7 areas of Business Management

general management: examination of management process as a whole

marketing management: marketing of business

financial management: acquisition and control of money

production and operations management: physical production of products

purchasing management: acquisition of assets machinery products etc.

human resources management: employment, management, training of staff

public relations management: create a favourable image of business

Business world: a system of individuals &

business organisations that produce
products/ services to meet peoples needs.

Four elements:

Human activities

Transformation

Exchange

profit

Role of business in society

Social responsibility (employment, equity,

empowerment, limiting malpractice)

Business ethics

Affirmative action or equity

Environmental protection

Consumerism (consumer protection)

Market (South Africa)

Socialism

Command

Main characteristic

Factors or production privately owned. Freedom of choice.

Basic industries state owned. Freedom of choice.

All state owned.

Markets

Free competition.

Limited competition.

No competition.

Driving force

Profit. Individual reward.

Profit.

No profit. All for the state.

Management

Private businesses and management. Freedom of decision.

State-owned and private enterprises. In state-owned, decisions

restricted to government policy.

State = management environment. No freedom of decision.

Labour

Freedom to choose jobs and employers. Freedom to strike.

Freedom to choose jobs and employers. Limited right to strike.

Limited choice of jobs. Unions are state controlled.

Consumers

Freedom of choice. Spending limited by income.

Freedom of choice, except for products produced by state.

Rationing of product. Limited choice. Prices of products and income levels

set by state.

Advantages

Private initiative. Economic freedom.

Possibility of full employment. State stabilises economic fluctuations.

State concentrates resources towards particular ends.

Disadvantages

Unstable environment. Cyclical fluctuations. High social costs.

Little incentive in state organisations. Unproductive state

organisations.

Low productivity. Low standard of living. Planning difficult / impossible.

An entrepreneur takes a RISK, to combine the FACTORS OF PRODUCTION, in order to

produce a PRODUCT / SERVICE that will SATISFY A NEED

Traits / Characteristics of
Entrepreneur

Risk taking

Internal locus of control

Innovation

Creativity

Achievement motivation

Every entrepreneur needs a cell phone

You have a RIICA every cell phone

Advantages

Disadvantages

Customers familiar with business location.

Established customer base.
Planning can be done on historical data.
Supplier relationships already in place.
Inventory and equipment already in place.
Possible financing from owner.

Business location may be or may become unstable.

Image of business difficult to change.
Employees are inherited rather than chosen.
Difficulties in changing how the business is run.
Inventory and equipment may be obsolete
Financing costs could drain the cash flow and
threaten the survival of the business.

Did the BP
convince
investors, bank,
suppliers etc.?

Implementation

Is it feasible?
(Feasibility
Analysis)

Business Plan

Is there an
above-average
chance that it
will work?

Feasibility

Do I have the
required
resources or can
I get it?

Opportunity

Business Entry Strategies:

Franchise

New Business

Buy existing

Do I have the
necessary
entrepreneurial
skills and
abilities?

Resources

Skills

Decision

Enter / do not
enter the
business world?

Do it!

Role of small business is economy:

Production of goods / services

Innovation

Aiding of big business

Job creation

Sole Proprietorship

Partnership

Close Corporation

Company

Business Trust

Personality

Not a legal (juristic) person

Not a legal (juristic) person

Legal (juristic) person

Legal (juristic) person

Not a legal (juristic person)

Liability

Unlimited liability

Unlimited liability

Limited Liability

Limited Liability

Limited Liability

Control

Owner has direct control

and authority

Partners have joint control

and authority

Members share
management and control

General meeting of
members: policy decisions,
articles of association,
appoint and remove
directors.
Board of directors: day to
day management

Managed by trustees.

Capital acquisition

Depends on owners
financial strength and
credibility

Partners to contribute
capital

Higher than that of

partnership due to limited
liability

Share capital
Accumulated funds
Loan capital

Provided by the trust

founders. Limited potential
for capital acquisition.

