business opportunities and the feasibility of
the idea or opportunity.

2 Recommended Additional Reading

Entrepreneur South Africa. 2013. [Online]. available at:
http://www.entrepreneurmag.co.za/category/advice/success-
stories/case-studies/ [Accessed 20 September 2013

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First National Bank. s.a. The entrepreneurial dialogues: State

of entrepreneurship in South Africa. [Online]. Available at:
http://www.gibs.co.za/SiteResources/documents/The%20Entre
preneurial%20Dialogues%20-
%20State%20of%20Entrepreneurship%20in%20South%20Afri
ca.pdf [Accessed 20 September 2013].

Nieman, G and Bennett, A. 2006. Business management: A

value chain approach. 2nd edition. Pretoria: Van Schaik.

Petty, JW, Palich, LE, Hoy, F and Longenecker, J. 2012.

Managing small business: An entrepreneurial emphasis. 16th
edition. Mason, (OH): South-Western.

Van Aardt, I, Hewitt, M, Bendeman, H, Bezuidenhout, S, Janse

van Rensburg, L, Naidoo, P, Van Aardt, CJ, Van der Bank, J
and Visser, T. 2011. Entrepreneurship and new venture
management. 4th edition. Cape Town: Oxford University Press.
3 Recommended Digital Engagement
and Activities
You are required to make a short PowerPoint presentation on
an entrepreneur of your choice. You will need to use the
internet to research your chosen entrepreneur.

Your presentation should include:

 A picture and the name of the entrepreneur on the first
slide;
 The second slide should contain a description of what
the entrepreneur has done that indicates that he/ she is
an entrepreneur. In other words, has he/ she started a
business? What business is it?
 The characteristics or traits that the entrepreneur
possesses should be included on the third slide. Do not
just list them but motivate why he/ she has these traits;
 On the final slide, indicate and explain how the
entrepreneur entered the business world. For example,
did the start as a corporate entrepreneur, buy a franchise
etc.

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4 Interactive Work Space

4.1 Izimvo Exchange

Consider the statement: “Entrepreneurs are born and

entrepreneurship cannot be learned.”

In order to develop an argument that you could debate, you will

need to do additional reasearch.

Type the following phrase into scholar.google.com and

search.ebscohost.com (Password available from your
librarian):
“Can entrepreneurship be taught”

Select and read as many readings as possible in order to help

you formulate an argument.

4.2 Activity
Consult your textbook on
Purpose:
pp.65–67 for additional
To develop deeper thinking relating to the different ways to activities.
enter the business world.

Task:
In terms of risk and reward, compare starting your own
business, becoming a corporate entrepreneur, buying an
existing business and buying into a franchise.

Commentary Related to Activity Design:

N/A

4.3 Revision Exercise

1. In your own words, describe the following:

1.1 An entrepreneur;
1.2 Entrepreneurship.

2. Identify and briefly discuss the different views of

researchers on whom or what an entrepreneur is.

3. List and briefly discuss the entrepreneurial traits and

characteristics.

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4. What three aspects are the main reasons why people

become entrepreneurs?

5. In your own words, describe outsourcing.

6. Explain what SMEs and SMMEs are and how they are
classified.

7. Explain the areas in which small businesses play a role

in the economy.

8. According to the entrepreneurial process, the potential

entrepreneur goes through various phases of decision-
making before the implementation of a business plan or
launching and managing the new business. List the
factors that are key to each phase/ factor.

9. Provide a graphic illustration of the entrepreneurial

process.

10. The entrepreneur must have adequate resources to start

a business or have access to resources. Identify and
briefly discuss the three kinds of resources that are
required to start and build an entrepreneurial venture.

11. List the requirements of good investment opportunities.

12. Differentiate between the advantages and disadvantages

of buying an existing business.

13. In your own words, describe the following:

13.1 Franchisee;
13.2 Franchisor;
13.3 Franchise.

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Learning Unit 3: Establishing a Business

Material used for this Learning Unit: My Notes on this
 Prescribed text pp.69–96. Learning Unit:
How to prepare for this Learning Unit:
 Read Chapter 3 of your prescribed textbook.
 Make notes of any areas where you require further
explanation.
 As you read Chapter 3, consider the following
questions:
o What are the most criteria that would influence
the form of ownership you would choose?
o How much detail do you think should go into a
business plan?
o What will happen if an entrepreneur does not
do a business plan?
o Do location decisions play a role in why some
businesses close down?

1 Key Concepts Covered in this

Learning Unit

1.1 Different Concepts of what an

Entrepreneur Is

1.2 Legal Form of Ownership

Recent legislation has changed the landscape around forms of

ownership. Entrepreneurs need to be aware of the current
situation in order to ensure they make the correct decision.

1.2.1 Introduction to the Legal Form of Ownership

When starting a business venture, the prospective

entrepreneur has to consider in advance what type of
ownership to choose. In South Africa, new ventures and other
business enterprises mostly take the form of sole
proprietorships, partnerships, companies (profit and non-profit
companies) and co-operatives.

Until the promulgation of the new Companies Act (2008) which

came into operation on 1 May 2011 (the dti, 2010), a close
corporation was also one of the forms of business enterprises
(as discussed on pp.77–80 of your textbook).

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The main impact of the Act (Companies Act 2008) is that no Close corporations still
new close corporations will be registered by the Companies need to be studied as they
and Intellectual Property Commission (CIPC) and no company are still in use today.
will be allowed to convert to a close corporation, although the
uninterrupted and continued existence of existing close
corporations for an indefinite period of time is catered for
(CIPC, 2012a).

Co-operatives which may be established in terms of the Co-

operatives Act of South Africa are a type of ownership with
limited possibilities of utilisation. Co-operatives are established
to achieve certain economic advantages for their members
through joint action. These co-operatives are usually found in
the rural farming communities and operate as marketing and/
or supply organisations for products, goods and services
primarily to their members.

Because of the distinctive characteristics of a co-operative, it is

not an alternative type of ownership that can be considered by
the prospective entrepreneur, and will, therefore, not be
included in the discussion of the alternative types of ownership
which follow.

The type of ownership has to be suited to the particular

circumstances, objectives, requirements and personal
characteristics of the entrepreneur. In choosing the type of
ownership when starting the venture, the entrepreneur should
remember that the original form chosen can be changed at a
later stage if the circumstances, objectives or requirements of
the venture have changed. The correct choice before
establishing the venture can eliminate many problems,
formalities and expenses which may otherwise occur at a later
stage.

1.2.2 Considerations in Choosing a Form of Ownership

The choice of the type of ownership is important as the various

types have different implications for the owner and influence
various important aspects. The following considerations should
apply:
o The legal (juristic) personality of the venture. A
venture that has a legally independent personality
can own assets in its own name, can conclude
contracts and can also sue or be sued in its own
name. Some of the characteristics of a legal
person or entity are that:It exists independently
from its members (owners);

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o The change in membership has no influence on the

existence of the legal entity; Note that you must be able
o If a member dies, it remains in existence and does to explain the legal
not dissolve; personality of a business
o It has its own assets and obligations and the and liability of the owner.
members are not responsible for the debts of the
legal entity.

 The liability of the owner. This is closely connected with

the previous aspect and refers to whether or not the
owner can be held liable for any outstanding debts or
claims against the venture. Limited liability means that
the owner’s personal assets are protected.

 The extent to which the owner has direct control. Does

the owner have control and/ or authority over the
activities of the venture, over the utilisation of its assets
and the distribution of its profits?

 The ability of the venture to acquire capital on its initial

establishment and with further expansion. The ability to
raise capital is influenced by the legal form chosen.

 Compliance with legal requirements regarding the

establishment, management and dissolution of the
venture. These include legal requirements such as those
prescribed by the Employment Equity Act and other
requirements such as the requirements of professional
associations for engineers, architects, medical
professionals and others.

 Tax liability of the venture and its owner. There are

various different types of taxation which may be
applicable including income tax, pay as you earn
(PAYE), value added tax (VAT), capital gains tax and
transfer duty.

 The possibilities of a change in ownership. This refers to

the ease with which an owner can transfer his interest/
share in the venture to someone else when he wishes or
is obliged to withdraw from the enterprise. In this regard
the term, existence or continuity of the venture, also
come into consideration.

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The following types of ownership and the impact of the new

Pay careful attention to the
Companies Act on them are discussed in detail on pp.74–85 of
advantages and
the textbook:
disadvantages of each
 Sole proprietorship;
form of ownership.
 The partnership;
 The close corporation;
 The company.

The details of all these types of ownership are summarised in

Table 3.1.

1.2.3 The Business Trust

This is becoming an increasingly popular type of enterprise Although the business trust
and it is established when the founder places assets under the does not have a legal
control of a trustee to be administered for the benefit of the personality, it does have
founder and other beneficiaries. It has the following limited liability.
characteristics:
 No limit on the number of beneficiaries, although they
should all be natural or juristic persons;
 It has the object to generate a profit;
 Separate from its founder or beneficiaries;
 Does not have a juristic personality;
 Limited liability for founder and beneficiaries;
 Existence does not depend on the trustee or
beneficiaries;
 Limited potential for capital acquisition;
 Easy and cheap to establish;
 Trust is a separate taxpayer.

Read section 3.2 “The legal form of ownership” on pp.70–88 of

your textbook. Underline the main ideas related to the legal The table on the following
form of ownership and the considerations when choosing a pages provides a useful
form of enterprise and the different types of enterprises summary.
available in South Africa. Then paraphrase the considerations
when choosing a form of enterprise and summarise the
characteristics of the different types of enterprises available in
South Africa.

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Factor Sole Proprietor Partnership Close Corporation Private Company Public Company
Legal Not a separate legal Not a separate legal
Separate legal entity. Separate legal entity.
personality entity. entity.
Membership 1 At least 2 1–10 1–50 At least 7
Liability of Jointly and severally
Individually liable. Limited liability. Limited liability.
owner liable.
No new registrations –
Registration Must register name. Must register name. The registrar (CIPC).
The registrar (CIPC).
Simple, must have CC in
Legal Limited to different trade Limited to different trade Comprehensive requirements. Private companies
name. Similar to
requirements licences. licences. have (Pty)Ltd and Public Companies only Ltd.
companies.
Control by Control and authority rests Control and authority rests with board of directors
Joint control and authority. Controlled by members
owner with owner. appointed by the shareholders.
Partners are taxed on Profit taxed at a fixed rate.
Who is the Individually taxed on profit Profit taxed at a fixed rate, dividends declared are
profit, whether or not it Dividends declared are
taxpayer whether it is drawn or not. taxed.
stays in the business. taxed.
Any amount distributed is Salaries plus partners’ Salaries plus members’
Salaries paid to members are taxable and deducted
Salaries seen as income and share of profit is taxed share of profit is taxed
by company – salaries must be reasonable.
taxed. when paid. when paid.
Shares can be sold by Shares can be sold
Change of Owner may decide to sell By mutual agreement of By mutual agreement of
mutual agreement by freely on the open
ownership at any time. partners. members.
members. market.
Terminated at death/ Terminated by death, Unlimited – does not end
Life of Unlimited – does not end with death, withdrawal or
insolvency/ incapability of withdrawal or insolvency with death, withdrawal or
business insolvency of a member.
owner. of a partner. insolvency of a member.
Ability to Limited to partners’ Limited to members’
Limited to owner’s assets Limited to share-holders’ contribution, new
acquire investments and outside contribution and outside
and outside borrowing. shareholders and outside borrowing.
capital borrowing. borrowing.

Table 3.1 Summary of types of ownership (Developed from Van Aardt et al, 2011, p.103 and Erasmus et al, 2013, pp.74–85)

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1.3 Developing a Business Plan

1.3.1 Importance of the Business Plan

A business plan is a written document indicating the type of

business opportunity or new venture. The main objectives of
the business plan are to:
 Identify and describe the nature of the business
opportunity or new venture;
 Present a written plan on how the entrepreneur plans to
exploit the business opportunity;
 Attract investors or persuade a bank, other institution or
person to lend the entrepreneur the money which she/
he needs to establish the new venture.

The business plan, furthermore, provides the following

advantages:
 Systematic, realistic evaluation of the chances of
success in the market;
 Identifying key variables that will determine the success
of the venture as well as the risks involved;
 Provides a game plan to manage the venture;
 Is a management tool to compare actual results with
targeted and projected performance;
 Primary tool to attract finances.

1.3.2 Importance and Necessity of the Business Plan

The eight reasons why an entrepreneur should compile a

business plan are:
 To sell the business to himself/ herself; Why do you think the
 To obtain bank financing; entrepreneur needs to sell
 To obtain investment funds; the business to himself/
 To arrange strategic alliances; herself?
 To obtain large contracts;
 To attract key employees;
 To complete mergers and acquisitions;
 To motivate and focus management.

1.3.3 Stakeholders in a Business Plan Stakeholders are

individuals or groups who
There are both internal and external stakeholders for which the are affected by, or can
business plan is important or who can have an impact on the affect, the business
business plan. Table 3.2 below describes the common activities of a company.
stakeholders.

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Internal Stakeholders
Stakeholder Importance/ Impact of Business Plan
 Vision that the entrepreneur has for the
business;
 Mission that defines the business;
 Key objectives – derived from vision and
The
mission;
management
team  Clear understanding of the:
o Overall strategy to accomplish objectives;
o Functional strategies – marketing,
financial, human resources, etc.

 Understand the mission and objectives to be

able to work towards attaining the objectives;
 Improve communication between employees
 Establish a corporate culture;
 Provides focus for activities;
Employees
 Helps prospective employees to understand
emerging culture of a new business;
 Can contribute to the development of the
business plan.

External Stakeholders
Stakeholder Importance/ Impact of Business Plan
 Assurance that the business will still be around
in 3–5 years’ time to provide parts or service;
Customers
 Proves the entrepreneur thinks about the future.

 Capital – banks expect owners of small

businesses to make a substantial investment in
their own business before making a loan;
 Collateral – owner’s willingness to pledge
collateral (personal or business assets) as an These are
indication of dedication to make the business a known as the
success; four “C”s of
Banks  Character – Aspects of the owner’s character credit.
(e.g. honesty and track record) help banks
determine whether to grant a loan;
 Conditions – factors relating to business
operation (potential market growth, competition
and form of ownership) and the state of
economy are considered.

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External Stakeholders
Stakeholder Importance/ Impact of Business Plan
 An investor has a single goal: to earn return on Study Figure 3.2
any investment while at the same time on p.91 of your
minimising risk; textbook.
Investors  Business plan may stimulate investors’ interest –
basic elements may attract (or repel)
prospective investors’ interest more than others.

Table 3.2 Internal and external stakeholders in a business

plan. (Developed from Erasmus et al, 2013,
pp.89–92)

1.3.4 Scope of the Business Plan: How Much Planning is

Needed?

Considerations that determine the amount of planning required Some successful

to develop the business plan include: companies such as Apple
 Style and ability of the entrepreneur(s); started without a formal
 Preferences of the management team; business plan?
 Complexity of the product and/ or services and of the
business; Is it thus necessary to do a
 Competitive environment; business plan?
 Level of uncertainty.

Depth and detail of the business plan depend on the size and
scope of the proposed new venture

1.3.5 Components of the Business Plan

Two issues are of primary concern:

 Basic format of the written preparation;
 Contents or components of the business plan.

 Format of the business plan. This will be influenced by:

o Who will write it – the entrepreneur, a team or a
professional consultant – Table 3.1 on p.93 of the
textbook can be used to assess the skills needed
to write a business plan;
o The appearance/ attractiveness required of the
business plan;
o Length requirements – it can vary from 5–20
pages.

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 Content of the business plan. The following are the most

important components of the business plan:
o Executive summary; It is important that you
o General description of the venture; know what goes into each
o Products-and-services plan; component of a business
o Marketing plan; plan.
o Management plan;
o Operating plan;
o Financial plan;
o Supporting materials.

Tables 3.2 and Table 3.3 on p.94 of the textbook provide a

summary of the overview of a business plan and the outline of
a simple business plan.

1.3.6 Analysing the Market

Entrepreneurs often become focused only on their product or

service, hoping that there will be a market for it. It is essential
to include an analysis of the market that the new venture will
operate in and/ or deliver products and services to. This should
include the following:
 Concepts (marketing concepts – discussed in more
detail in Chapter 12);
 Identification of the target market;
 Research and forecasting in the target market;
 A marketing plan or strategy for the selected target The marketing and
market(s). financial sections are often
considered the most
1.3.7 Determining the Financial Needs of the New important by potential
Venture investors.

In order to be able to attract funds from banks and other

investors, certain crucial financial questions should be
answered to enable them to determine whether the new
venture is attractive and feasible. Key issues to be addressed
here are:
 An understanding of how financial statements work;
 An understanding of how profitability is assessed;
 An ability to determine a venture’s financial
requirements.

Financial considerations will be dealt with in more detail in

BMNG5112.

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Read section 3.3 “Developing a business plan for the new

business” on pp.88–97 of your textbook. Underline the main
ideas. Then paraphrase the objectives and importance and
necessity of the business plan, differentiate between the
stakeholders in the business plan and identify the scope and
components of the business plan.

1.4 The Location of the Business

Choosing the geographical location of the business is crucial

for all kinds of businesses, as it will impact on the success and
future growth of the business. The following location factors
are some of the most important to consider:
 Sources of raw materials;
 Availability of labour; Once you are familiar with
 Proximity of and access to the market; the location factors,
 Availability and cost of transport facilities; complete the Digital
 Availability and costs of power and water; Engagement Activity.
 Availability and costs of a site and buildings;
 Availability of capital;
 Attitude, regulations and tariffs of local authorities;
 Existing business environment;
 The social environment;
 Climate;
 Central government policy;
 Personal preferences.

Read section 3.4 “The location of the business” on pp.97–98 of

your textbook. Underline the main ideas. Then differentiate
between and discuss the location factors that entrepreneurs
should consider.

2 Recommended Additional Reading

Brothers, L. 2011. Location often dictates success or failure of
restaurants, Rochester Business Journal, July. [Online].
Available at: http://www.rbj.net/article.asp?aID=188404
[Accessed 11 January 2013].

Entrepreneur. 2013 Top 10 business plan mistakes. [Online].

Available at: http://www.entrepreneur.com/article/81188
[Accessed 11 January 2013].

Nieman, G and Nieuwenhuizen, C. 2009. Entrepreneurship: A

South African perspective. 2nd edition. Pretoria, Van Schaik.

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3 Recommended Digital Engagement

and Activities
You are required to research the factors that different
businesses consider in selecting a location. Compile a
PowerPoint presentation explaining the factors that each of the
following businesses would consider:
 A McDonald’s fast food branch;
 A power station;
 A warehouse for Pick ‘n Pay.

4 Interactive Work Space

4.1 Izimvo Exchange

Read the “Description of Calabash Guided Tours and

Transfers” on p.95 of the textbook. Imagine you are an investor
and these entrepreneurs have approached you to invest in
their new company. Answer the following questions:
 What additional information would you need in making
your investment decision?
 What risks do you think there are in investing in this
business?
 Do you think it would be a good investment?

4.2 Activity Consult your textbook on

pp.98–99 for additional
Purpose: activities.
To apply knowledge about the different forms of ownership to a
new situation.

Task:
Imagine you and a friend are going to start a business once
you have graduated. Select and motivate which form of
ownership you would choose.

Commentary Related to Activity Design:

Your answer will be based on issues such as whether external
finance will be required. As there are two owners, a sole
proprietor is not an option and close corporations can no
longer be registered.

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4.3 Revision Exercise

1. The choice of the type of ownership is important, as the

various types have different implications for the owner.
List and briefly discuss the aspects that should be
considered in choosing a form of ownership.

2. List the different types of ownership that an entrepreneur

can consider in South Africa.

3. Compare the sole proprietor with the partnership, by

specifically referring to the following aspects:

3.1 Legal personality;

3.2 Membership;
3.3 Liability of owner;
3.4 Control of owner;
3.5 Change of ownership;
3.6 Life of business;
3.7 Ability to acquire capital.

4. Compare the private and public company with each

other, by specifically referring to the following aspects:

4.1 Legal personality;

4.2 Membership;
4.3 Liability of owner;
4.4 Control of owner;
4.5 Change of ownership;
4.6 Life of business;
4.7 Ability to acquire capital.

5. Discuss all the objectives and advantages of compiling a

business plan.

6. List the eight reasons why an entrepreneur should

compile a business plan.

7. Provide a table differentiating the internal and external

stakeholders in a business plan and explaining why it is
important to them.

8. Provide an overview of the most important components

in the business plan. Your answer should be in the form
of a table.

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9. Provide the outline of a simple business plan in table

format.

10. List the items that are involved in analysing the market
and developing a marketing strategy for a new venture.

11. List and briefly discuss the location factors that should be
considered when choosing the most appropriate location
for a new business venture.

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Learning Unit 4: The Business Environment

Material used for this Learning Unit: My Notes on this
 Prescribed text pp.100–135. Learning Unit:
How to prepare for this Learning Unit:
 Read Chapter 4 of your prescribed textbook.
 Make notes of any areas where you require further
explanation.
 As you read Chapter 4 consider the following
questions:
o What makes successful companies so good?
o What changes in the business environment can
impact either positively or negatively?
o How should businesses keep up to date in a
rapidly changing world?

1 Key Concepts Covered in this

Learning Unit

1.1 The Organisation and Environmental

Change

Change is the only constant in life (Heraclitus [c. 535BC–

475BC], Greek philosopher).

This statement was made long before the age of technology

we experience today. Change occurs when the status quo is
altered and it could be either for the best or not.

However, change can also bring about uncertainty, as it could

be a change from stability to instability or a shift from the
predictable to the unpredictable, and change is usually hard to
predict. Change occurs in three sub-environments of the
business environment, as illustrated in Diagram 4.1.

1.2 The Composition of the Business

Environment

The business environment is described as “all the factors or

variables, both inside as well as outside the business
organisation, which may influence the continued and
successful existence of the business organisation” (Erasmus et
al, 2013, p.106).

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From this, one can derive that the business environment refers
to both the internal and external environment and the factors
from both that impact on the business organisation.

Macro environment

Market environment

Micro environment
The business organisation

Diagram 4.1 Sub-environments of the business

environment (Erasmus et al, 2013, p.102)

1.2.1 The Three Sub-Environments

The three sub-environments are illustrated in Figure 4.2 on

p.106 of the textbook. From this picture it is clear that the three
sub-environments and the factors that need to be considered
can be summarised as follows:
 Micro-environment: The business itself and includes the Make sure you understand
following aspects: and can explain the
o Vision, mission and objectives of a business; differences between the
o Business functions and management; different environments.
o Resources;
o Determines the strengths and weaknesses;
 Market environment: Immediately outside the business
and includes:
o Consumers;
o Competitors;
o Intermediaries;
o Suppliers;
o Also known as the task environment;

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 Macro-environment: External to both the business and

the market environment and includes:
o Technological environment;
o Economic environment;
o Social environment;
o Physical environment;
o Institutional-governmental environment;
o International environment.

1.2.2 Characteristics of the Business Environment

The following are the most important characteristics:

 Interrelatedness of the environmental factors or Do you think the business
variables; environment has always
 Increasing instability and change; had these characteristics?
 Environmental uncertainty; What do you think might
 Complexity of the environment. have changed that has
made it more complex and
Read section 4.2 “The business and environmental change” uncertain?
and 4.3 “The composition of the business environment” on
pp.102–110 of your textbook. Underline the main ideas related
to environmental change and the business environment.

Then identify the three sub-environments of the business

environment and paraphrase how changes in the environment
impact on businesses in South Africa, and differentiate
between the three sub-environments of the business
environment.

1.3 The Micro-Environment

Three sets of variables exist within the micro-environment:

 The vision, mission and objectives of the business, which
reflect the reason for the existence of the business:
o Vision: What do we want to become?
The micro-environment is
o Mission (linked to and derived from the vision):
the only internal
What is our business?
environment.
o Objectives (derived from the mission): How we are
going to achieve the mission?
 Its management, which refers to the different areas of
management or business functions;
 Its resources, which include the following:
o Tangible resources;
o Intangible resources;
o Organisational capabilities.

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Read section 4.4 “The micro environment” on pp.110–112 of

your textbook. Underline the main ideas related to micro
environment. Then differentiate between the sub-elements of
the micro-environment.

1.4 Market Environment

This is also referred to as the task environment, which is

immediately outside the business environment and consists of
the following:

 The market, which refers to the people who have needs

to satisfy and have the financial means to pay to do so.
The market environment consists of the following factors:
o Purchasing power: Consumers’ personal
disposable portion of personal income after
subtracting taxes and credit repayments that could
be used to buy products and services;
o Consumer market that can be divided into the
types of products which they buy:
 Durable products;
 Semi-durable products;
 Services.

 Suppliers: They provide the resources that the business

needs to operate, which includes:
o Raw material: Practically every business, whether
manufacturing, construction, retail and contracting,
depends on regular supplies;
o Capital: Financial resources are needed to pay for
supplies and human resources and are provided by
banks and shareholders;
o Labour/ human resources: This could include
labour brokers, trade unions and educational
institutions.

 Intermediaries: They usually bridge the gap between

manufacturers and the consumer and include
wholesalers and retailers, agents and brokers,
representatives of communities, spaza shops in
townships, financial institutions, asset managers and
insurance brokers. Decision-making by management is
influenced by the dynamic and ever-changing nature of
intermediaries.

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 Competitors: They compete in attracting consumers to

buy their products and services and have an influence on
the number of products/ services that can be sold as well
as the price at which they could be sold.

1.4.1 The Competitive Forces in an Industry

The intensity or level of competition in an industry affects the These are known as
survival prospects of businesses operating in the industry. The Porter’s Five Forces.
level of competition also helps entrepreneurs decide if an
industry should be entered into. The nature and intensity of
competition in any industry is determined by five forces:
 The possibility of new entrants or departures of existing
competitors;
 The bargaining power of buyers (clients/ consumers);
 The bargaining power of suppliers;
 The availability of substitute products or services;
 The number of existing competitors.

These five forces are often indicated graphically which

illustrates how these forces impact on the competition in the
industry.

Diagram 4.2 The competitive forces in an industry

(Erasmus et al, 2013, p115)

The strength of these forces collectively determines the

competitiveness in the industry. If these forces are very strong,
competitors may struggle to survive and the industry will not be
attractive for entrepreneurs.