Compliance

Few formalities and legal

requirements

Established by a contract.

Regulated by Close
Corporations Act (no.69 of
1984)
Formed by a founding
statement.

Companies Act (no.71 of

2008) in progress
Companies Act (no.61 of
1973) currently

Very little regulation

Taxation

Not taxed owner is taxed

Partners is taxed
individually, not partnership

Separate taxpayer

Separate taxpayer

Separate taxpayer

Ownership transfer

Can sell anytime but difficult

to split enterprise from
owner cannot calculate
goodwill

Depends on partnership
contract.

Depends on the association

agreement
Easier than that of
partnership

Unlimited and free transfer

of shares

By variation of the trust

deed

Advantages

Separate legal
personality
Reasonably cheap and
simple to form
Members have limited
liability
Increased capitalacquisition potential
Simple management
Continuity

Limited liability
Ability to raise large
amounts of capital
Separation of ownership
and control
Continuity
Transferability of shares

Membership limited to
ten
Juristic persons cannot
be members.

High degree of legal

regulation
High operational costs

Simple to create.
Least expensive way of
beginning a business.
Owner has total decision
making authority
No special legal
restrictions.
Easy to discontinue

Ease of formation.
Diversification of skills
and abilities of partners.
Increased opportunity
for accumulation of
capital.
Minimal legal formalities
and regulation.

Disadvantages

Owner is personally
liable without limitation.
Limited diversity in skills
and capabilities.
Owner has limited
access to capital
Lack of continuity.

Personal liability of
partners.
Relative difficulty in
disposing of an interest
in partnership.
Potential for conflict
between partners.
Lack of continuity.

Ease of formation
Limited liability
Extreme flexibility
Absence of legal
regulation
Continuity

Limited access to capital

Potential for conflict
between parties

To sell the business to him / herself

To obtain bank financing
To obtain investment funds
To arrange strategic alliances
To obtain large contracts
To attract key employees
To sell to a large corporation
To motivate and focus the management team

Executive Summary (overview, written last)

General company description
Products and services plan
Marketing plan
Management plan
Operations plan
Financial plan

New entity management

Employers
Customers
Investors
Banks

Environmental Scanning: the process of measurement, projection and

evaluation of change regarding the different environmental variables

The environment is continually changing

Scanning is necessary to determine what factors and
patterns in the environment pose threats to the present
strategy of a business
Determines what factors in the environments present
opportunities
Businesses that systematically scan the environment are
more successful that those that dont
In the past almost half of the organizations failed due to
them not scanning the environment accordingly.
Published info - secondary
Investigations primary
Scanning unit - advanced

Competition is determined by:

Possibility of new entrants (or departures)

Bargaining power of clients and consumers

Bargaining power of suppliers

Availability or non-availability of substitute

projects or services

Number of existing competitors

Corporate philanthropy in
northern hemisphere
1% of pre-tax profits invested in
community projects

Increasing Revenue:
Developing new products or services
Growing markets for services, through
general products
Improving access to markets
Avoiding boycotts
Exploiting the CSR premium

Reducing Costs:
Avoiding fines
Avoiding legal costs
Using resources efficiently
Using alternative raw material resources
Reducing recruiting costs
Increasing staff retention
Reducing the cost of capital

Prepare

Corporate Governance Principles:

Good governance is about effective leadership
Sustainability is the primary moral and economic imperative for the 21st
century
Innovation, fairness and collaboration are important factors regarding
sustainability
Sustainability reporting is a key facet of good corporate governance

Plan

Design

Engage

Evaluate

Apply

Legislation
Subsidies
Soft regulation

Business
ethics
Codes of
conduct

Reduce cost
through CSR
Increase
Revenue
through CSR

Social Drivers

Peter Pan Danced Energetically Everywhere Around

Market Drivers

Ethical Drivers

Responsibility for the impact on

society and the natural
environment
Responsibility for the behaviour
of others with whom they do
business (supply chain)
Business needs to manage its
relationship with wide society