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A brief discussion of each force follows:

 Potential new entrants: If it is easy for new entrants to

enter the market and become competitors this force is
strong. For example, to open a tyre replacement
business (e.g. Supa-quick or Tiger Wheel & Tyre)
requires significant financial resources, but does not
require specific skills or knowledge.

 Bargaining power of buyers: Buyer power would be

strong when there are few customers and they can thus
negotiate favourable terms and discounts from
competitors. For example, by obtaining quotes on tyres
from various tyre replacement businesses, you may be Consider which the
able to negotiate a small discount. As there are many strongest forces are that
customers who need to buy a small quantity of tyres, you affect the education
cannot exert significant power over the tyre business. institution where you are
studying.
 Bargaining power of suppliers: Generally, if there are
many suppliers offering a similar product, this force is
weak. This is similar to buyer power but represents the
influence suppliers have over a business.

 Substitute products: This force refers to the extent to

which the business’ product or service may be
substituted, this is sometimes referred to as indirect
competition. For example, a gym may lose customers to
not just other gyms (competition) but also to sports clubs
(substitutes).

 Number of existing competitors: The rivalry between the

businesses in an industry may increase the level of
competition. In some industries price wars between
competitors are a symptom of a high level of rivalry.
Generally, the more competitors there are, the more
intense the rivalry.

Read section 4.5 “The market environment” on pp.112–116 of

your textbook. Underline the main ideas related to market
environment. Then differentiate between the sub-elements of
the market environment.

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1.5 The Macro-Environment Think about how the travel

industry has changed since
The macro-environment is divided into six variables or the development of the
components that a business organisation has to respond to or internet. Airline tickets can
observe: now be booked directly
with airlines. Travellers can
 Technological environment: Manifested in technological do their own research and
innovation or processes through which human do not need to rely on
capabilities are enlarged. Continued assessment of the travel agents as much
technological environment should include the following: anymore.
o Identification of important technological trends;
o Analyses of the potential change in the current and
future technologies;
o Analyses of the impact of important technologies
on competition;
o List of priorities to be included in a technology
It may help you to
strategy;
remember the Macro-
o Continual assessment of technology trends in
environment components
following areas:
better using an acronym
 Water technology;
such as:
 Mineral technology;
P – Physical
 Marine technology;
E – Economic
 Agricultural and veterinarian technology;
S – Social
 Medical technology;
T – Technological
 Transport technology;
I – Institutional
 Power technology.
I – International
 Economic environment: The economic climate of a
country will have a direct effect on the business and its
operations. The following aspects should be analysed:
o Economic growth rate expressed in monetary
terms, such as the gross domestic product (GDP);
o Employment rate;
o Consumer income and buying behaviour;
o Inflation rate;
o Monetary policy – influences the interest rate;
o Fiscal policy – influences the exchange rate,
taxation and tax reforms.

 Social environment: Reflects changes in demographics,

attitudes and behaviour in society. The following aspects
should be considered:
o Demographic (makeup of the population) changes;
o Urbanisation;
o Level of education;
o Changing role of women;

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o Consumerism – consumers have the following

rights:
 Right to safety;
 Right to be informed;
 Right to freedom of choice;
 Right to be heard;
o Social responsibility and business ethics;
o HIV/ Aids;
o Culture.

 Physical environment: This refers to the physical

resources that people and businesses need to support
life and development, such as water, air, the oceans,
rivers, forests etc. The following factors should be Can you see how these
considered: environments will interact
o Population and health patterns; with each other? That is
o Food; why we said the business
o Water; environment has
o Energy and climate; interrelated components.
o Biodiversity;

The following factors link with the physical environment

and present opportunities and threats to businesses:
o Cost of energy;
o Growing cost of pollution;
o Environmentalism;
o Scarce resources.

 The institutional-governmental environment: This refers

to the influences on management decisions by the
course of politics and would also include the following
areas:
o Legislation, annual budget, taxation, import control,
export support, price controls, etc.;
o Government expenditure;
o Philosophy of government.

 International environment: In the global economy

businesses are exposed to international trends and
competition and may be affected in different ways.
Operating in an international environment brings about a
complexity as countries have different technologies,
culture, laws, politics, etc. Management should thus be
aware of global trends and threats to the local market.

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1.6 Strengths, Weaknesses, Opportunities

and Threats (SWOT)
Can you think of strengths,
You will deal with SWOT analyses in more detail in later weaknesses, opportunities
studies. However, as a SWOT analysis is the result of and threats for the
analysing the different environments, a short introduction is education institution at
provided. which you are studying?

Strengths and weaknesses are found in the micro- Once you have a good
environment. In general, strengths are things that an understanding of the
organisation is good at. Strengths can be from a combination business environments,
of resources, strategy or management of the different business complete Digital
functions. Weaknesses represent aspects which the Engagement Activity 1.
organisation does poorly and can lead to vulnerability.

The changes brought about in the market environment and the

trends from the macro-environment can be classified into two
groups:
 Changes that offer an opportunity;
 Changes that pose a threat.

An environmental opportunity can be defined as “a favourable

condition or trend in the market environment that can be
exploited to the business’s advantage by a deliberate
management effort” (Erasmus et al, 2013, p.131).

An environmental threat can be defined as “an unfavourable

condition or trend in the market environment that can, in the
absence of a deliberate effort by management, lead to the
failure of the business, its products or its services” (Erasmus et
al, 2013, p.131).

Read sections 4.6 “The macro-environment” and 4.7

“Opportunities and threats in the market environment and the
macro-environment” on pp.116–131 of your textbook.
Underline the main ideas related to the macro-environment
and its sub-environments.

Then differentiate between the technological, economic, social,

physical, institutional and international environments and the
factors that managers should analyse within each, and how
these changes could contribute to environmental opportunities
and threats.

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1.7 Environmental Scanning

As the management of a business is affected by changes in

the environment, management needs to identify, measure and
evaluate the different environmental variables.

The importance of environmental scanning is:

 The environment is continually changing: purposeful
monitoring is necessary to keep abreast of change;
 Scanning is necessary to determine what factors pose
threats to the present strategies of the business;
 Scanning is necessary to determine what factors in the
environment present opportunities;
 Businesses that systematically scan the environment are
more successful than those that do not.

The extent of environmental scanning is determined by

following factors:
 Basic relationship between business and its
environment;
 Nature of the environment in which the business
operates and the demands made by the environment on
the business;
 Source and extent of change.

Guidelines for conducting environmental scanning are:

 The most elementary is to update relevant secondary (or
published) information obtainable from a wealth of
sources;
 More advanced form of scanning is the addition of
Can you think of reasons
primary information or special investigations on particular
why businesses might not
aspects;
conduct environmental
 A much more advanced form of scanning is the scanning?
establishment of a scanning unit within the business.

Read section 4.8 “Environmental scanning” on pp.131–132 of

your textbook. Then paraphrase environmental scanning and
the importance of it to businesses, and differentiate the factors
that determine the extent of environmental scanning and the
methods that can be used for environmental scanning.

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2 Recommended Additional Reading

Louw, L and Venter, P. 2010. Strategic management:
developing sustainability in Southern Africa. 2nd edition, Cape
Town: Oxford University Press.

Nieman, G and Bennett, A. 2006. Business management: A

value chain approach. 2nd edition. Pretoria: Van Schaik.

Porter, ME. 2008. The five competitive forces that shape

strategy. Harvard Business Review, 86(1), pp.78–93.

Shoemaker, PJH. 2012. 9 ways to see change coming (Before

it kills your business). [Online]. Available at:
http://www.inc.com/paul-schoemaker/9-ways-to-see-change-
coming.html [Accessed 21 September 2013].

3 Recommended Digital Engagement

and Activities
Access the following business news websites:
 Bloomberg. 2013. [Online] Available at:
http://www.bloomberg.com/ [Accessed 11 December
2013].;
 Business Day. s.a. [Online] Available at:
http://www.bdlive.co.za/ [Accessed 11 December 2013].;
 Fin24. 2013. [Online] Available at: http://www.fin24.com/
[Accessed 11 December 2013].;
 Moneyweb. 2013. [Online] Available at:
http://www.moneyweb.co.za [Accessed 11 December
2013].

Select any article that deals with how the macro- or market
environment has affected the company in question.
Considering the theory you have learnt in this learning unit,
write up a short commentary on how the company has been
affected.

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4 Interactive Work Space

4.1 Izimvo Exchange

In 1994, South Africa entered post-Apartheid democracy. The

change in political system had far reaching implications for
business.

Consider how businesses can be impacted by the macro-

environment. Discuss the ways in which businesses have been
affected in South Africa as a result of the change in political
system in 1994. Remember to consider how the different
environmental factors can be interlinked.

4.2 Activity 1

Purpose:
To apply knowledge about the business environments to a new
situation.

Task:
Select any company of your choice and perform a micro,
market and macro analysis on the company. Conclude by
noting the strengths, weaknesses, opportunities and threats.
Consult your textbook on
Commentary Related to Activity Design: pp.133–134 for additional
N/A activities.

4.3 Activity 2

Purpose:
To practice evaluating a statement.

Task:
Evaluate the statement “Businesses that do not scan the
environment rigorously will fail”.

Commentary Related to Activity Design:

This is a typical exam question requiring you to analyse the
statement from different perspectives and reach a conclusion.
In your answer, you should note the benefits and levels of
environmental scanning. Further research would benefit your
answer.

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4.4 Revision Exercise

1. In your own words, describe “change”.

2. Provide a graphic illustration of the three sub-

environments of the business environment and the
factors that need to be considered within each.

3. List the most important characteristics of the business

environment.

4. Identify and briefly discuss the three sets of variables

that exist within the micro-environment.

5. Identify and briefly discuss the aspects to be considered

when analysing suppliers as part of the analyses of the
market environment.

6. Provide a graphic illustration of the five competitive

forces.

7. List the areas in which the continual assessment of

technology trends are required when conducting an
analysis of the technology environment.

8. List the rights that consumers have in South Africa.

9. Identify and briefly discuss the aspects and links with

businesses that need to be considered when conducting
an analysis of the physical environment.

10. List the various sub-environments that should be

included in analysis of the macro-environment.

11. In your own words, describe the following:

11.1 An environmental opportunity;

11.2 An environmental threat.

12. List the different levels of environmental scanning that a

business can conduct.

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Learning Unit 5: Corporate Social Responsibility

Material used for this Learning Unit: My Notes on this
 Prescribed text pp.141–168. Learning Unit:
How to prepare for this Learning Unit:
 Read Chapter 5 of your prescribed textbook.
 Make notes of any areas where you require further
explanation.
 As you read Chapter 5 consider the following
questions:
o Why do companies do CSR?
o Do you think companies always think about
their impact on society and environment?
o Can you think of “good” and “bad” companies
from a CSR perspective?

1 Key Concepts Covered in this

Learning Unit

1.1 Introducing Corporate Social

Responsibility
Study the definition of CSR
1.1.1 What is Corporate Social Responsibility? in the King III report on
p.140 of your textbook.
CSR is an umbrella concept that recognises that:
 Companies have a responsibility (beyond legal
compliance and individual liability) for their impact on
society and the natural environment; Note that CSR is much
more than just donating
 Companies have a responsibility for the behaviour of
money to a charity. It
others with whom they do business;
involves a deeper
 Business needs to manage relationships with the wider
relationship with society
society – for commercial viability and to add value to
and the environment.
society.
(Erasmus et al, 2013, p.140)

CSR is sometimes also referred to as “corporate citizenship” or

“corporate social investment”. We see CSR, however, as a
broader concept than "corporate citizenship" or "corporate
social investment" which is explained in more detail below.

 Corporate Citizenship: According to this principle,

organisations are recognised as legal persons with
certain rights and responsibilities which include the right
to:

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o Govern internal affairs;

If you are interested in
o Enter into contracts;
environmental impacts of
o To hire;
business, watch the 2000
o To sue and be sued;
movie, Erin Brockovich
o Have constitutional rights.
which starred Julia
Roberts.
 Corporate Social Investment (CSI): This usually refers to
a company’s commitment to invest in community-based- Erin Brokovich. 2000.
projects. CSR includes more than just financial [Film]. Directed by Steven
investment as it looks at the contribution the business Soderbergh. USA:
makes to society through its core activities. Universal Pictures.

1.1.2 The Triple Bottom Line

On the internet, research
Future success for organisations means that they need to
the corporate scandals that
focus not just on profitability, but also on the environment and
occurred at Enron and
society. The planet, people and profit are all intertwined. Triple
Worldcom. Were these
bottom line advocates that a company’s worth should be
companies being
measured in financial, social and environmental terms. Both
responsible to society and
the King II and King III reports encourage companies to report
the environment?
and audit the triple bottom line. Some companies, however,
continue to only pay lip service to these responsibilities.

1.1.3 CSR in Contemporary Business Management One of the causes of the

financial crisis that began
CSR has expanded in recent years with many countries in 2008 was irresponsible
passing laws mandating disclosure. Issues that are being lending to home owners in
focused on include corporate social performance, the USA. The result was a
sustainability, stakeholder theory and business ethics. worldwide financial crisis.

Read on pp.144–145 of your textbook, how CSR has been

affected by the 2008–2010 economic crisis.
You must understand and
be able to explain the
CSR programmes may just be implemented as a marketing or
different factors which drive
public-relations tool, but programmes are adopted due to a
businesses to implement
combination of reasons, namely:
CSR programmes.
 Social drivers;
 Governmental drivers;
 Market drivers;
 Ethical drivers.

Summarise the discussion of these drivers on pp.145–149 of

your textbook, in your own words.

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Read section 5.2 “Introducing Corporate Social Responsibility”

on pp.139–149 of your textbook. Underline the main ideas
related to what CSR is, how it has developed and the reasons
why companies should implement CSR programmes.

1.2 Corporate Governance

Corporate governance
The King II report provides seven primary principles of good refers to how organisations
governance namely: are run.
 Discipline;
 Transparency;
 Independence;
 Accountability;
 Responsibility;
 Fairness;
 Social responsibility.

There is always a link between good governance and the law.

The extent to which corporate governance practices are
enforced by law varies from country to country. Corporate
governance relates to morality and not just legal compliance. It
is essentially about leadership that is transparent and
accountable to the stakeholders.

1.2.1 Roles and Responsibilities within a Company in

Terms of Good Governance

As a company is not a natural person, it needs natural persons

to run the company. This is done in the following capacities/ Think back to Learning
roles: Unit 3 where we noted that
in companies, directors run
 Board of directors: A group of people (directors with the company on behalf of
rights and responsibilities conferred on them) assembled the owners (shareholders).
to lead the company so that it functions in the best
interests of the stakeholders. Directors stand in a
fiduciary relationship (trust relationship) to the company.
The board of directors may delegate some of its
functions to board committees or management.

 Executive or non-executive directors: Executive directors

are members of the management team appointed on the
board and are thus full-time employees. Non-executive
directors are independent from management and not
involved in the day-to-day activities of the company and
are only remunerated by means of a director’s fee.

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 Chairman of the board and chief executive officer:

Chairman of the board (which may be required to be an
independent non-executive director) is responsible for
the running of the board and the chief executive officer,
for the running of the company.

1.2.2 How does Corporate Governance Relate to CSR?

The relationship between corporate governance and CSR can

be described by the following:
 Good corporate governance is an important aspect of
CSR;
 CSR has evolved as an aspect of good corporate
governance;
 The board should govern CSR programmes.

A corporate policy for CSR can be defined through a values-

based system, a stakeholder-engagement process or a
combination of the two.

Read section 5.3 “Corporate Governance” on pp.149–152 of

your textbook. Identify the main ideas related to corporate
governance, the roles and responsibilities in terms of good
governance of a company and the relationship between CSR
and corporate governance.

Then describe corporate governance in your own words and

identify and discuss the different roles and responsibilities
within a company in terms of good governance, and
paraphrase the different ways in which corporate governance
relates to CSR.

1.3 Stakeholder Engagement

One of the ways in which the board and the CSR committee
can determine how to establish the corporate policy for CSR is
a stakeholder-engagement programme. Other reasons why
companies engage with stakeholders include the following:

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To understand and respond to society’s expectations of what it means to be; e.g. a

responsible manufacturer, marketer and employer

As a means to help build better relationships with all parties, resulting in improved
business-planning and performance

To aid in providing opportunities to align business practices with societal needs and
expectations and in driving long-term sustainability and shareholder value

Diagram 5.1 Reasons for stakeholder-engagement

(Derived from Erasmus et al, 2013, p.152)

1.3.1 Defining “Stakeholders”

Stakeholders are “persons or groups who are directly or

indirectly affected by a project, as well as those who may have Can you think of examples
interests in a project and/ or the ability to influence its outcome, of primary and secondary
either positively or negatively” (International Financing stakeholders for the
Corporation, 2007, p.10). education institution in
which you are studying?
There are two kinds of stakeholders:
 Primary stakeholders: Their on-going support is vital for Where would you place
the survival of the business organisation and they have students, lecturers and the
contractual or financial relationships with the business government?
organisation;
 Secondary stakeholders: Have a less direct impact on
the company;
 Secondary stakeholders can become primary
stakeholders if conditions change.
Make sure you can define
1.3.2 Defining “Engagement” stakeholders and
engagement. Study the
The levels of engagement with stakeholders are reflected in table on pp.155–156 of the
Table 5.1 on pp.155–156 of the textbook. From this table it can textbook closely.
be seen that the level of engagement is determined by the
goals aspired to, mode of communication, nature of the
relationship and the engagement process.

“Engagement” can include:

 Providing information;
 Capacity building to equip communities and stakeholders
to effectively engage;

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 Listening and responding to community and stakeholder

concerns;
 Including communities and stakeholders in relevant
decision-making processes;
 Developing goodwill and a better understanding of
objectives and priorities leading to confidence in
decisions;
 Establishing a realistic understanding of potential
outcomes.

1.3.3 Principles for Stakeholder Engagement

The key approaches of the stakeholder engagement process

are:
 Involvement;
 Candour;
 Relevance;
 Learning;
 Action.

These are reflected in the shaded box on p.154 of your

textbook.

1.3.4 Stakeholder-Engagement Process

The steps in the stakeholder engagement process, as

discussed in the shaded box on p.157 of the textbook, are:

Prepare Plan Design Engage Evaluate Apply

Diagram 5.2 Steps in the stakeholder-engagement process

(Derived from Erasmus et al, 2013, p.157)

Corporations may align their overall stakeholder engagement

process to the AA1000 Accountability Principles Standard. The
Read more about these
three principles this includes are:
principles on pp.157–158
 The principle of inclusivity;
of your textbook.
 The principle of materiality;
 The principle of responsiveness.

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Read section 5.4 “Stakeholder Engagement” on pp.152–158 of

your textbook. Highlight the main ideas related to stakeholder
engagement.

Then paraphrase engagement and stakeholders and describe

the levels of engagement, types of stakeholders, principles of
stakeholder engagement, steps in the stakeholder-
engagement process and the discussion of the three
principles.

1.4 Sustainable Development Do you think businesses

treat society and the
1.4.1 Defining “Sustainable Development” environment in a
sustainable manner?
Sustainable development is “development that meets the
needs of the present without compromising the ability of future Complete the activity under
generations to meet their own needs” (Erasmus et al, 2013, Interactive Work Space;
p.158). which involves watching a
video and answering
Two key concepts come from this definition: questions.
 Concept of needs;
 Idea of limitations.

Sustainable development needs to be viewed in terms of

systems thinking. Thus, the world is a system and air pollution
in one region may affect air quality in another region. Major
international meetings have created a widespread awareness
of the concept of sustainable development.

1.4.2 The Contribution of CSR to Sustainable

Development

The private sector has finances, management expertise and

the technology to contribute to sustainable development
through CSR. CSR efforts and interests, and areas of
influence, could impact on efforts in sustainable development.

Read section 5.5 “Sustainable Development” on pp.158–159 of

your textbook. Summarise this section, ensuring that you
describe sustainable development and its key concepts in your
own words and highlight the contribution of CSR to sustainable
development.

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2 Recommended Additional Reading

Catanach Jr, A and Ketz, J. 2012. Enron ten years later:
Lessons to remember. CPA Journal, 82(5), May 2012.pp.16–
23.

Kao, RWY. 2010. Sustainable economy: Corporate, social and

environmental responsibility. Singapore: World Scientific
Publishing.

Nieman, G and Bennett, A. 2006. Business management: A

value chain approach. 2nd edition. Pretoria: Van Schaik.

Padgett, BL. 2005. After Dot-com, after Worldcom, after Enron,

after Capitalism. Business Ethics Quarterly, 15(2), pp.329–
240.
Urip, S. 2010. CSR strategies: Corporate social responsibility
for a competitive edge in emerging markets. Hoboken, (NJ):
Wiley.
3 Recommended Digital Engagement
and Activities
Select a JSE listed company. Prepare a PowerPoint
presentation on the stakeholders of the business. Use one
slide per stakeholder and illustrate how the stakeholder affects
the business and how the stakeholder is affected by the
business. Do not forget that there are primary and secondary
stakeholders.

The JSE listed companies are available from the JSE website:

Johannesburg Stock Exchange. s.a. [Online]. Available at:

http://www.jse.co.za [Accessed 12 December 2013].

4 Interactive Work Space

4.1 Izimvo Exchange

Research the FairTrade movement. You can start by looking at

their website:

FairTrade International. 2011. [Online]. Available at:

www.fairtrade.net. [Accessed 12 December 2013].

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Identify products in South Africa that are certified FairTrade.

Discuss why these companies have undertaken FairTrade and
what benefits the company may get.

You should make sure you understand the different drivers of

CSR programmes before you start this activity.

4.2 Activity

Purpose:
To develop critical thinking and analytical skills.

Task:
Watch the short movie entitled “The Story of Stuff” presented
by Annie Leonard.

It is available at:

The Story of Stuff Project. 2013. [Online]. Available at:

http://www.storyofstuff.org/movies-all/story-of-stuff/ [Accessed
12 December 2013].

and

Story of Stuff. 2009. [Video online]. Available at:

http://www.youtube.com/watch?v=9GorqroigqM [Accessed 12
December 2013].

Once you have watched it, answer the following questions.

Additional research will help you answer the questions.

1. Are businesses responsible towards society and the

environment?

2. In what ways can business have a negative impact on

society and the environment?

3. There are many critics of Annie Leonard and this movie,

what types of people or organisations might criticise this Consult your textbook on
movie? How would they criticise it? p.161 for additional
activities.
4. Do you think the movie tells us the whole story?

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4.3 Revision Exercise

1. In your own words, define “corporate social

responsibility”.

2. In your own words, define “corporate citizenship” and

“corporate social investment”.

3. Most corporate social responsibility programmes are

driven by a combination of reasons. Identify and briefly
discuss these driving reasons.

4. List the 10 myths about business ethics.

5. In your own words, describe the following:

5.1 Corporate governance;

5.2 Engagement;
5.3 Stakeholders;
5.4 Sustainable development.

6. Provide the three reasons why companies engage with

stakeholders.

7. Discuss the differences between primary and secondary

stakeholders in a business organisation.

8. Provide a diagrammatical discussion of the levels of

stakeholder engagement.

9. Identify and briefly discuss the key words that need to be

remembered during the stakeholder-engagement
process.

10. List and briefly discuss the steps in the stakeholder-

engagement process.

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Learning Unit 6: Introduction to General Management

Material used for this Learning Unit: My Notes on this
 Prescribed text pp.167–188. Learning Unit:
How to prepare for this Learning Unit:
 Read Chapter 6 of your prescribed textbook.
 Make notes of any areas where you require further
explanation.
 As you read Chapter 6 consider the following
questions:
o What does the term “management” mean?
o What do managers do all day?
o Why is management important?

1 Key Concepts Covered in this

Learning Unit

1.1 The Role of Management Study Table 6.1 on p.168

of your textbook. Can you
An organisation has goals as well as resources such as think of any businesses
people, financial resources and physical resources. that have failed for these
Management is indispensable in directing these resources reasons?
towards achievement of the goals. Management is
indispensable for the following reasons:
 Management directs a business towards its goals;
 Management sets and keeps the operations of the
business on a balanced course;
 Management keeps the organisation in equilibrium with
its environment;
 Management is necessary to reach the goals of the
organisation at the highest possible level of productivity.
These four management
Read section 6.2 “The role of management” on pp.168–171.
tasks are covered in detail
Underline the important points relating to the role of in Chapters 7–10 of your
management and read the Vodacom case study. textbook.

1.2 A Definition of Management

Management is defined as “the process followed by managers

to accomplish a business’ goals and objectives” (Erasmus et
al, 2013, p.171). Thus management is a process of activities
carried out by managers. Management does four things:
 It decides what has to be done;
 It decides how this should be done;
 It orders that it be done;
 It checks that its order have been carried out.

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The preferred terminology for these four activities is the names

of the four fundamental tasks of management:
 Planning;
 Organising;
 Leading;
 Control.

These four tasks are performed in this logical order, however,

managers are likely to be engaged in several management
activities simultaneously.

Read section 6.3 “A definition of management” on pp.171–173.

Underline the key points related to explaining what managers
do, the process they follow and tasks they execute.

1.3 The Different Levels and Functional

Areas of Management in Businesses

Managers are found at all levels of a business and in different

functional areas.

1.3.1 The Different Levels of Management

The management levels are broadly simplified into top, middle At the campus on which
and lower management. The number of levels in an you are studying, or for an
organisation varies depending on its size. organisation you know
well, identify managers at
Top management is mainly concerned with long-term planning, the different levels and list
monitoring the environment and for the performance of the what you think they are
business as a whole. The managing director is an example of each responsible for.
a top manager.

Middle management is responsible for specific functional areas

and executes the policies, plans and strategies determined by
top management. The marketing manager is an example of
middle management.

Lower management, sometimes called supervisory

management is concerned with small sections of the
organisation and direct the day to day activities of employees.
Examples include foremen or a sales manager for a specific
area.

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1.3.2 The Functional Management Areas in a Business

Organisation

Each business function has its own functional management

that is responsible for the performance of that particular
function. Thus the financial manager or human resources
manager plan, organise, lead and control their relevant
department.