Governmental Drivers

A corporation is a legal person

Has the same constitutional
rights as a human person
Can sue, be sued

Being socially
responsible
Protecting
public image
Reputation
To attract
skilled people

Sustainable
Development:
development that meets the
needs of the present, without
compromising the ability of
future generations to meet their
own needs.
Through CSR, corporations
should contribute towards
sustainable development
Think global act global

Single-use plans
Developed to achieve a set of goals not likely to
be repeated in future
Program (set of plans for once off goal)
Project (as program, for smaller venture)
budget

Steps in the planning process

Establish
goals

Develop
alternative
plans

Evaluate
alternative
plans

Select a
plan

Implement
the plan

Reactive
planning
when
changes

Corporate Growth
Standing plans
On-going plans that provide direction
for tasks that are performed
repeatedly.
Policies (broad in scope, derived
from overall goals)
Rules (what you may and may not
do)
Standard procedures (a series of
steps to do something)

Specific
Measurable
Achievable
Relevant / Realistic
Time Bound

Market-development strategy
Product-development strategy
Concentration-growth strategy
Innovation strategy
Horizontal-integration / vertical-integration strategy
Joint-venture strategy
Diversification strategy
Decline Strategies
Turnaround strategy
Divestiture strategy
Liquidation strategy

Top Management
Mission and longterm strategic
goals / planning

3-10 yrs

Middle Management
Tactical Functional goals
/ planning
1-3 yrs

Lower Management
Short-term or operations goals /
planning

<1 yrs

How to carry out those tasks necessary to support the

strategic goals

Day to day activities, allocation of resources

Organisational
structure influenced by:

Business
environment

Relationship
between strategy
and structure

Size of the
business

Staff employed

Organisational
culture

Organisational structure can be

defined in the following three ways:
the set of formal tasks assigned to
individuals and departments;
formal reporting relationships,
which include the lines of authority,
responsibility, the number of
hierarchical levels and the span of
managements control;
the design of systems to ensure
effective co-ordination of
employees across departments.

Designing jobs

Grouping jobs

Establishing reporting
relationships

Establishing authority
relationships

Coordinating
activities

Grouping jobs / Departmentalisation

Functional Departmentalisation
Location Departmentalisation
Customer Departmentalisation
Matrix (mix)

Reporting Relationships

Span of management

Who reports to who chain of

command
How many report to one span of
management

Narrow few subordinates

tall organisational structure
Broad many subordinates
flat organisational structure

Characteristics:
Vested in positions, not people
Accepted by subordinates
Flows vertically down the hierarchy
Line Authority:
Delegated through the line of command
Staff Authority:
Indirect and supplementary authority
Delegation: transfer of authority and responsibility (not accountability)
Decentralisation: systematically delegating power and authority to lower levels
Centralisation: systematically retaining power and authority at higher levels

Greater skills / competence / maturity

of supervisor and subordinate = wider
span
Less interaction between supervisor
and subordinate = wider span
More standardised procedures = wider
span
More similar tasks being supervised =
wider span
Greater physical dispersion of
subordinates = narrower span
Greater complexity of business =
narrower span
Greater extent of non-supervisory work
= narrower span
Higher frequency of new problems =
narrower span

Coordinating: the integration of goals and

tasks at all levels, and also the integration of
all departments and functions to enable the
business to work as a whole.
Done through organisation chart, budget,
committees, broad policy, procedures,
information system.

Leadership: the process of influencing employees to work willingly towards the achievement of the organisational goals
Leadership is not management.
Leadership is one of the four
management functions (planning,
organising, leading, control)

Five Dimensions of Trust:

Competence technical and interpersonal knowledge and skills
Openness reliability when it comes to telling the whole truth
Loyalty willingness to protect another person
Integrity honesty and truthfulness
Consistency reliability, predictability and good judgment

Transactional leadership
Motivate followers by appeal to their self
interest.

Charismatic leadership

Visionary leadership

Self confidence, vision, capable to

articulate vision, strong convictions,
unconventional behaviour,
environmental sensitivity.

Ability to create and articulate a

realistic, credible, attractive vision of the
future of the organisation, creates
enthusiasm, energy, commitment

Authority

Production vs. Employee oriented

leadership
Production-oriented : concern for
production
Employee-oriented : concern for
people

Transformational leadership
Leaders and followers raise one another
to higher levels of morality and
motivation

Position Power:
from the chain of
command

Personal Power:
followers bestow
it on them

The right to give commands

To right to demand actions

Power
Ability to influence behaviour

Responsibility

Obligation to achieve organisational goals

Delegation
Assigning responsibility and authority

Accountability
Evaluation of how well individuals meet their responsibilities

Coercive power: management by fear (psychological, emotional, physical)

Reward power: influence employees with something of value (salary raise,
bonuses, awards, recognition)
Legitimate power: the power granted to the position by the organisation
Referent power: refers to a managers personal power or charisma (employees
obey because they like / respect / identify with the manager)
Expert power: power through expertise, knowledge and professional ability

Managers who are not leaders

The aim to make good

managers also good leaders and
vice versa

Leaders who are not managers

Source of leader influence

Commitment

Compliance

Resistance

Coercive power

Very unlikely

Possible
If used in a helpful, non-punitive way

Likely
If used in a hostile or manipulative way

Reward power

Possible
If used in a subtle, very personal way

Likely
If used in a mechanical, impersonal way

Possible
If used in a manipulative, arrogant way

Legitimate power

Possible
If request is polite and highly appropriate

Likely
If request or order is seen as legitimate

Possible
If arrogant demands are made or request
does not appear proper

Referent power

Likely
If request is believed to be important to
leader

Possible
If request is perceived to be unimportant to
leader

Possible
If request is for something that will bring
harm to leader

Expert Power

Likely
If request is persuasive and subordinates
share leaders task goals

Possible
If request is persuasive, but subordinates are
apathetic about leaders task goals

Possible
If leader is arrogant and insulting, or
subordinates oppose task goals

Characteristics of high performance teams:

Types of teams:

Problem solving teams (employees from the same department,

meet regularly, discuss ways of improving quality, efficiency and
work environment)
Self managed work teams (take over responsibilities from former
manager)
Cross-functional teams (employees from different work areas, at
the same hierarchical level, come together to accomplish task)

Clear understanding of goals

Technical skills and abilities to achieve the goals
Members capable of adjusting their skills
High mutual trust among members and unified commitment
Good communication and adequate negotiating skills
Team leaders who encourage team members by clarifying goals and who
help members realise their potential

Characteristics of an effective control system:

Integration (integrated with planning)
Flexibility (must be able to accommodate
change)
Accuracy (provide an objective and accurate
picture of the situation)
Timeliness (control date must be supplied
regularly, not hastily)
Simplicity (not so complex that the control
system is more expensive than the
advantages thereof)
Establish standards

Performance standards
at strategic points
Profit standards
Market-share
standards
Productivity standards
Staff development
standards

Measure actual
performance
Activities must be
quantifiable
Reports must be
reliable
Control by exception:
only exceptional
disparities are reported
to top management

Purpose of control:

Without control, planning is futile

Helps companies adapt to environmental change
Helps limit the accumulation of error
Helps companies cope with increasing organisational size and complexity
Helps minimise costs

Evaluate deviations

Determine the gap

between performance
standard and actual
performance
Ensure disparities are
genuine
Ensure deviations are
large enough to
warrant further action
Identify all reasons for
deviation
Decide about
corrective action

Take corrective action

Improve performance
to match standard, or
Revise strategies to
accomplish standards,
or
Lower performance
standards