1.3.3 The Function of General Management

General management has a role to play in every organisation.

This function, usually practiced by top management, integrates
all the other functions.

Read section 6.4 “The different levels and functional areas of

management in businesses” on pp.174–177 of your textbook.
Underline the main ideas and pay particular attention to
Figure 6.4 on p.175.

1.4 Skills Needed at Different Managerial

Levels Ensure you understand the
different skills required at
Figure 6.5 on p.177 of your textbook depicts the different skills the different levels of
management.
needed at the different levels of management. The three key
skills required are:
 Conceptual skills – analysing, thinking and planning;
 Interpersonal skills – dealing with people;
 Technical skills – knowledge of a particular discipline.

1.5 The Role of Managers

Mintzberg, a respected writer on management, identified 10

different roles. These can be placed into three broad groups
namely:
 Decision-making role;
 Interpersonal role;
 Information role.

These are illustrated in Figure 6.6 on p.179 of your textbook.

The role of managers will be determined by the manager’s
seniority in the business.

Read section 6.6 “The role of managers” on pp.179–180 of

your textbook. Underline the main ideas relating to each role.

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1.6 Development of Management Theory

Table 6.3 on p.180 of your textbook illustrates how

management has changed since the 1900s. As professional
management developed, a number of theories have been
developed to understand it.

1.6.1 The Main Schools of Thought on Management

The management theories that have evolved are grouped into

a number of schools of thought. Each school of thought has
made some contribution to our knowledge of management.
The theories are broadly classified into classical approaches
and contemporary approaches. Figure 6.7 on p.182 of your
textbook illustrates the different schools of thought over time.

The main schools of thought are:

 Classical approaches:
o The scientific school;
o The management process school;
o The human relations/ behavioural school;
o The quantitative school;
o The systems approach.
 Contemporary approaches:
o The contingency approach;
o Strategic management;
o Total quality management;
o The learning organisation and business re-
engineering;
o Diversity management.

2 Recommended Additional Reading

Nohria, N, Joyce, W and Roberson, B. 2003, What really
works. Harvard Business Review, 81(7), July 2003. pp.4–52.

Smit, PJ, Cronje, GJ, Brevis, T and Vrba, MJ. 2011.

Management principles: A contemporary edition for Africa. 5th
edition. Cape Town: Juta.

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3 Recommended Digital Engagement

and Activities
You are required to research a business that has failed either
in South Africa or abroad. You have to compile a PowerPoint
presentation explaining why the business failed and if
management failed in their managerial duties. You should
suggest how the failure could have been avoided.

4 Interactive Work Space

4.1 Izimvo Exchange

On the internet, you are required to visit business news

websites such as:

 Bloomberg. 2013. [Online] Available at:

http://www.bloomberg.com/ [Accessed 11 December
2013].;
 Business Day. s.a. [Online] Available at:
http://www.bdlive.co.za/ [Accessed 11 December 2013].;
 Fin24. 2013. [Online] Available at: http://www.fin24.com/
[Accessed 11 December 2013].

Your task is to find an article which interviews or discusses a

manager at a larger business. Write a short analysis of the
different roles he/ she performs. Explain, using the article, what
skills the manager possesses.

You can share and present your article to your class or fellow
students.

4.2 Activity Consult your textbook on

pp.187–188 for additional
Purpose: activities.
To develop the ability to evaluate a statement.

Task:
Evaluate the following statement “Conceptual skills are the
most important skills for managers.”

Commentary Related to Activity Design:

This activity requires you to consider both the benefits and
costs of planning. You are also required to relate these to the
small business context. Additional research will enhance your
answer.

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4.3 Revision Exercise

1. List the four things that managers do and how these

relate to the four basic functions of management.

2. Summarise the four basic functions of management.

3. Explain what managers at the three different levels of

management do.

4. Graphically illustrate how different levels of management

require different types of skills.

5. Group the 10 roles of managers into the interpersonal

role, decision-making role and information role.

6. Discuss the scientific school and strategic approach as

schools of thought on management.

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Learning Unit 7: Planning

Material used for this Learning Unit: My Notes on this
 Prescribed text pp.189–206. Learning Unit:
How to prepare for this Learning Unit:
 Read Chapter 7 of your prescribed textbook.
 Make notes of any areas where you require further
explanation.
 As you read Chapter 7consider the following
questions:
o Who does the planning in a business?
o What would happen if different managers or
departments have very different goals?
o What makes a meaningful goal?

1 Key Concepts Covered in this

Learning Unit

1.1 Benefits and Costs of Planning

Planning gives direction to the business organisation and

enables, and even forces, managers to be future-oriented so
that the organisation is able to adapt to changes in the
business environment.

1.1.1 Benefits of Planning

Why do you think the
Planning has many benefits and those benefits increase as the benefits of planning
turbulence of the business environment increases. The increase as the turbulence
benefits of planning are illustrated in Diagram 7.1 below. of the business
environment increases?

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Planning provides direction

The plans to attain goals provide direction to the
business

Planning reduces the impact of change

Anticipating changes in the environment and planning
to benefit from opportunities and avoiding threats

Planning promotes co-ordination

Activities can be co-ordinated to achieve the
organisation’s goals effectively and efficiently

Planning ensures cohesion

All the different parts of the organisation should work
together to attain goals and objectives

Planning facilitates control

Measuring performance against set goals and plans
and taking corrective action on deviations

Diagram 7.1 Benefits of planning (Developed from Erasmus

et al, 2013, pp.193–194)

1.1.2 Costs of Planning

Despite the above benefits, planning could also result in Some managers do not do
certain costs to the business organisation: enough planning because
 Planning may create rigidity; of these “costs”.
 Planning consumes management time;
 Formal plans may replace intuition and creativity;
 Planning could cause delays in decision-making.

Read section 7.2 “The benefits and costs of planning” on

pp.192–194 of your textbook. Summarise the main ideas in
this section. Then paraphrase planning and identify and
differentiate between the benefits and costs of planning.

1.2 Managerial Goals and Plans

An organisational goal/ objective can be described as “a

desirable state of affairs that an organisation aims to achieve
at some point in the future” (Erasmus et al, 2013, p.194).

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An organisational plan can be defined as “the means by which

the goal is to be realised” (Erasmus et al, 2013, p.194).

1.2.1 The Nature of Goals

Organisational goals flow from the mission statement of the

organisation and provide the specifics on how the mission will
be accomplished. The nature of organisational goals is
reflected in the following:
 Organisations have multiple goals and the organisational
Make a list of the goals you
level on which it was set will determine the type of goal –
have for your own studies
strategic to operational;
and career. Make sure you
 Focus of goals differs according to the different aspects/
think of a short-term,
function within the organisation that sets it;
medium-term and long-
 The time period of goals may be short term, intermediate term goal.
or long term;
 Goals may be publically stated or not, depending on
whether the goal is official or operative.

1.2.2 The Importance of Goals

Goals are important for the following reasons:

 Goals provide guidance and agreement on the direction
of the organisation;
 Clear and unambiguous goals facilitate planning in terms
of resource deployment;
 Goals can inspire and motivate employees;
 Goals provide standards for evaluation and control of
organisational resources;
 Effective goal-setting plays an important role in the
success of the organisation.

1.2.3 Criteria for Effective Goals Are the goals that you have
SMART? If they are not
Goals should meet the SMART criteria: smart, they are not
 Specific; meaningful and may help
 Measurable; you.
 Attainable;
 Relevant;
 Time bound.

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1.2.4 A Goal-Setting Technique: Management by

Objectives (MBO)

According to MBO, individual and organisational goals should

be integrated. “MBO is a system whereby managers and
employees define goals for every department, project and
person, and use them to monitor subsequent performance”
(Erasmus et al, 2013, p.196). MBO follows the following
process:
 Managers and employees have an initial discussion to
formulate clear job descriptions and key performance
areas for each employee;
 Key performance targets in the pre-determined areas of
responsibilities should be developed by employees; Note how MBO involves
 Employees and managers meet to develop a set of goals the employee in the goal
for the employee to which both are committed; setting process.
 Employees and managers establish checkpoints to
measure each employee’s progress; Why do you think this leads
 Evaluation of the degree of goal attainment by the to more success?
employee is done at the end of the pre-determined
period. Evaluation focuses on analysis of the achieved
results compared with the pre-determined goals.

Study Table 7.1 on p.197. Differentiate between the

advantages and disadvantages of the MBO technique.

1.3 The Nature of Plans

In establishing the plans of the organisation to achieve the

organisation’s goals, the following should be considered:
 Alternative plans of action;
 External factors;
 Strengths and weaknesses.

Read section 7.3 “Managerial goals and plans” on pp.194–197

of your textbook. Underline the main ideas related to the
nature, importance and criteria of effective goals, management
by objectives and the nature of plans.

Then paraphrase the description of goals and plans and

management by objectives. Furthermore, differentiate between
the nature, importance and criteria of effective goals and the
nature of plans.

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1.4 The Planning Process

1.4.1 The Planning Context

The planning context
means that the goals and
The following five variables determine the context in which
plans for one company will
planning takes place and can be seen as the parameters not be the same as another
within which managers can formulate realistic organisational company.
goals:
 The purpose of the organisation: Including its obligation
to society, to stakeholders or a combination of these;
 Mission statements: Setting out the unique purpose
distinguishing the organisation from other organisations
of its type;
 The environment: To take advantage of environmental
opportunities and avoid environmental threats;
 Values of managers: Influence and cement the
organisation’s culture, strategy and structure and
commitment to social responsibility;
 Experience of management: Influence the planning
performance of management.

1.4.2 Steps in the Planning Process

The steps in the planning process are:

 Establish goals;
 Develop alternative plans;
 Evaluate alternative plans; The planning process does
 Select a plan; not end with
 Implement the plan; implementation. Reactive
planning is necessary to
 Do reactive planning, if necessary, when changes occur
keep goals and plans up to
in the environment. date.

This is illustrated in Diagram 6.2 below.

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GOAL-SETTING
Identification of mission and Goals are derived from the
formulation of goals in an mission of the business
environmental context organisation.

DEVELOPING PLANS The right plan must be selected

REACTIVE PLANNING
Choices between based on information about the
Revision of goals and
alternative plans of action internal and external
plans
to reach the goals environments.

The selected plan is put into

IMPLEMENTATION
operation by organising
Execution of the plan
resources for the purpose, by
throughout the rest of the
leading subordinates and
management process
ultimately by exercising control.

Diagram 7.2 The planning process (Erasmus et al, 2013,

p.199)

The managers at the various levels have different focus points

which are illustrated in Figure 7.2 on p.200 of the textbook.

From this figure it is clear that there are three levels of

management, namely:
 Top-level management: Who are responsible for the
formulation of long-term strategic goals and strategic
plans for the entire organisation;
 Middle–level management: Use strategic goals and
plans to develop medium-term tactical goals and plans
for functional departments;
 Lower-level management: Use tactical goals and plans
to develop short-term operational goals and plans for
sections.

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1.4.3 Strategic Goals and Plans

Strategic goals include:

 Vision: Picture of the future that the organisation seeks
to create;
 Mission statement: Over-arching goal of the organisation
and includes:
o What is the business – products and services;
o Who are the customers/ markets;
o How we provide products/ services – technology;
 Long-term strategic goals: Derived from mission
statement and cover all areas of the organisation;
 Strategic plans are developed for the organisation as a
whole and include all the functions and areas of the
organisation. Two levels of strategic plans exists,
namely:
o Corporate strategies: Identify what business the
organisation is in and how resources should be Make sure you understand
deployed. Corporate strategies can be: and can explain the
difference between
 Market-development strategies;
strategic, tactical and
 Product-development strategies; operational goals and
 Concentration-growth strategies; plans.
 Innovation strategies;
 Horizontal-integration strategies;
 Vertical-integration strategies;
 Joint-venture strategies;
 Diversification strategies;
 Turnaround strategies;
 Divestiture strategies;
 Liquidation strategies.
o Business strategies: Determine how best to
compete in a particular industry or market.

1.4.4 Tactical Goals and Plans

Strategic goals and plans are used by middle-management to

formulate tactical goals (medium-term to short-term goals
derived from the long-term goals) and tactical plans (more
specific focus compared to strategic plans) set for each
functional area within the organisation.
Tactical plans take into consideration strategic goals and
plans, tactical goals, resource allocation, time issues and
human resources commitment (Erasmus et al, 2013, p.203).

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1.4.5 Operational Goals and Plans

These are developed by middle and lower-level managers and

can be described as:
 Operational goals: Which are short-term goals for a
What would happen if the
period of no longer than a year and which deal with the
strategic, tactical and
day-to-day activities of an organisation and allocation of
operational goals do not
resources;
link up to each other?
 Operational plans: Short-term plans of no longer than a
year are set in order to achieve operational goals; they
To practice the creation of
include:
goals complete the Digital
o Single-use plans – to achieve a set of goals not
Engagement Activity.
likely to be repeated in future, such as
programmes, project and budgets;
o Standing plans – on-going plans that provide
direction of tasks that are performed repeatedly,
such as policies, rules and standard procedures.

1.4.6 Implementation of Plans

During the implementation of the plans, a framework for their

execution should be developed. Management and the
organisational leadership have to set the plan in motion and
exercise control to determine whether the performed activities
were done according to plan. Deviations will be revealed by
control that may lead to reactive planning.

Read sections 7.4 “The planning process” and 7.6 “The

implementation of plans” on pp.197–205 of your textbook
(please note there is no Paragraph 7.5 in the textbook).
Summarise this section and underline the main ideas related to
the planning process and the implementation of plans.

Then paraphrase the description of the different managerial

levels and differentiate between the different levels of goals
and plans and how plans should be implemented.

2 Recommended Additional Reading

Louw, L and Venter, P. 2010. Strategic management:
Developing sustainability in Southern Africa. 2nd edition. Cape
Town: Oxford University Press.

Smit, PJ, Cronje, GJ, Brevis, T and Vrba, MJ. 2011.

Management principles: A contemporary edition for Africa. 5th
edition. Cape Town: Juta.

© The Independent Institute of Education (Pty) Ltd 2014 - Page 99 of 130

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3 Recommended Digital Engagement

and Activities
Consider the education institution within which you are
studying. Imagine you are a business consultant and have
been tasked with creating new goals for the business. Prepare
a PowerPoint presentation for the Board of Directors within
which you propose a new:
 Vision statement;
 Mission statement;
 Two new strategic goals;
 Two new tactical goals;
 Two new operational goals.

You will need to make sure that your strategic, tactical and
operational goals are SMART. Ensure that all your goals,
vision and mission are linked together.

4 Interactive Work Space

4.1 Izimvo Exchange

On the internet, you are required to visit business news

websites such as:

 Bloomberg. 2013. [Online] Available at:

http://www.bloomberg.com/ [Accessed 11 December
2013].;
 Business Day. s.a. [Online] Available at:
http://www.bdlive.co.za/ [Accessed 11 December 2013].;
 Fin24. 2013. [Online] Available at: http://www.fin24.com/
[Accessed 11 December 2013].

Your task is to find an article which gives you an example of

which corporate strategy the business is using. Write a short
analysis of what strategy is being used and why you believe
the business is using that strategy.

You can share and present your article to your class or fellow
students.

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4.2 Activity

Purpose:
Consult your textbook on
To develop the ability to evaluate a statement.
pp.205–206 for additional
activities.
Task:
Evaluate the following statement “Planning is too expensive
and is just not worth it for small businesses.”

Commentary Related to Activity Design:

This activity requires you to consider both the benefits and
costs of planning. You are also required to relate these to the
small business context. Additional research will enhance your
answer.

4.3 Revision Exercise

1. List the benefits that can be obtained by developing

plans.

2. Identify and briefly discuss the costs that planning could

result in for a business organisation.

3. Describe, in your own words, the following:

3.1 Planning;
3.2 Organisational goal;
3.3 Organisational plan.

4. Organisational goals flow from the mission statement of

the organisation and provide the specifics on how the
mission will be accomplished. Identify and briefly discuss
the nature of organisational goals.

5. List the reasons why goals are important.

6. What does “SMART” stand for when referring to goals

and objectives?

7. Briefly discuss the process involved in the implementing

of the management by objective system in an
organisation.

8. Differentiate between the advantages and disadvantages

of the management by objective system.

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9. List the variables that determine the context in which

planning takes place and that can be seen as the
parameters within which managers can formulate
realistic goals.

10. Provide a graphic illustration of the planning process.

11. Identify the levels of management and the types of goals

and plans that each level develops.

12. What is the difference between a strategic goal and a

strategic plan?

13. In your own words, describe the following:

13.1 Operational goals;

13.2 Operational plans;
13.3 Single-use plans;
13.4 Standing plans.

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Learning Unit 8: Organising

Material used for this Learning Unit: My Notes on this
 Prescribed text pp.191–208. Learning Unit:
How to prepare for this Learning Unit:
 Read Chapter 7 of your prescribed textbook.
 Make notes of any areas where you require further
explanation.
 As you read Chapter 7 consider the following
questions:
o How you would structure a business?
o How many people can managers effectively
supervise?
o Would you be happy in a very repetitive job and
how would you like a repetitive job changed?

1 Key Concepts Covered in this

Learning Unit

1.1 Importance of Organising

Organising means that management has to develop

mechanisms or structures in order to implement the strategy or
plan of the organisation. It is just as important as planning for
the following reasons: You can set great goals
 Organising entails a detailed analysis of the work to be and have the best plans,
but if you do not organise
done and the resources to be used to achieve the aims
your people and jobs
and goals of the business organisation – tasks, correctly, you will not
resources and methods/ procedures are systemised; succeed.
 Organisation divides the total workload into activities that
can comfortably performed by a group or individual;
 Organisation promotes the productive deployment of
resources;
 Related tasks and activities are rationally grouped
together in specialised departments;
 An organisational structure is a mechanism that co-
ordinates the whole business organisation.

1.2 The Fundamentals of Organising

There are five building blocks/ fundamentals of organising,

which are summarised in Diagram 8.1.

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Departmenta-
Designing jobs – lisation – Establishing Establishing
Co-ordinating
work-related grouping reporting authority
activities
responsibilities specialised jobs relationships relationships
together

Single
Job Functional integrated
specialisation units
Reporting
lines/ chain of Line authority
Product command
Job rotation Integration of
goals

Location

Job
Timing
enlargement
Customer Span of
management/ Staff authority
control Organisational
Job chart, budgets,
enrichment Matrix committees
etc.

Diagram 8.1 Building blocks/ fundamentals of organising

(Developed from Erasmus et al, 2013, pp.210–
219)

1.2.1 Designing Jobs Think about a motor

vehicle factory and the
This entails determining the work-related responsibilities of an different jobs that would
incumbent of a position or job. The following aspects are need to be done. Can you
involved in the designing of jobs: think of examples of how
 Job specialisation: Determining the level of specialisation this factory could use job
or the degree to which the overall task of the specialisation, rotation,
organisation can be broken down into smaller, enlargement and
specialised tasks. By having workers specialise, they enrichment?
become very proficient at certain tasks, but can become
bored and dissatisfied. Job specialisation has limitations
which can be overcome by the aspects discussed below; You must be able to
 Job rotation: Systematically moving employees from one explain, discuss and
job to another; often used as a training method; illustrate the different
 Job enlargement: To increase the number of tasks that a departmentalisations.
worker performs;
 Job enrichment: Increasing both the number of tasks and
the control that the worker has over the job.

Study Table 8.1 on p.212 of your textbook. Note the benefits

and limitations of specialisation.

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1.2.2 Grouping Jobs: Departmentalisation

Departmentalisation involves grouping specialist tasks

together. The type of structure chosen will depend on the size,
kind of business and nature of its activities.
The following are common bases for departmentalisation:
 Functional departmentalisation: The most basic form,
where activities belonging to functions such as
marketing, finance, human resources, operations,
production, and purchasing and supply are grouped
together. This type of departmentalisation is illustrated in
Figure 8.1 on p.212 of the textbook;
 Product departmentalisation: Designed so that all
activities concerned with the manufacturing of a product
or groups of products are grouped together in products
sections. See Figure 8.2 on p.213 of the textbook;
 Location departmentalisations: Applicable to an
organisation that manufactures and sells its products in
different geographical regions. See Figure 8.3 on p.214
of the textbook;
 Customer departmentalisation: Adopted when an
organisation concentrates on a special segment of the
market or group of consumers or a limited number of
users. This is illustrated in Figure 8.4 on p.214 of the
textbook;
 Matrix organisational structure: This structure
incorporates the advantages of the other structures by
forming project teams where functional managers have
line authority over the members in their functions and
project managers have staff authority over those
members who have been allocated to their projects.
Figure 8.5 on p.215 of the textbook illustrate this type of
structure.

1.2.3 Establishing Reporting Relationships

Reporting lines are established in two steps:

 Firstly, the chain of command or who reports to whom is
established. It can be defined as “a clear and distinct line
Can you explain the
of authority among the positions in an organisation”
difference between a
(Erasmus et al, 2013, p.216) and is has two components:
narrow or broad structure
o Unity of command: Each person has a clear
when considering span of
reporting relationship to one, and only one,
control?
supervisor;
o Scalar principle: There must be a clear line of
authority from the lowest to the highest position in
the organisation;

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 Secondly, the span of management/ control which

indicates how many people will report to one manager is
established. (Figure 8.6 on p.216 of the textbook
illustrates this concept).

1.2.4 Establishing Authority Relationships

The tasks of the organisation are divided into smaller

specialised units and allocated to departments or persons.
This also entails the assignment of responsibility (duty to
perform the task or activity as assigned), authority (right to
command or to give orders) and accountability (that people
with authority and responsibility are subject to report and justify
outcomes to those above them in the chain of command).
Positions of management are based on formal authority which
is:
 Vested in organisational position and not people;
 Accepted by subordinates;
 Flows down the vertical hierarchy of an organisation.

Two distinctive authority relationships exist:

 Line authority: Delegated down the line of command Make sure you can explain
(vertically); the terms responsibility,
 Staff authority: Indirect and supplementary authority accountability, authority
(horizontal). and delegation.

Delegation is the process used by a manager to transfer

authority and responsibility to positions below them in the
organisational hierarchy.

1.2.5 Co-ordinating Activities

Co-ordination is conducted to develop congruence, or harmony

of goals, throughout the organisation.

1.3 The Informal Organisation

Some managers believe
Alongside the formal structure of the organisation there is also that the grapevine should
an informal organisation reflecting the interpersonal relations be suppressed. Make sure
between people in the business organisation that are not you can explain why the
defined by the formal structure. In the informal organisation, informal organisation can
informal communication takes place and relationships are be beneficial.
formed between individuals and groups.

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Management should encourage the informal organisation due

to the following reasons:
 Informal communication takes place quicker than formal
communication and could aid the speed of decision-
making;
 The informal organisation promotes teamwork and co-
operation;
 The informal organisation supports the formal
organisation.

Read sections 8.2 “The importance of organising”, 8.3 “The

fundamentals of organising” and 8.4 “The informal
organisation” on pp.209–220 of your textbook. Identify and
underline the main ideas in this section.

Then paraphrase the factors, indicating the importance of

organising. Furthermore, identify the fundamentals or building
blocks of organising and paraphrase the discussion of each
building block while illustrating the principles within each
building block by means of figures, where applicable. Finally,
paraphrase the principles regarding the informal organisation
and how management can use these principles to the
advantage of the formal organisation.

1.4 Factors that Influence Organisational

Structure

The design of an organisational structure is influenced by the

following factors:
 The environment in which a business operates: The
business must be able to survive in the environment,
which could either be:
o A stable environment – one that does not change
much or is not subject to unexpected change;
o A turbulent environment – one in which changes
are the norm rather than the exception;
o A technologically dominated environment –
influenced by the level of technological
sophistication;
 The relationship between strategy and structure:
Strategy provides direct input in the design of the
structure;
 The size of the business: An increase in the number of
employees creates a need for greater specialisation;

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 Staff employed by the business: There is a close

relationship between the organisational structure and the
competence, skill and knowledge of the employees
within the organisation; Once you have read this
 Organisational culture: The beliefs and values of section complete the
management and employees which will have an effect Interactive Workspace
on the type of structure. Activity below.

Read section 8.5 “Factors that influence organisational

structure” on pp.220–222 of your textbook. Underline the main
ideas in this section.

Then identify and paraphrase the discussion of the different

factors that influence the organisational structure, how they
influence it and develop your own examples from the college.

2 Recommended Additional Reading

Louw, L and Venter, P. 2010. Strategic management:
Developing sustainability in Southern Africa. 2nd edition. Cape
Town: Oxford University Press.

Smit, PJ, Cronje, GJ, Brevis, T and Vrba, MJ. 2011.

Management principles: A contemporary edition for Africa. 5th
edition. Cape Town: Juta.

3 Recommended Digital Engagement

and Activities
This activity requires you to analyse a journal article. This is an
important skill that you will need during your studies. You can
access the article in Ebscohost.

Read the following article:

Eriksson, T and Ortega, J. 2006. The adoption of job rotation:

Testing the theories. Industrial & Labor Relations Review,
59(4), July, Article 7, pp.653–666.

In one to two paragraphs summarise the key points of the

article. Consider whether you agree with their conclusions
about job rotation. Further research will support your answer.

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4 Interactive Work Space

4.1 Izimvo Exchange

Consider the following two examples of companies. Suggest,

with reasons, which departmentalisation you believe each
business should follow. Also comment on whether the span of
control should be broad or narrow.

1. A steel factory with 2 500 workers;

2. A petrol station with a shop and car wash;
3. A small IT company that designs mobile applications.

4.2 Activity

Purpose:
To gain a deeper understanding of the factors which influence
organisational structure.

Task:
Consider the factors which influence organisational structure.
Discuss the following statement, using examples to support
your points, “Too much emphasis is placed on organisational
structure, essentially if it is one size fits all.”
Consult your textbook on
Commentary Related to Activity Design: pp.222–223 for additional
This activity requires you to use practical examples to illustrate activities.
how different companies need different structures.

4.3 Revision Exercise

1. Provide a graphic illustration of the five building blocks of

organising.

2. Designing jobs entails determining the work-related

responsibilities of an incumbent of a position or job.
Identify and discuss the aspects involved in the
designing of jobs.

3. Identify and discuss matrix departmentalisation as one of

the bases of departmentalisation when designing
organisational structures, and provide a graphic
illustration of this type of departmentalisation.

4. List the common types of departmentalisation.

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5. Provide a graphic illustration of a functional

organisational structure.

6. The first step in the establishment of reporting

relationships designing organisational structures is
establishing reporting lines. Briefly discuss this concept.

7. Differentiate between line and staff authority.

8. In your own words, describe the following:

8.1 Accountability;
8.2 Delegation;
8.3 Centralisation;
8.4 Decentralisation.

9. Provide reasons why management should encourage the

informal organisation.

10. List and briefly discuss the factors that influence the
design of an organisational structure.

© The Independent Institute of Education (Pty) Ltd 2014 - Page 110 of 130
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Learning Unit 9: Leading

Material used for this Learning Unit: My Notes on this
 Prescribed text pp.224–241. Learning Unit:
How to prepare for this Learning Unit:
 Read Chapter 9 of your prescribed textbook.
 Make notes of any areas where you require further
explanation.
 As you read Chapter 9 consider the following
questions:
o Who are great leaders that you admire?
o What makes leaders effective?
o Can leadership be learnt?
o What do you like and dislike about group work?

1 Key Concepts Covered in this

Learning Unit

1.1 The Nature of Leadership

Leadership from a managerial point of view can be described Leaders are able to
as “the process of influencing employees to work willingly influence others.
towards the achievement of organisational objectives”
(Erasmus et al, 2013, p.225). To be able to influence
employees, management should understand what motivates
employee behaviour. Management in modern organisations
entails not only the management of individuals, but also of
groups and teams.

In performing the leading function of management, managers

take the lead to bridge the gap between formulating plans and
reaching goals, which they achieve by influencing individuals,
groups and teams in the organisation by means of
communicating with them and ensuring that they are
motivated.

1.1.1 Leadership and Management

Leadership and management are not the same – management

is a broader concept that includes the four functions of Can you explain the
planning, organising, leading and control. Within an difference between
organisation one will find managers that are not leaders, and management and
leaders that are not managers. Leaders lead by influencing leadership?
others by means of communicating with them, gaining
acceptance of them, and inspiring followers to support and
implement the ideas through change.

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1.1.2 Components of Leading Function

The components of the leading function entail the following:

 Authority: The right of a manager to give commands to,
and demand actions from, employees;
 Power: The manager’s ability to influence his or her
employee’s behaviour;
 Responsibility: The manager is responsible for the
results of their organisation, department or section;
 Delegation: Assigning responsibility and authority for
achieving organisational goals;
 Accountability: Obligation to demonstrate and take
responsibility for performance in light of commitments
and expected outcomes.

 Authority: Without authority the manager will not be able

to manage, initiate or sustain the management process.
Final authority rests with the shareholders or owners who
transfer or delegate authority to the board, who in turn
delegates it to top management; top management
delegates to middle-management and so on.

 Power: Power in leaders takes two forms - positional What types of power do
power that top management delegates down the chain of you think Nelson Mandela
command and personal power that is bestowed upon a had?
manager by his or her subordinates.

The following types of power, which exist on a continuum

from positional to personal power, can be identified:
 Coercive power: The power to enforce compliance
through fear, whether psychological, emotional or
physical;
 Reward power: The ability to influence employees
with something of value to them – power to give or
withhold reward; Once you understand the
 Legitimate power: Power an organisation grants to different types of power,
a particular position; enables the manager to complete Izimvo
discipline or dismiss employees if they do not Exchange 1.
comply with what the manager instructed them to
do;
 Referent power: Personal power of charisma;
people will obey managers with this power just
because they like, respect and identify with them;
 Expert power: Linked to the expertise, knowledge
and professional ability of the manager.

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Table 9.1 on p.228 of your textbook reflects the uses and

outcomes of these types of power in an organisation.

Read section 9.2 “The nature of leadership” on pp.225–229 of

your textbook. Highlight the main ideas in this section.

Then paraphrase the explanation of the nature of leadership

and the interaction between leadership and management.
Furthermore, identify and discuss the different components of
the leading function and differentiate between the different
types of power and how they are used in an organisation.

1.2 Leadership Theories

The major leadership theories are:

 Trait theories: Assumption that strong leaders have
certain basic traits that distinguish them from followers;
You must be able to
 Behavioural theories: Assumes that successful leaders
explain the difference
behave differently from unsuccessful leaders, a belief
between these theories.
that managers could learn the right behaviour;
 Contingency theories: Acknowledges that predicting
leadership success is more complex and attempts to
determine the best leadership style for a given situation.

1.2.1 Contemporary Issues

Trust is very important in leadership and the five dimensions of

trust are:
 Integrity;
 Competence;
 Consistency;
 Loyalty;
 Openness.

Leaders who communicate and share their vision for their

organisation can be classified into:

 Charismatic leadership: The perception is that a strong

relationship exists between charismatic leadership and
employee performance and satisfaction. Charismatic
leaders have traits such as self-confidence, vision, the
ability to articulate vision, strong convictions about the
vision, unconventional behaviour and environmental
sensitivity.

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 Visionary leadership: Have the ability to create and

articulate a realistic, credible, attractive vision of the
future of the organisation.

 Transactional and transformational leaders:

Transactional leaders motivate followers by appealing to
their self-interest while transformational leadership is a
process in which the leaders and subordinates raise one
another to higher levels of morality and motivation.

1.2.2 Emerging Approaches to Leadership

As leaders face new challenges, three important emerging

approaches to leadership are prominent:
 Strategic leadership;
 Cross-cultural leadership;
 Ethical leadership.

Read section 9.3 “Leadership theories” on pp.229–232 of your

textbook. Summarise this section by paraphrasing the different
leadership theories, the contemporary issues in leadership, the
emerging approaches to leadership and the role of trust in
leadership.

1.3 Motivation

Motivation is defined as “an inner desire to satisfy an

unsatisfied need” (Erasmus et al, 2013, p.232). In the work
situation it can be seen as internal and external forces and
influences that drive an individual to achieve certain goals.

The following concepts are important in the process of Think back to Maslow’s
motivation of employees: hierarchy of needs in
 Motives: Relates to an unsatisfied need that an Learning Unit 1. What do
employee may have that results in a motive to satisfy the you think motivates
need that leads to a certain: people?
 Behaviour on his or her part to do something about
satisfying the need in the hope to achieve certain: This topic will be dealt with
 Consequences of behaviour, such as obtaining the further in BMNG5112.
outcome that was desired which will lead to:
 Satisfaction or dissatisfaction if the outcome was not
obtained.

If managers understand what motivates the behaviour of their

employees, they will be able to influence their work
performance.

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Read section 9.4 “Motivation” on pp.232–233 of your textbook.

Underline the main ideas related to motivation as discussed in
this section. Then paraphrase the description of motivation and
distinguish between the elements in the motivation process
and how management can use it to influence the work
performance of employees.

1.4 Groups and Teams in Organisations

The majority of individuals in modern organisations do not

work merely as individuals with individual needs and goals, but
also as members of groups and teams.

1.4.1 Groups

Groups can be described as “two or more individuals who

regularly interact with one another and who work for a common What groups are you part
purpose” (Erasmus et al, 2013, p.234). The following types of of?
groups exist in organisations:
 Informal groups that can be divided into:
o Interest groups – groups of members that share a
common interest;
o Friendship groups – exist to satisfy social needs of
its members;
 Formal groups that can be divided into:
o Command groups – appear on the organisational
chart indicating their line authority and will have
allocated work assignments;
o Task groups – created to complete a specific task
or project.

1.4.2 Characteristics of Groups

Do you think that
The following aspects/ characteristics will have an influence on homogenous groups
the performance of groups: (where people are the
 Group size; same) outperform
 Group composition – homogeneous or heterogeneous; heterogeneous groups
 Group norms or standards; (where people are
 Group cohesiveness; different)?
 Status in groups;
 Leadership in groups – formal or informal.

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1.4.3 Teams
A soccer or rugby team is a
Not all groups are teams. A work group is a unit of two or more team as it has a common
people who interact primarily to share information and make purpose, complementary
decisions that will help each group member perform within his/ skills, is working towards
her own area of responsibility (Erasmus et al, 2013, p.235). the same goal and wins or
loses together.
Work teams on the other hand are made up of a small number
of employees with complementary competencies who work
together on a project, are committed to a common purpose,
and are accountable for performing tasks that contribute to
achieving an organisation’s goals (Erasmus et al, 2013, p.235).

The different types of teams that may exist are:

 Problem-solving teams;
 Self-managed work teams;
 Cross-functional teams.

High performance teams have the following characteristics:

 A clear understanding of the team’s goals and the
technical skills and abilities needed to achieve these
goals; Do successful sports
 Members who are capable of adjusting their skills; teams exhibit these
 High mutual trust among members and unified characteristics?
commitment;
 Good communication and adequate negotiating skills;
 Team leaders who encourage team members by
clarifying goals and who help members to realise their
potential.

Read section 9.5 “Groups and teams in organisations” on

pp.233–237 of your textbook. Identify and highlight the main
ideas in this section.

Then differentiate between groups and teams, distinguish

between the different types of groups and teams and
paraphrase the characteristics of both groups and of teams.

1.5 Communication

Effective leadership depends on continuous and good You may have learnt about
communication between leaders and employees. The communication models in
elements of the communication model are: other modules. Ensure that
 Sender: Source of the message; you learn the correct
 Message: Conveying ideas, opinions, plans, orders or terminology for this
explanations; module.

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 Channel: Manner in which the message reaches the

receiver;
 Receiver: Should absorb the message and show that it
was received;
 Understood: Using listening skills.

Managers should establish the aspects that may hinder clear

communication and remove or improve it – these could be
language differences, erroneous perceptions, doubts about the
source or sender, and ambiguities.

Read section 9.6 “Communication” on pp.237–239 of your

textbook and highlight the main ideas related to the
communication and the communication model.

Then paraphrase the importance of effective communication

for managers and distinguish between the elements of the
communication model and provide a graphic illustration of this
model.

2 Recommended Additional Reading

Collins, J. 2005. Level 5 leadership: The triumph of humility
and fierce resolve. Harvard Business Review, 83(7/8), pp.136–
146.

Kotter, JP. 2001. What leaders really do. Harvard Business

Review, 79(11), pp.85–96.

Louw, L and Venter, P. 2010. Strategic management:

Developing sustainability in Southern Africa. 2nd edition. Cape
Town: Oxford University Press.

Smit, PJ, Cronje, GJ, Brevis, T and Vrba, MJ. 2011.

Management principles: A contemporary edition for Africa. 5th
edition. Cape Town: Juta.

3 Recommended Digital Engagement

and Activities
You are required to write a researched opinion on the following
statement “Leaders are born not made”.

Share your opinion online and comment on the opinions of

your peers. Use scholar.google.com and Ebscohost to conduct
research.

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4 Interactive Work Space

4.1 Izimvo Exchange

Consider the following four leaders. Identify and discuss the

different types of power they each have:
 Bill Gates;
 A gang leader;
 Jacob Zuma;
 Tim Cook (CEO of Apple).

4.2 Activity

Purpose:
To gain a deeper understanding of the three main leadership
theories.
Consult your textbook on
pp.239–240 for additional
Task: activities.
Compare the three main leadership theories namely trait,
behavioural and contingency theory.

Commentary Related to Activity Design:

N/A

4.3 Revision Exercise

1. In your own words, describe leadership.

2. Compare leadership and management with each other

and provide a graphic illustration of how they can be
integrated with each other.

3. Identify and briefly discuss the components of the

leading function.

4. List and briefly discuss the different types of power.

5. List the five dimensions of trust.

6. Discuss the three classifications of leaders who

communicate and share their vision for their
organisation.

7. What are the concepts that are important in the process

of motivation?

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8. Differentiate between groups and teams within an

organisation.

9. List the types of groups that can be found in an

organisation.

10. What are the characteristics of high performance teams?

11. Provide a graphic illustration of the communication

process.

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Learning Unit 10: Controlling

Material used for this Learning Unit: My Notes on this
 Prescribed text pp.242–256. Learning Unit:
How to prepare for this Learning Unit:
 Read Chapter 10 of your prescribed textbook.
 Make notes of any areas where you require further
explanation.
 As you read Chapter 10 consider the following
questions:
o Why is control necessary?
o How do you make sure that tasks are done?
o Do you think organisations spend more time
planning or controlling?

1 Key Concepts Covered in this

Learning Unit

1.1 The Purpose of Control

Controlling means narrowing the gap between what was Without control, you have
planned and the actual achievement of those plans, and no way of knowing if your
ensuring that all activities are carried out as they should be. plans have been
successful.
Control is necessary for the following reasons:
 It is linked with planning, organising and leading;
 It helps business organisations adapt to environmental
changes;
 It helps to limit the accumulation of error;
 It helps business organisations to cope with increasing
organisational size and complexity;
 It helps to minimise costs.

Read sections 10.1 “Introduction” and 10.2 “The purpose of

control” on pp.242–244 of your textbook. Underline the main
ideas in this section.

Then paraphrase what control is and how it can be described,

and highlight the reasons why the control process is necessary
for any business organisation.

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1.2 The Control Process

The control process is illustrated in Diagram 9.1.

Step 1
Establish standards
(derived from goals)

Step 4 Step 2
Rectify deviations Measure actual
(corrective actions) performance

Step 3
Evaluate deviations
(performance gap)

Diagram 9.1 Steps in the control process (Erasmus et al,

2013, p.245)

1.2.1 Step 1: Establish Standards

Performance standards have to be established at strategic Can you see how these
points and could include: standards are linked to the
 Profit standards; goals of the organisation
discussed in Learning
 Market-share standards;
Unit 7?
 Productivity standards;
 Staff-development standards.

1.2.2 Step 2: Measure Actual Performance

Collecting information and reporting on actual performance are

continuous activities. It is important that:
 Activities should be quantifiable before any comparisons Control by exception
can be made; means that only important
 Reports should be reliable and accurate; or exceptional disparities
 The right amount of information is fed back to the right are reported to top
person; management.
 Principle of control by exception should be applied.

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1.2.3 Step 3: Evaluate Deviations

The gap between the performance standard and actual

performance should be measured and reasons for any
deviation determined. Even if the standards have been met,
investigation should still be done into how improvements can
be made.

Deviations need to be explained, making sure that:

 Deviations are genuine;
 Deviations are large enough to justify further
investigations;
 All the reasons and activities responsible for the
deviations are identified. Can you clearly explain
each stage in the control
1.2.4 Step 4: Take Corrective Actions process?

The need for corrective action must be determined to ensure

that deviations will not recur. Where actual achievements do
not match the standards, three possible actions can be taken:
 Actual performance can be improved to meet the
standards;
 Strategies can be revised to accomplish the standards;
 Performance standards can be adjusted (lowered or
raised) to make them more realistic.

Read section 10.3 “The control process” on pp.244–247 of

your textbook. Summarise and paraphrase the steps in the
control process.

1.3 Types of Control

This section focuses on the different areas of control in the

business organisation.

1.3.1 Areas of Control

Many of the areas of
The following key areas of control can be identified: control such as inventory
 Physical resources: Factors such as inventory and management, TQM and
quality control, using control mechanisms such as performance appraisal are
economic-ordering quantity, materials requirement dealt with in detail in
planning and just-in-time systems in inventory control BMNG5112.
and total quality management (TQM) in quality control;
 Human resources: Selection and placement of
employees, control over training and personnel
development, performance appraisal and remuneration
levels;

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 Information resources: Accurate market forecasting,

adequate environmental scanning and economic
forecasting;
 Financial resources: Financial analyses and budgeting.

Read section 10.4 “Types of control” on pp.247–254 of your

textbook. Summarise this section, focussing on the different
types of control that can be used in each area of control that
exists within a business organisation.

1.4 Characteristics of an Effective Control

System

The following are characteristics of an effective control system:

 Integration: A control system is more effective when
integrated with planning and when it is flexible, accurate,
objective, timely and simple. The way in which control
and planning is integrated is illustrated in Figure 10.3 on
p.255 of the textbook; An easy way to remember
 Flexibility: A control system should be able to lists like this is to make an
accommodate change and should be able to adjust to acronym. In this case it
revisions in plans; could be: ISFAT.
 Accuracy: Designed to provide an objective and accurate
picture of the situation that would not allow errors or
deviations to be concealed in the data;
 Timeliness: Control data should be supplied regularly as
needed and not be obtained by means of hasty,
makeshift measurement;
 Simplicity: Control should not become so complex that
the implementation becomes more expensive than the
benefits derived from it.

Read section 10.5 “Characteristics of an effective control

system” on pp.254–255 of your textbook. Summarise this
section, ensuring that you list and paraphrase the
characteristics of an effective control system.

2 Recommended Additional Reading

Louw, L and Venter, P. 2010. Strategic management:
Developing sustainability in Southern Africa. 2nd edition. Cape
Town: Oxford University Press.

Smit, PJ, Cronje, GJ, Brevis, T and Vrba, MJ. 2011.

Management principles: A contemporary edition for Africa. 5th
edition. Cape Town: Juta.

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3 Recommended Digital Engagement

and Activities
Consider the educational institution at which you are studying.
Your task is to create a PowerPoint presentation proposing
how a control system should work at this institution.

4 Interactive Work Space

4.1 Izimvo Exchange

Prepare a debate both in support for and against the following

statement “Control is the most important management
function.”

Engage with fellow students to debate the topic from both

sides.

4.2 Activity Consult your textbook on

p.256 for additional
Purpose: activities.
To develop critical thinking skills.

Task:
Discuss the validity of the following statement “What gets
measured gets done.”

Commentary Related to Activity Design:

N/A

4.3 Revision Exercise

1. An organisation needs a control process, because even

the best-laid plans may go wrong. List and briefly discuss
the reasons why a control process is necessary.

2. List and briefly discuss the steps in the control process.

3. Discuss the performance standards that can be

developed during the first step in the control process

4. If actual achievements do not match the performance

standards, what three possible actions can management
implement?

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5. List and briefly describe the four areas of control.

6. List the control systems that can be used in the following

areas of control:

6.1 Physical resources;

6.2 Financial resources.

7. Compare the different types of budgets that can be used

in controlling the financial resources by referring to their
focus and give examples of each type of budget.

8. Identify and briefly discuss the characteristics of an

effective control system.

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Bibliography
Companies Act. 2008. Republic of South Africa: Minister of Trade and Industry.
[Online]. Available at: http://www.info.gov.za/view/DownloadFileAction?id=98894
[Accessed 2 July 2012].

Companies and Intellectual Property Commission (CIPC). 2012. Close corporations.

[Online]. Available at: http://www.cipc.co.za/CC.aspx [Accessed 5 June 2012].

Department of Trade and Industry (the dti). 2010. The new consumer protection act
and companies act to come into force on 1 April 2011. Issued by the Communication
and Marketing, the dti. [Online]. Available at:
http://www.cipro.co.za/notices/2010_10_01_Update_on_implementation_of_the_new
_Companies_Act,2008.pdf [Accessed 5 June 2012].

Du Toit, GS, Erasmus, BJ and Strydom, JW. 2010. Introduction to business

management. 8th edition. Cape Town: Oxford University Press.

Erasmus, BJ, Strydom, JW and Rudansky-Kloppers, S. 2013. Introduction to

business management. 9th edition. Cape Town: Oxford University Press.

Franchise Association of South Africa (FASA). 2012. What is franchising? [Online].

Available at: http://www.fasa.co.za/guidelines.php [Accessed 2 July 2012].

Gordon, B. 2008. The Standard Bank Franchise Factor®. Franchise Directions.

September 2008.

International Finance Corporation. 2007. Stakeholder engagement: A good practice

handbook for companies doing business in emerging markets. Washington, DC:
International Finance Corporation. [Online]. Available at:
http://www.ifc.org/ifcext/enviro.nsf/attachmentsbytitle/p_stakeholderengagement_full/
$file/ifc_stakeholderengagement.pdf [Accessed 14 June 2012].

Nieman, G and Nieuwenhuizen, C. 2009. Entrepreneurship: A South African

perspective. 2nd edition. Pretoria: Van Schaik.

Van Aardt, I, Hewitt, M, Bendeman, H, Bezuidenhout, S, Janse van Rensburg, L,

Naidoo, P, Van Aardt, CJ, Van der Bank, J and Visser, T. 2011. Entrepreneurship &
new venture management. 4th edition. Cape Town: Oxford University Press.

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Plagiarism
Plagiarism is any use of the words, ideas or images of another person without
acknowledging the source using the required conventions. Below is a description of
plagiarism and referencing. Please make sure that you are familiar with this
information before attempting your assignment.

Introduction to Referencing and Plagiarism

What is ‘Plagiarism’?

‘Plagiarism’ is the act of taking someone’s words or ideas and presenting them as
your own.

What is ‘Referencing’?

‘Referencing’ is the act of referring to or consulting. A ‘reference’ is a publication or

passage from a publication that is referred to.

Referencing is the acknowledgment of any work that is not your own, but is used by
you in an academic document. It is simply a way of giving credit to and
acknowledging the ideas and words of others.

When writing assignments, students are required to acknowledge the work, words or
ideas of others, through the technique of referencing. Referencing occurs in the text
at the place where the work of others is being cited, and at the end of the document,
in the bibliography.

Cumming (2007) describes the bibliography as a list of all the work (published and
unpublished) that a writer has read in the course of preparing a piece of writing. This
includes items that are not directly cited in the work.

A reference is required when you:

 Quote directly: when you use the exact words as they appear in the source;
 Copy directly: when you copy data, figures, tables, images, music, videos or
frameworks;
 Summarise: when you write a short account of what is in the source;
 Paraphrase: when you state the work, words and ideas of someone else in
your own words.

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It is standard practice in the academic world to recognise and respect the ownership
of ideas through good referencing techniques. However, there are other reasons why
referencing is useful.

Good Reasons for Referencing

It is good academic practice to reference because:

 It enhances the quality of your writing;
 It demonstrates the scope, depth and breadth of your research;
 It gives structure and strength to the aims of your article or paper;
 It endorses your arguments;
 It allows readers to access source documents relating to your work, quickly and
easily (Neville, 2007, p.7).

Sources

The following would count as ‘sources’:

 Books,
 Chapters from books,
 Encyclopaedia,
 Articles,
 Journals,
 Magazines,
 Periodicals,
 Newspaper articles,
 Items from the Internet (images, videos, etc.),
 Pictures,
 Unpublished notes, articles, papers, books, manuscripts, dissertations, theses,
etc.,
 Diagrams,
 Videos,
 Films,
 Music,
 Works of fiction (novels, short stories or poetry).

What You Need to Document from the Hard Copy Source You
are Using
(Not every detail will be applicable in every case. However, the following lists provide
a guide to what information is needed.)

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You need to acknowledge:

 The words or work of the author(s),
 The author(s)’s or editor(s)’s full names,
 If your source is a group/ organisation/ body, you need all the details,
 Name of the journal, periodical, magazine, book, etc.,
 Edition,
 Publisher’s name,
 Place of publication (i.e. the city of publication),
 Year of publication,
 Volume number,
 Issue number,
 Page numbers.

What You Need to Document if you are Citing Electronic

Sources

 Author(s)’s/ editor(s)’s name,

 Title of the page,
 Title of the site,
 Copyright date, or the date that the page was last updated,
 Full Internet address of page(s),
 Date you accessed/ viewed the source,
 Any other relevant information pertaining to the web page or website.

Referencing Systems
There are a number of referencing systems in use and each has its own consistent
rules. While these may differ from system-to-system, the referencing system followed
needs to be used consistently, throughout the text. Different referencing systems
cannot be mixed in the same piece of work!

A detailed guide to referencing, entitled Referencing and Plagiarism Guide is

available from your library. Please refer to it if you require further assistance.

When is Referencing Not Necessary?

This is a difficult question to answer – usually when something is ‘common

knowledge’. However, it is not always clear what ‘common knowledge’ is.

Examples of ‘common knowledge’ are:

 Nelson Mandela was released from prison in 1990;
 The world’s largest diamond was found in South Africa;
 South Africa is divided into nine (9) provinces;
 The lion is also known as ‘The King of the Jungle’.

 Jan Van Riebeeck was the first person to settle in the Southern Cape.

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Usually, all of the above examples would not be referenced. The equation
is Einstein’s famous equation for calculations of total energy and has become so
familiar that it is not referenced to Einstein.

Sometimes what we think is ‘common knowledge’, is not. E.g. the above statement
about Van Riebeeck is only partly true – he was the first European to settle in the
Cape. It was, however, not an ‘uninhabited’ area when he got there. The Khoisan,
the original inhabitants of the Cape, had been living in the area for some time. It is
not entirely accurate then to claim that Van Riebeeck was the first inhabitant.
(Crampton, 2004, p.57)

It is thus generally safer to always check your facts and try to find a reputable source
for your claim.

Important Plagiarism Reminders

The IIE respects the intellectual property of other people and requires its students to
be familiar with the necessary referencing conventions. Please ensure that you seek
assistance in this regard before submitting work if you are uncertain.

If you fail to acknowledge the work or ideas of others or do so inadequately this will
be handled in terms of the Plagiarism Policy (available in the library) and/ or the
Student Code of Conduct – dependent on whether or not plagiarism and/ or cheating
(passing off the work of other people as your own by copying the work of other
students or copying off the Internet or from another source) is suspected.

This campus offers individual and group training on referencing conventions – please
speak to your librarian or ADC/ Campus Co-Navigator in this regard.

Reiteration of the Declaration you have signed:

1. I have been informed about the seriousness of acts of plagiarism.
2. I understand what plagiarism is.
3. I am aware that The Independent Institute of Education (IIE) has a policy
regarding plagiarism and that it does not accept acts of plagiarism.
4. I am aware that the Plagiarism Policy and the Student Code of Conduct
prescribe the consequences of plagiarism.
5. I am aware that referencing guides are available in my student handbook or
equivalent and in the library and that following them is a requirement for
successful completion of my programme.
6. I am aware that should I require support or assistance in using referencing
guides to avoid plagiarism I may speak to the lecturers, the librarian or the
campus ADC/ Campus Co-Navigator.
7. I am aware of the consequences of plagiarism.

Please ask for assistance prior to submitting work if you are at all unsure.

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